I beg to move Amendment No. 1, in page 2, line 39, leave out 'financial loss' and insert 'loss of revenue'.

With this amendment, it will be convenient to take the following amendments: No. 3, in page 3, line 11, leave out subsection (4).

No. 4, in page 3, line 20, leave out 'prospective deficit' and insert 'loss of revenue'.

I am sure that every hon. Member is aware of the vital importance of the Bill. I have no doubt that all hon. Members have read the whole of the report in Committee and are aware of the inadequate replies which were given by Ministers. The amendment is identical to an amendment which was moved in Committee, to which we received an inadequate answer. I hope that we shall get a better answer tonight. Above all, the amendment was tabled so as to get the promised progress report from the Minister about the Chancellor of the Exchequer's discussions with the electricity boards on the price increases, about which he told us he was to have negotiations. The Minister promised us a progress report on Report or on Third Reading. I thought that it might be a good idea if the House had the progress report on Report so that when we reached Third Reading we should have a better idea of what the Government are about regarding electricity price increases.

The Minister of State, who spoke to us on this issue after the Chancellor of the Exchequer had spoken in the House on 17th December, said that price increases in, for example, the electricity industry would be allowed only in line with the code—that is, increases would be allowed but no more than the deficit in 1972–73. In other words, the Chancellor of the Exchequer would not allow increases in electricity prices beyond what was allowed for in the code. We are therefore entitled to know, and I hope that the Minister of State will tell us, what this will mean in the coming year in respect of gas and electricity prices. I do not know whether the negotiations have finished, but I hope that the hon. Gentleman will be able to tell us something about them. We should like to know whether the Chancellor intends to bind himself by a code which is becoming more out of date daily and, if there is to be a change, whether the policy will be tougher.

We are told that stage 4 could well be and should be, not tougher than stage 1, but certainly tougher than stage 3. Many commentators have said that we may need again to have a freeze. I am not sure whether that is what the Chancellor has in mind, but I should not have thought that it was possible because to impose a price freeze for any period at a time of price increases such as the present would be absurd. The number of applications which the Department of Trade and Industry is receiving for exemption from the three-day working policy would be as nothing compared with the applications which would be received for exemption from a freeze. I assume therefore that we shall not have a freeze. If we had a freeze, how could the Chancellor of the Exchequer push ahead with what he said on 17th December about gas and electricity prices?

The hon. Member for Heywood and Roy-ton (Mr. Joel Barnett) contemplated the possibility of stage 4—if that is the next number we move to—being a freeze, and said that the flood of applications for price increases under a freeze would make the flood of calls to the Department of Trade and Industry about the present energy restrictions pale into insignificance. However, he overlooked the possibility that perhaps we should be looking forward to the non-statutory corporations (financial provisions) Bill. If we can subsidise statutory corporations for their contribution to a prices and incomes restraint policy, presumably we can contemplate at a future date the taxpayer subsidising prices in the private sector to enable it to cope with a freeze.

Bread, for example?

My hon. Friend mentions bread, and that is an obvious candidate. I do not think that that in itself is an overwhelming objection to that next phase on the perilous path on which we are engaged.

I am delighted that we have with us today the new Chief Secretary. I congratulate him on his new position. It seems to me peculiarly apposite that he should be with us in these discussions, because I am sure he will forgive me if I describe him as a poacher turned gamekeeper. He replaces a gamekeeper who has now turned poacher. Although I have some regret at the absence from these discussions of the right hon. Gentleman the new Minister for Energy, I shall be referring to him and shall find the inter-relationship between him and the Chief Secretary most interesting and constructive in terms of these discussions.

I confess that my attitude towards the amendment is somewhat schizophrenic. In Committee, I drew attention to the comments of a former chairman of one of the regional electricity boards who had ponted out very fairly that the technique of deficit subsidisation as proposed in the Bill, certainly in the past and to a limited extent in the future, represented a technique of giving the largest prize to those who ran the fattest deficits—in other words, a bonus for incompetence. That is a proposition which my hon. Friend the Chief Secretary, in his previous incarnation, was prepared to concede to me in correspondence.

In Committee, my hon. Friend the Minister of State pointed out very fairly that, quite apart from the complications of the computation of revenue forgone suggested by the amendment, a decision to compensate the statutory corporations in the Bill on the basis of revenue forgone would mean in practice treating them preferentially to the private sector.

That is established clearly when one considers the situation of the Giro. The Giro is currently forgoing revenue. It is even doing so because of its inability as a result of tariff increases recommended by Cooper Brothers as a precondition for the continued survival of Giro two years ago. In the interests of this bizarre policy it has had to forgo increases in tariffs which we were assured would take place as a precondition for the artificial resuscitation of the Giro.

If we said that the Giro was to be compensated for revenue forgone, we should say that the Giro would get this compensation based on a computation of what the tariff increases which should have occurred would have brought in revenue. At the same time the joint stock banks which are in direct competition with the Giro would have to submit their requests for price increases to Sir Arthur Cockfield and his merry men and, as we see at present, have them rejected not because they were unjustified on the basis of the price code approved, for better or worse, by this House, but simply on the basis that there was a comma out of place and the revenue which the joint stock bank was required to forgo as a result of the juggling with words of Sir Arthur Cockfield and his friends would not be compensated, yet the Giro would be in direct competition.

For that reason, I cannot find that the amendment provides a satisfactory answer to the dilemma on the horns of which my right hon. and hon. Friends have so elegantly hoist themselves.

However, before leaving this amendment, I suggest that we should devote a few minutes to a piece of evidence which has come to us since the Committee stage of the Bill, and then I want to say a word or two about the very important point which the hon. Member for Hey-wood and Royton raised about the precise meaning of the statement on 17th December by my right hon. Friend the Chancellor of the Exchequer.

The new evidence to which I refer is the First Report from the Select Committee on Nationalised Industries. I am thinking particularly of paragraphs 56–72 and 108, which relate the consequence of the policy of price restraint on the finances and management of the nationalised industries in all its full horrific detail. A number of points relating to this report are relevant to the argument about the way in which we should try to regulate the compensation for the deficits of the statutory corporations under the Bill for the future.

My right hon. Friend the then Chief Secretary, now the Minister for Energy, said in paragraph 67 that there was

"… still within the industries as firm a control over costs and as clear an incentive to maintain control over investment and to apply the financial criteria as there had been before"

—before, that is, the introduction of price restraint. One is tempted to recall the riposte of the Duke of Wellington to the crossing sweeper in response to that comment. Clearly the Select Committee was not entirely prepared to agree with my right hon. Friend—

The hon. Gentleman would add to his case by quoting what the Chief Secretary said immediately after that:

"However, this could not be expected to last indefinitely."

Those words qualified what he had said about the performance of the nationalised industries. The Committee said that it welcomed the fact that the Treasury recognised the dangers of price restraint.

I entirely agree, but it is a recognition which does not seem to have impressed itself to the extent of a change of view.

However, there is a more important point, more directly germane to our debate. My right hon. Friend in Committee tried to reassure us about one significant aspect of price restraint. He said that there was no evidence to date that it had had a distorting effect on the pattern of investment in the statutory corporations under consideration, particularly the electricity boards, in the sense of artificially stimulating demand and thereby generating the need for investment in the boards over and above what would otherwise have occurred.

In paragraph 64, the Committee said:

"… the Department of Trade and Industry would be seriously in error if it were to allow investment decision making to be based on the present artificially low prices."

I can only assume that the Committee felt it necessary to utter a warning because it could already see that that was beginning to happen.

In paragraph 65, my hon. Friend the Chief Secretary—as I said, his change of rôle is particularly apposite in the context of this debate—then Minister for Industry said:

"If prices were too low, it created a demand on resources and for increased investment."

Yes, indeed.

Apart from the graphic picture in the report of the holocaust which has been created in the name of price restraint in the entire management and finances of the public sector, there is considerable reason for disquiet about the extent to which already the investment programmes are being distorted by artificially generated demand created by price restraint.

10.45 p.m.

I now turn to the subject of the remarks of my right hon. Friend the Chancellor of the Exchequer on 17th December. The hon. Member for Heywood and Royton did not quote them and I shall not do so extensively, but there was one crucial sentence to which the House must give its consideration. My right hon. Friend said:

"At a time of the most acute energy shortage and in our present financial difficulties, it is anomalous—to say the least—that we are subsidising coal and electricity prices at a mounting rate".—[OFFICIAL REPORT, 17th December 1973; Vol. 866, c. 962.]

He did not say that it was anomalous—to say the least—that the electricity boards were not taking advantage of the extent to which the present rules and regulations might permit them to increase their prices ; he said that it was anomalous—to say the least—that that degree of subsidy of scarce energy resources should be taking place.

It was logical for the House to assume, and I think that many of us did at the time, that my right hon. Friend was making the clear and welcome pronouncement that, in view of the energy crisis, special exemptions from the full rigours of the code would have to be applied to the electricity boards. But, as the hon. Gentleman has reminded us, in Committee my hon. Friend the Minister of State went out of his way to explain that, on the contrary, the price code applied to the electricity boards as if there were not an energy crisis and no shortage of supplies whatever. In other words, he virtually denuded my right hon. Friend's statement of 17th December of all specific meaning.

I hope that tonight my hon. Friend will be able to give us a measure of reassurance on this point. I press him again, as I pressed him in Committee—what precisely is the meaning of the Chancellor's statement for the sort of three-stage deflator that is applied to the prices of the electricity boards and other statutory corporations? May I explain to my hon. Friend exactly what I have in mind when I talk about a three-stage deflator?

First, the code says that the electricity boards, among others of the nationalised industry boards, shall not be treated pari passu as companies in the private sector that are in a loss-making situation. Is that unchanged as a result of the Chancellor's statement? The boards go to Sir Arthur Cockfield and his pals with their submission, which has to take account of the fact that they are not to be treated as are loss-making private companies. Are we to take it that Sir Arthur Cockfield will be strictly bound by the provisions of allowable costs and the rest as laid down in the code, as he has been in the past?

Then we have stage three—and perhaps that is an inapposite phrase—the third section of the pressure that is applied to the nationalised industries when Sir Arthur Cockfield says, "Yes, you are entitled to this increase of X per cent. under this wonderful code" and then my right hon. Friend the Minister for Energy, gamekeeper turned poacher, says "Ah, that is too much ; we could not have that and you must be content with £X minus 5, or £X divided by two". The result would be yet a third deflater. From which, if any, of these three successive phases—unfortunately, I cannot think of another word—of price restraint on the electricity boards does my right hon. Friend's statement of 17th December offer exemption?

If my hon. Friend is unable to go further than he was going in Committee, I put it to him that all my right hon. Friend was saying on 17th December was that electricity boards may have a case, as may have the National Coal Board, for an increase in prices under our existing rules and that he was just reminding them they have such as a case, and, if they have, was going to encourage them to go ahead and press it. If that is all it means, it seems to me that part of my right hon. Friend's statement on 17th December is denuded of substance.

A further conclusion one must draw from the unhappy dilemma we are facing tonight is, it seems, this: in all sincerity I do not see that it makes a twopenny damn of difference whether we try to compensate the statutory corporations on a basis of deficit subsidisation or on a basis of deficit targets or on a basis of revenue forgone, as the amendment suggests. Therefore, in the unlikely event that the hon. Member can muster his scattered forces to press it to a Division, I cannot support the amendment ; nor, in all fairness, can I vote against it, because the proposition either way is meaningless.

