Economic and Industrial Policy

– in the House of Commons at 3:59 pm on 5th February 1981.

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Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party 3:59 pm, 5th February 1981

I beg to move, That this House approves the economic and industrial policies of the Government; welcomes the continuing fall in the rate of inflation, greater realism in wage bargaining, and increasing awareness in industry of the need to be competitive; and recognises that lower inflation, higher output, an expanding private sector and better industrial relations provide the only secure basis for more jobs.

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. I have selected the amendment in the name of the right hon. Member for Ebbw Vale (Mr. Foot).

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

The debate takes place when there is growing concern, inside and outside the House, about the very high level of unemployment. Despite all the measures that the Government are able to take in the provision of unemployment and supplementary benefits, and other forms of help, the loss of a job and the inability to find another is a human tragedy as well as a tragic waste of resources. That, at least, is common ground for every hon. Member.

I think that it is also common ground that a stable currency and the restoration of honest money ought to be the objectives of any Government. Nevertheless, in recent years we have suffered both high inflation and high unemployment, and what divides the House is how best those twin evils can be overcome. I want to set out the policies of the Government and, in doing so, to look at some of the proposals that the Opposition and the TUC are urging upon us.

The centre-piece of the Government's strategy is, and will remain, the conquest of inflation. That would be a worthy enough end in itself. Indeed, to have any other objective would be to set out to cheat all those who have saved. But the fight against inflation is far more than that. It is the only way in which we can achieve our other economic goals. For inflation and unemployment are not alternatives, except in the very short term.

For years there was a widespread belief that we could have inflation and a high level of employment at the same time. For years there was a belief that we could secure more jobs if we were prepared to put up with a little more inflation—always a little more, it was thought.

However, the experience of the past 25 years has taught us on the Government Benches that those beliefs were a most damaging illusion. Inflation and unemployment, instead of moving in opposite directions, rose inexorably together. As Governments tried to stimulate employment by pumping money into the economy they caused inflation. The inflation led to higher costs. The higher costs meant loss of ability to compete. The few jobs that we had gained were soon lost; and so were a lot more with them. And then, from a higher level of unemployment and inflation, the process was started all over again, and each time round both inflation and unemployment rose. In Parliament after Parliament, each new Government had a higher average rate of inflation and unemployment than the preceding Government. It is that cycle that we have set out to break.

Labour Members and their friends in the TUC are advocating that we should do just the same again. But what do their proposals amount to? They would mean a huge injection of money into the economy, which would take us on to still higher inflation and no prospect of unemployment ever coming down. That is one of the main differences between the Opposition's policies and those of the Government. Their case is that extra public spending would reduce unemployment. But it would not work. That is not a recipe for more jobs; it is a recipe for more inflation and even fewer jobs.

It seems to us that the Opposition have deliberately turned their backs on the lessons of the past quarter of a century. They have put forward a prospectus that has been discredited by experience. Their proposals are a return to the very policies that led to our problems in the first place.

Instead of relying on wage and price controls, which never work for long, the principal weapon that we have chosen for getting inflation down is control of the money supply. Although the new Shadow Chancellor has abandoned the monetary convictions of his predecessor, some Labour Members—and some Members on this side of the House—will still consider that the rate of monetary growth in the second half of last year was too rapid. But the fact is that, whatever the figures for one indicator may show, monetary conditions taken as a whole have been tight and have helped to bring down inflation. Over the past six months retail prices have gone up by only 3.7 per cent., although I believe that the figure understates the underlying trend, because of the pattern of price increases during the year.

The second aspect of the Government's strategy, which goes hand in hand with the fight against inflation, is the sustained effort that we are making to reduce the pressure on the economy created be excessive Government spending. Unless that is done there will not be room for the private sector to prosper and to create jobs, and most jobs are created by the private sector. An overgrown public sector financed by an overburdened and over-taxed private sector struggling to cut its costs to the bone would be another recipe for unemployment.

We have made some progress in reducing the extravagant plans of the previous Government, but, because of the effects of the recession, there have been some unavoidable spending increases, particularly on nationalised industries and unemployment benefit. However we shall come out of the recession with a substantial reduction in the underlying level of public spending. That will leave room for expansion in the private sector, where most of the new jobs will be created.

The proposals that we have had from the TUC to increase public spending by £4.7 billion at the same time as reducing taxes would take us in completely the wrong direction. If the TUC's proposals were financed honestly they would lead to increased borrowing, and thus to higher interest rates, which would damage industry's chances of recovery. But if, as is much more likely, they were not financed honestly, we should be on the road to hyperinflation.

Thirdly, to secure more jobs and a higher level of employment, unit labour costs must be competitive with those of our rivals. The fact is that for years our industries have been overmanned and have had a lower level of productivity than those of our competitors. Hence our decline. But the policies that we are following are obliging employers to increase efficiency and cut costs. If we are to be competitive and to get more jobs in the future, that is exactly what we must do. It is no good Labour Members laughing. It is just that attitude that has lost us orders and given orders to our competitors, so that they have more business and more jobs than we have.

Because employers have been so successful in cutting costs and increasing efficiency, we find that the fall in output has been accompanied by a much larger increase in the level of unemployment than would have been expected. That is a measure of both the extent of overmanning and the progress made in solving it—progress that is essential for survival.

The level of wage increases unrelated to output has been the other main factor in making some of our industries uncompetitive. For a time that position was obscured, as increased pay was offset by a falling exchange rate. That could not go on. Many of us can remember the alarm felt in the House and in the country when, because of the policies of the Labour Government, the pound fell below $160, and we know the difficulties and shame that that caused to Britain.

Of course, the exchange rate has risen rapidly, and the speed at which it has risen has led to considerable problems of adjustment. I do not underestimate those problems. They make it more important than ever that higher pay should be matched by higher output. Although pay settlements have moderated in recent months, some are still too high. The Ford settlement, at 9.5 per cent., was widely acclaimed, because it was in single figures. However, Fords in Germany settled at 5.8 per cent. Unless, therefore, our productivity takes a leap, our competitors will pull ahead even further.

Pay negotiators are now learning—alas, the hard way, and not with much help from Opposition Members—that excessive settlements mean bankruptcies and fewer jobs. But, Mr. Speaker, competitiveness is not only a question of cost and price. We have been losing out for years in terms of new technology, new investment and new products.

One of the reasons has been the declining profitability.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

One of the reasons for the declining profitability is that people earning wages and salaries have taken too much out for today and left too little for investment tomorrow.

Photo of Peter Tapsell Peter Tapsell , Horncastle

If my right hon. Friend has finished her interesting and clear remarks about the exchange rate, may I draw her attention to the report issued by Reuters this morning, which has already been transmitted all over the world, that the British Government now intend to pursue a different exchange rate policy in order to help British industry? If that is so, there are many people in industry and elsewhere who will welcome that announcement, because it may help to restrain the rising levels of unemployment.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

I know the particular interest that my hon. Friend has taken in this subject for a long time. The problem with the exchange rate has been the speed at which it has increased. It is, of course, noteworthy that it now stands at $2.34.$2.35—precisely the rate at which it was standing when the Labour Party came to power in 1974. After that, it rose slightly. But the real problem was that the exchange rate plunged sharply under Labour stewardship. It has gone up quickly again.

That rapid increase in the exchange rate caused tremendous problems, particularly for industries that are exporting. We do not have a positive policy for intervening in the exchange rate. Such intervention cannot resist the market for long. We do not know the precise relationship between interest rates and exchange rates. But, of course, we shall bear in mind the height of the exchange rate when taking other decisions. We cannot constantly intervene to keep it down, because there is nothing that can resist the market for long. Moreover, we have to bear in mind that one of the influencing factors is what happens in other countries. It would not be possible to have a policy in this country which constantly sought to overcome and take into account those factors.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

Of course it is the same old story. Truth usually is the same old story. That fact has never penetrated the hon. Gentleman's mind.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The truth about this Government is that they deliberately engineered 2½ million people on the dole—the figure is still rising, and will probably rise to well over 3 million—in order to subjugate the trade unions and the workers, through fear. That is the policy of the Government, and that is why we shall eventually get the right hon. Lady out of power, either in this Chamber or outside.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

That is not the truth. It is just plain rubbish. It is the sort of rubbish that we expect from the hon. Gentleman. It would appear from the latter part of his remarks that he is more interested in what happens outside this Chamber than in the process of democracy. Indeed, he is the face of the true new Labour Party—not of its democrats—those who have moved further and further left, towards the East European type of economy.

In reply to the hon. Gentleman's particular comment that he, his party and his Government had all the answers in a magic formula, why did they allow unemployment to rise to 1·6 million?

We were discussing matters that are important if we are to lower the level of unemployment. I was talking about declining profitability, which has left too little for investment. Another of the reasons for declining profitability has been that companies that have invested have often been unable to use their new machinery efficiently because of restrictive practices and resistance to change. Clearly, companies will not invest unless unions allow them to use the new equipment and machinery for the benefit of the companies and of all those who work in them. It does not seem to occur to Opposition Members that one of the main reasons why British industry—

Photo of Mr Arthur Lewis Mr Arthur Lewis , Newham North West

A moment ago, the right hon. Lady said—I accept her word—that she is interested in trying to reduce unemployment, subject to work, output and productivity. Can she give any logical reason why the Government cannot reduce to 60 the pension age for men, on a voluntary basis, as a means of giving genuine help to the unemployed? Those who want to go on pension could do so, and thus make way for younger people. The Government could do that without any trouble, but they have said that they will not do that. Why not?

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

We already have a limited job release scheme for those who retire early—I think at the age of 64. Their places are taken by young persons on the register. It would be financially difficult to reduce the pension age to 60. There are already about 9 million pensioners. The national insurance scheme is financed on a pay-as-you-go basis, namely, that contributions put in this year are paid out in pensions and benefits this year. The main reason is the enormously increased pension that would be paid out as many more people took advantage of much earlier retirement. That cost would have to be met by much larger contributions, both from employees and employers. The sums involved would be very large.

I return to the subject of what we have to do to get people back into good jobs with a future, during their working lives.

Photo of Mr Arthur Lewis Mr Arthur Lewis , Newham North West

What I say is intended to be helpful to the people who are concerned. I agree that it would cost money, but it is not inflationary. Is it not true that those old-age pensioners of 60 would be replaced by people who are now on the dole? The dole money would be saved, and younger people with families would be helped. They are the people who want the work. A lot of money would be saved on supplementary benefit.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

Yes, but the best estimate that we can make of what the hon. Gentleman proposes would be a net cost of £1.7 billion. That is a net increase on top of the already high social security budget.

I turn to the vital need to be competitive if we are to get more orders to our factories. It does not seem to occur to hon. Members opposite that one of the main reasons why British industry has been short of orders has been that it could not compete, and a reading of the TUC Economic Review for 1981 suggests that they have not learnt this lesson, either. There is scarcely a reference to competitiveness, productivity or profitability in the whole document.

Our competitiveness will decline further unless management and work force share an understanding of the need to earn sufficient profits for investment, for development and for innovation. It is not enough to look only at next week's wage packet if one wants job security.

The Government, and particularly the Secretary of State for Employment, are doing all that they can to promote this understanding. But the Opposition say that we should return to their tired old formula of more Government intervention, more controls, more nationalisation. That is the last thing that the country needs.

Our approach is to return the responsibility and the initiative to where it belongs—to the management and to the workers in the business itself. It might take some time to achieve that, but it must be done if we are to realise the full potential that is in Britain.

Photo of Mr Gordon Wilson Mr Gordon Wilson , Dundee East

Does the Prime Minister recognise that in some parts of the United Kingdom, particularly in Scotland, de-industrialisation has proceeded so fast and so far that one cannot leave everything to the management and the work force, because industries are being obliterated day by day? If there is no change in Government policy there will be nothing left to revive.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

The hon. Gentleman has misunderstood. Industrial relations inside the factory must be left to the management and the work force. Responsibility for matters connected with the factory must be returned to them. Of course, in Scotland we have regional policies. New inward investment factories that go there receive grants under the Industry Acts to help them set up and expand.

The fourth element in the strategy is that the Government have to set the right economic framework. This Government recognise that unless the economic climate encourages enterprise and risk-taking, new jobs will not be created and old jobs will disappear.

That is why we reduced the basic and higher rates of income tax nearer to the levels of our main competitors, so that those who have the talent and energy to create new business will do so in this country. That is why we also reduced or abolished many restrictions that prevented companies from responding to the needs of the market and developing their own initiatives. Now prices are set not by a price commission but by competition. That policy is of much more benefit to the housewife.

These are the only policies that will succeed in the long run. However, we recognise, of course, that there are real difficulties during the transition period. As a Government we are therefore doing everything that we can to cushion the harsher effects of change, to help people through the difficult times, and to stimulate new industries, especially in areas where unemployment is at its worst.

That is why we accept that we have a special duty to young people who have not been able to find a job. The schemes that we use were instituted by our predecessors. They faced similar problems. They, too, knew from experience that there was no magic solution. If there had been, the right hon. Gentleman who was Secretary of State for Employment at the time would not have presided over the doubling of unemployment. We have extended the programmes so that we can offer every unemployed school leaver work experience or training within six months of leaving school.

That is why we have increased our training programmes, so that older people who have been unemployed for a long period can train for new skills. That is why we have continued the temporary short-time working compensation scheme. Special employment and training prorammes will cost about £850 million this financial year, and they are currently helping about 800,000 people. All of that is because we recognise that it is our duty to do everything that we can to cushion the harsh effects of change, to help young people, and to help people retrain for the jobs that are ahead.

On the industry side we have done everything that we can to encourage overseas investment in development areas.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

May I carry on a little further?

We have introduced the concept of enterprise zones. They will bring a real stimulus to the worst-hit areas, where they will help to provide a sound base for future prosperity. Nine zones have already been announced, and we have promised a further zone in the North. I am glad to be able to tell the House that we have decided that there should be two northern zones—one in Hartlepool and the other in South Kirkby, near Wakefield. [Interruption.] I had hoped that Opposition Members would be glad that there are to be more enterprise zones. If they are not, I can assure them that many of my hon. Friends would like enterprise zones in their areas.

I am bound to say that our concern about employment was an important factor when we took the decision on British Leyland. I hope that all concerned at British Leyland will make a real success of their opportunities. The money for British Leyland must come ultimately from profitable industry, and we shall therefore watch the company's performance closely. Those who receive the money have a duty to be as efficient as those who provide it.

These selective policies are an essential part of our strategy. The important thing is that they should work towards the markets of the future rather than preserve those of the past.

I shall now deal with the cost of unemployment, a matter that has been raised frequently by Opposition Members and that was raised recently at Question Time. The argument is that if the nearly 2½ million people who are out of work were all employed profitably it would be of great benefit to our country and to the Exchequer, and that therefore it would be better to use the money now paid out in unemployment benefit and social security benefits to create new jobs for them.

However, the money that we spent on unemployment benefit this financial year—£1.2 billion—and on associated social security benefits—also £1.2 billion—is not nearly sufficient to create the necessary jobs. The costs of equipment, accommodation, supervisors, materials and other overheads would put the total cost of such a scheme far, far above £2.4 billion. Where would this extra money come from? Would we borrow it, or would we print it?

We are, of course, already spending substantial amounts on schemes to help the unemployed. Indeed, I have referred to them already. To spend money on the scale suggested by some of our critics is just not on. It would almost certainly be at the expense of some people now in work.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

I shall give way first to the hon. Member for York (Mr. Lyon), who tried to intervene a few minutes ago, if the hon. Member for Bolsover (Mr. Skinner) will kindly contain himself in patience.

Photo of Mr Alex Lyon Mr Alex Lyon , City of York

When I intervened the Prime Minister was talking about the YOP programme. Will she give an assurance that there is no prospect of any people involved in that programme doing military service?

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

As was announced yesterday, the Ministry of Defence already provides some jobs on the youth opportunities programme. At present it is considering whether it can contribute to that programme by providing more jobs. It seems that a number of people would appreciate the opportunity of working under that scheme with the Ministry of Defence. Of course, any scheme would have to comply fully with the rules of the youth opportunities programme and, of course, it would be voluntary. It would merely be an extension of opportunity. I now give way to th hon. Member for Bolsover.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

It is well known that the amount of money that is lost as a result of having to pay people to be out of work is much greater than the £2.4 billion to which the Prime Minister referred. She carefully avoided reference to tax rebates and the tax that would be paid if people were in work, and many other contingencies.

The Minister for Agriculture, Fisheries and Food, when speaking at a meeting at Worcester last year—a speech that was well reported in The Guardian—said that when unemployment was at 1.6 million the cost to the Exchequer, taking into account all the contingencies that the Prime Minister mentioned, that I mentioned, and that some others mentioned, was £7 billion. That means that it would cost between £11 billion and £12 billion today, when there are nearly 2½ million people out of work.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

The Prime Minister will make her own comments. She hopes that the hon. Gentleman will have the courtesy to listen—if hope is a triumph over experience. If all of the 2½ million people were in profitable work producing goods and services that other people would buy, that would be of benefit to all. They would then pay tax to the Exchequer. Unfortunately, they are not. We have to consider the cost of putting them back in to work. The cost would be overwhelmingly greater than the amount paid out in benefit. If they were put wholly into subsidised jobs producing goods and services, they would compete with other people doing similar jobs elsewhere, and those jobs would be undermined. I hope that the hon. Gentleman fully understands that.

Photo of Mrs Margaret Thatcher Mrs Margaret Thatcher The Prime Minister, Leader of the Conservative Party

I shall not give way, as I want to continue with my speech. The hon. Gentleman may be able to catch Mr. Speaker's eye later and make his contribution. Many hon. Members wish to speak.

Of course, it is not possible to put right things that have been wrong for such a long time without experiencing pain in the process. I recognise that manufacturing industry has stood in the front line in the battle against inflation. Management and work force alike are having to adjust at an unprecedented rate against the background of a severe world recession and a high exchange rate. Britain is not alone in experiencing severe unemployment. A number of countries in Europe are facing higher unemployment.

Even so, many companies are not only holding their own but are expanding. Most companies will emerge from the recession more efficent, with more competitive products, and with more aggressive marketing policies. Not only is progress now being made among some existing companies; inward investment projects started or decided in 1980 will create new jobs in the future. I was encouraged to hear that Nissan, whose proposals were announced in the House last week, said that it was attracted to this country primarily by the underlying strength of the British economy—and it is not alone. There are many other examples of international companies investing in areas as far apart as Cornwall, the North-East, and Scotland.

I am often asked where all the new jobs will come from, and when. But how many of today's jobs were predictable 30 years ago, before the computer revolution, the transistor revolution or the microchip revolution? The history of technology suggests that even the greatest inventors could not anticipate the market potential that was unlocked by their inventions. Radio was seen as a device only when the use of wires was impossible. Oil was used only for lighting purposes. It took time to realise its potential as a chemical feedstock.

We may not be able to predict precisely where the jobs will come from, but I can predict that they will come if we adopt competition policies, taxation policies and financial policies that promote the enterprise economy. Selective help in a time of change is a vital part of our policy, but we shall not be deflected from our long-term economic strategy.

Now, what is the policy of the Opposition? There is no merit in turning to their amendment for guidance. It contains not a single alternative to the present policies of the Government. But we do know that the Opposition are now advancing policies even more extreme than those that they followed when in office. They call for massive extra spending of money that we do not have, that we could not borrow, and that we would be forced to print—-the very policy that led Britain into the hands of the International Monetary Fund, and would do so again. Stripped of all verbiage, their policy is to create a new round of inflation to cure the present unemployment, quite forgetting that the present unemployment was partly caused by the last round of inflation. They neglect to point out that the inflationary dose would have to be repeated in ever-larger quantities and at ever-shorter intervals.

We on the Conservative side want to get things in this country on a sound basis for the longer term. Our aim is to encourage an economy that will stimulate the creation of wealth. We shall not pursue short-sighted policies that conflict with that. The fact is that inflation is coming down. Wage settlements are moderating. And those things have been achieved without controls on prices or incomes. For the first time for many years we have the chance to move into expansion without those inbuilt distortions to correct, and that is a tremendous advantage. And all that against the background of our own secure supplies of energy.

The prize in prospect is the United Kingdom trading with a stable currency and making much better use of the most valued of our natural resources, namely, our manpower. That prize would be imperilled if we resorted to an economy of import controls, capital controls, exchange controls and every other Socialist control. That prize would be imperilled if we resorted to massive increases in public spending and borrowing and printing.

When the wealth-creating conditions in our economy are right, when there is confidence about the value of money, when there is a realism in wage bargaining that leaves a satisfactory reward for enterprise—when those conditions are satisfied, which they will be as our policies are pursued, wealth will be created, wealth will be spent, and in being spent will provide the jobs—and the prize will be won.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale 4:36 pm, 5th February 1981

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: deploring both the massive rise in unemployment and the massive fall in industrial output, calls upon the Government to abandon its economic and monetary policies which are crippling British industry and inflicting great and lasting damage to the whole economy. The Prime Minister began her speech with a reference to what she called "common ground." I do not think that there was very much in her speech on which there could be common ground, unless we accept her compliments about some of the past schemes that we introduced, and which she has taken over, to deal with some of our unemployment problems. Some of us remember the fulsome tributes that she paid to the schemes during the days of the general election, saying that if she had the chance she would carry forward our schemes to assist employment. In fact, she went from one end of the country to the other deriding those schemes as not providing real jobs.

It is common ground that 800,000 people—the right hon. Lady's figure—are in jobs because of the schemes that we introduced, and which the Government have carried forward. We are grateful for that piece of common ground. I wonder how the right hon. Lady distinguishes what she describes as the tired old formulae of the Labour Party. Hardly a week passes when a Minister does not tell the House that he intends to spend £1 billion on a tired old formula—one day it is British Leyland, and the next day, presumably, it will be British Steel, not that that scheme is necessarily the one of which we approve.

Some Conservative Members like to hold to the propositions that they made during the election campaign. The right hon. Lady was candid enough to admit that a great deal of employment is sustained because the Government have voted money to sustain what the right hon. Lady described as the tired old formulae of the Labour Party. We propose that, with the highly critical state in which Britain finds itself, those formulae should be carried further.

The origin of the debate was our constant demands that the unemployment position throughout the country—not merely in the old places of heavy unemployment, but in the Midlands, the South-West and London—was so serious that we should have a major debate on the subject every month. We claim that, as the Government have played a major part in the creation of these appalling unemployment figures, they should provide the time for a debate every month on the situation throughout the country. I trust that the Government will respond to that demand, because these unemployment figures are the worst since the 1930s and almost the worst in the Western world as a whole, as I shall illustrate in a moment, despite all the right hon. Lady's denials.

May I turn to what the right hon. Lady described as the centre-piece of the Government's policy—their fight against inflation. I am certainly prepared to acknowledge that that is the centre-piece of the right hon. Lady's policy. I am sure she is passionately sincere in her desire to bring down the rate of inflation. I believe also that she is single-minded almost—it is a criticism in this sense—in thinking that that is pretty well the only question with which they have to deal in economic affairs. I am all in favour of bringing down the rate of inflation, because a rate of inflation of 15 per cent. such as we have today inflicts great injury on the economy and great injustice on individuals, and this would be the case even if the rate were lower. So we in the Labour Party are strongly in favour of the fight against inflation.

The right hon. Lady must acknowledge that she wavered at one moment. If the most passionate determination of her policy right from May 1979 when she came into power has been to fight inflation, she has not been very successful. Although I do not dispute for a second that she is sincere in her claims today and throughout the country that that is the centre-piece of her policy, as she described it this afternoon, there was one moment when she and her Government wavered with very serious consequences.

There are many on the Government side of the House who have underlined the fact that that was the moment when she and the Chancellor of the Exchequer introduced that first Budget. I wonder whether there is anybody on the Government side of the House, including the right hon. Lady, who thinks that that Budget was a great anti-inflation Budget. I do not suppose there is. Of course, it was not only the raising of the VAT rate and the departure from the single intention of fighting inflation, but it was all the consequences that it had throughout the economy in wage settlements. There is not one person on that side of the House who would dispute the argument that the increase in VAT and the other goods that were heavily charged had an effect on wage settlements and on the inflation rate.

So there was one moment—one great, critical moment—when they wavered, and they wavered because they thought that it was more important to fulfil their election promises to one small section of the community than it was to fulfil them to the rest of the community. So I say to the right hon. Lady that she can make the claim, and I do not dispute that what she intends—

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I will give way in a few seconds. I do not dispute that that is what she wishes to pursue, but I say to her that, if she pursues the proposals to reduce inflation by the means she has been adopting up to now, she may succeed; the inflation rate may eventually come down to the figure it was when she took office. It is quite likely that she will get it down further still. If she does it by the means she is presently employing, the results for British industry and British employment will be catastrophic.

Photo of Mr John Townend Mr John Townend , Bridlington

Does the right hon. Gentleman accept that the awards of the Clegg Commission which this Government inherited cost them £1.6 billion? As he has claimed that it was the Government's first Budget that caused wage inflation, would he like to put a figure on that?

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I was in favour of our Government accepting the Clegg Commission report, and the right hon. Lady gave her pledge during the election. She should not try to wriggle out of her responsibility now. It was perfectly open to the right hon. Lady, if she wished, during that election to say that she would not implement it. But she made her own choice and she should not pretend that the responsibility for these matters rests with anybody but herself.

Photo of Mr John Townend Mr John Townend , Bridlington

Will the right hon. Gentleman please answer the point I made? He claimed that the Government's first Budget increased wage claims substantially. I quoted a figure of £1.6 billion as the cost of Clegg. Would he like to put a figure on his claim?

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I was in favour of that report, and I do not try to run away from it, as the right hon. Lady does. She runs away from it; I accept it. I think it was right to accept the Clegg Commission report. I think it was fair to the low-paid workers who were dealt with under that report. One of the many shameful actions that this Government have taken has been to run away from their commitments to low-paid workers. Certainly when we get power again we will take measures to try to assist low-paid workers.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I have given way to the hon. Gentleman twice. If the Government are going to fight inflation successfully over a long period they have to have a policy for protecting low-paid workers as well as one of making big handouts to the high taxpayers.

Photo of Mr James Prior Mr James Prior , Lowestoft

Would the right hon. Gentleman perhaps go on to say why it was that after five years of Labour Government there were those low-paid workers who had to have the increase that Clegg awarded?

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I should have thought that the right hon. Gentleman would understand the point. The problem of the low-paid workers cannot be solved in a single Parliament. We made considerable moves in that direction, however, which were not very well—[HON. MEMBERS: "Oh".]—Yes. I remember these matters vividly because the £6 across the board, which I carried through the House as Secretary of State for Employment, with precious little assistance from the Tory side of the House, was a plan to assist the low-paid, and it is along those lines that we will have to deal with the problem in the future. No policy for fighting inflation can be successful over a period unless it has written into it proper protections for the low-paid; perhaps our experience confirms this. It is true that we searched for a solution and did not secure it in the way that we wished, but we believe, in contrast—

Photo of Mr Ian Lang Mr Ian Lang , Galloway

Mr. Ian Lang (Galloway)rose

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

No, I shall not give way. I have given way three times already.

