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Orders Of The Day

Volume 888: debated on Wednesday 12 March 1975

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Prices Bill

As amended (in the Standing Committee), considered.

Clause 1


4.46 p.m.

I beg to move Amendment No. 1, in page 2. line 6, leave out £1,200' and insert ' £1,000 '.

With it we shall also consider Amendment No. 2, page 2, line 21, leave out subsection (3).

Lord Avon, when he was Sir Anthony Eden, once said that everyone is always in favour of general economy and particular expenditure. It is one of the objectives of our amendment to attempt to achieve the former and eventually to provide scope for the latter. In moving the amendment, however, I make it quite clear from the outset that in proposing to reduce the level of expenditure on food subsidies we in no way underestimate the effect of accelerating inflation on those who are most vulnerable in the community or the degree of anxiety and often hardship that this causes.

However, there are a number of other ways in which such people could have been helped more directly, more effectively and less expensively. They are already helped in many ways by the indexation of benefits and pensions. We do not under-rate the extent of public alarm about the present disastrous rates of inflation, but for most people incomes have remained well ahead of prices. I entirely recognise that for those who are responsible for doing the family shopping this may be very difficult to accept, particularly if they have not had the whole of their share of wage increases passed on to them. Even if they have had it passed on they may entertain very justifiable fears about what is likely to happen if inflation continues at the present rate.

Nevertheless, the gap between the increase in average earnings and the increase in the cost of living should be enough to provide now and for the period we shall be discussing sufficient scope to offset the effect of our amendment. Unfortunately there is a group of people in the middle income group who have already suffered a significant erosion in their standard of living and they would be the first to bear the full brunt of our amendment. But these are not the people at whom subsidies were aimed in the first place, and they will not suffer hardship as a result. I would have thought that by cutting back expenditure in general, eventually these will be the first people we shall be able to help by means of a decrease in taxation and in contributions.

I hope that the House will accept that we have carefully considered both the social and the economic implications of our amendments, in which we propose to peg spending on food subsidies at £1,000 million. If spending were to continued over the time scale proposed in the Government's public expenditure survey, food subsidies would cost no less than £3,000 million by 1980 after allowing for a comparatively moderate rate of inflation.

That is a high price to pay for a policy that the Government intended to discard. That is a high price to pay for a policy that many people look upon as nothing more than the political raison d'être for the creation of the Department of Prices and Consumer Protection and as one of the conditions of the social contract. It is a very different sum from the £500 million and the £700 million that were first put to us when the Prices Act was first embarked upon. On that occasion we pressed and pressed to be told how much the subsidies would cost in the end. Apparently the right hon. Lady did not believe that it was relevant to point out that long after the last vestige of any of the relevance that the subsidies may have had in the first place had vanished the country and the people would be paying a very high price for them.

It is fair to say that the right hon. Lady has always made it clear that food subsidies were not to be a permanent feature of the economy. Indeed, the Government, and particularly the right hon. Lady, have announced their intention of phasing them out and replacing them with alternative appropriate social security benefits. We cannot help but muse as to why, if there are alternative appropriate social security benefits, they were not introduced in place of subsidies in the first place.

The reason for all Governments having eventually to phase out food subsidies is that the cost gets out of control. The Government have accepted that in the case of nationalised industry subsidies. It is just as true in the case of food subsidies.

What lies between the Government and us is no longer the principle but the timetable. I cannot think that even those Labour hon. Members with whom we have often discussed these matters can now believe that the subsidies were a sensible, effective and expedient way of bringing direct help to those hardest hit at a time of severe inflation. I cannot think why the Secretary of State finds it necessary to defend them so passionately and so often when she herself has announced her intention to get rid of them. In many ways the subsidies have been little more than a cruel delusion. They have heightened unreality, disguised inflation and left us late in the day to face disastrous rates of inflation together with a public expenditure crisis. As we read in the Economist this week, public expenditure levels as a percentage of the gross national product are now nearing wartime levels. That must constitute something of a public expenditure crisis.

I do not intend to go into all the arguments that my hon. Friends and I have put to the House so often about the marginal effects of the subsidies. I hope that the House will not think it immodest if I say that the reason why I do not intend to rehearse them is that we have proved indisputably over and over again that the subsidies have been neither economically wise nor socially compassionate. Moreover, we maintain that at such a time as this superficial policies which may have immediate political appeal but over-simplify the questions and distort the answers are positively dangerous. Even in the context of a near-normal economic situation it cannot be claimed that this was ever anything but a wasteful and indiscriminate policy. We have always argued that avail- able resources could have been concentrated much more effectively on those in need. However, at a time of economic crisis, when the Chancellor of the Exchequer—

As someone who served on the Committee, I have heard the hon. Lady advance her argument before. She says that her party had alternative means, but as far as I know she never described them to the Committee. Further, she has not described them today. What alternatives can the hon. Lady put forward to my right hon. Friend's proposals?

I am sorry that the hon. Gentleman, through no fault of his own, was something of a fleeting visitor in Committee. Probably he did not hear all the arguments that were put forward on a number of occasions and through all the stages of the subsidy legislation. I shall return to that point a little later. I am grateful to the hon. Gentleman for raising it.

At a time of economic crisis even the Chancellor of the Exchequer, whose autumnal euphoria was shattered by the bleak realities of winter, found when the carefully contrived autumnal mists had rolled away that the rate of inflation was not 8·4 per cent. as he claimed, and was not 10 per cent. as he had forecast, but was 26 per cent. He now claims that there is the possibility of national bankruptcy. It is against the background of that statement alone that we believe that the sums proposed in this legislation would be the height of folly in the context of the Government's public expenditure survey. That is particularly so as at least part of the money for the subsidies, as was acknowledged in Committee, must be found from the Budget borrowing requirement.