There is another conclusion we should draw. My right hon. Friend now the Minister for Energy, in his evidence to the Select Committee on Nationalised Industries, said it was largely crying for the moon to expect Ministers not to intervene in pricing policies, with all the consequences we have seen. I am sure we must recognise the fatal temptations to which we expose civil servants and, indeed, Ministers, of whatever party, as long as we further extend the frontiers and fail to restrict the frontiers of the public sector economy.

The hon. Member for South Angus (Mr. Bruce-Gardyne) has raised two important points, that of the damage which the Government's pricing policy for nationalised industries is doing to those industries and that of the effect on the investment programmes to which the policy this amendment seeks to amend is leading.

When we debated the Bill on Second Reading I assumed that the most deleterious effect of the counter-inflation policy on the Post Office would come from the uneconomic pricing policy, but it is now apparent that the worst damage, of necessity, will come from the massive cuts in investment announced by the Chancellor of the Exchequer. It is my view that those cuts have been forced upon the Chancellor because of the pricing policies which have been pursued in the nationalised industries for the last two or three years. Had rational pricing policies been pursued there would have been no need for the cut to have been inflicted upon the Post Office.

Before describing the financial consequences of the cuts let me record that since the Standing Committee reported, the Select Committee on Nationalised Industries has issued a report on Investment Procedures—HC 65. I do not apologise for quoting extensively from the report, because the report directly comments upon the Bill. The comments are directed mainly, not to matters which we shall discuss on the next amendment, but to the pricing policies with which the Bill is concerned.

Paragraph 71 of the report says:

"71. The crux of the matter is, of course, prices and incomes policy and Your Committee are well aware of the importance which successive governments have paid to it. Nevertheless, they feel obliged to point out that, if there were real benefits to be gained from the introduction of financial targets, there are real costs to be borne if they are abandoned, albeit temporarily. Similarly, having encouraged the industries to pursue rational, well thought out investment policies, the Government must recognise the dangers of allowing these policies to fall into abeyance. The short run exigencies of a combination of inflation and unemployment clearly have to be dealt with, but it is to be hoped that this can be done without too much consequent damage to the long term prospects of a very significant section of the economy.

72. Your Committee are concerned about the role of the nationalised industries within the counter-inflation policy. The effect of this has been to abrogate the previous financial policy and to leave the industries in a poor financial position, even in deficit. The arrangements for Stage 3 of the Price and Pay Code, may actually worsen the position of individual industries, depending on what price increases are acceptable to Ministers. Your Committee note the terms of the Statutory Corporations (Financial Provisions) Bill now before the House. One of the purposes of this is to compensate certain nationalised industries for the effects of price restraint on their finances and, in particular, deficits incurred as a result of it. Your Committee also note that the Bill will provide some alleviation to the industries concerned. Nevertheless, Your Committee see the Bill as a short-term measure. They do not consider that planning in the medium or the long-term can be effective in the context of a situation of permanent price restraint coupled with occasional Government measures for compensation payments."

The Committee takes up the point again in paragraph 110:

"Your Committee's concern is not however confined to the general criticism that the system of control embodied in the 1961 and 1967 White Papers has been eroded. At the same time as this has been happening, Governments have pursued policies which (however necessary they may have been in the national interest—which is not a matter for Your Committee to consider) have by common consent tended to compound the problems facing the nationalised industries. This applies particularly to the restraints placed on the industries, pricing policies (whether 'voluntary' or statutory), which have necessitated the abandonment of financial targets for the industries and which have almost certainly led in many cases to the distortion of demand and in consequence to the danger of badly based investment decisions. It is true that under the provisions of the Statutory Corporations (Financial Provisions) Bill the adverse financial effects of the policy of price restraint are now to be mitigated both retrospectively and for the next two years in respect of some major industries which have incurred deficits, but this does not alter Your Committee's conclusion that the imposition of the policy is bound to have had a distorting effect on investment decisions. Your Committee believe that the effects of this on the general morale of the industries are already discernible, and that if the present situation persists they may become very serious."

11.0 p.m.

I turn next to paragraph 111, and I make no apology for quoting further at some length from this report, because it was the result of an all-party investigation and very careful consideration. The Select Committee said:

"Both the Ministers who appeared before the Sub-Committee recognised that the present position was unsatisfactory, but Treasury officials were hopeful about the prospects of an eventual return to a system of long-term objectives, even if this had to be preceded by a period when a system of short-term arrangements with each industry would operate. In the debate on the Second Reading of the Statutory Corporations (Financial Provisions) Bill, the Chief Secretary to the Treasury stated that it was the Government's 'settled intention to restore the industries to normal profitability …' and 'to return as soon as possible to somewhere near the previous system of long-term financial objectives, supplemented by corporate planning of the kind the industries are currently introducing'. Your Committee believe that the Government should make an early statement setting out the steps which they propose to take to restore the industries to profitability. In Your Committee's view the process of returning to viability may be prolonged and difficult, and in any case they are far from convinced in the light of events over the last five or six years that the system of control developed in the 1960s will prove adequate to deal with the problems thrown up in the late 1970s."

It was obviously of great concern to the Select Committee that the Government's pricing policies would have an impact on investment planning. It is obvious also that the policy enshrined in the clause we now seek to amend would have a distorting effect on investment in the Post Office.

It is essential that there be long-term planning in the nationalised industries. In the summary of recommendations, the Select Committee said—this is recommendation (3)—

"The Treasury and sponsoring Departments should take steps to ensure that corporate planning is used effectively throughout the nationalised sector",

and in recommendation (6) it said that—

"All industries should have long term plans on which current policies are based and sponsoring Departments should encourage such developments and take the lead in promoting long term techniques."

Further, in recommendation (7), the Select Committee said that—

"The nationalised industries should be encouraged by sponsoring Departments to take technological forecasting more seriously".

It recommended also—a matter of great interest to me—that there be a long-term planning embracing telephony, data transmission and the distribution of radio and television signals, and that this should be drawn up as soon as possible.

Those were the views and recommendations of the Select Committee on Nationalised Industries before the Chancellor announced his cuts. The Committee had studied just the pricing policies for the nationalised industries. It saw that those policies as they then existed would make it more and more difficult for the nationalised industries to plan, and more and more difficult for them to follow rational investment policies. It should be remembered that, in talking of nationalised industry investment decisions, we are talking in terms of thousands of millions of pounds.

That was the situation before the Chancellor's statement. My concern changed at the time of that statement, because included in it was the announcement of a 20 per cent. cut in the investment programmes of the nationalised industries in the coming year. By any standards, that is a savage cut. Any business faced with such a cut in investment in the next financial period would be as shattered as I believe the Post Office management was when it heard of that decision.

I do not believe that these cuts would have been necessary if the demand in the economy had been cut by rational pricing policies in the nationalised industries. The cuts would not have come if the Government had permitted the nationalised industries to raise their investment funds from the consumer rather than having to go to the taxpayer via the Exchequer, or to Europe, thereby damaging the balance of payments.

It is necessary to spell out to the Minister of State the significance of the cuts to the Post Office. I am glad that the Minister for Posts and Telecommunications is here. I need not spell out the significance of the cuts to him because I was able to congratulate him on the occasion of the Post Office (Borrowing) Bill 12 months ago on being the last of the big spenders. At that time the right hon. Gentleman showed a full appreciation of the needs of the telecommunications service. I put that on record now because we must be clear, as the Post Office staff is, that the enemy of the Post Office is and always has been the Treasury.

I declare my interest in my connection with the Post Office Engineering Union. It is a matter of regret for many in that union, having gone into the public corporation on the promise that Treasury control would be reduced, that the brake that was constantly being put on by the Treasury would be less effective, that that has not come to pass. The cuts which have been imposed by the Treasury upon the nationalised industries, including the Post Office, which are consequent on financial and economic policies, have led to the most disruptive and disturbing cuts ever in investment in the Post Office.

It may be that the cuts and their timing will have had harmful consequences which the Government may well not have foreseen fully. There may be consequences for economic growth, for the quality and cost of telecommunication services, for manufacturing industry, for employment, for management and staff of the telecommunications business, for the Post Office and, what is relevant and important to the Bill, for the future cost of the provision of telephone services.

In the view of the Post Office Engineering Union and, I should think, of staff generally, the size and timing of the cuts are such that they will bring so much harm that the Government would be justified in reconsidering their decision. Certainly the Government would be justified in rethinking in toto their failures towards the Post Office and all the nationalised industries. If they cannot reconsider pricing policy and the size of the cuts imposed upon the Post Office, the least they can do is to reconsider the timing and the rephasing for reasons which I hope to enumerate later.

I emphasise that telecommunications is now an essential strand in the nation's social fabric. It is a vital part of the economic infrastructure. It performs an essential service not only to manufacturing industry but to the financial sector, including banking and insurance, upon which we depend so much for overseas earnings. The demand for telecommunication services has in consequence been high. International experience shows that there will be no sign of slowing down for many years despite the artificially low tariffs. Even if those tariffs are raised to economic levels, international studies have shown that telecommunications will become increasingly important not only for industry and commerce but for dramatically reducing the cost of Government administration. Telex facsimile and data transmission are all recent developments which will bring about a revolution in industry, commerce and administration in the expected telecommunications explosion. It should also be borne in mind that telecommunications may become increasingly important as an alternative to road transport. It is a low energy user. It is pollution-free, and will not use scarce materials.

11.15 p.m.

But the importance of the rapid development of telecommunications in industry, business and commerce is in the growing use that there will be of automated processes and the reliance of data transmissions on automation. For many industries in the 1980s efficient communications will be as important as energy is now. If the Government adopt this type of policy towards telecommunications in the 1970s we shall face in the 1980s a communications crisis in this country equivalent to the present energy crisis. It is important to recognise the dependence that there will be in industry and commerce on the development of telecommunications.

I have talked futuristically, but it is clear that at present Britain's telephone service, particularly the vital international telephone service, is still far from adequate, despite substantial increases in staff productivity, improved managerial performance and heavy capital expenditure. Some potential subscribers are waiting far too long for service. Sometimes they and others are forced to share a service against their wishes.

The quality of service from older exchanges sometimes leaves much to be desired, and congestion is a problem along many routes. Increasingly, businesses and professions ask for additional services which cannot generally be offered by the Post Office, although they are becoming available abroad. It was because it was aware of the need to improve the quality and range of services that the Post Office took the decision to invest in TXE4 development, a decision supported by my union and backed by the Government.

The Post Office telecommunications business, although proud of its recent progress, is well aware of its own shortcomings, the causes of which are to be found in the past. The deficiencies had their origin not only in the failure of the all-electronic telephone exchange in Highgate Wood, which was to replace the obsolescent Strowger exchange, but also in the capital starvation of the 1940s and 1950s and the way in which managerial initiative was stifled before the reorganisation in 1969.

Supported by successive Governments, since 1969 the Post Office Board has prepared an exciting, imaginative programme which, although it could not go far enough in attempting to achieve eventual technical integration through co-ordination, was nevertheless recognised to represent a big advance.

When presenting the Post Office (Borrowing) Bill a year ago, the Minister described the achievements expected in the next few years, achievements which, incidentally, assumed a growth rate of staff productivity of 5 per cent. The Post Office had in addition prepared a 10-year corporate plan which we understood, with certain reservations about the need for an integrated network, would have solved many of our problems.