I turn to another section of the right hon. Lady's speech. This is indeed one of her principal arguments, against both the plan for growth and against the policy which the TUC has put to her. I suppose that it is an argument, too, against the much less formidable or fruitful policy that has been put to her by the TUC, but it is also her argument, reiterated today, for doing nothing, in effect, about the general situation. The right hon. Lady says, in effect, that reflation equals inflation and that it is not possible to distinguish between the two. That is what she said in the television programme on Sunday. She says that reflation equals inflation equals unemployment. She says that the cause of unemployment in recent times has been almost entirely the high inflation rate.

The right hon. Lady's central argument is that any attempt to solve our problems by a fresh round of reflation—call it reflation or inflation, whichever one wishes—will produce greater unemployment. The right hon. Lady had the temerity to say that that is based on experience. It is not based on the experience of the 1920s and 1930s. I suppose that in those years the economics of monetarism were working. Indeed, they were working all too well. In those years—soon after 1921 until 1939—there was no great inflation. However, there was mass unemployment. It could not have been inflation or reflation that caused the mass unemploymentof the 1920s and 1930s.

The right hon. Lady treated the post-war period in the most extraordinary historical fashion. I shall come to exactly what she said. From 1945 until 1968—I know that the right hon. Lady said 1955, and I shall not forget that or let her forget it—there were about 18 different attempts by different Governments to reflate the economy. Throughout that period unemployment did not rise above 2 per cent. or 2½ per cent. During the period when Keynesian policies were being applied it would be difficult for anyone to say that the reflation or inflation was the cause of unemployment.

One of the right hon. Lady's extraordinary achievements is that she has made the era of "stop-go" sound like the golden age of plenty. That age must be regarded as a great improvement on what she has been doing. Of course, we are glad to have the presence of the right hon. Member for Brighton, Pavilion (Mr. Amery), who is looking at me so earnestly, but we would like to see the right hon. Member for Sidcup (Mr. Heath) in his place.

The right hon. Lady's condemnation of the post of war period condemns the entire period of the Government of the right hon. Member for Sidcup. Indeed, it goes back futher than that. The right hon. Lady spoke of 25 years. That takes us back to 1955 and takes in the Governments of Sir Anthony Eden, Mr. Harold Macmillan, Sir Alec Douglas Home, the right hon. Member for Sidcup and all the rest of them. There were about four or five elections during that period, including the ones that the right hon. Lady fought. I wonder what she said then. Of course, the right hon. Lady's 25 years takes in the "You never had it so good" era. We are now told that the whole of that period is to be condemned. I know that there are some Conservative Members who hold that view, but they are a small and diminishing band.

The right hon. Lady likes to claim that she is very practical by nature, but she never learns from experience. That is the trouble with her. She tries to prevent her companions from learning from experience. She does not learn from the experience of the 1920s, the 1930s, the 1940s, the 1950s, or the rest. Far from saying that the proof of the pudding is in the eating, the right hon. Lady says that the proof of the pudding must be looked for in some old professor's cookery book. It is either Friedman's book, Hayek's book or Volcker's book. That is where she looks for her theories instead of examining the facts and what is really happening.

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

As the right hon. Gentleman is talking about the proofs of puddings and so forth, will he remind us which Labour Government have ever left us with less unemployment than they found?

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

The 1945 Labour Government took office in a period when the then Leader of the Conservative Party, Mr. Winston Churchill—

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

—said that the country was bankrupt and that the Labour Government would not be able to run the economy. However, until 1951 that Government sustained a position of well nigh full employment. If Conservative Members are trying to re-write those historical memories, they will never succeed in convincing the British people.

As well as trying to rewrite history, the right hon. Lady is doing her best—this is even more serious—to try to persuade the country that what is happening is much less serious than is the reality. She has failed to understand the scale of the crisis and she gives occasionally, as she did again today, a too optimistic account of how we may escape.

The right hon. Lady does not seem to appreciate that output in manufacturing industry has fallen more over the past 12 months than in the great slump of 1929–31. Our industry is producing less now than it was 10 years ago. About 12,000 jobs in manufacturing are being lost every week, perhaps permanently. No other country in the West, with possibly the exception of Belgium, is losing its industry so fast. All that is happening in the sacred name of competition. In the name of competition more British industries are being wiped off the map than ever we have seen before. When we recover or when the recession ends, whenever it happens, those industries will not be there and able to compete. That is the reality of what we face.

I hope that I shall be allowed a moment to turn aside to have a word about the right hon. Member for Oswestry (Mr. Biffen), the Secretary of State for Trade. The right hon. Gentleman has always been the strongest defender of the Government's monetarist policies. That was so before he took over the job of being a one man Monopolies and Mergers Commission. He has a role that is rather peculiar for him. We are glad to know that he has been brought forward again to defend the Government this evening. I have always regarded the right hon. Gentleman's pawky imperturbability as the Government's best platform of defence. Now that he has been withdrawn to another office, I wonder what defence they have left.

I am sure that whatever post the right hon. Gentleman has, and whether he is in the Government or out of it, or half out of it, he will always seek to tell us what he believes to be the truth. In 1980 he told us, as the whole country remembers, and no one better than the right hon. Lady, that there would be three years of unparalleled austerity. He did not exactly win a bouquet from the right hon. Lady for that declaration, but that did not deter him. A few months later he was saying "At any rate my prophecy has not been invalidated". It has not. We do not know where the right hon. Gentleman will be in three years' time, but I should think that in 1983 he will be able to make another speech on that theme and demonstrate how right he has been.

The right hon. Gentleman gave us another piece of advice a little later the same year. I recommend it to anyone who is too easily comforted by the right hon. Lady's assurances, or by those that come intermittently from the Chancellor of the Exchequer about how the recession is bottoming out. In April 1980 the right hon. Gentleman said that he feared that in politics there is all too often a disposition to be optimistic far too soon. The right hon. Gentleman's words were recurring as I listened to the right hon. Lady.

The right hon. Gentleman has spent the past few weeks examining the profitability of The Sunday Times. If he thinks that The Sunday Times is not profitable, I wonder how many other industries in Britain would be condemned on that same method of book-keeping. It would be a wide range of industries that would be knocking at his back door or the back door of the Secretary of State for Industry if the same criteria that he has applied to the "hopeless unprofitability" of The Sunday Times were to be applied to the range of British industry. We hope that the right hon. Gentleman will explain this evening how many unprofitable industries he is determined to keep in being through this recession. We promise him that he will get much more support for that programme from the Opposition than from his own followers.

I turn to another phrase. This does not come from the right hon. Gentleman but from someone further inside No. 10, Downing Street. The ability of everyone here"— that is, people in No. 10— to look on the bright side never ceases to amaze me. I thought, on reading it, that this must be some economic report from Professor Walters. It is not at all. It is from Denis himself. It is in Private Eye. I commend it to the House.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

He does better and better each week. I can assure the right hon. Lady that every member of her Cabinet reads it—the ones who are still there, the ones who were thrown out, and the ones who will be thrown out next week. They all read it because they get advance information of how they stand in the popularity stakes. We should not be too respectable about reading it. The whole House reads it, and enjoys it; and occasionally gleams of truth come through to the House of Commons on these matters.

The right hon. Lady is, however, not so optimistic on the unemployment figures as she has been on some of these matters. I do not blame her for not being prepared to say how high unemployment is to go and how long we are to continue with the policies that help to cause it. The right hon. Lady dismissed the document of the TUC. I do not believe that it is possible to dispute what the TUC says about the scale and nature of the unemployment problem that faces us.

I am not in favour of throwing around figures of 3 million or 4 million. The figures that already exist are savage and severe enough. To those figures, on the most conservative estimates, have to be added a great number of others, as shown in the TUC report. There is probably a total of those who do not register, based on past findings and surveys, that add another 500,000 or 600,000. I am not protesting about the compensation schemes. We introduced them. If the Government had not continued those schemes there would be at least another 400,000 or possibly 500,000 to add to the present total. Those sums are running out. The figures are, therefore, very high.

At yesterday's NEDC meeting in which the right hon. Lady participated, there were other figures given, apart from those of the TUC. According to the Financial Times report, The 5m unemployed forecast was given by Mr. Michael Shanks, chairman of the Consumer Council.… Neither the Prime Minister nor any other member of the Government team refuted the figure when it was put forward by Mr. Shanks and later repeated by Mr. Murray during his rebuttal of Mrs. Thatcher's summing-up speech". Perhaps the Secretary of State for Trade can make some comment. There is no doubt that according to those figures, whether or not they are an exaggeration, and what is happening from one end of the country to the other, the unemployment situation is the most serious that we have had to face in this century. It is on that basis that the House of Commons should approach it. The right hon. Lady does not. She continues to offer us phoney figures about the situation. She gave more in the House of Commons on Tuesday this week.

One of the Prime Minister's themes is that other countries are suffering similarly to ourselves. We know that she has discovered the world recession since the general election. Even so, it is not the case, as she claimed on Tuesday, that The percentage increase on unemployment in Germany, Denmark and Holland between August and December rose faster than in this country in the same period."—[Official Report, 3 February 1981; Vol. 998, c. 143] In doing so, she was once again seeking to soothe people into imagining that we have not a special problem, piled on top of the severe unemployment problem throughot the rest of the Western world and, indeed, the rest of the world.

The four-month comparison that the Prime Minister used on Tuesday relating to West Germany, the Netherlands and Denmark was worthless since the figures for school leavers come on to the register at different times in different countries. If, however, she is interested, on the seasonally adjusted basis of figures provided by the statistical office of the European Community, unemployment in the four months from August to December 1980 rose faster in Britain, with an increase of 23·6 per cent., than in Denmark, 22 per cent., the Netherlands, 21 per cent., and West Germany, 14·6 per cent.

Unemployment in West Germany rose 26·2 per cent. between January 1980 and January 1981 while in Britain it rose by 67·2 per cent.—two and a half times as fast on a seasonally adjusted basis. Last year the increase in unemployment in the United Kingdom was the highest of any EEC country at 63·3 per cent. In the face of those figures, it is monstrous that the right hon. Lady should treat these matters in the way she does in the House of Commons. The scale of unemployment is far greater than she has been prepared to acknowledge to the House or to the country.

The scale of mass unemployment which now afflicts this country, which the Prime Minister has not the wisdom or the imagination to acknowledge, can corrode and embitter this nation's national life for months and years ahead. It can, in the process, cast away the greatest of the national economic assets that we possess at this period in our history. In the last debate, when we discussed some of these matters, I quoted a remark, which still rings in my mind, by Sir Michael Edwardes about our use of North Sea oil when he said: If they can't find a way of living with North Sea oil, I say leave the bloody stuff in the ground". The right hon. Lady presides over a Government responsible for wasting our greatest resource, North Sea oil. During the period of the Labour Government, we presented to the House of Commons for discussion and debate, and for national debate, proposals on how best our country should use this precious North Sea oil which will not last for ever. We put various choices before the House and the country as to how it should be done. The country and, certainly, the Opposition will continue to press these matters.

One option that we did not include among those that we put to the House and the country—one that Mr. Len Murray says no one thought of including—is the option that the Government have chosen, namely, to use this oil, or at any rate a considerable bulk of it, for paying for mass unemployment. The right hon. Lady derides the statement from the TUC and says that it has nothing to do with productivity and contributes nothing to saving the nation from our present ills, but I tell her that what the TUC has published this week on this subject will bear examination in years to come very much better than her speech to the House today and what she said on television on Sunday.

The TUC, on the subject of North Sea oil, says: if present policies are continued a tragic waste will have been inflicted on the British economy. Future generations will, and correctly, rebuke Government decision makers of the 1980s, if during a period when the United Kingdom economy did have the resources available to secure its future, those resources were misused in financing investment in other economies and in financing mass unemployment". That is what they have done. That is the policy for which we demand a change and for which we will bring a change when we have the power.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

One good rule for us when we regain power and office will be to look at what has been happening and send out the message "Go thou and do otherwise". Instead of increasing tax and cutting public expenditure the Government should boost spending by cutting taxes and increasing expenditure on public services. Instead on ensuring that the pound is kept at a high level, the Government should bring its value down to such a level that British manufacturers can compete in world markets. Instead of standing by while foreign producers take an increasing share of the British market, the Government should control imports. Instead of withdrawing industrial support in many of the regions, as the Government are doing, they should help industry to modernise and create jobs. Instead of reducing aid to depressed areas, the Government should subsidise the creation of jobs in those areas. Instead of pretending that what they are doing is to help with training to deal with the problem when the recession is over they should pour more money—yes, public expenditure—into ensuring that people are properly trained to meet the recovery when it comes. One example is, that the Government have removed from my constituency the skillcentre established by their predecessors.

Photo of Mr Cranley Onslow Mr Cranley Onslow , Woking

Mr. Onslow rose

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. The right hon. Gentleman has made it clear that he is not giving way.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I have given way to numerous interruptions. My remarks come back to the right hon. Lady and whether she will change her policies. I do not believe that any number of Conservative Members rising to their feet, however they may seek to keep their courage up, disproves the charge that we have made increasingly through these debates in the past year that more and more of her followers and associates in her Cabinet revolt against the policy that she is seeking to impose upon them and the country.

The right hon. Lady has already won her niche in history. She is the Prime Minister of mass unemployment. If she claims that those charges should not be made against her, let me recall what she said in May 1977, when she sought to arouse some emotion on this subject. She said in response to a question in an interview I think it's terrible if a person who wants to work can't find a job". There are more than a million more unemployed today than there were then. The right hon. Lady continued: You have no self-respect, you haven't got the respect of your family, if you somehow can't earn yourself a living and them a living too. Sometimes I've heard it said that Conservatives have been associated with unemployment. Well that's absolutely wrong. We'd have been drummed out of office"— the right hon. Lady said— if we'd had this level of unemployment. That was before the right hon. Lady started on it, when unemployment was a million or more less than it is today.

I say to the right hon. Lady and to my right hon. and hon. Friends and to those throughout the country that our business is to see that she is drummed out of office. In the House and throughout the country she is the Prime Minister of unemployment and we are determined that she shall be removed from office as soon as the nation is given the chance to speak.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party 5:15 pm, 5th February 1981

The House will be aware that as well as the debate inside this place there is continuing debate outside about the state of our politics as well as the state of our economy.

The amendment tabled by the official Opposition shows why that is so. There is total paralysis in the official Opposition. I do not deny for a moment that the Leader of the Opposition feels a genuine sense of outrage, as I do, about mass unemployment. I do not withdraw my support from what he says in his amendment on that topic. I also agree with him that the Government should change their policies. However, the Opposition, who have been crying out for a debate on the economy for weeks, have an obligation to put alternatives before the House. One looks in vain for an alternative in the amendment.

If the Leader of the Opposition attempted to put on the Order Paper some of the policies which he outlined in his speech, he would find that one half or the other of his party would profoundly disagree with them and not support him in the Lobbies. That is not a state of opposition that the House can tolerate for long.

One reason why we cannot tolerate the state of paralysis in the official Opposition is that it allows the Prime Minister to get away with saying that there is no alternative. There is no alternative on the Order Paper except that provided by the Liberal amendment.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

That is absolute rubbish.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

It is no good the hon. Member for Liverpool, Walton (Mr. Heffer) saying that that is absolute rubbish. Let him read the official Opposition's amendment. There is no alternative set down on which the House can vote tonight. I accept that under the rules of the House there is no opportunity to vote on the alternative that the Liberal Party has proposed. To the extent that the Opposition go in their criticism of unemployment and in their condemnation of Government policies, we shall find ourselves forced to support the Opposition in the Lobbies tonight.

In my short speech I shall put forward some of the alternatives which we have outlined in our amendment and elsewhere.

Photo of Mr Sydney Bidwell Mr Sydney Bidwell , Ealing, Southall

The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) has stated that there would be a division in the Opposition if we had a programme to fight unemployment of the kind that my right hon. Friend the Leader of the Opposition has spelt out in his speech. Can he be more specific about what he means by those remarks?

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) could not carry his own 11.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

I do not want to get sidetracked into the internal debates of the Labour Party.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

Will the right hon. Gentleman tell us why he voted with the Conservatives?

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

As I am being tempted, I shall accept the invitation and take one point mentioned by the Leader of the Opposition. He called for import controls. The names of a number of Labour Members appear in an advertisement in The Guardian today. They would not subscribe to that.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) does.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

It is no part of my programme to support the idea that we can be an isolationist, centrally-controlled economy, ignoring the rest of the world. That is one part of the prevailing philosophy of the Labour Party which is causing deep unease among certain members of the Labour Party.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

It is no good hon. Gentlemen on the Tribune Bench complaining. I was invited by one of their number to give an example and I have given it. I shall return to the state of the economy.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I am talking about all those traitors that the right Member is trying to attract.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

I am making my speech. The hon. Member for Bolsover (Mr. Skinner) must make his later.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

I return to the level of unemployment. To me it is slightly surprising that with our unprecedented level of unemployment there is not even more social tension than we have now. There is a reason. We have now, as we did not have in previous times, a sophisticated system of redundancy payments. People receive capital payments that cushion the effect of unemployment for some time. The transfer from unemployment benefit to supplementary benefit also takes some time. My anxiety about the state of unemployment as we have it today and as we see it growing is that its full effect may not be seen for another six months or a year. The real misery of these crude figures will not be felt for some months to come.

One despairing feature of the Government's policy is that the public see an enormous gap between the promises made by the Government and their performance. When the Chancellor of the Exchequer was leading for the Opposition on 9 November 1978, the day that the minimum lending rate was announced to be l2½ per cent., he used some wise words: How are the economic prospects of the construction industry to be improved by a minimum lending rate at this level? How are the prospects of industrial investment on Merseyside, in Wales, in Scotland or anywhere else to be improved by it? How are the prospects for employment on Merseyside, in Wales, Scotland, Wales or Northern Ireland to be improved by a minimum lending rate at this level?"—[Official Report, 9 November 1978; Vol 957, c. 1212.] However, as Chancellor of the Exchequer he presided over a minimum lending rate which was far higher than 12½ per cent. and which is still substantially above it. What he said then is even more true now.

During the general election campaign the right hon. Lady was questioned, as we all were, on the BBC programme "Campaign 79". On 2 May, when pressed by Robin Day about unemployment, she stated: Even in the comparatively short run, and I use the word 'comparatively' advisedly, our policies will get more jobs. The reason that she gave was that the Consevatives intended to give back more money to industry by way of tax benefits to allow expansion. The trouble is that the facts of the nation's life do not fit the Prime Minister's election theories. As we now know, the average tax burden in this country has risen by 10 per cent. during the lifetime of the Government, although, admittedly, it is partly due to increased revenues from oil.

The total effect of Conservative policies—high interest rates and their failure to reduce the tax burden on industry and individuals—has been serious for industry. One quarrel that I have with the Prime Minister is that when she accepts that an industry is in decline she implies that the Government's abrasive policies are cutting into industrial fat or decay. I believe that they are cutting into industrial muscle. In the past four days alone I have received about 2,500 letters from people who voted Conservative, Labour and Liberal at the last election.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

The hon. Gentleman may not get letters, and I am not surprised.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The right hon. Gentleman did not send me one. I did not get one of his letters and neither do I want one. It is a load of claptrap. Send them to claret drinkers. Some of my hon. Friends will get drowned in claret when the right hon. Gentleman joins them. They will have to drink claret whether they like it or not.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. The hon. Member for Bolsover (Mr. Skinner) must not make remarks from a sedentary position. If he wishes to intervene he should stand up and seek to do so.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

I am always ready to give way to courteous interruptions, but I shall not give way when the hon. Gentleman interrupts constantly, right underneath the microphone that I am using. I hope that, if there is any political realignment, somewhere else will be found for the hon. Member for Bolsover.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I would not be seen dead with the right hon. Gentleman's lot. They are junior Tories.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

I have received letters from people who supported the Conservative Party at the last election and who have considerable experience in the business. I shall read only one, which I received yeaterday and which typifies what is happening in the country. It states: I started business in January 1972 with 4,000 square feet of factory space, two skilled men and an empty order book. I had to be prepared to work at least sixteen hours a day, seven days a week, to get the business on its feet.There were many 'headaches', the worst being the three day week. Having overcome this disaster the business began to expand slowly and in late 1979 I was able to take on a further 3,000 square feet of factory area and increase my work force of skilled and semi-skilled men to fifteen.At the beginning of 1980 I was considering further expansion which could have given a possible increase in my work force of 100 per cent. but as you well know things have gone the opposite way and now I have had to reduce the work force and put the remaining men on a three day week.I know that the above figures are very small to you but I am convinced that the 'backbone' of British industry is small companies like mine, producing highly skilled component parts.It has now got to the stage that we in small businesses are working purely for the taxman and the banks and any future expansion has to be shelved indefinitely. This is the vital paragraph: I am still a fairly young man and feel that I have at least another twenty years of hard work to give to my country, but I am afraid this is slowly being eroded. Also I feel that the younger men than myself will not take the risks I took nine years ago. That is the climate in which the Government are operating. That is why I believe that they are hopelessly misleading themselves in believing that the economic climate that they are creating is healthy for British industry.

It is not only the small business sector that is experiencing great difficulty. In an interview a month or two ago the Director-General of the CBI, who represents big business, stated: when the world starts to recover from this recession … the capacity won't be there, and a lot of companies are … closing plants, sometimes closing all their operations, because they just can't carry on. This is a very serious state of affairs. After comments from small and big business, let us consider some of our elder statesmen. Harold Macmillan in a television interview a few months ago in the immediate aftermath of what he called the little triumph of monetary policy stated: I saw … a slight fall in the money supply last month. Even that little triumph has now disappeared. But how much fall has there been in the employment supply? How much fall in the production of wealth? Our criticism is not that the Government are making minor shifts in the balance of society or of our economy. They are making fundamental and long-term changes to our economy, from which it will be extremely difficult to recover.

There is an obligation on all political parties at present to put forward constructive and alternative policies. That is what we have been trying to do. Hon. Members may or may not like our suggestions. I was not in the Chamber for the previous debate on the economy, but I read the speech made by my hon. Friend the Member for Colne Valley (Mr. Wainwright). He chided me for my Presbyterianism in sending the 10-point plan only to a selected 400 hon. Members. One Presbyterian virtue is repentance. I apologise to those who, like the hon. Member for Bolsover, did not have the benefit of receiving a copy.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

I apologise for even mentioning the hon. Gentleman.

I am glad to say that such has been the demand for the 10-point plan that I have had to have it reprinted twice. [Interruption.] I am glad that I also left the Opposition Chief Whip off the mailing list. The other place, I understand, will debate the plan next week.

Hon. Members may disagree with some of the points made, but at least we are trying to put forward a constructive alternative, which is what we are supposed to be doing in this place.

The first point—and I will not weary the House by going over it again—is the reduction of interest rates. If industry is to be able to invest, it is essential that it should be able to borrow money at prices that it can afford. As the Secretary of State for Trade intends to wind up, I shall add that the Department of Trade must look carefully at its practices, because it has failed to give financial guarantees to companies in the export field. There are far too many tales of companies that have been backed by the Governments of America, Germany and France and that have won contracts overseas in competition with our companies. Perhaps those Governments are bending the rules. Perhaps we observe those rules strictly. If so, that is one aspect of the European Community that the Government should expose, and should remain vigilant about.

The Government should look more carefully at persistent complaints to the effect that contracts worth millions of pounds are being lost to other countries, because other Governments are more direct in intervening, supporting and giving guarantees round the world in support of their industries. Our Government do not do that.

Secondly, I turn to the high rate of sterling. If the Government intervened and gained some reduction in the exaggerated value of sterling, they would be wise—at the same time—to enter the European monetary system. That would be the clearest possible signal to world currency markets that the Government are no longer promoting the over-valuation of sterling. Currency dealers would no longer assume that sterling's trend is ever upwards. Membership of the European monetary system would also usefully reduce uncertainty in the currency markets.

The House will be relieved to hear that I do not propose to go through all the 10 points of our programme. However, thirdly—and most importantly—there is scope for increasing public investment in our future infrastructure. The Prime Minister gave some interesting figures on the cost of unemployment benefit. However, we all know that the real cost of unemployment is much higher. In her speech she also said chat there was not enough money to spend on schemes to create more jobs. We are not asking for more schemes to create more artificial jobs. We are asking the Government to look at those sectors of our infrastructure that we can see need investment, such as our railway system. Indeed, the construction industry would benefit from an expanded road programme. An advance could be made in our energy conservation programme by making a start on something like the Severn barrage. Such schemes would involve more employment and more public investment.

The Prime Minister might fairly ask where the money would come from. However, there is a difference between borrowing for future capital requirements and borrowing to pay one's current bills. The Treasury should accept that fundamental difference. One thing is incontestable, namely, that we are credit-worthy and capable of borrowing. If money is put into sensible projects, and if the value of North-Sea oil is ploughed in for our future prosperity, employment will be created in the short run.

Fourthly, we take issue with the Government on a matter that is mentioned in the motion, namely— greater realism in wage bargaining I do not deny that the Prime Minister has a fair point. In recent times wage settlements have become more realistic. Naturally, if people find that their companies are under threat of becoming bankrupt, or if those in the public sector realise that massive job cuts will result if they press their wage demands, they will moderate claims. The right hon. Lady has proved that that is so. It is undeniable.

I am worried that this is not a new, long-term form of realism, but some form of incomes policy through fear. Wherever hon. Members may sit in this House, they must look forward to an upturn in the economy and to its expansion. They must look forward to greater job opportunities. What will happen then to the new realism in wage bargaining? The Government have done nothing to alter the climate in which wages are negotiated in the long-term. We cannot get away from the need to search for a climate in which an incomes policy is acceptable both in the public and private sectors. Not only the Government, but political parties are obliged to pursue that obligation.

Finally, and perhaps most importantly, the Government have completely failed to seek a greater spread in industrial partnership. In a mature and democratic country such as ours, we shall not get anywhere until we have created a greater sense of common purpose. This Government are not doing that. Partnership is not just a pious platitude but is at the very core of the approach that we should take to industrial matters.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

The right hon. Gentleman keeps going on about what the Government are and are not doing. Did the right hon. Gentleman expect the Government to do all those things when, in the vote of no confidence, he went into the Lobby with the Tories and opposed the Labour Government? Was he either so blind or so stupid that he did not realise that these policies would be carried out? The right hon. Gentleman and his party helped—as he well knew at the time—to put this Tory Government into office.

