With permission, Mr. Speaker, I will make a statement about my visits to Tokyo and Canberra.
On the way to Tokyo we refuelled in Moscow and the Soviet Prime Minister, Mr. Kosygin, came to the airport to meet us. We had about one-and-a-half hours' discussion, during the course of which I impressed on him our deep concern about refugees from Vietnam and asked him to intervene with the Government of Vietnam. He did not give us much encouragement in this respect, but I remain firmly of the view that the refugee problem must be tackled at its source as well as by resettlement. I also told Mr. Kosygin that Her Majesty's Government hoped that SALT II would be ratified.
The Tokyo summit met against a background of rising inflation and higher oil prices, and this was underlined by the decision which OPEC made during the course of the Tokyo summit to raise oil prices still further. I am glad to report that the summit faced this situation realistically. We were all determined not to print money to compensate for the higher oil prices and we were united in feeling that if we were resolute in restraining demand for oil in the short term we had all the skills and incentives to enable us to reduce our dependence on uncertain sources of supply in the longer term.
We welcomed and took full account of the decisions reached by the European Council in Strasbourg the previous week, and we agreed upon action designed to align the decisions taken at Strasbourg with corresponding decisions taken at Tokyo by the United States, Japan and Canada.
The United Kingdom, France, Germany and Italy agreed to recommend to their Community partners that each member country's contribution to the Community objective of maintaining oil imports between 1980 and 1985 at an annual level not higher than in 1978, should be specified. The United States took as a goal its import level for 1977, and Japan and Canada goals relating to their particular supply position. There was also general agreement that domestic oil prices should be at world market levels.
We agreed on a number of measures to ensure that we are better informed about operations in the oil markets.
The summit made it clear that the industrialised countries are ready to co-operate with oil producers in defining supply and demand prospects in the world oil market. I believe that such discussions could make a valuable contribution to the future stability of the oil market. We also discussed the position of the non-oil developing countries, which will be hardest hit by rising oil prices.
Finally, we stressed the importance of developing to the full existing and new sources of energy as alternatives to oil. We saw a special need to expand, with safety, nuclear power generating capacity. Without this, the prospect for growth and employment would be bleak.
The summit also issued a special statement about the plight of Indo-Chinese refugees.
This was rightly a summit which concentrated mainly on energy, and I believe that the fact that we could take these decisions together will contribute significantly to achieving our objectives in both the short and longer terms.
Apart from the formal business of the summit, the presence of the seven Heads of Government in Tokyo provided the opportunity of more informal discussions on matters of mutual concern. I had bilateral meetings with President Carter and with the new Prime Minister of Canada. There were also discussions between the European Members of the summit.
From Tokyo I went to Australia for two days and had talks with Mr. Fraser and his colleagues. The last time a British Prime Minister in office had paid such a visit was in 1958, and I was particularly glad to be able to visit Australia so soon after becoming Prime Minister myself. I was able to give Mr. Fraser an account of the Tokyo summit and we discussed a number of other matters of mutual concern.
During my return journey from Canberra to London, I stopped at Bahrain and had a valuable discussion at the airport with the Prime Minister, Sheikh Khalifa, who welcomed the declaration on the Middle East issued by the Nine EEC countries on 18 June.
Mr. James Callaghan:
May I welcome the right hon. Lady's return after what has been an arduous journey—despite the fact that she deprived me of a visit to Australia this year? [AN HON. MEMBER: "Let us have a whip round."] Well, there may still be an opportunity.
Concerning the proposals to restrain demand for oil, I note from the Prime Minister's statement that different countries are taking a different base year. They are taking a different end year. Some countries are not stating their targets for the intervening years. It is a rather peculiar form of alignment. Will the Prime Minister explain to us a little more in what way the decisions have been aligned?
Secondly, may I ask the Prime Minister whether the Heads of Government were all exhausted at the end of this alignment? It is clear from the statement that there are no practical proposals for the consequential effects that will come to the world, and particularly to this country, as a result of the Government's policies. Whether they are right or wrong, the Government's policies will, during the next 12 to 18 months, lead to higher unemployment, less investment, no growth, as far as one can see, and higher inflation. The Government were not elected to achieve all that.
In view of the additional burden that the world now has to bear, may I ask the right hon. Lady what the Government's polices are to overcome these difficulties in the short run? Or are the Government just proposing to sit back and allow these things to happen during the next 12 months, with the consequential divisions?
My next question concerns the Government's proposals on oil tax. The position has been altered drastically by the decision of the OPEC countries. Do the Government propose, despite that, to continue with the Excise duty and the VAT that they are now putting on in the Budget, which I am told will amount to another 10p a gallon? That is surely a self-inflicted wound. Will the Government reconsider that?