If the cuts are made, both the plans announced by the right hon. Gentleman and the Corporation will be worthless. One cannot possibly devise plans which take into account such heavy cuts at such short notice.

While the union does not know how the Post Office will apply the cuts, it appreciates the difficulties that the board must be having in arriving at criteria by which to apply the cuts. Almost certainly at some point services for business, professional, commercial and administrative interests will suffer. As we are as a nation regretting some of the investment decisions taken in the energy industry—

I am sorry to interrupt the hon. Member. The amendment is about financial loss and compensation therefor. The hon. Member is discussing a very wide field of investment. Will he limit what he has to say to what is in the amendment?

Unfortunately perhaps I was following the hon. Member for South Angus (Mr. Bruce-Gardyne)—

But at much greater length.

As I understand it, the question of length has never been a matter for the Chair. If one is tedious or repetitious—

Perhaps I should have referred to the width over which the hon. Member has spread.

If you withdraw "length" and replace it with "breadth", that is a matter for you, Mr. Deputy Speaker.

The hon. Gentleman cannot tell the Chair what to do.

If the hon. Member for Canterbury (Mr. Crouch) wishes to make comments from a sedentary position, breaking the rules of the House in so doing—

I had not thought of interrupting the hon. Member, because I have always thought the Chair should rule when a Member is out of order. I was extremely bored having heard the whole of this speech in Committee. The way in which this House acts sometimes makes the public ridicule our behaviour.

If the hon. Member had listened, he would have heard me say that the consequences of these cuts have come to light very recently indeed. Had the policies that we are seeking to amend not been followed, there would have been no necessity for the cuts. If one is following that line of reasoning the least one is permitted to do is to point out to the Government the consequences of the cut which has followed the pricing policy. If I had lengthened my speech by saying, "But had this policy not existed the policy of the Government would have been different," I submit that at no time would you have doubted whether I was in order, Mr. Deputy Speaker.

Provided it was in moderate length. What the hon. Gentleman is saying does not seem to be directly connected with the amendment.

Perhaps I shall have to rephrase what are very serious arguments in another way.

If compensation is based on loss of revenue, the consequences to which I have referred need not follow. The cuts follow directly from the policy enshrined in the Bill—

Perhaps they do, but we are discussing the question of compensation for loss.

Perhaps I shall have to go back to the beginning to illustrate the argument, but, given the Government's pricing policies, we are considering what the level of compensation should be. Why is it necessary to pay the compensation? For what is the compensation required? What is its purpose? Why do we want the computation to be made in the manner that we suggest in the amendment? Many answers could be given to that question, but the one which I give is that we need the money in the nationalised industries in order to finance their investment programmes. We want to avoid cuts being made of the sort now being imposed. We want them to be in a position to invest without having to borrow money from Europe. The Post Office wants to borrow money in order to do certain things.

It is reasonable to talk about the damage to the telephone service and to telecommunications which will occur if investment policies are pursued which are inferior to those which would be pursued were sound financial policies to be adopted. It is important to state what the investment is required for. We have previously neglected investment in the energy industry. The policies enshrined in the Bill exclude the energy industry to a large extent because of the realisation that not only must energy be used properly but investment must take place.

Overseas countries pursuing rational policies are investing heavily in their telecommunication services. This is not the British Government's policy. The Government's decision to cut back will bear very heavily on the private equipment manufacturing companies because it will have an impact on the future costs of equipment for the Post Office. It is reasonable to point this out because the bulk of their orders come from the Post Office. Without strong home support they may do even worse in the export markets than they have been doing.

11.30 p.m.

In the past I have been very critical of the way in which the private sector has failed to provide exchange equipment at the right time at competitive prices. We recognise that this has resulted in heavy pressure being put on the industry by the Minister of Posts and Telecommunications, and in pressure being put on the Post Office to expand its capacity quickly to meet the demand of the telecommunications business. To be able to do this the Post Office has recruited and invested heavily on the basis of Post Office plans which existed before the announcements of the cuts.

I make no reference to the problems of the companies, but it is reasonable to point out that this pricing policy, which has led to the investment policy will, in turn, increase the cost to the Post Office, to the extent that next year and the year after it will bring about disruption in the manufacturing industry.

Any increase in costs will be disappointing to the Post Office. All in the telecommunications industry are proud of the rise in productivity that has taken place in recent years. We believe that in the long term this policy must lead if not to a fall in productivity then to a rise in costs. The policy as contained in this clause is self-defeating. There are bound to be heavy additional costs for the telecommunications business, arising from these expenditure cuts. I repeat: these cuts follow directly from the pricing policy of the Government.

The equipment which will be cancelled next year will have to be installed at a later date, at increased cost, and the waste is bound to undermine morale among those who work in the telecommunications business.

This, and the other provisions in the Bill, will have one other effect. This Bill and the policy of cuts that it enshrines—and here the Select Committee was quite precise about the general position—will make it impossible for the present forward-looking mood that prevails amongst both management and Post Office staff to continue. It is impossible to have a clause that permits only the losses to be paid and to expect managers, faced at the same time with investment cuts, to run the business in a mood of optimism, because they are faced with a situation in which all their plans have to be scrapped and, at the same time, they are told by the Government, "Whatever money you lose will be made good." But what we shall—

Order. It is a long time since I asked the hon. Member to confine himself to the amendment, which is about the basis of compensation, but he persists in talking about losses and why they are made.

With respect, Mr. Deputy Speaker, I am now absolutely on the amendment.

I hope that the hon. Member will remain so.

The amendment is to leave out "financial loss" and insert "loss of revenue". It is absolutely in order to talk about the difference facing management in a situation in which the Government say, "We will make up any losses you make" and one in which they say, "We will not compensate you for loss of revenue". That is a quite different situation. One can understand the Government's point of view but it is a situation which, I understand, was debated in Committee and which is germane to the argument.

I speak feelingly because I think that the policy contained in the clause and the implications of that policy will lead to loss of morale throughout the nationalised industries to which it appertains. The Government are saying—I explain it to you, Mr. Deputy Speaker, because I obviously have not made myself plain—that they are prepared absolutely to meet a loss or deficit ; if the Post Office makes a loss and that loss is recorded, they will make up that loss. It is a blank cheque. Losses will be paid for which arise from the pricing policies of the Government.

The Government are not saying to the nationalised industries that, if they increase their turnover and that turnover with economic policies would lead to an increased surplus, they will get that surplus. All they are saying is that they will meet any book losses. That is a very different situation, which will bring about despair in the Post Office and the other nationalised industries.

I conclude—[HON. MEMBERS: "Hear, hear."] I do not apologise for these arguments. It is most regrettable that in the Commons a serious argument affecting an industry of this nature cannot be made in this way. It would have been much easier for me tonight to have filibustered, as I did in Committee—speaking not seriously, but within the rules of order—and I am tempted to do it later to show what a mockery the rules sometimes bring us to in this House. I do not apologise, because I have been making what I believe to be a serious contribution affecting the livelihood of many thousands of people.

Order. Instead of defending himself, will the hon. Member finish up on the amendment?

I shall conclude, Mr. Deputy Speaker, by saying that I think these amendments are important and that the arguments on them should be listened to very seriously indeed.

I intend to speak fairly briefly on one or two points which arise on the amendment and which certainly affect the one nationalised industry with which I am familiar, the electricity supply industry. I spoke on the Second Reading of the Bill and, I suppose as a punishment, I was duly appointed to the Standing Committee. But I did not serve my term there because I had to go away to act as Chairman of the Energy Sub-Committee of the Select Committee on Science and Technology, which was regarded as a legitimate reason for absence. Therefore, I missed the contributions made in the Standing Committee on these points, including the most detailed contributions made by my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding).

While I was in the Chair of the Energy Sub-Committee some interesting evidence was given by Mr. Arthur Hawkins, the Chairman of the Central Electricity Generating Board. He was questioned on the reasons for extra investment in electricity supply—investment which, some months earlier, in evidence to the Select Committee on Science and Technology, he said would not be so necessary because loads were not rising fast enough. When he was questioned whether the restraint on prices had contributed to this surge forward in electricity demand, he said—and I am speaking from memory—that he felt it had a bearing on the situation.

Therefore, it is absurd for Ministers to argue, as they appear to be arguing, that at a time when prices generally are rising, the price of electricity can be artificially restrained, without the demand rising proportionately, thus influencing the need for extra investment which at present interest rates may be very expensive indeed. It is a charge which the Government must take seriously.

I wish to make a further point about the electricity supply industry relating to the amendment, namely whether we should compensate for the loss as measured, which is a premium to the inefficient—a point reasonably made by the hon. Member for South Angus (Mr. Bruce-Gardyne)—or whether we should accept the measured actual loss of revenue. My feelings on this matter are divided. In terms of electricity supply I do not think it will make a great deal of difference, if only because of the fact that at present we have an emergency which is distorting demand over the 24-hour period and where the normal will be hard to define.

Electricity supply—one of the principal industries affected by the amendment—is in a special position because it cannot pick and choose its markets. It is under a statutory obligation to supply every consumer who demands a supply. It cannot escape by saying, "This is not the kind of market in which we wish to operate. We do not want this particular consumer if we can avoid having him." The consumer must be accommodated. When there is an artificial restraint on prices, one is saying to the electricity supply industry, "You must go on connecting because that is your statutory obligation, but you must also carry the financial loss that is incurred." Hence the greater the activity, the greater the loss.

11.45 p.m.

A further objection to the policy whether it be taken on one form of measurement of loss to the industry or another, at a time when all other prices are rising, of artificially restraining the price of electricity—apparently the Government are prepared to subsidise the price of electricity but they shrink from subsidising the price if food—is that it encourages waste.

From the general point of view of the national interest, energy prices should not be held down for if this country is to embark seriously upon a policy of conserving energy resources, we may have to let energy prices rise to make sure that energy is better utilised.

Knowing the experience of my hon. Friend the Member for Newcastle-under Lyme, I do not stray too far down this path, but I have great difficulty in understanding why it should be argued that it is necessarily in the national interest artificially to hold down the price of energy. Considerable savings could be achieved by industrial, commercial and domestic users if they looked at the efficiency of their utilisation. If that were done it would bring about a reduction in their bills equal to anything which might be achieved from an artificial Government subsidy.

Reference has been made to the evidence given before the Select Committee on Nationalised Industries, especially that given by the present Minister for Energy who at the time was Chief Secretary to the Treasury. He made some remarkable confessions in his evidence. He said, for example:

"Ministers have been interfering a great deal too much in the last two or three years"

—it is difficult to believe that he was one of the Ministers doing I he interfering—

"I should have thought this would almost go without saying. The justification is that higher priority must supervene, namely, the need to seek to control inflation."

I have taken a great interest in these matters over the years and I have never believed, except in the case of major matters affecting the national interest, that it was legitimate or normal for Ministers to interfere in the day-to-day running of nationalised industries and in their pricing policies. Therefore it is remarkable for a responsible Minister in what passes for a responsible administration to say to a Select Committee, "We are under a kind of compulsion. We cannot help doing it. It is wrong to do. Nevertheless we do it, and we do not know how to stop doing it."

If this is to be the practice, Parliament should give some new guidelines to the nationalised industries. We should have to depart from the statutory provision that Ministers should intervene formally only when there is some over-riding issue affecting the national interest. There would have to be defined areas in which the Minister was allowed to intervene even on day-to-day questions.