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

The hon. Gentleman needs a lesson in elementary constitutional affairs. We are simply voting in favour of a general election[Interruption.] It is not my job to delay elections in order to give the hon. Gentleman another few months. He fought his corner in the general election and he lost. The country was wrong to elect this Government, but we live in a democracy and a Conservative Government were elected. As a result, we are entitled to examine their policies.

I was arguing that a greater sense of partnership was essential. To achieve that, we must alter fundamentally the way in which we organise things. Our institutions are too divisive. Our political, and particularly our electoral, systems exaggerate the divisions. Over the years, each political party—based on its own class interest—has got into office but has not had an overall popular mandate. Each has then pursued its policies, which have then been undone by the next Government.

Our industrial and union structures tend to set confrontation in concrete. That is why the Liberal Party puts the sort of constitutional issues that are frequently ignored in this House on the top of the agenda. In particular, I have noticed that British industry is increasingly exploring ways of introducing industrial partnership into Britain, without any major help from the Government.

I read a pamphlet that was published by one of the directors of Standard Telephones and Cables. It described an experiment that had taken place in that big corporation, in a plant in South Wales. After a year of employee participation, the company reported substantial cost savings, a marked reduction in the number of accidents, improved safety measures, less absenteeism, better working methods, a considerable increase in efficiency, and, in general, a better understanding of the business. In addition, the factory became a happier place.

Such examples are rare in British industry. They should be highlighted and seized upon. The Government should encourage them in every way. In that case, the effort was paralleled by successful attempts by the company as a whole to achieve wider share ownership.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

The leader of the Liberal Party has outlined the factors that we must understand if we are to recover. However, he has missed the most important factor. Where will we get the skilled labour from? Thousands of men aged between 60 and 65 are leaving industry and will not come back. Is the right hon. Gentleman aware that even prior to the advent of this Government we were desperately short of skilled labour? Has the right hon. Gentleman given that any consideration?

Photo of Mr David Steel Mr David Steel Leader of the Liberal Party

Yes, I have. I cannot remember whether I sent the hon. Gentleman a copy of my programme. The short answer is that it is point nine of that 10-point programme. Training is a key factor, even in a slump. I agree that if more training is carried out, we shall be better placed when industry recovers.

I have been led astray into many highways and byways. My basic proposition is that neither the Government nor the official Opposition will lead us into the path of partnership and co-operation that is essential for our recovery. Unfortunately, there is no third division yet in this House. As neither the Government nor the official Opposition are capable of embarking on that road, the debate outside this House is just as important today as this debate.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Before I call the next hon. Member, may I remind the House that a very large number of right hon. and hon. Members wish to take part in the debate. As the House knows, I have no control over the length of speeches, but dare I suggest that 10 minutes or less would be fair?

Photo of Mr John Eden Mr John Eden , Bournemouth West 5:39 pm, 5th February 1981

I listened with particular interest to the last point made by the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), when he referred to a co-partnership scheme introduced by a firm and the success that had attended it. One of the unfairnesses of a debate of this kind is that one inevitably embarks upon generalisations, which tend to mask individual experience.

I shall be no exception, as I wish to make a few comments in a generalised sense about various sectors of the British engineering industry, in which I immediately declare an interest. I recognise, however, that there are many individual cases that could, and probably should, be highlighted particularly when talking about the state of the economy, and that point to quite extraordinary degrees of success. I am sure that it is within the capability of all hon. Members to single out examples from their own constituencies where enterprise has triumphed over adversity.

I could retail to the House many cases that are indicative of enterprising management and good communications. I lay stress upon this point, because what the right hon. Gentleman was really talking about in his reference to a co-partnership scheme was good communications. If there could be better communications within each company and plant, some of the difficulties that we are currently experiencing would be put behind us.

As I have said, however, I shall fall into the trap into which everyone falls in a debate of this kind and speak in a more generalised way. I wish to talk about the recent experience of wide sectors of the British engineering industry—of falling profitability, falling investment, and lack of competitiveness. Those three things are not separable. They are very much interlinked. One is a result or a by-product of another.

First, however, I wish to say a word or two—I hope, without presumption on my part—about the first-class speech of my right hon. Friend the Prime Minister. I thought that it set the tone for the debate, although it was not followed by the Opposition. I do not know what happened to the Leader of the Opposition. I recollect that several elections ago a bright spark invented several little figures which were designated "Yesterday's Men". It would be a compliment to the right hon. Gentleman if those figures could be resurrected in his case. He clearly had no positive contribution to make. He had no solution to offer, no alternative plan and no scheme upon which anyone could fasten. He seemed to concentrate upon selected individuals for his own brand of abuse and denigration. That is no alternative or substitute for positive policy.

My right hon. Friend the Prime Minister set the tone for the debate, The main thing that shone through her speech was her determination to rescue the country from the repeated experiences and cycles of past Governments and past periods, when we had gone back over the same dismal pattern, tried many of the same formulas, and had to encounter much the same kind of experience of rising unemployment and rising inflation. That is why I was so encouraged to hear my right hon. Friend emphasise strongly and clearly her determination to continue to fight against inflation.

It is an easy thing to say, but it must require enormous courage on the part of my right hon. Friend and her colleagues in the Government to see that process through at this time. It would be so easy for her, and for them, to turn aside from the course that they have set themselves and for which they were elected, and look to the short term or the softer option. I am thankful that my right hon. Friend is resisting that temptation and intends to hold firm and see the process through, because I agree with her and believe with her that, in the long term, only by following that process right through shall we cure this country of some of the problems that have so frequently beset it in the past.

My right hon. Friend said that at a time like this, when unemployment is so high, selective help should be brought forward, and that at a time of change it was the responsibility of the Government to do that—not, she said, through massive increases in public spending but through selective help. I hope that some of that selective help can be directed towards what has come to be termed in shorthand as the infrastructure. I know that many Opposition Members have called for this as well. I believe that we should consider port facilities, cargo-handling facilities, trunk roads and other facilities of that kind, which could benefit from extra attention and provide a means of employment for a large number of people.

The point upon which I wish to concentrate is our lack of competitiveness. Very high labour costs are a major factor in our current lack of competitiveness. The Treasury estimated that probably three-fifths of our lack of competitiveness was due to labour costs and that two-fifths was due to the exchange rate. However that may be, there is no doubt that United Kingdom unit labour costs in manufacturing were rising by many times more than those of our competitors in the period 1978–80. This must have had a very damaging effect. In one company that I know very well, labour costs represent 40 per cent. of all its costs, so if unit labour costs rise, it is not difficult to understand how the product manufactured is losing ground to overseas competitors. Recently, however, there have been many signs of a growing sense of realism regarding pay settlements in the private sector. If this continues, there is a chance that we shall return to a slightly better profitability and perhaps see some encouraging signs of renewed investment. But at the moment that is not apparent.

It is not, however, only the actual money paid in wages or earnings that matters. What lies at the root of productivity is the use made of our manpower and machinery. In the engineering industry today there is an enormous amount of investment, much of it underemployed. We need to use that investment much more effectively and cost-efficiently.

This certainly applies to the investment in labour employed in industry. In recent years, many sectors of the engineering industry have had to carry an excessive manning load. We were able to carry that and were shielded in some ways from it, almost certainly by the low exchange rate. But this will no longer be the case. I believe that for quite a time into the future we shall have to learn to live with sterling at a far higher level than we have known in the past. If that is so, we must use our ingenuity and enterprise to find ways around this problem. We should not indulge in protest marches, screamings and banner wavings, because they will yield nothing of any purpose.

I return to the point that has been emphasised over and over again and that anyone who understands the engineering scene ought to understand. Our problem stems very largely from the low level and slow growth of productivity. That is another way of saying that we need more cost-effective work, and for that there is no excuse.

Photo of Mr Douglas Jay Mr Douglas Jay , Wandsworth Battersea North 5:51 pm, 5th February 1981

What struck me most about the Prime Minister's speech was that in the first few sentences she said that she still believes that we have been suffering from demand inflation since the mid-1970s. That was the basis of her whole economic argument. It was not demand inflation. It was mainly cost inflation all the way through the 1970s, as is shown from the fact that had there been a demand inflation we should have had a period of high profits, high employment and high production. That is exactly the opposite of what we have experienced. That fallacy that buzzes on in the Prime Minister's mind seems to vitiate almost all of the rest of her economic arguments.

The practical effect of this Government's policies is to pay more and more people to do nothing rather than to do some work. Every time 1,000 people are thrown out of work by a public or private employer the Government congratulate themselves—the Prime Minister did it again today—on the fact that "overmanning" has been reduced. What really happens, at a time when total unemployment is increasing, is that public money is used in unemployment benefit, redundancy payments or supplementary benefit to keep 1,000 more people idle. If we take into account the Budget revenue lost, we are now spending between £5 billion and £10 billion a year, in effect, to force people to do no work. If the Prime Minister's theory were true, one would reach the ridiculous conclusion that a nation could solve its economic problems by doing less and less work and producing fewer and fewer goods and services.

The present collapse was all perfectly predictable from the start of the Government's policies, and it was clear how it would all end.

In the debate on the Chancellor's Budget in June 1979 I said that if one tries to remedy cost-inflation by deflating demand —which is what the Government have done and are still doing— one inevitably causes unemployment, falling production, and falling productivity and investment".—[Official Report, 18 June 1979; Vol. 968, c. 977.] The appalling damage that has been done to British industry in the last 20 months proves that somewhat obvious intellectual truth. Yet even now, after 20 months the Treasury Bench still does not seem to have grasped the fact that deflation is a cumulative process, and that it will go on until someone or something stops it. Each time someone is thrown out of work, he reduces his spending, which reduces the demand for something else. The Government then say that since there is no demand for that, production of that also must be cut. The Government's own policies have reduced demand for the products of one industry after another. It would help if the Prime Minister could at least understand that one man's spending is another man's income.

As a result of the deflationary process, the nation's real output of goods and services goes down and, worse still, in the next stage of deflation, productive capacity itself—machinery and factories—is destroyed, or in some cases sold abroad, and it may take years to replace it.

The British economy is probably now producing between 15 and 20 per cent. below its existing physical capacity in terms of equipment and manpower. In terms of national income, that means a loss of at least £20 billion a year—about twice the size of the PSBR. The further irony is that a fall in real output just as surely causes a rise in prices—what the Prime Minister calls "inflation"—as does an increase in money spending. A rise in real output would just as surely restrain a rise in prices as would a check in money spending. The simple inference from that is that we cannot stop inflation by producing less and less.

Photo of Mr Daniel Jones Mr Daniel Jones , Burnley

And of course, it adds to the cost of production.

Photo of Mr Douglas Jay Mr Douglas Jay , Wandsworth Battersea North

In addition, on top of all that, deflation often means lower productivity. It means three-day working weeks and under-use of plant, and it encourages restrictive practices. The deflation of the early 1930s left us with restrictive practices that took 25 of 30 years to get rid of. Of course people will not hurry to finish a job if they think that it means throwing themselves out of work. We are returning to that situation today. And even if, in the end, we were to succeed in checking price inflation by extreme unemployment and depression without any sort of incomes policy, as soon as we relaxed the whole spiral would start over again. The Prime Minister simply does not seem to understand that fact either.

It is the greatest nonsense of all to say that no alternative exists to these crazy policies. If that were true, we would not have had the 25 years of full employment and rising production that we experienced after 1945; and other countries such as Austria or Norway could not have it today. The truth is that almost any alternative would be better than the Government's extreme policies.

In my view, the right remedy—I agree with the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) that we must be positive—is a steady reflation of demand, hand-in-hand with an effective restraint on money costs. That follows from the basic truth that the level of production and employment depends on the ratio of money demand and money costs throughout the whole economy. Indeed, a recession is not a mysterious act of God, as apparently the Prime Minister still imagines, but a man-made unbalance between money demand and money costs. Although the process of recovery should rightly start with a reflation of demand—because enormous surplus capacity is now available in the British economy—it cannot go far without collective restraint on the rise in money costs. All the evidence of the last 18 months proves again that that means a long-term, thorough-going and agreed incomes policy.

Indeed, the 2½ million unemployed that we have now represent the price that we must pay for trying to stop price inflation without an incomes policy. Though the Chancellor is not with us today, I advise Treasury Ministers, first of all, to bring interest rates down rapidly and substantially. That would encourage investment, discourage destocking and assist building and construction, which is now appallingly depressed.

Let us remember that it was the lowering of interest rates in 1932 to 3 or 3½ per cent. that began the recovery that followed. The only excuse for the crippling interest rates of the last 18 months was the Government's now discredited theory about the PSBR, which was always fallacious and failed to distinguish between capital and current expenditure. In practice, that theory has now been shown to be unworkable as well as misguided. Therefore, we should certainly now stimulate capital expenditure, both public and private.

As long as 10 per cent., or more, of our real capacity is unemployed, there is no good reason to be obsessed with M3 and the public sector borrowing requirement. In practice, the best way to get the public sector borrowing requirement down is by bringing down unemployment. It will inevitably have that effect. Lower interest rates will also lower the exchange rates, which I am sure is the other immediate necessity to save British industry—as almost all industrialists have said in the last few months.

It is ludicrous for Ministers to produce the theory that the Government cannot influence the exchange rate. Of course they cannot resist powerful long-term forces, but central banks can, and do, smooth out short-term speculative pressures. The Bank of England first created the exchange equalisation account in the autumn of 1931, and it has been influencing the sterling exchange rate ever since. The theory that Governments cannot do anything about it is absurd. If they cannot get the exchange rate down to a reasonable figure by lowering interest rates, they have only to buy further foreign exchange reserves. An excess of foreign exchange reserves has not exactly been our worst problem over the last 25 years.

Provided that interest and exchange rates are brought down, and costs are restrained, production will recover. Therefore, in his Budget this year—it is now only four weeks away—the Chancellor should relax his Budget squeeze. He should raise no new taxes in March, other than a special tax on banking profits—which is obviously necessary—and he should allow public borrowing to increase as long as the increase is mainly for capital expenditure in the public or private sector, including housing and construction in particular. Enormous damage has been done to the British economy in the past 18 months by these misguided and doctrinaire policies. Unless the Chancellor and his colleagues change course quickly, they will turn an economic disaster into a catastrophe.

Photo of Mr Cranley Onslow Mr Cranley Onslow , Woking 6:03 pm, 5th February 1981

At least the right hon. Member for Battersea, North (Mr. Jay) made an attempt to be constructive in his remarks, even if not all of us would agree with what he identifies as the right recipes for our problems.

The Leader of the Opposition let himself down badly this afternoon. He said that the Labour Party was sincere in its fight against inflation. He then gave us half an hour of rather casual editorial improvisation, in which the only good crack had been lifted from Private Eye. He was trapped—I suppose inadvertently-into indicating the alternative policies that he would back. When he was asked what changes he would make, he gave us 60 seconds of waffle, without a single specific item of change.

I know of the right hon. Gentleman's nausea when he is confronted with a figure, and I can understand that he might have been overwhelmed by the need to give precise numbers, but to say that he thought that he would find it necessary, if he were ever in office, to raise taxation is not enough, unless he is prepared to say by how much. If he is suggesting that subsidies on certain items will be necessary, he should say how much those subsidies will be. Economics of the sort to which we were treated to this afternoon reduce the debate to something of a charade. I hope, that the right hon. Member for Stepney and Poplar (Mr. Shore), who is to reply to the debate for the Opposition, will do a little better in that respect and cost the alternative policies, if any. I do not suppose that he will take more than 60 seconds, either.

It is evident that the Leader of the Opposition places much faith in the TUC, and I was reminded of the article by Mr. Len Murray in The Times on Tuesday, in which he said that he hoped that The Times would long continue in business to publish his views. I agree that his views are interesting. I shall quote one of them to the House. He said in that article: The present level of unemployment means a loss of output of £18 billion. If that statement is meant to have any relevance, it must rest on the presumption that one has only to call a job "employment" to make it productive. The other common fallacy is that one has only to call spending "investment" in order to make it profitable. Those are familiar features of what passes for economic discussion, but they are fallacies, because the measure of the value of the job is whether it pays for itself and a little more. There is no suggestion in the TUC's proposals, or anywhere else, that leads one to suppose that those jobs will pay for themselves. I doubt very much whether the right hon. Member for Stepney and Poplar will make any reference to that.

Photo of Mr Cranley Onslow Mr Cranley Onslow , Woking

I want to leave the subject of Mr. Len Murray and the Leader of the Opposition, because I think that both of them are a bit off colour. They seem to have been bitten by the hon. Member for Bolsover (Mr. Skinner), and to be suffering from a bad case of economic rabies.

I congratulate the leader of the Liberal Party on having narrowly escaped the same fate. He came back to his favourite panacea of an incomes policy, and he justified it by saying that nothing that had been done by the Government had changed the climate from that in which he had for so long been telling us an incomes policy was essential. If the right hon. Gentleman is not aware that the last 18 months have powerfully changed the attitude of management in public as well as private industry, he must have been sleeping more soundly than I had supposed.

There has been a fundamental change. If the need for an incomes policy arises only when management becomes unable to control its wages policy, I submit that there has been so fundamental a change in the climate that an incomes policy is not only likely to be undesirable and unworkable, but unnecessary.

Photo of Mr John Maxton Mr John Maxton , Glasgow Cathcart

Mr. John Maxton (Glasgow, Cathcart) rose

Photo of Mr Cranley Onslow Mr Cranley Onslow , Woking

No, I shall not give way. I am trying to be brief, and I hope that hon. Members will be able to make their own speeches as a result of my brevity.

The Governor of the Bank of England deserves some attention from the Opposition. He is on record as saying that he thinks that the worst features of recession are now ending—or words to that effect—that destocking should have been completed by most firms that have real management ability, and that many companies should by now have dealt with the worst of their over-manning problems. In that situation, most companies should be able to identify the level at which the market will bottom out. Some can still see the market growing.

Rolls-Royce and British Aerospace, the high-technology industries, are not suffering from the same sort of recessionary forces as are the old industries that we should perhaps not try to keep in existence. It seems illogical that we should waste ministerial time in a trade-war—happily it has now ended— with Indonesia where, because of the need to give more protection to our textile industry, we ran the grave risk of losing more important and valuable orders in high technology.

The amendment states that the Government's policies are inflicting great and lasting damage on the whole economy. That is the most appalling humbug. Over the last 25 years many firms have not been well managed and many employees have ripped off their employers when they have been negotiating wage settlements, and so on. Much of that has been reversed in the last 18 months as a result of management reaction to international conditions, which have not been greatly influenced by Government policies. So far, no one has blamed the Government for the astronomical increases in the price of oil, which dominate our economy.

What has happened over the last 18 months has gone a long way to cure some of the deep-seated ills that have made us so inefficient and unproductive. Unless that had happened, when the time came for interest rates to be cut—I think that it will come fairly soon—British industry would have been in no better shape to respond and compete in world markets than it had been in any other period in the last 25 years.

The change that we face, and the reason why I feel optimistic about the way in which things can go as soon as interest rates are brought down, is that we now have an industry that is much better managed, better manned and better able to compete, and if I am right in that, as I believe I am, I refuse to accept that that can be called great and lasting damage to the whole economy.

Photo of Mr Russell Kerr Mr Russell Kerr , Hounslow Feltham and Heston 6:09 pm, 5th February 1981

I thank you for calling me now, Mr. Deputy Speaker, not least because it enables me to follow directly the hon. Member for Woking (Mr. Onslow), who is an old war horse with whom I lock horns frequently. However, I should like to reassure him that I have no intention of even trying to follow any of the points that he made, although several of them upset me most grievously.

When we were running up to the last general election, in May 1979, the air was full of promises from the Conservative Party that it would "set the economy free", "release the productive potential of the British people", "put paid to Socialism", and various other things of that sort. In general, the Conservatives promised to usher Britain into a new economic era that would result not only in Britain resuming its rightful place as one of the Western world's leaders, in an economic sense, but also, in a fairly literal sense, in making Britain if not a land fit for heroes, then, more importantly, a land in which initiative and enterprise could triumph and where "merchant adventurers" would come into their own and flourish, to the great benefit of the long-suffering British people who had, so we were told, suffered for years past under the Socialist yoke.

The chosen Messiah for this expedition was an unlikely guru by the name of Milton Friedman, whose way-out economic theories had long since been discarded with contempt by economists of standing and respectability—such as Professor J. K. Galbraith, need I say—but who was able to count among his converts a lady who, for reasons we need not go into here, was destined to lead the British Conservative Party.

The flag under which Professor Friedman, of the notorious Chicago school of economics, chose to sail was called "monetarism". Baldly stated, this was a simplistic theory, whereby all the economic ills from which we have suffered over the years were ascribed to the money supply. According to Friedman and his pals—and in this context that must include Professor Walters, who now earns £50,000 a year as the supplier of economic balm for the Prime Minister, who is probably under-paying him, incidentally, for the job that she has given him—if one controls the money supply effectively, one controls the economy, no matter the consequences—whether they be a catastrophic rise in unemployment, or whatever. Currently, we have, as we heard earlier, 2¼ million or more unemployed, but in reality we have well above 3 million people unemployed, including unregistered unemployed and those in Northern Ireland who, for some reason, are not counted in the United Kingdom total. We have by and large the worst unemployment record of any country of the ECC.

The simple fact is that between May 1979, when the present Government came to power, and the end of last year, the United Kingdom had the highest increase in unemployment of any EEC country. I stress that fact. To make the point, about 2,500 individuals have joined the dole queue every working day since the present Tory Government came to power.

Another consequence of the monetarist approach is that the effect on production of this all-too-simple exclusive concentration on money supply has been a major assault on the living standards of the British people—although that does not apply to the very rich, on whose willingness to invest in manufacturing industry the economic health of the nation is said to depend, or so we are told.

Regrettably, the aforementioned very rich do not seem to have got the message. Since the Chancellor of the Exchequer freed us of all exchange controls last year and, as a direct result, saw a massive outflow of United Kingdom investment capital, the exporting of capital, particularly to Europe, has been a major feature of economic life in the United Kingdom—to the great detriment of the United Kingdom economy.

Other features of life under monetarism, which has now, incidentally been utterly discredited as an economic theory, have been its total failure to achieve its monetary targets, leaving the money supply out of control amid continuing attacks on the trade union movement. At the same time, the country has been suffering the rigours of a deflationary monetary policy and the Government still, incredibly, persist in abdicating their responsibility for the levels of output and employment in the economy.

In short, one should be careful of dignifying with the name "monetarism" a policy that is deflationary and deeply reactionary—which may well be why the Leader of the Opposition finds it so appealing.

Tempting though it is to rub the Government's noses into their own muck—and there is no easier task—I shall resist the temptation, because I wish to make a few comments about another aspect of Government economic policy today, namely, the long-term damage that present Tory Government policies are doing to the economic prospects of this country, in terms of both the public and the private sectors of our industry.

As any first-year economics student will confirm, the future health and prosperity of any industry—public or private; essentially it does not make a great deal of difference—depend very much upon the level of investment needed for at least maintaining the stock of capital in the business. Judged by this criterion, one of the most serious failures of the present Government is that their pursuit, on a "head-down, tail-up" basis, of these highly restrictionist and deflationary policies, masquerading as monetarist theory, has resulted across the whole spectrum of British industry, in a dramatic shrinking of British industry.

As figures and graphs supplied by the NEDC's committee on finance for industry make very clear, the level of investment is now no longer enough to replace old plant and machinery. The consequences, in terms of our longer-term industrial health, need no emphasis from me. Moreover, the same process of "short-changing our future" does not apply only to plant and machinery maintenance; it applies to other things that will determine our future industrial health, such as technical education, research and development, and even a properly financed Health Service.

Looking at research and development, it is vital to guarantee that British industry uses up-to-date techniques. Long-term trends in research and development look ominous. The real level of United Kingdom spending on research and development in 1978 was barely higher than it was in 1967, and the number of people employed in research and development activities had dropped. Since 1978 was a year of higher economic activity than was 1980, it is certain that the level of research and development will have dropped since then.

The Government's attitude to research and development makes for some difficulties. Public funds pay for over one-quarter of research and development expenditure, but there is a heavy bias towards defence and military research and development, which is increasing as a proportion. This is the reason why other sectors are being starved of research and development funds—sectors that may be more centrally concerned with our future economic health.

Research and development spending has usually been one of the first casualties of a recession. British industry will suffer from the results of this shortfall for the next 10 to 15 years. Similarly, with training and apprenticeships, there was a drop of 10 per cent in 1980, or about 10 per cent. of the annual intake for training purposes.

The National Institute for Economic and Social Research states that a 4 per cent. growth rate every year for six years, after the present Government are thrown from office, will be needed to restore the economic situation to full employment.

Let not the present Conservative Government underestimate the depth of the recession into which their policies have plunged us, and which will take rather more political intelligence to solve than they have so far been able to display. Friedmanite monetarism is certainly no answer to Britain's problems.

Photo of Mr Julian Amery Mr Julian Amery , Brighton, Pavilion 6:20 pm, 5th February 1981

The hon. Member for Feltham and Heston (Mr. Kerr) resembles Sancho Panza more than Don Quixote, but if I may say so he has been tilting at windmills. If the Government had succeeded in controlling the money supply and in cutting public expenditure, it could be argued that that was the cause of our present difficulties. However, they have not done so. They have instead pursued policies similar to those pursued by the deputy leader of the Opposition when he was Chancellor of the Exchequer and which the hon. Member supported, however reluctantly.

In response to your appeal for brevity, Mr. Deputy Speaker, I shall confine myself to two points—one specific and the other more general. There is general agreement in every quarter that the present situation causes deep concern—in the Opposition, the TUC, the CBI and nowhere more so than in the Government. It needed almost an earthquake to bring my right hon. Friend the Secretary of State for Industry to announce the grants and subsidies that he is making to nationalised industry. We saw his agony and I sympathise with him. It was rather like a vegetarian inspector from the RSPCA finding himself being employed at force-feeding Strasbourg geese no doubt to produce the sort of pate which would have gone down well with the deliberations of the Council for Social Democracy. I do not dispute my right hon. Friend's arguments for making a special case for British Leyland, British Steel or any other company. However, I question the Government's priorities.

At the general election, we said that defence should have first call on our resources. On both sides of the Atlantic, all the experts have told us that the decade before us is the most dangerous since the war. We have been told that the danger will continue until the equilibrium of defence forces is restored between the East and the West.

Somehow, we are able to spend billions on the nourishment of lame ducks. Why cannot that be done for defence contracts? It would give us much needed strength and would give confidence to our allies. I suspect that it would create or save as many jobs as will be saved by the expenditure now contemplated. The defence forces are already a lame duck, but I would say that they are more a deserving duck.

