New Clause 67. — (Regional Employment Premium.)

Orders of the Day — FINANCE (No. 2) BILL – in the House of Commons at 12:00 am on 14th June 1967.

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(1) Where, in the case of a person in an employment to which section 1 of the principal Act applies in respect of whom a payment under that section falls to be made to the employer, the establishment in or from which that employment is carried out is situated wholly within a development area, then, subject to subsections (2), (4) and (5) of this section, the amount of that payment shall, in respect of any contribution week beginning on or after 4th September, 1967, be increased—

  1. (a) if that person was treated for the purpose of selective employment tax for that week as a man over the age of eighteen, by thirty shillings; or
  2. (b) if that person was treated for that purpose as a woman over the age of eighteen, by fifteen shillings; or
  3. (c) if that person was treated for that purpose as a boy under the age of eighteen, by fifteen shillings; or
  4. (d) if that person was treated for that purpose as a girl under the age of eighteen, by nine shillings and sixpence.

(2) Where in any contribution week the person aforesaid was employed by the employer in question in an employment to which section 1 of the principal Act applies, but

  1. (a) he worked in that employment for an aggregate of less than twenty-one hours, or he did no work in that employment; and
  2. (b) that employment was not in pursuance of a contract or as the holder of an office which normally involved that person's working in that employment for an aggregate of twenty-one or more hours weekly,
the amount of any increase in respect of that person and that week by virtue of subsection (1) of this section, instead of being that for the time being specified in paragraph (a), (b), (c) or (d), as the case may be, of that subsection, shall be one half of the amount for the time being so specified; and paragraphs (i) and (ii) of section 24(1) of this Act shall apply for the purposes of this subsection as they apply for the purposes of the said section 24(1).

(3) In section 3(2)(a) of the principal Act (which provides for the making to certain employers who are public bodies of payments corresponding to the payments made to other employers under section 1 of that Act), the reference to the appropriate additions specified in paragraphs (a) to (d) of section 1(1) of that Act shall, in relation to persons employed in any such part of the undertaking of an employer to whom the said section 3 applies as is specified in Part III of Schedule I to that Act who are so employed at or from places situated wholly within development areas, be construed as including a reference to the appropriate increases for the time being specified in paragraphs (a) to (d) of subsection (1) or in subsection (2) of this section.

(4) The Minister of Labour shall not be required by virtue of subsection (1) of this section to increase any payment to an employer under section 1 of the principal Act in respect of any person and any contribution week unless the employer produces such records as that Minister may reasonably require—

  1. (a) of the number of hours worked by that person in that week; and
  2. (b) of the number of hours of work in a week normally involved for that person in consequence of the terms of any contract or by reason of any office held by him.

(5) The Treasury may by order made by statutory instrument—

  1. (a) substitute for all or any of the amounts specified in subsection (1)(a) to (d) of this section such other amount or amounts as may be specified in the order;
  2. (b) in a case where increases by virtue of this section have been paid in connection with any establishment but cease to be payable by reason of a change in the development areas, provide for increases to continue to be paid by virtue of this section in connection with that establishment for such period as may be specified in the order and of such amount or amounts as may be so specified either in relation to the whole of that period or in relation to different parts of that period;
and any such order may be made either in relation to all development areas or in relation only to such development areas or parts of development areas as are specified in the order, and may vary or revoke any previous order under this subsection; but no such order shall be made unless a draft thereof has been approved by resolution of each House of Parliament.

(6) In this section—

  1. (a) the expression 'development area' means an area for the time being specified as a development area under section 15(2) of the Industrial Development Act 1966, and includes any such locality outside that area as is specified in section 15(6) of that Act;
  2. (b) the expression 'the principal Act' means the Selective Employment Payments Act 1966.

(7) If any enactment of the Parliament of Northern Ireland makes provision with respect to Northern Ireland which appears to the Treasury to correspond to the provision made with respect to development areas by this section, there shall from time to time be paid out of the Consolidated Fund of the United Kingdom into the Exchequer of Northern Ireland such sums towards the expenditure incurred in making payments under that enactment as the Treasury, after consultation with the Ministry of Finance for Northern Ireland, may see fit to direct.—[Mr. Callaghan.]

Brought up, and read the First time.

4.9 p.m.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I beg to move, That the Clause be read a Second time.

Thanks to the procedure which the House has just adopted, I am able to move this Clause. It will bring such profound benefits to the development areas of this country that I am not surprised the House was unanimous in agreeing that this matter should be discussed.

There is no doubt that this proposal goes to the very heart of the problems of the development areas. It is of the utmost significance to them in the provision of new jobs, and perhaps I might give two figures to show the scale of the Government's intervention and assistance which is now being given to these areas. The total of the special assistance which has been given to these development areas so far is about £90 million per annum. The total of this new assistance is about £100 million, so the assistance will be doubled. I emphasise that I was referring to the special assistance which they receive and not to the normal kind of Government assistance which is available throughout the whole of Britain.

I think the Committee will realise from those two figures that the scale of this operation is of a character which has not been seen since the development areas themselves were established, and I think it will be found in the course of some years to have a remarkable effect in equalising economic activity and economic growth between the development areas on the one hand, and the remainder of Britain on the other.

The new Clause gives effect to the proposals in the Green Paper, which was amplified in the White Paper published last week after our debate. It will have effect from 4th September, 1967, and provides for the new premium to be paid to employers in respect of employees in manufacturing industry in the development areas. It fixes the rate for men and women, for boys and girls, and for part-time workers. The cost of the premium this year, for 1967–68, is likely to be about £35 million—in due course, the Financial Secretary will present a Supplementary Estimate for that sum—and £100 million in a full year. Provision is also made for assistance from the Consolidated Fund to Northern Ireland for the intro- duction of corresponding arrangements there.

As drafted, the Clause does not provide for the termination of the premium, which will therefore continue until fresh substantive legislation is passed, but it gives power to vary the rates of premium up or down without limit, and, importantly, to maintain it for areas which might cease to be parts of development areas. People should have some certainty about the payment of this large premium.

Subsection (1) specifies the rates of the premium by increasing for employers in qualifying establishments in development areas the rates of the selective employment premium paid by the Minister of Labour under the Selective Employment Payments Act, 1966, or by the designated Minister.

The classes of employment in respect of which the premium is to be paid will therefore be governed by the S.E.P. Act, that is, it will be confined to manufacturing industry. These classes may be varied by Order under Section 9 of the S.E.P. Act which, in the case of an order varying the application of Section 1, is subject to affirmative Resolution of both Houses of Parliament. Because payments are to be made in this form—this will please hon. Members opposite, but no more than me—they can be made at very small extra cost through the existing administrative machinery of the Ministry of Labour, because the records and registration are already known.

Once again, the Selective Employment Tax, as it is developing in these broadening aspects, shows what a useful weapon in our fiscal armoury it is becoming.

The regional employment premium will be payable in respect of employment in the contribution week beginning 4th September. This day has been chosen as the first convenient date after the passage of the Finance Bill and is the same as for the new refunds for part-time and overseas employment. It will allow adequate time for detailed guidance to be given to employers.

R.E.P. will be paid quarterly in arrears. Quarterly claim periods begin on different dates so as to spread the work load of paying claims for the Ministry of Labour's local offices. Employers submitting claims covering the period July, August, and September will receive the increased rates of premium for September; those claiming for the period August, September and October will receive the increased rates for September and October. Thereafter quarterly payments will include the increased rates for the whole period.

4.15 p.m.

At the rates specified, the premium is estimated to represent a subsidy of about 71 per cent. of wages in manufacturing industry in the development areas. The rate for men is 30s., which will be added to the additional element in the selective employment premium, so that the total payable to an employer will be 37s. 6d. a week for a man, 18s. 9d. for a woman or boy and 12s. for a girl. This is, of course, a substantial subsidy and its direct purpose is to be selective. It is intended to make products in the development areas more competitive with those outside.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

Is there any provision for varying this amount between regions, as unemployment varies between regions?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

There is, and I shall come to that point.

Subsection (2) provides for the payment 3f half the full rate for part-time workers, which will encourage the employment of those unable to work full time without tilting the balance too far in favour of part-time work. The premium will be paid at half the rate for the worker who normally works less than 21 hours a week, if in any week he either works for less than 21 hours or does not work at all—for instance if he is on holiday—but not if he is sick, since S.E.T. would not then be payable.

Premium will be paid at the full rate for any worker, whatever his normal hours of work, who works 21 or more hours in any week and for any worker who normally works 21 or more hours a week, even if in any particular week he works for less than 21 hours, for instance, if he is on short-time.

Subsection (3) extends the payment of the premium to manufacturing employment in fringe establishments of nationalised industries, as was done before. There is a number of such fringe activities which I need not specify. It also provides for the payment of the premium to the steel industry, after nationalisation. This will be treated as a manufacturing industry for the purposes both of the premium and of investment grants, and this will require no fresh legislative action.

Subsection (4) empowers the Minister of Labour to pay the increased premium only provided that an employer provides records of hours worked each week and those normally worked. The records need be only such as the Minister may think are reasonably required. As public money is to be paid out, that is an essential provision.

Subsection (5) provides that the rates may be varied by Treasury Order, subject to affirmative Resolution in both Houses of Parliament. It does not give power to reduce the premium to nil, which would terminate the scheme, and I have already said that the Clause does not run down. With this qualification, it gives the Government considerable flexibility in carrying out the purposes of the scheme and the necessary powers to carry out the intention in regard to tapering, to which I referred in our earlier debate.

Paragraph (a), read with the last five lines of the subsection, provides that the rates can be varied up or down without limit for men and women, boys and girls and part-timers, together or separately, and—I now come to the point of the hon. Member for Belfast, East (Mr. McMaster) —that different rates may be fixed for different development areas, whether in existence now or scheduled in future, or for parts of such areas. In other words, there is a great deal of flexibility in the operation of the scheme. The tapering can be arranged by passing successive Orders.

Paragraph (b) provides additionally for Orders to continue the premium in parts of the country which, through having been descheduled under the Industrial Development Act, 1966, would cease to be development areas. Subsection (6) defines development areas as areas specified under Section 15(2) of that Act, together with the others. Subsection (7) provides for payment out of the Consolidated Fund to the Northern Ireland Exchequer as the result of any local legislation to introduce an R.E.P. scheme there.

I now turn to what have become known as the "grey areas", for which I have still not thought of a better name. It has been suggested—there is an Amendment to this effect, though I do not know whether it will be called—that this scheme should take account of those areas, but I explained in our debate on this matter that, whereas the problems of development areas are well known, those of the "grey areas" have not been so well analysed and we do not know whether the same treatment is appropriate.

Nevertheless, there is a problem there. These areas do not give the impression of dynamic growth of some other areas. It is more that factor than large-scale unemployment in those areas which is important. Therefore, as I said in the earlier debate, we believe that there is a need for further study, and we have carried the matter further since I wound up that debate.

My right hon. Friend the First Secretary has considered this further and has invited Sir Joseph Hunt to act as chairman of a group to study these areas to find the answers to their industrial, commercial and other problems, so as to see what measures are necessary to generate economic growth and a sense of dynamism there. Sir Joseph will be known certainly to some hon. Members as chairman of the Economic Planning Council for the West Midlands, where he did an excellent job. His work there having ended, he can now take on this task.

My right hon. Friend is at the moment considering the terms of reference and membership of this commission and I will report them to the House in due course Whether the Amendment I referred to is called or not, I hope that my hon. Friends who tabled it will feel that this will go part of the way to meet the problem by making a study of these areas under independent chairmanship—

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

The development areas are, of course, a familiar concept and we know their boundaries, but I do not believe that there is any definition of a "grey area". Many hon. Members may feel that their areas are "grey areas". Is there any way, therefore, either in the terms of reference for Sir Joseph Hunt or by some other means, in which the right hon. Gentleman is thinking of defining them?

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I am obliged to the right hon. Gentleman. This is very much a difficulty, as there is no boundary to or concept of these areas. This is one of the problems which we are considering so that Sir Joseph Hunt shall have terms of reference with some boundaries. I shall certainly bring what the right hon. Gentleman has said to the notice of the First Secretary.

This new Clause, bold and dramatic though it is—it will have an impact on the development areas over their seven year life which is bound to decrease unemployment substantially and increase employment even more substantially by creating additional opportunities—must take its place among the other measures followed by successive Governments for assisting these areas. I refer particularly to the use of I.D.C.s, the loans and grants made to these areas and to the accelerated programme of training for skill. In my view, the latter is one of the most important issues here. I have seen in my area in South Wales that when expansion comes, it tends to falter because of the absence of sufficiently trained skills in such areas. That is why the Government have paid particular attention to establishing new Government training centres, although it is just as important to encourage training within industry in these areas; and some very good work is going on.

4.30 p.m.

I emphasise that this new scheme, however bold its sweep may be—and whether or not certain hon. Members agree with it, they will agree that it is bold in conception; I hope it will be equally bold in execution—must be bolstered by the present policies which are being followed in relation to training, loans and grants to industry, I.D.C.s and the Government programme of advance factories. It is by a concerted move forward on all these fronts that I believe that in the next seven years—because that is the expected life of this premium, before it starts to taper off—we will be able to equalise opportunities for jobs between one part of the country and another to a much greater extent than we have done so far and—because this flows from this activity—equalise opportunity for living in a way which everybody should live in a country as highly industrialised, skilled and cultured as ours.

If we can, through the efforts of the House of Commons and by Government intervention of this sort, kill this lingering concept of two nations, one of which is growing while the other is decaying, we will be doing something remarkable in our lifetime to subtract from the social tensions inside the country and we will add to the total sum of human happiness. Nobody could ask for more than that.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

If for nothing else, we can be grateful to the Chancellor of the Exchequer for quoting in his closing remarks some words once used by Benjamin Disraeli.

When the Green Paper was first issued it was welcomed not only in the House but throughout the country as an advance in as much as it was possible for a national debate to take place about a fiscal proposal before it was brought into operation. That was certainly an advance on the situation which had prevailed previously in respect of Corporation Tax, Capital Gains Tax and Selective Employment Tax.

The extraordinary thing is that we now find ourselves in the position where, by and large, the debate has gone very much against the Green Paper. Certainly a great many arguments have been adduced against the policy contained in that document. None the less, the Government have decided to go ahead, and immediately. Despite the recent claims of the Chancellor to the effect that reflation is under way, the right hon. Gentleman and his colleagues must obviously be concerned that unemployment in the regions may be worse next winter than it was last winter. The weather may not be as favourable next winter as it was last year.

This haste is reflected in the drafting of the Money Resolution, about which we were right to complain, since the simple point is that the Government, in their earlier Money Resolutions, had sought to restrict debate. The moment that they wished to table a new Clause, they were prepared to draft a different Money Resolution to enable them to make this Amendment.

This afternoon we want to consider the economic effects of the new Clause, and I should have thought that all this would have been taken into account in the Chancellor's Budget statement—that nebulous concept which he was anxious not to express in quantitative terms. We do not know whether or not he took account of the effect of this proposal or even whether he knew at that time that he would introduce a Clause of this type. Was this an afterthought? Certainly we must now consider very carefully the economic effects of the regional employment premium and the economic justification for it; and I shall concentrate on that aspect. I have no doubt that in the ensuing debate a number of hon. Members will, as they did when we debated the Green Paper, be particularly concerned with constituency and regional points.

The economic case is fundamentally not one with which we would disagree, because it is undoubtedly true that in the post-war period the economy has been balancing on a knife edge. It has been swinging between periods when, if one reflated, costs and prices were likely to rise rapidly, leading to a deterioration in the balance of payments—before unemployment had been mopped up throughout the country—and periods when, if one took action in the other direction and adopted deflationary policies, unemployment became unacceptably high in the regions before one had cured inflation. Anything which tends to balance up regions of the economy is, therefore, likely to be advantageous.

If this latest move is successful we shall be able to operate the whole economy at a higher level than would otherwise be possible, but one must take into account, when considering such measures, what the underlying effects are likely to be in terms of efficiency and the utilisation of resources. In other words, it is not only a question of the level of operation but the pattern.

Therefore, while we do not disagree with the Government's aims—because they are very much the same as those which motivated my right hon. Friend who is now the Leader of the Opposition when he introduced measures to encourage investment in the areas of high unemployment—we consider that this proposal has a number of objectionable features; and I do not believe that the economic arguments supporting it can reasonably be taken as proven.

The main argument put forward in the Green Paper is that the regional employment premium will not be inflationary because it will be self-financing, and that resources will be used which would otherwise remain idle. We should consider precisely what is meant by the term "self-financing". It means two things, depending on whether one looks at it in money terms or in terms of physical resources.

In money terms, the argument appears to be that the money expended by the Exchequer will be covered by higher Revenue receipts. We are told that the proposal will cost about £100 million. The Government will, therefore, need to show that Exchequer receipts are likely to increase by that amount. How might this come about? We need to look at this in some detail because it is of fundamental importance. I understand that some of the benefits will come back to the Exchequer simply because the higher profits which will result from giving a subsidy of this kind to manufacturers—if they remain profits—will be subject to Corporation Tax. The Government are, therefore, obviously giving something with one hand and taking it back with the other.

Secondly, will a higher level of activity—the sort of level which the Government hope to achieve; although its achievement is by no means certain—mean that personal and company incomes will be higher so that, in progressive tax terms, more will accrue to the Revenue? I hope that the Chief Secretary will give clear estimates of how much it is expected will come back in Corporation Tax in the first instance and how much he thinks will come back as a result of higher levels of income in the country as a whole later. It is not right for the Government to maintain that this is a self-financing project unless they can demonstrate that it is so.

From the monetary point of view, the question of timing is crucial. As we saw when S.E.T. was introduced, the Government tend to disregard questions of timing. It is surely clear that the regional employment premium will be paid out immediately, whereas the effects which we may get from a higher level of activity—going on the assumption that it will be achieved—along with the higher revenue which that will produce—may take a number of years, if it happens at all. Thus, in the short run I should have thought that it was quite clear that these proposals will tend to be inflationary or, at any rate, significantly increase the level of aggregate demand in the economy. If so, we should be told so because it is somewhat contrary to paragraph 27 of the Green Paper, which states that the proposal is not advanced as a short-term, counter-cyclical measure.

I turn from the financial side to the question of whether it is self-financing in terms of real resources. To determine this we need to analyse what the chain of events is likely to be after the payment of the premium is made. For this exercise let us consider a firm in the development area. This firm receives the regional employment premium and it seems that there are a number of things which it could do with it. It could, first, simply use it to increase profits and, presumably, distribute them as dividends. In that case, I suggest that we will find that Corporation Tax is paid, so that the Government would claw back a bit of the premium—remembering that they are announcing its inception with such a great flurry this afternoon.

So far we have got to the point where it would go into profits. But has the right hon. Gentleman considered what would happen if there is an overspill into other areas, inflationary pressure being exerted in those areas? It will all depend on where the shareholders of the firm are located. It is not clear whether the shareholders of firms in the development areas are located in those areas or elsewhere. They may be located in areas which are normally suffering from overheating. If this alternative is the right one, then the Government's argument is rather weaker than they might lead us to suppose.

Alternatively, the firm might be operating in a development area under unfavourable conditions. It might say, "We have had this windfall. What shall we do with it? Let us pay off our overdraft". In those circumstances, bank liquidity will be increased. But it is not clear that there will be no seepage of liquidity from banks in the development areas into other areas which are normally suffering from overheating and excessive demand.

It is probably true that where there has not been as much demand in the past for resources, there will not be as much demand for loans, even with this proposal. Thus, the normal thing will be for it to increase bank liquidity elsewhere in the economy. If that happens, then the Government's argument that it will not seep into other areas will have diminished, and with it the argument about this being self-financing will be correspondingly reduced.

Perhaps the amount of additional money will be absorbed in wage claims. We should be clear that the whole of the argument put forward in the Green Paper is based on the assumption that wage claims will not eat up a considerable amount of the regional employment premium. In this context, it is significant to note that the T.U.C. and the unions in general seem to have been much the most enthusiastic about this proposal.

The Government may say that all this will be covered by an incomes policy and that, if this sort of thing happened, they would immediately refer it to Aubrey Jones. Is it seriously considered possible for Aubrey Jones to study all the cases where this might happen? Or is it thought that the Government could introduce a prices and incomes Order on particular unions or firms whenever it happened? It is clear that this will tend to have an inflationary effect and that quite a lot of it—I believe the C.B.I. has suggested 50 per cent.—will go in the form of higher wage claims.

It is important to note, in this connection, that we in this country have a series of national wage agreements—a restrictive trade practice which, in a sense, this proposal is endeavouring to overcome. The trouble is that such differentials as we have are in terms of the wage drift between regions, the amount paid above the basic national rate. The effect of this proposal, particularly if the Government say, "We must not have too many wage claims as a result of R.E.P., is likely to increase the fringe benefits and other demands in the development areas. So such differentials as we have in labour costs would tend to be diminished, which will, in turn, tend to lead to an uneconomic allocation of resources.

Yet another alternative is that the intention of the Government will come to pass and we shall find that firms will reduce prices and increase output. However, there are a number of restrictive agreements concerned with national price arrangements, basing points systems, and so on, which have not been adequately covered by the Monopolies Commission and which will tend to work against the Government's intention. Recently, for example, the Ford Motor Company has introduced uniform delivered prices for its cars. Are we to understand that as a result of the R.E.P. this will change and the motor car industry as a whole will tend to have bigger differentials between cars produced in one part of the country and cars produced in another? This is an argument that we need to bear in mind.

Paragraph 32 of the Green Paper says: Any subsidy tends to increase demand and output". That may be so. I make only the one point that the Green Paper clearly has not been written by an economist, who would have spoken of extending demand and output, which means a move down the demand curve, and not shifting it to the right.

Finally, the money may be used to increase investment—

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Would not my hon. Friend agree that the biggest factor in any manufacturer's pricing policies is the state of the market, and that this will not be affected in any way by the Government's proposal?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

It has some effects, but it is by no means clear that they are effects in favour of the Government's arguments.

As I was saying, the money may be used for greater investment. Indeed, it is crucial that it should be so used if the Government's argument is to stand any chance at all. But if the Government are to argue that the whole thing is self-financing they will need to show that the greater investment that will take place will all be provided in terms of real resources from within that development area. But it is most likely that the R.E.P. will increase the demand on capital equipment in other parts of the country as well as in the development areas. So, even to achieve the Government's objective, there will be further spill over into areas other than those which the Government seek to assist.

The point I make, to summarise, is quite simple. Whichever alternative use of the funds is selected, it is quite clear that purchasing power outside the development areas will be increased. The development areas are not self-sufficient, and whether the R.E.P. goes into profits, bank overdrafts, personal incomes or investment, the Government argument is not very sound.

It is not true to say that this proposal is simply a regional devaluation. It is devaluation on very special assumptions: freedom of imports, no restrictions on imports into the regions and a number of other factors.