That means one of two things. First, we can increase our debt and attendant liabilities. Secondly, we can print money. That in itself would be inflationary and would negativate the effects of the food subsidies. In the context of a Budget borrowing requirement of nearly £8,000 million we no longer have the scope for this kind of spending without courting disaster and harming the very people whom we all want to help.

It is tragic that at a time when inflation is declining in most of the major industrial countries in the world Britain has a rate of inflation which is advancing at a catastrophic rate, so that our capacity to provide help even to those in most need, and even by more sensible means than subsidies, must be limited. Our opportunities for doing so have been preempted by an overriding need for economic stringency as well as by the already crippling state of taxation. That is the price that we are paying for 12 months of Labour Government without any coherent counter-inflation policy ; for 12 months of Labour Government in which public expenditure has been increased in a profligate manner ; for 12 months of Labour Government to use the right hon. Lady's own words— in which they have gambled on the social contract. It is partly because it will be wage costs rather than raw material costs—

I think the hon. Lady has made a misquotation of what I said. I said that the social contract was a gamble on democracy. I went on to say that it was our recognition that people were mature enough to accept voluntary restraint. I should like to straighten out what she quoted.

I am grateful for the right hon. Lady's clarification. It seems that she used the word "gamble "—

There are many people who by now must look upon the Government's action as just such a thing. As I was saying, inflation for the coming year is likely to be triggered more by wage costs than by commodity prices. In fact, commodity prices are likely to decline. They have been declining in the past few months. Food subsidies were a condition of the social contract. They were introduced at least in part to buy off inflationary pay settlements. That is an attempt that has failed.

I regret to tell the House that in Committee we received no undertakings from the Government that they would not use the subsidy money to subsidise excessive pay settlements—

Would the hon. Lady not agree, as her colleagues agreed in Committee, that the threshold agreements that we inherited from the previous Conservative administration, when wage rates were related to the retail price index, had a bearing on inflation? Does she agree that the Labour Government's intervention by way of food subsidies kept down the level of the price index and had an effect in keeping down wages?

To the limited extent that subsidies kept down the RPI during the period when thresholds were operational, that is true. We often hear the argument from the hon. Gentleman's hon. Friends that present wage rates are the result of thresholds and special cases. That might have been true in the early part of the year, but it was not true in the latter part of the year, when wage rates accelerated a good deal faster.

5.0 p.m.

I do not intend to extend my remarks to deal either with the adequacy of the social contract or with the enigma of its somewhat elastic and elusive criteria. I will leave that argument to those members of the Government who are debating it openly, and perhaps more explosively than I would wish to do, except to say that the conflict within the Cabinet in which certain Cabinet Ministers are expressing their deep, mounting and justifiable fears about what they see as a serious erosion of the social contract and the need for these criteria to be more closely observed is, if anything, the greatest validation for our amendment that we could possibly have.

We have always accepted that food subsidies cannot be phased out overnight. That is one of the difficulties that we pointed out when they were first introduced. Apart from the social consequences, there are difficulties for the trade. Perhaps to some extent the right hon. Lady may have overstated the case in Committee when she said:

" the Opposition, who have close links with the food industry, not least with the food manufacturers, distributors and others, should recognise the problems involved in a sudden withdrawal, or even a sudden halving of the rate, of subsidies. The amendment indicates that they have not seriously thought through the problems entailed if it were accepted."—[Official Report, Standing Committee B, 18th February 1973 ; c. 109.]

I am authorised by the Food and Drink Industries Council to say here in the House today that it would like to see subsidies phased out.

The Under-Secretary of State for Prices and Consumer Protection
(Mr. Robert Maclennan)

At what speed?

The Council has authorised me to tell the House that the speed would be over a period of three years. As the hon. Gentleman and the right hon. Lady know, the paper submitted to them by the Federation of Bakers entitled "The State of the Baking Industry "states:

" The industry is now convinced that the subsidy scheme and the price policy underlying it is working in a manner inconsistent with the long-term functioning of the baking industry."
However, we have tried to give the Government maximum flexibility in our amendment, because we entirely recognise that the phasing out of subsidies is a delicate operation. The Bill provides for £1,700 million to be spent, of which approximately £515 million has already been spent and of which the final £500 million cannot be spent before 1st February 1976. We seek to reduce that amount to £1,000 million, which will leave the Government to spend approximately £485 million over whatever period they wish and on whatever they wish. That is approximately £423 million less in constant 1974 money terms than the amount expressed in 1974 money terms in the Government's public expenditure survey over the next two years. However, it represents a saving of £2,000 million in money terms by the end of 1980.

I hope that the House will accept that in producing these figures we are in considerable difficulty. First, we do not have the resources of the Civil Service available to us, and, secondly, we are in the difficulty of translating the sums in the public expenditure survey into money terms, involving as it does the projection of inflation. We have tried to err on the moderate side. We realise that the figures cannot be correct to the last million pounds, but we believe that they are broadly sufficiently correct to reinforce our arguments.

The House will be aware that proposals to curtail food subsidies of this order and in these circumstances are by no means unprecedented. In his 1952 Budget Statement, with what was remark- able prescience in the context of this amendment, Lord Butler said:
" the very intensity of our economic situation makes it essential to lighten the burden on the economy to bring back…reality."—[Official Report,11th March 1952 ; Vol. 497, c. 1296.]
Lord Butler was proposing to phase out food subsidies in that financial year by what would be at 1975 levels of value £450 million in one year followed by £200 million at 1975 levels in the second year, altogether £650 million— a much sharper curtailment than we propose.

There is one startling coincidence between subsidies at that time and subsidies today, which is that they were worth approximately is 6d per person per week, which, translated into 1975 levels, is 22½ per person per week, identical to the value of present-day food subsidies per person per week.