It is worth recalling that in 1938 Mr. Neville Chamberlain, who still believed in detente with Hitler, spent 6 per cent. of our GNP on defence. In 1939, the defence Estimates were put up to 12 per cent. before the occupation of Prague. At the time of the Korean war, Mr. Attlee spent 11 per cent. of the GNP on defence. If there is to be constructive intervention in the economy by the Government, defence or defence contracts should have a prior claim. To put the money into defence and into the building of the equipment that the forces need would give substance to the brave speech made by my right hon. Friend the Prime Minister at the Pilgrims dinner. Her speech is robbed of credibility if it appears that we are trying to confine our response to the challenge of Soviet imperialism within cash limits.

I regret the suggestion that the cuts in the defence programme are attributed to the speedy conclusion of defence contracts. In the context of this debate, I say that as much on economic as on defence grounds. Late deliveries and low productivity have been standard criticisms of British industry. We should encourage deliveries on time and even ahead of time, and that should be rewarded. In my experience of defence supply—I have served in three defence Departments—delays always adds to the cost.

My second point is of a more general character. The Leader of the Opposition rightly said that Conservatism did not begin in 1979. But, equally, I thought that his historical analysis was faulty. When Maynard Keynes advocated reflation in the 1930s, the price level was stable if not falling. When the 13 years of so-called Tory misrule—as Labour Members like to call it—indulged in stop-go, inflation never went above 3 per cent. The sort of polices advocated by the Leader of the Opposition would have produced inflation of over 20 per cent. in a short time. Those policies were more specific than was suggested by my hon. Friend the Member for Woking (Mr. Onslow) and perhaps we should nail the right hon. Gentleman down on them.

The situation is not entirely dark. There is a reduction in inflation and a reduction of industrial unrest. There has been a shakeout. The balance of payments is strong and the pound is strong. The banks have helped to the limits of prudence, if not beyond. Therefore, I hope that my right hon. and learned Friend the Chancellor of the Exchequer will not fall for the easy idea of taxing bank profits.

The central argument is not between monetarism and incomes policy. Today the question is whether to reflate. The Opposition, the Liberal Party, the TUC and to some modest extent the CBI seem to advocate a measure of reflation. My right hon. Friend the Prime Minister says that the time had not yet come for that. I would not presume to disagree with her. I do not feel that I have all the elements necessary to form a judgment. I should simply like to say how we should consider the problem. Reflation does not have to wait until we have zero inflation.

But reflation will not help recovery—here I join forces, to some extent, with the leader of the Liberal Party, though I assure him that I am not angling for membership of the Centre party. Reflation will not help recovery unless the new money injected into the system leads to an equivelant production of new goods that people want to buy at home or abroad.

Therefore, we must somehow create the conditions for improved productivity. Those conditions are the readiness on the part of business to invest and the readiness on the part of labour to co-operate with management. Some of that may follow the shakeout. It was the old-fashioned idea that the sort of situation that we have created will produce new energy and the wish to invest on the part of management, and a desire to co-operate on the part of labour. I am not sure about that. I believe that we need a carrot as well as a stick.

I think that the time is coming when the Government should define the conditions in which they would reflate. It is time for the Government to say how they could help if businesses were ready to invest and if the unions were ready to co-operate, whether it be by investment grants or allowances, by tax relief on profit sharing, and other sorts of participation or on support for new technologies.

The country needs to be told of the extraordinary prosperity that could lie ahead if we would only exploit modern technology to the full. It should also be told about the high wages, the shorter hours and the high profits that could be derived from fully exploiting the machine. We should embark on that task of educating the public now.

The British economy is like a giant tanker sailing down the Channel. When it wants to turn about, it must take the decision 30 or 40 miles beforehand, such is the impetus behind it. Our economy is like that. Once we make a decision it takes time for the process to work through. I urge the Government to start now and show some light at the end of the tunnel.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton 6:30 pm, 5th February 1981

When I come into the Chamber to listen to debates on economic policy I sometimes wonder whether I have come into cloud-cuckoo-land, because the realities for our people, industry and economy do not always seem to be reflected in the speeches that I hear, particularly from Conservative Members.

I am also reminded of cloud-cuckoo-land by the economic theories that I hear from Conservative Members. In a powerful speech the Prime Minister emphasised that the central theme of the Government's policy was to get inflation down. That is a commendable proposition. No one can be against getting rising prices down, just as no one can be in favour of sin. However, I must draw the attention of the House to a speech made by Mr. Harold Macmillan in March 1958, when he was Prime Minister, to the Conservative Political Centre. He said: those of us who lived through the inter-war years know that there is another problem, just as difficult to solve and certainly no less painful in human terms. It is not only inflation which can threaten the steady expansion of production and the full employment of our resources. Deflation, involving the failure of effective demand, can do the same thing. In the inter-war years we pursued a monetary policy which was unduly deflationary and we had the less excuse for it because we had quite sufficient reserves to take risks with them. Prices fell all right, but they fell too low. And what was the accompanying feature? Everyone in this hall who is more than 45 years of age has actually lived in a period when there were 2¾ million unemployed in this country. The Government are pursuing precisely the same policies that led to the 2¾ million unemployed in the days about which Macmillan was talking. They did not work then, and they cannot work now, except to put immense burdens on the shoulders of ordinary working people.

In every period of capitalist economic crisis and slump, there are two solutions. One is to put the burden on the shoulders of the people, particularly working people, and the other is to organise the economy in a totally different way, on the basis of using our resources in a planned way. That is the stark choice before us in Britain. Unfortunately, there is no middle way. Those who seek a middle way are also living in cloud-cuckoo-land. We have a choice between solving the crisis in the way that the Government are attempting—at the expense of the people—and solving it on the basis of the alternative economic policies put forward by the Labour Party.

The leader of the Liberal Party has been kind enough to give me a copy of his 10-point plan. I have looked at it quickly, though carefully, and the only parts that are any good are those that are identical to proposals in the Labour manifesto. We can forget the rest, and the package as a whole is no solution to our problems.

The Prime Minister argued powerfully that inflation was coming down, that wage increases were being kept at what she called a better level, that excessive wage demands were no longer being made and that output was rising. But that is precisely what happened in the 1930s. Let me tell the House a story. When I was an apprentice, carpenters and joiners had to hang at least eight to 10 doors a day. I saw elderly joiners running to work with doors on their shoulders when the buzzer went so that they might fulfil their quotas. Productivity was high, and the reason was that outside the gates there were men who were dying for jobs. Productivity always goes up in a slump.

We have 109,000 unemployed on Merseyside—16 per cent. of the working population—and a local doctor has pointed out that when he advises sick workers to stay at home some refuse to do so because they are afraid that they will lose their jobs if they do not go to work. During a slump, wages are kept down. All that the Prime Minister has proved is that the capitalist economics that she supports work to the benefit of capitalists and to the detriment of ordinary working people.

The right hon. Lady said that the decline in profits was a terrible thing, but if she had studied economics she would know that the more that technology increases, the more profitability declines. Some Conservative Members are expressing disagreement, but what I have said is true. One cannot sell commodities to machines, and if workers are not earning money it is not possible to sell commodities to them. If we get greater investment and more technology, as we must have, we are bound to have fewer workers. That cannot be avoided.

If we have fewer workers in a capitalist system, in which profitability is the main criterion, we are not able to sell the commodities. There is a circle that cannot be squared. The answer is to organise our society on an entirely different basis. That is what this country is faced with today.

We go over and over the same arguments. We argue the same questions with Governments of both political persuasions. Sometimes the same arguments are used by both Front Benches. Yet the real answer is the alternative that is being pointed out by the Labour Party. It perhaps does not go as far as I would wish in many directions, but it points in the direction of planning our resources in an entirely different way and getting production for use, as opposed to production for profit as happens at present.

Let us take the example of Tate and Lyle at Liverpool. That company has made an overall profit in all its companies in the United Kingdom and Europe. But it has not made a profit in Liverpool and therefore the factory there has to be closed. Is that not a classic example of the capitalist view that if a business does not make profit it has to be closed, and there is no production for use? The sugar produced at Liverpool is vital and necessary, though sugar consumption is going down. That is partly due to the slump itself. Indeed, all commodity sales are going down.

The proposals being put forward by the so-called new Labour Party are not proposals for an East European-type State. That is the sort of slander that we are getting used to, but it does not come well from the Prime Minister. She knows that what we are proposing does not undermine, undercut or in any way diminish our parliamentary democracy. On the contrary, what we are proposing enhances and develops democracy. The right hon. Lady believes that when one is in a tight corner one should not argue the case but should slander one's opponents. That is what is happening now.

The answer does not lie in more enterprise zones. When we come to office we shall reverse the Government's policies. That is the first half of the solution to the problem. The second half is to draw up immediate policies to reverse the drastic cuts in public expenditure that are taking place in local councils and elsewhere, because they are leading to unemployment. It is interesting that the cuts are increasing public expenditure. They cut public expenditure on the one hand, and increase it on the other.

A reversal can be brought about by more public expenditure, particularly in the construction industry. Without public expenditure there will be no construction industry of any real significance. We must study what is termed the infrastructure. I agree with the suggestion in the 10-point plan that involves a programme of public works. That is what is needed. There must be more training and retraining. Also, there must be more support for existing Government schemes. Those are ways of dealing with the immediate problem, but they do not solve the overall problem.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I hesitate to intervene but I think that I heard my hon. Friend say that we all agreed with the 10-point plan. If he is talking about the general panaceas that it contains, of course we agree. Perhaps he will explain what he was referring to, and also extend his argument to the public sector. There is a strong argument that at least 70 per cent. of the money spent in the public sector eventually finds its way to the private sector, and therefore assists many of the Government's friends.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

My hon. Friend misheard me. I said that I agreed with those parts of the 10-point plan that are in our programme. The points that I mentioned are in our programme, and I therefore agree with them. It appears that the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) pinched them from our programme and put them into his document which seeks to solve the problems of the world.

The real answer to the longer-term problems is to extend the role of the National Enterprise Board, to extend public ownership in many spheres where it does not exist, to have some form—not of total import control, because I would not agree with that—of selective import control and to ensure that exports are put on a planned basis. Much more can be done than is being done at present.

The real and only answer is to organise our economy on Socialist lines, with Socialist planning. I was described by the Secretary of State for Employment as an old-fashioned Socialist. I plead guilty to that. Whether we have old-fashioned Socialism or new-fangled Socialism, as long as it is genuine Socialism we shall solve the problem. Until that happens we shall not be able to solve the economic problems that we are so frequently forced to debate in this Chamber.

Photo of Stephen Dorrell Stephen Dorrell , Loughborough 6:48 pm, 5th February 1981

I listened with interest to the speech of the hon. Member for Liverpool, Walton (Mr. Heffer), and in particular to what we can now describe as Heffer's law, namely, that the explanation of declining profitability is the pace of industrialisation. Presumably, it means that the highest profits in history are to be found in the Garden of Eden. It is an interesting argument, but not, I suspect, borne out by history.

I was also interested to hear the speeches of other Opposition Members. They seem to have an extraordinary inability to decide which of two conflicting arguments they want to use against the Government. On the one hand, they accuse the Government of pursuing excessively tight and excessively restrictive monetary policies. On the other hand, as politicians, they cannot resist the temptation to use the fact that the Government have failed to achieve their sterling M3 targets to accuse them of having failed in the programme that they set themselves.

The Opposition argue that the Government have failed in their monetary objectives. It would be churlish of me to say that the Government have no economic objectives. One of their main achievements is that in a relatively short period in office they have secured the return of monetary discipline, whatever the sterling M3 indicator may say. If one considers either the monetary indicators or the impact of monetary policy on the real economy, each leads to the conclusion that during the past 21 months the monetary position has been very tight. That is what the Government said that they would do when they came to power, and it is an achievement for which they are entitled to claim credit.

The Government are equally entitled to claim credit for the new willingness on the part of British management and trade union leaders to discuss the real issues of competitiveness, inefficiency and overmanning— problems that have faced our industry for many years. Between them they have produced a significant fall in the underlying rate of inflation. That is something that it would be churlish not to welcome.

This evening I want to cast our minds forward and ask the overriding question—where do we go now? Two further questions arise as a result of that query. How shall we make output rise again? If we succeed in raising output, how shall we do that and safeguard our achievements in re-establishing sound money?

One school of thought, which I believe the Secretary of State for Trade supports, is that if one can bring inflation down there will be a spontaneous combustion in the economy and the recovery will be automatic. The argument is that there will be no need for Government interference to promote economic growth. Even that argument requires a degree of analysis.

My right hon. Friend might help the House by suggesting where that recovery will originate. It is not likely to originate in investment. In the next 12 months it is not likely that there will be an upsurge in private sector investment against the background of depressed profits and markets. It is not likely that there will be a recovery in the external sector against the background of an unprecedented decline in our international competitiveness on the back of the well-publicised problems of the exchange rate.

There might be a reduction in the rate of destocking. However it is unlikely that that will go the full circle and become restocking. If destocking declines, all that will happen is that the rate at which the economy is going into recession will decrease. It will not produce a stimulus to start everything moving again.

Similarly, it is unlikely, given the Government's priorities, which in this respect I accept and support, that there will be a stimulus out of public current expenditure. That leaves us with the only other element of demand—consumer demand. The Government's forecast published in November sees that as the major reflationary force on the economy during 1981. The forecast assumes that people with lower disposable incomes will save a smaller proportion of them in order to get the economy moving again.

Against a background of unprecedented uncertainty arising from high rates of unemployment and economic uncertainty about the future, it is a tenuous argument to say that there will be a decline in the savings ratio that is necessary if that is to power the economy out of recession. I accept that that might happen and that nobody can be certain whether it will happen, but at best it is an uncertain prospect. If that analysis is correct and my right hon. Friend accepts it to be correct the belief in spontaneous combustion begins to look a bit sick.

I pose two questions. I ask how output is to rise again and, if it does start to rise, how we can safeguard our achievements in reinforcing sound money. Let us assume that I am wrong and that demand begins to recover in 1981. How shall we safeguard the monetary discipline that we have secured? How will the Government manage the recovery?

I shall put one or two anxious questions to the Minister. Our success in controlling the rate of price inflation has, to a large degree, arisen because industrialists have been prepared to accept a decline in their margins. If recovery comes, whether it is artificial or natural, it will make an easier market and the first priority of most industrialists will be to put up prices once again.

There is no doubt that in the last 18 months one of the major elements in securing the co-operation of trade union leaders and management in reducing the rate of wage inflation has been the "backs to the wall" approach. They have to agree, or there will be no jobs for anybody. If the economy recovers, the discipline of the imminent dole queue will be removed. On what basis will wage inflation be controlled when the economic environment is more favourable?

More fundamentally, once the recovery starts to feed through, how will we answer the argument that we meet with increasing regularity, and that we heard so often during the 1960s, that we cannot have a recovery because it will be pre-empted by imports? It is common ground on both sides of the House, in the TUC, and in the CBI, that British industry is uncompetitive. It does not seem to matter much whether the recovery is artificial or natural. Given either scenario, how do we secure the balance of payments? If we fail to do that, shall we not precipitate the devaluation against which we are fighting so hard today?

Photo of Mr Robert Taylor Mr Robert Taylor , Croydon North West

How does my hon. Friend account for the surplus on our trading account over five successive months, in view of the current high level of the exchange rate?

Photo of Stephen Dorrell Stephen Dorrell , Loughborough

Two major factors are involved. One is oil. In a deep recession it is normal for the demand for imports to fall. That is particularly true of the demand for raw materials, which industry uses to make its products. I do not shy away from this, but I have been surprised by the extent to which the balance of payments has held up. All the evidence is that that achievement is unlikely to last on its present scale.

My anxiety is that the recovery, if it comes, is likely to be pre-empted by inflation. The key problem is that our industry is uncompetitive compared with industries elsewhere in the world.

I should like to make one or two comments and suggestions. It is important to learn from our competitors. If we examine what our major competitors are doing during the recession we see that they are encouraging, and using State intervention to encourage, investment in the industries of the future. I am pleased to support the steps that our Government are taking to do that. In particular, I welcome the decision to invest public money in British Leyland and to use public money to attract Datsun to this country. I also welcome the imminent decision to invest in British Steel.

It is not enough to fire-fight and support any industry that is making a loss. That is the worst type of industrial policy. There is no point in handing out money because a firm is making a loss. It is more sensible to develop, with industrial organisations, a coherent strategy for developing a sound industrial base.

I give an example with which many Opposition Members will not agree but which is important. I refer to the textile industry. I declare an interest. When I came to the House I was a director and shareholder in a clothing company manufacturing in Britain. I am convinced that there is no future for most of the British textile and clothing industry.

I advocate a coherent programme for re-employing the assets and the people of that industry in an industry that can pay better wages and provide secure jobs for the future. I find it difficult to support a policy that undertakes the negative part of that job and insists that imports come in if they are more competitive but does not provide the prospect of alternative jobs for the people and assets that are made redundant.

The Government have taken the first steps down that road and I welcome them. Simply shelling out money is not enough. We must have a policy and framework under which we undertake investment decisions. It is important to observe the distinction noted by my hon. Friend the Member for Woking (Mr. Onslow) between simply spending and investment. We are after investment rather than spending.

I do not want to bore the House or my right hon. Friend with my views on the exchange rate. My right hon. Friend has heard them before. However, I wish to put four simple points about the importance of securing a measured devaluation of the exchange rate. First, I repeat the argument that I used about the need for industrial investment. Our competitors do it. It is untrue to say that during the 1970s German industry competed on the back of a rapidly rising exchange rate without the Government doing anything about it. The Government consistently intervened to hold down the deutschemark. In no year during the 1970s did the real deutschemark appreciate by more than 5 per cent., yet our currency has appreciated by 20 per cent. in real terms during the past 12 months.

Secondly, I shall use the arguments from our manifesto. We said that we could not expect investment in industry unless we provided profits. Profits are both the means and the incentive to invest. We shall not have a sustained upturn in industrial investment against the current relative background of costs.

Thirdly, there is not necessarily a conflict between monetary policy and exchange rate policy, because there is no reason why the excess of liquidity that would be created by intervention in the foreign exchanges could not be mopped up by one of the means available to the authorities. If it were done on an enormous scale it would create an unacceptable rise in interest rates. But I do not believe that it would be necessary to do it on an enormous scale. On a small scale, the effect would be minimal.

Fourthly, it is better to bring about a devaluation of the exchange rate against the background of the current tight domestic market than to wait for two years until, I hope, the domestic market is freer and the inflationary consequences of a devaluation very much greater. Surely it is better to do it against the background of a domestic monetary position that will minimise the inflationary effects.

I hope that when he replies my right hon. Friend will take time to consider one or other—or preferably both—of my proposals.

Photo of David Winnick David Winnick , Walsall North 7:02 pm, 5th February 1981

The hon. Member for Loughborough (Mr. Dorrell) was critical of the Government's economic policy. It is right and proper that a Member of Parliament whose party is in Government should be able to state his views frankly, as did the hon. Gentleman, when he disagrees with certain aspects of his party's policy. We listened with great care to what he had to say.

The Prime Minister's speech offered no hope to the unemployed, to their families, or to the potential unemployed. She argued for the same sterile, bankrupt economic policies which have brought about a tragedy for Britain. They have brought back mass unemployment. Her speech was TINA—there is no alternative. She could have said that, and finished there. She put forward no alternative to what has taken place during the past 18 or 20 months. In effect, all that she said was that the same policies must continue—clearly with the same results.

During the past 18 or 20 months the West Midlands area has been devastated. Unemployment in the region is growing faster than in any other part of the United Kingdom, except lor Northern Ireland. That is hardly surprising, because manufacturing production has dropped by 12 per cent. during the past year. That decline has been the largest decline since the early 1930s. If British Leyland had not continued to be funded and supported by the Government, the West Midlands would have become an industrial wilderness. When we speak about the Government not being in a position to support industry, it is as well to remember that the previous Labour Government rescued British Leyland, and that this Government have rightly decided to continue that policy. We talk about subsidising jobs. Is it not right and proper to do what was done by Governments of both parties in that case?

Photo of Mr John Stokes Mr John Stokes , Halesowen and Stourbridge

I understand what the hon. Gentleman is saying about British Leyland. A number of my constituents are dependent on British Leyland and on its suppliers. We must ask ourselves how £990 million is to be found. Will it be found by taxation, by borrowing or by printing money? While money goes to British Leyland, what will happen to the hundreds and hundreds of small firms that will not receive one penny from the Government?

Photo of David Winnick David Winnick , Walsall North

Fortunately, the Government have made a decision which the hon. Gentleman may, or may not, like. Understandably, that decision has been welcomed in the West Midlands. It is a U-turn of a kind, and it was absolutely necessary. Fear and insecurity stalks the region today. When people set out to work they do not know whether they will be made redundant. If they are made redundant, they do not know what they will do, how they will make ends meet, how they will manage on a reduced income, and how they will tell their families, especially their young children. The main fear that goes through their minds—and the House should not overlook this point—is as to how soon they will find a job. A man in his late forties or early fifties wonders whether he will find himself on the dole queue year after year.

I have a list with me of five constituents, all skilled engineering workers, who have been made redundant during the past three or four months. They are aged 50, 61, 59, 44 and 47. Some of them worked for their firms for more than 30 years. They are now on the dole queue. Their chances of finding another job are remote. That is the sort of industrial tragedy that has struck Britain. That is why we are having this debate today. That is why there is so much concern not only on the Labour side of the House, but throughout the country.

I turn to the issue of reduced income. A letter that I received this week from a constituent states: My husband … used to bring home £60 a week when working and now we get £35·80 and we still have to pay rent, gas, electric and everything else, and we still have to pay full price for everything on half pay. We can't even afford a bus ride to break the monotony, it would cost … £1. Our only luxuries are a morning and evening newspaper and the television … It is very depressing to get to be 51 years and 50 years with no prospects of getting a job. That is only one constituent. Many more of those whom I represent in the House are in the same position. Many more are on short-time working. A large number of people, while they are working today, will not be working in a few weeks or a few months.

I sometimes wonder whether Ministers and Conservative Members, if they had to endure what many of our constituents must endure—trying desperately to manage on a small income when the husband is unemployed and with young children to bring up—would continue to be so complacent when endorsing the policies that have returned mass unemployment to Britain and devastated the West Midlands. Even in the 1930s the West Midlands did not suffer the unemployment that was suffered elsewhere. Birmingham and Coventry were the heartland of engineering. Yet the rate of unemployment is now more than 11 per cent. We know what is wrong and what is sick in the country as a whole.

In Walsall, unemployment is almost 13 per cent. Yet when the Government took office it was less than 6 per cent. There are many local school leavers who try desperately to find jobs. They write 40 or 50 letters, and continue to try. But it is understandable that some give up and take the attitude "What is the use"? Perhaps they did not do too well academically and are finding it impossible to be considered seriously for a job. They come to a certain attitude of mind and say "It is no use because there is no hope". They recognise that the dole queue will be their only occupation—not for weeks or months, but for years on end. And the idea that military service can be a solution is farcical.

The Prime Minister was very critical of, and had no time for, the policies put forward by the TUC in its Economic Review. If the people had to make a choice between the policy of expansion put forward by the TUC or the policy of de-industrialisation, continued redundancies and closures, short-time working, and unemployment at a level not seen in Britain since the 1930s, there is no doubt what choice the British people would make.

Neither are people fooled by the idea that money cannot go to investment and to public expenditure. As some of my hon. Friends have already pointed out, what sense is there in spending so much public money on providing the very minimum for the unemployed while at the same time saying that there are no public funds for investment to revitalise industrial life? There is no sense or logic in it. It would become even more foolish as the number of unemployed continued to grow. We have already a figure of 2½ million. There is hardly a single economic trend which predicts other than that unemployment will continue to grow. I see no reason for optimism or for anyone to say that the situation is likely to get better in the next six, 12 or 18 months.

I do not expect the Government to accept Socialist or near-Socialist policies. No one suggested that, but there are some measures that the Government should be taking. They should be reducing interest rates. When I go round firms in my area that is the immediate point that they make. There is a need to have a more realistic exchange value for the pound. I do not think there is much disagreement between hon. Members on both sides of the House on that. There is certainly a need for selective import controls. I know there are those who argue differently, I do not want to enter into an ideological dispute about import controls, but I can see no way in which we can revive British industry and have the kind of expansion that is absolutely necessary in order to avoid the policies which we now have unless there is some degree of import control. We are being flooded out constantly by imports from other countries, certainly from the EEC and Japan. We need some minimum protection from the amount of imports from the EEC because of the state of industry here.

The Prime Minister is perhaps the most unpopular person who has held the office since the 1930s. It is difficult to think of any pre-war Prime Minister, except perhaps Neville Chamberlain, but certainly no Prime Minister in the post-war years who has been so loathed as the right hon. Lady. She is loathed up and down the country because more than anyone else in the Cabinet she is held responsible for the policies which we on this side of the House are condemning today. When one speaks to ordinary people in one's constituency and elsewhere, inevitably they come to the same point—it is Thatcher, Thatcher, Thatcher, who is responsible for what has happened in the country. It may be unfair and unjust; it may be that other members of the Cabinet should share that responsibility, as indeed in a sense they do, but the Prime Minister is looked upon in that light because she is the head of the Administration and puts forward constantly in the media arguments for continuing the same sterile policies. She is looked upon as a person so utterly obstinate that she is not willing to change her views under any circumstances and no matter what industrial tragedy strikes the country.

There has to be a substantial change in Government policy. We wonder at times if there will continue to be the same support for the right hon. Lady on the Government Benches as we get nearer the next general election. We shall see. As the months go by and we get nearer to the next general election and as more and more people remember what was said by the former leader of the Conservative Party, the right hon. Member for Sidcup (Mr. Heath), who warned the Conservative Party in a debate in this House on unemployment that they should be careful not to be associated with mass unemployment, I wonder whether the nerves of the majority of hon. Members opposite will continue to hold. We will lose the vote tonight, but in the more important vote, the vote in which many more people will take part, it will be our arguments and our policies which will be endorsed by the country.

Photo of Mr Anthony Nelson Mr Anthony Nelson , Chichester 7:15 pm, 5th February 1981

We always listen with interest to the hon. Member for Walsall, North (Mr. Winnick). Even if we cannot admire the content of his speeches, I am sure that we admire the belief that he has in everything that he says.

Perhaps I might be allowed to make two points in the short time available to me. The first is that I should like the Government's economic policy to be brought back on to the lines of the medium-term economic strategy. The second is that, far from complaining about underspending, I complain of mis-spending. I shall amplify my remarks later.

I well remember the trepidation with which the Government's economic strategy was introduced by the Chancellor of the Exchequer and referred to by my right hon. Friend the Member for Oswestry (Mr. Biffen). As with all plans and strategies, Conservative Ministers are rightly sceptical of the extent to which there can be accurate forecasts or the extent to which Government achievements can be kept to them, but I recognise and support the need for that strategy as a means of fulfilling some of the basic principles and tenets of our manifesto promises.