I turn now to the actual investment decision. How business firms decide whether or not to invest in a proposal is very important. Mr. Sam Britain has pointed out that they tend to think in average rather than in marginal terms. I worked for some time in the same room with Professor Tony Meritt, who is now among the foremost authorities on capital proposals. We were both concerned with whether development should take place in development districts or outside them, and what is crucial is that if one reduces a particular cost of an input, such as labour, one tends to invest more in a technique that is labour-intensive.

I suggest that the effect of the Government's proposals will be to encourage investment in labour-intensive techniques in the development areas. This will mean that the techniques there will not be such as the firm would have chosen otherwise. It is no good the Chancellor of the Exchequer shaking his head. It will clearly encourage people who invest in capital equipment in development districts to invest in more labour-intensive equipment than they otherwise would have chosen.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I would not object if a new electronics firm were to set up in these areas, and electronics is a very labour-intensive industry. It is modem, and technologically advanced. There is nothing wrong with that.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

But the effect of the proposals on the electronics industry, which is capital-intensive, will be absolutely minimal, and will bring to bear no significant influence on the decision whether an electronics firm goes to a development district.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

With respect, electronics is a clear example of an industry much more labour-intensive than capital-intensive. That is why I chose it.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I take the right hon. Gentleman's point in terms of the labour-intensive end of the industry, but that tends to cluster round the more advanced stage. This is one of the disadvantages we had under the old capital allowances system. I do not accept the right hon. Gentleman's argument. This may be so in particular industries but, by and large, my general proposition holds, which is that the effect of the proposal must be to encourage firms in development districts to invest in labour-intensive techniques rather than in capital intensive techniques. Quite seriously, this is not open to dispute.

The trouble is that in between now and the end of the 7-year period, we shall find a situation in which the cost of labour relative to capital has gone up, because this is the other side of the coin when one gets the standard of living rising. Therefore, the techniques employed will tend to be obsolete. I am convinced that the effect of the proposal will be to distort the pattern of investment in a way that is not consistent with the long-run efficiency of the economy or, indeed, of long-run growth.

4.45 p.m.

I turn now to the question of alternatives. One of the sad things about the Green Paper is that it did not seriously take the point that one needs to discuss alternatives in detail as well as putting forward the actual proposal. It is asserted very definitely in the Green Paper that the R.E.P. will be unique, in as much as it will be self-financing. I have already suggested that it will not be so self-financing as the Government would like to think.

In any case, much of the arguments put forward apply equally to the other proposals for encouraging firms in the development areas. I suggest, for example, that better roads and improved communications are likely to have a very significant effect in encouraging investment in the developing districts. When one looks at specific capital proposals, transport costs are very important costs indeed. Such development would be equally self-financing, because it would encourage investment in the development districts but, in addition, it would be a permanent economic advantage as against the R.E.P. subsidy which is clearly going to distort the pattern of investment for short-run political advantages. This is the heart of the matter. All the arguments in favour—self-finance, balance of payments, and the rest—are applicable to a number of alternative proposals which might well be considered. Certainly, if we are to enter the European Economic Community the significance of improved transport to the development areas may be very considerable, indeed.

Here, there are two minor points that I would like the Chief Secretary to answer. The first is this. We are told now, I understand, that this proposal will continue for at least seven years in order to give it a degree of certainty. This is somewhat inconsistent with the argument we now have just heard that a study will be made to decide whether the development area boundaries should be changed. This will perpetuate the uncertainty that has done much to frustrate development areas of high unemployment in the past. Are we to understand from the Chancellor of the Exchequer, first, that the seven years' guarantee has been given? If so, it means that the development area boundaries can only be extended onwards and not contracted. Secondly, if the seven-year period is to be guaranteed can the rates of R.E.P. only be altered up, because if they can be reduced the guarantee would be little use?

It is very worrying when one looks at the proposal that this is a subsidy to the manufacturing sector at the expense of the service sector. The fact is that many of the advantages of self-financing which the Government have put forward could be equally well applied to the case for the tourist industry, because the import content of the tourist industry is very low indeed. This is a respect in which many of the development districts—Scotland, Wales and the South-West—have a natural advantage.

To give more and more subsidy to manufacturing industry, when it is clear that the pattern of development of countries such as the United States is to expand service industry, is not the kind of interference with the economy which we should wish to see.

For all these reasons, we believe that the Government's proposals have not been given sufficient consideration, that alternatives have not been fully examined, and that this premium still will not overcome many of the counter-regional effects of the Selective Employment Tax on some of their most important service activities. The basic danger is that this is yet another extension of what one of my hon. Friends described last year as "a welfare state for industry". We do not believe that the R.E.P. will have all the advantages claimed, or, indeed, that the economic case which the Government have sought to put before us today is sound.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

I should perhaps indicate to the Committee that the Amendment to the new Clause in the names of the hon. Members for Lancaster (Mr. Henig) and Accrington (Mr. Arthur Davidson) is not being called for separate debate.

Photo of Mr Alf Morris Mr Alf Morris , Manchester Wythenshawe

All of my hon. Friends will agree that much more needs to be done to reduce unemployment levels in development areas, which represent about half of the total geographical area of the United Kingdom. My right hon. Friends are to be warmly congratulated on the vigorous and sustained efforts they have made to compensate these areas for the loss of employment consequent upon the contraction of the traditional industries and to establish a more even distribution of industrial development throughout the country.

The figures speak for themselves. In May this year the unemployment rate in the development areas was 3·9 per cent. compared with 1·9 per cent. in the rest of the country. In Scotland, Wales and the Northern Region there are 2·6 per cent. unemployed skilled engineering workers for every vacancy, while in the rest of the country vacancies in these trades exceed the numbers unemployed. The policies already pursued have improved the situation, but employment in the development areas is growing much more slowly than it is in the rest of the country and there has been persistent migration to the more prosperous areas.

My right hon. Friend the Chancellor of the Exchequer referred to what are now called "the grey areas". I represent a constituency in the north-west of England which is widely regarded as a grey area. In parts of the North-West, there is some apprehension about this proposal having a backwash effect from the development areas on to the grey areas. The fear is that we might be dyeing the admittedly white hair of the development areas at the expense of those whose hair is already turning grey.

I hope that the Commission which was referred to by my right hon. Friend will reach conclusions as quickly as possible. I and many of my hon. Friends from the so-called grey areas wish the Commission all speed and all success in reporting on the problems of our areas.

I now want to make some comments and ask some questions, on the proposal to apply the regional employment premium to manufacturing industry alone in the development areas. One underlying assumption of the proposal, which I hope is correct, is that there should be a transfer of output and demand from the Midlands and the south of England to the development areas. One of the central problems of our economy is the obesity of the Midlands and the South-East and the under-nourishment of so many to the North and the West.

A fundamental element of the assumption to which I have referred is that the premium payments should go primarily to reducing costs and prices rather than into wage increases. But how do the Government propose to achieve this objective? The hon. Member for Worthing (Mr. Higgins) asked whether the National Board for Prices and Incomes will be called upon to deal with this matter. I do hope we shall have some indication of how this attempt to avoid an increase in wage rates for similar jobs to those that exist outside the development areas, if not in the total wage bill will be achieved. What sanctions will the Government use to enforce this condition? Perhaps we could also be told to what extent manufacturers have passed on to their customers the premiums obtained from the Selective Employment Tax?

One is often approached by constituents about the total passing on of the cost of the Selective Employment Tax to the consumer. I have written to the Minister only today giving him an example of a retailer passing on to the consumer the exact cost to him of the Selective Employment Tax. Before we approve these new premiums, I trust we shall be told to what extent manufacturers have passed on to their customers the benefit of the premiums obtained from the Selective Employment Tax. In present conditions many companies might well use the new premiums to relieve financial pressure rather than to lower prices. What sanctions would apply against firms making this use of the moneys accruing to them under the regional employment premium?

There is a serious weakness in the proposals at this point, and the Green Paper made little attempt to remove our apprehensions. It repeats the old argument, which is really a myth, that the service industries are not subject to the Purchase Tax levied on the output of manufacturing industries. This myth is one which has not been given credence to only by those who write Green Papers. It is a widely held belief that Purchase Tax does not apply to retailers. I strongly reject this. First, Purchase Tax does not apply to all goods. Secondly, the tax is not paid by the manufacturers but by the retailer. The collection and passing on of the tax to the Customs and Excise are the responsibilities of the wholesaler, although ultimately it is a tax on consumption.

Little attempt is made in the Green Paper to distinguish between services such as hairdressing and the distribution of essential foodstuffs and fuel. I should have welcomed a much more discriminating study of the industries, manufacturing and services alike, in the development areas.

5.0 p.m.

The Green Book goes to great lengths to demonstrate that the distribution of consumer goods must not attract premiums. In paragraph 20 we read: However, provided that the regional employment premium was confined to those categories of employers in Development Areas who already receive the manufacturer's premium, there should be no major difficulty from the point of view of technical feasibility and no substantial increase in administrative costs. It strikes me that the question of technical feasibility has, perhaps, been given even more weight than usual. I agree that any proposal must be feasible on technical grounds, but I cannot see why it is not possible to help people engaged in essential service industries, as well as in manufacturing, in the development areas.

There is in the Green Book no acknowledgment of the part that the distributive trades have to play in providing employment in the development areas. The National Plan for Scotland, in which the right hon. Member for Argyll (Mr. Noble) as well as right hon. and hon. Members on this side will be interested, envisaged the creation of 130,000 new jobs of which 60,000 were to be in service industries. It seems that there are to be no direct incentives to achieve this result but only indirect assistance through the general improvement of the economy brought about by the competitive efficiency of manufacturing industry.

I should have thought that, in places like the Highlands and Islands of Scotland, no matter what subsidy one injected, one would be unlikely to attract much more manufacturing industry than one finds there now. And this proposal would have been far better for areas like the north of Scotland if it had carried with it some hope of help for the service industries, especially for tourism and other services which are so important to the local economy.

The proposal is exceptionally weak at this point and I hope that my right hon. Friend the Chief Secretary will say that the Government have not closed their mind to the possibility of helping at least those service industries in the development areas which can play an important part in reducing the level of unemployment.

There is a tacit assumption in the proposal that the migration of labour from the development areas is a purely economic phenomenon which can be dealt with by subsidising manufacturing industry. But there are many of us who believe that social environment is an important factor in increasing the attractiveness of these areas and the service industries have a great part to play in this field. This reminds one of another of the myths of contemporary discussion about economic policy: that we can stop people moving from one place to another merely by improving employment prospects.

I turn now to a matter of great importance which has not been discussed at length either in this Committee or when the House discussed the Green Paper, namely, the likely effect of British entry into the European Economic Community upon the pull of the Midlands and South-East England against the development areas. It is argued by many that our membership of the Common Market would much increase the attractiveness of the Midlands and the south-eastern part of England and I hope that my right hon. Friend will say something about the possible effect of our joining the Common Market on the viability of the proposed regional employment premiums.

There are some controversialists on the subject who argue that the form of help which the Government propose may not even be allowed in the E.E.C. Be that as it may, I still think that we ought to look very carefully into the question and, in paricular, whether the period of seven years can be promised with any certainty until we know the outcome of the application to join the E.E.C. If we join the Common Market, which many people now think is less likely than it was, the pull of the Midlands and the South-East may make some of the grey areas far greyer than they are now.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

My hon. Friend has asked several questions, which I have carefully noted, and I am following every word of this speech. So that I may follow his argument fully, is he now saying that, if the danger which he envisages is likely to mature, that is a fortiori a reason for supporting the Clause?

Photo of Mr Alf Morris Mr Alf Morris , Manchester Wythenshawe

I would say that it is a strong argument for having reservations about British membership of the Common Market. I do not especially like the Latin expression "a fortiori". I should have preferred my right hon. Friend to say "a stronger argument" rather than an argument "a fortiori". It is not that I am anti-Latin or anti-anything else—[Laughter.] After all, we are not in the Common Market yet—

Photo of Sir Douglas Glover Sir Douglas Glover , Ormskirk

This is out of order anyway.

Photo of Mr Alf Morris Mr Alf Morris , Manchester Wythenshawe

All of us are inclined, from time to time, to go out of order, but it is our good fortune, Sir Eric, that you exercise a certain compassion.

I would certainly say, that, if the pull of the South-East, the Midlands and certain parts of the East Coast became stronger as against the development areas and the grey areas, there would be a much stronger case for doing even more to help the development areas. I am not against the proposal to help industry in the development areas. My hope is that we can help even more industries in the development areas. There are some sub-regions of development areas where 85 per cent. of the people employed work in the services, but the help given under the Government's proposal will go directly to only 15 per cent. It is not that I do not like the proposal. Of course, I rejoice with all my right hon. and hon. Friends in welcoming it, but I would like it to go even further, to help people who are engaged in what I regard as vital forms of employment in the service industries.

In my view, fiscal discrimination against service industries is not acceptable. Fiscal discrimination against particular forms of industry has a long history. In the 18th century, the physiocrats held that only agriculture was productive and that all other occupations were unproductive. Indeed, some of the physiocrats even went so far as to call agriculture "good" and all other kinds of industry "bad".

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. We cannot discuss the physiocrats on this Question.

Photo of Mr Alf Morris Mr Alf Morris , Manchester Wythenshawe

I apologise, Sir Eric, but I think that you will agree that there is something slightly physiocratic about this proposal. I was saying that we should not, as the effect of this proposal may do, give help only to certain forms of industry on the basis that they alone are productive while others are unproductive, that one form of industry is good and another is bad. I have said more than once that, in my view, the distributive trades and service industries generally make a most important contribution to the improvement of our economy and to the well- being of our society. Indeed, it is a mark of any advanced industrial society that more and more people are employed in the service industries.

My right hon. Friend has my great personal respect and support. He says that he has taken careful note of my points, and I hope that when he replies he will indicate the Government's thinking about trying to help even more people in the development areas.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I want to switch for a moment from the service industries referred to by the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) back to a slightly more discriminating look at some of the manufacturing industries which will receive the regional employment premium. It seems to me that my hon. Friend the Member for Worthing (Mr. Higgins) was right to question some of the fundamental economic presuppositions which underlie the proposal, because if there is a flaw in the economic thinking behind the proposals they will be counter-productive in the two sectors which the Government themselves have singled out as most important, namely, the balance of payments and exports generally, and the possibility of increased competitiveness.

The key proposition in the Government's case seems to be contained in paragraph 7 of the White Paper, The Development Areas, Cmnd. 3310, where they say that inflationary pressures leading to any worsening in the balance of payments will not occur for two reasons. The first is that increased competitiveness in manufacturing industry in the development areas resulting from the regional employment premium, and the second is that increases in imports will be offset by corresponding or possibly greater increases in exports. It is particularly those two features of the general proposition that I want to examine.

I feel that the Government have not given enough critical attention to the question whether exports are likely to increase to offset the imports which will occur. There is an interesting and important feature in the pattern of exports in the past 10 years or so. That is the progressive shift in the commodity pattern of exports between the mid-1950s and 1965. There has been a definite shift in the pattern of our exports, and this has thrown up an interesting weapon of analysis for looking at export prospects in the development areas by reference to what one might describe as the slow-moving and the faster-moving sectors in exports, corresponding to the slow-growing parts of the economy and the faster-growing parts.

In an interesting article in The Times Review of Industry on this subject in April, Mr. W. Manser pointed out that if one looks at the commodity pattern of exports one sees that the slow-moving sector comprises textiles, coal, iron and steel and manufactures of metal. That is the export sector which has tended to lag in world trade. Against that, he isolates and identifies what he calls the faster-growing sector, comprising chemicals, machinery—particularly electrical machinery—and vehicles.

The degree of shift in this commodity pattern has been striking in the past 10 years. The pattern now reflects the fact that whereas in 1953 the slow-moving sector in exports accounted for a quarter of all our exports it has now fallen to 14 per cent. Whereas in 1953 the faster-moving sector of exports accounted for 43 per cent. it had shot up to 52 per cent. in 1965. There has been a progressive shift from the slower-moving to the faster-moving exports.

My first general criticism of these proposals is that if the regional employment premium is to make any rational contribution to our export performance it must push against what one might describe as the open door in exports and not against the closing door. It must promote a continuance of the growth of exports in the faster-moving sector and must tend to diminish the relative impact of the slower-moving. In other words, it must favour chemical manufacturers, engineering, especially electrical engineering, and vehicle manufacturers and must discourage the exports of textiles and other such declining sectors because world demand for them has dropped, and that is why our commodity pattern has shifted.

5.15 p.m.

Although the Chancellor talked about the R.E.P. being a discriminating weapon, this is precisely what it is not in this respect. It is incapable of making any differentiation between those aspects of manufacturing industry which are falling behind in the export league table and those which are moving ahead. I should go so far as to say that it is counterproductive in precisely this way, that because by definition the development areas contain a higher proportion of the slower-growing sectors it will tend to focus the Government's premium encouragement on precisely those sectors in manufacturing industry which we want to discourage. The whole differentiation will be in the wrong way; it will be counterproductive in this important respect precisely because the discriminating weapon about which the Chancellor talks fails to discriminate in the crucial sector of exports between slow-growing and fast-growing, slow-moving and fast-moving.

Photo of Mr Hugh Wilson Mr Hugh Wilson , Truro

I do not think that my hon. Friend has put his case strongly enough. The slow-moving industries are more labour-intensive than others, and this measure will encourage them.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

That is true. What my hon. Friend says reinforces my case.

The second feature on which the Government base their case is not only the suggestion that the measure will encourage exports, which I have questioned, but that it will make manufactured products in the development areas more competitive. This is surely open to doubt because the lack of competitiveness must by definition, having regard to the White Paper and the new Clause, be in some way due to relatively high labour costs. Otherwise why introduce a measure to subsidise them? The cost of labour as an input must in some way be relatively so high in the development areas as to make the product of which the labour input is a large part uncompetitive with the prices charged by manufacturers for products in other parts of the country.

But when one looks at the regional variations between weekly and hourly earnings one finds, taking just three important sectors which are fast-moving—vehicles, electrical and other engineering products, and chemicals—that there already exist in the development areas substantial differences between weekly earnings, tending to favour the development areas as opposed to the non-development areas. In other words, there already exists a substantial variation between earnings in the development areas, which the subsidy is presumably introduced to widen and increase.

Perhaps I may illustrate this by quoting one or two figures, and I apologise for doing so. Let us, for example, take engineering and electrical goods, and the average weekly earnings in this sector in two non-development areas and then in two or three development areas for the month of October, 1966. For engineering and electrical goods in the Midlands, the average weekly earnings per man in October, 1966, were 442s. a week. That compares with the average figure in Wales at the same period of 393s. Already there is a difference in the level of earnings as between Wales and the Midlands of substantially more than the premium proposed.

It can hardly be alleged surely, if the Welsh products are uncompetitive with those of the Midlands, having regard to the existing colossal imbalance between the average level of earnings in these two regions, that what the premium will do is suddenly to make them more competitive. If they are not competitive with the existing degree of regional variation between wage costs, they will never be competitive. One must look elsewhere for the reasons. This is precisely the difficulty. The real problem is not lack of competitiveness, so-called, but in large part is what my hon. Friend the Member for Worthing was getting at when he referred to a change in demand conditions.

The problem is not that it costs too much in Wales as compared with the Midlands to produce, for example, electrical equipment, but that the sort of electrical equipment being produced in Wales is not in demand either in England or in foreign markets. To introduce a permium which continues to encourage the production of that kind of electrical equipment which is not in demand, or any other manufactured article which is not in demand, is pouring good money after bad.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

I do not dissent from much of what my hon. Friend is saying, but there is the point which has been made by those supporting this proposal. It is that, by this increased inducement, it is hoped that the faster-growing kinds of industry will move into the development areas. In Wales we suffer from a lack of these newer industries but in recent years have gone a long way towards meeting the position. Those who support this new kind of assistance hope that the faster-growing industries will thereby be induced to develop in such areas.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I am grateful to my hon. Friend for that observation, for it helps to crystallise the problem. The difficulty will be that, because the payment will be undiscriminating—for it is to be paid to all kinds of manufacture—it will be counter-productive because firms in the growth sectors seeking to expand in the development areas will increasingly run into the same sort of difficulties there as are encountered in the more prosperous areas—bottlenecks of skilled labour and an increasing shortage of labour. There is to be no differentiation between recruitment of labour for the slow-growing industries and the faster-growing, exported-orientated industries which are needed in the development areas.

I challenge the whole concept in the White Paper about competitiveness being due to differences in costs and prices. It is a fundamental criticism, and it is supported by an interesting observation by the Economic Development Committee for the machine tool industry. This is a Government-sponsored body. A useful D.E.A. survey comes out every so often and I congratulate the Joint Under-Secretary of State on the excellence of the production. The issue of last October reported the machine tool industry E.D.C. as saying: The evidence of the import study—that is to say, why we import such a large volume of machine tools—emphasised the prime importance"— and following are the key words— of design, performance and delivery rather than price in influencing choice. Thus, price is rejected by the E.D.C. for the machine tool industry as being the decisive factor in influencing demand. But it is precisely price as affected by the cost of labour input with which the Government are trying to deal.

Will the premium have any effect upon delivery, design and performance? By definition it will have no effect on delivery. If there is under-employment in the development areas, then clearly delivery dates are not a problem. I question whether the premium will have any effect on the crucial factors of design and performance in the faster-growing sectors of manufacturing industry. I believe that the opposite will be the case.

One of the important influences affecting design and performance is the whole cultural and intellectual environment of a particular region or area, whether it attracts and encourages the whole panopoly of social, economic and cultural life, art schools and a flourishing social life, whether it offers opportunities for services in the widest sense, including theatres. All this tends to filter through in the end to creative and imaginative design, to changes in performance and so on. This is how one attracts the white-collar workers and those who are tempted to go elsewhere and form the brain drain.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

Is the hon. Gentleman arguing that nothing should be done for development areas, which have an urgent problem, until we have the general cultural environment of Luton transplanted to them?

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I am suggesting it. I am doing so on the line of what my hon. Friend the Member for Worthing pointed out—that much of this £100 million could be more productively employed in promoting the social and environmental infrastructure of the development areas, tending thereby to draw in some of the modern growth industries, with all that goes with them in terms of a wide variety of employment.

The Government have gone wrong on this matter. They justify it in terms of more exports offsetting imports and of increased competitiveness, but they are ignoring the key factor that, in increased competitiveness, design and performance, and possibly delivery dates are crucial, and they are failing to differentiate, where experts are concerned, in favour of those growth industries which offer the greatest export potential. There should be a great deal more appraisal of this proposal before it is introduced.

Photo of Mr Stanley Henig Mr Stanley Henig , Lancaster

I hope that the hon. Member for Barkston Ash (Mr. Alison) will forgive me if I do not follow his argument. Last year when the Committee discussed the Selective Employment Tax one of the troubles was that we were often discussing it in terms of a number of different arguments, not all of which were equally good. In discussing the regional employment premium, those supporting it would be better advised to stick to the one argument that it is going to help create more employment in development areas. It seems to me that probably on that argument the proposal will stand or fall, although I want to show that, in creating more employment in these areas, it is likely to cause problems which particularly worry me for some other areas.