During the two years in which Lord Butler was phasing out subsidies by this substantial amount, the retail price index fell from a level of increase of 9 per cent. in the previous year to 3·1 per cent. in the first year of the phasing out and 1·9 per cent. in the second year. That is over a 12-month period. The effect was hardly traumatic. It is true that there was a drop in commodity prices during that period, but it was not a dramatic drop. The difference was that the Government were in a position to harness the benefit of the drop in commodity prices because they were moderating public expenditure, they were moderating taxation and there was moderation in wage levels.

Lord Butler went on in his Budget Statement to say— quite correctly as events have proved :
" high Government expenditure accompanied by high taxation themselves have an inflationary effect."— [Official Report, 11th March 1952 ; Vol. 497, c. 1288.]
Lord Butler was not the only one to embark on such a policy. Another Chancellor of the Exchequer formally in his Budget Statement in referring to expenditure on food subsidies said :
" that just cannot go on. We must call a halt…prices have got out of all relationship with realities ".
I am glad to see the hon. Member for Aberdare (Mr. Evans) in his seat. He will recall the number of occasions in Committee on which he quoted his hero, none other than the late Sir Stafford Cripps. That quotation came from Sir Stafford Cripps's annual Budget Statement in which he was proposing to reduce food subsidies by a substantial amount, which he did. He, like Lord Butler, and as we shall be doing today, spoke of the need to face the realities of the situation.

Would it be true to say that there was a movement away from the food subsidies which were introduced during the war years, maintained by the Coalition Government and continued when Sir Stafford Cripps became Chancellor because of the Agriculture Act 1947? By giving subsidies to the farmers, by deficiency payments and guaranteed prices, the Labour Government ensured that the people had cheap food. That Act produced a prosperous agricultural industry and cheap food for the people. I cannot recall the Budget to which the hon. Lady referred, but I think it was at about that time.

Sir Stafford Cripps said that in his Budget Statement in 1949. He said:

" Prices have got out of all relationship with realities."— [Official Report, 6th April 1949 ; Vol. 463 ; c. 2085.]

The hon. Lady confirms what I thought. At about that time the 1947 Act came into effect. Subsidies were being removed because the Labour Government had kept down essential food prices by the Agriculture Act 1947, which the Conservatives have since repealed.

I do not think 1 should pursue that point, Mr. Deputy Speaker, because you might not think it was in order. The fact remains that Sir Stafford Cripps referred to the relationship between reality and prices, which is precisely the point I am making.

The value of the present subsidy is about 85p per average family per week. The effect of the amendment— again we can make only a rough forward projection — is that if subsidies were phased out over a three-year-period there would be a cost of about 7p per person per week, which is a trifling sum compared with the thousands of millions of pounds we would save. The effect on the retail price index would be approximately half of 1 per cent. per year over three years. It would be for the Government to decide their priorities and on what they should spend money. They may wish to spend the whole of the money on milk subsidies. That might be a sensible suggestion, but again it would be for them to decide.

Having said that 7p was a trifling sum, I wish to make it clear that to many people 7p is not a trifling sum. To a pensioner it can mean an extra pint of milk or cream on Sunday. However, pensions are already indexed, and if the Government had followed our example and introduced a six- monthly review of pensions that would have helped considerably. Rather we proposed to introduce it.

I might add that we continue to propose them in Opposition. If the sum of 7p were aggregated to a poor family, it would mean the difference between their buying occasionally what most people take for granted and buy all the time. We do not underrate the effects, but we have said that there are a number of ways in which a family could be recompensed and it would be for the Government to decide.

In reply to a Written Question tabled by my hon. Friend the Member for Altrincham and Sale (Mr. Montgomery) on 6th March, in column 505, we were told that the cost of providing a family allowance of 30p for the first child would be £60 million a year, allowing for tax clawback. The cost up to 1980 would be £300 million against a figure of £3,000 million for subsidy. If compounded over a period of three years, the cost would be about £360 million. Again, it would be entirely for the Government to decide in what way they wished to allocate resources or wanted to obey their own priorities.

I cannot understand the hon. Lady's argument. Is she suggesting that more national resources are available now than were available between 1970 and 1974? She spoke about allowances for the first child and implied that the Government could use this money for that purpose. Was not that money also available to the Conservative Government and could not they have offered allowances for the first child? Why was such action not taken earlier?

I would remind the hon. Gentleman that he is comparing a period when the rate of inflation was 13 per cent. against a figure at present of 26 per cent.

It makes a great deal of difference. I am not suggesting that the Government should make this expenditure. I am suggesting that it is one means of compensation which would be available. I am comparing costs. If our amendment were accepted, by 1980 we would save £·2,000 million. That would have an effect in helping to restrain inflation. When suitable economic circumstances arise and money is available for expenditure, it will give the opportunity to embark on a number of priorities.

Hon. Members and Ministers have their pet projects and most of them are worthy ones. Some projects which come to mind are implementation of the Finer Committee's recommendations, assisting the removal of the tax on widows' pensions, help for disabled housewives and many others. They are matters on which all of us would like to spend money. If the money were available, one could spend the next hour conjecturing the sort of project on which one could spend it. But what is certain is that in the present situation that money is not there and we cannot continue expenditure at the levels proposed by the Government in their Bill. If by saving this money we were to succeed in helping to restrain inflation, that would be the finest social service possible.

This, in effect, is the moment of truth for the Government. They now have to balance economic realities against political expediency. They must now accept the former and reject the latter. We believe that our amendment provides an opportunity for them to do so. We regard it as a sensible and practical provision. It will allow them to change direction and show their resolve to overcome our economic difficulties, which are very great. We believe that it is crucial to the interests of the country and, indeed, to ail those who otherwise will inevitably suffer directly the trauma of widespread unemployment and possibly also of economic ruin. We believe that neither the Government nor the country can afford to neglect this opportunity.