The more this policy is examined, by whatever method one compensates, the more absurd and ridiculous it appears to be. If at the end of the day there were any satisfactory proof that the policy was restraining inflation, at least there might be something to be said for it. But inflation still marches on apace and at the same time the proper administration of the nationalised industries, the morale of the staff and everything to do with the comparability of the efficiency of one industry with another are suffering.

Therefore, if my hon. Friend presses the amendment to a division—

indicated dissent.

He is shaking his head, so presumably he does not think that he should take it that far, but I would certainly have voted for it even though I think that the important question is not so much the alternative methods of measuring the loss to the nationalised industries as to ask once again why the policy should be operated at all.

We are not arguing whether the prices should be allowed to rise to the unsubsidised level, because that is not what the Government suggest. They are suggesting that they should rise to the maximum allowed by the code. We are arguing only about how any deficit should be financed.

I am obliged for that correction. But I am doubtful about the policy in general. Until 1972, under administrations of Government, my industry had never once gone into the red. In 1972, we were driven into a loss situation, and were only just about clear in 1973. I shudder to think what the loss will be in the coming year in electricity supply under the present Government and its own peculiar brand of interventionism.

Every hon. Member who served on the Committee on the Bill will agree that we have discussed it exhaustively. Both on Second Reading and in Committee, neither my right hon. Friend the previous Chief Secretary nor I sought to disguise our concern about the effects of open-ended deficit financing on the morale, efficiency and management of the nationalised industries. I recognise, as have my right hon. and hon. Friends, that if a policy of price restraint were to continue indefinitely, the pattern of demand between one industry and another and investment in the nationalised industries would be distorted.

I made it clear in Committee however that I did not believe that any such distortion had so far occurred. I must emphasise again that the capital expenditure programmes of the electricity industry are set out in Cmnd. 5519, the public expenditure White Paper, as indeed are the capital expenditure programmes of the Post Office. I repeat, without any qualification, that these capital expenditure programmes have not so far been increased on account of price restraint and consequent inflated demand.

The point that I have made all along is that there is a serious potential risk that this will happen. Certainly I do not deny—I have not denied in Committee and I do not deny it tonight—that there is a medium-term danger of the distortion of demand between one industry and another if the policy of price restraint as we have recently had it continues for an indefinite period. There is no argument between us about that. In the medium term, I repeat, I would not dissent from the argument that my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) is advancing.

Is the Minister of State saying that price restraint should not continue beyond the medium term? If so, would he give us his idea of medium term?

On Second Reading I dealt with the whole subject of the distortion of demand in the fuel industries and said:

"I must emphasise that consumer demand for fuels is relatively price-inelastic in the short term. The reason is clear enough: people become committed to one form of heating or lighting and they do not readily alter their consumption patterns if relative prices vary."—[OFFICIAL REPORT, 21st November 1973 ; Vol. 864, c. 1447.]

I am saying only that the public expenditure White Paper sets out the capital expenditure programmes of the fuel industries and I deny that in the immediate situation that we now face there has been any distortion of the investment programmes of the industries.

I put it to my hon. Friend that he must not cite the public expenditure White Papers in this context as evidence to support his argument, because it has always been the proposition of successive Treasury Ministers that public expenditure White Papers simply extrapolate the consequences of existing policies and make no assumptions about adjustments in policies which might be necessitated by present circumstances. It does not strengthen his case to cite public expenditure White Papers.

I repeat, in the short term, consumer demand for fuels is relatively price-inelastic, and I cannot go beyond that. I accept that in the medium term my hon. Friend's fears may well be justified. Clearly, over a period distortion of demand for a commodity occurrs, if a policy of price restraint continues indefinitely—

The hon. Member is overlooking an important factor. Again I take the electricity supply industry as the best example. Investment policies are made not for next year, but for seven or ten years ahead. The evidence of what will be required seven or ten years ahead is what is used this year ; that is the starting point. Therefore, if this year's consumptions are distorted and adjustments are made all the way ahead, in ten years there will be a completely false picture.

The hon. Member is not making an unfair point. I am merely saying that the figures published in the public expenditure White Paper show the investment necessary to meet the demand that we expected last summer on the basis of the normal price levels to which we expect electricity and the Post Office and other tariffs and charges to return in due course. Certainly in compiling the public expenditure White Paper and deciding what future investment programmes of the nationalised industries should be we have to bear in mind existing price restraint in those industries. On Second Reading and in Committee I emphasised that the Government were genuinely seeking a way in which to return to some sort of long-term targets for these industries, because that is naturally what both sides of the House would wish.

12 midnight.

The immediate problem is to find a suitable régime in 1974–75, because that is the limit to which the Bill takes us. None of us likes the consequences of the Bill, but that does not mean that the policy of price restraint was not necessary in the world-wide inflationary conditions from which we have been suffering. We cannot consider the public sector in isolation, nor can we treat the nationalised industries as being any other than a crucial element in the economy generally.

The Select Committee was obviously not concerned with considering the wider issues of the prices and incomes policy. It was concerned, and very rightly so, with the problems of management, morale, and efficiency in the nationalised industries. We as a Government are concerned with the economy as a whole, and with the attitudes of management and workers. I do not believe that the CBI, for instance—I hope I shall not provoke my hon. Friend the Member for South Angus, but I must say this—would have been able to persuade its members to agree to its price restraint initiative if the prices of the nationalised industries had not been restrained. Nor, likewise, do I believe that we should have secured the acquiescence of the trade unions to the standstill in stage 2 if the prices of the nationalised industries had not been restrained.

I understand what the Select Committee is saying. Within the context in which it was considering the issue, I think its judgments were to a very large extent correct, but I must not be drawn at this stage into giving the Government's reply to the Select Committee's Report. That will come in due course. I want to say a little more about the report in a moment.

At Second Reading and in Standing Committee I asked that the Standing Committee should put forward its ideas for the 1974–75 financial year, and the hon. Member for Heywood and Roy ton (Mr. Joel Barnett) joined in the spirit of that offer. He criticised the approach I outlined at one stage of a target deficit for 1974–75. That was one of the suggestions I made as being a possibility when I wound up the Second Reading debate. Then he put forward in Committee what I would describe as a variation of the compensation-for-revenue-forgone formula. On that occasion he had in mind, I think, that an industry would receive what it calculated to be the difference between the revenue it would have earned if it had been treated under the price code like a private sector undertaking and the revenue accruing from a price increase it was actually permitted to make. As I promised to do, I have examined this idea, and I wish quickly to refer to it in a moment.

Before doing so, let me quickly comment on the admendment itself. As my hon. Friend the Member for South Angus said, the amendment would single out nationalised industries for more favourable treatment than the private sector. This Bill proposes to compensate nationalised industries for a substantial disadvantage which they have compared with the private sector under the code. Thus in this way the Bill seeks to enable them to meet their statutory obligations. To go further and to compensate the industries for all their losses of revenue would put them in a preferential position over the private sector, because private sector firms are also suffering from loss of profit because of price restraint. Members of the Opposition are not suggesting that the private sector should be compensated on that account.

Would not the Minister of State accept that the nationalised industries are dealt with more severely under the code than private industry?

Yes, I would not deny that the price code has borne more heavily on the nationalised industries than on the private sector. It has done so by preventing them from eliminating their losses and meeting their statutory obligation to break even, taking one year with another. That in no way nullifies what I have said—that if we were to compensate the nationalised industries for revenue forgone we would be putting them in a preferential position over the private sector.

In any case, the main argument against the amendment, as I said in Committee, is that to calculate what the figure would be of revenue forgone is an almost impossible task. I will not say that it is impossible, but it is virtually impossible, because the costs of the nationalised industries run into hundreds, nay thousands of millions, of pounds and each and every one of those costs will have been affected in one way or another by price restraint generally.

In theory I can see that the hon. Gentleman's ideas have attractions. I do not deny the attraction of the theory of compensation by revenue forgone, but in practice it would place the Government in the position of having more or less to accept any figure given them by the industry itself. Of course I accept that it is the same sort of criticism writ large as the hon. Gentleman made of my idea for a target deficit.

The hon. Member for Heywood and Royton referred to a modest young accountant—no doubt he was not referring to himself—being able to have a field day and produce a pretty considerable safety margin for the nationalised industry for which he worked. It is also true to say that he would have the field day of all field days when it came to presenting to the Government what his own industry's estimate of revenue forgone had been in the circumstances which have been prevailing.

Moreover, in a period of one year—we are talking here of one financial year, 1974–75—random factors such as the weather can far outweigh any influence which management can bring to bear. This difficulty faces any short-term objective, but it is nevertheless a perfectly valid point for me to make as regards the problem of the Government's agreeing the estimates of the nationalised industries.

I take the point, but can the Minister of State tell me what effect this would have on the loss of revenue to the telecommunications services in 1974–75?

I endeavoured to follow the hon. Gentleman's speech. I am reluctant to be drawn into it too much because, as Mr. Deputy Speaker said, much of it was out of order. Let me try to deal briefly with one or two of the hon. Gentleman's points.

That is a rather cheap way of seeking to get out of answering a specific question I addressed to the hon. Gentleman. He referred to the greater importance of the weather and talked about the difficulty of forecasting revenues. I asked him a specific question. On his speech—not mine—what would he estimate the impact of changes of weather to be on telecommunications in 1974–75?

I am sorry, but I did not say that the weather was a crucial element in making a one-year objective impossible. I merely gave that as an example of matters clearly affecting the gas industry, the electricity industry, and so on. The point is still valid that the hon. Gentleman, with his great knowledge of the Post Office, would not at any stage suggest that it is possible to draw up a long-term management and efficiency arrangement for the Post Office for what we are concerned with here, which is a period of one year—1974–75.

If the hon. Gentleman or his treasurer friend in the Post Office were to present to the Government a figure of the revenue forgone by the Post Office as a result of price restraint, that figure would be almost impossible for anyone to check. That is the point I was making.

My hon. Friend the Member for South Angus and the hon. Members for Newcastle-under-Lyme (Mr. Golding) and for Bristol, Central (Mr. Palmer) referred to the Report of the Select Committee on Nationalised Industries on the capital investment procedures of these industries It is an excellent report. As the House knows, the Government will in due course publish their answer to it, and they are at the moment examining the report.

The Select Committee drew attention to the problems caused by price restraint for the nationalised industries, but it did not, I think, make any specific recommendations on the subject. What Ministers have genuinely been seeking to do on this Bill is to draw in all the suggestions we can find from all sources as to how we can return to long-term targets and how we can devise a new incentive system. The action we now have in train on prices, which was announced by the Chancellor of the Exchequer, seems to be entirely in line with the Select Committee's thinking. It remains our intention to restore the relationship between the central Government and the nationalised industries to a more normal footing as soon as conditions permit.

This gives me the opportunity to say that, since the Bill was brought in, circumstances have altered dramatically. Not only has the present fuel crises rendered many of the earlier figures somewhat doubtful but the measures forecast by the Chancellor on 17th December include action to increase public sector prices within the limits of stage 3. As the Chancellor said, it is no longer appropriate to subsidise the nationalised fuel undertakings on a large and growing scale at a time when energy is in short supply and world fuel prices are rising.