Along with some hon. Members opposite, I, too, rather regret the way in which the Financial Resolution was drawn. Obviously, whether or not the Amendment would have been selected would have been within your discretion, Sir Eric, but I suspect that one reason why it may not have been selected was the way in which the Resolution was drawn.

Another point is that many of us who have previously argued that the Government, before making decisions, should consult people, have been gratified by the way in which this proposal first saw the light of day in the Green Paper and only today has emerged as the new Clause 67. On the other hand, some of us are a little disturbed by the way in which the House was consulted only last week. It seems a little inconceivable that the Government had not made up their minds by then.

I suspect that when my right hon. Friend the First Secretary of State introduced last week's debate he was being fairly flexible, but by the end of the debate, during which a great deal of doubt was cast on the scheme, my right hon. Friend the Chancellor of the Exchequer was far more inflexible. I cannot see why this came about, but I am sure that it did. The Government have shown appreciation of some of the worries that were put forward in the debate and we welcome some of the concessions they have made.

The Chancellor said today that the expenditure incurred by the premium will roughly double the amount that the Government are spending on the development areas. In so far as they do this, it means that development area policy moves to a new plane, because any tendencies which were apparent before in their effect on the rest of the country will not just he reinforced but doubled. I suspect also that these things tend to have a multiplier effect which will increase this trend further.

5.30 p.m.

The valid point which has been made concerns the cost of the scheme. There has been a certain amount of statistical juggling in certain places which suggests that somehow the cost of the scheme is nil because of the increase in employment. I suppose one can prove this kind of argument. I have seen these arguments used in other contexts. On the other hand, one is using particular resources in one way to create other resources which might be created by using the particular resources in another way, so it seems to me that there must be a cost.

The White Paper, which lies behind the new Clause, says in paragraph 29: Since the limiting factor in the increase in total output which can be accommodated without inflationary dangers is predominantly the pressure of demand in the more prosperous areas and since the latter is likely if anything to be reduced as a result of the scheme, it follows that no general increase in taxation is called for. There is no increase in taxation, because the effect is directly being paid by areas which do not get the R.E.P. This is fair enough, except for the fear in the back of my mind, and the minds of some of my hon. Friends, that the cost will not as a result be equitably distributed. In other words, the cost of taxation—if it were raised by taxation—might fall equally on the rest of the country, but this will not.

The problem of the grey areas has already been mentioned a number of times. The Committee will understand that, coming from a very grey area indeed—I apologise to my right hon. Friend the Chancellor of the Exchequer, but there is no other phrase to describe them—I am very worried by certain aspects of the Clause.

The final paragraph of the White Paper made reference to the fact that some of these problems could be overcome by a more flexible use than before of industrial development certificates. That phrase "industrial development certificates" already sends a bit of a shiver of excitement, shock or horror down one's spine, depending on whose spine it is directed towards.

The idea of directing industry to certain locations, good though it is, cannot be used to cover all the anomalies introduced by successive pieces of legislation designed primarily to help the development areas.

In the City of Lancaster we have already been affected by the Government's policy on development areas, and we are likely to be even more affected by the regional employment premium. In Lancaster two big firms employ 75 per cent. of all the people in manufacturing. This was so until eight months ago when one of the firms, Nairn Williamson, decided to lay off 1,500 men or about 60 per cent. of the people which it employed. This is a hefty number. It means that about 20 per cent. of those in manufacturing in Lancaster will be laid off with one stroke of the pen, because the firm had to choose between expansion in Lancaster and expansion in a development area with necessary contraction in the other. It chose to move to a development area and that created some little problem in Lancaster. At the moment there are 665 unemployed, or 2·1 per cent. One thousand five hundred people to be laid off would mean, other things being equal, an unemployment rate of 7 per cent. How are other things not to be made equal? In other words, how much new industry is needed in the area so that one's fears are assuaged?

Until the Government introduced this proposal this might have been possible. Let us suppose that in the next six to nine months there is a reflation of economic activity and firms seek to expand and, lo and behold, one or two firms get as far as going to the grey areas and apply to the Board of Trade for industrial development certificates and are granted them. This would have been all right. However, the situation is changed because the regional employment premium almost doubles the inducement given to firms not to go to a grey area, but to go to a development area. It may be that the Board of Trade will be so flexible in its use of i.d.c.s that on occasions in the next 12 months it will say to firms wanting to go to a development area, "We will not give you an i.d.c. to go there." It may be that it will be as flexible as that, but I doubt it.

The problem which we once had in Lancaster with a big firm is likely to happen again. In a small town most firms are not controlled locally. There is only one big employer of labour which could be called a Lancaster firm, and its shareholders come from far beyond Lancaster. The other firms have been taken over from outside. For example, Courtaulds have two firms in Lancaster. If Courtaulds want to expand and develop a new process, do they put it in Lancaster or in some other area where they already have a factory, an area which may perhaps be in a development region and would entitle them to the higher grants of the new regional employment premiums? It seems to me that almost inevitably they will go to the second area.

Drab and grey as the grey areas are already, they are likely to become even drabber and greyer if the proposal goes through in its present form without anything else being done to help these areas. There will be a massive, overwhelming, inducement to people to go to development areas and the cost will be borne by the rest of the country. However, it will not be borne equally by Lancashire and Birmingham, because Birmingham has a good many natural advantages which much of Lancashire—particularly the northern corner which I represent—does not have.

I and many of my hon. Friends welcome the announcement by the Chancellor of the Exchequer about this inquiry by Sir Joseph Hunt, but we have a number of questions to put and I hope the Chief Secretary will be aware of our concern and will try to answer our questions. First, when is Sir Joseph Hunt to report? How long will we have to wait? This is a highly urgent problem.

I know that it is going back to our basic text—the White Paper—but paragraph 49 says: While this study is proceeding, some experience of the effects on different parts of the country of adding the Regional Employment Premium to existing policies and measures designed to assist the Development Areas will be gained and can be taken into account. For how long does that mean we have to wait? The regional employment premium is coming into effect in September. Within a few months I fear that some of the effects of the kind I have been outlining will be apparent. Does this mean that we shall have to wait a year before this Committee reports, and how much longer would we have to wait before action is taken? What questions will be put to the Committee at the beginning? Where will its terms of reference be drawn? One would like to know a bit more about this.

I want to come on to a couple of general arguments which concern me about the R.E.P. They have already been touched on but I think they should be mentioned again. The first concerns the argument about labour-intensiveness. It has been said that this may lead people to hoard labour. I doubt if people will employ labour that they do not need just for the sake of collecting this 30s. from the Government. On the other hand, it means that an employer who otherwise might not employ the extra labourer is given his 30s. inducement so to do. We were told last year throughout the debates on the Finance Bill that hoarding labour was a bad thing. Is is a good thing or a bad thing in the development areas, given that it is generally bad, and cannot we think of a way to help them without encouraging this bad practice? Could one have an answer on that?

It seems to me, at a conservative estimate, that about 90 per cent. of this expenditure—which has been said to be about £100 million in a full year—will be for the benefit of those who have a job in the development areas and only 10 per cent. will go directly to people newly employed. Are the Government convinced that they could not have found a more efficient method of getting new employment in those areas? It was estimated in that well-known "thunderer", The Times, that it would cost £11,000 for each job created in the development areas. Do the Government have an estimate of their own to set against that, or do they accept the estimate of The Times as reasonable?

What concerns me most about the problems of the sevice industries is the tourist industry, which is a most important industry in Scotland and in parts of the Lake District, which is in the Northern Region. Last year, as a result of the Selective Employment Tax, tourism was taxed—hotels were taxed. I did not share the huge and sometimes synthetic concern of some others at that time, but now it strikes me that one has the oddity that the tourist industry in those areas pays tax while manufacturing industries in those areas receive it back. Is this logical?

We in Lancaster, which is 20 miles from the Lake District, rather tend to throw up our arms in horror at the thought that a firm coming to Lancaster gets no extra inducement, while a manufacturing industry going 20 miles north into the middle of attractive tourist country would get it, the tourist industry apparently paying the cost. Perhaps I have put it too starkly. I do not want to be unfair to my right hon. Friends, but I should be glad of some comment from them.

As a Socialist I have always felt that the problems of those areas which are now called development areas should be given paramount treatment, that something should be done for those parts of Scotland, Merseyside, the North and Wales which traditionally have had the problem of high unemployment. I do not think that any hon. Member would gainsay that.

I am in the embarrassing position that tonight I am being asked to approve a proposal which will give those places what they richly deserve, but which will have other and undesirable effects. This is my worry. It can best be put in the words of someone in my constituency who said about the Nairn Williamson issue that while he was in favour of more employment in Scotland, he wondered whether the Government had realised that although they had just created 2,000 more jobs in Scotland, at the same time and in the same process and by the same mechanism they had ended 1,500 jobs in Lancaster. He asked what was the point of that. I said that he had not got it quite right, but now that I think about it, what is the point? I should like some comment about this.

Considering the situation in the grey areas, such as Lancaster, there is a danger that because of the regional employment premium, other things will remain equal and that in Lancaster, for instance, we will not get the new jobs to fill up the Nairn Williamson gap. People cannot go to work in Morecambe because unemployment there is even higher, and so unemployment in Lancaster will creep up.

Because I believe that my right hon. Friends care about this situation, I believe that if unemployment looks like creeping up in Lancaster to an unacceptable level, and in this context I mean by that the level pertaining in the bulk of the areas which have been designated development areas, they will take action, but I should like my right hon. Friend to be able to say this evening that the Government recognise the problem and that although they are trying at this stage to help development areas, should the fears expressed in the debate materialise, they will act. In particular, I hope that he will say that if unemployment in these areas creeps up as a result, so that from being grey areas they approach nearer to be being black areas, while the previous black areas become grey, everybody may rest assured that the Government will act. Some kind of pledge like that is what I would like to hear from the Government this evening.

I appreciate the difficulty of saying these things, but, with his well-known ingenuity and the help of his advisers, my right hon. Friend the Chief Secretary should be able to produce a form of words which will reassure not only myself—because in a way I am already reassured in that I have confidence in him—but, most important, reassure those many people in Lancashire who appreciate the Government's policy of helping development areas, but who are themselves worried and anxious about the future. They are right to be worried and they have a right to be reassured. I very much hope that my right hon. Friend will reassure them.

5.45 p.m.

Photo of Mr David Steel Mr David Steel , Roxburghshire, Selkirkshire and Peeblesshire

We all greatly appreciate the sincerity of the hon. Member for Lancaster (Mr. Henig) and his engaging frankness. I thought at one time that he was talking about a tax on Toryism, but then I discovered that he was referring to a tax on tourism. I would have preferred the former. I make no apology for following his example and referring to my own constituency, because my part of Scotland, the Borders, has become part of a new development area and any discussion of the regional employment premium is of great importance to it.

In 1964, I was the chairman of a committee which published a study of the problems of the region, a region which had suffered constant and steady depopulation. We concluded that the fault with the existing Government incentive schemes was not only that there were no incentives in areas of depopulation but that the country as a whole did not have any form of planned economy, so that the incentives in areas of high unemployment such as central Scotland merely accelerated the rate of depopulation from parts of the country to those areas where incentives were available.

I do not like to name individual firms in my constituency, because they were not to blame for the situation, but over a period of years not only did we attract very little new industry to the Scottish Borders, but when existing firms came to expand, they chose to do so outside the area and, naturally, into those areas where there were incentives, the areas of high unemployment, and on several occasions we missed opportunities for industrial expansion on the Borders for that reason.

The Chancellor of the Exchequer has rightly insisted that we should consider the proposal for regional employment premiums in the context of the Government's regional policy as a whole. Undoubtedly, the most important development in my part of the country has been the decision to widen the criteria of the old development districts, which are now development areas, to include depopulation as well as unemployment, for without that widening we could not be discussing the merits of the premium. That was the first step and the second was to switch to the process of investment grants and to raise the level to 45 per cent. This morning we were able to welcome the statement that the time lag in the payment of these grants is going down. I hope that it will go down very much more. However, there is no doubt that the system is to encourage a process of industrial development in the development areas.

We now come to the third major proposal for industrial development in these areas, namely, the regional employment premium. Of course it can be criticised as a method, and in previous debates some of my colleagues and I have criticised it as a method. I share the concern of the hon. Member for Lancaster about the principle that, at a time when we are told that there is a national shortage of labour, we should do anything, however slight, which might appear to encourage the hoarding of labour. Other methods might have ben found, but this is the method which the Government have chosen and tonight we have to decide whether we approve of the new proposal.

My party welcomes the proposal, because we regard as sound the principle of encouraging industrial investment in areas which require it. Even though it may have some side effects open to criticism, no doubt this method will be effective. But it will encourage industry to expand in the development areas only if labour is available. There is no point in giving employers 30s. or 15s. per head to expand in development areas if when they get there they find that labour is not available.

In my view, it is essential that wage levels should be improved in the development areas in order that the young people and the skilled labour are encouraged to remain. One of the anxieties which people in my part of Scotland have has to do with the growing tendency of amalgamations and the need for more capital in modern industry, which has led to a process of take-over of the traditional tweed and knitwear firms. They are no longer owned by people in the community but by outside financial interests.

Whereas in days gone by those controlling the firms had an interest not just in the prosperity of their firms but in the community as a whole, and were very often prepared to place the community interest above their own, the firm controlled by outside finance must have profitability as its main objective. This regional employment scheme will allay some of those fears, because if firms in a development area are owned by larger combines, then it is in precisely those areas that the larger combines are more likely to want to expand, not contract.

They will, I hope, take advantage of the regional employment premium, and we will encourage further expansion in those areas which it had been feared might have lost a good deal of their industry through centralisation and outside control.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

I know the hon. Gentleman's area particularly well and I know of its problems. For the last five or six years the problem has been that there has been no one there to employ. It seems tactless to welcome something which gives a premium for something which does not exist.

Photo of Mr David Steel Mr David Steel , Roxburghshire, Selkirkshire and Peeblesshire

I was coming to that point. I mentioned employment a moment ago and said that it was important that we had the people there, otherwise there is no point in giving a premium. I agree with the right hon. Gentleman in that. That is why I say that, contrary to some of the fears expressed about the effect of the regional employment premium, if the result is that wage levels are increased through the premium given to employers, then this is something which I welcome, even if the Government do not.

Some hon. Members were saying that one of the great advantages of the development areas was that wages were low. It is not an advantage. It may be an advantage from an academic economic point of view, but it is not an advantage to those who live there. The young people ask themselves what is the point of sticking around when the wage levels and the general level of prosperity are limited. They go off to the Midlands, the South-East or even central Scotland, where higher wages can be earned. If the effect of regional employment premium to the employers is to create a climate in which new industry comes and forces up wage levels in the existing industries, and where the employees feel entitled to press for higher wages as a result of the premium, then it is something which I welcome.

In the first debate on the Green Paper I said that I hoped that part of the advantage of this premium would be passed on to the employee. This may make the Government shudder. I am glad to see some approval from Scottish Members opposite, because this is what ought to happen. It will not be enough by itself, and the right hon. Gentleman the Member for Argyll (Mr. Noble) is right to emphasise this. We must have a con- tinued spread of industrial training centres. I am glad to see that one Under-Secretary of State for Scotland is present. The industrial training centres in Scotland at the moment are not evenly enough spaced throughout the country, and I hope that this will be attended to in the near future.

There is one development in the new proposal which I very much welcome; it is the power to vary the premium within development areas by Ministerial Order. I hope that this power will be used, and I will give three illustrations of when I think it may have to be used. One is the effect of such a premium on the tourist industry. It is no use talking about altering a premium in relation to the tourist industry when what is required is to relieve the industry from the effect of S.E.T. If that were done it would be a positive step forward. This does not so much affect my constituency, but particularly in coastal areas, which are heavily dependent on tourism for their livelihood and economy, if they attract manufacturing industries to the area, offering the premium, the position may be reached when the tourist industry would be even more severely hurt than it has already been by the Government regardine it as an industry which should not receive tax incentives. It may therefore be necessary, within the development areas, for the regional employment premium to be varied if it is proved to be affecting the basic tourist industry in certain parts.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The hon. Gentleman has referred to the ridiculous S.E.T. Does he not appreciate that this proposal is tied ineluctably to this political tax? Why is his party supporting this proposal, which is not only tied to this ridiculous tax, but which will presumably have the effect of perpetuating it?

Photo of Mr David Steel Mr David Steel , Roxburghshire, Selkirkshire and Peeblesshire

I agree that it is tied, administratively, to the S.E.T., but I do not think that the hon. Member would deny that it is quite possible for the Government to accept my suggestion, if they were so minded, of relieving the tourist industry of S.E.T. and at the same time accept this proposal. There is nothing inconsistent about that.

The second reason why I welcome the reference to varying by Order is that I believe it to be necessary to vary incentives within Scotland. We have the situation where virtually the whole of Scotland is a development area. I have always argued that, from time to time, it may be necessary to use more discrimination between parts of Scotland which are fairly prosperous and demand large employing industries, and those parts on the outer fringes of Scotland, which require particular incentives to attract industry. I hope that this power in the new Clause will be used in order to vary the premium in different parts of Scotland.

Thirdly, I hope that the power will be used—and I will be interested to know if the Chief Secretary agrees that this is a possibility—to change the level of premium as between male and female employees. This is something which is of particular concern to me. Knitwear, for example, uses a great deal of female labour. The main problem in the Scottish Borders is that we do not have enough male employing industries. If we get male employing industries into the region, then the existing firms are automatically helped because they will have a larger supply of female labour. The wives, and presumably in due course the daughters of the men, will be available for training and work in the mills. The firms will have a direct advantage from the introduction of any male-employing industry.

Purely from a constituency point of view there is a case for giving not 30s. per man and 15s. per woman, but 40s. per man and 5s. a woman in order to get the basic male employing industry attracted to the area. Have the Government considered that as a possibility? Is this the sort of thing that the Government have in mind in seeking to vary the premium by Order in Council?

This proposal will be of general benefit to Scotland. It is possible to criticise it in detail and method, but the feeling of the people of Scotland to this proposal was well summed up by an editorial in The Scotsman the other day, which said that for all its drawbacks, and I think that they are admitted, it was better to pump capital into the less prosperous areas than to have nothing at all. For too long we have had nothing at all. This, at least, is something.

6.0 p.m.

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

It comes as no surprise to many of us on this side of the House that the party opposite should adopt such a wholly negative attitude to this proposal. [An HON. MEMBER: "Which party?"] The Conservative Party. Its attitude towards the development areas has been one of cynicism and sterility. It is proper for us to remember that in May, 1966, the Conservative Party voted against the Second Reading of The Industrial Development Bill, a Measure which created the development areas. In other words, if the party opposite had had its way, there would have been no development areas at all.

I congratulate the Government on their expedition in dealing with the proposals published in the Green Paper only two months ago. Many of us feared that there would be a rather longer period of gestation. Most of us are aware that the new Clause gives the clearest evidence of the high priority which the Government attach to the need to redress the imbalance between the fortunes of the poorer and the more affluent regions of the United Kingdom. The R.E.P. is only the latest stage in a process of consistent effort towards this end. It will, I believe, be more effective in inspiring growth in debilitated regions than the traditional medicaments which have been administered. The level of premium which has been decided will, I think, achieve the purpose of being attractive to industrialists as an allurement to draw them into development areas. At the same time it is obvious that it is of sufficiently modest proportions to avoid being a temptation to any employer to indulge in labour hoarding.

The premium proposed will obviously not be a dominant consideration. It will, nevertheless, be a significant subsidiary consideration. After all, it is an amalgam of such marginal considerations as affects hundreds, and perhaps thousands, of decisions of individual manufacturers which can contribute materially to the recovery of a development area.

The protagonists of this measure have been quick to enter caveats and stress the limitations of the scheme. It is not expected that all the ills of all the development areas can be cured by this measure; no single action could ever be responsible for such a sweeping result. But I am sure that all Members would agree that it is vitally urgent that the Treasury, the Board of Trade, the Department of Economic Affairs, the Welsh Office and the Scottish Office should at all times be devising new and original methods of resuscitating the economies of the various countries and regions constituting the development areas.

The problem is massive, and it is only right that we should at all times keep an exact record of its proportions. I therefore plead for a periodic review of the economic position of each development area and a comparison between its fortunes and the fortunes of other regions outside. Such a review should include, in addition to the well publicised facts of unemployment levels, data concerning economic growth, investment, migration into or out of an area, productivity rates and depopulation. If such a review is conducted, I am sure that many of my hon. Friends will realise the fundamental differences of economic fortune which exist between the development areas and the grey areas on account of which they have pleaded so tearfully.

It is obvious that the proposed premium will be generally beneficial to Wales. Some are convinced that the R.E.P. is the progeny of the S.E.T., but it is only proper to remind hon. Members that the percentage of people in Wales paying S.E.T. and the percentage of those receiving a refund are substantially different from the figures in the rest of the United Kingdom. In Wales, employers pay the tax on 32·3 per cent. of insured workers and receive a refund on 37·2 per cent. In the United Kingdom as a whole they pay the tax on 38·1 per cent. of insured workers and receive a refund on only 27·3 per cent.

I make that point because, certain people in Wales are given to assume that the S.E.T. was only another manifestation of a deliberate and malevolent Treasury conspiracy against my land and nation. Since the proportion of industry in Wales to total productivity is rather higher than it is in England, it follows that proportionately there will be a greater benefit from the R.E.P. to the Welsh economy.

Although I believe the principle of the premium to be unobjectionable, there are two inadequacies which I should like briefly to mention. Both betray a certain lack of flexibility in the proposed administration of the premium. It must be remembered, as has been mentioned by many hon. Members, that the rural areas have already been laid to a substantial contribution on account of the S.E.T. I stress, as I have stressed on previous occasions, that in many areas the imbalance between the number of people who pay the tax and the small proportion who receive a refund is monstrous. The figures for my constituency are that between 7 and 8 per cent. of insured workers receive a refund and between 81 and 82 per cent. of insured workers have the S.E.T. paid in respect of them.

We cannot look to the R.E.P. to redress this imbalance. Like the S.E.T., it is attached to manufacturing industry. It cannot, therefore, carry out the task of redressing the imbalance in the rural areas. These are already areas in which there are acute problems of growth, and it is these areas which look to the Government for assistance. Many of their indigenous difficulties have been mentioned by the hon. Member for Roxburgh and Peebles (Mr. David Steel). The basic difficulties of a lack of a reservoir of labour, an ageing population, a high rate of outward migration and a lack of a tradition of industrial development constitute a comprehensive problem which no Government have managed to tackle specifically.

In fairness to the proposal, paragraphs 50 and 51 of the Green Paper state quite fairly that it is probably impossible for the premium to be able to achieve such a task and that the rural areas must look to other and divergent measures. What does not inspire me is the reference in paragraph 51 to the Highlands and Islands Development Board. I do not denigrate the tremendous significance of setting up that Board, or what it has achieved. Nor do I have anything but welcome for the Rural Development Board which it is proposed to set up in Wales. But if the Government delude themselves into believing that the rural areas can be simply left to such plans as those, I am certain that there will be no resuscitation for the economies of those areas.