To achieve what I understood to be the principal objectives of the Conservative Administration it was, and still is, essential to reduce the take of the public sector, to the benefit of the private sector. We all recognise that that policy has been made more difficult by the recession, which has produced particular problems for the rate of growth of the economy as a whole. It is much easier to bring about radical changes in the balance between the public and private sectors in a period of boom than in a period of recession.

There is no way in which we can achieve what I regard as two fundamental objectives of Government policy, namely, reducing taxation and reducing the level of borrowing, unless we redress the imbalance that has grown up as a result of the resources that are consumed by the public sector at the expense of the more productive private sector. Although in the last year we have exceeded Government expenditure targets, I very much hope that the forthcoming Budget speech will include a package of measures that will bring us back on course within the same time frame as the medium-term economic plan.

It is essential to control the imbalance between what the public and private sectors consume because unless we provide more resources for private enterprise, and more incentive for investment, we shall not get the rate of growth of resources that is essential if we are to pay for the improvement in the standard of public services to which I, as a Conservative, hold dear. There is no way in which we can live off fool's gold any more. There is no way in which we can begin to match the policies of a succession of Governments unless there is a real increase in the size of the national cake and a reduction in the proportion of national resources that is consumed by the public sector.

At the same time, I do not believe that it is credible to have a public sector borrowing requirement policy that effectively pre-empts the limited and scarce financial resources that are essential for private investment. It is not credible to budget for a public sector borrowing requirement that is well outside the parameters set by the medium-term plan, because the dwindling private sector cannot afford the extra burden of buying more Government debt and the severe impact on interest rates.

I was disappointed that today there was no announcement of a reduction in the minimum lending rate. Following on from what I have said about the mediumterm strategy, I believe that it is compatible to propose that there should be, and should have been today, some reduction in the rate. The level of credit demand in the economy can be taken care of, because we are in a recession. It is not the minimum lending rate that is the main influence over the level of credit and therefore over the growth of the money supply. What we are seeing are the recessionary factors of declining consumer and producer demand exerting their influence on the demand for credit.

We should let the recession take care of the demand for credit, and the Government should be prepared to adopt a slightly more flexible policy in reducing the minimum lending rate. I say that as a firm adherent to the Government's overall policies. I do not believe that they would be substantially affected by such a change.

The second part of my speech relates to mis-spending rather than underspending. There has been a considerable growth in public expenditure under this and previous Administrations. Even if we are successful in reducing the amount of expenditure undertaken by the Government, we must make better efforts and strive to ensure that the quality of that spending is better than it has been in the past.

It seems that this Government, as well as previous ones, have, sadly, concentrated too much on cutting capital expenditure, and not sufficiently on cutting current expenditure. In the nationalised industries, in the great spending Departments of State, and in various other organs of the Government, we have seen a tendency to preserve bureaucracies, while at the same time reducing the front-line services that are available to our constituents, such as patients and pupils.

It is a nettle that we must grasp. We all understand the immense difficulties with which Ministers are faced in coming to terms with the problem. Some of us perhaps appreciate that the demand for Executive control and influence over spending down the line in the public sector are greater than Conservative policy would like, or greater than some Ministers feel able or inclined to undertake, but such control has to be exerted, and intense management efforts within the public sector have to be directed to ensure that as far as possible the necessary cutbacks in public expenditure are made in the bureaucratic elements of it rather than in the services available to our constituents.

I shall cite some examples. In the Health Service it is always the number of nurses and doctors and the equipment up at the front that are cut back—that certainly applies to the hospitals in my constituency—rather than the administrative bureacracies of district, area and regional health authorities. Knowing the amount of work that any of us can do in a day, I do not accept that it is necessary to maintain or even to increase the size of these bureaucracies.

My second example is local government, where billions of pounds are spent every year. Despite the worthy efforts of my right hon. Friend the Secretary of State for the Environment to reduce manpower, and therefore manpower costs, within local government, and despite the degree of success that we have enjoyed in recent years, the fact remains that ever since the reorganisation in 1974 Conservative, Labour and Liberal authorities alike have seen a steady and relentless increase in manpower, month by month, as the manpower watch figures have come through. It is not good enough to have a Government policy that states that we must reduce the number of civil servants in central Government by 60,000 or 70,000 over two years, and in some magical way exempt local authorities from their responsibility to make major savings in bureaucratic manpower.

My third example of where money is mis-spent is sadly the nationalised industries. I understand the problems that they face at present. My criticism was brought home to me recently when I visited Corby, one of the towns that has been tragically affected by the recession in the demand for steel. Many hon. Members will know that recently the major British Steel plant at Corby was closed, leading to the redundancy, initially, of thousands of workers. Despite the fact that they received fairly substantial redundancy compensation and that some of them have subsequently found jobs, there have been tremendous difficulties for the community. There is a high level of unemployment—I believe that it is over 23 per cent.—a high level of empty property in the town and a high rate of vandalism.

The problems came home to me when I went around the now redundant British Steel plant at Corby, which in many ways was a museum piece of British industry. It was tragic for me to see—I had not seen a closed steel plant before—rusting and desperately old-fashioned plant. It had been built in the 1930s. Without the bustle of people managing and working in that plant, it was clear that virtually nothing had been spent on repair and reinvestment for decades.

I am one of those who have voted year after year for substantial increases in public expenditure and increases in the borrowing limits for British Steel. I should greatly support and welcome a greater bipartisan approach towards investment in the British steel industry. As I walked round the empty and closed plant I asked myself whether we had been successful in ensuring that the moneys that we had voted in the House were applied for renewal of plant, or whether they had been dissipated in various ways.

At a time when the Government have courageously and rightly decided to back major investment plans in the motor, shipbuilding and steel industries, we must make better efforts to ensure that the money goes where it is intended to be directed, and that it is not dissipated in covering either larger losses or allowed to disappear into coffers elsewhere. It seems that the money that we have directed has not gone for the purposes for which it was intended. If we have the responsibility to vote that money, the Administration have a responsibility to ensure that it goes where it is directed.

My final example of mis-spending rather than overspending or underspending of public moneys is in employment. Thousands of millions of pounds have been spent by the Government and by their predecessors on education and retraining of workers. However, I find that in the jobcentre at Chichester 90 per cent. of those who are registered as unemployed are non-skilled, and that 90 per cent. of the smaller number of vacancies are for skilled labour. Why is it that year after year we spend thousands of millions of pounds, and yet we do not have the body of skilled labour that our industrial competitors have in Germany, Japan, and America?

I do not presume to know the answers to these problems, but it would be constructive were we to direct our minds to them. I should like to see an improvement in the quality of public expenditure, but I wish it to be known that I support fully the need to steer the Government's economic policy back on to the mediumterm plan. It is just as important in these debates to advance constructive criticism as to say that consistency is a virtue of Government.

If the Government abandon the basic tenets of the economic policy they set out before the election and which they have embarked on with courage since that time, we shall not deserve to be elected at the next election and there is, in my judgment, no credible alternative. I say to the Government "Continue the good work, but let us ensure that the money is better spent."

Photo of Mr Gordon Wilson Mr Gordon Wilson , Dundee East 7:30 pm, 5th February 1981

The object of these debates, I suppose, is not to gratify ourselves by expressing views on economic policy. It is to embrace the hope that some small vestige of what we say is likely to change the way in which the Government's economic policies are working out. Following my intervention in the speech of the Prime Minister on the state of the economy in Scotland, I rapidly wrote out of my thoughts any particular hope that my remarks this evening would change some of the global aspects of Government policy. Nevertheless, it is worth pointing out to Government representatives how much damage is caused by the policies they are now employing. I believe that many Conservative Members are aware of this. We have heard some interesting speeches from the Government Benches.

At the end of the day, the Prime Minister's attitude to her policies is summed up in the phrase "The end justifies the means", the means being the use of unemployment in a rather ruthless fashion to depress demand and to reduce inflation. Our industries, in many cases, are being virtually murdered and destroyed. The question that arises is how many industries will be left in certain areas of the country if, and when, the United Kingdom comes out of this deep depression.

I do not believe that the Government are aware of the extent to which certain economies in the United Kingdom have been deeply affected. Reference has been made to the West Midlands where unemployment has climbed, in relative stages, to very high levels. In places like Scotland where de-industrialisation has been proceeding at a fairly fast speed for at least 10 years, the amount of industry left is less and, therefore, the relative increase in unemployment is less. But the increases in unemployment that are taking place are serious because they add to levels that were historically high.

The Prime Minister recently commended one group of economists for suggesting that the recession might be ending. She commended, especially, Scottish economists, no doubt because of some link back into the realms of time to the ancestors of Friedmanism. Nevertheless, the Scottish Council for Development and Industry's investment survey pointed to a 31 per cent. drop in manufacturing investment which would lead, it said, to the loss of about 25,000 jobs in manufacturing industry. It also indicated that there could be 60.000 jobs lost overall in 1981.

The CBI in Scotland, in its latest reports, perhaps slightly less gloomy than the Scottish Council survey, but, nevertheless, containing few rays of hope, pointed out that activity levels had fallen in the last four months. It pointed to 96 per cent. of firms indicating constraints on industrial production due to lack of orders and lack of sales. One part of the report warned that what was happening to industry in Scotland could lead to the more extensive incidence of labour-shedding in Scottish manufacturing. Unemployment in Scotland compared with other countries in Western Europe is extremely high and the outlook is nothing short of gloomy.

Photo of Michael Ancram Michael Ancram , Edinburgh South

The hon. Gentleman has mentioned a series of reports and projections. He mentioned one that had been endorsed by the Prime Minister. Am I not right in thinking that the professor behind that report was Professor Donald MacKay who used to advise the Scottish National Party?

Photo of Mr Gordon Wilson Mr Gordon Wilson , Dundee East

The Scottish National Party has been advised by a number of economists including Dr. David Simpson whose views have helped build up the excellence in economic policy matters for which we are known. The breadth of economic views on which the SNP draws is extensive. I am not sure that Professor MacKay would necessarily like to hear himself adopted as our economic adviser.

I was pointing out that the outlook is gloomy. The debate has shown that investment is important. If full recovery is to be made after the recession ends, the figures for Scotland, in relative terms, are not encouraging. The survey to which I have referred shows that 52 per cent. of firms were planning to reduce spending on buildings and 53 per cent. intended to reduce their investment on plant and machinery. Of the two, the latter figure is especially worrying. A corresponding survey for the United kingdom shows that 49 per cent. of firms intended to reduce spending on buildings and 46 per cent. on plant and machinery. On plant and machinery in Scotland, there will be 7 per cent. less investment than in England. If our economy and our manufacturing industry are to be restored to competitive levels, that investment is essential.

The Government have to examine the whole aspect of regional policy. It has been proved, over a fairly long period, that regional policy can have some beneficial effects and can help the economy that receives the aid. But it is not the whole story. It is not enough to produce a radical turn-round in that area. I am worried that, if the recession continues for a considerable time, the pressure of demand for Government money to restore the local economies, say of the West Midlands, will produce additional spending and additional burdens on Government funding. It will perhaps mean an increase in the number of development and special development areas. That, in turn, will spell greater difficulty for those areas that are already industrial wastelands or suffering special industrial problems. By the extension of the recession, regional policy may become less effective. For that reason alone, it seems desirable that the Government should take action.

I was concerned by the speech of the Leader of the Opposition. It was an amusing speech of the kind he normally makes but pretty well devoid of constructive proposals. The right hon. Gentleman promised that more money would be spent. We have heard that before. The Government of whom he was a member cut back industrial investment in Scotland under regional schemes substantially with the abolition of the regional employment premium. The level of aid was never restored under the selective industrial schemes that took its place.

I should like to deal specifically with training and the shortage of skilled manpower. The hon. Member for Chichester (Mr. Nelson) said that there were a large number of vacancies available at the jobcentre in his constituency for skilled industrial workers. In the midst of substantial unemployment amounting to over 280,000, Scotland has the highest number of unfilled vacancies within the United Kingdom at 47·5 per cent. That is what I am told. If it is correct, there is no credit to be taken by anyone.

These are jobs that could and should be filled. It is high time that a cool and dispassionate look was taken by the Government, and also by the trade unions, at the whole system of industrial apprenticeships and the method by which training and re-training are carried out at work. I believe it is possible in Germany for workers who start out in a particular job to train while carrying out that job and, by agreement between employer and trade union, to go on to a list either for promotion or replacement in some other skill.

A rigidity exists under our existing system. We should encourage the idea of training throughout one's life to a higher level of skill or in other skills. It is a great pity that the Government do not sponsor or subsidise large numbers of apprentices, because, as and when the recession eases and industry picks up, there will be a greater demand for skilled manpower which will not be there. As we all know, industrial firms have been short of work and money and, as a result, have been cutting back apprenticeships. There will be a shortage of skills at a critical time of recovery. That in turn will prevent industry from getting off the ground fast before imports are sucked in.

The first priority of any Government should be, to take the example of the engineering industry, to subsidise the first year and perhaps even the second year of an engineering apprentice so that the industry can take on those apprentices now. I am told that it is a year and a half to two years before an apprentice becomes profitable to an employer. It is because of that lack of profitability at the trough and depth of a depression that the apprentices are not taken on.

Photo of Mr John Townend Mr John Townend , Bridlington

As the hon. Member for Dundee, East (Mr. Wilson) said, for the first year at least apprentices are uneconomic. Does he agree that one of the reasons is that there has been a concerted effort for several years by unions, among others, to increase the wages of apprentices and to reduce the differential between the apprentice and the skilled man?

In the construction industry, apprentices receive 50 per cent. of the skilled rate in the first year and 90 per cent. in the last year. Does not the hon. Gentleman agree that the CBI and TUC should get together to agree much lower initial rates of pay for apprentices to stop them pricing themselves out of the market?

Photo of Mr Gordon Wilson Mr Gordon Wilson , Dundee East

I said that it behoved the trade unions, industry and the Government to look coolly at the present situation. It is obvious that skill differentials have slackened. I am not referring particularly to apprenticeships, but differentials have eased. That is something which, if they are interested in economic recovery, the trade unions should look at. There are competitive pressures, as the hon. Member for Bridlington (Mr. Townend) well knows. I am urging the Government to consider sponsoring industrial apprenticeships in years one and two. Now would be a good time to do it if they cared to, and those apprentices would come in useful when the economic recovery takes place.

However, the Government are cutting back. We have heard of skillcentres being closed and in universities cuts are taking place. Those cuts will not necessarily apply to subjects which are immediately applicable to industry. They could apply equally to arts courses and engineering courses. Wherever a professorial or lecturer post becomes vacant, it will not be filled. This may create difficulties with technological subjects in particular.

Children have lost their motivation. I have a letter from a school council which says that it has difficulty in motivating children at secondary school to work hard because they ask "What is the use? There are no jobs for us when we leave school." That is a more general feeling as youth unemployment grows than has been realised in the past.

The call was made from both sides of the Chamber without party bias for the need to modernise industry. The Scottish Office recently produced a study on electronics carried out by international consultants which showed that Scotland was top or second top as a site for the electronics industry in Europe. Between 1975 and 1979 in California about 50,000 jobs were created in the industry.

Photo of Mr Gordon Wilson Mr Gordon Wilson , Dundee East

It may well be much more, but that is the figure that I was given so if it is on the modest side that is welcome, as exaggerated claims are sometimes made.

Japan spends about £500 million per year on electronics. The United States spends about £100 million and the Scottish Office, which has produced a report which shows that Scotland is the top or second top site in Europe for the development of the electronics industry, is proposing to spend £1 million over four years. It is quite ludicrous to refuse to provide the funds. But if the opportunity has been isolated and shown to exist, that is a reason for the Government to put the public sector borrowing requirement to one side and invest money to ensure that the opportunity is secure. That would be investment as opposed to expenditure.

I should like the Government to reconsider their whole economic policy. I do not think they have succeeded, despite the efforts of the Prime Minister this afternoon, in convincing the great majority of people that they are on the right course. Too many of their prognoses have not been found to be correct. It is possible that inflation will come down. That has been admitted. But the price to be paid by manufacturing industry in particular is so great that the method is too brutal for the end that it was intended to achieve.

Photo of Anthony Steen Anthony Steen , Liverpool Wavertree 7:46 pm, 5th February 1981

I am not a macro- or a mini-economist. I will not trouble to make a statement to the House on my views of the current situation. I ask the Front Bench to help me out of a difficulty concerning a problem that we are facing in the North-West and explain to the House the Government's programme in a particular area of activity. The Government have made clear that their policy is not to meddle in the private sector. Business, industries, banks and insurance companies must be allowed to operate unhindered and to take full advantage of free market forces.

The message from the Government is to stop bureaucracy interfering in the private sector and to let business, and not the Government, make the commercial judgments. That view was echoed last night by the Undersecretary of State for Transport in the Adjournment debate raised by the hon. Member for Liverpool, Kirkdale (Mr. Dunn). The hon. Gentleman raised the question of the closure of the Liverpool branch of Roadline, with the loss of 130 jobs. The Minister said: Ministers did not intervene in the day-to-day management of the corporation or seek to override the business judgment of the professional management. He also said: There is no question of the Government intervening"—[Official Report, 4 February 1981; Vol 998, c. 382.] What the Minister said seems simply to restate the Government's policy and stance that grants and subsidies will be phased out, handouts will cease and Government funds will not be allowed to distort the market forces.

However, at another level local authorities and the Government are very much involved in private business. That involvement plays an important part in influencing the commercial judgments of those firms. In many cases they are left only with Hobson's choice—or no choice at all. If we think of grants, subsidies and other forms of Government aid as primary intervention, what I have in mind is secondary intervention. It is especially evident in the large towns and cities, where urban renewal is yet to start.

Let me explain what I mean. The decision by Tate and Lyle to close its Liverpool refinery with a loss of 1,600 jobs was a "commercial" decision by the board, taken without Government intervention. However, the Miniter of Agriculture, Fisheries and Food had already decided to favour beet against cane sugar. That in turn resulted in surplus capacity in the cane refineries. The decision appeared to be a commercial decision, but the Government had given the company no choice.

Let me give another example. Packenham's is a small business in my constituency. It has a turnover of £¼ million per annum and employs essentially a local work force. Three years ago the local authority served a compulsory purchase notice on the factory in order to pull it down. The council offered £13,000 compensation for the half-acre freehold. However, to rent similar factory accommodation costs a minimum of £40,000 per annum. Further, the Government's industrial estates will not lease new factories for purposes other than manufacturing. Packenham's was a service industry, so could not get one of the factories. The company's commercial decision is inevitable. It will have to close when the bulldozers move in, which will create more unemployment and further reduce the rate base in the area.

Demolition of small firms appears to be increasingly fashionable. One wonders whether the job of the Minister responsible for small firms is not increasingly becoming that of an undertaker rather than a stimulator. In Liverpool the city council has acquired 443 sites belonging to small firms, but less than one out of every three of those firms has been relocated. The direct effect of such local authority intervention is to force a commercial judgment on small firms, which inevitably results in their business being closed. When the bulldozers move in they cannot afford the new rents being asked. The level of rents is often set by scarcity. Scarcity is caused by insufficient land for building at the right price. However, we have 250,000 acres of derelict vacant land in our principal cities, approximately two-thirds of which is hoarded by local authorities and nationalised industries. With respect, there is no point in having registers. We know where the land is. It merely needs to be auctioned off.

Successive Governments have stated that they have pensioned off the bulldozer. In Vancouver in 1977, at the Habitat conference, the then Secretary of State for the Environment told the world that his Government had pensioned off the bulldozer. However, last year in Leeds alone 1,334 properties were demolished; in Sheffield the number was 1,840, and in Liverpool it was 621, because we had run out of buildings. Demolition has caused the rate base to shrink, which in turn has forced up the rates that have to be paid by those who are left. That in turn aggravates those who live there, and they leave the area.

It is worth mentioning that 21 per cent. of the population of Liverpool left between 1966 and 1976. The percentage in Manchester was nearly as high, and in Glasgow it was even higher. Birmingham and London followed, in that order. Population exodus has a direct relation to the rate base and the rate base has a direct relation to the number of people living in the area, which in turn has a direct relation to the number of houses being demolished.

It is estimated that in the next three years 76 companies will be coming to Liverpool, creating 1,500 jobs. However, 63 companies closed last year, with a loss of 4,538 jobs. For every job created in the next three years, three have been lost.

The Government and local authorities are carrying out policies that have a direct effect on commercial decisions and the decision of people to live and work in our large towns and cities. Public intervention, in the form of grants and subsidies, is decreasing, although special development areas, enterprise zones, the urban aid programme, urban development corporations and partnerships are all forms of grants and subsidies. Intervention is much more subtle. The secondary intervention that I am talking about, which results in commercial decisions having to be made, comes from the public sector having already negotiated its arrangements and leaving only one choice for companies such as Tate and Lyle, Roadline, Packenham's and other small firms.

If the Government really believe in the operation of market forces they will ban the bulldozer, stop green field site development—60,000 acres of good agricultural land are lost every year to urban sprawl—auction off hoarded public land and see that the banks and insurance companies use some of their windfall profits to revitalise urban areas—and not only those south of Watford. They must also outlaw red lining, so that the building societies do not continue to refuse to lend money for older houses in inner city areas.

Taxing the windfall profits of banks is merely another form of Government intervention. We need no more interference, but we need many more incentives for private enterprise in order to halt the decline. We must have an upturn in the economy.

Photo of Dr Maurice Miller Dr Maurice Miller , East Kilbride 7:56 pm, 5th February 1981

Until I heard the excellent speech of the hon. Member for Loughborough (Mr. Dorrell) I was about to say that an economist who chanced to hear the debate could be forgiven for believing that, with the notable exception of my right hon. Friend the Member for Battersea, North (Mr. Jay), no one had exhibited an expert knowledge of economics. I must now add the hon. Gentleman's name to this short list. His speech showed an impressive grasp of economics and his shrewd questions require careful answers from his Front Bench. However, if I might criticise his speech, it would be to say that economists tend to take a callous approach. They abandon industries without ensuring that alternative industries are established in order to provide employment for those who lose their jobs. The economists may argue that that is not their task. It is, however, our responsibility as Members of Parliament. It is not good enough simply to allow industries to go to the wall.

Lack of knowledge of such an imprecise discipline as economics is not necessarily a handicap. We are dealing with people and not abstractions, and I make no apology for speaking in the debate as a layman on the subject. The Prime Minister's speech was characterised by an unwarranted optimism, as though she were entirely convinced that her policies would work. No one should be that sure. It does no harm and is perhaps salutary and more natural for ordinary human beings to have some doubts about their infallibility.

My right hon. Friend the Leader of the Opposition exposed the nonsense that the right hon. Lady spoke when she claimed that all our policies over the past 25 years have been wrong. I would go even further. What the right hon. Lady wants is for the country to go back to the late nineteenth century, which was a time par excellence of low wages, high profits, unemployment and the virtual enslavement of the worker. It looks as though the right hon. Lady and her Government are heading in that direction. They are doing immense and perhaps irreparable damage on the way.

I once heard an American comedian debunk the Robin Hood myth. He said that the bandit of Sherwood Forest did not rob the rich and give to the poor, but robbed everybody and kept the lot for himself. He said that a good press agent propagated the myth of Robin Hood's kindness. I think that I dare use the pun and say that the public have been similarly hoodwinked. The modern counterparts of that medieval press agent is Saatchi and Saatchi, which made such a good job of selling the Tory Party to the British public before the 1979 election. It sold that party as having the cure for all our ills.

Everyone now recognises that that was a big con job. In the past 20 months the Conservative Government actions have proved to be the reverse of the Robin Hood myth. They have taken from the poor and given to the rich. We have seen tax handouts being given to the richest in our society. Not a peep has come from the Government Benches about the fact that top earners have awarded themselves 40 per cent. or even greater salary increases. At the same time, workers have been bludgeoned into accepting wage increases that are well below the rate of inflation.

This debate concerns the economy. There can be no doubt that if our economy is not at disaster level it is approaching it. Output is at its lowest since the 1930s. Unemployment—at about 2½ million—is the highest since the 1930s. About 2½ million people and their families are unable to participate in the benefits of the British economy. When the right hon. Lady appeared on the ITV programme on Sunday she showed her iron will. I watched her very carefully. She gave a very impressive performance. When the possibility of an unemployment rate of 3½ million or 4 million was raised, she did not even bat a carefully shadowed eyelid.

Businesses are folding up every day. The bankruptcy rate is unprecedented since the 1930s. It looks like the Wall Street crash all over again. Conservative Members should appreciate that there is widespread disillusionment, even among those whom the Government were supposed to help. I refer not only to small business men but to big business men. The Government have adamantly refused to render the necessary assistance to some of our industries, such as the textile industry, which are vital to our country.

Contrary to the hon. Member for Loughborough, I believe that we should keep some industries going even though the hon. Gentleman may think that we are throwing good money after bad. I refer to industries such as the textile industry, the shoe industry and the fishing industry. Indeed, the hon. Member for Dundee, East (Mr. Wilson) and those of my hon. Friends who represent Scottish constituencies would confirm that. We need some form of selective import control. Like my right hon. and hon. Friends, I am not in favour of holus-bolus import controls. Nor am I in favour of permanent import controls. I think that I know the arguments for and against such controls. I think that I know the answers. It is a balanced argument, but falls in favour of doing something to protect our industries so that they can survive until the time comes to compete on a normal basis.

I should like to quote from Background Paper No. 82, which is available in the Library. I know that the members of the Cambridge economic group are not necessarily economic wizards, but I agree with at least one of their statements. The paper states: attempts at direct stimulaton of investment, by grants, subsidies, tax relief etc. have not been successful because businessmen are more concerned with the prospects of their markets". Markets are important. If industry can manufacture the goods, it can sell them, but if 2½ million people are unemployed they will not be able to buy them.

The Government have adopted a deplorably doctrinaire attitude in their slavish devotion and adherence to the EEC, but they know that this country is paying through the nose for the doubtful benefits of membership. As long as the CAP takes up 75 per cent. of the total budget Britain must necessarily lose out on the overall market deal. Another aspect of Government policy requires changing. As other hon. Members have said, interest rates are too high to allow industrialists to borrow. As a result, there is a strong tendency for business men to go out of business.

The over-valuation of sterling has been mentioned. It has been pointed out that the Germans did not allow their currency to be over-valued by anything like the amount that the British currency has been over-valued in the past year or so. In the meantime, our share of world trade continues to fall and the living standards of the British people are not being maintained. It is no longer a question of improving living standards.

Social services are being cut. Many of the benefits of the Welfare State are being eroded. I shudder to think what would happen if we did not have the bonanza of North Sea oil revenues. The situation would be very much worse. I know the implication of my next remarks. The Government are dangerously close to using unemployment as an instrument of economic policy. They have browbeaten the workers into accepting pitifully low increases in their wages on pain of losing their jobs. That is an inhuman policy, which shows a callous disregard for the needs of the majority of our people.

