I do not think that anyone would be disposed to deny, and it is one of the few points which at any rate seem to be agreed between the two Front Benches, that, in the last 18 months, this country has been buffeted by a number of forces from outside, over which we could not possibly have had control. One of those is the marked deterioration in our real terms of trade—I mean ignoring all the effects of domestic inflation here or elsewhere—the fact that the things which we import have upon the whole become scarce relatively to what we have to export. The extreme case of this change has been the exploitation by the producers of oil—perhaps a belated exploitation—of their market power, which has further caused our terms of trade to deteriorate.
On top of this longer-term movement, we are now being subjected to a direct and physical limitation of our imported sources of energy. That limitation, as my right hon. Friend the Prime Minister indicated, is not in itself of extraordinarily large dimensions. Indeed, all these purely external forces are not such as in themselves to have proved disastrous or incapable of being met with our customary resilience and the resources which adversity brings into play.
The wounds from which this country is bleeding today have not been inflicted by an external enemy. They are self-inflicted wounds; they are what we have done to ourselves.
Domestic inflation, the fall in value of our own money, proceeding at what would until recently have seemed the impossible rate of 10 per cent. per annum and upwards, has, in the first place produced a fall in the exchange value of sterling which has done us far more damage than any mere alteration in the real terms of trade. In case anyone, within or without the House, should be tempted to reach for the flattering unction of pointing to other countries and saying "They too have such and such a percentage rate of inflation", we ought to remember that the exchange rates of those countries' currencies rise while ours falls.
In addition, our domestic inflation is the reason for the catastrophic trade deficits, antecedent altogether to the oil crisis, which everyone recognises are a signal set at danger, past which it is absolutely impossible for any Government or any country to drive.
These are the consequences of the internal behaviour of the value of our own money. It is our inflation in this country which has imposed these penalties upon us. Yet even they are not the most serious results of our inflation. Its most dangerous poisoned fruit has been the clash and head-on confrontation, which lies at the heart of the announcement made last Thursday by my right hon. Friend, between the State and great masses of workers engaged in the energy industries, speaking through their unions. It is that clash, the direct result of our cumulative domestic inflation of the last few years, which has brought the House and the country to the pass which we are debating this afternoon.
Let me say first, although it has been said already, even in the opening stages of the debate, that the miners—it is, of course, primarily to the mineworkers that we refer—are neither in breach of the law of this country nor purporting to intend a breach of the law. They are not in breach of the new law on industrial relations which has been passed in this present Parliament; nor are they in breach of the Counter-Inflation Act which stands on the statute book. So they are acting, whether or not we like the way they act, lawfully.
But, it is said, they are in conflict with Parliament, they are defying Parliament; for Parliament has approved—so it runs—stage 3. I say they are not in conflict with Parliament over stage 3; for anyone who cares to read the law and to understand how stage 3 fits into it can easily satisfy himself that the only direct legal validity of stage 3—the price and pay code—is as that to which attention must be given, to which regard must be had, by the Pay Board and the Price Commission. It is not directly binding upon any citizen: it lays down the general principles to which those agencies under the statute must have regard. So even there it is not possible to argue that there is, at the level of law, a conflict or a confrontation.
Moreover, when this House wrote the code into the Counter-Inflation Act, it wrote it into an Act which reserved ultimate responsibility to Her Majesty's Ministers. In the terms of that Act, the agencies are not left completely free to hurtle down the railway lines of whatever might be the price and pay code. There is expressly reserved—and surely, rightly reserved—to the administration the power to intervene, both before and after the board, in its wider judgment of what the national interest may require.