In the main, the rural development boards deal with tracts of upland territory. In any of the schemes which have been published, there is very little reference to the revival of a lowland economy. The stress of such plans is all on the injection of capital into such areas, and there is no corresponding provision for any income subsidy. Therefore, unless the Government can show very soon that they have some bold and radical plans specifically tailored for the need of rural areas, the references to the Highlands and Islands Development Board and such measures will not convince the people that they are able to achieve the task with which the Government are confronted in these areas.

Just as some of my hon. Friends and hon. Gentlemen opposite have done, I would argue that, in the short term, it would be a perfectly fair and practicable suggestion for the Government to consider excluding service industries in these areas from the Selective Employment Tax. I would go further, because there is very little rational and economic case for the payment of regional employment premium to service industries in those areas when it is remembered that a high proportion of them are engaged with tourism.

Here is an industry which contributes splendidly to Britain's exports. After all, it is earning foreign currency and "exporting" a service to persons abroad. It is calculated that tourism earns for Wales something in excess of £60 million er annum. It does not behove me in this debate to compare the subsidy and the encouragement given to the tourist industry in Wales with the contributions made by the Governments of many other small countries, but the Republic of Ireland, for example, contributes something of the order of £2 million, the Isle of Man and the Channel Islands each contribute annually something in excess of £100,000 to their respective tourist industries, whereas Wales receives a mere £12,000 or thereabouts. However, that is another argument, although it is proper for us to consider that, as an investment, the regional employment premium could well be paid to that part of the service industries engaged in tourism in such rural areas.

In the longer term, a careful study should be made of the exact fortunes of firms which in the past have ventured into the rural areas—to trace the history of what has happened to them over a period of, say, ten years. That is the only way in which it will be possible for data to be collected and to know the real character of the problems which confront such developers.

Very much more thought should be devoted to ascertaining the exact type of industry which is most suitable for those areas. Very often, the tendency in an area almost completely devoid of industry, such as my own constituency of Cardiganshire, is to attempt to seduce any type of industry which can possibly be brought in, with the result that, over the years, there may be a high percentage of failures. This contributes to the general economic malaise of such an area more than anything else.

My other criticism is that, as it stands, the regional employment premium does not contribute in any way to redressing the imbalance which exists within a region. I appreciate that subsection (5) of the new Clause deals with such a proposition. It gives the Treasury the right by Order in Council to vary the rate of premium. If and when that is done, I will graciously and with great pleasure withdraw my criticism, but we still await such flexibility on the part of the Treasury.

If we are to rely upon a blanket form of sustenance such as that offered by the regional employment premium, so long as we rely upon it in that form, it can do a great deal of harm to the areas whose economic difficulties are most acute. There is always the tendency for growth to run to the areas of greatest attraction, making the imbalance worse rather than better. I am sure that, in addition to a regional employment premium, we must at all times be vigilant and original in our thoughts and conceive many other types of assistance which perhaps are more appropriate to the needs of those areas than the premium. We should bear in mind the case for substantial tax concessions for people who set up manufacturing enterprises in such areas.

6.15 p.m.

Although the record of the Government in advance factories in the development areas is splendid, in that they have built twice as many in the years 1964 to 1966 as were built by the previous Government between 1959 and 1964, there is a strong case for Government-run factories concentrating upon a suitable range of manufacturing enterprises. Bold experiments can be indulged in in the way of industrial trading estates in non-traditionally industrial areas. In addition, a comprehensive study should be made of the possibility of drawing up a plan for the movement of Government offices to peripheral areas. We have seen encouraging developments in that connection in past months, but the situation calls for very much more than haphazard charity from time to time.

Perhaps more than anything, there should be drawn up a new, radical and comprehensive road programme for areas such as Wales. The tendency seems to be for the building of roads to be tied inexorably to the traffic densities now experienced in those localities. That is no more than an endorsement of the status quo

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

I must keep the hon. Gentleman to the new Clause, and he is getting away from it a little. Will he come back to it?

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

Mr. Irving, I was pointing out that the new Clause has certain limitations, and I was attempting to substantiate the case for the filling in of some of the gaps. Now that you have drawn my attention to the point, I will conclude my remarks by saying that there is a great need to redress the monstrous imbalance that exists between the development areas and the rest of the United Kingdom. In that crucial exercise, time is very much of the essence.

Reference was made earlier in the debate to the possibility of Britain entering the European Common Market. Many hon. Members on both sides have severe reservations about whether all the forms of assistance now given to the regions will be available in the event of our entry into the Common Market. Many of us have more severe reservations—

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Order. The hon. Member can discuss only this means of helping the regions. He cannot discuss the Common Market. He must come back to order and discuss the Clause.

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

Mr. Irving, I was going to mention industrial development certificates, but to do so would test your patience and your charity much too far.

The problem facing the Government has arisen from a development which has taken place over two centuries, namely, a haphazard growth which has had neither economic balance nor social purpose. The real problem facing the development areas—and I do not believe that my hon. Friends and many hon. Gentlemen opposite from the so-called grey areas quite appreciate its magnitude—is that of preventing the industrial klondykes of the last century becoming the ghost areas of our day and age. Unless we have bold and dynamic plans, wider in scope and purpose—

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Order. With respect to the hon. Member, I suspect he has exhausted his capacity for staying in order on this Clause, and unless he can deal with the Clause he ought to resume his seat.

Photo of Mr Elystan Morgan Mr Elystan Morgan , Cardiganshire

I will resume by saying that this premium is a crude instrument. It is my wish and my fervent hope that this provision will be sophisticated by selectivity, and will be supplemented at an early date by an appropriate variety of other means of providing assistance to these areas whose needs are so acute.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

I shall resist the temptation to follow the hon. Member for Cardigan (Mr. Elystan Morgan) except perhaps to say that just as he has many doubts about the efficacy of this premium, so I find myself in support of it, and perhaps the best thing we can do is to pair off at the end of the debate to avoid further embarrassment to both of us.

There are many unused resources in this country. The Government's purpose in introducing the Selective Employment Tax was to encourage the redeployment of labour throughout the country; to get people to move from areas such as mine, Northern Ireland, Scotland, the Highlands and Islands, and other parts of the country, to areas where there was overheating and over-full employment. This policy has failed.

If people in Northern Ireland could not find employment there—and during the past five years a number of shipyard workers have been laid off—they had the choice either of seeking employment in the Midlands in for example the motor car industry, and accepting the risks and the ups and downs involved in that, or of going somewhere else, for example to Canada. Having packed their bags, it was open to them to go abroad, and I regret that many shipyard and aircraft workers took this course, which meant that their skills and training were lost to the United Kingdom as a whole.

When my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) introduced his payroll tax—which I think was the forerunner of these measures, though it did not go as far—there was an intervention from a member of the then Opposition, and I would like to refer to it now because I think that it was extremely relevant. The speaker said: The payroll tax is a bad tax. My hon. Friends and I have drawn attention on several occasions to its unfair incidence as between industries"— and this will, of course, appeal to the hon. Member for Cardigan— those which use a good deal of labour and little capital and those which are capital intensive and make less call on the country's labour resources".—[OFFICIAL REPORT, 4th July, 1961; Vol. 643, c. 1251.] The hon. Member who said that went on to say that the payroll tax would put up the cost of living. The same argument applies to the S.E.T., and the speaker on that occasion was the right hon. Member for Huyton (Mr. Harold Wilson), now the Prime Minister.

I think that that reinforces the argument that many features of the S.E.T., to which this proposal is attached, are bad for the country. The payroll tax used the old method of the stick. Industry was discouraged from expanding, and new industries from setting up in the overheated areas of the United Kingdom. They were encouraged instead to go to the development areas. As the Committee will remember, Northern Ireland was exempted by my right hon. and learned Friend. This was an encouragement, but it was a negative one. This proposal goes much further. It offers a carrot to in- dustry to go to the development areas, and this is why I am in favour of it.

The Government's proposals have been welcomed in Northern Ireland, both by the Development Council and by the Government. The Green Paper has been considered, and although there has been a certain amount of detailed criticism of it, on the whole the arguments presented in it, and in the White Paper which has followed, have been accepted. It will cost Her Majesty's Exchequer about £11 million per annum to help Ulster, and nobody can afford to turn up his nose at such a sum.

We in Northern Ireland suffer principally from the disadvantage of being too remote from the market. Our materials have to be imported, and our finished goods exported. This adds a good deal to production costs, and hampers the Government in their efforts to attract new industries there. I have developed this argument on previous occasions, and I do not intend to develop it at length now. Although we have succeeded in attracting a lot of industry to Northern Ireland particularly capital intensive industries by means of generous grants towards equipment and other capital costs, and by the provision of new factories, sometimes tailor-made factories, for the companies going there. Many companies, such as Chemstrand, I.C.I., and Dupont, which manufacture synthetic fabrics, filaments, and yarns, do not employ a great deal of labour. They are capital-intensive but not labour-intensive, and I think that we ought now to concentrate on attracting labour-intensive industries.

Instead of the regional employment premium, attached as it is to the S.E.T. which I do not like, I would like to see some other way of helping manufacturing industry. I think that there should he a direct subsidy to help them with their transport costs, but I believe that such a scheme would he extremely difficult to operate, and might fall foul of international agreements such as G.A.T.T. and later, perhaps, the Treaty of Rome if we enter the Common Market.

6.30 p.m.

Another frequent criticism of the R.E.P. is that the service industries will not benefit, but I attach little importance to this. Such industries in Northern Ireland are bound to benefit from another £11 million. These industries live on the back of the manufacturing industries, which is no criticism. They are essential and contribute to the balance of payments, especially through such invisible exports as insurance and banking, as well as tourism, which is also a big dollar and foreign exchange earner.

Nevertheless, banking and insurance particularly are concentrated in London and not in the development areas, so one would not help these service industries by payments to them in the development areas, and, except for tourism, one would miss the target. The service industries are there anyway. Even if they are given a subsidy, the number of employees will not be greatly increased, but, as the general prosperity increases, they will expand to meet the demand.

Therefore, the correct help for the development areas is to help manufacturing industries. Then the resultant prosperity through the improvement and development of existing industries and the creation of new ones will help the service industries too. Northern Ireland has 9 to 91 per cent. of its male population unemployed and there is a pool of skilled labour. I argued through April to June of 1961 when we considered the payroll tax—this is curiously similar to the Green Paper's arguments and just as valid now—that the country is losing the benefit of this pool in the regions.

We cannot expect the skilled labour which is leaving Northern Ireland's aircraft factories, shipyards, linen and other contracting industries in the same way as labour is leaving coal mining and textiles in Great Britain to be redeployed to those areas where it is most needed. The Government have a social function to attract industry there.

It has been argued from this side that it is adding to the cost of manufacture, and I agree that if economists managed the country they would try to concentrate employment, by direction of labour or other means, in the most economic places, like the south of England and the Midlands, which are nearest to the market, but the Government must be concerned with social factors—

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Order. The hon. Gentleman is getting, away from the new Clause, which deals with the regional employment premium.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

I am trying to argue why I should or should not vote for the Clause and it is therefore relevant, I suggest, to put the arguments for and against the question of whether it will achieve its purpose. I shall try to keep to the points already mentioned.

This premium will encourage the expansion of industry in Northern Ireland and help to attract more industry. Alternative ways of spending the money have been suggested, particularly from my Front Bench, such as building up the infrastructure, but this can happen anyway and is more likely if industry is built up.

In its comments on the Green Paper, the Scottish Council mentioned the need for more training schemes. This premium is not exclusive and does not mean that more money will not be so spent. If it is effective, more will be spent on training schemes because they will have more point when industry needs more labour. There are very fine training schemes, ahead of the rest of the country, in Northern Ireland, of which we are very proud. These schemes and the infrastructure of roads, hospitals and schools will benefit from this direct expenditure.

It has been suggested that the money should be spread more widely to farming, tourism and other service industries, but this presents a grave risk. If the jam is spread too thinly, it might have no effect, and, therefore, the Government's help of £100 million should be funnelled into manufacturing industry so as to increase output and reduce reliance on imported manufactured goods.

This is a short-term measure. I said in the debate on the Green Paper that five years was too short for the R.E.P. to have full effect and was pleased when the Chancellor said that he would extend it to seven, tailing off for two or three years, thus making 10 in all.

My own Front Bench has suggested that this scheme will encourage manufacturers to be labour-extravagant, but will any manufacturer who knows that it will last for only seven years do so? Before undertaking a heavy capital commitment on a new factory, manufacturers think further ahead than seven years, and although they will, of course, use the scheme to the utmost they will take a longer view—

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

What is relevant here is that in making an investment decision about how labour-or capital-intensive a project should be, one necessarily gives great weight to the fact that some costs are more important, because more immediate, and one must take into account the time value of money. This is why this proposal is likely to result in an initial investment in industry which is too labour-intensive.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

I grasp that point, but the scheme's effect, even though it will last for only seven years, will not in the long run be a concentration of industry on employing labour. Why should industry not be labour-intensive anyway? If labour is the cheapest way of producing goods in an area with a surplus, should they not decide in the country's interests, to concentrate—I am talking of marginal industries where there is a marginal difference between a new machine and new labour—on employing the unemployed rather than using expensive machines, always remembering that the scheme will tail off after seven or 10 years and one will have to transfer to new machinery?

It gets the factory started and the economy moving and brings in increased resources, particularly the scarcest of all, labour—

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Would my hon. Friend not accept that the present world trend in the most sophisticated economies is that labour is fast becoming one of the most expensive items and that policies which produce that effect would run against the international tide?

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

I agree. Labour is expensive, but I was talking about a marginal decision on whether to employ the labour and to start a factory or not to do anything. When a manufacturer, or the country as a whole, faces this decision, it is obviously better in the national interest, to employ the labour. After all, it is the manufacturer's concern to make a profit out of the labour, and by employing this labour he provides work and valuable production which we can consume or export. A scheme which is concentrated on manufacturing in an area with 20 per cent. of the nation's manufacturing is both selective and effective.

I hope that the scheme will prove self-financing. The Government went a little far in the Green Paper to say that it would be completely self-financing. There will be a time lag, but I am sure that eventually the scheme will be self-financing, because it will create more industry to pay the cost. We will not see the end of the trade cycle as a result. The Government are a little starry-eyed to suggest in the Green Paper that, if unused resources are brought into production, enough new goods and exports will be produced to balance our payments and get rid of the cycle, which we have had since the war of recession, of boom and stop-go.

The Green Paper's suggestion that we would get rid of stop-go by this scheme is too much. As long as we have five year periods of Government, we are too likely to get into balance of payments difficulties, followed by restrictive measures which are replaced near election time by expansionist schemes.

6.45 p.m.

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Order. The hon. Gentleman must relate his remarks to the new Clause.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

As a result of the new Clause and the forecasts that have been made—I consider them to be modest, particularly when it has been suggested that unemployment will be reduced by 50 per cent. in the development areas—the people of Northern Ireland will benefit. It will mean a reduction of 4 per cent. in Northern Ireland's unemployment rate. The ups and downs we have experienced in the trade cycle have been particularly severe in areas like Northern Ireland, more so than in the rest of Britain, and I trust that these measures will benefit the development areas.

Northern Ireland is a special case and is different from the rest of the United Kingdom. Our unemployment rate is much more severe. I am, therefore, bound to disagree with my hon. Friends who oppose this scheme. It will mean that £11 million will be diverted to Northern Ireland, and this is bound to help our economy. I appreciate why 80 per cent. of manufacturers, those in the rest of the country, dislike paying S.E.T. to help the development areas. I also appreciate how competition from the development areas will eventually become an embarrassment to them. Nevertheless, the Government have a social duty to spread employment evenly and to help the less privileged areas.

If this task is adequately performed, it will benefit not only Northern Ireland but the country as a whole. While I do not altogether like the way the scheme has been tied to S.E.T.—I would have preferred to have seen it tied to the National Insurance scheme, with less dependence on S.E.T.—I would find it impossible to vote against the Government's proposal.

Photo of Donald Dewar Donald Dewar , Aberdeen South

I wish briefly to comment on some of the arguments that have been used in my part of Scotland to combat the Government's proposals in the Green Paper and presumably will be used against the proposals in the new Clause.

The reception which these proposals have had in some quarters has been, to say the least, less than gracious, although I have detected a somewhat insubstantial note in the arguments that have been heard. This is largely because hon. Gentlemen opposite are unable to deny that about £40 million of welcome capital will be injected into Scotland's economy. As a result of this, opponents of these measures have been reduced on occasions to rather weak quibbles about the actual fiscal machinery that will carry this operation through.

In the Report of the Scottish Council (Development and Industry) it is pointed out—and this is one of the major props of the argument often used by hon. Gentlemen opposite—that, when looking at regional problems, there is no one easy panacea which is tailor-made to answer all the questions and difficulties. However, before coming to the Scottish Council's views, I should remind the House of the powerful case that exists for R.E.P.

I do not accept, in the pristine simplicity with which it is set out in the Green Paper, that the only result of R.E.P. will be a reduction in industrial costs in the development areas and, therefore, expansion generally at the expense of the rest of the United Kingdom and an increase in employment. That is far too neat and comfortable a projection, and I sincerely accept the criticism, if it is a criticism, made by the hon. Member for Worthing (Mr. Higgins) that a fair proportion of the premium will be spilt over in increased wages and possibly in increased profits. However, as the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) pointed out, this does not seem to be in any way a drawback to the proposals from Scotland's point of view.

I suggest that the new Clause and R.E.P. represent a certain degree of regional reflation which cannot be anything but welcome in Scotland; and that is the spirit in which I view the suggestion. It is difficult to project exactly what the effect of all this will be. One authoritative and, I believe, extremely reasonable projection has been made by the National Institute of Economic and Social Research in its May review of the economy. It states that there may be experts who would disagree with the way they have manipulated the regional multiplier, but the National Institute's projection—and its impartiality is enhanced by the rather jaundiced view which the same document takes of the Government's performance in other economic spheres—is that in about three to five years we can expect a job growth in the regions of between 60,000 and 80,000, with 30,000 in the first year of the operation. This may be a little optimistic, but if things turn out to be anything like that, we shall have nothing to complain about.

Consider, for example, the unemployment figures for June, 1966, which in the development areas stood at 113,000. One can see just what an enormously significant contribution, if the National Institute is right, the Government's latest proposal will make towards levelling out the unemployment statistics in the country as a whole. Obviously, if it does something—and I consider that R.E.P. must make some contribution—to decrease the pressure of labour demand in the areas of low unemployment and to reduce unemployment in these areas, it will have performed a valuable function. As the District Bank Review persuasively argued in its current issue, there seems to be no doubt that wage reflation is initiated in areas of low unemployment and is transmitted from there to the rest of the country. There is a strong case for saying that R.E.P. will be effective and helpful in this sense; and I do not find the arguments against it in the least convincing.

It has been suggested that R.E.P. will go some way to encourage labour hoarding in places like Scotland. I wish to make my view perfectly clear. I do not consider that a labour-intensive industry is necessarily an undesirable industry or that there is something inherently inefficient about it. It cannot be called a "black" industry and it cannot be said that regions do not want it. There is a simple case for saying that we want to retain our labour in Scotland and that labour-intensive industries are, therefore, to be welcomed.

The circular which has landed on the desk of every Scottish hon. Member from the Scottish Clothing Manufacturers Association emphasises this. It is obvious that the whole system of incentives has so far been weighted, tilted, in favour of the capital-intensive firm. It has been worked out by Messrs. Bird and Thirwell of the University of Kent that a project which will have the same gross costs, whether inside or outside a development area, should, taking into account all the investment incentives, as well as the taxation concessions that exist, expect a variation in the net costs of that project of up to 30 per cent. depending upon whether a firm is inside or outside the development area boundaries. This illustrates the fact that we have this tremendous weighting in favour of the capital-intensive firm, and something which redresses the balance in the other direction is no bad thing.

A major argument used time and again in Scotland—an argument which is often plagiarised and lifted straight from the Scottish Council's Report—is that we want more efficient industrial retraining. The importance of retraining is an unexceptionable truth and no hon. Member will deny it. However, when one considers that only about 30,000 people a year pass through the total of Government training centres in Great Britain, one realises the enormous size of the problem and appreciates that it cannot be tackled by Government training centres alone. A major effort in industrial retraining must take place in industry and there is no reason to think that firms will not use some of the new R.E.P. on these activities. The Scottish Council's own magazine quotes Glyn Davis of Strathclyde University, who pointed out in the Oxford University Papers that although there is a high unemployment rate in development areas like Scotland, because of the comparatively small size of the labour pool available, there is an enormously larger amount of labour idle for an expanding industry in the south of England and in other crowded areas. However, the Scottish Council, commenting on this argument, does not say—and this is more directly connected with the premium—that the real effective effort must be made for retraining by industry itself. Mr. Davis points out that if one looks at the pattern of labour, it reflects on the type of existing industry in the area. That is the conditioning factor, and that is where the effort must be made.

Despite the fact that the main arguments used against the premium are somewhat sketchy, I appreciate that hon. Gentlemen opposite, as well as those who oppose R.E.P. outside, will not be reconciled to this measure. The Government have shown a certain degree of flexibility by extending the period to seven years, with a tapering-off time. That, too, will not impress the critics of R.E.P., largely because they have got into their heads the idea that Selective Employment Tax is the basis of R.E.P. and that, therefore—they arrive at this theory by some simple and straightforward method of transference—R.E.P. must be bad. They have about S.E.T. some kind of advanced form of persecution mania.

In the debate on the Green Paper, Scottish hon. Members made a spatter of allegations to the effect that over half of Scotland's working force was employed in the service industries. From that, they have gone on to argue that because Scotland was victimised by S.E.T.—simply because it was a tax and a tax must victimise people—it will also be victimised by R.E.P. It is not accurate to say that more than half of Scotland's labour force is employed in the service industries. Indeed, even if it were, it would be only significant if this was a larger proportion of the working force than in Britain as a whole.

The National Institute of Economic and Social Research—in some impartial, if not necessarily entirely accurate, statistics—estimated that the total number of people employed in the service industries in Scotland is 46·6 per cent., which is below the British average. If one takes the proportion of S.E.T. retained by the Treasury as a proportion of the total wages bill, one finds that Scotland comes out almost exactly in line with the British average.

My basic contention is that while S.E.T. is unpopular in Scotland—as I have pointed out, because it is a tax and because all taxes are unpopular—there is absolutely no case for saying that S.E.T. has victimised Scotland or has fallen particularly heavily on the Scottish enconomy. When one goes on to throw in R.E.P., since it is estimated that an extra £40 million will be added to Scotland's economy, the position dramatically changes and the whole thing becomes, to put it at its lowest commercial basis, a tremendous bargain for the Scottish economy and for the people of Scotland.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The hon. Gentleman has quoted the National Institute of Economic and Social Research in support of his case. He will agree that the National Institute, when analysing the effects of S.E.T. in its publication issued in the spring of last year, clearly pointed out that its effects on the Scottish economy were definitely adverse.