We do not want confrontations with the work force or with the trade unions. We should seek co-operation with the trade unions, the CBI and all those concerned in the economy. The Government say that their way is the only way. They say that the medicine that is being forced on us is necessary, and for our good. The doctors who prescribe that medicine are not properly qualified. They are quacks. The patient may well be at death's door before those quacks are exposed and a proper antidote is administered.

Photo of Mr Fred Silvester Mr Fred Silvester , Manchester, Withington 8:08 pm, 5th February 1981

The hon. Member for East Kilbride (Dr. Miller) said that industrialists are concerned about their markets. That is true. We have not time to discuss every subject, and hon. Members have ranged widely in their speeches. I shall, therefore, concern myself with that point. The problems of inflation and unemployment have dominated the debate. However, there is one essential ingredient in our discussions, and one alone. It is seen in many documents and in many speeches from all parts of the political spectrum. I refer to the realisation that the wholesome development of the British economy depends on one thing, namely, greater responsiveness to consumer needs and wants. That is the one factor that has done us down in the past and that will do so again.

Between 1968 and 1977, the rate of growth of output per head in the United Kingdom was below that of any other developed country in all but a few sectors. It was roughly half the pace of the rate of growth found in those other countries.

The signs are, as the Government motion indicates, that there is evidence of a greater competitiveness emerging. Let us hope that that is true. But I do not think that anybody in the House believes that we have gone far enough or that we can be confident that when the upturn comes we shall continue to improve to the degree that is necessary. This, to me, more than anything else, remains our central dilemma. The hon. Member for East Kilbride spoke of import controls, but he must forgive me for saying that there is no way in which a country such as ours can shield itself from the growing efficiency of others. We must face the fact that that efficiency will increase and spread to wider and wider areas of activity.

I do not believe that we can solve this problem simply by importing other people's solutions. It is not that easy. We cannot accept the trade union structure of Germany, the industrial organisation of Japan or the civil service of France. They have been developed by those cultures, and we cannot transport them here. So it is, I believe, with much of the theoretical discussion that has taken place today. It may help us to keep on a straight path and to retain our sense of direction, but the policies that we propose will work only in the context of the historical and cultural background of this country—the country to which they apply. When we speak of the natural rate of unemployment, expectations or attitudes, we are actually talking about deeply ingrained habits and beliefs which are specific to our country. Therefore, if we seek change, as we must, we must act with the grain.

That is particularly true on the question of competitiveness. My right hon. Friend the Prime Minister, in her splendid speech, made the point clearly, which we all know to be true, that some companies are being successful even at the present time. But it is unfortunate that there is no necessary relationship between the co-operation of the work force and the reward. The textile industry, for example, complains that despite its efforts it has suffered more dramatically than others. On a personal level, the man who is made redundant, and thereby improves the competitive position of his former company, is not the one who directly benefits from the improvement. That is true of the regions. In the North-West, we have 11½2 per cent. unemployment and the rate is similar or greater in other areas. It is therefore not surprising that people are reluctant to embrace change. We are now asking them not only to embrace change but to do so with ever-increasing frequency. I believe, therefore, that we must turn our attention not only to the physical problems but also to the psychological problems at the present time.

I wish briefly to indicate three things which I believe are necessary. First, there is what I would loosely call hope. It is necessary to show what the future could be. I am pleased at the tremendous support that the Government are giving to the unemployed generally, and also the very large commitment to steel, British Leyland and other areas. In view of some of the criticism of that help, I am especially glad that it is being combined with a new vigour in management and marketing. There is no reason to suppose that because we have failed in the past we shall necessarily do so in the future. Indeed, that is something which in our present circumstances we cannot allow ourselves to believe.

These massive investments, however, are in a sense an investment in past glory, in industries which will increasingly be open to more and more difficult competition from abroad. If we try to look forward—and we all know the hazards of that—I think that there will be wide agreement that the opportunities for our work force are greater in service industries, in energy-related industries, in bio-technology, in information technology, in microelectronics applications and in construction and capital work for developing countries, with the natural increase that goes with a higher standard of living.

I was delighted that my right hon. Friend reaffirmed her faith, which I share, that there will be creation of physical wealth from the unknowable wealth of human invention which lies abundant in this country. But there are many people—in the North-West, for example, and in other hard-pressed regions—who need to feel that impulse in their own personal lives. I therefore hope that the Government will turn their attention to selective support. I know the arguments against this. We can, and do, make errors. Any Government or civil service will undoubtedly make errors, but by this method we shall be able to offer hope and example.

I have in my hand a copy of a speech made by my hon. Friend the Minister of State, Department of Industry at a conference on business telecommunications in June last year, in which he put forward a 10-point plan for a national strategy for information and technology. The fruits of that may soon be seen. I believe that action of that kind is necessary. It has been mentioned by others in the debate and I hope that it will be taken on board.

Secondly, I believe that there is a need for the Government to be seen to be fighting alongside private industry. It is no accident that there has been increased interest in the French system. As I have said, it is not exportable to us, but it has the commonly noted feature of a close enmeshing of private industry with Government officials. I do not think that it is evidence of backsliding or an abandonment of our central strategy to ask whether there can be some amelioration of some of the sharper points of our policies.

In international trade, we should perhaps ask ourselves whether we should not merely be vigilant against the breach of rules by other countries but also be rather more wily in the application of those rules to ourselves. Perhaps we should ask ourselves whether some possible amelioration could be achieved in our policy on energy pricing. We should perhaps ask whether we have actually organised ourselves to the best extent to get the benefit from EEC funds. Perhaps we should ask, as many hon. Members have asked in this debate, whether we should make a distinction between one kind of public expenditure and another. I know that that is a dangerous road, which can lead to many false conclusions. But there are many things that will have to be tackled at some time—perhaps even the sewers in Manchester—and investment of this kind may be a useful small addition to our activities at this time.

Thirdly—and I say this as a Member of Parliament representing a Manchester constituency—we shall have to watch very carefully the grave danger of division of the country. I hesitate to mention this because I think that it can be overdone, and there has been a great deal of doom and despondancy around the place today. But the longstanding problems of the North of England, Scotland and Wales, are being added to by new problems of the kind that I have described, and the need for adjustment is becoming much more difficult to meet. I therefore believe that we must make some special effort to ensure that the people in the North feel that they are as much a part of the helping hand of the Government as the people in the South.

Photo of Michael Meacher Michael Meacher , Oldham West 8:20 pm, 5th February 1981

The Prime Minister again insisted today that in the face of the biggest slump since the 1930s, and an even bigger manufacturing collapse than in the great depression, the Government would still not reflate the economy. The reason that she gave for rejecting proposals such as those of the TUC were that reflating meant printing a lot of money and simply pumping it in, which would lead to hyper-inflation. On that ground she has yet again claimed that there is no alternative to the Government's current policies.

I believe that that view is wholly misguided, that patently there is a viable alternative, and that a steady expansion of the economy can be achieved without an intolerable surge of fresh inflation, which I agree is quite unacceptable. I believe that there is a fundamental flaw in the economic policy that has bedevilled Western economies over the last 30 years. It is that during slumps such as the present one Governments of both parties have concentrated on stimulating the demand for goods, both by tax cuts and increased public expenditure, in order to spend their way out of a recession, while neglecting to ensure that the supply side of the economy was correspondingly increased.

Governments have assumed that the market could deal with the supply side. It has not, and it cannot. Instead, it has produced higher and higher inflation, which has filled the gap, but it has not taken us out of recession. As we all know, the result has been "stagflation". When Governments have hitherto put money into people's pockets in order to increase the demand for goods, the big companies have not correspondingly increased production, investment or the supply of goods—certainly by nothing like the same degree—because in the upturn, which I suggest is the real reason, there is no co-ordinated responsibility for investment decisions. Each firm holds back for extremely good reasons, because at every expansion phase since the war there has been a huge inrush of imports. Growth has been choked off by deflation within 12 to 24 months, and stop-go has rapidly been replaced by go-stop.

A unified agreement to move forward together steadily has never emerged, and the investment drive which all Governments have wanted simply falters and fails. Therefore, we need contractural agreements with leading companies to the effect that if the Government reflate the economy by so much they for their part will guarantee to expand their production and investment by about the same degree.

Such agreements are needed not for any theological reasons, but for plain, down-to-earth, good economic common sense reasons. This is not an unreasonable demand to make. After all, the economic contract has two sides. It is not just about wages, even though one may have thought that from listening to the Prime Minister. If workers are expected to show restraint in the national interest—and I understand the justification for that—management should be expected to play its part in co-operating to raise production and investment where it is needed in the national interest and follow the Government's lead. That is not a lot to ask, when British companies have the worst investment record in Western Europe, and when manufacturing investment is some 25 per cent. down in real terms below the 1970 level.

For a long time, there have been two main objections to the sustained—that is the key word—expansion of the economy which all post-war Governments have sought in vain. One, which the Prime Minister has reiterated constantly, is that it will lead to excessive or even intolerable inflation. As against that, we are suggesting that the key to growth, without undue inflation, lies in agreements with lead companies in each of the main industrial sectors which will secure co-ordinated expansion on the supply side to match the Government's expansion on the demand side of the economy. It is that "systematisation" of those negotiated contracts across most of the economy, with customers and suppliers being involved as well as the companies themselves, that enables companies to agree to expand, whereas it is too risky to expand in isolation. It is the role of supply management, in conjunction with demand management, that will enable the Governments—no doubt in the end it will be a Labour Government—to regain control over econimic forces which in recent years have proved devastatingly destructive when left purely to the market to resolve.

If the alternative to Thatcherite monetarism is a policy of balanced growth, I recognise that there is a second, real objection to this policy. It is that on the precedents sustained expansion may well generate an ever-increaing trade gap and an unsupportable balance of payments crisis. Our answer is that if there is no way to achieve sustainable expansion other than by limiting the growth of imports in line with the growth of exports—not a cutback—that is a policy that we should accept, especially when overseas countries would do better than under current policies.

There is already a major control on imports, which, as we all know, is called unemployment. It is because other countries would gain rather than lose from a steady expansion of the British economy that all the glib talk about retaliation is to a large degree misplaced.

The overriding argument for these proposals is that only they—not the Government's current policies or those put forward by any other British political group—will produce a substantial and continuing fall in unemployment without an unacceptable surge in inflation. Because of the guaranteed expansion of domestic markets, only these proposals can be expected to produce a steady rise in manufacturing investment which we all agree is the lifeblood of the country.

Above all, it is a policy of hope. Certainly no Conservative Member can claim that in respect of current Government policies. Not only are they policies of despair; they are policies of destruction and absurdity. Is it not absurd that right at the centre of current Government policy the PSBR has been enormously increased to pay for the hugely swollen requirement of unemployment benefit? A huge PSBR increase leads to further cuts in public expenditure, which leads to higher unemployment, which in turn requires an even bigger increase in the PSBR to pay for it.

It is because I believe that more and more people are coming to realise this nonsense and that the Government are destroying the country in a self-defeating spiral of decline that I am certain that if these policies are not changed this Government will not survive.

Photo of Mr John Stokes Mr John Stokes , Halesowen and Stourbridge 7:29 pm, 5th February 1981

I followed the last economic speech, but it seemed that the missing element was the customer. Industry and this country want more customers. That will come about through the efforts of industry and commerce, rather than by any sort of planned economy.

We all know that the economy in this country has been in decline for about 100 years. At the turn of the century, we saw countries such as the United States and Germany starting to overtake us. A startling illustration of that was at the beginning of the battle of Jutland when Beatty's battlecruisers were blown up one by one. He turned to his chief of staff and said "There is something wrong with our ships, and something wrong with our system. "What was wrong with our ships was that they were not well designed and they did not have very good steel. The German ships were better than ours, the German steel was better, and certainly the German shells were better. I am glad to say that we can now hold our own technically in our Armed Forces. We must hope that our industry will also be at that standard.

The decline in our economy has accelerated in the last 20 years since the end of the boom after the last war. It is no use now blaming those who were responsible in the past. Obviously, management and unions must take much of the blame, but the blame must fall on the attitude of the British people, who seem to want an extensive Welfare State without the wealth-producing base to support it. We must now look to the future. I see several hopeful signs.

I represent a Midlands constituency, where there is very high unemployment and where the firms are going through difficult times. But there is no real depression there—nothing like the depression that we have heard about from the Labour Benches. Management is more on its toes; research, development, design and marketing have been sharpened; overmanning is being dealt with at last, and productivity is improving. There is more realism on the shop floor. In fact, I get fewer complaints from operators on the shop floor than from directors and managers in the offices. Wage settlements are becoming more reasonable, and there is a desire to work hard and to keep one's job. All those are good omens. [Interruption.] I do not know why hon. Gentlemen laugh. Do they not want people to have good jobs? I believe that efficient companies will make large profits next year, and that this time next year we shall see an entirely different industrial scene.

I wholeheartedly support the motion, and I speak not only as a Member of Parliament, but as a person who has been in business for many years, both as a manager and, in recent times, as a part proprietor of my business.

To some extent I understand the bitterness of Labour Members and perhaps of some business men, who, lately, for the first time, have started complaining to me. Nevertheless, I believe that they are mistaken. As I said earlier, industry sorely needs more customers. Customers can be provided only if industry develops and sells products that the public want, both at home and overseas. The large import penetration of the domestic market shows that the demand is there if only British industry can supply it.

I know the difficulties that the high pound is causing, but, after all, in the past the Japanese, Germans and Americans sold their products with a strong currency. When the pound was low, people complained. I believe that the pound will drop a little as interest rates come down, but we must learn to live with a high pound so long as we have oil in the North Sea and so long as we are a stable country in which foreigners like to put their money.

I am puzzled by fuel costs, particularly gas prices, and I hope that the Government can explain what they are doing and, if justified, make reductions in line with Europe.

Other imposts on industry—the national insurance surcharge, which came as a heavy and unexpected blow, and the sick pay scheme—are matters about which small shopkeepers complain most. I believe that interest rates will now start to fall. With inflation falling that is quite possible.

I wish to raise two matters that are of immediate concern to my constituency. They are the future of BL and the future of Duport, an independent steel producer with a large works just outside my constituency. Many of my constituents work at BL Longbridge. Many more are employed in firms that supply components to BL. I am bound, therefore, to be concerned about the future of BL, with the livelihood of so many of my constituents at stake.

When I first went to the constituency 13 years ago and I heard that it contained so many workers from BL Longbridge, I was alarmed and depressed, having heard of the reputation that BL then had for strikes and labour troubles. But on getting to know many of these men personally, many of whom are now my supporters, I found them to be perfectly ordinary Englishmen and not at all the monsters that the press and others have made out.

It is true that there were at that time some bad trade union leaders, but in the main I was convinced that the fault lay with management in not giving the leadership or having the good communications which a large factory requires. Since Sir Michael Edwardes arrived at the head of BL there has been a marked improvement in management. A notorious Left-wing trade union leader has gone from Longbridge, and there is an altogether new spirit about the place. Production levels for the new Metro are continuously improving.

It is against that background that we must judge the new tranche of public money for BL. Its new corporate plan depends on other new models coming out in the next two years and selling well. Of course, it has assumed the level of the £ sterling to be somewhat lower than it is now. We must all devoutly hope that the plan will succeed. I certainly back Sir Michael and his team.

As a Member of Parliament, I must look not only at the interests of those of my constituents—all of whom are taxpayers—who work in BL, but also at the interests of others who are employed in companies in the private sector, which is going through a difficult time and has not received a penny piece of Government aid. I have to balance, therefore, these two interests in a very difficult and complex situation.

That brings me to my final point. London Works Steel, a company in the Duport group, is just outside my constituency. This is a private steel company, standing on its own. It is not part of a conglomerate. It is an efficient company, with new investment in plant and machinery and good labour relations. Last year it made a good profit. This year, with the world slump, the fall in the steel market and, above all, BSC selling steel in competition with it at below market prices it is making serious losses. Already the company has made large economies. Half of the staff and one-third of the work force have been dismissed. The firm is working only every other week. Training centres, canteens and so on have been closed. Meanwhile, everything is being done to find new markets at home and abroad.

I understand that discussions have been taking place about a merger with a part of BSC and possibly others. Whatever happens, it is absolutely wrong that this splendid company in the private sector should go under while BSC is supported with hundreds of millions of pounds by taxpayers. At least I would hope that the Government will make a loan to the company to allow it to continue in business until there is an upturn in the market and profits are being made again. It seems wholly wrong that nationalised industries should receive such largess from the taxpayer while independent companies, which are often more efficient, receive no subsidies or even loans.

When I was a soldier I was told to reinforce success, not failure. I very much hope that this is a lesson which my right hon. Friend the Secretary of State for Industry, whom I much admire, will take to heart.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk 8:39 pm, 5th February 1981

I find it rather extraordinary that the Prime Minister should tonight be asking us to approve her economic and industrial policies. I find it even more extraordinary that Conservative Members will go into the Lobby to support her when those economic and industrial policies have led to a situation in which, today, we have a minimum lending rate of 14 per cent., a cripplingly high exchange rate, inflation higher than what it was when the Government came to office, firms closing, bankruptcies taking place throughout the length and breadth of the country, output lower now than it has ever been, and a cripplingly high level of unemployment of 2½ million people.

I cannot conceivably see what there is in the Government's economic and industrial policies on which the House should want to approve or congratulate the Prime Minister. The thin smile that bedecks the Prime Minister's face whenever she appears on television, stage-managed as the Iron Lady, cannot mask the deep and bitter legacy that the mere two years in which she has been in office have bequeathed to the country as a whole, and to the North-West and Merseyside in particular.

Since the Government came into office in May 1979, unemployment in the North-West has increased by 63 per cent. and unemployment in my constituency has increased by 73 per cent. I shall give some of the figures in order to contradict the notions put forward by Conservative Members, particularly by the hon. Member for Halesowen and Stourbridge (Mr. Stokes), who has just left the Chamber. He advanced the notion that there was nothing wrong in his constituency or in the rest of the country.

On Merseyside there are currently 113,000 men and women unemployed, representing a rate of 16 per cent. unemployment. Those 113,000 people are chasing 1,759 vacancies. About 15,000 construction workers are chasing 94 jobs. Nearly 6,000 workers in the food and drink industry are after 45 vacancies. About 6,500 transport workers are chasing 96 jobs.

In Kirkby, in my constituency, 7,000 men and women and young adults are unemployed. They are chasing a total of 22 jobs in all industrial classifications. There are vacancies in only 12 of the 27 industrial classifications. For 365 transport workers there are no vacancies. For 516 workers in distribution there are two vacancies. For 870 construction workers there is one vacancy. Yet Conservative Members have the temerity to ask us to approve the Government's economic and industrial policies.

Those policies have not worked on Merseyside and are not approved there. They are condemned wholeheartedly. Unemployment is 40 per cent. on some of the inner city estates in Liverpool and on the estates in my constituency. There are thousands of young people of 18 and under on Merseyside who have never had a job, and who have no prospect of finding employment in the immediate future. A dim and dismal outlook faces them.

Unemployment has become the normal way of life for many thousands of Merseyside people whom we represent. There are enormous and horrendous social consequences of that level of unemployment, with 40 per cent. on the register for well over 18 months. If they represented constituencies such as mine, Conservative Members would see, clearly etched on the faces of the men and women who face the bleak and dismal future portrayed by the Government, a loss of morale, self-respect, self-confidence and dignity. If they saw that sort of despair and desolation, with the destruction of whole communities and livelihoods as a result of the Government's economic dogma, they would know what was the price for real people trying to live ordinary lives.

Photo of Mr John Stokes Mr John Stokes , Halesowen and Stourbridge

I apologise to the hon. Member for Ormskirk (Mr. Kilroy-Silk) for leaving the Chamber. Some members of the public had been waiting a long time for tickets and I went out for about 30 seconds and then returned. I was not meaning to be discourteous.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

I am not interested in the apologies of the hon. Member for Halesowen and Stourbridge. My constituents and I are interested in why he and his colleagues should feel able to go into the Lobby tonight to approve and endorse the Government's industrial and economic policies, which have wrecked the livelihoods and futures of thousands of my constituents and those of my hon. Friends. That is what we want to know and we are receiving no answers from the Government.

My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) said that the Prime Minister's speech was impressive. I did not find it impressive. The only thing that impressed me was the absence of concern, care, compassion, or understanding of the realities that lie behind the figures. The right hon. Lady talked in slogans, concepts and technical terms, but she showed no grasp of the way in which unemployment hits hardest at ordinary working people.

The Prime Minister talked of the shame of Britain in 1976, when the pound was at its lowest in relation to the dollar. My constituents felt no shame about that, but they feel a deep sense of shame at being involuntarily unemployed. The Government should also be ashamed of themselves for their callous indifference.

Why are thousands of the constituents of myself and my hon. Friends confronted with such a situation? The answer is that the Prime Minister is wedded to a dogma and is sacrificing our constituents on the altar of her mystical prejudices about the way in which economics should work if they are applied according to the classic textbooks. But that is not what life is about. My constituents want a Government who will think about people's real needs and problems.

As on previous occasions, the Prime Minister showed that she does not understand—indeed, she has no conception of—ordinary working people, the way in which they live their lives, and the needs and problems that they face. She does not feel for them. To her they are merely numbers to be talked about and added up. She exhibited today the same sort of callous, uncaring indifference and dogmatic arrogance to the plight of the unemployed that she has displayed in the House and elsewhere so often before.

The Prime Minister's attitude was typified by her response to the unemployed people of South Wales. All that she suggested was that they should leave their homes and find work elsewhere. Where are the 129 unemployed building industry workers in Ormskirk to find work, when they are chasing one vacancy? Should they go to Kirkby, where there are 3,000 unemployed construction workers and no vacancies? Should they go further still, to Merseyside, where there are 15,000 unemployed construction workers chasing 94 vacancies? The North-West generally has a similar level of unemployment among construction workers, and the United Kingdom average is 10 per cent. unemployment. Wherever they go, even if they become the industrial gipsies that the Prime Minister demands they become, they will not find employment. The Prime Minister and the Government have destroyed employment opportunities.

Why should the unemployed have to leave their homes and uproot themselves from their neighbourhoods and families and their children's schools because the Prime Minister and the Government do not care enough to take work to where it is needed—the North, Scotland, Wales and the North-West? The Prime Minister has no right to sacrifice thousands of my constituents and those of my hon. Friends on the prejudice of her economic dogma. She has no right to endanger their livelihoods and to destroy their futures and blight the prospects of generations of young people.

The Prime Minister should remember that some of my right hon. and hon. Friends are wrong. The current situation is not like the 1930s. As my hon. Friend the Member for Bolsover (Mr. Skinner) would point out, people today know, even if they did not know in the 1930s, that there is an alternative. It does not have to be like this; there is a way out. The Government take no cognisance of their needs and do not seem to care for their plight. That will have enormous consequences for the social fabric and political institutions of this country.

Surely the members of the Cabinet, many of whom are decent, civilised and reasonable individuals, accept the absurdity of a situation in which 2½ million people are unemployed, at great cost to the country as a whole. Surely they also accept the immorality of the waste of human skills and resources when there are many needs in this country and overseas that could be met if those skills and resources were matched to the needs. Surely they acknowledge that the system cannot be right, that it is crazy, irrational and inefficient that so many people are treated as scapegoats in the name of an economic policy. Surely they realise that even a harlot does not go on for ever at any price. Perhaps, eventually, some of them will prevent the Prime Minister from riding roughshod over them, as she does at present, with her glossy, glassy, thin air of superiority and arrogance.

There is an alternative. When the Prime Minister says that she knows of no alternative to what the Government are now doing, she shows an embarrassing lack of economic understanding. The alternative happens to be called the alternative economic strategy, based on just as fundamental an appraisal of the economic situation as the monetarist policy that we are now bitterly experiencing. It is based on just as coherent a set of assumptions and just as firm an intellectual foundation as the monetarist policy. We need a strategy, not for cumulative decline, but for opportunities for cumulative expansion. We need a strategy for planned public expenditure in order to increase employment and output and raise living standards. That can be done by the adoption of an alternative economic strategy.

I accept that that alternative economic strategy is based on many unverifiable assumptions. I accept, too, that there are many risks and dangers in the pursuit of that strategy, just as there are in the pursuit of the present Government's strategy. But risky, adventurous and venturesome as the alternative strategy is, it differs from the present policy in that it is firmly rooted in ethical principles that exhibit a concern for ordinary men and women and their future, with a firm commitment to the pursuit and sustaining of full employment because of the dignity and self-respect that it brings.

The Opposition and the country are now learning that this Government will not produce the alternative economic strategy to provide the country with an efficient, planned and just economy involving the distribution of the rewards and the resources within the economy. Unfortunately, we shall have two or three more long years of despair, degradation and a potential dismantling of the social and political fabric of our community before a Labour Government will have the opportunity to introduce that policy. Unfortunately, only a Labour Government will be able to introduce that policy. Perhaps the next Labour Government will have the will, the conviction and the courage to begin the task.

Photo of Mr John Townend Mr John Townend , Bridlington 8:53 pm, 5th February 1981

There is a certain sickening hypocrisy about the Opposition's attack on the Government's economic policy. I am 100 per cent. behind the Government's economic strategy, but not because I am a monetarist. As an accountant, I believe that the country in general, and the Government in particular, should start to live within their means, and that we should again have sound money.

The legitimate criticism of the Government is not that their strategy is wrong but that the strategy has not been applied strictly and strongly enough. The criticism made by the Oppositon that this is a hard-nosed monetarist Government intent on slashing public expenditure does not stand up to examination and is not true. The growth of money supply will not be within the target set by the Treasury. Public expenditure has not been reduced to the level that we had hoped. As a result, the public sector borrowing requirement is much higher than was planned, and the Government have had to maintain interest rates at a far higher level than is satisfactory for industry, with adverse effects on employment.

Far from laughing, the anti-monetarists on the Opposition Benches should congratulate the Government on their high level of public spending and on their high level of support for State industries. There are two reasons for the Government's failure to reduce public expenditure to the level that was expected. The first reason is the cost of the Clegg Commission and the Pay Research Unit. In their first 18 months the Government failed to control public sector pay

Let us not forget that the problem was inherited. The Labour Government created the Clegg Commission. We inherited it and picked up the bill. Perhaps we were unwise at the last election to say that we would accept its recommendations. Perhaps after the election we should have broken that undertaking. However, this is an honourable Government. They should be congratulated on keeping to their undertakings even when they are uncomfortable. The Government are now dealing with the problem. They have abolished the Clegg Commission, put pay research into cold storage, and imposed a 6 per cent. cash limit in pay.

The second reason why we have to been able to bring public expenditure down to the level required is the State industries. They cost no less than £3 billion a year. The problem we inherited has been more intractable than the Government expected. The situation is becoming worse and that is perturbing. We are spending another £1 billion on steel and another £900,000 in the next two years on British Leyland. The £3 billion is a net figure.