Over what, then, is it, that there is conflict between the unions and the State, so dangerous, so deep, that it threatens to create massive unemployment and a massive fall in the production of this country? It is the determination, incessantly repeated, of Her Maesty's Ministers that their interpretation of what can be extracted by logic from the interstices of the stage 3 price and pay code shall be the ne plus ultra, the law of the Medes and Persians, and that nothing beyond that shall be regarded as in any way reconcilable with the national interest and the national salvation. It is in pursuit of the Ministers' interpretation of statutory control of wages that we have been brought into this conflict, the conflict of which the consequences are not merely before us but are bringing anxiety to every family in the country.
It was not ever so. In 1970 my right hon. Friend the Prime Minister, and all of us who sit on these benches on the Government side of the House, said to the country
We utterly reject the philosophy of compulsory wage control,
Labour's compulsory wage control was a failure"—
the right hon. Gentleman the Leader of the Opposition was very fair and candid this afternoon in his reference to the experience which his Government and the country shared in the last half of the 1960s—
and we will not repeat it.
Why did we say those things so emphatically, over and over again, to the country in 1970? We said them on the basis of what we had argued, experienced, seen and watched over the preceding years. We said them out of a conviction, often stated, that the inevitable result of combining inflation with the attempt to control it by compulsory control of wages was bound to be the most damaging and irresolvable conflict between State and citizens. We said them because—I invite my hon. Friends to refresh their memories on the context—we were convinced in those days that inflation was the result, overwhelmingly, almost exclusively, of actions and policies which were within the power and control of Government. It was because we were convinced that if Government, for their part, would so manage the finances of the nation, if they would so frame the policies within their control, within their hands, there would, indeed, be industrial conflicts, there would be collective bargaining, carried no doubt sometimes to the use of the strike weapon, and there would be the attempt, natural and inevitable, to reassess and reassess again the real relativities between the wages of one industry and another and those of one job and another, but we would not be bringing into the arena of direct conflict between Government and citizen every wage dispute, every bargain, every price and every wage that was fixed We were convinced that responsibilities would
lie where they ought to lie—the responsibility of management and the responsibility of trade union leadership could be exercised where they belonged—if Government would exercise the responsibility which is theirs.
As I listened yesterday afternoon to the speech of my right hon. Friend the Chancellor of the Exchequer, it seemed to me that he was speaking much more in the sense of what we were saying then; that the philosophy which lay behind his words was not the philosophy which we rejected in 1970—the philosophy of compulsory wage control—but the philosophy which we accepted, the philosophy of a Government who so order their own affairs, affairs which no one else can order, that the citizens in turn can arrange theirs in freedom without damaging the State or the national interest.
I do not wish to enter into what is, I think, a superfluous and almost academic argument with my right hon. Friends on the Government Front Bench as to whether Government financing is the sole, or merely overwhelmingly the most important, cause of domestic inflation. I will concede, if it be necessary to get the ground clear, that perhaps there are other minor causes and predisposing conditions. But my right hon. Friend the Chancellor of the Exchequer himself, in the essence of what he was saying yesterday afternoon, was stating that inflation, the problem which existed before the oil crisis and before the miners' strike, the problem with which we would have had to deal in any case—he said so entirely honestly and openly—was a problem which arose predominantly from the manner in which Government had chosen to exercise their powers of taxing and of spending.
In answer to dialogue and Questions my right hon. Friend said to my hon. Friends over and again that his reductions of public expenditure would reduce, pound for pound, the Government's net borrowing requirement. The significance of the £1,200 million—we could all argue as to whether we would have found that amount in the same way, or an even greater amount—but the significance of the turn-round, if I may so put it, of my right hon. Friend the Chancellor's figure—as was evident to the House—is that it would alter the whole proportions of the Government's borrowing posture and would thereby affect the money-creating function of the State, so that the State would be able once again to regain control of the total increase of money demand in the economy over the coming 12 and 18 months. My right hon. Friend, in fact, was introducing measures which in his view were necessary in order to provide a monetary framework, a framework within which there could not be domestic inflation of the dimensions which we have experienced, a framework within which, as we envisaged in 1970, the fatal and foredoomed statutory control of individual wages would be superfluous.