Photo of Donald Dewar Donald Dewar , Aberdeen South

I was quoting the National Institute purely from the statistical point of view, remembering that these statistics were denied from the Opposition Front Bench when we debated the Green Paper. I am sensitive about this because I come from north-east Scotland, where only 25 per cent. of people are employed in categories 3 to 16 of the Standard Industrial Classification, which are the premium-earning categories. I am not totally indifferent to the argument which is often put forward, that because we are missing out on tourism and the service industries, the whole scheme is bad.

I confess that I would have been happier if, not necessarily through R.E.P. but perhaps via some other method, some concession could have been given to the tourist industries. If someone tried to argue that there is also a false distinction in that when the government is talking about reducing costs, as the Green Paper does, it tries to maintain that service costs are not often as important as, say, the wages bill, I would be prepared to accept that argument. But we come back to the Scottish Council's original statement to the effect that one cannot have an all-embracing panacea.

7.0 p.m.

When talking of Scotland, and talking from a Scottish point of view, as hon. Members opposite very understandably and naturally try to do, it is no good making points that may have some plausibility in the North-East or the Highlands of Scotland and then try to pass it off as the picture for the nation as a whole. To do so is dishonest and a distortion and—I say this quite sincerely—it is unworthy of any hon. Member of any party.

I shall not dwell on the tourist industry or the service industries largely because I know that the arguments connected with them have been well rehearsed. I suspect that my right hon. Friends on the Treasury Bench have, for a short term at least, decided to harden their hearts, and it is inconceivable that I can sway them. I only hope that the signs of refinement in the Selective Employment Tax machinery as seen in respect of part-time employment and the regional variation may continue, and that, in the future, the position of the tourist and service industries may be reconsidered.

I recognise that the whole scheme is a tremendous disappointment to many people in Scotland who have an axe to grind. It is a very real blow to those who proclaim, in the face of all the evidence, the Government's supposed indifference to the fate of the Scottish economy. It is a very real blow to those who say that the Government have broken faith with the Scottish electorate and are not interested in revivifying the Scottish industrial scene.

From the speeches of many hon. Members—including many on this side, such as my hon. Friend the Member for Lancaster (Mr. Henig), who come from these so-called, and perhaps unfortunately called, grey areas, it is clear that those hon. Members are in no doubt about what the effectiveness of this regional employment premium is. I do not for a moment believe that Scottish people share the narrow partisan arguments heard all too often in this House. My only regret is that hon. Members opposite cannot take the advice of the Scottish Council (Development and Industry) and "warmly welcome" what is "an important initiative".

Photo of Mr Gordon Campbell Mr Gordon Campbell , Moray and Nairnshire

The hon. Member for Aberdeen, South (Mr. Dewar) rather typically criticised an imaginary case that he put forward as having been advanced from this side. I did not interrupt him, Mr. Irving, because I hoped to catch your eye, but I should now like to put the actual case rather than the one that he pretended to have been put from this side. It is easy oneself to set up a dummy case which has no relation to fact and then to knock it down, which is what the hon. Gentleman did.

I oppose the new Clause, not because I am against measures to even out the incidence of employment and unemployment over the country or measures to stimulate activity in the development areas, but because I believe this proposal is not the best method but the wrong method, both from the general point of view and from certain Scottish points of view which have their counterparts in other parts of Britain.

I will not argue simply on what the hon. Gentleman called the narrow Scottish point but on the very words used in the Green Book which I will quote later. The general arguments have been put in the general debate on the Green Book, and my hon. Friend the Member for Worthing (Mr. Higgins) put some of them very cogently today. I would refer to the article by Mr. Kenneth Keith in The Times of 23rd May which was headed "A Misuse of Economic Resources". The C.B.I. and other bodies have pointed out that there are other, better ways of employing about £100 million a year in the development areas and that those methods would be more likely to achieve the desired results.

My principal objection to the Clause relates to the areas which I will call special development areas. These are to be found in parts of Wales, the southwest of England, and the Highlands and Islands and north of Scotland. Paragraph 49 of the Green Book states: The Development Areas include some parts where an exceptionally small proportion (from 10 per cent. to 15 per cent.) of the total number of employees are in manufacturing industry. That is a small proportion. It also states The South West Development Area … the Scottish Highlands and Islands, mid-Wales and North West Wales are in this category. The paragraph ends: … it is clear that the net yield of the tax as a percentage of the wage and salary bill must be rather higher in these sub-regions than it is either in Britain as a whole or in the Development Areas as a whole. From information we have extracted from the Government by Question and Answer, I would say that the words that it "must be rather higher" is an understatement. We know from replies given in this House that the amount of money taken out of the Highlands and Islands by the Selective Employment Tax, as a result of the very low level of refunds and premiums being paid in that area, because manufacturing industry provides only about 10 per cent. of employment there, is very high. This is admitted in the Green Book although, as I say, it is an under-statement.

This aspect of the matter, which was discussed quite fairly in the Green Book, is still valid but, unfortunately, it appears now to have receded from Government thinking. The Government are saying very little about it. They have in the past said that there are other ways of helping these areas. As an hon. Member opposite said earlier in this debate, a lot was said about the Highland Development Board. At other times the Government have said that the 45 per cent. investment grants in the development areas are helping but, unfortunately, these also work on a discriminating principle against service industry and in favour of manufacturing industry, which is such a small proportion.

Those areas that I would call the special development areas cannot be helped by the 45 per cent. grants, because little is eligible for the grants at all. It is a nought per cent. grant for most of industry there. As was illustrated in an Answer today from the President of the Board of Trade to a Question of mine, transport, both for manufacturing and non-manufacturing industries, is not eligible for the grant, and the investment allowances have been lost. This accumulation of discrimination against a very large percentage of industry in these special areas will be accentuated if these regional premiums are adopted.

Two reasons are given in the Government's White Paper for this discrimination against the service industries. It is stated on page 6 that by limiting the premium to manufacturing industry there will be less pressure on demand, and on page 13 it is said that it is because of competition that the manufacturing industries in the development areas can then draw employment and extra work from the other areas.

I suspect that there may be a third reason. I suspect that underlying this proposal there is also a wish by the Government to support exports legally, on the basis that if we provide a subsidy which is on a regional basis it is not offending against international agreements. If that is so, it is a very indirect way of doing it, and I do not think that it is necessary. There are other and better ways of assisting exports.

I do not disdain or oppose the proposal that £40 million a year should be available for assisting the development areas in Scotland. But the question is, what is the best method of using this money? There have been two fundamental errors. The first is that which regards Scotland as just one of the regions, as just one of the development areas minus Edinburgh and Leith. What may be helpful to the industrial belt of Scotland, however, may be very unhelpful to the other regions of Scotland.

We normally consider Scotland in five regions—the industrial belt, which is the largest from the point of view of population and industry, and four others, which are large geographical areas in most cases and present quite different problems. What may be thought to be helpful to manufacturing industry in the industrial belt does not necessarily assist the other regions.

The second fundamental error is that the premium is based on the S.E.T. and therefore not only continues the discriminations I have mentioned but the many anomalies in classifications as well as the creaking machinery for administration of the tax. The hon. Member for Aberdeen, South (Mr. Dewar) talked about the percentage of service industries in Scotland. The point which the Scottish Council made in its submission was that there were about 250,000 more persons employed in Scotland in the service industries than in manufacturing industry.

Of course, the Scottish Council was not talking about non-service, non-manufacturing industry such as farming, fishing, and forestry, which are yet another sector which has upset some percentage calculations. But the fact remains that the service industries, according to the submission, employ a great many more than the manufacturing industries do, and, as has been mentioned, the Government in their White Paper known as "The Scottish Plan" suggested that 60,000 of the 130,000 jobs they proposed would be in service industries.

Photo of Donald Dewar Donald Dewar , Aberdeen South

Does the hon. Gentleman maintain that this ratio is different in the United Kingdom as a whole? If it is not, it seems that the point he makes is not valid.

Photo of Mr Gordon Campbell Mr Gordon Campbell , Moray and Nairnshire

The point is valid. But it is not easy to bring manufacturing industry in large quantities and quickly to a considerable part of Scotland. I have pointed out that, in the Scottish industrial belt, the premium—although there are general economic arguments as to whether it is the best way of assisting—can be earned by quite a large proportion of the industry there. But if one looks at the welfare of Scotland as a whole, one must consider the very large geographical areas where the amount of industry which will earn the premium is a very small percentage.

Photo of Mr Gordon Campbell Mr Gordon Campbell , Moray and Nairnshire

I shall not give way again. The hon. Gentleman made his point and I have replied. I dealt with this matter because he misunderstood what the Scottish Council said. I did not interrupt him because I thought that I could in my own speech point out what the Scottish Council actually said.

Within these special development areas, I am naturally concerned with the Highlands and Islands and the north of Scotland, and so far I seem to have been the only hon. Member from that area to have had the opportunity to speak in the debate. At the same time, however, I recognise, as the Government did in their Green Paper, that some special problems arise in the south-west of England and Wales, for example. But, having referred to this in paragraph 49 and subsequent paragraphs, the Government allowed the matter to disappear. I would hate them to say later that they put this point out for discussion but no one had raised it. I have raised it at every possible opportunity and shall take every chance to do so again.

7.15 p.m.

The Government seem to have forgotten about paragraph 49, unless they can give a satisfactory answer tonight. The position, therefore, has been reached where, under the S.E.T. and the associated system of refunds and premiums, a great deal more money is being collected and taken out of the seven crofting counties of the Highlands and Islands than is being or can be put back in the foreseeable future by the grants made by the Highlands and Islands Development Board, which is the body mentioned in the Green Paper by the Government as an agency which might be able to help in the other direction.

One finds, therefore, that the money being collected from the Highlands and Islands, where it is a good deal more per job than elsewhere, is to be paid out in premiums—greatly increased—in the industrial belt of Scotland and in development areas where there is manufacturing industry in other parts of Britain. The funds remitted from the Highlands and Islands will be given out in Glasgow, Newcastle and places like that.

This must lead to depopulation. It must be a tendency towards depopulation. Yet the Government have said on many occasions that they are trying to stem depopulation. I hope that the Government will explain how they intend to put this right. They are positively encouraging new jobs, or the jobs they hope will remain in existence in manufacturing industries, which are bound to concentrate in the industrial belt of Scotland. It means that more men will be leaving the north of Scotland and the Highlands if the purpose the Government intend under this system is carried out and this money is given to jobs in manufacturing industries which can only be set up to a minor extent in such areas as the Highlands and the North. This will make the anomalies worse, and I cannot see how the scheme, although I concede that it may have some benefits for the industrial belt of Scotland, can do anything but damage to those parts of Scotland I have mentioned.

Photo of Dr David Owen Dr David Owen , Plymouth, Sutton

I welcome this Clause. I come from what I suppose is an area which would be described as a grey area and which has much claim to be a development area. Whether Plymouth becomes a development area or not, I believe that the premium is an extremely imaginative piece of fiscal policy, and as one who, in the last Budget, made representations to the Chancellor to introduce regional flexibility in the S.E.T., I welcome this proposal and, in the particular economic situation of the day, its emphasis on manufacturing industry.

The debate has been somewhat parochial. Everyone has argued the case from the point of view of his own constituency interests. Essentially what we are after is a control of the national economy. What we are desperately trying to do is to remove the regional imbalances and the very high areas of unemployment which exert strong social pressures on the Government to take economic policies which can be counter-productive and which are certainly one of the major factors in the stop-go economy. The Government's long-term economic policy has my full support, and I regard this proposal as a strengthening of their armament in this respect.

It was interesting that the hon. Member for Belfast, East (Mr. McMaster), in a difficult speech, made quite clear that he does not support his own Front Bench. He drew attention to the benefits which will accrue to Northern Ireland from the regional employment premium. Some people talk as though this were a new idea but, in 1962 a labour subsidy was proposed for Northern Ireland. It was discussed very fully, but it was not acted on at the time. We have had a capital subsidy for a considerable time now, and what we need is an extended range of measures, including the introduction of this labour subsidy.

I turn now to the points made by the hon. Member for Worthing (Mr. Higgins). The hon. Gentleman implied that the T.U.C.s support for the regional employment premium scheme was given purely on the basis that the unions could expect higher wages in the regions. This is a very cynical interpretation. I am sure that the main support of the T.U.C. for the proposal stems from the fervent belief that it will reduce unemployment in the regions. This is the principal reason why the T.U.C. is enthusiastically supporting it.

Photo of Dr David Owen Dr David Owen , Plymouth, Sutton

No, I shall not give way. The debate has gone on a long while, and time is now short. The hon. Gentleman has only just come in, and I would rather give way to someone who has been present in the Chamber for a longer time.

I was saying that the trade unions support this proposal because of its central basis as a measure intended to reduce unemployment. I am, however, critical of one aspect of it. The Government believe that the scheme will be self-financing. I hope that they are right, but, in the next few years, it will undoubtedly produce an inflationary pressure until it begins to produce some form of payments back. This is extremely worrying in our present situation. Now is not the occasion to argue the short-term aspects of the Government's policy—I have done that in the Budget debates—but I must say that I remain deeply critical of it. I see nothing in the measures being taken at the moment to encourage investment in industry. I see nothing in the present measures to encourage an export-led boom. In January and February, it was reasonable to hope that we were in for an export-led boom, but there is precious little evidence of it now. There is no indication yet of any form of reduction in imports. In the long term, however, which is what this argument is about—it is not a short-term measure at all—inestimable benefits will accrue.

The hon. Member for Worthing said that, in some strange way, the regional employment premium would encourage manufacturers to invest in equipment which would use a lot of labour. I do not believe it. I am glad that the hon. Member for Belfast, East took him up on the point. If it were to be a permanent premium staying for all time, that might be so, but it is to stay for only seven years and then taper off. But, apart from that, we have an extensive capital subsidy already, and the capital subsidy is more than the labour subsidy. The hon. Gentleman's argument does not stand up.

In an intervention, the hon. Member for South Angus (Mr. Bruce-Gardyne) raised a point which he has tried to make on previous occasions, both in letters to the Press and in an intervention during the speech of the First Secretary of State the other day. He says that the regional employment premium is inextricably linked to the Selective Employment Tax, to which he has a great aversion. It is not so linked. The First Secretary of State denied categorically that it was, in immediate response to the hon. Gentleman's intervention, so how he can continue to pursue the point I do not know.

Photo of Dr David Owen Dr David Owen , Plymouth, Sutton

No, I shall not give way. Time is short.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

On a point of order, Mr. Irving. We are not subject to a timetable resolution. Time is in no way short, is it?

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Order. That is not a point of order.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

If the hon. Gentleman will read HANSARD, he will see that the First Secretary of State's answer to my intervention last week was that the Chancellor of the Exchequer would deal with the point I had raised when he replied to the debate. Needless to say, the Chancellor did no such thing.

Photo of Dr David Owen Dr David Owen , Plymouth, Sutton

The hon. Gentleman gives me the opportunity to read the relevant passage in HANSARD. My right hon. Friend the First Secretary of State said: … this and the S.E.T. do not integrally and inevitably fit together. It is true in form that the one has come out of the other, but they are not necessarily inseparable."—[OFFICIAL REPORT, 5th June, 1967; Vol. 747, c. 660.] That makes the matter clear. If we wish to separate them, we can. If we have an added value tax, as I hope we shall, and if the Selective Employment Tax is done away with, we can still retain the regional employment premium, which, in my view, is of considerable benefit. I would not like to see it go.

Photo of Dr David Owen Dr David Owen , Plymouth, Sutton

No, I shall not give way. The hon. Gentleman has already spoken. This debate is going on for a long time—[HON. MEMBERS: "Give way."] I shall not give way. There are many other hon. Members who wish to speak.

This is the central issue which I want the Government to understand. They have, rightly, concentrated at present on manufacturing industry, but there is a real case for the tourist industry to be treated as a separate industry. I want this question to have close examination. It may well be that the tourist industry can be helped in ways other than by a regional employment premium, but I have no doubt that it has considerable benefit to give to the country and it should receive assistance.

Regions such as some parts of the Highlands of Scotland, the North-West and North Wales do not gain much benefit from the regional employment premium. My own region of the South-West does not gain much benefit, but this is no reason for not supporting it. If it will produce benefit for the nation and be of national value, hon. and right hon. Members ought to be able to look a little further than their own constituencies. I urge the Chancellor to regard the tourist industry as a separate concern and, if possible, bring forward proposals to help it. I must warn my right hon. Friend that the short-term economic outlook for this country is causing many of his hon. Friends grave concern, but, for the long-term, this imaginative piece of fiscal policy is warmly welcomed.

Photo of Mr Ian Lloyd Mr Ian Lloyd , Portsmouth Langstone

I wish to make a few pertinent comments on the Clause and on the arguments advanced in a number of Government documents advocating the policy which it embodies. Some of my remarks may be judged impertinent, but I hope that I shall succeed in staying within order.

First, I take issue with an argument used by the Chancellor earlier today. He emphasised that one of the main considerations in the Government's thinking in determining this measure was the lack of trained skill. His words were to the effect that "Expansion, when it comes, falters because of the lack of trained skill". I subscribe wholeheartedly to the view that the British are among the world's most skilful and ingenious peoples and that in this resource lies, perhaps, 99 per cent. of our greatness, but I would argue strenuously that, in the last decade or two, too much of our available skill has been either untrained or obsolete. Too much of our skill has been absorbed artificially. We have had too much concealed unemployment and misemployment.

Whenever we discuss this subject in the House of Commons, we talk as though we are up against the extreme limits of available labour all the time. I believe this to be wholly untrue because, basically, the situation is artificial. The decline of the shipbuilding industry, one of the major industries which the Chancellor hopes to help by these proposals, could be attributed in large measure to the serious misemployment and over-employment which has existed in the industry, probably for half a century, as a result of a whole range of economic and social restrictions which I need not go into now.

Next, I take up the question of the shrinkage of numbers employed, the implication being that it is something to be avoided. This argument, too, cannot be sustained. Shrinkage of numbers employed is in itself a neutral phenomenon. It is taking place in all the most efficient agricultural countries of the world. Shrinkage in numbers is a world phenomenon in the developed agricultural countries. In shipbuilding, too, the surviving efficient shipbuilding nations are those in which there has been a prevailing and significant shrinkage in the numbers employed. The argument could be put another way, that if the shrinkage is associated, either geographically or economically, with a rise in real incomes, it is something to be welcomed. It is on the rise in real incomes rather than on the shrinkage in numbers that we should concentrate.

7.30 p.m.

I turn now to a point made by the hon. Member for Aberdeen, South (Mr. Dewar), who said that labour-intensive investment was the investment most required particularly in Scotland. Here again, the argument is fallacious. It is not labour-intensive investment we require or, necessarily, capital-intensive investment. The choice is not between labour-intensive and non-labour-intensive firms; it is much more fundamental. It is between a high and rising national standard of living with largely capital-intensive firms and industries employing whatever labour is needed and economically justified, however the total results of that developed national output may be distributed, and investment in less capital-intensive firms producing a low or lower national standard of living. These firms are being compelled artificially—usually by legislation but there are other compulsions—to employ whatever labour is deemed by some all-wise bureaucrat to be necessary. That is the real choice facing us.

Let us forget about the argument about labour-intensive and capital-intensive industries and go to the real crux of the problems. I should like to give a specific example. The world, and Britain with it, is on the verge of what is known as the container revolution. With this capital-intensive method in the United Kingdom the whole dry cargo trade can probably be handled by about 5,000 men. Without it, using the labour-intensive method, it can be handled, as it very largely now is, by 50,000 men. What is the choice? What are the consequences for the national economy? They seem to me to be perfectly clear. The important point is that this choice should not be obscured either in narrow sectors or in the broad national sector by legislation which tends to emphasise artificial criteria.

The Green Paper refers to the mobility of labour and implies that outward migration from the development areas has exceeded … the degree of geographical mobility of labour which is socially and economically desirable". I should like to ask the Chancellor of the Exchequer what is the degree that is socially and economically desirable. How is it defined? Is it static through time? If it is not, how does it change, how is it affected by rising standards of living? How is it affected by the rising ratio of standards of living comparing one area with another. How is it affected by the availability of housing? That is probably the most important point. We should know what is in the Government's mind. I leave it at that.

The question of service industries has been rightly emphasised and I do not wish to say much more about it. But the word "physiocrats" was produced by an hon. Member opposite, and there was a suggestion that it was an obsolete concept. Going by the sort of judgments made by the Government today, I suggest that it is not physiocrats but "physicalcrats" who seem to dominate our thinking. I could summarise their attitude by saying, "If you can see it, subsidise it. If you can't, tax it."

The Government argue further in the Green Paper that there will be no effect on the balance of payments, and that argument should be taken very seriously by the House. In paragraphs 33 and 34 of the Green Paper there are what purport to be arguments sustaining that proposition. But I contend that they are not arguments; they are assumptions. They are an act of economic faith. But, as I see it, it is not the task of economists anywhere, never mind those who advise Governments, to have faith in their proposals. I have always understood that their task is to demonstrate the case as fully as their data and assumptions permit.

It is not demonstrated in the Green Paper. As far as I am aware, it is not done anywhere else, and it should be. I do not believe this particular set of assumptions. I do not believe paragraph 33 which states that: There are strong grounds for holding … it is believed that … there should be … it is believed that … and so on. This is not a convincing argument, and I hope that the Government will succeed in producing others, although I doubt if they can.

It seems to me that the argument which underlies much of the thinking behind the R.E.P. is that there is excessive demand in certain situations which cannot be controlled as effectively as the Government would like because it spills over into the development areas. I am not convinced by that argument. It seems to me that when this excessive demand is concentrated on those industries in which expansion of output automatically creates a positive balance of payments effect, and when it is possible to define and isolate those industries, we are getting somewhere.

Of the low import-content industries, tourism has been rightly emphasised, as well as hotels and entertainment. I should like to add electronics and scientific instruments. Every hon. Member can have his own list, and most of our lists would overlap. It is especially in these industries of expanding output and high positive balance of payments content that we should encourage development, investment and employment. We should do this wherever those industries can be found, and not submit them to artificial criteria, wherever they exist. We have too few of them. This measure does not necessarily create this type of industry, but it is certain that it places a specific burden on it wherever it exists outside the development areas.

It is reasonable to suggest that, as I am speaking critically of the proposal, I might have alternatives. Do they exist? I should have thought that there were two perfectly reasonable alternatives which the Government could bring forward and which they would have to support if they were really serious. I recently had an opportunity of seeing the tremendous economic attraction provided by the free port concept, such as Shannon in Eire and Copenhagen in Denmark. Why do the Government not create some free ports in the development areas? If they are really serious about their intention to benefit these areas, the attraction provided to industry in free ports would be quite certain, quite dramatic and quite effective.

There is another and possibly more difficult line of incentive which the Government might consider—the rate of personal taxation. Why have not the Government devised a scheme providing that all those subject to personal taxation—because ultimately incentive operates at the personal level—should pay 10 per cent. less at all levels? Possibly the development areas would have to be defined much more carefully and specfically, but what a dramatic effect this would have on the desire of people to go to development areas, to live there and endure the lack of social amenities and various other disadvantages! What a flood of economic activity would follow such a scheme! If the Government are really serious about their intention to help and not simply to sit aloft and aloof in Whitehall and operate the puppets on the strings, that is the sort of thing they should be thinking of doing.