The worst that has happened to steel and shipbuilding is nationalisation. It is a pity that the gang of 13 Social Democrats who now say that there should be no more nationalisation did not realise their error earlier. The nationalised industries are taking far too many of our resources. They take 70 per cent. of North Sea oil revenues. They pre-empt valuable resources which should go to private manufacturing industry.

If the public sector did not have to support the nationalisd industries, the national insurance surcharge could be reduced by 80 per cent. If we had not had to pay £1½6 billion for the Clegg Commission awards the national insurance surcharge could have been abolished and a further £1 billion would have been left over for capital investment or reducing public borrowing. Hon. Members have talked about investment. As many resources are involved in the aspects that I have mentioned as industry could invest. In view of the intractable problems in the nationalised industries, it is not surprising that the right hon. Member for Ebbw Vale (Mr. Foot) is now making it clear that he will lead the Labour Party on a further orgy of nationalisation.

I turn to the question of unemployment. It is arrant nonsense to blame the Government for the tragic level of unemployment. Many factors are involved, including the world recession and oil prices. If Governments are to blame—and nobody is free from blame—all Government over the last 20 years are to blame. No Government are more to blame than the last Labour Government who left the Conservative Government the highest level of unemployment since 1935.

A far greater responsibility lies with industry—both unions and management. The unions carry the greater share of responsibility. They have had too much power and that, on too many occasions, has been abused. That has resulted in too many strikes, too many restrictive practices, overmanning and a refusal to accept new technology. That has resulted in the closure of many firms. Management has also been responsible because too often it has been weak. Unfortunately, management had no alternative because, when the right hon. Member for Ebbw Vale was Secretary of State for Employment, he tipped the balance in industry far too much towards the trade unions. It is also not true to state that the major reason for unemployment is lack of investment. In far too many areas investment has not been used properly and economically. A classic example of that is The Times, where news machinery has been lying idle for years. The newspaper is now on the verge of closure.

This week, in my area, Reckitt and Colman tried to instal a new packaging machine for a new product to be exported to the French market. The unions called their operatives out on strike. The steel industry has not lacked investment. Indeed, there has been over-investment. The problem was the failure of the unions to accept international manning levels, followed by a crippling 13-week strike that needlessly destroyed many thousands of jobs. We are now faced with a seamen's strike. Every week that that strike continues more seamen join the dole queue. [HON. MEMBERS: "Sit down".] I was informed that I could speak until 9.5 pm.

Surely Opposition Members will not try to blame the Government for unemployment in the motor industry. British Leyland, under successive Governments, has received £1.3 billion in aid. It is not the fault of the Government if the people of Britain—especially supporters of the Opposition— have been buying Japanese cars. Fleet owners have been buying British cars. It is not the fault of the Government that millions of pounds of production have been lost through stoppages and restrictive practices.

I wish to make three brief points about unemployment. First, the Opposition ignore the black economy, yet it is estimated that up to 250,000 people registered as unemployed are in some form of work. Secondly, thousands of foreign workers in the South—East are working in restaurants and the catering industry, partly because many of our people are not prepared to accept jobs with anti-social hours. The education authorities must bear some blame for that because many of them recommend school leavers not to take such jobs.

Thirdly, the right hon. Member for Ebbw Vale mentioned the level of unemployment in West Germany. There is a great difference between the way that we treat our immigrant workers and the way that they are treated in Germany, where many from Turkey and other countries work on a contract system. If there is a downturn in the German economy, and rising unemployment, they are sent home. Is the right hon. Gentleman advocating that we take similar action?

I urge the Government to stick to their strategy, to continue their battle against inflation and, above all, to redouble their efforts to reduce public expenditure. We must gain control of the problems in the nationalised industries. Cash limits are not sufficient if nationalised industries have monopoly powers and can pass on excessive wages to the public.

Although I am opposed to protection, we should consider non-tariff barriers à la Francais. We must play according to the rules played by everyone else, whether it be Japan or France. If the Opposition seriously want to create more jobs, will they please turn their efforts away from criticising the Government and tell their friends in the shipping industry to go back to work? Will they tell their colleagues in the unions to co-operate with management to the maximum extent to reduce cost, increase efficiency, and cut down restrictive practices. In that way we can become more competitive. If management and unions join together along those lines, the public and the customer, both in Britain and abroad, will once again buy British goods. That is the only way to solve the problem on unemployment. If we do that, we shall once more be on the road to prosperity.

Photo of Mr Peter Shore Mr Peter Shore , Tower Hamlets Stepney and Poplar 9:05 pm, 5th February 1981

We sought through the amendment we tabled to focus the debate on the great damage that has been done to our people, to our industries and to the whole prospect of our national future. The many contributions that have come from both sides of the House have focused properly on the subject matter of the Opposition's amendment rather than on the quite extraordinary complacent motion tabled by the Government. Indeed, it is such a prize example of insensitivity—I might almost say intellectual impertinence—that we ought to have it printed and distributed all over the country as evidence to the total inability of the Government to face either the human or the real world consequences of what they are doing.

I well understand that the Prime Minister had other matters to attend to and returned to the House only a moment or so ago. I may say to her that she would be utterly misled if she were to think that the speech of the hon. Member for Bridlington (Mr. Townend) was in any sense representative of the speeches that we have had from both sides of the House. The hon. Gentleman made an interesting speech, as the right hon. Lady will have heard. He was the only one to urge the Prime Minister to continue along her path of folly and, if anything, to go even faster. For the rest, there were major reservations, and rightly so. The worm of doubt, to which I shall return later, has entered into the very centre of the doctrines that the right hon. Lady is seeking to support.

We need not argue about the facts of the matter that is before us today. They speak for themselves and cry out for redress. After 21 months of Conservative rule unemployment has reached the staggering total of over 2½4 million. There are many more on short-time or part-time working who simply fail to register. One in 10 of our fellow countrymen is today registered as being without a job. In the great regions of the country, where much of our manufacturing industry is concentrated, the figures are even worse: 1 in 8 in the North and in Wales, more than 1 in 9 in Scotland and the North-West, and nearly that number in the West Midlands as well.

The prospects for young people leaving schools and colleges are particularly grim. I do not think they will be heartened or encouraged by the latest scheme that the Secretary of State for Employment is putting forward to bring them into some relationship with the Armed Forces. The job prospects for older workers, women and members of the immigrant community are also grim. This terrible increase in unemployment has not been accompanied by any increase in productivity by those still at work or by any increase in total output. The old doctrine of the shakeout clearly does not apply—indeed, far from it. We are experiencing a calamitous and virtually unprecedented fall in our national income and output.

There is only one fact of our situation that is still in disagreement, and that is the actual revenue and expenditure cost of the total of unemployed. I must point out to the Prime Minister that I am still, as I think the House is, totally unenlightened by the figures that she gave. If she is seeking to total the costs of 2½4 million unemployed as being about £2½4 billion of expenditure, it is working out at about £1,000 per head. That cannot be so. In the answer to a question in another place on 12 November 1980, two figures were given. The total cost—that is the combined revenue loss and the total cost of benefit—for a married man, with two children, on an average wage was over £6,000. For a single man on average wage the figure was over £5,000. Thus, if all 2 million people—

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

Two and a half million.

Photo of Mr Peter Shore Mr Peter Shore , Tower Hamlets Stepney and Poplar

Well, 2½ million, but I take the full employment level to be something of the order of 400,000 for the purposes of my arithmetic.

Let us assume for the purpose of my argument that 2 million are unemployed and that they are all single men on average wages. If my arithmetic is not too bad, the cost must be about £10,000 million a year. I shall be the last to contradict the Minister of Agriculture, Fisheries and Food—I do not see the right hon. Gentleman in his place—who referred to £7,000 million as the real cost of unemployment when there was a lower level of unemployment some months ago. The right hon. Gentleman's figure would seem broadly to tally with mine.

The waste of resources, apart from the waste of human beings, is an important factor in Government decisions on resource allocation and financial expenditure. The entire cost of unemployment is so high that it might act against the Government's increasing some of the aid that they are providing on a modest scale to industry and some of the work creation and support policies of which the Secretary of State for Employment has spoken. These are important issues, and I hope that we shall be able to get them clear before the end of the debate.

The House had been trying to concentrate on why this disaster has occurred. It is quite something to have increased unemployment by over 1 million in the past year. There is no other country of comparable industrial development that has experienced such a shock and penalty during the same period.

I do not want to go back over old ground. In a sense, it is boring constantly to throw statistics at each other, especially when they are so carefully refined and selected. However, in 1974–75 Britain and the whole Western world faced the full impact of the Arab oil price explosion, without a drop of indigenous oil. We were not alone in finding for the first two years after that impact that we were unable to maintain full employment at the level that had prevailed before the price explosion. Every other country in the Western world had roughly the same proportionate increase in unemployment. However, on this occasion we are dealing with something new and special. There has been a great increase in unemployment. The exceptional increase in unemployment in Britain has followed the adoption of the policies introduced by the Prime Minister and her Ministers.

I am glad to say that on this occasion the right hon. Lady had little to say about unemployment being due to a world recession. Only a minor key was struck in her speech on that issue. We offer our view of the cause of the present unemployment. We believe that it has been confirmed by the Prime Minister's speech. In our view the cause is Government policy more than anything else, namely, the dogmas and nostrums that they have imposed upon themselves and the country and the actions that they have taken to reduce all the forces in the economy that could sustain output and employment.

The Government have crippled industry with unprecedentedly high interest rates. The foreign exchange rate is, in effect, a large subsidy to competitive imports, and at the same time a large tax on our exports. They have radically reduced the real level of public expenditure, but the cut has been substantially disguised by the inevitable increase in social security payments that they have had to make to those whose jobs have been destroyed.

The Government's medium-term financial strategy is the central pillar. It embodies the commitment to an annual and decreasing target for the money supply and a corresponding target for the fall in the public sector borrowing requirement. These measures seem to be designed to prevent the Government from reacting to the real needs of the economy and to the changes of circumstance which from year to year are inevitable.

In common with others, I have increasingly wondered what is the use and purpose of publishing such medium-term figures. My conclusion is that their main purpose is to discipline the Cabinet. I am reminded of the Odyssey and that famous episode when Ulysses and his followers approached the island where the sirens dwelt. As the House will remember, the crew were ordered to stuff their ears with wax and cotton so that they could not hear the siren voices. Ulysses himself was strapped to the mast so that he would not be able to jump overboard in response to the music that he heard. All the voices of sense in Britain today are demanding and urging the Government to change course, but we have a deaf Cabinet and a self-strapped Prime Minister, and apparently nothing can be done. What do the Government say about the defence of their own policy?

Photo of Mr William Waldegrave Mr William Waldegrave , Bristol West

The right hon. Gentleman might like to complete the story, which was that Ulysses' strategy saved the ship from the rocks.

Photo of Mr Peter Shore Mr Peter Shore , Tower Hamlets Stepney and Poplar

Very good. My point, as the hon. Gentleman will understand, is that it is useful to listen to what the country and most of its representative bodies are saying. It is an absolute folly for the Government to impale themselves upon public declarations of policy, long in advance of the events that they have to face and that have led them into the trap from which they now find it so difficult to escape.

How does the Prime Minister justify the measures that she has taken? We heard her yet again today. The argument was not new. We have heard it on many occasions. Her basic argument is that there has to be a massive cutback in demand and a massive increase in unemployment if we are to get a decrease in inflation. If there is to be any demand, it will not come from anyone in this country. The only hope is that it will come from exports.

The Government's fundamental error, as my right hon. Friend the Member for Battersea, North (Mr. Jay) never fails to point out, is that in their concern about inflation they have confused two issues. There is a distinction between demand inflation and cost inflation. There is no evidence of demand inflation at all. How can there be such evidence when nearly 90 per cent. of British industry is working below capacity. There is, and has been for years, a problem of cost inflation with which all hon. Members are familiar. It is that problem to which we have to address ourselves if we are serious about defeating inflation, if we are serious about keeping ourselves as competitive as we should be with other countries, and, at the same time, bringing into the whole area of discussion necessary and agreed measures to restrain incomes and prices. That is the important point of difference.

I must say to the Prime Minister that simply to assert these apparent simple truths and to reinforce what she says, which was to me an almost Orwellian re-write of prewar and post-war history, is unconvincing. We are seriously told that the whole experience from 1955 to the oil shock of late 1973 and, indeed, the earlier period from the end of the war, was a period of progressive deterioration and decline, in which Governments had found it almost impossible to maintain reasonable price stability with reasonable levels of employment. Really, it is not so. It is not so within the memory and experience of at least three-quarters of hon. Members.

There is no period of which we have a record in which the standard of living, growth of output and levels of unemployment have been more favourable than in the period from 1945 to 1970. I do not believe that even the experience of 1970 to 1974, pre-oil—given the extraordinary incompetence of the then Conservative Government—need have undermined our belief and our confidence that the maintenance of full employment with reasonable growth and reasonable price stability had been lost.

What is real and undeniable is the combined inflationary and deflationery effect of the cartelisation of oil prices from the end of 1973 to the present time. At the same time there has been a counter-attack by the monetarists on the whole post-war doctrines of State intervention and full employment.

I shall tell the Government why their strategy will not work. The first and most obvious fallacy is their belief that even if inflation is brought down to single figures it can be kept there. The hon. Member for Loughborough (Mr. Dorrell) made an excellent speech. I, too, believe, that the fall in inflation that we have so far had has been brought about by an increase in unemployment and by the pressures on company profitability. The moment that these pressures ease and the economy begins to expand, there is every likelihood, in the absence of a reasonable agreement with the parties involved on both sides of the industry, that collective bargaining will again press hard upon costs and that the process of inflation will start again.

The second reason why such a policy is almost certainly unworkable is the belief, which those who advocate it undoubtedly share, that there is a natural and spontaneous capacity for growth up to the full employment level, or near it, in an unregulated but inflation-free private economy.

That is the old laissez-faire, classical doctrine of the market working and optimising opportunities. It is not working, did not work in the 1930s and will not work in the 1980s. There will not be a return to full employment unless there is a serious effort by Governments to stimulate demand in their own countries and internationally, unless they join with others in a major and concerted effort to achieve continuing expansion in world trade and world output.

A third reason why the Government are running into major difficulty is the anger and resentment in industry and management which sooner or later will explode. Last year we saw a record number of liquidations, and this year, taking account of the virtual collapse of profitability in 1980 and the still worse prospects for 1981, there will be further spate of major industrial disasters. Precisely the same pressures that forced the Government to change course last year on British Steel and British Leyland will this year operate upon them in many great companies in the private sector. Companies such as Massey-Ferguson and ICL are too important to be allowed to die. Whatever their devotion to money supply targets may dictate, we shall see increasing efforts made through the banking system and encouraged by the Government—and ultimately underwritten by the Government—to avert this kind of disaster.

That brings me to the exchange rate and exchange rate policies which are of the utmost importance as well as being a matter of considerable puzzlement. We heard the right hon. Lady today reply to an intervention from the hon. Member for Horncastle (Mr. Tapsell). I do not know whether he was enlightened at the end of it but I was not and I should like to get things a little clearer. We all know that the Government's monetarist thinking does not permit them to have an explicit exchange rate policy. As the Chancellor of the Exchequer put it on 29 October 1980, among some ribaldry as I recall it, the present level of the pound sterling is not an objective of policy".—[Official Report, 29 October 1980; Vol. 991, c. 502.] The Financial Secretary to the Treasury made clear during Question Time on 6 November that to attempt to peg the exchange rate would have disrupted our monetary policy".—[Official Report, 6 November 1980; Vol. 991, c. 1455.] Since monetary policy is sacred, the exchange rate, however crippling its effects on British industry, must not be tampered with. All attempts to persuade the Government that interest rates here were the one main factor in maintaining an over-valued pound were just brushed aside.

What, now, is the position? Last week the Prime Minister on television said that the exchange rate would have to be taken into account in any future decision about the MLR". I cannot check on today's Hansard, but I believe that she said something similar in her replies this afternoon. If it means anything at all, it surely must mean that interest rates may be brought down if the exchange rate continues to be too high.

The CBI yesterday published its Budget representations. I assume that those were on the agenda at the NEDC that the Prime Minister attended yesterday morning. I draw her attention to page 15 of the CBI report, which states: the Government should announce clearly that it regards the current level of sterling as excessively high and will attempt to reduce it. If that passage is not enough, I also quote from page 5, where it says: the Government should implement a package of measures to reduce the exchange rate; an explicit declaration that they understand the need for a lower rate and will seek to achieve it. Further reductions in interest rates and intervention in foreign exchange markets compatible with appropriately firm monetary conditions. What are the Government's reactions to those suggestions? Do they understand that a strong pound, based on a strong and competitive industry, is something that we all welcome? However, a pound whose exchange value rests upon usurious interest rates in London and upon the new phenomenon of North Sea oil is an entirely different matter. I hope that the Secretary of State for Trade will address himself to that point in his reply.

I do not want to exaggerate the importance of the hints at a modification of policy. A glimmer of common sense on the exchange rate policy, some little action on interest rates, some action to save major companies late in the day from total collapse will at best only slow the precipitate rate of industrial decline.

Indeed, even to stabilise the present situation will require a major fundamental change in Government policy. The House will have read both the CBI's representations and the TUC's economic review—its "Plan for Growth". What is remarkable about both those documents is the expectation that, even if the Government were to adopt all their suggestions, the effect would be only to arrest the deterioration rather than to reverse the decline.

Of the CBI package, including the acceptance of a PSBR of some £12 billion to £12½ billion in 1981–82, the authors claim that unemployment would still rise though rather more slowly than on existing policies; investment would still fall in 1981. The best that the CBI can say is that business would be better placed to start increasing investment in 1982. As for the TUC, its proposals represent a 3 per cent. stimulus to the economy and the acceptance of increased expenditure of over £4 billion. Even so, as the TUC puts it: the enormity of the task facing us is such that this stimulus will only prevent unemployment from rising still further in 1981. Our difficulties are growing, and growing rapidly.

Unemployment apart, two trends are particularly worrying: the sharp contraction in industrial investment and the falling off of our export trade. On investment, the figures are grim and we have not only the prospect of a substantial decline—indeed, the fact of a substantial decline—in investment in manufacturing industry—and without investment in manufacturing industry how can we get the competitiveness that we need?—but the wellreported sales and auctions of first-rate British machinery, which is going to other countries where it can be used to compete effectively against Britain in markets abroad and in our own country, through imports. Even the United States finds modern though secondhand British equipment worth purchasing.

The second worrying trend is in exports. The volume fell in the last quarter of 1980 by about 2½ per cent. As for next year, again I quote the CBI: United Kingdom exports are expected to decline quite sharply. Surely we can all agree that it is imperative, if we are to safeguard our future, that we halt the process of selfdestruction and embark on a major re-equipment and reinvestment programme to make our industry truly competitive.

The Opposition and the trade unions have argued for a great extension to help to bring that about. It is an absurdity and a tragedy that the wealth that we are now receiving from the North Sea and the great savings of our people at work, accumulated through pension funds and insurance companies, should flow not into British industry, but across the frontiers of this country. Our exchange controls have gone and that money helps to finance the firms and jobs abroad that will compete with us still more vigorously in the future.

There is nothing eccentric in the idea that we should use our additional savings and wealth to strengthen manufacturing industry—rather than to weaken it. That was the message conveyed in a most interesting address made a fortnight ago by the chairman of Shell UK, Mr. Raisman. He ended his speech by saying: The success of Germany's use of Marshall Aid, which it set aside for industrial investment, is a good pointer for the potential efficiency of such a plan. Beyond this, the immediate priorities—we all have it in mind that the Chancellor of the Exchequer is finishing the construction of his Budget—is to take action next month that will operate on both the costs of British industry and on the lack of demand in the economy. There are many ways in which the burden of costs can be mitigated. Last time we debated economic affairs, I mentioned the importance of diminishing the burden of the national insurance surcharge and of taking account of the extra fuel costs incurred, particularly by bulk users of energy in Britain. I note that the former suggestion, and proposals to alleviate duties on the heavy oil that is used in industry—but not in transport—have been put forward in the CBI's submission to the Chancellor of the Exchequer. I hope that the right hon. and learned Gentleman will consider them.

I turn to the crucial question of interest rates. If we are to take the Government's argument seriously about the true and underlying level of inflation and if, as the right hon. Lady suggests, inflation is running at about 7 per cent., what possible justification can there be for maintaining the MLR at its present level? Every one percentage fall in the borrowing rate as it affects industry means a saving in costs of about £350 million a year. Our message for the Government tonight is "get interest rates down".

Finally, I turn to the lack of domestic demand. I am sure that the most important way that demand can be revived in Britain, with the least risky effects on the export-import balance—which we must always bear in mind as our major concern—and on inflation, is to promote a substantial programme for increasing investment in both publicly owned industries, in all types of infrastructure and in housing programmes. It is time—perhaps that time has already passed—that the Government looked again at the structure of public expenditure and at the composition of the public sector borrowing requirement. It is time that they began to draw a serious distinction between that part of the public sector borrowing requirement that is simply attributed to current expenditure and that important part that is spent on investment and that is of benefit to both public and private industry.

I see no logical reason for deliberately curtailing useful worthwhile investments in the public sector just because of some overall constraint—in the form of cash limits—imposed by the Government. Today, we have heard a further part of the Government's campaign, which I described a few weeks ago as "operation optimism". Today, we have heard a further instalment in that campaign. It will have convinced no one. The debate has revealed that there are, on the other side of the House, right hon. and hon. Members who know—as we do—that the Government are on a disaster course. Those who share that view—there are quite a number here tonight—have a duty to register their deep disquiet in the only way that this Government will understand. We shall vote in favour of our amendment because it rightly focuses on the main problems that face the British people and the British economy today.

Photo of Mr John Biffen Mr John Biffen , Oswestry 9:34 pm, 5th February 1981

The right hon. Member for Stepney and Poplar (Mr. Shore) has spoken in the concluding stages of this serious debate with all the skill and fluency which is the hallmark of his contributions. I hope to concentrate my own remarks upon what I think has been the major cause of disquiet, namely, the current levels of unemployment. May I say at the outset, however, that there was just one point in the right hon. Gentleman's speech where he was less surefooted. It was on classical literature rather than contemporary economics. Clearly, the right hon. Gentleman has not fully understood the significance of the sirens.. I think that it is very important that he should. The House should be under no illusion. The siren voices that will increasingly be heard during the coming weeks and months will be the siren voices of social democracy. It will be they who, from their banking citadels in the City—from Morgan Grenfell and from Guinness Mahon, but using a Limehouse accommodation address—will be trying to persuade the public, this House and above all the political constituencies that there are easy and relatively painless solutions to what we know to be inherently intractable problems.

I repeat what I said about unemployment levels being central to much of the disquiet expressed in the debate, not merely for what it has meant in terms of output and the wider industrial challenges, but also, as was emphasised by my hon. Friend the Member for Manchester, Withington (Mr. Silvester) and the hon. Member for Ormskirk (Mr. Kilroy-Silk), for the regional difficulties that arise from this situation.

Clearly, it is a situation of very considerable adversity. As the Leader of the Opposition was kind enough to put around my neck the halter of some kind of apostle of gloom, I should like none the less to invite the House to consider not only our present difficulties but at least some signs of improvement that can be set in the scales. I am always encouraged by the cheerful remarks that come from the Opposition Benches on my role as—[Hon. Members: "Cassandra."] I prefer to call it austere realism. But I was slightly discouraged that the analysis of my contribution was set alongside the contribution of "Denis" to "Dear Bill" in Private Eye. I thought that that put into context not only my own modest contribution but, much more significantly, the actual content of the speech of the Leader of the Opposition, which owed more to style than it did to content. But in this sorrowful world, we are happy even to have style.

I wish to put five points to the House—modestly, I hope, and without exaggeration. First, pay settlements are more in touch with reality. Evidence from the CBI Databank suggests that current round private sector settlements have dropped from an average of more than 16 per cent. in July to about 10 per cent. in October and into single figures in November and December.

Secondly, industry's prices, as shown by the wholesale prices index, have risen by very little in the recent past, and indeed by only between 3 per cent. and 4 per cent. in the last six months.

Thirdly, industrial relations have improved— [Interruption]. Yes, they have. If Labour Members really believe in the crude superstition that industrial relations today are governed by fear, they are living in their own cocooned world and not in the world of industry and commerce as experienced by my hon. Friends. The figure for stoppages in 1980 was the lowest in the post-war period.

Fourthly, there have been reductions in the minimum lending rate. Currently, the yield on Treasury bills and the movement of the three-month inter-bank rate provide some encouragement. In her "Weekend World" interview, my right hon. Friend the Prime Minister said that we were particularly eager to move as soon as we can in this respect.

Photo of Mr Dick Douglas Mr Dick Douglas , Dunfermline

Have the courage to do that.

Photo of Mr John Biffen Mr John Biffen , Oswestry

The hon. Gentleman, whose constituency I forget because he was turfed out by a Scottish nationalist and came back to the House subsequently, advises us to have courage. We shall, but we shall have responsibility as well. Any movement taken on MLR will be a factor of responsibility. As my hon. Friend the Member for Woking (Mr. Onslow) said in his interesting contribution, industry is in a particular position to take advantage of any reduction in interest rates.

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

The right hon. Gentleman will recall that the hon. Member for Horncastle (Mr. Tapsell) asked a question of the Prime Minister to which he got an obscure answer. It concerned the relationship between MLR and the exchange rate. The right hon. Lady was asked a specific question, but the answer was far from clear. She was asked whether the policy has changed. Will the right hon. Gentleman care to answer it now?

Photo of Mr John Biffen Mr John Biffen , Oswestry

I shall come to the exchange rate. The policy has not changed—[HON. MEMBERS: "Answer".] I have answered.

I now move to the general international background against which we are operating. On the evidence of the Governor of the Bank of England in his speech earlier this week, he believes that: It seems likely in the absence of any major shocks to the system that the worst of the recession is behind us; and that at some point later this year the world economy will start to grow again. The hon. Member for Sheffield, Heeley (Mr. Hooley) laughs. That is no laughing matter. The measured confidence of the Governor of the Bank of England is a perfectly legitimate point to make. I say that because it must be set alongside the many other factors on which we must base our conclusion when we come to the vote.

No one doubts that matters are difficult, nor would he doubt that the path of unemployment will continue to cause great anxiety in this House. However, there are factors which give cause for measured optimism about the point at which the recession will bottom out.— [Interruption.] Opposition Members find that hilarious. But in the country at large it is precisely a message of measured consideration, rather than political vilification, which is required. The whole of this debate was all too often conducted in terms of political vilification by Opposition Members.

Photo of Mr John Biffen Mr John Biffen , Oswestry

I hope that the hon. Gentleman will forgive me if I do not give way.