5.15 p.m.

I hope the House will reject the amendment. In Committee a similar amendment was tabled seeking to leave out the figure of £1,200 and insert £900. At least it can be said that the Opposition are making some progress.

I believe that the use of food subsidies has been fully justified. The action taken by the Labour Government in the last year can be fully justified by events, and I believe that the subsidies should be continued. I am not saying that they should continue ad infinitum. I believe that the subsidies should be reviewed in meeting the needs of the people. They have played a part in supporting the social contract for which the Government have been seeking wider support from the general public.

The Conservative Government operated a statutory incomes policy. That was coming to an end and needed to be replaced by something else. The hon. Member for Pudsey (Mr. Shaw) raises his eyebrows. I do not know whether he would suggest that they would continue a statutory incomes policy. If that is the case I give way to the hon. Gentleman.

The hon. Member for Aberdare (Mr. Evans) appreciates that the statutory incomes policy was being phased— phase 1, phase 2 and phase 3. I thought that the Government at that time came to an end before the incomes policy reached an end.

We now have a voluntary incomes policy and there are many parts to the social contract. One part involves the implementation of the food subsidies policy. This has been part of the social wage. When we look at the figures elsewhere, we can see the success of that policy.

I shall not become involved in arguments about the Common Market because I know that I shall be ruled out of order, but it is relevant to quote some figures from a recent document issued by Reuters and the Press Association based on retail food prices comparing London, Paris and Bonn. We find that the price of butter in London under a Labour Government was 26p, in Paris 63p, and in Bonn 63p. The price of cheese per pound in London was 40p, in Paris 81p and in Bonn 139p. The price of bread in London was 8p a pound, in Paris 24p and in Bonn 21p. The price of milk per pint was 5p in London, 7·2p in Paris and 10p in Bonn. Therefore, we in this country are in a far better position than are the people in those other European capitals.

I believe that food subsidies have played a part in keeping down prices in this country. Although the Opposition accept subsidies, they do not now say that we should end them tomorrow because they realise that there would be difficulties. Time and again in Committee and in the House they have denigrated the purposes of the food subsidies. They have argued whether food subsidies should come via direct or indirect taxation. Personally, I am a direct taxation man rather than an indirect taxation man. I prefer to see those with the broadest shoulders paying through income tax for what we in Parliament decide should be the social benefits.

Even if the Opposition say that this money is coming not just from what my right hon. Friend the Chancellor of the Exchequer raises in direct taxation but from indirect taxation as well, there are good social arguments for doing that. There are good social arguments for putting a tax on smoking, on alcoholic drinks and on gambling, and for saying that we should subsidise essential commodities to ensure that the lower income groups have their breakfast foods on their tables and that little children going to school get their school milk and school meals. The Conservative Party, of course, may be following its new Leader, who does not believe in free school milk—

I hope that the hon. Lady's intervention will be noted by my right hon. and hon. Friends and that in our next manifesto, or before, we shall think of doing that.

While my hon. Friend is dealing with what the Conservatives did when they were in Government, I hope he will not forget that the right hon. Member for Finchley (Mrs. Thatcher) took school milk from our children.

That is the point I was making. I am glad to have my hon. Friend's agreement.

Then again, we hear arguments that food subsidies provide serious distortions. In the earlier Committee last year, we were warned that there would be massive shortages before last Christmas. Hon. Member after hon. Member said that if the Government pursued their policy of food subsidies we might well have difficulty before Christmas in getting milk, that there would be a shortage of butter and that there would be difficulty in getting cheese. I will not taunt the hon. Member for Gloucester (Mrs. Oppenheim) by asking her whether she has yet managed to obtain some Cheddar cheese. In the last few weeks she has said in Committee that she could not buy Cheddar cheese.

I did not think that the hon. Lady had difficulty at Christmas.

In any event, what has happened? Despite all the warnings from the Opposition of the terrible shortages which would emerge as a result of food subsidies, we find that there have not been shortages of those essential food items.

Whenever a Labour Government try to do something which is socially useful, it is always argued that it is bureaucratic. It was argued that food subsidies would mean the creation of a huge bureaucracy to administer the scheme. However, we read in the explanatory memorandum that only 160 staff will be needed to administer this vast public expenditure amounting to more than £750 million.

When we talk of creating bureaucracies, we should not forget that the Conservative Government had various token schemes. They were very expensive to administer. The administration was done in a very bureaucratic way and it was far more costly than this simpler method.

The hon. Member for Gloucester then referred to inflation. Of course we are passing through a phase where there is world inflation. There is an economic crisis in the Western world. There are more than 7 million unemployed in the United States. There is worse unemployment in many parts of Europe. We are passing through a period of serious economic difficulty.

I intervened in the hon. Lady's speech to say that when the Labour Government came into power we inherited a very serious economic situation and were in the middle of a three-day working week. All the signs were that we were going into a disaster situation. I am convinced that that is why we had a General Election last February. But, in addition to the very serious economic situation, we inherited the previous Government's statutory incomes policy, including these threshold agreements which said that as the retail price index went up so wages would go up accordingly. If ever there was a design by a Government to assist inflation, that was it.

The policy which we have pursued of having food subsidies, of keeping down food prices and of keeping the retail price index down has had an effect on the wage inflation which would have occurred if it had not been done.

Earlier the hon. Gentleman spoke of world inflation. However, in most of the major industrial countries inflation has declined and continues to decline rapidly. Where there is higher unemployment than would be acceptable in such countries, those countries have the opportunity to reflate and to overcome their unemployment. In this country we shall have high inflation and high unemployment together, which means that our scope to reflate is very limited.