The Green Paper has questioned, in effect, the ultimate result of the withdrawal of the R.E.P. This suggested to me that it was really a form of tariff barrier that the Government are erecting for these areas, a tariff barrier of, perhaps, at least 2 to 3 per cent., behind which industries in those areas can shelter. Those of us with experience of tariff barriers know that they are seldom effective. The uniformly affect old industries, which are either efficient or inefficient, and new, which are either inefficient or efficient. Only about 1 per cent. of all tariffs are justified, and those are usually not needed.

To sum up, it cannot be escaped that the proposal is essentially to build a bad subsidy, which will be bound to build up considerable political and economic vested interests, on a bad tax. I have heard no argument today to convince me that the contrary is the case. Is there an ulterior motive behind the proposal? Are the Government attempting to create a situation in which, in the course of time, so much will have been invested and so much employment created on this artificial basis that no Government, irrespective of party, will be able to unscramble the mess? I have a vague and lurking suspicion that that is so. I hone that the Chancellor will succeed in disabusing me of it.

Finally—and this is the most important point of all—who pays for this? The map shows who pays. Broadly speaking, it is the South. I happen to represent the city of Portsmouth, but I do not regard it as a particularly wealthy city, and vet under this scheme it will subsidise Plymouth and Liverpool.

Photo of Mr Peter Bessell Mr Peter Bessell , Bodmin

Plymouth is not in a development area—I wish it were—so that it will not be subsidised by the city of Portsmouth.

Photo of Mr Ian Lloyd Mr Ian Lloyd , Portsmouth Langstone

The hon. Gentleman is quite right and Plymouth is outside, but certainly Liverpool is in a development area and my point is not invalidated. Portsmouth will have to subsidise Liverpool, Newcastle, Glasgow, Edinburgh and many other cities. This is a monstrously unfair imposition to place on the people of Portsmouth and many other cities in the South.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

On several occasions my right hon. Friend the Chancellor of the Exchequer has said that this proposal is in general line with his economic policy. Before dealing with that, I want to give a general welcome to the Government's intention to deal with the special and urgent problems of the development areas. The way in which the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) spoke setting one part of the country against another, represented the kind of backward thinking to which we are accustomed from him on all sorts of subjects.

I support and have supported measures to encourage employment and investment in development areas, but I am not prepared to accept such a policy as a substitute for the other essential economic measures which are required by the country as a whole and by the development areas. I have in mind certain remarks of the Chancellor, starting with his Budget statement, about the problem of finding 100,000 jobs, most of which would have to be allocated to the development areas, and his view that if we succeeded in that we would then be in sight of the solution to our economic problems.

I dissent from that point of view. If the Government confine themselves to the measures so far advanced, including this, and do not take radical steps in the immediate future to encourage investment throughout the country, including the development areas, the policy will fail. Certainly it will not bring us closer to a solution of our general economic problems. This is a matter of cardinal importance. The Chancellor seems to be creating the illusion that the provision of 100,000 new jobs in the development areas will produce a solution to our general investment problem. I believe that to be profoundly incorrect.

Since the Budget I have seen reports from bodies, such as the National Institute for Economic and Social Research, proving conclusively that it is the lagging of investment which is the root of our problems. On several occasions the Chancellor has referred to his expectations of growth in the economy, but the policy embodied in this proposal, which I support, will not bear the desired fruit if at the same time there is not a general all-round increase of investment in the economy within the next six months so that it can percolate through all areas, including the development areas.

7.45 p.m.

But crucial investment decisions are not based on tax allowances or special premiums. As my right hon. Friend the Chief Secretary knows very well and has known for a long time, probably longer than I have known this truth, essential investment decisions in board rooms are based on the expectation of selling the goods produced at a reasonable profit at the other end of the line. Allowances and premiums are no more than additions and they cannot take the place of that expectation of reasonable profit, because no allowance and no premiums will affect those crucial investment decisions unless there is a prospect of selling the goods. I therefore hope that there will be a clear declaration from the Government that this proposal is not meant in any way to be a substitute for a general economic policy of encouraging investment, a policy which must be urgently pursued by increasing consumer demand, so that this and other measures can bear fruit for the good of the development areas and the country as a whole.

This afternoon, the Chancellor rightly drew special attention to training for skills. If we were able to make more progress in this direction, many policies to aid our export effort would be much better advanced. Unfortunately, we are not doing all we can to improve training for skills. The Chancellor was speaking particularly about development areas, but I am thinking also of the old industrial regions.

I am glad that the Chief Secretary is a senior Treasury Minister, because the specific problem which I want to put concerns him as a Treasury Minister as much as the proposal which we are now considering. There is a limited number of training centres and it is generally agreed—and I was glad to hear the Chancellor say this—that the best kind of training occurs in the firm, in the plant, where there is much accumulated skill and experience. It is physically impossible in the time available to expand the number of training centres; they cannot do what is required with present resources, and therefore retraining must take place in the plant. In addition to that, special training can often best be undertaken in the plant, especially when a man is changing from one skill to a slightly different skill.

However, there has been an unfortunate development. There are two firms in my area of South Yorkshire, as there are others in other parts of the country, which have developed excellent schemes for retraining in the plant. About 12 months ago, a number of men were facing a crucial decision. The management was declaring their jobs redundant and the men were perfectly entitled under the Redundancy Act to expect a redundancy declaration and immediately to apply for redundancy payments, which, as the Committee knows, would not be subject to tax.

At about that time the firm concerned developed an excellent internal retraining scheme. It told a number of the men affected, "You have acquired valuable skills in the steel industry and invaluaable experience. Unfortunately, your jobs are coming to an end. You are perfectly entitled to ask for redundancy payments, which will be tax free. However, we ask you not to leave. We have instituted an internal training scheme and we intend to train you for another job. We have taken advice on this matter. Let us assume that you have been earning £24 a week. During the period of training we will pay you £14 a week. We cannot possibly pay you the full rate".

The employers went on to say: "In addition, we will make up that wage of £14 to 95 per cent. of the wage you previously earned for the period during which you are being retrained. We have taken advice and we can tell you that this additional payment will not be subject to Income Tax, so that you will be placed on terms of equality with people who make the alternative decision; that is, you ask for your reundancy payment and then you do not have to pay Income Tax on it".

These men accepted this proposal in the knowledge that they would not have to pay Income Tax for that additional payment. Nine months later the management had to come to the men and say that they had been mistaken and they would now have to pay retrospectively full Income Tax on these additional payments.

This is wrong and unhelpful in many different ways. First, it is wrong because it will have a discouraging effect on these firms and others in the steel industry going ahead with their internal retaining schemes. Secondly, the trade union executives who originally thought up this idea are being approached by steel workers, whose jobs are being declared redundant because of inevitable technological advances, who are asking "What position are we to take?" Even if my right hon. Friend cannot give an immediate answer, I suggest that the Government should think again. I advance two grounds: one is efficiency and the other is equity. If some people accept the redundancy payment, which is tax free, and others make the other choice, they ought to be equally treated. There is involved here the important principle of treating taxpayers alike. Industrial efficiency and the future of retraining for other skills, which the Chancellor mentioned, is bound to have a seriously discouraging effect, and these people who have acquired experience and skills in the steel industry, or any other industry, will leave and might never come back. This is the great fear of these firms and the trade union representatives of these men, and I have been asked by them to put this point in some considerable detail.

I have spent a little more time on that point, because I thought that by discussing a number of details, as well as the Government's general economic policy, we could best advance the sort of purposes that the Chancellor put to the Committee earlier.

Photo of Sir John Gilmour Sir John Gilmour , Fife East

When one is being offered in one's own constituency or elsewhere a premium of 30s. it seems stupid to turn it down. But, having listened to the debate, I am more than ever convinced that as the Selective Employment Tax in many cases takes money from people who can ill afford it and pays it to those who do not need it, in the same way the regional employment premium will channel a very great deal of money to people employed willy-nilly in the industries in which they are at present working. Therefore, I do not think that it will in any way help the long-term solution of our economic difficulties.

A practical illustration of an industry which has come to Scotland in recent years is the motor car industry. What effect will it have on building up this industry in Scotland? Will it produce cars more cheaply from Scotland? Will it lead to cars from Scotland taking a bigger share of the market as a whole? What sort of impact will it have? Nothing has been said which in any way leads me to suppose that it will provide the stimulus to industry that we need.

One other quite different and unrelated point about which I was not quite clear when the Chancellor introduced the Clause is what happens over short-time working. I paid several visits to industrial concerns in Scotland last winter. They were working a four-day week. By working from Monday to Thursday in one week and Tuesday to Friday the next week it was possible for the people concerned to draw four days pay a week from their firms and to draw two days unemployment pay a fortnight. This was arranged between management and unions to make certain there was no industrial strife and people did not have to be paid off.

The Chancellor said that if one worked for 21 hours one would draw this premium. Does it mean that if people are put on permanent short-time working, to obviate, if you like, paying off members of a firm's staff, they will be able to draw the 30s. a week, although they are only working four days a week?

My hon. Friends have deployed all the arguments necessary to show that there are many other ways in which this £100 million could be better spent, but no argument has been developed to show that it will certainly help those parts of the country which are outside the big industrial centres.

My hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) made the point that the central belt of Scotland has over past years had a considerable amount of money spent on it to help it develop. What happens is that it draws and attracts labour from outside the central belt to fill up jobs there. What we need is something which has an element of discrimination to make it much more attractive to go to the areas where there are not the same facilities as in the major industrial areas. I cannot see that the proposals which the Government are putting forward will deal with the long-term employment prospects for Scotland, Ireland or any other part of the country where we suffer from a high level of unemployment.

Photo of Mr Arthur Davidson Mr Arthur Davidson , Accrington

I should like, first, to give a general welcome to the regional employment premium. The benefits which it will bring to the development areas are so obvious that I am surprised that some hon. Gentlemen opposite have seen fit to criticise it. But my enthusiasm would have been greater—fulsome to the extreme—had the Government included Lancashire—in particular, the Lancashire cotton belt. The Lancashire cotton belt has problems peculiar to it, similar to those facing the development areas themselves.

Speaker after speaker has catalogued the features of the development areas, and all of them could have applied to the Lancashire cotton belt. I will detail one or two of them. A poor rate of economic growth applies to Lancashire. The drift away of younger people to seek work in more attractive industries elsewhere also applies to Lancashire. A resultant distorted age structure amongst the existing population applies to Lancashire. Poor communications, excessive travel to work, and a need to revitalise and modernise towns certainly applies to Lancashire. Above all, over the years there has been a massive contraction of the two industries upon which Lancashire's prosperity was built—coal and cotton.

8.0 p.m.

The problems of the cotton industry are well known in this Committee. They have been ventilated on other occasions and I am sure that I would be out of order were I to detail them now. But what are needed in Lancashire are new industries, growth industries, to replace the older industries. While I welcome the premium as it will affect the development areas, we in Lancashire fear that the greater inducement that the premium will give to firms to develop will mean that existing firms in Lancashire and firms which are thinking of going there will find the lure to develop elsewhere irresistible.

I am sure that the problems of Lancashire are well known to the Government. I raised them in an Adjournment debate which was not exactly over-crowded nor over-reported. I got a not unhelpful reply from the Government. They showed that they understood the problems. Previous Governments have also understood the problems of Lancashire. But understanding the problems is not sufficient. The Government have shown that they understand the problems of development areas and have done something about them. What I am asking the Government to say today is not only that they understand the problems of Lancashire and of the region of Lancashire in which my constituency is situated, but that they will give practical assistance to induce industry not only from outside to go to Lancashire but, in particular, to induce and give help and new incentives to industry already in Lancashire to expand and develop.

I hope that my observations will be passed to the Chancellor because he specifically asked that no further mention should be made of areas as "grey areas" and I have somehow miraculously succeeded in talking about Lancashire without mentioning those words.

Photo of Mr Peter Bessell Mr Peter Bessell , Bodmin

The main points which caused the Liberal Party to support this Measure were put forward by my hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. David Steel). There are only two points I would like the Committee to consider in addition to those which were made by my hon. Friend, who understandably confined himself largely to the effect of the premium upon the areas of Scotland which come into the development category.

The development areas as they are at present designated under the 1966 Act are, of course, valuable in that most of them are areas of high unemployment, depopulation, ageing population and where it is difficult to find employment for young people. But it is unfortunate that this measure, which has considerable merit, will not apply to areas within development areas where there is a serious unemployment problem. I can best illustrate this by taking the case of three towns in my constituency, Torpoint, Saltash and Gunnislake. All are places of difficulty.

Torpoint and Gunnislake in particular have a very high unemployment record and although almost the whole of Cornwall is designated as a development area and will benefit from these proposals, these three towns, which have greater problems than the majority of the development areas in Cornwall, will receive no benefit whatever either from this scheme or from many other schemes which have been put forward by the Government for the assistance of development areas.

This is because of the utter absurdity of the method whereby development areas are designated. They are based not upon unemployment nor upon the need to develop certain derelict areas. On the contrary. They are decided by the existing labour exchange areas of the Ministry of Labour, and the exchange area into which Gunnislake, Torpoint and Saltash fall happens to be the Plymouth area and it is therefore assumed, because there is no high unemployment in Plymouth, that there is no need to make a development area of these three towns.

The absurdity of this is illustrated by the fact that communications between these towns and Plymouth itself are quite inadequate. In the case of Saltash, admittedly there is a bridge connecting the borough and the city of Plymouth across the River Tamar and in the case of Torpoint there is a ferry service. In the case of Gunnislake, there is a relatively long train journey, and Gunnislake has as much as 13 per cent. of the employable population on the dole.

I appeal to the Chancellor to consider seriously whether this measure should not be applied to areas like these, which are literally within a development area but are excluded because of the absurdity of the machinery whereby the 1966 Act is operated. There is nothing to prevent this being done. It is a simple matter for the President of the Board of Trade to make an order. He can do it under Section 15(2) of the Act. He may vary or revoke or change in any way he chooses the areas which are designated as development areas.

If the premium is to have the effect that is intended by the Chancellor in providing additional employment and additional industry where it is really needed, I ask him to make representations to the President of the Board of Trade to make certain that this really happens, because, as the position is at the moment, it is only an irritation to those people who have been unemployed for a long time to know that there is no possibility of this measure helping them.

It is also an irritation to those employers who have had the courage and foresight to set up their factories in areas like Gunnislake, Torpoint and Saltash and who have not received any assistance from the Government because these places are outside the development area and who, despite this, have continued to go ahead with their plans, providing employment for the local population and thereby helping to stabilise a declining economy. They are doing this without any Government assistance. When a measure of this sort is put forward and we are asked to support it—as we must, because any gift horse is better than none—it is extremely irritating to these employers of labour within the framework of the development area that they will not receive any benefit.

My hon. Friend also mentioned the real risk that this measure represents to some of the service industries. I have in mind particularly the hotel and catering industry, again as it is within Cornwall. For example, one of the development areas is the seaside town of Looe. There is no need, I assure the Chancellor, to provide incentives to build factories in a former fishing village which is rightly regarded as one of the most beautiful spots in Cornwall.

There is no need to provide an incentive to employers to establish factory buildings in Looe or Fowey or Polperro. There is every need to provide incentives in Gunnislake, Milbrook and Torpoint, and yet if the prospective employer of labour, the man who has decided that he will open a factory in a development area, has chosen Cornwall as the place to do this, one writes to the Board of Trade and asks for information, he will discover that he can receive all of these benefits, including the one which we are now discussing, provided that he opens his factory in Looe, but he cannot have them if he opens it at Gunnislake.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I hesitate to interrupt the hon. Gentleman, but I assure him that I have listened very carefully to him, and I cannot help him in all that he says. I am only dealing with the new Clause before the Committee. I can convey what he says to my right hon. Friend the President of the Board of Trade, but I gather that he is not saying that this is in any sense detracting from the arguments of the new Clause before the Committee.

Photo of Mr Peter Bessell Mr Peter Bessell , Bodmin

I ask the right hon. Gentleman to accept my assurance that I am not opposing the measure. What I am saying is that it has been brought forward without proper consultation between his right hon. Friends the Chancellor and the President of the Board of Trade. The effect of this proposal will be to provide additional employment to promote new factory development in certain parts of the development areas. It will often be the case, as in my constituency, that it will provide incentives in the very place where they are least needed and where they could have a serious effect upon the tourist industry.

I am certain that the Chief Secretary will agree that it is vitally important that we should do everything possible to improve tourist facilities, to attract foreign visitors, and provide them with the best possible accommodation. To bring a measure of this sort forward which, because of sheer bad planning and the absence of foresight, could have the opposite effect to that which we all desire in certain areas, does not mean that it will not be welcomed in the development areas as a whole. It will be, and it is right that it would be supported, if only for that reason.

At the same time there is a period between the deliberations of this Committee and Report when proper representations could be made by the Chancellor to his right hon. Friend the President of the Board of Trade, to see whether these provisions could not be extended beyond the existing development areas to those places attached to the development areas, where this kind of assistance is most urgently needed. An alternative method would be for the President of the Board of Trade to make an Order to include these areas which I have mentioned, areas such as Gunnislake, Saltash and Torpoint, within development areas, and cease to be quite as hidebound, as he is at the moment, by the Ministry of Labour's designated exchange areas. This could be done.

The strongest argument for supporting this new Clause is the fact that it will provide an incentive, not only to employers to build factories within the development areas, and thereby assist in improving the general prosperity of the area, but moreover it should attract more people into the areas. One of the great problems existing in all the development areas which have been discussed by hon. Members on both sides of the Committee is under-population—a lack of young people able to do the work, if it is provided. The only way in which we can hope to increase the prosperity and improve the economy of the development areas is by increasing the population.

The only way of increasing the population, short of waiting for Nature to take its course, is to bring people in. If we are to do this we have to provide jobs for them to do. The most important aspect of this new Clause is the fact that it should provide the incentive for employers to set up factories and provide opportunities for employment within the development area, thereby attracting to the area the additional population which is essential if one is to have viable economic units in places such as Cornwall, West Wales and Scotland.

I do not share the fears which have been expressed that this would work to the detriment of the existing employers. On the contrary, I believe that the employers in industry will benefit generally—those who are there already as well as those who, we hope, will come in future. What is worrying me is that it may detract from the service industries, particularly the restaurants, hotels and other industries catering for foreign and British tourists. I hope, therefore, that the Chancellor will put right the two fundamental errors in relation to this new Clause.

The first one which I elaborated earlier, is that the benefit should extend to those areas which are not included within the development area, and yet which geographically, are a part of it. The second point was that he should also find some means of providing assistance to those service industries helping our balance of payments, which are so essential to the economic growth of certain regions, such as the hoteliers and others associated with tourists.

8.15 p.m.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The reason for the introduction of the regional employment premium in this form was because from July of last year we were running below capacity in plant and in the supply of labour. Given a high employment rate, the advance factories, the training and retraining facilities, the I.D.C.s and investment grants, would have continued to work, without the need for the regional employment premium. The greatest incentive that can be devised for increasing employment in a region is a high level of employment generally, together with an availability of factories and training and ancillary services for the development area.

In the period when there was high employment, the reductance of manufacturers to go to development areas could not be mitigated by anything that was likely to be brought about as a result of the regional employment premiums. What is needed is high employment for a long period of time. What has happened, and this is shown in Table 2 on page 8 of the Green Paper, is that at a time when unemployment is beginning to rise markedly over the country unemployment starts shooting up in the development areas. It is because the periods of sustained prosperity have not been sufficiently prolonged that the really great problems have arisen.

There is no greater incentive to a manufacturer to move to a development area than his finding that he is unable to increase his production because he cannot get his labour locally. No regional employment premium is likely to make up for the lack of this incentive. There is a sort of relationship between the regional employment premium and investment grants, and this has to do with the changeover from investment grants from the period when there were tax allowances to the cash payments. The argument was made many times that if one paid people to invest there may be a surplus of machinery, and this is wasteful. Although too much was made of this argument, there was something in it.

But what followed from this was that if there were excessive purchases of modern machine tools it would benefit the country by providing manufacturers with modern equipment and would disseminate skills which come from the wider use of advanced machinery. But when we subsidise firms to move into development areas and make it easier to get labour at lower rates the waste of manpower, which is the comparison to the waste of machinery, does not bring the advantages which surplus machinery brings. What this means often is that manpower is likely to be inefficiently employed. If it is argued that that does not matter as long as it is employed, that is hardly the course for a country such as ours which should be making the greatest use of its resources.

Previously firms moved into development areas because they could not get the labour which they needed in their own towns. These were industries frequently with highly automated plant and very considerable investment so that their urgent need for labour was greater than that of the labour-intensive industries because there was more capital per head of labour to be considered. They went into the development areas because they needed that production and not because it was marginally cheaper. Jobs were created in this way because of the high levels of employment.

Now we shall see large numbers of semi-skilled and unskilled workers brought into new industries. What I think is likely to happen is that after a time, when the employment premium is withdrawn, these firms will find themselves uncompetitive and will have to go out of business. Firms which produce no lasting benefit to the areas, no increase in skills and no benefit to the country are not suitable for an advanced industrial country such as our own.

There is reference in paragraph 40 on page 14 of the Green Paper to the possibility of serious difficulties arising when the time comes to remove the premium. It may well be that the R.E.P. will operate as a crutch for labour-intensive industries which will find it difficult to operate once that crutch has been removed. Paragraph 26 on page 11 says that the R.E.P. is designed to produce the effect of high national employment without balance of payments difficulties by reducing the labour costs of manufacturing industry in the development areas, thus making it more competitive. I find it difficult to think of a solution which is less likely to make a firm more competitive than to hand it 30s. for every productive worker which it has. Will it rid us of one restrictive practice or initiate the production of one new article or new idea? To expect a firm to drop its prices by relying on the capital provided by a subsidy of 30s. is to misunderstand the way in which industry operates. The market forces are the forces which will finally determine whether the firm charges one price or a lower price.

What is at stake is upwards of 40,000 jobs. One can take one's choice. It may be 40,000 to 80,000 jobs, depending on the basis of one's argument. But taking the figure of 40,000, which is suggested in the Green Paper, £500 million will work out at a cost of £12,000 per job. If continued for seven years each job would cost even more. This might be acceptable for a highly capital-intensive job but the £12,000 is more likely to be spent in a job where labour costs are high. It is more likely to be spent in employing semi-skilled or barely-skilled workers. I should like to see an alternative way in which that sort of money could be spent more profitably.

The crux of the argument is the balance of payments problem. A sum of £100 million spent by the Government will not have the same inflationary consequences as the alternative. There are approximately 1½ million people in manufacturing industry in the development areas. They will receive about 2 or 3 per cent. subsidy. That subsidy is supposed to result in a reduction of prices. It is hard to work out exactly the drop in prices which is anticipated as a result of the subsidy, but it might fall between 2 and 5 per cent. To assume that firms, on receiving a subsidy of 2 or 3 per cent., will immediately drop their prices by 2 to 5 per cent. is to misunderstand the way in which industry operates. It will, of course, take the money, but to rely on it expanding its output by a few per cent. as a result of receiving the money is to misunderstand the basic working of the industrial mind.