I want to ask the right hon. Lady next about coal and nuclear power. We have a massive reserve in our energy supplies at present, probably amounting to up to 30 per cent. May I therefore urge the right hon. Lady and the Government to proceed with caution and to emphasise the need for safety, despite the pretty successful operation of the PWR system, and to moderate her enthusiasm for going ahead with large-scale development of nuclear energy, in view of the substantial reserves that we have? We must, of course, proceed at a steady pace, but there is no need for a rush programme on this.
Finally—[Interruption.] It is all very good stuff. Finally, I note the right hon. Lady's words and the words of the communiqué to the effect that
We are deeply concerned about the millions of people still living in conditions of absolute poverty. We will take particular account of the poorest countries in our aid programmes".
What did the right hon. Lady feel like when she signed that, in view of the £50 million cut in our aid programme?
May I try to reply to the right hon. Gentleman's live points? First, I am sure that he will have an opportunity to go to Australia. The Leader of the Opposition there will be very pleased to see him.
Secondly, with regard to aligning the import targets, yes, it is difficult, for the simple reason that different countries have separate difficulties and different base years. The right hon. Gentleman will remember, for example, that at the Bonn summit Germany was advised by the other countries represented there to expand. That gave her larger oil imports in order to carry out the expansion. Other countries had particularly cold years. One of the difficulties of defining specific import targets is that to do so effectively and to take into account the different countries' needs they may well have to choose different base years, and they did.
Countries also have different problems in meeting the targets. This is a target for imports of oil. Some can meet their targets more easily, as we can because we have a new source of supply. Others can meet it more easily by a certain amount of switching to coal. Others have no indigenous sources of oil and therefore they are in more difficulty. We aligned the targets as far as we could. One must be realistic about these things. We should not have got that kind of agreement unless we were able to take into account the interests of different countries.
Thirdly, on oil tax, I am not certain what the right hon. Gentleman is proposing. If he is suggesting that we should lower the tax on petrol, it seems to me that that would be the most rapid way of increasing the demand for oil.
Fourthly, concerning coal and nuclear power, the right hon. Gentleman and I would agree on the excellent performance of our nuclear inspectorate. This country has always given top priority to safety. I do not think that any lives have been lost, either here or overseas, as a result of the generation of electricity from nuclear power. I entirely agree that top priority must be given to safety. I disagree with the premise of the right hon. Gentleman if he is saying that we can get through without having a much larger nuclear energy programme. Out supplies of oil will not last indefinitely, and I believe that we shall have to have a larger nuclear energy programme.
Finally, with regard to poverty, we issued a statement, which was part of the communiqué, deploring the increase in the OPEC prices, because it will hit the developing countries particularly badly. Perhaps the right hon. Gentleman will remember that the previous Government also cut the overseas aid programme by about £50 million. That was a larger percentage cut of the aid programme than we have made.
Given the restraints on oil supplies mentioned in the statement, how did the Prime Minister explain to her colleagues what merit there was in the decision of the United Kingdom Government to allow British Petroleum to export North Sea oil to South Africa under a swap arrangement which will inevitably lead to increased supplies to Rhodesia? Does she agree that it is difficult to think of any one decision that runs counter to so many policies of British interests at one go?
That is a swap arrangement in circumstances that ensure that the swap oil will not go to Rhodesia, and that was made very clear.
Was there any discussion in Tokyo about the nuclear fusion project? In the light of recent events, should not more resources now be devoted to that as a matter of urgency?
On the nuclear fusion project, no, there was no particular discussion, but we agreed generally that because twice in a decade the world had been vulnerable to sudden sharp increases in oil prices we must do everything that we could to release ourselves from that vulnerability by finding alternative sources of energy. We all came to the conclusion that, much as we would like solar energy projects, tidal energy projects and various other things, nuclear energy was the answer.
It would obviously help very much if they were so available, but we have to consider the cost of making North Sea gas available against the cost of providing alternative sources of energy.
Since, during her visit to the Far East, my right hon. Friend quite rightly called for international pressure to stop the abhorrent policies of the Vietnamese Government over the boat people, does she not think it right now to cancel the deal set up by the previous Labour Government, whereby Britain is to give the Vietnamese three cargo ships, paid for by £4½, million out of the British overseas aid budget?
I looked at that matter when we first had the problem with the boat people. The British taxpayer is paying towards those ships for Vietnam. What I found was that it would cost us more to cancel those contracts than to continue them. In the circumstances, therefore, I thought it best to go ahead. There will be no more aid to Vietnam so long as the present circumstances continue.