Two major points have been made in the debate. The first was that the Government's spending, revenue and borrowing policies have led to our present unemployment levels. That point was made particularly by the hon. Member for Feltham and Heston (Mr. Kerr). There was also a discussion about exchange rates. I should like to say a word about both.

With regard to the Government's spending, revenue and borrowing policies, the truth is much nearer the point argued by my hon. Friends the Members for Chichester (Mr. Nelson) and Bridlington (Mr. Townend). It simply is nonsense and a travesty to suggest that the Treasury has pursued its policies with some zealous ideology which is impervious to compromise and tragically unworldly. I know that for Opposition Members myth is much more entertaining than reality, but the truth is that from the outset the Government's monetary and fiscal policy was always modest and gradualist. [HON. MEMBERS: "Oh".] Oh yes it was, and the figures will vindicate that observation. It involved a social as well as an economic judgment.

The very fact that the Government planned to reduce aggregate public spending programmes by somewhat less than 5 per cent. over the lifetime of the Parliament—less than 1 per cent. per annum—is a measure of that modesty. The reality is that even those gradualist programmes have been consciously modified to take account of the recession.

That was the argument that was made persuasively by my right hon. Friend the Financial Secretary to the Treasury in his recent speech in Zurich. While I do not deny that the Government's monetary and fiscal policies may have had some modest short-term transitional impact—[Interruption.] I shall not be deterred from placing on record what I know is true, and what I know from those jeers that many Opposition Members think is true. Anyone who examines the record on spending and borrowing cannot believe that a policy that is deliberately measured to take account of recession and its outturn can in any sense explain the unemployment figures that have dominated this debate.

Photo of Mr Peter Shore Mr Peter Shore , Tower Hamlets Stepney and Poplar

I ask the right hon. Gentleman to help us with the costs of unemployment. It is an extremely important matter and it has been the subject of several exchanges in the House. I hope that he will now be able to tell us the modest, no doubt, cost of the extra unemployment of 1 million on the public sector borrowing requirement.

Photo of Mr John Biffen Mr John Biffen , Oswestry

Those points were dealt with authoritatively and fully by my right hon. Friend the Prime Minister in exchanges. The fact that they are too disagreeable to the right hon. Gentleman does not mean that they are any the less valid.

If we are concerned with unemployment—the debate is predominantly about unemployment—we must look elsewhere, to our general competitive situation and the sharp impact upon it of a rising exchange rate.

My right hon. Friend the Prime Minister has referred to the United Kingdom's basic lack of competitiveness. Many have observed that United Kingdom productivity compares badly with that of our competitors. That point was made in this debate by my right hon. Friend the Member for Bournemouth, West (Sir J. Eden). Normally, that poor domestic cost performance would be mirrored by a declining exchange rate. That was our experience for most of the last decade. Our lack of competitiveness showed itself in a relatively low standard of living. However, the reversal in the trend of the exchange rate has exposed our latent industrial weakness. No one can doubt that phenomenon, that change. For six years in succession, from 1971 to 1977, the exchange rate fell—in one year, 1976, by more than 15 per cent. As a number of hon. Members have observed, today the exchange rate has appreciated by over a quarter since 1979. That explains more than any other single factor the transformation that has taken place in the economy and the impact that it has had on levels of employment.

Photo of Mr John Biffen Mr John Biffen , Oswestry

I shall come to that point—

Photo of Mr John Biffen Mr John Biffen , Oswestry

No, I shall make my speech—

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. It is clear that the Minister is not giving way.

Photo of Mr John Biffen Mr John Biffen , Oswestry

The right hon. Member for Stepney and Poplar—

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order, the hon. Gentleman must remain in his seat when the Minister is not giving way.

Photo of Mr John Biffen Mr John Biffen , Oswestry

The right hon. Member for Stepney and Poplar said that this was a matter of the utmost importance, and I wish to deal with it as such. I hope that the hon. Member for Dunfermline (Mr. Douglas) will not think that I am discourteous in not giving way, but I wish to deal with that argument.

First, if we try to analyse the strength of sterling, undoubtedly the factors are multitudinous. Three factors struck me as being important. The first is oil. My right hon. and learned Friend the Chancellor of the Exchequer said in Paris that the upward pressure on sterling had been created largely by the existence of North Sea oil. I think that there is general agreement with that analysis.

Secondly, there is the question of the minimum lending rate, which is a difficult factor to quantify. It was referred to by my right hon. Friend the Prime Minister, and no doubt there will be widespread appreciation of any fall in MLR by the business community because of the effect that it will have on our exchange rate.

Thirdly, there is the question of overseas investor confidence. It is intangible, but let us not disparage that factor. It is a vote of confidence, not necessarily in the political arrangements of this country—[AN HON. MEMBER: "YOU can say that again."] There are some undermining political arrangements that I can think of. I believe that in many instances this is a judgment upon the skills of our work force, our management and our record of social stability.

The real key to the debate is what should be our response to this factor which is having its impact on employment. First, we must accept that the exchange rate is the consequence of very powerful market forces. They are the ultimate arbiters. No one could give better witness to that than the right hon. Member for Leeds, East (Mr. Healey), who tried to control the exchange rate in the autumn of 1977 and found that it simply was not a task that could be sensibly engaged in.

I believe, first, that we have to create as free a market as possible in sterling. That is why we abolished exchange controls. Of course, we hear this evening that the Labour Party still harbours a resentment against that decision. Among the TUC's latest proposals is one for a Foreign Investment Review Agency. All that would contribute to a strengthening of the exchange rate rather than its amelioration.

Secondly, there is the commitment that we have to secure reductions in MLR consistent with appropriate spending, revenue and borrowing policies. The right hon. Member for Stepney and Poplar again pressed for a lower MLR, but I must say that it is against a background in which he has been calling for substantial increases in public spending and against the backcloth of a TUC document, "Plan for Growth", which argued for budgetary action in the next few months totalling £6·2 billion. One cannot conceive of public expenditure increases on that scale and credibly call for reductions in the MLR.

Photo of Peter Tapsell Peter Tapsell , Horncastle

Does my right hon. Friend recall that exactly that argument was used for postponing the reduction in MLR from 16 per cent. to 14 per cent., and that not only was it possible to do that without creating a buyers' strike in the gilt market, which was feared, but in fact the Government have succeeded, with more success than ever before, in funding billions of pounds of sterling debt since they cut it, and they would be even more successful in funding it if they cut MLR again?

Photo of Mr John Biffen Mr John Biffen , Oswestry

I am always happy to place my hon. Friend's judgment as to how one can fund debt among that of the many others who seek to advise the Government. All I am saying is that we shall choose a policy which we deem to be responsible in the circumstances. Our task will be made that much easier according to the size of the debt that has to be marketed.

I turn to the question of import controls. Here again our policy has been one of trying to keep import controls to a minimum and of using them only for highly sensitive items, such as steel and footwear. We are now operating in a political climate in which there are increasing demands for widespread import controls, which could only have as a consequence a further hardening of the exchange rate. I say that in the context of this afternoon's debate, in which not only did the Leader of the Opposition say—I think that he was quoting from the TUC document—that the Government should control imports, but his hon. Friend the Member for Walsall, North (Mr. Winnick) talked in terms of the country being "flooded out" in certain areas.

I say—and I absolve the right hon. Member for Stepney and Poplar from this because he is basically a devotee of the open trade system—that Opposition Members will find themselves increasingly held in thrall to the right hon. Member for Bristol, South-East (Mr. Benn) now that he has come to sit among them on the Opposition Front Bench. He knows what he wants. He knows that a planned economy requires planned trade. The logic and compelling arguments that he will use will eventually—dare I use the word "siren" to the right hon. Member for Stepney and Poplar?—prove the siren call of the far Left which hon. Members will find it increasingly difficult to resist.

Finally—and this touches upon the whole range of our domestic policies that have been the centre of debate over the last eighteen months to two years—the present Administration are pledged to pursue tax and competition policies that will enable our industry and commerce to adjust as speedily as possible to the new market conditions created by an oil-related exchange rate. I accept at once the point made by the leader of the Liberal Party that in this we must fashion a tax structure which pays full regard to risk and enterprise.

However, it should be made clear that the vote tonight will be between the policies that we are seeking to pursue and the alternative, which is a hankering after a return to the regulation of all the economic factors in the economy.

It has been fascinating to see the gentle rehabilitation of the idea of State control of pay. Inevitably it was advanced by the right hon. Member for Battersea, North (Mr. Jay), who can argue that he has always been a devotee of State regulation of pay throughout the economy. I am certain that on the Labour Benches it would not be secured without a corresponding control over prices and dividends.

Photo of Geoffrey Robinson Geoffrey Robinson , Coventry North West

We are discussing a serious issue—the problem of incomes policy. What is the Government's statement that public sector pay increases should be limited to 6 per cent. if it is not an incomes policy?

Mr. Bitten:

The Government are entitled to take a view on the pay of their own employees. If Labour Members cannot draw a distinction between the Government seeking to secure a view on the pay of their own employees and having ambitions to control and regulate everyone else, we can be left only with the conclusion that they want to use the acceptance of even a modest State sector as the means whereby they will secure embracing control over the free sector as well. That has been the pattern of many experiencess in this respect in post-war Britain.

Labour Members have made it clear that when they have to respond to a high exchange rate, which more than anything else holds the explanation or our present levels of unemployment, they have an instinctive recourse to control, the extension of Government, the enhancement of planning and the reinforcement of public spending. Although there may be arguments in the whole church of Labour Members opposite about who is the better believer they will be united on this: it is the pretext for the reinforcement of the techniques and philosophy of Socialism.

For us, the message is the opposite—I make no apology for putting that in those terms. If one has an exchange rate which represents the world telling us something about ourselves, we have to react to that, rather than try to discipline and control that exchange rate. We have to see that we accept all the challenges of industrial and commercial change. We fashion our social policies accordingly.

Photo of Mr Peter Shore Mr Peter Shore , Tower Hamlets Stepney and Poplar

Is the right hon. Gentleman aware of the full import of what he is saying? He is saying, in relation to the future of this country, that regardless of what happens to the level of the exchange rate, on no account is the rate to be changed and that those who seek to bring it under control are guilty of all the illiberal things which haunt the right hon. Gentleman's imagination.

Photo of Mr John Biffen Mr John Biffen , Oswestry

By the nature of his intervention the right hon. Gentleman demonstrates at heart what a pathetic, defeatist view he has about the economy. The reaction of the Treasury Bench is that the United Kingdom economy can react to these circumstances. The free enterprise system, in partnership with the public sectors of the economy, can see that we respond, so that Britain can live with a powerful exchange rate, no less than other countries. Of course that is a challenge which necessitates the philosophy of change. We know from the rhetoric of the debate that the only change that is congenial to the Labour Party is a retreat to the 1930s. For us, the change is the challenge of the 1980s, and we shall be vindicated in that view.

Question put, That the amendment be made:—

The House divided:Ayes 240, Noes 309.

Division No. 63][10.00 pm
AYES
Abse, LeoDouglas-Mann,Bruce
Adams,AllenDubs,Alfred
Allaun,FrankDuffy, A. E. P.
Alton,DavidDunn, James A.
Anderson,DonaldDunnett,Jack
Archer, Rt Hon PeterDunwoody, Hon MrsG.
Armstrong, RtHon ErnestEastham,Ken
Ashley, Rt Hon JackEdwards, R. (W'hampt'nSE)
Ashton,JoeEllis, R. (NED'bysh're)
Atkinson, N.(H'gey,)Ellis,Tom(Wrexham)
Bagier,GordonA.T.English,Michael
Barnett,Guy(Greenwich)Ennals, RtHonDavid
Barnett, RtHonJoel (H'wd)Evans, loan(Aberdare)
Beith,A. J.Evans,John(Newton)
Benn, RtHonA. WedgwoodEwing,Harry
Bennett,Andrew(St'kp'tN)Field,Frank
Bidwell,SydneyFlannery,Martin
Booth, RtHonAlbertFletcher,Raymond(llkeston)
Boothroyd,MissBettyFletcher,Ted(Darlington)
Bradley,TomFoot, RtHon Michael
Bray, DrJeremyFord,Ben
Brown, Hugh D. (Provan)Forrester,John
Brown, R. C. (N'castle W)Foster, Derek
Brown,Ron(E'burgh,Leith)FouIkes, George
Brown, Ronald W.(H'ckn'yS)Fraser,J.(Lamb'th,N'w'd)
Buchan,NormanFreeson,RtHon Reginald
Callaghan,Jim (Midd't'n&P)Freud,Clement
Campbell,IanGarrett,John (NorwichS)
Campbell-Savours,DaleGarrett, W. E.(Wallsend)
Canavan,DennisGeorge,Bruce
Cant, R. B.Gilbert, RtHon DrJohn
Carmichael,NeilGinsburg,David
Carter-Jones,LewisGolding,John
Cartwright,JohnGourlay,Harry
Clark, DrDavid (S Shields)Graham, Ted
Cocks, Rt Hon M. (B'stolS)Grant,George(Morpeth)
Cohen,StanleyGrant, John (IslingtonC)
Coleman, DonaldHamilton,James(Bothwell)
Conlan,BernardHamilton, W.W.(C'tral Fife)
Cook, Robin F.Hardy, Peter
Cowans, HarryHarrison, Rt Hon Walter
Cox,T.(W'dsw'th,Toot'g)Hart, RtHonDame Judith
Craigen, J. M.Haynes, Frank
Crowther, J. S.Healey, Rt Hon Denis
Cryer,BobHeffer, Eric S.
Cunliffe,LawrenceHogg,N.(EDunb't'nshire)
Cunningham,G.(IslingtonS)Holland,S.(L'b'th,Vauxh'll)
Cunningham,Dr J.(W'h'n)HomeRobertson,John
Davidson,ArthurHomewood,William
Davies, Rt Hon Denzil (L'lli)Hooley,Frank
Davies, Ifor(Gower)Horam,John
Davis, Clinton (HackneyC)Howell, Rt Hon D.
Davis, T. (B'ham, Stechf'd)Howells,Geraint
Deakins,EricHuckfield,Les
Dewar,DonaldHudson Davies, Gwilym E.
Dixon,DonaldHughes, Mark(Durham)
Dormand,JackHughes, Robert(Aberdeen N)
Douglas,DickHughes,Roy(Newport)
Jay, Rt Hon DouglasPrescott,John
John,BrynmorRace, Reg
Johnson, James (Hull West)Richardson,Jo
Johnson, Walter (DerbyS)Roberts,Allan(Bootle)
Jones, Rt Hon Alec (Rh 'dda)Roberts, Ernest (Hackney N)
Jones, Barry (EastFlint)Roberts,Gwilym(Cannock)
Jones, Dan (Burnley)Robertson,George
Kaufman, Rt Hon GeraldRodgers, Rt Hon William
Kerr, RussellRooker, J.W.
Kilroy-Silk,RobertRoper,John
Lambie,DavidRowlands,Ted
Lamborn,HarryRyman,John
Lamond,JamesSandelson, Neville
Leadbitter,TedSheerman, Barry
Leighton,RonaldSheldon, Rt Hon R.
Lestor, Miss JoanShore, Rt Hon Peter
Lewis, Arthur (N'hamNW)Short, MrsRenée
Lewis, Ron (Carlisle)Silkin, Rt Hon J. (Deptford)
Litherland,RobertSilkin, Rt Hon S. C. (Dulwich)
Lofthouse,GeoffreySilverman,Julius
Lyon,Alexander(York)Skinner,Dennis
Lyons, Edward(Bradf'dW)Smith, Rt Hon J. (N Lanark)
McCartney,HughSnape, Peter
McDonald,DrOonaghSoley,Clive
McElhone,FrankSpearing,Nigel
McGuire,Michael(lnce)Stallard, A. W.
McKay,Allen(Penistone)Steel, Rt Hon David
Maclennan,RobertStoddart,David
McNally,ThomasStott,Roger
McNamara,KevinStrang, Gavin
McWilliam,JohnStraw,Jack
Magee, BryanSummerskill,HonDrShirley
Marks,KennethTaylor, Mrs Ann (Bolton W)
Marshall, D(G'gowS'ton)Thomas,Jeffrey(Abertillery)
Marshall,DrEdmund(Goole)Thomas, Mike (NewcastleE)
Marshall, Jim (LeicesterS)Thomas, DrR. (Carmarthen)
Martin,M(G'gowS'burn)Thorne, Stan (PrestonSouth)
Mason, Rt Hon RoyTilley,John
Maxton,JohnTinn,James
Maynard,MissJoanTorney,Tom
Meacher,MichaelUrwin, RtHonTom
Mellish, RtHonRobertVarley, Rt Hon Eric G.
Mikardo,lanWainwright,E.(DearneV)
Millan,RtHonBruceWalker, Rt Hon H.(D'caster)
Miller, Dr M. S. (EKilbride)Watkins,David
Mitchell,Austin (Grimsby)Weetch, Ken
Mitchell, R. C. (Soton Itchen)Wellbeloved,James
Morris, Rt Hon A. (W'shawe)Welsh,Michael
Morris, Rt Hon C. (O'shaw)White, Frank R.
Morris, Rt Hon J.(Aberavon)White, J.(G'gowPollok)
Morton,GeorgeWhitehead, Phillip
Moyle,Rt Hon RolandWhitlock,William
Mulley,RtHon FrederickWigley,Dafydd
Newens, StanleyWilley, Rt Hon Frederick
Oakes, Rt Hon GordonWilliams, Rt Hon A.(S'sea W)
Ogden,EricWilson, Gordon (DundeeE)
O'Halloran,MichaelWilson, William (C'trySE)
O'Neill,MartinWinnick,David
Owen, Rt Hon Dr DavidWoodall,Alec
Park,GeorgeYoung, David (BoltonE)
Parker,John
Pavitt,LaurieTellers for the Ayes:
Pendry,TomMr. Geoffrey Robinson and
Powell,Raymond(Ogmore)Mr. Joseph Dean
NOES
Adley,RobertBendall,Vivian
Aitken,JonathanBennett, SirFrederic (T'bay)
Alison,MichaelBenyon,Thomas(A 'don)
Amery, Rt Hon JulianBest, Keith
Ancram, MichaelBevan,DavidGilroy
Arnold,TomBiffen, Rt Hon John
Atkins, Rt Hon H.(S'thorne)Biggs-Davison,John
Atkins, Robert(PrestonN)Blackburn,John
Atkinson, David (B'm'th,E)Bonsor,SirNicholas
Baker,Kenneth(St.M'bone)Boscawen,HonRobert
Baker, Nicholas (NDorset)Bowden,Andrew
Banks,RobertBoyson,DrRhodes
Beaumont-Dark,AnthonyBraine,SirBernard
Bell,SirRonaldBright,Graham
Brinton,TimGrist, Ian
Brittan,LeonGrylls,Michael
Brooke, Hon PeterGummer,JohnSelwyn
Brotherton,MichaelHamilton, Hon A.
Brown, M.(BriggandScun)Hamilton, Michael(Salisbury)
Browne,John(Winchester)Hampson, DrKeith
Bruce-Gardyne,JohnHannam,John
Bryan, Sir PaulHaselhurst,Alan
Buchanan-Smith,AlickHastings,Stephen
Buck,AntonyHavers, Rt Hon Sir Michael
Budgen,NickHawkins,Paul
Bulmer,EsmondHawksley,Warren
Burden,SirFrederickHayhoe, Barney
Butcher,JohnHeddle,John
Butler, Hon AdamHenderson,Barry
Carlisle,John(LutonWest)Heseltine,RtHonMichael
Carlisle,Kenneth(Lincoln)Hicks,Robert
Carlisle, RtHon M.(R'c'n)Higgins, Rt Hon Terence L.
Chalker, Mrs. LyndaHill, James
Chapman,SydneyHolland, Philip(Carlton)
Churchill,W.S.Hooson,Tom
Clark, Hon A. (Plym'th, S'n)Hordern,Peter
Clarke,Kenneth(Rushcliffe)Howe, RtHon Sir Geoffrey
Clegg, SirWalterHowell, Rt Hon D. (G'ldf'd)
Cockeram,EricHowell, Ralph (NNorfolk)
Colvin,MichaelHunt, David (Wirral)
Cope,JohnHunt,John(Ravensbourne)
Cormack,PatrickHurd,HonDouglas
Corrie,Johnlrving,Charles(Cheltenham)
Costain,SirAlbertJenkin, RtHon Patrick
Cranborne,ViscountJessel,Toby
Critchley,JulianJohnsonSmith,Geoffrey
Crouch,DavidJopling,RtHonMichael
Dean, Paul (North Somerset)Joseph, RtHon Sir Keith
Dorrell,StephenKaberry,SirDonald
Douglas-Hamilton,LordJ.Kellett-Bowman,MrsElaine
Dover, DenshoreKimball, Marcus
duCann, RtHon EdwardKing, RtHonTom
Dunn,Robert(Dartford)Knight, MrsJill
Durant,TonyKnox, David
Dykes, HughLamont,Norman
Eden, RtHon Sir JohnLang, Ian
Edwards,RtHonN.(P'broke)Langford-Holt,SirJohn
Eggar,TimLatham,Michael
Elliott, SirWilliamLawrence,Ivan
Emery, PeterLawson, RtHon Nigel
Eyre,ReginaldLee, John
Fairbairn,NicholasLennox-Boyd,HonMark
Fairgrieve,RussellLester Jim (Beeston)
Faith, MrsSheilaLewis,Kenneth(Rutland)
Farr,JohnLloyd, Ian (Havant& W'loo)
Fell,AnthonyLloyd, Peter(Fareham)
Fenner, Mrs PeggyLoveridge,John
Finsberg,GeoffreyLuce,Richard
Fisher, SirNigelLyell,Nicholas
Fletcher,A.(Ed'nb'ghN)Macfarlane,Neil
Fletcher-Cooke,SirCharlesMacGregor,John
Fookes, Miss JanetMacKay,John(Argyll)
Forman,NigelMacmillan,RtHonM.
Fowler, RtHon NormanMcNair-Wilson,M.(N'bury)
Fox, MarcusMcNair-Wilson, P. (NewF'st)
Fraser, Rt Hon Sir HughMcQuarrie,Albert
Fraser, Peter (SouthAngus)Madel, David
Fry, PeterMajor,John
Galbraith, HonT. G. D.Marland,Paul
Gardiner,George(Reigate)Marten, Neil(Banbury)
Gardner, Edward (SFylde)Mather,Carol
Garel-Jones,TristanMaude, RtHon Sir Angus
Glyn, DrAlanMawby, Ray
Goodhart,PhilipMawhinney,DrBrian
Goodlad,AlastairMaxwell-Hyslop, Robin
Gorst,JohnMayhew, Patrick
Gow, IanMellor,David
Gower,SirRaymondMeyer, Sir Anthony
Grant, Anthony (HarrowC)Miller,Hal(B'grove)
Gray, HamishMills,lain(Meriden)
Greenway, HarryMills, Peter (West Devon)
Grieve, PercyMiscampbell,Norman
Griffiths, E.(B'ySf. Edm'ds)Mitchell,David(Basingstoke)
Griffiths,PeterPortsm'thN)Moate,Roger
Molyneaux,JamesSims, Roger
Monro,HectorSkeet, T. H. H.
Montgomery,FergusSmith,Dudley
Moore,JohnSpeed, Keith
Morgan,GeraintSpeller,Tony
Morris, M. (N'hamptonS)Spence,John
Morrison, Hon C. (Devizes)Spicer, Jim (WestDorset)
Morrison, Hon P. (Chester)Spicer, Michael (SWorcs)
Mulley,RtHon FrederickSproat,lan
Murphy,ChristopherSquire,Robin
Myles, DavidStainton, Keith
Neale,GerrardStanbrook,lvor
Needham, RichardStanley,John
Nelson,AnthonySteen,Anthony
Newton,TonyStevens, Martin
Normanton,TomStewart, Ian (Hitchin)
Nott, Rt Hon JohnStewart,A.(ERenfrewshire)
Onslow,CranleyStokes,John
Oppenheim, Rt Hon Mrs S.StradlingThomas,J.
Osbom,JohnTapsell, Peter
Page, John (Harrow, West)Taylor, Robert(CroydonNW)
Page, Rt Hon Sir G. (Crosby)Taylor, Teddy (S'end E)
Page, Richard (SW Herts)Tebbit, Norman
Parkinson,CecilThatcher, Rt Hon Mrs M.
Parris, MatthewThompson,Donald
Patten,Christopher(Bath)Thorne,Neil(llfordSouth)
Patten,John (Oxford)Thornton,Malcolm
Pattie,GeoffreyTownend,John(Bridlington)
Pawsey, JamesTownsend, Cyril D,(B'heath)
Percival,SirlanTrippier,David
Pink, R.BonnerTrotter,Neville
Pollock,Alexandervan Straubenzee, W. R.
Porter,BarryVaughan,DrGerard
Powell, Rt Hon J.E. (S Down)Viggers,Peter
Prentice, Rt Hon RegWaddington,David
Price,SirDavid (Eastleigh)Wakeham,John
Prior, Rt Hon JamesWaldegrave,HonWilliam
Proctor, K. HarveyWalker, Rt Hon P.(W'cester)
Pym, Rt Hon FrancisWalker, B. (Perth)
Raison,TimothyWalker-Smith, Rt Hon Sir D.
Rathbone,TimWall,Patrick
Rees, Peter (Dover and Deal)Waller, Gary
Rees-Davies, W. R.Walters,Dennis
Renton,TimWard,John
Rhodes James, RobertWarren,Kenneth
RhysWilliams,SirBrandonWatson,John
Ridley, HonNicholasWells, John(Maidstone)
Rifkind, MalcolmWells,Bowen
Rippon, Rt Hon GeoffreyWheeler,John
Roberts, M. (Cardiff NW)Whitelaw, RtHonWilliam
Roberts, Wyn (Conway)Whitney,Raymond
Ross,Wm. (Londonderry)Wickenden, Keith
Rossi, HughWiggin,Jerry
Rost, PeterWilkinson,John
Sainsbury,HonTimothyWilliams, D.(Montgomery)
St. John-Stevas, Rt Hon N.Wolfson,Mark
Shaw, Giles (Pudsey)Young,SirGeorge(Acton)
Shaw,Michael(Scarborough)Younger, RtHonGeorge
Shelton, William (Streatham)
Shepherd,Colin(Hereford)Tellers for the Noes:
Shepherd, RichardMr. Spencer Le Marchant and
Shersby,MichaelMr. Anthony Berry.
Silvester, Fred

Question accordingly negatived.

Main Question put and ageed to.

Resolved,

That this house approves the economic and industrial policies of the Governmant; welcomes the continuing fall in the rate of inflation, greater realism in wage bargaining, and increasing awareness in industry of the need to be competitive; and recognises that lower inflation, higher output, an expanding private sector and better industrial relations provide the only secure basis for more jobs.