I am a very strong supporter of increased regional development for economic and social reasons. The balance of payments argument is most dubious and I do not believe that it has been sufficiently proved. We must consider alternative ways of spending £700 million. If this sort of money were used to give the new regional thrusting development which we want, I am sure that it would not have been difficult to produce a more convincing Green Paper than this one and which showed that training could be massively increased by the injection of capital of this sort and that factories could be built, prepared and made ready to accept the industries which would move into them, together with the roads and services.

Our main task is to use labour more productively. Industrial output per man hour in the United States, France, Germany and Italy is higher than it is in this country. We do not use labour very productively in industry, and I do not think that this is a means by which we are likely to move to greater productivity. Although it may be said that we can have our islands of poor labour productivity here and there, it must be remembered that ours is not a large country, and the labour practices of one area are related closely to those of another. Ours is not a large country; distances are not great and the difficulties of regional development should not be so large to us as they might be to others.

The long and expensive method of the regional employment premium involving an expenditure of £100 million per year, year after year, can lead to great dangers. Over this long period, even if it may not be proved conclusively it will be proved to the satisfaction of most that it was either right or wrong. But over the long period of seven years, if we find ourselves committed to something which is proved to be wrong, to have to carry on the commitment year after year could result in the wasteful distribution of public money.

I am very much in favour of bold and unconventional measures. I am inclined to this by temperament and conviction. I was delighted to see the Green Paper but, when we bring in bold and unconventional measures, it is our responsibility as reformers to make sure not only that an idea is a good one but that it will work out in practice. It is a heavy burden, one we must carry. We must show that the idea will work. I believe that it has not been shown sufficiently that the R.E.P. will work.

8.30 p.m.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) has made a very distinguished speech. It was well thought out, very well prepared, and I agree with almost all of it.

The objection which I have to the Green Paper policy is that it is an extension of the Selective Employment Tax, which I have always believed to be basically foolish. It is one of the disgusting sequelae of Kaldor. The distinction between service and manufacturing industries was all wrong, the clumsiness and expense of the administration of it was utterly ludicrous, and no attempt has been made to put it right in this Clause.

The real point on which I agree with the hon. Gentleman is this. I may not quote him correctly, but I think that I am singing the same tune. If a lot of these factories are spread round in areas which are not really suitable, in the end they will go bust. If we are trying to build up the economy of the regions and of countries like Wales and Scotland, we have to see that the industrial development goes to places where it will be successful and economic. They need to have the communications, the water and the population.

What we want to do is to try to have growth points. As the hon. Gentleman said, this is a very small country and travelling distances are not so great that we cannot have growth points. What we cannot hope to do successfully is to have a little factory in every village, because if anything goes wrong it will go bust and no one will go there unless the pressure of demand is so great in the main centres that people have to go there to get work at all.

What we want to try is not to spread everything so thin, but to try to concentrate. A number of hon. Members have outlined the problems of their constituencies. If I might take North Wales as an example, the strip along the North Wales coast has been excluded from the Welsh Development Area. That strip has admirable communications, which central Wales has not. It has water, it has the population, people can get there, people are there, and people come in to work. But it is sandwiched on one side by the Wirral, which is part of the Merseyside Development Area. The Wirral is bursting at the seams and appallingly short of labour. As a result, labour is taken from Wales to the Wirral. On the other side, there are the rural parts of Denbigh, Montgomery and Merioneth, which are unsuitable for industrial development. The result of this measure will be to attract more industry to the Wirral and some industry to the remoter areas where it will not be able to stand up to competition in the long run. It is clear that the proposal has not really been thought out.

While I agree with most of what the hon. Gentleman said, I believe that his bogus Keynesian argument that the £100 million will not cost anything is absolute nonsense. I regret deeply that Lord Keynes died when he did. The general theory in his greatest book dealt with a situation of acute deflation, and it has been much misquoted when people have considered what he would do now. I do not believe that he would have supported this bogus Keynesian argument that we can distribute what the hon. Gentleman rightly described as £700 million. I cannot believe that he would have agreed to it. I am against this proposal. I think that it will be wasteful and damaging to the balance of payments. I think that it will be against the true interests of countries and regions, and certainly against the true interests of Wales.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

We have had a very interesting, and by no means short, debate on this Clause which is one of several we are to debate. Many of them deal with interesting and important points, and I know that several hon. Members are waiting to raise them. We have been discussing this Clause since about Four o'clock. I hope, therefore, that it will be thought convenient and appropriate for me to reply to the debate now, particularly as I have heard almost all the speeches, and during the three-quarters of an hour or so during which I have been out of the Chamber I have had conveyed to me the essential content of those which I did not hear.

All the main arguments have been argued on earlier occasions. They have been repeated today, and many right hon. and hon. Members are anxious to relate them to their constituency problems and geographical areas. I appreciate this, but, nevertheless, I think that we have to concentrate on the general principles of the regional employment premium, and the general principles underlying the Clause. I hope, therefore, that it will be regarded as appropriate, and by no means discourteous, that I should seek now to reply as fully as I can to the many points which have been raised. It will be impossible to reply to them all in any reasonable space of time, but I assure all those who have spoken that I shall carefully consider all the points which have been made—they cover not only this Clause, but related and more general topics—and read with great care all that has been said. If I fail in the course of my reply to deal with any important points which have been raised, I shall write to the hon. Members concerned.

It seems to me that, broadly speaking the Clause has been welcomed. Almost all the speeches from this side of the House have been welcoming ones. The Liberal speeches have been in warm welcome, for which I am grateful. The Opposition have not received it so warmly, and I imagine that they will seek to divide the Committee on it later, but I have heard no compelling arguments against it. Indeed, the argument advanced by the right hon. Member for Flint, West (Mr. Birch) was for concentration. He said that we should not spread this so thinly. This is a valid point and it can be debated whether the geographical area is too wide. Some think that it is not wide enough. Many of the speeches have suggested that the areas should be redrawn. One of the Liberal speeches was to that effect. Many of my hon. Friends have suggested that the areas should be wider still. We know the problem to which the right hon. Member for Flint, West referred. He thinks that it should be narrower.

But whether it should be broader or narrower does not affect the major point that here is a method by which we seek to do something—and nobody has suggested an alternative—to remove what has clearly come to be an established imbalance between areas—a situation which must be intolerable for those living there and responsible for them. They know that whatever they as managers and working men do to help, the area in which they live, and work, and use every effort to help, is doomed to have less than an average share of the prosperity of the country. This is established beyond doubt, and we must do something to help. Every Government has accepted that we should do something to help, and every Government has helped. We have helped more because naturally we take this point more to heart. All we are saying is that in spite of the help that we have given, and in spite of the best endeavours of everybody concerned—and we have had co-operation from all sides of industry, and from all parties—we have not solved the problem of the difference in the level of activity, and in the level of employment, in different areas. Therefore, we must do something more. This would solve most of the problem which in scale, as my right hon. Friend said, equals the sum of everything done so far.

That is a radical and substantial approach and, if it is right, we should get on with it. If it will achieve a major effect on this imbalance, we should do it as fast as possible. I am, therefore, most grateful for the welcome which it has received from so many hon. Members and for the way in which our publication of these ideas in a Green Paper followed by a Second Reading debate before the introduction of the proposal itself has also been welcomed.

Many hon. Members want the Clause to be more effective. Some think that it goes too wide, but most said that it should be more selective and, more particularly, wider in its effect. Few speeches have suggested that we should not make this attempt. The hon. Member for Worthing (Mr. Higgins) said that he broadly accepted the economic argument that this would introduce more balance in the level of activity between the regions—

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The right hon. Gentleman would not wish to misrepresent me, I know. I said that we accept the aim but do not approve of the method.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

Well, that is some common ground. I thought that the hon. Gentleman added that he accepted the general economic argument, but I do not want to put words into his mouth.

That argument is well displayed in paragraph 7 of the White Paper and is the answer to the interesting speech of my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) that this is not a question of using additional physical resources in a particular way. There is no bar to many of the things which he suggested except the resources available. If this is an alternative, it is not in place of any of his suggestions. If more advance factories were built in development areas, that would not depend on R.E.P. in the slightest. That is a question of policy and resources, but they would be drawn for that purpose and not for the purposes before the Committee—

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Would my right hon. Friend not agree, however, that this would apply only if we assumed that the £700 million to be spent is not counted for tax purposes?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

No. I do not take that point. I do not know whether my hon. Friend has considered the White Paper's argument. I cannot improve on it, but can perhaps explain it as I see it. That is, by transferring some of the activity in the over-heated areas to the less than sufficiently warm areas, in terms of economic activity, by introducing a more even level of economic activity in all areas, we should then be able to do what we cannot do now, and increase the total level of activity throughout the economy, without reaching the levels imposed by the present imbalance.

We are at the moment prevented from producing sufficient economic activity in Scotland, Wales and Northern Ireland, for example, because, long before every one in those areas can be employed, there is over-employment and over-heating elsewhere. Therefore, we must increase economic activity in the development areas and correspondingly reduce it somewhat in the others in the first stage, followed by raising the level of both. This will be possible as both will be pari passu

Photo of Mr Michael Noble Mr Michael Noble , Argyll

Will the right hon. Gentleman bear in mind my point in the debate a few days ago, that, at the moment, engineering work has to be sent from Scotland to the Midlands because there are not enough trained people there to complete their own orders?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am advised by my hon. Friend the Under-Secretary of State for Economic Affairs, who is sitting with me, that he has no evidence that what the right hon. Gentleman has said is correct—

Photo of Mr Michael Noble Mr Michael Noble , Argyll

May I give it to him?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

We will be only too happy to examine it.

8.45 p.m.

The serious reply to the right hon. Gentleman's point is that we are legislating not for today or for the particular, temporary circumstances of today, but for an imbalance which has been demonstrated over years and has not shown itself adequately susceptible to the treatment and attention of all Governments. No one knows this better than the right hon. Gentleman. That is the situation we face.

We have taken great care to be sure that we are right about the economic theory, and it is generally accepted that this will result in a call not on resources but on the Exchequer. The right hon. Gentleman asked about this and I have done my best to answer. He asked what part of the Exchequer costs would come back. We are not talking about resources now; there is no ultimate call on resources, for the reasons given in the White Paper. More than half would come back in indirect taxes and relief from social service payments. Thus, the net remaining cost on the Exchequer in those terms—this is a broad estimate to help the right hon. Gentleman—would be less than half.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

This is vitally important. Is the right hon. Gentleman saying that about half would come back from the collection of the premium as Corporation Tax, or is this the total that he expects? If it is the latter, then this will inevitably increase aggregate demand considerably in the short run, with the inflationary effects which would follow. We should not think only in resource terms; the monetary terms are also extremely relevant.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

So that there will be no confusion, I repeat, in resource terms, that there is no inflationary effect for the reasons carefully spelled out in paragraph 7 of the White Paper.

As to the Exchequer cost—the amount coming back in Corporation Tax and Income Tax—the details for which the hon. Member for Worthing asked, I will give the answer in terms of Corporation Tax, Income Tax, indirect taxes and the relief from social service payments. The net cost to the Exchequer would be less than half, but I cannot measure it more accurately.

Several Hon. Members:


Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I have carefully read the notes handed to me about the speech of the hon. Member for Belfast, East (Mr. McMaster). I congratulate him on it and I appreciate that he supports this proposal. I will not give way because I am sure that he is anxious that we get on with it.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

This is an important question.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I hope that the hon. Gentleman will forgive me if I do not give way. I have many questions to answer.

I was asked by the hon. Member for Worthing, in an example of the delivered price of a motor car, what would be the position if motor cars were sold at a given delivered price wherever they were made. He wanted to know what we proposed to do to help in areas which should be helped. The answer is clear: that in a period when there was high production, the factories in those areas would be fully stretched and the work would be going to them. In a period of low production in the motor car industry, those factories would be the last to be laid off or to have their production lines cut. So whichever side of the situation one takes, they would be greatly helped.

The hon. Gentleman then asked how I reconciled the flexibility in the new Clause—he recognised that there might be circumstances in which this flexibility would be needed and that it was, therefore, right to have these powers—with the statement on page 7 of the White Paper about the seven-year period. The best answer I can give is to read the words in the White Paper. After examining the comments made about the scheme, paragraph 17(VI) states: … the intention"— that is, the intention of the Government— is that payments of this magnitude in respect of manufacturing employment in Development Areas should continue to be given until their purpose has been achieved—and in any case for not less than seven years in the existing Development Areas". I repeat those words and I confirm them. This is the flexibility which we need and imagine we might need if, for example, additional development areas are scheduled later or if variations in the rates should be made to meet changing circumstances in those new areas. The flexibility which we need and which is incorporated in the Clause is not intended to be used in any sense against the intention which I have reread and which I repeat. I recognise—and this is something which has been clearly brought to our attention by the publication of the Green Paper and the value of the debates since then and the representations which have been made—that if investment is to be attracted into these areas, it must be on a fairly permanent basis and certainly of the kind described in the paragraph I have read.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

Why do the Government call this a regional employment premium when it has nothing to do with the regions but only with the development areas? Is this intended to deceive the public into thinking that this premium will be paid in individual regions, rather than only in development areas?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

That is a valuable contribution, I must say. The answer is "No". The Government have not done anything to deceive anybody and would not even seek to deceive the hon. Gentleman. He is much too bright.

The spokesman for the Liberal Party, the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel), welcomed our proposal. I am glad of that welcome and I reciprocate by welcoming his proposal, which was that there should be a tax on Toryism. Every Treasury Minister is anxious to find new sources of revenue and I assure the hon. Gentleman that I will examine this one most carefully. He asked whether the flexibility in the Clause made it possible to vary the rates as between the sexes. The answer is "Yes", as my right hon. Friend explained when moving the Clause.

I come to the two major criticisms which have been made—one about the side effects, as it were, of this proposal, and the other about its inadequacy in the sense that it should go further, especially in relation to service industries. The aspect of side effects was expanded in a most interesting and valuable speech by my hon. Friend the Member for Lancaster (Mr. Henig). He welcomed the proposals in general and said that they were—I quote his words—"a massive overwhelming inducement to go to development areas". I hope that they are. I hope that hon. Members on all sides accept them as a massive, overwhelming inducement.

My hon. Friend was, however, anxious about the effect on what have come to be called the grey areas, the not-so-dynamic areas, and wanted reassurance about that possible situation. I should like to make it quite clear to him that these proposals are additional to the present methods of assisting in these areas. One of these methods is, as he knows, the I.D.C. method. There is considerable flexibility about the granting of I.D.C.s and nothing in these proposals removes that flexibility.

The first answer, therefore, is that my right hon. Friend the President of the Board of Trade, in considering a particular application for an I.D.C., in an area that has become in need of the additional factories and employment that I.D.C.s give, as a result of changed circumstances—perhaps dependent, to some extent, on these very R.E.P. proposals—would take into account these new and developing circumstances, and there is nothing in these proposals to limit the flexibility that my right hon. Friend already enjoys in that respect.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Is my right hon. Friend aware that when a company from the South-East wanted to move into my constituency and asked for an I.D.C., it was eventually encouraged not to come into Lancashire but to go into a development area? Therefore, the I.D.C. is not used to help the grey areas, as they are called.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am interested in what my hon. Friend says—and I have no doubt that he has made his representations to my right hon. Friend the President of the Board of Trade—but there is nothing that he has said which is in the slightest degree inconsistent with what I say. What he says is that today, already, before we have these proposals and these regional employment premiums, the President of the Board of Trade is using his discretion so as to direct factories to the areas where they are most needed. I have not examined the case, but I have the greatest confidence in my right hon. Friend, and the principle is one that I should have thought would have found unanimous support.

All I say to my hon. Friend the Member for Lancaster is that if the circumstances about which he is worried—and, I think, unnecessarily worried—in regard to a certain part of his constituency were to mature, my right hon. Friend would continue to use his discretion in order to help where the help was most needed, and the grey area to which my hon. Friend refers would have succeeded to that position and would be a priority area.

That is the first answer. The second is that, as my right hon. Friend said in asking the House to give the Clause a Second Reading, this is a new situation which we recognise needs very careful examination. He indicated the kind of examination it will receive and explained that he had asked Sir Joseph Hunt, who has already done excellent work in this field as Chairman of the Economic Planning Council, West Midlands, to do this. Sir Joseph, who is now in London and available to take on a job like this, has agreed to do it. I cannot give the House the terms of reference—they have not yet been agreed—or the further details—an hon. Friend asked when the report would be out—but, as I say, this is a matter that requires the most careful and urgent examination, and that it will receive.

9.0 p.m.

In those circumstances, my hon. Friend the Member for Lancaster need not have anxieties, especially if he will go with me on the economic theory, which is that what is happening is a two-stage exercise—first, to get the levels nearer to one another by increasing economic activity in the development areas and to a certain extent decreasing it in the overheated areas; and, secondly, having got the levels more attuned, to increase activity all over, which one is debarred from doing at present, because to get to the point where the hon. Member for Belfast, East is satisfied because his 9 per cent. unemployment rate has been reduced to 1 per cent., means that other areas are hopelessly over-employed and we have inflation.

Photo of Mr Stanley Henig Mr Stanley Henig , Lancaster

My right hon. Friend has gone some way towards relieving my anxieties and the anxieties of others, but I wonder whether I can press him a little further. If the industrial development certificate policy were to fail in the short and medium-term circumstances and these inducements to move to development areas failed to keep unemployment in my constituency and others in Lancashire at a level which could be considered reasonable, which is lower than that which we have had in the development areas, could the Government pledge that they would act to restore the situation by some means? If he can give that pledge, I shall be satisfied.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

My hon. Friend is underlining the point which he made earlier and which I took when he made it. Certainly I can give the assurance that if circumstances were such that in this area, which is not a development area at the moment, economic activity became less than that of a development area, it would of course be eligible to be scheduled as a development area and get the help which goes to development areas. But, as I have indicated already, we do not expect that to happen, because of the way in which these proposals will work out. I hope that I have satisfied my hon. Friend and others with similar anxieties that this proposal will have nothing but beneficial effects in the long run and will not put a strain on our resources, or exacerbate the balance of payments problem.

A number of hon. Members have referred to the service industries and have even gone so far as to suggest that a premium should be paid to all service industries in development areas. The position of service industries, however, is very different. It will be appreciated that one of the essential elements in the argument so far is the balancing effect of increasing competitiveness in development areas and, therefore, to some extent, the reducing of the competitiveness of other areas. This is the effect in manufacturing when there is competition, but it is not an effect, with rare exceptions, in the service industries, because service industries in one area are not in competition with service industries in others in the same way that manufacturing industries are.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

Most of what the hon. Gentleman says is nonsense. I have rarely heard him make a speech—and I have listened to far too many—which is not accurately described by that one word, and I have rarely seen him get up to make an interruption.

The essential difference is that there is not this competition and, therefore, we do not have to safeguard against the inflationary effect which is built into competition in manufacturing. There would not be an increase in activity in one area which to some extent would be matched by a reduction of activity in another. Therefore, one would not have the freedom from inflation which one derives from the competition of manufacturing industries.

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

In attacking my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop), the right hon. Gentleman was, I think, neglecting the position of the hotel and tourist trade. Surely, there is a considerable element of competition there.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am sorry that the hon. Gentleman is so impatient. Tourism was the item to which I was about to come. I was explaining why we cannot deal with the service industries in the way wanted by some of my hon. Friends, though I repeat that, to the extent that there are areas where there is need for further help, the examination to which my right hon. Friend referred will, no doubt, indicate methods of giving that further help.

The one service industry in which there is competition is the tourist industry and I cannot, therefore, rely on that argument for not helping it. The Government are already helping the tourist industry in a number of ways. There is the help given by building grants for hotels under the Local Employment Act. There is the Board of Trades hotel loan scheme. The British Travel Association spends a good deal of public money on promoting activity in this field. There are several agricultural subsidies which are of particular help in tourist areas, and in Scotland a great deal is being done through the Highlands and Islands Development Board.

I recognise the need to help tourism, and I acknowledge the importance which tourism has, although it is often exaggerated, in terms of the balance of payments. Broadly, we reckon that about one-tenth of its receipts are receipts across the exchanges. I assure the House that we are very conscious of the problems of the tourist areas, and we shall take account of what has been said in this debate and elsewhere in reviewing the possibility of additional assistance.

I have answered the major points which were put to me, Sir Eric

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I do not know whether that remark was addressed to you, Sir Eric, or to me. I have answered the detailed questions which were put to me, many of them of great importance. I have tried to deal with the major anxieties which certain of my hon. Friends and others have expressed both as to the scheme not going far enough in certain respects and as to its going too far in others. In broad outline, I would say that the scheme has been given a warm welcome in most quarters. There have been questions about its administration. There has been no official Amendment put down to suggest an alternative way of achieving the objectives, which the official Opposition say they approve.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

For the sake of clarification, may I say that we decided that it would be for the convenience of the Committee not to have an Amendment down so that we could, in effect, have a wide-ranging Second Reading debate. This does not mean that we do not intend to put down Amendments at the appropriate stage.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am glad that I mentioned the point, as it has given the right hon. Gentleman an opportunity to explain something which might otherwise have been misunderstood. Broadly, judging by the speeches, one can say that this proposal has received a sufficient welcome, and I am sure that, if the matter is divided upon, we can rely on the support of most sections of the Committee.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

The Chief Secretary and I have listened to about 90 per cent. of the debate. It is clear from his statement that the proposal has had a general welcome that the 10 per cent. when the right hon. Gentle. man was out of the Chamber covered those occasions when hon. Members both on his side and on ours said that, though they welcomed the general principle—it is difficult not to welcome a general principle which gives a large sum of money to the development areas—they had various reasons for saying that the scheme as propounded in the Green Paper, in what has been said by the Chancellor and by others and in the Clause does not meet the particular problems which they foresee either in their own parts of the country or in the United Kingdom as a whole. Therefore I do not think that the general welcome to which the right hon. Gentleman refers can mean much more than that each Member who spoke paid at least some lip service to the fact that the Government were spending £100 million on an object which is dear to the hearts of every hon. Member, wherever he or she may sit.

But the Chief Secretary made it absolutely clear in answering the point made by my hon. Friend the Member for Worthing (Mr. Higgins) that, whatever the Chancellor's intent was, the scheme as he has devised it is reflationary to the extent of at least £50 million in the first year or so. We are told in the Green Paper that this is not a contra-cyclical measure, but that is clearly the result of the answer that the Chief Secretary gave to my hon. Friend's point.

I accept that it is very important that we should have flexibility in thinking about how we are to use the powers which the Government have taken, and I am delighted that the Chancellor has said that he has taken the powers in order to be able to vary the amounts and the regions and areas, because this may well be necessary. But the point that the Chief Secretary did not make convincingly enough for me, though it may be the case, is that a firm getting the full premium at the moment will be entitled to believe—if it is to believe in the measure at all—that it will get the full premium for seven years and that after that it may taper off. The Chancellor says that the power is there to vary the the amount of premium, but I take it from the fact that the Chief Secretary is nodding his head that once a firm has established its right to the full premium it will not be the Government's intention in three or four years' time to vary that amount downwards.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I very carefully read out the paragraph in the White Paper which spelled out completely the answer to the right hon. Gentleman's point.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

In fact the Chief Secretary is saying that I am right—or he is saying the White Paper is right, which may be slightly different from what I am saying. But my point is that, once a firm has the offer of the premium, if it is to retain confidence it must know that it continues for the full seven years.