The hon. Member for Heywood and Royton said that I promised in Standing Committee that I should take this opportunity to give the House a progress report on the negotiations with the nationalised industries which followed immediately upon the Chancellor's announcement. I regret that the early Report stage which we are now having means that I cannot tonight report to the House, much as I should like to, any firm progress. The discussions are continuing along the lines indicated by the Chancellor, and all the nationalised fuel undertakings are being brought fully into consultation. But it will still be some weeks before we are in a position to make a final statement on the matter. On the question of nationalised industry prices, however, I can confirm once again that we have no intention of amending the code.

My hon. Friend the Member for South Angus asked several questions, and I think that I can best summarise in this way the answer which he requires. The code provides for price increases not less than is needed for the recovery of allowable costs and not more than is required to contain the deficits of the nationalised industries at the level of 1972–73.

12.15 a.m.

In the normal course the industry will obviously apply for the maximum increase which it will be entitled to. But there is provision in the code for the responsible Minister to intervene to cut back that increase to the lower limit of allowable costs as established by the Price Commission. Within those two limits, what I described in Committee as the parameters of the code, there is considerable scope for ministerial manoeuvre.

My right hon. Friend's statement implied quite clearly that Ministers would now tend to take a somewhat less restrictive attitude towards price applications than they have taken in the last few months and my right hon. Friend's statement has been followed by discussions with the industries. The parameters I referred to in Committee enable the price increase to be within the parameters of the code, and so, I repeat, there is no intention of amending the code in that respect. However within stage 3 quite substantial increases are possible.

My hon. Friend asked me three specific questions. Is the private sector pari passu with the private sector? The answer, as I have already said, is that the nationalised industries and the private sector are not pari passu under the code. He asked whether the industry had still to go to the Price Commission and be guided by the code? The answer is "Yes" and the application must be within the code. He referred to ministerial intervention. I have already explained that my right hon. Friend's announcement, in my own words, indicates that Ministers will in the future indulge in a self-denying ordinance in connection with their right under the code to bring price increases back to allowable costs.

Will the Minister tell us, accepting as we do that the negotiations have not ended and that the price increase is not known, but within the parameters he has explained under the code, what is the maximum price increase which would be allowed?

It is not possible for me to give the actual figures. By reference to the code the hon. Member will see that we are taking as a maximum the 1972–73 deficits. The minimum is allowable costs.

I am grateful for that further information. May I paraphrase what my hon. Friend has said? Up to now Ministers have intervened after the Price Commission has adjudicated to tell the nationalised industries concerned, but primarily the electricity boards, that they cannot have the increase to which the Price Commission says they are entitled. Now the fixing between the Ministers and the boards will take place before going to the Price Commission.

I confess to having stumbled a little on this point on Second Reading. However, I have no information to add to our somewhat lengthy discussion on the matter in Committee. I made clear then and I do so again that the minimum is allowable costs and that the maximum is adjustment up to the 1972–73 deficit. I have throughout repeated that to my hon. Friend.

There is one small point which the hon. Member for Heywood and Royton raised. It related to the help for the neediest households. I told him in Committee that we would give consideration to this. My right hon. Friend the Chancellor undertook to do so in his statement on 17th December as soon as the extent of any price increase was known. We cannot make any decision on what the degree of help should be until the decision is made about the level and extent of the price increase, as I mentioned in Committee.

I hope that the hon. Member for New-castle-under-Lyme will forgive me if I am not drawn too much into his questions. My right hon. Friend the Minister for Posts and Telecommunications listened with great care to everything the hon. Gentleman said about capital investment in the Post Office. I, too, listened with great care. The hon. Member repeated many of the points he made in Committee and many of those points were answered by my hon. Friend the Under-Secretary of State for Trade and Industry.

I could not follow the hon. Gentleman's assertion, when he was talking about investment cut-backs in the Post Office, that price restraint must lead to cut-backs in investment. That is the opposite of the argument that the hon. Member for Bristol, Central and every other hon. Member was adducing. Other things being equal, it must be right that price restraint leads to an increase in capital investment and not a cut-back. At Question Time my hon. Friend the Chief Secretary to the Treasury, in answer to the hon. Member for New-castle-under-Lyme, said:

"Yes, I am aware that it creates problems within the Post Office. My right hon. Friend the Minister of Posts and Telecommunications is discussing this matter with industries concerned."—[OFFICIAL REPORT, 17th January 1974 ; Vol. 867, c. 905.]

That is the present position. The hon. Gentleman has made his point and it has been heard by my hon. Friend. I hope that I may leave the matter there.

In rejecting the amendment I do not do so in any captious spirit. The Opposition, on this occasion, are genuinely attempting to be loyal, if I may put it in that way. They say, not unreasonably, that so far the Government have not provided any firm proposals for 1974–75—that this is what the Opposition would like to see. I understand that.

Since the Bill made its first appearance before the House, we have announced our intention to discuss price levels with the industries. That must be the first step towards a long-term arrangement of the sort which we all wish to see. In the meantime we are continuing our discussions with the industries. I can undertake that as soon as those discussions on prices come to a conclusion a statement will be made to the House.

With the leave of the House, Mr. Deputy Speaker, may I reply? Points have been made by the hon. Member for South Angus (Mr. Bruce-Gardyne) and the Minister about statutory corporations having preference over private companies. That is an argument which I find difficulty to accept, bearing in mind that statutory corporations are permanently at the disposal, as it were, of Governments of whatever colour. I find it hard to accept that statutory corporations somehow have a preference over private industry.

The point was made by my hon. Friend the Member for Bristol, Central (Mr. Palmer) and the Minister about distortions created by price restraint. I find it a little difficult to understand the Minister's argument. My hon. Friend made it clear that he wanted to see us get back, given the present energy crisis, to non-price restraint. The Minister told his hon. Friend the Member for South Angus that it would have been impossible to obtain the co-operation of the CBI and the TUC in any kind of voluntary incomes restraint if the Chancellor had not done something about price restraint, for example, in the gas and electricity industries.

The Minister now tells us that the Chancellor has decided, given the current state of affairs, to allow substantial—I assume they are substantial, otherwise they would hardly be worth talking about—increases in gas and electricity prices. If it were relevant before that it would be difficult for the CBI and the TUC to go along with prices and incomes policies, how much worse will the position be in 1974 when levels of inflation are almost certainly to be considerably in excess of what they were in 1973?

Some of the gloomy forecasts may not come true, but I doubt whether anyone will be so optimistic as to assume that price inflation in 1974 will not be substantially in excess of the 1973 level. The Minister says, despite what he had previously argued about the need for restraint so as to get co-operation for a prices and incomes policy, that because of different circumstances he can allow substantially increased prices. It is a somewhat confused argument and not one which I can accept.

I do not disagree with the Minister that these are complicated calculations, as are his own. But they apply, as he said, only in the short term. The advantage of my proposition is that there would then at least not need to be further monies provided for capital investment, as happens now, when the industries are simply financed to make good the deficit and are then obviously short of funds for new investment, and the Government must find them.

However, in view of the hour, and as we have had a pretty good debate on the matter now and in Committee, and have a long way to go yet, I beg to ask leave to withdraw the amendment.

I beg to move Amendment No. 6, in page 5, line 1, leave out Clause 4.

With this amendment we are to discuss Amendment No. 8, in page 5, line 6, leave out paragraph (b).

Amendment No. 6 is exploratory. The clause is the one that provides the Government with the power to encourage statutory corporations and others to borrow abroad with the assistance of the Treasury. Shall we need the clause to the extent originally envisaged if, as is sometimes said, and as the Chief Secretary to the Treasury intimated in answer to a Question last Thursday, there is a possibility—I put it no higher—of a loan from the International Monetary Fund? That loan would obviously need to be substantially larger than anything likely to be borrowed by corporations with the assistance of the Treasury.

Even though substantial sums have been borrowed, anything likely to be needed by the Government in the coming years to sustain their deficits would need to be substantially higher than is likely to be borrowed by corporations under the clause. At least, I assume that, unless the Minister can tell us that they hope to finance the whole of their deficit over the coming years by this method. I should be surprised if that were so.

The Government's case on the balance of payments is incredible. Another disastrous trade deficit, of about £330 million, was announced today, and we have heard yet further excuses. I suppose that the Secretary of State for Trade and Industry will never run out of excuses, and that diamonds will for ever remain the right hon. Gentleman's best friend. He managed to find them again today as the reason for the deficit.

Did my right hon. Friend use diamonds again?

Yes—at least, according to the tape, which is the best information I have so far. We must have had a hell of a lot of diamonds in this country over the past 12 months—diamonds and ships or whatever. Perhaps they were industrial diamonds, or perhaps the tape got it wrong. If there was another excuse, I should be happy to hear it.

Nobody will dispute that the country was running a serious balance of payments deficit before the oil situation began. I am sure that hon. Members did not need the Governor of the Bank of England to tell them. We can see that we shall be having next year a non-oil deficit of about £2,500 million, plus possibly £2,000 million or more as a result of the increased oil prices. That is the level of the sums which over the next few years we shall have to finance. By comparison, the amounts that so far have been borrowed, large as they are, under the same arrangement as that embodied in Clause 4 are a drop in the ocean.

If the House is to give the Government this power, we are entitled to know how they intend to use it. We have not had it made clear to us yet. In Committee we did not have sufficient time to go over it in the detailed way one would wish, but the Minister of State in Committee told us:

"I know that some of my hon. Friends took a different view when we were in opposition"

—he meant some hon. Gentleman opposite, including some on the Front Bench, who took a different view about borrowing which is likely to change even more in the coming months when we hear of further substantial borrowings—

"but I have never seen how it can be wrong to borrow abroad when there is known to be a substantial net outflow on capital account."—[OFFICIAL REPORT, Standing Committee F, 20th December, 1973 ; c. 178.]

The Chief Secretary did not quite put it in that way when we discussed the matter on Second Reading. The Chief Secretary referred to it as meeting deficits on current account. He said:

"This is essentially a matter of general economic strategy. In a period when the economy is expanding rapidly and, in particular, when the terms of trade have been moving substantially against us, deficits on current account must be expected. Financing the deficit requires the use of foreign currency reserves, and the simple and straight-forward point is that foreign currency borrowed increases our reserves. The current account deficit in the first 10 months of the year has been almost fully covered from this source."—[OFFICIAL REPORT, 21st November ; Vol. 864, c. 1356–7.]

So it seems that the Chief Secretary is borrowing for the current account and the Minister of State for the capital account. Which one is right? Which one are we borrowing it for? It would be interesting to know just what the Minister of State has in mind. He often, pleasantly, moves away from his brief and he is rather better when he does. Perhaps he has something different in mind from the Chief Secretary or, indeed, anybody else on the Treasury Bench.

We also heard from the Chief Secretary at that time that the borrowings under Clause 4 were sound borrowings. Given the way in which they were borrowed, the currency in which they were designated for repayment—the major one being a floating loan, as it were—and our substantial devaluation against the dollar in recent weeks, I wonder whether the Minister is still prepared to say that these were sound borrowings, or whether, with the benefit of hindsight, he considers that there were better ways of borrowing the money required.

I made it clear in Committee that I believe there is a case for borrowing. I do not agree with the hon. Member for South Angus and the right hon. Member for Wolverhampton, South-West (Mr. Powell) and others who argue that rather than borrow in this way we should use what is euphemistically called money supply. But whether we say that we should use money supply, or cut public expenditure and personal consumption and balance the budget, we need not borrow by reducing the money supply through the measures we take.