Is the Prime Minister aware that the Financial Times has reported her as saying that the increase in oil prices will lead to a reduction in the standard of living of everyone? Is she further aware that later this afternoon we shall be debating the Budget proposals to improve the standard of living of those best off in our society? Does she not think that the timing of these proposals is particularly unfortunate?
Any country that has to pay a substantially larger sum for one particular commodity that it cannot do without obviously faces a reduction in standard of living unless it can compensate for that reduction by the inventiveness and resourcefulness of its people elsewhere. The tax reductions that will be discussed later today are designed to help people to start up new businesses and to expand old ones—in other words, to use their resourcefulness in a way that will enable us to grow elsewhere.
I welcome my right hon. Friend's decision to go ahead with the nuclear programme of building thermal reactors. However, in view of the fact that we cannot export the advanced gas-cooled reactor, will she consider making an early decision to build a prototype commercial fast-breeder reactor at Dounreay, to see whether we can develop that in the same time span as developing the coalfields, to have something to export as well as generating our own electricity?
As my right hon. Friend knows, we are pledged to have an inquiry before we go ahead with building a main fast-breeder reactor. I hope that that will get under way without too much delay. It is right that we should have that inquiry in order to reassure people about the project. As my right hon. Friend knows, France has already gone ahead with one—the Phoenix. Perhaps we shall also be able to learn from the experience that France has before we go ahead with one of ours, if the inquiry comes out with such a recommendation.
We recognise that there are very large sums—they are even larger now—to be recycled, and the best way for those sums to be used would be in direct aid to the developing countries, not necessarily through any intermediary. I doubt whether that will occur except through an intermediary, but we are very much aware of the point that the right hon. Gentleman raises.
Could Governments perhaps usefully re-examine the possibility, which has been sympathetically studied in the past by certain member countries of OPEC, of linking the price of oil to an internationally agreed index of manufactured goods prices, so as to avoid, for both, increases in price that are sudden, extreme and disruptive?
I think that the main big increases in prices that we have had have occurred because of political events in the Middle East. The first one, the fourfold increase, was because of the Yom Kippur war, and this one was because of a sudden interruption of supplies from Iran. I doubt very much whether my hon. Friend's proposals would deal with those situations. It is ironic that although one experiences severe economic effects from these situations, the cause is not economic but political. It emphasises the need to try to get political stability in the Middle East.
Mr. James Callaghan:
Will the Prime Minister please explain what she means when she says that these recycled dollars that arise from OPEC's greater receipts must go to the developing countries? As we shall be one of the largest recipients of these recycled dollars, how does she align this with cutting the aid programme?
It would help if those who have enormous increases in income because of the increase in prices gave top priority to letting those increases go to the underdeveloped countries.
Does my right hon. Friend agree that the key to the summit is the control of imports of oil by the United States, and that if the United States does not control it below 8½ million barrels a day there could be disaster for the West? In view of the long lead time necessary to build and commission nuclear power stations, will my right hon. Friend ensure that the Secretary of State for Energy formulates a comprehensive plan now?
I agree with my hon. Friend that anything that the European countries could do together could have been cancelled out if it had not been accompanied by the target, to which my hon. Friend referred, on the part of the United States, That was why it was so important to get a specific target by the United States and, because she is also a big consumer, by Japan. The nuclear programme takes a long time to bring to fruition. As my hon. Friend knows, the Heysham station has just been ordered, and there is another one at Torness.
I hope that Heysham will be on stream rather before that. We hope that it will first be commissioned in 1986. Of course we are considering future programmes, but we have no statement to make as yet.
The right hon. Lady makes constant references, in a generalised form, to the expansion of the British nuclear power programme. When may we have some firm details? This matter is of great interest to the electricity supply industry, and particularly to the electricity supply trade unions.
And of great interest to many of the rest of us, as well. There are no firm details and there can be none before we have properly considered the matter and before we have had an inquiry about the possibility of a commercial fast-breeder reactor. As the hon. Gentleman knows, the two new power stations have just been ordered—one by the previous Government and one by us—to keep the nuclear power industry active. We have not yet come to any decisions about further stations.
Does not the disappointing attitude of Mr. Kosygin on refugees make a travesty of the Soviet Union's acceptance of the human rights aspect of the Helsinki Convention? Secondly, while I welcome President Carter's energy target, may I ask my right hon. Friend what chance she gives him, in the present circumstances of the United States, of actually hitting it?
My answer to my hon. Friend's first question is that I accept entirely what he says. The attitude towards Vietnam is very revealing, in terms of what Russia meant when she signed the Helsinki accord. The Russian attitude seems to be totally contrary to the accord. That is why I believe that we must do all that we can to show that what is happening in Vietnam is Communism in practice.