If the hon. Lady is saying that after four years of Tory Government we were in a worse position last year to face these problems than many other countries, I agree with her absolutely. That was the situation. But those other countries which seem to be far more prosperous flan we are have higher unemployment figures than our own. When we look at the economic situation, we cannot be satisfied when we see the inflation still taking place here, but when we look at our unemployment figures, we see that we are far better off than many of those other countries.

As for subsidies, I remind right hon. and hon. Members that we subsidise other things. We subsidise the National Health Service, education and our social security system. We do it because we find those services socially useful. We also subsidise the arts. What is wrong with the nation being taxed to provide those things which are socially useful? I am sure that the Conservative Party has not yet reached the point where it wishes to abandon the Welfare State.

The hon. Member for Gloucester has referred to the differences in the Labour Party. Comments of that kind come ill from the Opposition, who have just ousted their Leader, who now have a new Leader, and when we can see all the changes taking place as a consequence. We see the right hon. Member for Leeds, North-East (Sir K. Joseph) coming in to formulate the new monetarist policies—

On a point of order, Mr. Deputy Speaker. We did not oust our Leader under Clause 1 of this Bill. May we have your guidance on whether the debate is straying outside the confines of normal order?

I am grateful to the hon. Member for Oswestry (Mr. Biffen). I am afraid that I found the remarks of the hon. Member for Aberdare (Mr. Evans) so interesting that I allowed something to pass which I should not have. This war between Wales and Gloucester might come back to the motion now.

Perhaps I should not get involved. We know the difficulties, and we should leave them where they are. We have differences in both parties. I leave the matter there, possibly to return to it at a more appropriate time.

When the new Leader of the Opposition was elected, she emerged from one meeting and her comments were reported in the evening papers. However, they were very little reported in the morning papers, which is very strange because if there is one thing about Tory Leaders it is that generally speaking they are well reported in the Press. The right hon. Lady said :
"The Tory philosophy is that you can't have what you can't afford."
That is Tory philosophy. I believe that what we cannot afford is a situation where, at a time of very serious economic difficulty, people with very low incomes find it difficult to provide themselves with essential foodstuffs. That is why many of us look forward to the day when we have a Socialist society, when we need not have Governments intervening in this way, when there will be greater equality, and when there will not be the tremendous disparities of wealth that we have at present. When that time comes, we may not need to think in terms of what the Government are doing now. But at present, when we have these difficulties, it is essential to have action of this kind.

I am trying to follow the hon. Gentleman's argument. Perhaps he will explain one or two matters to me. He spoke about the lower paid. Surely there is no argument about the fact that there should be some sort of food subsidy for the lower paid. The argument is that there should not be food subsidies right across the board for rich and poor alike. There is a great need at the moment— I speak as chairman of a social services committee— for more money to be made available for social services to help the sick and the frail and to provide for the mentally and physically handicapped.

Order. Is the hon. Gentleman intervening or making a contribution?

It was slightly longer than an intervention, and I apologise. Perhaps it is because I am such a new Member. I wanted to get home to the lion. Member for Aberdare (Mr. Evans) that there was no quarrel about helping the poor. The quarrel is about spending money on subsidising the well off.

5.30 p.m.

I am glad to have had the hon. Gentleman's long intervention because it expresses the view of the Conservative Party. Hon. Members get food subsidies, but I hope that they fill in their tax returns properly and pay tax. Millionaires get food subsidies, but they pay tax. The method of giving food subsidies in this way is simple. Everyone gets the benefit of food subsidies. The people with very small incomes do not pay tax. Therefore, they get them for nothing. People in the middle income groups pay for what they get, so they are not getting anything at all. But the very rich, the wealthy, are paying the subsidies not only for themselves but for the less well off. I hope that we shall not have any cant from the Opposition about that matter.

We should realise what we are doing. No one should suggest that if we cannot evolve a scheme so that only certain people derive the benefit we should, therefore, stop everybody getting it. Indeed, it might be said that we can spend more on the social services. This Government have a better record than the previous Government in that respect, despite our present difficulties.

Reference has been made to Sir Stafford Cripps. At the end of the last war Churchill said that this country was bankrupt. However, that did not prevent us providing the Welfare State. We are now building on that Welfare State. But at the same time it is important to keep down the prices of essential foods for everyone, particularly for those with small incomes. We shall not argue with the Opposition if they want to spend more on the social services. When it comes to cuts in defence expenditure, the Opposition are silent because they want to spend more. But when it comes to food subsidies, they do not like that kind of Government spending. They have got their priorities wrong. This Government have got them right. I hope that the amendment will be rejected.

It is always difficult to follow the hon. Member for Aberdare (Mr. Evans) because of his fluency, but I am not entirely happy with some of the content of his speech. However, I will leave it to my hon. Friend who will be summing up for the Opposition to make a few apposite remarks.

Our argument in principle concerns what the Bill seeks to do. It seeks to reduce the amount which in time is to be sent on food subsidies. In Committee we reached broad agreement that we would like to see this objective accelerated. Hence, ply hon. Friend the Member for Gloucester (Mrs. Oppenheim) moved the amendment which indicates that we should he accelerating the process of withdrawal.

Despite discussions in Committee, one question which I did not think was adequately answered was whether people in receipt of food subsidies would prefer to maintain the existing system or to have the money given to them as cash in hand. The Secretary of State for Prices and Consumer Protection indicated that the possible replacement of food subsidies by social benefits of one kind or another was her long-term intent. Those presently in receipt of food subsidies have probably not been asked whether they would rather have the 22p per person or the 85p per family. Does the Under-Secretary have a point that he wishes to make?

I was speculating whether the hon. Gentleman was suggesting that we might have a referendum on the subject.

That possibly would not be necessary. I am sure that the hon. Gentleman can find other and simpler means of a constitutional kind whereby these consultations might take place.