The other point on which I was not quite clear, even after the Chief Secretary read out the appropriate section, is, if an area is changed, if the "grey" areas to which many hon. Members referred are brought in, whether they will have a seven-year yeriod from the time when they are brought in. If other areas are left, does a firm getting the premium in the area which is removed continue to get it for seven years? I take it that that is so.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I thought that my right hon. Friend had already indicated that de-scheduling would not affect the issue. In a totally new area it is not a question of seven years from that area becoming a development area but seven years from the date in the Act, as indicated in the White Paper.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

I am grateful to the Chief Secretary for clearing up that point. I thought that that was so, but I was not absolutely certain by the time he finished his speech.

I find it a little difficult to be quite clear on the whole problem of wages. In his opening speech the Chancellor said that this was a very important subsidy; it was 7½ per cent. on the cost of wages. I accept that as the fact. The hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) who welcomed the Bill, as the Chief Secretary said, did so because he wanted the money to go direct on to wage rates in the development areas. If that is the welcome which the Chief Secretary wants, it would entirely ruin the whole purpose of the operation. But many hon. Members opposite, when talking about the wage problem, said that this was a very small thing, that it was only a tiny amount. I hope that they and the Chancellor will make up their minds between them as to whether 7½ per cent. on wages is a significant addition to costs or not.

9.15 p.m.

The hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris), in an interesting speech, welcomed the principle of the Clause but on the whole was highly critical of the sort of effects it will have on the grey areas. I have some sympathy with that point of view, not because Scotland has grey areas—it is almost entirely, with the rather lamentable exception of Edinburgh and Leith in a development area—but because there is a real problem involved here. I am glad the Secretary of State for Scotland is here to listen to the debate. We believe that we shall have exactly the same sort of problems inside Scotland as the hon. Member for Wythenshawe and many of his hon. Friends fear will occur in the grey areas.

I was interested to hear the speech of the hon. Member for Aberdeen, South (Mr. Dewar)—I am sorry I missed the first few minutes—because he said that we in Scotland had to think nationally and not locally. I agree. But he was not in the House during the years when I was steadily attacked by his right hon. and hon. Friends for producing a plan for central Scotland. I was told that this was a wicked thing to do because I was neglecting the north-east of Scotland, the Borders, the Highlands and the other areas. But it was clear at that stage that the key to the development of Scotland lay in the development of the central belt of Scotland. We spent an enormous amount of Government money on doing just that.

Now, following the spending of so much money on the development of the central belt, the Government are bringing in an extra £40 million for Scotland. This is an important addition to the measures that can help, but the money is going almost entirely to the central belt again and I fear, as do the hon. Members from the north-west of England, that the pull of this extra premium in the central belt will have a serious effect in denuding areas that we should be trying to build up. Having spent a good deal of money on the central belt, we are now having a large dose of extra money almost entirely going into that area again. I have sympathy with those who feel that there is likely to be a distinct pull away from areas close to a development area which have not got the necessary attractions to compete with that pull.

I do not think that the Chief Secretary was being as clear in his thinking as he sometimes is when he said that nearly all the service industries do not have the same spur of competition if they are to get established in the development areas, that they do not have the competition with other areas outside. He excepted, on an interruption, tourism and, of course, this is true. But there is also the very large service industry of distribution, which is fully competitive, I would have thought, whether based in Scotland or other places. Long-range lorries convey a great quantity of goods from one end of the country to the other. A great deal of the construction industry is certainly competitive, with English firms operating in Scotland and Scottish firms—to a lesser extent, I am sorry to say—operating down here.

The points which the right hon. Gentleman did not attempt to touch upon were some of those raised by my hon. Friend the Member for Barkston Ash (Mr. Alison), who made the valid point that there is no part in this scheme—and I accept that it could not cover the whole range of economic affairs—to help exports. The same point was made by the hon. Member for Penistone (Mr. Mendelson), who was also critical of it in the general economic context.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

I made no reference to exports in particular. I supported the measure, but I said that it must not be taken as a substitute for the general policy of increasing consumer demand and thereby increasing investment.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

I apologise to the hon. Gentleman. I thought he was on exports. One of his hon. Friends was on exports and, though I have a lot of notes, it is sometimes difficult to sort out who said what.

I had some sympathy with the hon. Gentleman the Member for Roxburgh, Selkirk and Peebles when he talked about the possibility—which I hope the Chancellor may be able to consider at some stage—of varying the incentives to suit the particular areas or parts of a region. He said that the problem in the Border area is a grave shortage of male employment and if it was possible within an area of that sort to pay a higher premium for male employment and a lower one for females, he, unlike most Liberals, accepted that one could go both ways. This might be an advantage and he welcomed it. I thought he indicated that it was a poor thing, but it was good enough for the Liberals.

I felt that this was the attitude that my hon. Friend the Member for Belfast, East (Mr. McMaster) took when he said that £11 million was not something to be scoffed at. This is true, but it is interesting that industrialists turned down £100 million on the ground that they did not think it was being used in the right way. If the people who are to get benefits of that sort are prepared to turn them down because they think it is wrong, then I think my hon. Friend might well at least ponder in his mind whether he is right in the long term to accept it without question. The C.B.I. and others must not complain if the Government, having consulted them, turns down flat their recommendations, because this does not put them in any worse position than Privy Councillors today.

The hon. Gentleman the Member for Cardigan (Mr. Elystan Morgan) spoke for many of us who live in rural areas, because whether this will be the bold, imaginative, wonderful thing that the Chancellor believes it will be for the main industrial areas in the development areas, which many of us doubt, it is certainly true that there is practically nothing in it for the rural areas either in Wales, the South-West, the Highlands and other places. Though the Chancellor has said that he has taken all these powers by which he can vary things to help, the truth is that it is almost essential in these areas pretty soon, if I may put it in that form, not just to have taken powers, but actually to be seen to be using powers to help either some of the service industries or in some way to indicate to the people there that they have a future. Once this extra 30s. premium goes on into the industrial areas the drain from the country to the town will accelerate quite fast unless the Government have their plans ready and can tell us what they are.

The whole picture of the debate, as I have listened to it, falls simply into two distinct halves. There are those hon. Members who live in development areas, or whose constituencies are in development areas, and who have welcomed the idea of having extra money, but without exception those hon. Members representing largely rural constituencies have said that this proposal will do nothing to help their areas.

Photo of Mr Jasper More Mr Jasper More , Ludlow

There is a third category, which is a constituency like mine which has a new town which we are trying to start and which is most adversely affected by anything in the nature of these proposals.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

I am certain that that is so, but in broad principle the debate has been divided between those representing rural areas, where there is still continuing concern about how the problems of tourism and the service industries are to be met, and those hon. Members who have broadly accepted that a wage subsidy is a good thing—I do not say that it is only because it may find its way into the pockets of those concerned.

Those hon. Members who have considered the matter in relation to the Government's whole economic policy have failed to say a single word of commendation for this form of measure. Several hon. Members, including the hon. Member for Plymouth, Sutton (Dr. David Owen), the hon. Member for Penistone and many of my hon. Friends, have said that the priority in the present economic situation is investment, and yet not one Government spokesman has seriously suggested that any sizeable amount of this £100 million can possibly get back into investment.

Photo of Mr Stanley McMaster Mr Stanley McMaster , Belfast East

Does not my right hon. Friend realise that the Chief Secretary has admitted that more than 50 per cent. will come back to the Government, which means it must be going on wages or profits and none to investment or reducing prices or costs?

Photo of Mr Michael Noble Mr Michael Noble , Argyll

My hon. Friend is almost certainly right. He is perking up a little. At least the Chief Secretary did not attempt to persuade the Committee that there was anything for investment in this proposal. Although the Chancellor says that he will be considering ways and means of improving training techniques and methods and he may have some ideas to pull out of the hat in due course—we remember that he has shots in his locker—there is nothing in this proposal to help with the two key problems identified by almost every hon. Member who took part in the debate—training and investment, which were identified by the Scottish Council as the two top priorities. Although the hon. Member for Aberdeen, South tried to get away with saying that the Scottish Council had given the proposal a blanket welcome, if he reads its report, he will find that it did not.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

Of course it wanted the money, and so does the hon. Member for Central Ayrshire (Mr. Manuel), but there is a great deal of difference between the sort of panic which the Government are in having to get some money into the development areas quickly, in the belief that there will be a considerable economic freeze next winter, whether the weather is warm or not, and seriously considering how best to use £100 million of the taxpayers' money to do the right things for industry in the development areas in the long run.

The Government have rushed this decision and have made this decision because they have talked themselves into believing that this money will come out of thin air in some curious way. My right hon. Friend the Member for Flint, West (Mr. Birch) showed what nonsense that was. But the Government feel that something must be done, and this £100 million proposal is certainly not something which the Committee and the trade unions will throw out. One cannot see hon. Members opposite passing up a large sum of money for the development areas, but it has been wrongly thought out, and our long-term aims will not be achieved by this proposal, and because of that I ask my hon. and right hon. Friends to vote against the proposal when the time comes to have a Division.

There are much better ways, and there were many alternatives suggested which the Chief Secretary did not even acknowledge. It may have been bad luck, and he may have been out of the Committee at the particular time, but I am certain that some alternatives will be put forward on Report. My right hon. Friend the Member for Mitcham (Mr. R. Carr) produced several alternatives in his last speech, and at least four have been mentioned while I have been in the Committee.

9.30 p.m.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

This measure is bad, and the Ministers who advocate it foolish, primarily for three reasons, none of which have been demolished by the speech, if I may dignify it with that expression, of the Chief Secretary. It is bad because it increases the distortions between the manufacturing sections of the economy and the other sections. It increases those distortions in a series of areas which there is already economic distortion. A development area is an area already suffering economic distortion. Secondly, it is bad because it increases the distortion between development areas and areas which are not development areas.

Many hon. Members on both sides of the Committee have pointed out the difficulties which this measure will create for areas contiguous to development areas, which are in every way similar, but which happen to be outside of the employment exchange district, which is the defining criterion. Those distortions are increased. Third and greatest of all condemnations, it is bad because it does not deal with the causes of why a development area is a development area.

Photo of Lieut-Colonel Sir Walter Bromley-Davenport Lieut-Colonel Sir Walter Bromley-Davenport , Knutsford

I must ask my hon. Friend not to use such long words, because the hideous animal lobby fodder cannot understand them.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

I have no doubt that the sheer impact of them will not be lost on my hon. and gallant Friend, even if the understanding of them is. The primary cause of most development areas suffering economic misfortune is either because they are remote from main centres of population and demand, or because they have other major geographical disadvantages.

If only £100 million, let alone £700 million, was spent on communications between the development areas and the centres of demand the whole of the development area would benefit, whether the manufacturing part, the service part or the trading part.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

If the hon. Gentleman is so interested in this subject, why did he remain out of the Chamber for 90 per cent. of the time and come in now to give us a lecture?

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

I listened to the hon. Gentleman's speech with great interest. I can only assume that the arithmetic which went into his speech was more accurate than the arithmetic which went into that comment. I was observing that if the Government wanted

to tackle this problem there was no more effective way in which they could do it than by improving the communications, particularly by road, from the development areas to the centres of demand and of the export trade and by cutting out altogether the artificial distortions between one area and another which mean that some parts of the community are more distressed than others and forgetting for all time their apparent determination to increase the distortions which, when the umbrella is closed, as sooner or later it will be, will only leave those areas worse off than they were.

Photo of Mr William Whitlock Mr William Whitlock , Nottingham North

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That the Clause be read a Second time:—

The Committee divided: Ayes 217, Noes 129.

Division No. 365.]AYES[9.37 p.m.
Allaun, Frank (Salford, E.)Davies, Ifor (Gower)Hannan, William
Allen, Scholefieldde Freitas, Rt. Hn. Sir GeoffreyHarper, Joseph
Anderson, DonaldDelargy, HughHarrison, Walter (Wakefield)
Archer, PeterDempsey, JamesHaseldine, Norman
Armstrong, ErnestDewar, DonaldHattersley, Roy
Atkins, Ronald (Preston, N.)Diamond, Rt. Hn. JohnHazell, Bert
Atkinson, Norman (Tottenham)Dobson, RayHenig, Stanley
Bacon, Rt. Hn. AliceDoig, PeterHooley, Frank
Bagier, Gordon A. T.Donnelly, DesmondHooson, Emlyn
Baxter, WilliamDunn, James A.Horner, John
Beaney, AlanDunnett, JackHoughton, Rt. Hn. Douglas
Bennett, James (G'gow, Bridgeton)Dunwoody, Dr. John (F'th & C'b'e)Howarth, Harry (Wellingborough)
Bessell, PeterEdwards, Rt. Hn. Ness (Caerphilly)Howarth, Robert (Bolton, E.)
Binns, JohnEllis, JohnHowell, Denis (Small Heath)
Bishop, E. S.English, MichaelHowie, W.
Blackburn, P.Ensor, DavidHoy, James
Booth, AlbertEvans, Albert (Islington, S.W.)Huckfield, L.
Bottomley, Rt. Hn. ArthurEvans, Ioan L. (Birm'h'm, Yardley)Hughes, Rt. Hn. Cledwyn (Anglesey)
Boyden, JamesFaulds, AndrewHughes, Roy (Newport)
Braddock, Mrs. E. M.Fernyhough, E.Hynd, John
Bray, Dr. JeremyFletcher, Raymond (Ilkeston)Irvine, A. J. (Edge Hill)
Brooks, EdwinFletcher, Ted (Darlington)Jackson, Colin (B'h'se & Spenb'gh)
Brown, Hugh D. (G'gow, Provan)Foot, Michael (Ebbw Vale)Jackson, Peter M. (High Peak)
Brown, Bob (N'c'tle-upon-Tyne, W.)Ford, BenJanner, Sir Barnett
Buchan, NormanForrester, JohnJenkins, Rt. Hn. Roy (Stechford)
Butler, Herbert (Hackney, C.)Fowler, GerryJohnson, James (K'ston-on-Hull W.)
Callagnan, Rt. Hn. JamesFraser, Rt. Hn. Tom (Hamilton)Johnston, Russell (Inverness)
Cant, R. B.Galpern, Sir MyerJones, Dan (Burnley)
Carmichael, NeilGardner, TonyJones, J. Idwal (Wrexham)
Coe, DenisGinsburg, DavidJones, T. Alec (Rhondda, West)
Coleman, DonaldGordon Walker, Rt. Hn. P. C.Kelley, Richard
Conlan, BernardGourlay, HarryKerr, Dr. David (W'worth, Central)
Craddock, George (Bradford, S.)Gray, Dr. Hugh (Yarmouth)Leadbitter, Ted
Crawshaw, RichardGreenwood, Rt. Hn. AnthonyLedger, Ron
Crosland, Rt. Hn. AnthonyGregory, ArnoldLee, John (Reading)
Cullen, Mrs. AliceGrey, Charles (Durham)Lever, L. M. (Ardwick)
Dalyell, TamGriffiths, David (Rother Valley)Lewis, Arthur (W. Ham, N.)
Davidson, Arthur (Accrington)Griffiths, Rt. Hn. James (Llanelly)Lewis, Ron (Carlisle)
Davidson, James (Aberdeenshire, W.)Grimond, Rt. Hn. J.Lomas, Kenneth
Davies, Dr. Ernest (Stretford)Hamilton, James (Bothwell)Lubbock, Eric
Davies, G. Elfed (Rhondda, E.)Hamilton, William (Fife, W.)Lyon, Alexander W. (York)
Davies, Ednyfed Hudson (Conway)Hamling, WilliamLyons, Edward (Bradford, E.)
MeBride, NeilPage, Derek (King's Lynn)Thomas, George (Cardiff, W.)
MacDermot, NiallPalmer, ArthurThornton, Ernest
Macdonald, A. H.Pannell, Rt. Hn. CharlesThorpe, Rt. Hn. Jeremy
McGuire, MichaelBarkyn, Brian (Bedford)Tinn, James
Mackenzie, Alasdair (Ross & Cromarty)Pavitt, LaurenceTomney, Frank
Mackenzie, Gregor (Rutherglen)Pearson, Arthur (Pontypridd)Urwin, T. W.
Mackintosh, John p.Peart, Rt. Hn. Fred
Maclennan, RobertPentland, NormanVarley, Eric G.
McNamara, J. KevinPrentice, Rt. Hn. R. E.Wainwright, Edwin (Dearne Valley)
MacPherson, MalcolmPrice, William (Rugby)Wainwright, Richard (Colne Valley)
Mahon, Peter (Preston, S.)Probert, ArthurWalden, Brian (All Saints)
Mahon, Simon (Bootle)Randall, HarryWallace, George
Mallalieu, E. L. (Brigg)Rees, MerlynWatkins, David (Consett)
Manuel, ArchieRhodes, GeoffreyWatkins, Tudor (Brecon & Radnor)
Mapp, CharlesRoberts, Goronwy (Caernarvon)Wellbeloved, James
Maxwell, RobertRobinson, W. O. J. (Walth'stow, E.)Wells, William (Walsall, N.)
Mendelson, J. J.Rogers, George (Kensington, N.)Whitaker, Ben
Millan, BruceRose, PaulWhitlock, William
Miller, Dr. M. S.Ross, Rt. Hn. WilliamWilliams, Alan (Swansea, W.)
Morgan, Elystan (Cardiganshire)Rowland, Christopher (Meriden)William, Clifford (Abertillery)
Morris, Alfred (Wythenshawe)Rowlands, E. (Cardiff, N.)Williams, Mrs. Shirley (Hitchin)
Morris, Charles R. (Openshaw)Shore, Peter (Stepney)Wilson, William (Coventry, S.)
Moyle, RichardShort, Rt. Hn. Edward (N'c'tle-u-Tyne)Winnick, David
Newens, StanSilverman, Julius (Aston)Winstanley, Dr. M. P.
Oakes, GordonWinterbottom, R. E.
Ogden, EricSilverman, Sydney (Nelson)Woodburn, Rt. Hn. A.
O'Malley, BrianSlater, JosephWoof, Robert
Orbach, MauriceSmall, WilliamWyatt, Woodrow
Orme, StanleySpriggs, LeslieYates, Victor
Oswald, ThomasSteel, David (Roxburgh)
Owen, Dr. David (Plymouth, S'tn)Steele, Thomas (Dunbartonshire, W.)TELLERS FOR THE AYES:
Owen, Will (Morpeth)Stonehouse, JohnMr. Harold Walker and
Mr, John McCann.
Alison, Michael (Barkston Ash)Fortescue, TimNabarro, Sir Gerald
Astor, JohnFoster, Sir JohnNicholls, Sir Harmar
Atkins, Humphrey (M't'n & M'd'n)Gilmour, Ian (Norfolk, C.)Noble, Rt. Hn. Michael
Awdry, DanielGilmour, Sir John (Fife, E.)Osborn, John (Hallam)
Barber, Rt. Hn. AnthonyGlover, Sir DouglasOsborne, Sir Cyril (Louth)
Beamish, Col. Sir TuftonGower, RaymondPage, Graham (Crosby)
Bell, RonaldGrant, AnthonyPearson, Sir Frank (Clitheroe)
Bennett, Sir Frederic (Torquay)Grant-Ferris, R.Pike, Miss Mervyn
Berry, Hn. AnthonyGresham Cooke, R.Pink, R. Bonner
Birch, Rt. Hn. NigelGrieve, PercyPowell, Rt. Hn. J. Enoch
Black, Sir CyrilGurden, HaroldPrior, J. M. L.
Blaker, PeterHall, John (Wycombe)Pym, Francis
Body, RichardHamilton, Michael (Salisbury)Ramsden, Rt. Hn. James
Bossom, Sir CliveHarrison, Col. Sir Harwood (Eye)Rawlinson, Rt. Hn. Sir Peter
Boyd-Carpenter, Rt. Hn. JohnHawkins, PaulRenton, Rt. Hn. Sir David
Boyle, Rt. Hn. Sir EdwardHeseltine, MichaelRoyle, Anthony
Braine, BernardHiggins, Terence L.Russell, Sir Ronald
Brinton, Sir TattonHiley, JosephShaw, Michael (Sc'b'gh & Whitby)
Bromley-Davenport, Lt. Col. Sir WalterHirst, GeoffreySmith, John
Brown, Sir Edward (Bath)Hobson, Rt. Hn. Sir JohnStainton, Keith
Bryan, PaulHogg, Rt. Hn. QuintinStoddart-Scott, Col. Sir M. (Ripon)
Buchanan-Smith, Alick (Angus,N & M)Holland, PhilipSummers, Sir Spencer
Buck, Antony (Colchester)Hunt, JohnTaylor, Edward M. (G'gow, Cathcart)
Taylor, Frank (Moss Side)
Bullus, Sir EricHutchison, Michael ClarkTemple, John M.
Burden, F. A.Jenkin, Patrick (Woodford)Thatcher, Mrs. Margaret
Carlisle, MarkJopling, MichaelTilney, John
Carr, Rt. Hn. RobertKaberry, Sir DonaldTurton, Rt. Hn. R. H.
Clegg, WalterKimball, Marcusvan Straubenzee, W. R.
Cooke, RobertKing, Evelyn (Dorset, S.)Vaughan-Morgan, Rt. Hn. Sir John
Cordle, JohnLancaster, Col. C. G.Weatherill, Bernard
Corfield, F. V.Lewis, Kenneth (Rutland)Webster, David
Costain, A. P.Lloyd, Ian (P'tsm'th, Langstone)Whitelaw, Rt. Hn. William
Craddock, Sir Beresford (Spelthorne)McAdden, Sir StephenWills, Sir Gerald (Bridgwater)
Crowder, F. P.Maclean, Sir FitzroyWilson, Geoffrey (Truro)
Dance, JamesMacleod, Rt. Hn. IainWolrige-Gordon, Patrick
Dean, Paul (Somerset, N.)Macmillan, Maurice (Farnham)Wood, Rt. Hn. Richard
Deedes, Rt. Hn. W. F. (Ashford)Maude, AngusWoodnutt, Mark
Eden, Sir JohnMaxwell-Hyslop, R. J.Worsley, Marcus
Elliott, R. W (N 'c'tle-upon-Tyne, N.)Maydon, Lt.-Cmdr. S. L. C.Wright, Esmond
Emery, PeterMiscampbell, NormanWylie, N. R.
Errington, Sir EricMonro, Hector
Eyre, ReginaldMorgan, Geraint (Denbigh)TELLERS FOR THE NOES:
Farr, JohnMorrison, Charles (Devizes)Mr. Jasper More and
Fletcher-Cooke, CharlesMurton, OscarMr. Timothy Kitson.

Clause added to the Bill.