On my hon. Friend's second point, we felt that if we were very firm at the Tokyo summit it might assist President Carter in trying to get his plans through Congress.
My right hon. Friend told the House that she was fully aware of the fact which I think most of us accept, that any expanded nuclear programme will take time to make its impact. Will she assure the House that she attaches a similar priority to the encouragement of investment in fuel efficiency and conservation programmes that will help to reduce more immediately our dependence on oil?
Yes, in the medium term and in the long term I think that that is vital. It is an essential part of any programme to reduce our dependency on oil between now and 1985, and even further on than that.
Further to what the right hon. Lady said about refugees from Vietnam and the condemnation of the Vietnamese Government, can she say a little more on the question whether there were constructive proposals in Tokyo for the settlement of the Vietnamese refugees? At the same time, will she say whether she showed that the British Government would be a little more open and generous in their admission of refugees if it were part of an international settlement?
That matter will be left to the conference that is to be convened, through the United Nations, on the problem of the settlement of these refugees. I can make no promises about taking a bigger proportion of Vietnamese refugees into this country. As the right hon. Gentleman is aware, we have already taken in over 1½ million immigrants from New Commonwealth countries. That is a factor that we must take into account when deciding whether we can take any more Vietnamese refugees.
Does the Prime Minister agree that the Tokyo summit marked only the first stage in the development of international energy policies? Can she say what was agreed to monitor, update and follow up the agreements? In particular, can she elaborate on her remark about better information on the operation of oil markets?
The monitoring of the European performance will be done through the Community, and it was understood that the other monitoring would be done through either the International Energy Agency or some other appropriate body. On the question of more information about oil markets, as the hon. Gentleman will be aware, the EEC is conducting an exercise for the product spot market. It is much more difficult to get information about the operation of the crude oil market, but we shall try to get as much as we can.
Reverting to the interesting question asked by my hon. Friend the Member for Surrey, North-West (Mr. Grylls), may I suggest to my right hon. Friend that many people would think it appropriate to cancel the order for the Vietnamese ships, even if we did not save money in the process? That would he one way of demonstrating tangibly our utter abhorrence of the attitude of the Vietnamese regime.
I should be very reluctant to do that, because it would mean breaking a contract. In the longest run, we ought to keep to that contract. I also think that it would not be very favourably received by those who are working on the ships if we were suddenly to cancel all work. I give my hon. Friend an assurance that there will be no further aid so long as the present conditions obtain, and the European Economic Community, which gives some food aid to Vietnam, is switching that to helping the Vietnamese refugees.
Will the Prime Minister understand that she besmirches the honour of this country by relating the legal obligation that we carried out to accept British passport holders into this country to the moral obligation that we have to the Vietnamese refugees? Will she further understand that her views on this subject would be accepted more seriously abroad if she and her Government were prepared to be more compassionate and immediately announced that they were prepared to increase the number of refugees permitted to come into the United Kingdom?
As the hon. Member knows, we have met our obligations wherever we have found refugees in boats where they were in danger of losing their lives. Our ships have picked them up. We have taken the refugees from the "Sibonga", the "Roachbank" and another very small vessel. What I am concerned about is that we have already taken over 1½ million immigrants, and that factor must be taken into account in determining whether we can take any more refugees, and, if so, how many. I must also point out that we are one of the most densely populated countries in the world, and that, too, must be taken into account.
On the question of oil consumption, is not the biggest worry the true commitment of the United States and whether it will stick to any form of target?
Secondly, is there not now a strong case for Her Majesty's Government to make an early statement that there is really no need for a third London airport?
I hope that the enunciation of a target will, indeed, make it the more likely that the United States, or any other country, will stick to it.
On the second question, I congratulate my hon. Friend on his ingenuity in getting that point in, but I prefer not to comment on it now.
The Prime Minister referred to the realistic approach in Tokyo to the oil crisis. Would she like to take this opportunity to explain the realism of pretending that fuel prices are not part of the cost of living, in view of the fact that it has been reported that a suggestion has been made that increases in fuel prices should not be regarded as part of the retail price index? Before the Prime Minister goes overboard in favour of nuclear power, would she like to take all reasonable steps to persuade my constituents in the Torness area that the advanced gas-cooled reactor is not an unacceptable safety hazard?
I am grateful to the hon. Gentleman for raising that first point. I want to make it clear that I never made any suggestion that energy prices should not be taken into account in the retail price index. Such a suggestion was made, but not by me. Any suggestion made about excluding energy prices from the RPI seems to me totally and utterly ridiculous. I am delighted to condemn such a statement.