There is an argument, which we accept, that in many cases indiscriminate social benefits are the only way to ensure that large amounts of social benefit reach those in greatest need. The right hon. Lady has made this point several times.

I would argue that that is the standard background to all the provisions of social benefit. It is nothing peculiar. There is always a problem of ensuring that these benefits are understood and properly claimed. I cannot believe that there is no way, provided that there is a will and the resources, of getting benefits to those in real need in the correct amounts. After all, the right hon. Lady is proposing to set up a network of national consumer council offices or advice bureaux to which those who are fortunate enough to afford expensive articles like washing machines or electric kettles with which they find fault can make complaint and seek advice for redress, which is a legitimate cause. Therefore, I suggest that one-tenth of the amount currently being spent on food subsidies could be spent on trying to find a method by which real social benefits get to those in real need. It is a matter of resources and of priority.

There is another reason why I firmly support my hon. Friend's proposal. We are concerned about the distortion effect of subsidies. We have expressed this view in several ways, and there are two specific ways to which I should like to draw attention.

First, it is clear that in certain markets food subsidies are having a major distorting effect. The most obvious is that of butter and margarine. Butter, which enjoys a subsidy of about 12p a pound, is now, within a year, substantially cheaper than margarine. Despite the suggestion by the hon. Member for Aberdare that there was no shortage, I think that he will have to agree that the amount of liquid milk available for butter manufacture in this country has been seriously reduced and that the amount of imported butter substantially increased to 400,000 tons in 1974. That brought about an additional distortion, because ;it came at significantly greater cost than would be involved in the importation of raw materials suitable for manufacture into margarine. Therefore, there have been distortions in the way that that subsidy has affected the market.

I could make a similar point on the price of bakery articles— morning goods, rolls, and so on, and the price of bread. Such distortions damage not only the industries in which they occur but the confidence of those industries to continue. The confidence of the baking industry is at an extremely low level at this time.

Another distortion as a result of food subsidies, which I consider more important, concerns the price of manufactured foods. I declare an interest in a food manufacturing company. I regret that it does not produce subsidised foods. It is well known that those who have to compete in the manufacturing and selling of foods, who are not affected by having subsidies applied to their goods or services in the general market, face severe problems. They are still tightly controlled by Section 2 of the Prices Act 1974, to which this modest Bill is but an inadequate amendment. In my view, the Government have shown themselves not sensitive enough— I recognise the many discussions that the right hon. Lady has had with the industry— to the problems of manufacturing industry in general and of food manufacturing in particular. There is increasing evidence that there is a grave loss of funds to maintain employment and supply in many sectors of the food manufacturing industry.

I have referred to the plight of the bakers, which is well known. In the past year there have been more bankruptcies and closures of small independent bakers, and the large bakers showed a substantial loss on their manufactures during 1974. I understand that the forecasts for the industry for 1975 do not show adequate profits either.

The general position of the food manufacturing industry is dire. A recent survey conducted among 26 major food manufacturing companies, accounting for about 45 per cent. of the food trade, discussed the following main points: first, the progressive erosion of margins in the period 1971–74 ; secondly, that food companies' reference levels have fallen to 40 per cent., compared with the average for all companies, excluding oil, of 60 per cent. ; thirdly, that the return on capital has also fallen. That situation is standard throughout industry.

Above all, there was a serious cash outflow over the period 1972–74, due to falling profits and the inflation of stock values. This must ultimately lead to a reduction of capital authorisations and of employment, to the closure of businesses, and possibly to lack of variety and problems over maintenance of supply. I referred to such problems when we debated the Price Code earlier in the year. The Government wish to continue with the food subsidy programme at one end of the scale, with a combination of food subsidies and severe restraint on profitability through the Price Code system at the other end of the scale. There is increasing evidence that the food manufacturing industry is in a severe nutcracker.

The Bill makes two simple amendments, one on subsidy and one on price orders. It fails to make the most important amendment that we should see made now, which is to offer increasing flexibility within the Price Code and possibly even to abolish the code.

Order. I have been even more generous to the hon. Gentleman than I was to hon. Members who spoke earlier. The amendment deals with the size of the subsidy.

I am happy to accept your correction, Mr. Deputy Speaker. I was trying to relate the price of food that was subsidised to the price of that which was not, and to point out the problem of maintaining supply.

With the subsidy system in operation, the problems of the non-subsidised section of the food industry deserve equal attention. Although the Bill does not offer an additional amendment, I urge the Secretary of State and the Government to continue their discussions with a view to reviewing the application of the Price Code.

I shall not take up the point made by the hon. Member for Pudsey (Mr. Shaw)—

Apart from the difficulties which my hon. Friend points out, I do not have the hon. Gentleman's expertise to enable me to discuss the implications for the industry of the operation of the Price Code. But it seems to me that as subsidies must marginally reduce the price of certain commodities, they tend to stimulate sales. I cannot see how that can have an adverse effect on the food industry. Perhaps the hon. Gentleman was suggesting what I often advocate, that the whole area covered by food subsidies should be enlarged.

The point that is so often ignored is that sales are one thing but profitable sales are another.

I believe that subsidies are irrelevant to the argument, because their only effect must be to increase total sales, by reducing price, which must increase total profit.

5.45 p.m.

I had not intended to intervene in the debate. I was stimulated to do so by some of the hypocritical cant from the hon. Member for Gloucester (Mrs. Oppenheim). I am sure that she will not take personally anything that I say. She talked about some of the desirable things that she and her right hon. and hon. Friends would do with the £200 million that could be saved if the amendment were accepted. Where were she and her right hon. and hon. Friends between 1970 and 1974? They were on the Government benches, and had the power to introduce desirable provisions such as family allowances for the first child, which no Labour Member would argue against. The problems of poverty and inflation did not appear with the election of a Labour Government. They existed a long time before that.