I would not want that to happen at the pace desired by those who argue for the use of money supply because of the horrific levels of unemployment which would be created if it were done quickly. I would rather have some borrowing balanced with some cuts in public expenditure and some cuts in personal consumption, which I believe to be inevitable. But I would not want to do it at the sort of pace which would create massive unemployment implied—I put it no higher—by the exponents in the House of money supply.

The hon. Gentleman is making a fairly false comparison. I do not think that in Committee or at any other time—and I think that this applies to my hon. Friends—have I suggested that there was a choice between the use of monetary policy and borrowing overseas. That is not the equation which presents itself. In any case, as far as I am aware, those who have advocated the observance, among other things, of monetary discipline have always emphasised that it would be highly undesirable to use such a discipline speedily and thereby try to achieve a rapid cure for inflation. Many of us have argued that the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) fell gravely into error in trying to do that in 1969–70.

I am delighted to hear that that is not the hon. Gentleman's view, but I should be surprised if it was not the view of some of those who have advocated more forcefully the use of money supply. I accept the need for some borrowing rather than expect to correct a balance of payments deficit of the enormous magnitude we are likely to have in 1974, and, indeed, for a number of years beyond that, even if I am not prepared to go to that great year of 1984 which the Governor of the Bank of England seemed to like.

Therefore, I am not prepared to take the opportunity of reversing the strictures which hon. Members now on the Treasury Bench used to place on Labour Ministers who indulged in large borrowings between 1964 and 1970. No doubt that will come from some of my hon. Friends—they may not be able to resist it as I am able to—especially when the borrowings in the next few months are likely to be considerably in excess of anything borrowed between 1964 and 1970. But that is another matter.

I wish to hear from the Minister what the Government propose with Clause 4 in relation to other borrowings which are almost certain to be required in the next few months.

I hope that my hon. Friend will forgive my intervening at this late stage in a Bill that I have not followed through in detail before, particularly at this moderately late hour, but when, earlier this evening, I looked at Clause 4 I could not help feeling a certain sense of misgiving. Subsection (1)(a), speaking of extended borrowing powers, provides that the Act will extend

"to the borrowing of money in a currency other than sterling from any person and in any manner"

Those words are hardly an encouragement to thrift. Whatever Treasury controls and consents may be required, one cannot help feeling that the words imply a possibility of encouragement that the statutory bodies concerned should borrow short overseas at high rates of interest to meet their losses at home, on the one hand, or their long-term capital spending on the other.

I ask my hon. Friend how much borrowing abroad has already been done by public bodies—by the nationalised industries and local authorities? What has been the increase in each of the past three years? How has this borrowing been divided between short-term and long-term commitments for repayment? Surely Clause 4 should at the very least state that Treasury approval will not include short-term borrowing for long-term spending.

Then there are the Treasury guarantees. How are they to be implemented? At what prices of sterling are they to become effective? Are we to continue the situation in which it is possible to find that for one part of the economy we have the floating pound and for another a floating pound guaranteed at fixed and higher levels? Which levels of sterling will apply to these debts if the guarantees are ever called upon to be effected? Could they be applied to exchange levels above the ordinary exchange rates for Sterling at the settlement dates?

Is it reasonable so to extend the powers of statutory corporations to borrow at a time when we have seen vast increases in world liquidity—much greater than any comparable increase in world trade—when liquidity, as the United Nations Statistical Year Book tells us, has grown by over 62 per cent. in the last two years alone, and when we know that at home we have been increasing our money supply at a rapid rate? At the same time, we find our own pound forced down against a stronger dollar and there is a large impending deficit on our balance of payments to be expected this year, following the bad past year.

All these threats are coming about—in spite of the low value of the pound, which should encourage our exports and, we hope, will increasingly do so ; in spite of the very high interest rates in the United Kingdom ; and in spite of the salutary and substantial cuts announced to reduce or postpone public spending in the year ahead.

12.45 a.m.

I cannot help but feel that the use of the words in question in the Bill is unfortunate in the light of all these factors, and even more particularly at a time when we have experienced secondary bank failures. I repeat the question which seems to me to be cardinal. Will the Treasury always ensure that the terms of borrowing are long enough?

If, however, the Treasury control is adequate, and if the Treasury ensures that the terms are long enough and the interest rates reasonable, why on earth does not the Treasury do all the borrowing? Why put the borrowing on to the statutory corporations, on to the nationalised industries? Either they are to be free agents to borrow under certain rules or, if the rules are to be drawn so very tight, the Treasury should do it itself. In that case, what is the point of Clause 4?

I have no wish tonight to divide against the proposals of my hon. Friend the Minister of State, but I felt that, having sensed the misgiving of which I spoke earlier, I should make these points about the need for thrifty legislation which encourages sound borrowing. There is no objection to borrowing as long as it is absolutely safe. It has always been the height of folly, however, for any business undertaking to borrow short and lend long. I shall be obliged by my hon. Friend's reassurance that no Treasury permission will be given for such action.

The preceding contribution was important although it failed to take into account very many issues that the clause presents. The issue has been tackled so far, particularly by my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett), from the standpoint of its financial implications for the economy.

The Government can be accused over the last couple of years of using the nationalised industries as a method of backdoor borrowing from other countries. In this respect, of course, the arguments that have been presented are very important. It would have been more straightforward of the Government to have stated clearly and loudly what was being borrowed abroad by the nationalised industries.

The hon. Member for Hornchurch (Mr. Loveridge) asked for a statement of account. This has appeared. I asked the Minister to list the borrowings by the nationalised industries and others from international sources over the last two or three years. If the hon. Member cares to look it up, a full answer will be given to him.

I cannot see how, with the present reported massive balance of payments deficit, we can do anything else than borrow from abroad. Having got into the terrible mess that we are now in, if we are to avoid massive unemployment and a substantial reduction in the standard of living of our working people, I cannot see how we shall ever be able to do it without borrowing from abroad. It is then for the financial wizards to consider methods by which this borrowing should be done. It may well be that it would be better for it to be done through the Treasury—although, because of arguments which are adduced at present, I wonder whether that is so. But whatever method is used, we have to accept that the present Government will go heavily into debt because of the balance of payments crisis which they themselves have created. That debt can be only international debt, and this is something we shall have to face.

The development of the crisis has put into perspective our arguments on this Bill on Second Reading and in Committee. This borrowing has to be done—and this is where I differ from my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett)—taking into account not only the interest of the economy but also the interests of the nationalised industries. My hon. Friend's contribution showed that he is, albeit a shadow Minster, very much a Treasury man. His arguments concentrate on issues of monetary management rather than on whether they take into account the interests of the nationalised industries.

We have not so far in this discussion mentioned Clause 4(1)(b) which says that the bodies corporate set out in the first column of Schedule 2 will be able to borrow money in sterling from the Commission of the European Communities and from the European Investment Bank. I should like the Minister to say something about the reason for this provision and why we should go to the Commission and to the European Investment Bank for loans in sterling. We see from Schedule 2 that the provision applies to the transport industry, the Railways Board, the Electricity Council, the British Gas Corporation, the Post Office, the British Airports Authority, the British Overseas Airways Corporation, the Civil Aviation Authority, the British Steel Corporation, the Covent Garden Market Authority and the Maplin Development Authority.

The answer must lie in the fact that there must be a European concern for the development of a European infrastructure—a feeling that it is important for the development of Europe that transport, the steel industry, the energy industry and the telecommunications industry should be developed. I believe this to be a fundamental reason why the European Investment Bank should wish to lend money to develop projects essential to the infrastructure. I do not want the Government to deny the nationalised industries the right to go to those European bodies for funds. It could be one of the benefits of the Community that it opened up a fresh source of capital for our nationalised industries.

Our people see the very many disadvantages of belonging to the Community, and it would be very desirable if they were to see some tangible proof that membership of the Community was leading in some way to industrial development. That is why I say that Clause 4(1)(b) is very important and one about which the Minister should tell us. I should like to know what money has been borrowed already in sterling from the Commission and how much, if any, from this European Investment Bank.

I put my name to the amendment because I thought that it was the wish of my hon. Friends to probe the intentions of the Government in this connection. I said just now that I thought that my hon. Friend the Member for Heywood and Royton had spoken with a shadow Treasury brief. I speak as one who is interested in the welfare of the nationalised industries and, however much my hon. Friend may smile, I consider it very important to speak in their favour.

My hon. Friend must not misinterpret movements of my head. I agree with everything that he says.

I am glad to have that on the record. I have no doubt that it will be quoted to my hon. Friend after the General Election. It was a pleasure to hear those words coming from him—

I shall qualify them any minute now.

They could be of importance later.

It has been to the advantage of the Post Office to borrow abroad, for a number of reasons. One is that, before the cut, the Post Office was in difficulty in that it could not obtain the investment money that it wanted from the Treasury. The level of self-financing fell, the Treasury itself has had to raise the money that it was lending to the Post Office, either from taxation or from its own borrowing, and the pressures have been very heavy. Consequently the Post Office has been to Europe to borrow.

1.0 a.m.

It cannot be said that that was a bad thing. The rate at which the Post Office has borrowed is lower than it would have had to pay for borrowing direct from the Treasury. The source of not cheap, but cheaper money for telecommunications investment is Europe. That has been a great advantage to the Post Office, because, with our crippling rates, it has been paying almost £200 million in interest charges. It is important in those circumstances for any nationalised industry to be able to go to Europe and other money markets for cheaper capital. That is preferable to obtaining money on the open market, which the Treasury could not permit because of the element of private financing involved.

Following the hon. Member for Horn-church, may I ask the same question but in a different way? Is it true that the nationalised industries will go separately to Europe for funds, particularly from the European Commission and the European Investment Bank? The bank is prepared to finance particular infrastructure projects, whereas it will not lend willy-nilly to Governments in balance of payments difficulties or Treasuries short of money. Will it lend to administrations and corporations that want to finance projects which will strengthen the infrastructure and general health of the economy? That is an important question. If the Minister says, "Yes", it would not be appropriate for the Treasury to go to Europe to borrow money for itself.

Perhaps the Minister of State could reiterate the conditions on which the money is borrowed. The hon. Member for Hornchurch seemed to think that the money could be easily borrowed without Treasury sanction. It is apparent, as I said earlier, that the Treasury is always willing to apply the brake on progress, and I cannot believe that it will not meticulously scrutinise every application, giving permission to borrow only when it believes that to do so will be in the interests of the nationalised industry concerned and, as my hon. Friend the Member for Heywood and Royton might say, perhaps more importantly, in the interests of the economy as a whole.

Perhaps the Minister will be able to reassure us that the Treasury will look carefully at each application, although I should not like that to happen every time, because the Treasury is sometimes a barrier to progress. With its money mind, its accounting mind—and I say that without disrespect to my hon. Friend the Member for Heywood and Royton—the Treasury is often more interested in the commas than the productive potentials of a borrowing agreement.

On what terms would the nationalised industries borrow? I have heard it suggested that a fault in borrowing abroad is that the terms, periods and rates of interest are not the most advantageous. Perhaps the Minister will make that clear and will say what guarantees are included. Were the nationalised industries themselves to take the risk of the rate at which the British currency is being devalued, I should have serious reservations, but I understand that they are protected from the severest devaluations of the pound in world markets by the Treasury itself. I would like to hear the Minister speak on this subject tonight because, again I say, he might bring reassurance to those of us who have argued that the Government should not be persuaded away from going to Europe—going, indeed, to the world—to find funds for the development of nationalised industries. I cannot help but ask him how far the cuts in the investment programmes of the nationalised industries have made this course unnecessary.