On the question of nuclear power, some AGRs are already on stream and I believe that they will be perfectly safe. Indeed, neither Government would have given permission to go ahead unless they were convinced of that.
As Vietnam is effectively a client State of Russia, did my right hon. Friend made clear to Mr. Kosygin, in the strongest possible terms, that while the West can and will accept its humanitarian obligation, the real solution lies with Vietnam not sending hundreds of thousands of men, women and children to their deaths in open boats?
Yes, I made that clear to Mr. Kosygin, in the strongest possible terms. But, as I said in the statement, I did not meet with much response from him, which was particularly disappointing in view of the Helsinki accord previously reached.
Will the right hon. Lady clear up two areas in which she has left us confused? First, she told us a few days ago that the European Community could agree to a net oil import saving for the Community as a whole. She has told us today that each individual European country will have its own target. Can she tell us what the target is that she accepts on behalf of the United Kingdom for saving on oil imports?
The other area, of confusion arises from the fact that the right hon. Lady said that she thought that the only way of dealing with the problem of those countries that will have to carry the deficit that is the counterpart of the £50 billion surplus held by the oil producing countries as a result of the recent increases in oil prices will be through overseas aid. As she has already told us that we shall not suffer from any additional deficit, because of our good fortune in having North Sea oil, is she now proposing to reverse the decision to cut overseas aid by £50 million?
In reply to the latter question, the answer is "No." In reply to the former question, we agreed to recommend to the Nine that we resolve the total target into individual targets. Of course, in about 1981, we shall not have any net import at all.
We are agreeing to resolve it into targets within the total commitment, and we are agreeing to resolve it into targets at Dublin. [Interruption.] I do not think that the right hon. Gentleman has quite got the point. The target for Europe as a whole is not to import any more in 1985 than in 1978. We were importing in 1978, but we shall not be importing, net, from about 1981. That means that there will be a certain amount of latitude for the other members of the Community, because some of them will be able to import a little more than they did in 1978 as a result of the margin from us. For example, some of those nations that responded to the right hon. Gentleman's injunction at Bonn to expand, and which did expand, will need the extra.
Does the Prime Minister realise that in Northern Ireland oil price increases are already creating, and will continue to create, grave problems? The cost of living will rocket in an area where average wages are lower than the rest of the United Kingdom, and unemployment will rise to even more disgraceful heights. Will she, therefore, substitute for price increases a policy of rationing in such areas on the periphery of the United Kingdom, where people do not have the money to buy themselves these supplies? Will she also forge ahead with the exploration of oil in the Province and offshore?
In fact, rationing will not reduce prices. If oil is short, prices are bound to rise, even in this country. We export most of our oil because it is high quality, and we must buy back high-price oil. So, inevitably, our oil must follow that general price. As to exploration for more sources of eneregy, I am wholly in agreement with the hon. Gentleman, but I do not think that the Government themselves can make more resources available. If sources are believed to be there, it is usually the oil companies which will explore for them.
At the same time as the Tokyo communiqué indicated the need to minimise the risk of nuclear proliferation, the Prime Minister will be aware that a breach of security within URENCO has brought much nearer the possibility of an Islamic bomb. What further belated steps will the right hon. Lady take to prevent nuclear proliferation, bearing in mind that the sinister consequences, among others, of such an Islamic nuclear bomb would be to subvert the negotiating strength of the West with all the Arab oil-producing countries?
Is my right hon. Friend aware that some of the countries with which she was in discussion at Tokyo showed a decided bias in favour of their own industry—I refer particularly to the United States—over the duality of oil prices, which gives their industry considerable advantage? Will my right hon. Friend ensure that our industry has the advantage of North Sea oil and that, if necessary, certain limits on the export of North Sea oil will be advised to the petroleum companies?
My recollection is that the United States has already made a statement that it agrees to come to world price parity, I think by the end of 1981. Unless it does so, there will be considerable problems and a tremendous effect upon world oil prices, because it will pay more for the world price oil, and the price will then rise.
In Australia, the Prime Minister said that the Queen would not go to Lusaka except on her advice. Today, she indicated that it was a decision for the Queen to take. Is it not constitutionally correct that the Queen, as Head of the Commonwealth, is entitled to take advice from any Prime Minister in the Commonwealth, and that the right hon. Lady, as Prime Minister of Great Britain, is not the only person who can decide that issue?
As a matter of practice, the Queen would take advice from other Prime Ministers about the Commonwealth conference. Constitutionally, the advice whether the Queen should leave this country has to come from the British Prime Minister, because constitutionally we are the only country which has to make alternative arrangements, namely, to have a Regency Council in the Queen's absence.