In any case, I believe that there are certain advantages in the food subsidy system compared with other systems for helping deserving sections of society. A food subsidy is universal. There is no need for means-testing. There is no need to find a particular area in which to give the help. Any other form of help, however well managed, normally provides help only to a particular section of the community. For example, providing help for the first child will not immediately help the old-age pensioner. This form of help reaches every member of the community, because subsidies are paid on essential foodstuffs.

The only result of accepting the amendment would be a greater increase in certain prices. Every housewife, as well as every hon. Member, should know what the amendment proposes. It would contribute directly to inflation by increasing the price of certain commodities.

I shall not make the considerable claims for subsidies that my hon. Friend the Member for Aberdare (Mr. Evans) made. I would not dare follow him as far as that. But, however marginal the effect of subsidies in reducing prices or keeping down increases, they are justified in the present situation.

There is one reason for the amendments. The simple answer was given by my hon. Friend the Under-Secretary when he replied to the hon. Member for Pudsey. Contrary to what the Opposition keep saying, it is only the poorer, the more deserving sections of the community, who benefit from the subsidy operation. The richer sections of our society are paying far more in taxes, and this more than offsets in their case, what they gain in subsidy. These subsidies amount to a direct redistribution of wealth in our society. It is only a very small redistribution, but it is a redistribution from the wealthier sections of the community to the poorer sections. The Conservative Party is opposed to that. Conservative Members are here to protect a very small section of very wealthy people. Fundamentally, that is what the amendment and their objection to subsidies are all about.

My personal reaction would be not that we should have a reduction in this figure but that it should be increased. As I have said to my right hon. Friend the Secretary of State on several occasions, I shall look forward to an increase in the figure and in the range and, perhaps, an extension of subsidies even beyond those on food.

I accept that there are problems in this matter. There are the problems of the borrowing requirement. I am sure that the hon. Member for Oswestry (Mr Biffen) would have intervened at this stage had I not mentioned that problem. He is concerned about the size of the borrowing requirement. However, my feeling is still that we should have not reductions in subsidies but increases, although we need not necessarily increase the borrowing requirement. What we need to do— my hon. Friend the Member for Aberdare touched on this matter—is considerably to increase direct taxation. That is the way by which we could contain increases of this type without increasing necessarily the borrowing requirement. It may not be popular with my right hon. Friend but some of us seriously feel that the Government's strategy may be marginally wrong in this direction and that they are not pursuing heavily enough the need to increase direct taxation. It is the fear that the Government might come to that sort of strategy, the fear of more taxation and of the transfer of wealth and income from the richer sections of the community to the poorer sections, which is the raison d'être for the amendment. I ask the House to reject it.

The hon. Member for Cannock (Mr. Roberts), for all his eloquence, gets no joy at all from his own Government Front Bench when he asks for higher spending on food subsidies. He must know in his heart that the trend of the Government is all the other way.

It may be that the full-dress national memorial service for the unlamented food subsidies is to be deferred for perhaps a couple of years— I hope not for three years at the request of some self-appointed body of manufacturers. But, however long that memorial service may be deferred, today is essentially a graveside occasion. The mourners are few. The deceased is of extremely dubious reputation, although possessed of an enormously bureaucratic corpus, and it is being slowly lowered into the soggy ground. It is no occasion, least of all for me, to try to pronounce any elaborate funeral oration. But one or two things must be said.

Ever since the right hon. Lady the Secretary of State appeared in the House in the role of Queen Canute, determined to prevail on the waves of inflation to go back— and I must say that if she could not succeed no one else could— from the Liberal Benches there has been manifest and consistent opposition, which has been shown throughout, in the Lobby and not simply in equivocal speeches.

One of the reasons for our opposition has been that we have seen from the beginning that, once embarked on this enormously expensive and bureaucratic exercise, it would become extremely difficult to withdraw from it. That is the plight in which the House is placed today, as the hon. Member for Gloucester (Mrs. Oppenheim) so clearly revealed in her lucid speech. In great haste, and because of an imminent election, the Government embarked upon this vast expenditure and upon creating an enormous bureaucracy, not only in Government but throughout the food trade, for administering food subsidies. This was done quickly. It had to be before the votes were cast. But the withdrawal will inevitably be a very long and expensive process.

In considering this withdrawal, which we must do if we are to consider the amendment adequately, two consequences of the food subsidies ought to be considered separately. There is what I may call, for shorthand purposes, the feathered pillow effect of subsidies, which makes life artificially easier in general terms for the ordinary shopper. The classic example of the feathered pillow is the tea subsidy, which just happens to create a little extra illusion as to the real price of drinking the products of the Far East.

However, much more serious is what I might call the loaded shopping consequence of some of the food subsidies. In this day and age, of all times, when so many hundreds of millions of people in the world are hungry for lack of protein, we have actually committed the blasphemy of making butter cheaper than margarine. At the very time when it is ludicrous and very offensive to be using protein to feed our cows in their lush meadows, we are turning our backs on what is basically a much cheaper source of fats which would be acceptable to vast numbers of the British people— namely, margarine— by subsidising butter to an ever-increasing extent and not subsidising margarine by even ½p a pound.

The feathered pillow can, by skilled hands, be withdrawn gently but firmly and with reasonable speed. However, it will be very difficult to reverse the new shopping habits of housewives, especially young housewives who have started housekeeping in the age of subsidies, and the false idea of values which has naturally come to them. Therefore, time is required for the process to be gradually reversed.

I say this because I hope that the Government, now that they have embarked upon their deliberate policy of phasing out food subsidies, will pay special attention to restoring as soon as possible, in fairness to the housewife, the proper differential between margarine and butter.