I also ask him these questions. What were the fundamental reasons for deciding to go abroad to borrow money? Was it that it was becoming difficult to finance the programmes of the nationalised industries from self-generated incomes? Was it becoming increasingly difficult to finance the nationalised industries from money borrowed by the Government from small savers? Was it because it was becoming increasingly difficult to get money by way of taxation to meet the rising cost of public expenditure, of which the capital expenditure programmes of the nationalised industries were only a part? Was it because of all these reasons? Was it because of the difficulties of balancing the books at home? Was it because the Government wanted to borrow by the back door from Europe? I know that many hon. Members would be pleased to hear an answer to that question.

If the answer is not that the Government were sneaking off to borrow when the electorate were not watching but that they were trying to avoid further taxation, and trying to find other ways to finance the nationalised industries' programmes, other than by raising money from the British public, then I repeat my hon. Friend's question: now that the nationalised industries' programmes have been slashed, will it still be necessary to go to Europe to borrow money?

These are the questions I want answered tonight. I hope that we shall have satisfactory answers, because this is a very important part of the Bill, to which we shall have to return on Third Reading if we do not have satisfactory answers now on the amendment. I assume that my hon. Friend will not press the amendment to a Division. I assume that it is only a probing amendment. However that may be, it is still very important that the Minister gives us straight answers to the questions which have been put to him from these benches.

I am sure that we shall all wait with bated breath to hear the reply of my hon. Friend the Minister of State to the detailed questions which the hon. Member for Newcastle-under-Lyme (Mr. Golding) addressed to him—all two of them, if I counted right. I hope that the hon. Gentleman will forgive me if I move on to slightly different territory, namely, the rather narrower context of the amendment which we are discussing.

I am very glad that Mr. Speaker has enabled us to return to the question of Clause 4 on Report, because, for reasons which we need not go into here, it is fair to say that my hon. Friend gave us a somewhat encapsulated reply to our debate on these matters in Committee, and the House would benefit from some further elucidation on one or two points before we leave this very important clause tonight.

In Committee it seemed to me that my hon. Friend broadly advanced four arguments in support of the proposition that the nationalised industries and local authorities should be encouraged—because, as the hon. Gentleman rightly said, the purpose of the clause is not simply to permit ; it is to encourage local authorities and nationalised industries to borrow in the currency markets overseas.

The first argument was the point of view that this clause only extends the authority which most of these bodies already enjoy to cover those which do not enjoy that authority at present. One accepts this, but I do not think that my hon. Friend will complain at my suggestion that we consider at the same time the whole strategy of encouraging borrowing abroad by the public sector in this manner at this point.

The second point my hon. Friend advanced in Committee seemed to me then and seems to me today rather more questionable. It was that there was no good reason why the local authorities and nationalised industries—the local authorities in particular—should not be encouraged to go out and raise their financial requrements in the Eurocurrency markets, for example, if they could do so more cheaply than they could do at home. I can see very good reasons why they should not be encouraged to do so at present, because in principle I thought that it was our objective that the local authorities should be dissuaded from excessive and sumptuary expenditure at present.

My hon. Friend frowns, but my right hon. Friend the previous Chief Secretary spoke in no uncertain terms to the local authorities about the Government's determination that they observe a certain amount of restraint in their spending programmes. I cannot see that it is exactly helping to observe restraint in local authorities' spending programmes to encourage them to borrow money more cheaply than they would have to pay for it at home. Therefore, I am not sure that that argument entirely stands up at present.

The third proposition my hon. Friend advanced was the one which the hon. Gentleman touched on about the fact that there was nothing immoral about borrowing overseas. As it happens, broadly speaking I agree with my hon. Friend and with the hon. Gentleman on this point. I think that it was a fair point which my hon. Friend made in Committee when he perhaps dissociated himself from many of those—I do not think I would include myself among them—on what was then that side of the House who criticised the previous Government for going to the international pawnbrokers. I think that there was a certain amount of exaggeration in that argument, and I should not necessarily dissent from the proposition to that effect which my hon. Friend advanced in Committee. But it is clear—I do not think that the hon. Member for Heywood and Royton (Mr. Joel Barnett would dispute it—that this can be only a temporary phenomenon and it does not eliminate the long-term need to correct the reasons why the overseas borrowing has arisen in the first place.

There is, however, one point on which one might encourage my hon. Friend the Minister of State to comment. Notwithstanding what he said about the way in which this borrowing was to offset the capital outflow, the general impression that has been created is that the borrowing, recalling what my right hon. Friend the then Chief Secretary said on Second Reading, was required to finance a balance of payments deficit which was acceptable as part of the basis of our growth strategy.

The trouble here is that the growth strategy is not what it was. I say no more about that, but since the growth strategy—to the relief of some of us, I confess—has been a bit demoted, should we not ask whether the raison d'être which led to the desirability of the borrowing in the first place has not also more or less disappeared with it?

The fourth argument which my hon. Friend advanced was that there was no need to worry about the scale of the borrowing which had already taken place and was likely to take place in future under Clause 4 because the main burden of capital repayments would not occur until we had the riches from the North Sea. I sometimes feel that we are counting our blessings from the North Sea with rather excessive enthusiasm and haste. I hope that in this respect we have done our sums aright.

However, if I may say so, I do not think that my hon. Friend, in advancing those four propositions in Committee, entirely answered some of the other questions which were raised on this clause. He was asked by the hon. Member for Heywood and Royton, and by me, I think, but was unable to give a clear answer, what was the additional burden of servicing charges which we were incurring by financing the deficit through local authority and nationalised industry borrowing as opposed to that which we should have incurred if we had exercised our rights with the International Monetary Fund. I wonder whether he can elaborate on that tonight.

Before we leave the clause, we should be clear on the justification for using local authorities and nationalised industries rather than exercising our rights with the IMF. I realise that the attraction of using Glasgow Corporation or the Central Electricity Generating Board to finance the balance of payments deficits is that they do not incur the visitations of Mr. Richard Goode or his successors. I have seen the comment recently in the newspapers—it seems to be fashionable now ; one finds it in the Economist, and nothing could be more fashionable than that—that it was untrue to suggest that the visitations of Mr. Goode or his successors induced Governments, let alone a Government such as our own, to pursue policies which they would not otherwise have intended to pursue. I wonder a bit about that when I contemplate the impact which the visitations of Mr. Goode appeared to have on the course of policy under a Labour Government.

In consequence I wonder whether, if we had been receiving such visitations because we had chosen to finance the balance of payments deficit by exercising our drawing rights with the fund rather than through the local authorities and the nationalised industries, we should have continued to indulge in a growth in the money supply varying between 20 per cent, and 30 per cent. over the last two years and whether we should have had a net borrowing requirement of £4,500 million this year.

That draws me to the suspicion that we might not have been experiencing the current rate of inflation if we had chosen to invoke our borrowing rights at the IMF and if we had accepted consequential drawings. I do not know, but that seems to me a not impossible proposition. However, we need to know how much further we are to go along that road. The first point in that respect is how much overseas borrowing has already been incurred by the local authorities and nationalised industries. I was interested to see that whereas my hon. Friend the Minister of State told me before Christmas that the average burden of interest payments incurred over the next five years would amount to around 200 million dollars a year, in an answer given since the House resumed that figure had gone up to 270 million dollars for the current year, which would seem to indicate that the burden of interest rates was already escalating at a fairly horrific rate.

Reference has been made to the comment of my right hon. Friend the Paymaster General who pointed out that my right hon. Friend the Chancellor had made it clear some months ago that he might, if necessary, approach the International Monetary Fund. We have all read with interest the reports of the meeting of the Committee of 20 in Rome last week. It might have been constructive if we had had a statement today about the course of that meeting because it had some fairly far-reaching implications and, possibly, repercussions. That apart, however, it was reported in the Press over the weekend that during the course of this meeting discussion had been initiated about the possibility of the United Kingdom activating the first tranche of our borrowing entitlements to the IMF amounting to approximately 800 million dollars.

Against the background of the latest trade returns such a borrowing might be a little reminiscent of Mr. Micawber going round trying to importune his friends for a flybutton. One would not have thought that 800 million dollars would have made a very big impact, but it would be interesting to know whether my hon. Friend can shed any light on the extent to which such reports are based on fact and whether he can shed any light on the Government's intentions regarding future borrowing from the IMF rather than further reliance on the borrowing capacity of the nationalised industries and the local authorities.

I notice, on re-reading the speech of the hon. Member for Heywood and Roy-ton in Committee, that he complained about the manner in which we were liable to get locked in to a parity situation because of the obligations we had incurred from exchange rate guarantees on borrowings that had already been carried out. I must confess that I would not necessarily regard that as an unmitigated disaster. I have always been highly sceptical about the virtues of floating. My scepticism has in no way diminished because of what has happened in recent weeks.

We would be very much better advised, rather than continuing to try to dirty the float, as it were, to use the borrowing powers of the nationalised industries and the local authorities to fix the rate, to seek international support from the IMF and from the other Governmental sources of supply of overseas borrowing, and to accept the strings which would undoubtedly be entailed therewith.

I must explain to my hon. Friend the Member for Horn-church (Mr. Loveridge) that the powers that are granted in this part of the Bill do not represent in any way a new policy. Nationalised industries first began to acquire foreign currency borrowing powers in the 1960s under the then Labour Government. The air corporations were the first. The others followed as opportunities for legislation arose. The Bill merely completes the process so that all the nationalised industries and public corporations will be in a position to take advantage of opportunities which might be available.

Powers are given in the Bill to those industries which do not already have them. The opportunity has also been taken to remove an anomaly in the existing powers of the electricity authorities and the Co vent Garden Market Authority. I must tell my hon. Friend the Member for Hornchurch that we are not embarking on any new policy.

I should explain to the hon. Member for Newcastle-under-Lyme (Mr. Golding) that within the framework of the borrowing programme, and having regard to the substantial sums that have been raised so far, I am confident that the terms which have been obtained are in general very satisfactory. The majority of public sector borrowers have received an exchange rate guarantee and, therefore, they bear no exchange risk. I can assure the hon. Gentleman, he having asked about the scrutiny which the Treasury gives to each of the loans, that each loan is considered separately and that its terms are studied to ensure that it is in the national interest, and in the interests of the public sector authority itself, to borrow overseas in the manner proposed.

My hon. Friend the Member for Hornchurch asked how much we had so far borrowed abroad. In 1973 the public sector borrowed to the extent of 2,495 million dollars. The resulting inflow of funds was sufficient to finance approximately three-quarters of the current account deficit estimate for 1973 as a whole. When interest rates abroad are competitive with sterling, and when we need in any event to finance a payments gap, I have always believed this system to make considerable sense.

Moreover, it should be remembered that this country normally exports more structural capital than it imports, largely in respect of export credit, aid and other forms of overseas investment. Therefore, the fact of my stressing in Committee primarily the structural capital account and my right hon. Friend the previous Chief Secretary's stressing on Second Reading primarily the current account deficit was of no great significance.

The fact is that as a result of this policy we had an inflow of 2,495 million dollars, which was of great benefit to our balance of payments. In Committee I referred to the reasons of my right hon. Friend the then Chief Secretary, saying that

"it makes sense to borrow foreign currency in this way in order to increase the resources available to help finance our balance of payments deficit on current account."—[OFFICIAL REPORT, Standing Committee F, 20th December 1973 ; c. 178.]

I was referring to both the structural capital account and the current account.

Of course, overseas borrowing involves an exchange risk. But whether there is a loss of real resources for the country is an entirely different matter. We may be obtaining capital at a lower real cost than would otherwise be the case.

My hon. Friend was worried about borrowing short and lending long. It is an understandable matter of concern, but I can assure him that we have not allowed any public sector borrowing for terms of less than five years up to now. I pointed out in Committee that the repayments of principal arrive towards the end of the decade and early in the 1980s. Over the period ahead we can expect the underlying balance of payments to improve as the measures taken by the Government and the competitive value of sterling become reflected in our trading flows. By then we shall be benefiting from North Sea oil.

The recent oil price increases will tend to mask changes elsewhere in the balance of payments, but the oil price problem affects all oil-consuming countries, and will need international arrangements to handle it.

The extent of our overseas borrowing is not, in the Government's view, such as to cause any serious worry about the repayments schedule, which is reasonably well spread over the late 1970s and early 1980s. The hon. Member for Heywood and Royton (Mr. Joel Barnett) looks unhappy about that, but it was a point of great concern to my hon. Friend.

I was only recalling that I had asked about the other loans which will come later and which will have to be repaid at the same time.

I will come to that in a moment.

As I said in Committee my right hon. Friend the Chancellor has stressed that our reserves are strong and that if the circumstances required it he would not hesitate to have recourse to the IMF or other facilities.

My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) asked a number of questions about the relative costs of borrowing in Eurodollars in the way we are now doing and borrowing from the IMF. It is difficult to specify precisely the interest cost of the public sector loans, because a little less than half of the total amount is represented by the Electricity Council loan, which is on a floating basis, geared to the inter-bank rate, and the interest rate charge on the balance of payments will vary with interest rates generally. At present our interest payments amount to over 200 million dollars a year, and a little under half that amount is at a floating rate. Our invisible surplus is now running at 2,000 million dollars a year, so there is a substantial difference between the interest payments and our invisible account surplus.

Capital account repayments at the moment show maximum repayment by 1980 of 670 million dollars. These are figures which I set out in an answer to my hon. Friend the Member for South Angus on 28th November 1973. I would be happy to bring that repayment schedule up to date as we go along if my hon. Friend would table further Questions. None of these figures is of an order which need cause us concern so long as the balance of payments develops as we expect and which Government policies are designed to achieve.

These loans bear a higher rate of interest than that which would be paid by central Government on drawings by the International Monetary Fund. One could take 10 per cent. as being roughly the cost of borrowing in Eurodollars. Borrowings from the International Monetary Fund would be considerably less, but to base this amendment, which I realise is a probing amendment, on that is to ignore completely one of the beneficial effects of these loans.

If the amendment were to be carried, the nationalised industries and other authorities mentioned in the Bill would not be able to take advantage of the lower interest rates payable on Eurocurrency loans. They would have to pay domestic rates on all borrowings at a time when sterling rates are unusually high. The saving to public sector borrowers who go by this route and borrow overseas is now about 1 per cent. per annum and, given the size of the borrowing, this is not negligible.

I must make it clear to my hon. Friend the Member for South Angus that because a local authority borrows abroad that does not in any way increase the total of local authority borrowing. I think he was implying that it was strange that at a time when we are going into a more rigorous period of capital expenditure—he was referring to the announcement of my right hon. Friend the Chancellor on 17th December—we should continue to allow overseas borrowing by the public sector. But capital expenditure by local authorities requires loan sanction and the capital expenditure of the nationalised industries is controlled by the Government. This does not increase the total of borrowing by the public sector.

The hon. Member for Newcastle-under-Lyme said that he thought this was probably something to do with the fact that the Government could not borrow what they needed within the United Kingdom. A Government, by its very nature, can always borrow. What it cannot do is always to borrow in a way which is not inflationary in its consequences. Overseas and domestic borrowing have precisely the same effect on the money supply either way. If a local authority borrows abroad, the equivalent amount of sterling has to be purchased in the United Kingdom and therefore the money supply is unaffected either way.

There is no question but that a Government can always borrow. The question is what it can borrow without inflationary consequences for the economy. The question whether the public sector borrowers at home or overseas does not have any effect on the money supply. Whether the public sector borrows overseas or within the United Kingdom does not affect the money supply in either case.

1.45 a.m.

I was asked about the subsection dealing with borrowing from Community institutions. The reason for it is that the European Investment Bank, in particular, normally lends in a package of currencies which include sterling. Therefore, we needed to insert the clause in the Bill to ensure that project borrowing in the United Kingdom which might be suitable for loans from the European Investment Bank was not inhibited thereby. There have, I think, been two borrowings from the European Investment Bank—one for the British Steel Corporation, and, subject to my memory, one for the Industrial, Commercial and Finance Corporation.

Can my hon. Friend shed any light on the news we have had of the discussions in the Committee of 20 about possible activation of our borrowing rights with the fund?

I cannot go beyond what my right hon. Friend the Chancellor has said. He has made it clear that if we need to look elsewhere for additional borrowing facilities overseas, and if the circumstances require it, he will not hesitate to do that.

I asked whether the investment fund would loan to Treasuries or whether the loans would be for specific projects. It has been asked whether it would be better for the Treasury to borrow all the money from abroad rather than that the nationalised industries should go separately to Europe or elsewhere for funds.

The European Investment Bank was set up primarily to lend for projects such as the Teesside project, where it made a loan for the British Steel Corporation. As part of the arrangements under the Treaty of Accession, we have subscribed to the capital of the bank, but its principal purpose is to make loans on projects and for regional development and structural and other purposes.

The public sector borrowing programme remains part of our general balance of payments strategy. The borrowing needs to be regulated if it is not to have possible adverse effects on credit ratings and on availability. That is why we are not allowing every local authority to borrow. We have had to set a limit on the size of local authority which can borrow by this means abroad, but generally we expect that borrowing in the current year will be more or less the same as in the past year. We intend this policy to continue because of the considerable benefit which it is bringing to the financing of our balance of payments.

I was interested to hear from the Minister that the invisible account now exceeds the interest which we would be paying on these loans. However, I always thought that we were using the invisible account to reduce the deficit on the visible account. I should like the invisible account to be used twice, but I doubt whether that is possible.

This has been an interesting debate and will have been helpful to hon. Members. I beg to ask leave to withdraw the amendment.

I beg to move, That the Bill be now read the Third time.

I am sure that hon. Members would not wish me at this late hour to outline in detail again the main purposes of the Bill. Its main purpose is to authorise the payment of compensation to certain nationalised undertakings for the deficits they have incurred or are incurring as a result of price restraint policy and to widen slightly the borrowing power of a few of the public corporations, in most respects to bring them into line with the powers already exercised by the majority.

If there are any extremely pressing and urgent matters which hon. Members wish to raise, perhaps I may, with leave, reply to them later.

That contribution hardly did justice to the importance of the Bill that is before the House tonight. It is an oddity that during the Second Reading there was little interest in the Bill, and a poor attendance. Tonight it has been taken as the second debate of the day. This is very odd, when one looks at the sums involved, because one sees that the Bill provides for £145 million in respect of losses in 1970–71, 1971–72 and 1972–73. For 1973–74 and 1974–75 we are talking of total payments which may not exceed £400 million or, by Treasury order, a maximum of £500 million.

They are very substantial amounts, and are worthy of discussion. [Interruption.] The hon. Member says, "Not now". If that is the attitude of those on the Government benches, the Government Whip should not have moved the Third Reading tonight ; he should have moved it tomorrow or the day after, or on some subsequent occasion.

The Bill is an important one, because it provides for—in some cases without redistribution—an income which is undesirable. In respect of 1970–71, 1971–72 and 1972–73 the Bill provides compensation of nearly £146 million to meet the deficits of the nationalised industries. Some of us believe that if the nationalised industries are to be compensated at all they should not only have compensation for the losses recorded but there should be some element, however difficult to define, of compensation for the profit that they did not earn.

I said that the Bill redistributed income, and so it does. As I understand it, the sum of £146 million is to come from moneys provided by Parliament—which is a euphemism for taxation. The money will come not from Parliament but from the people. The money will come from general taxation. Therefore, it is not a case, as it would be in private industry, of the people having avoided paying amounts from their pockets. They will pay, whether they pay for the services of the nationalised industries or their products or later through taxation for compensation payments. Thus we are not talking about improving the lot of ordinary people through this measure.

There are services which are to be compensated for from sums obtained by Parliament from working people. Some services have been, and will be, provided at a lower cost to people who could well afford to pay for them. The basic objection to Clause 1, with Schedule 1, is that it provides for the subsidising of groups and individuals who require no subsidy. Clause 1 and Schedule 1 contain a policy which is undesirable in itself. If these compensation payments are being paid to the nationalised industries on this scale, this money—nearly £146 million—will not be available for other projects.

On Second Reading I made the point, which I reiterate, that I could see no logic in the payment of compensation to a telecommunications service which could be very profitable and which could expand easily on its own account. I cannot see why we should, in effect, pay subsidies to those who use telephones in their inessential businesses when we refuse absolutely to subsidise many food products. I cannot see why we should pay this £146 million at all. It would have been better for the nationalised industries to pursue a pricing policy which was on all fours with private industry.

Many of us believe that the nationalised industries have been discriminated against in two ways. First, the formal codes have discriminated against them. Secondly, however, many of us believe that there has been arm-twisting of those who take the decisions in nationalised industries. We believe that the amendments raised by price increases in the nationalised industries have been less than the code permits. Because of this those industries have suffered severely.

I am in broad agreement with several of the points made by the hon. Member for Newcastle-under-Lyme (Mr. Golding), and I hope they lost nothing by reiteration.

I said on Second Reading that this was a bastard Bill and its parentage has not become more attractive as we have learned more about it. This is one of the numerous consequences of the foolish attempt to try to control inflation by passing laws against it. So long as we indulge in that folly, we shall be faced with Bills like this. It will not be the last unless and until we abandon the attempt the deficiencies of which we so roundly exposed for many years. Every word we said then has been borne out in the event.

I hope that my right hon. and hon. Friends took careful note of the Report of the Select Committee on Nationalised Industries. In paragraph 108, it said:

"To sum up, your Committee believe that the evidence which has been presented to them shows that, in the last five years, the impetus towards a more rational control of the nationalised industries has tended to decrease."

That is a grave charge to be levied against those responsible for public supervision of these industries. It is not an unfair judgment of the consequences of statutory control of prices and incomes and (he attempts to manipulate the price system which preceded them and of which the Bill is the consequence.

In paragraph 111, it said:

"Your Committee believe that the Government should make an early statement setting out the steps which they propose to take to restore the industries to profitability."

I hope that the Government will act on that proposal, not least because it will be impossible to do so as long as they pursue the follies of a statutory control of prices and incomes.

The shadow Treasury Bench has noted all that has been said by my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding). We are aware of all that has been done to the nationalised industries over the years, and when the positions are reversed in the near future the treatment of these industries and of the economy will be very different.

The Bill, like other aspects of Government policy, is left even at this late hour very confused. The Minister of State expressed a pious hope when he talked of getting back to commercial targets or a favourable balance of payments in the near future. I hope that he is right, but I fear not, at least in the near future.

We support the idea of subsidies, given the level of inflation. We recognise the need for borrowing, given the balance of payments deficit. In those circumstances, we do not propose to divide against the Bill.