The same is true to a considerable extent of cheese, which has been made artificially cheaper, even in some of its more fantastic and imported forms— fantastically cheaper than it ought to be, and cheaper than other spreads and high tea treats.

Second, as we on the Opposition side of the House are unfortunately obliged to assume the role of spectators in this matter we watch the fascinating procedure of the withdrawal of food subsidies, and we shall have a very interesting experiment in political honesty. We shall see whether, as the expenditure on food subsidies is reduced, as is suggested in the amendment and as the Government will do in any case, we have a pro tanto reduction in the direct taxation which hon. Members on the Government side have always said was the fount and supply of the cost of food subsidies. This was their view. We disputed it. We never admitted for a moment that any taxes are allocated to providing a particular benefit.

6.0 p.m.

I have always maintained, and I still do, that food subsidies are paid for just as much by VAT paid by the poor and by the petrol tax, which the poor pay in their bus fares, as they are from the income tax of the better off. However, the case of Labour Members— especially that of the hon. Member for Aberdare (Mr. Evans), who is eloquent on this point— has always been that food subsidies are provided by squeezing the income tax payer, especially the high income tax payer.

I said that I would prefer the money for food subsidies to come from direct taxation. If the hon. Gentleman is able to read Hansard tomorrow he will find that I also said that there are good social arguments for taking it from indirect taxation. I went on to say that a good case can be made out for taxing gambling, tobacco and drinking— pursuits which are socially less useful— to ensure that the less well-off get these essential foodstuffs.

I follow the hon. Gentleman's point. When he extends his argument to include gambling, tobacco, drinking and other forms of vice he is still adhering to the idea that certain forms of tax can be allocated to certain benefits. Perhaps for the last time I must try to repudiate that view. The Secretary of State has herself been guilty of the suggestion that it really all comes from income tax. We shall see when the Chancellor presents his Budget in a few weeks whether, as food subsidies are gradually phased out, the level of income tax is reduced.

I shall recommend my right hon. and hon. Friends to support this amendment. We are delighted that the Tories will be on their feet in an attempt to get rid of food subsidies now that not only the General Election but also their little local election is out of the way. That is to be encouraged. I was disturbed to hear the hon. Member for Cheltenham (Mr. Irving), who is not now present, say that he favoured food subsidies for the poor. I hope that we shall be given a clear statement by the Conservative Front Bench that they bitterly regret introducing food subsidies on milk and butter when they were in office— they were an evil precedent— that they have turned over a new leaf with their new Leader and that we shall hear no more of this indiscriminate and extremely wasteful benefit. We shall welcome this repentance.

There has been one food subsidy which was deliberately restricted to what might arbitrarily be described as the poor. It was the butter token arrangement which proceeded under the auspices of the European Economic Community. I cannot recollect that the hon. Gentleman was evident and prominent in opposing that.

I did not have the pleasure of being present in the House when the "Selsdon Gang" was attempting to rule the country. In supporting this amendment, which is meant to prod the undertakers to get on with the burial. we profoundly hope that there will be a declaration that the money to be saved, whether it is the money suggested by the Conservative Front Bench or the money which the Government have decided to save anyway, will later be spent on increasing pensions for the old, on improving the whole system of family allowances, including the rates, and on improving social security benefits for the sick and ailing.

The hon. Gentleman has been using the argument of universality against food subsidies. He has said that everyone is getting them when they should not be. He is now prepared to give the family allowance to the first child. In that case the children of millionaires will receive the benefit as well as the children of the less well off. That is universal in its application. He will of course say that we shall get that money back in tax. The same applies to food subsidies.

The hon. Member for Aberdare tempts me, but I am sure I should incur a rebuke from you, Mr. Deputy Speaker, if I were to follow him into an argument on just which taxes pay for which benefit. I cannot admit his point, but it would be unfair to the House to pursue something which should be discussed in the Tea Room afterwards, which I shall look forward to doing.

We shall support the amendment. We only wish that a firm and stern opposition to food subsidies had been manifest from the Conservative benches long ago.

I do not wish to take up the remarks of the hon. Member for Colne Valley (Mr. Wainwright) too much, but if we accept his nutritional argument the Secretary of State should have subsidised margarine rather than butter. I should have thought that soya beans, carrots and lettuces would have been much better than, perhaps, sugar. We have never advocated that type of diet, however much better it may be nutritionally. We believe in giving people a choice, even if it is to their disadvantage. That is a principle the Labour Party have stood by.

I want to persist in my argument with the hon. Member for Gloucester (Mrs. Oppenheim). She said that my visits to the Committee were fleeting. Lest that is not recorded properly, I point out that I was serving on two Bills at once. Although the hon. Lady is a much more attractive debating opponent than my hon. Friends in the Scottish Grand Committee, she was not helpful in meeting me on a point I put to her.

In a compassionate way she accepted that there was a need to help. She argued the point about an allowance for the first child, which I would not dispute. She mentioned extra social security benefits. The hon. Lady will recall that in Committee I pointed out that millions of people on low incomes— often on fixed incomes— had no children and were not on social security. She graciously accepted that point. Therefore, I ask her to tell the Government how she would cater for the large number of people who are finding it extremely difficult to make ends meet, and to have a proper balanced diet. Although the amount of subsidy may be limited, it is important.

It has been argued that help should be given in a different way. The value of subsidies must always be assessed by the percentage of take-up. No one could advocate any other form of subsidy which did not have the 100 per cent. take-up that food subsidies have.

It has been said that millionaires' sons and daughters would benefit from the subsidies. I do not want to become involved in the fiscal argument about who pays what tax and whether it should be direct or indirect taxation. I took umbrage at the introduction of butter tokens by the Labour Government. If a housewife is queueing at a grocer's shop and has to hand over a token, a stigma is placed upon her. Family dignity is involved here, and that dignity is no less important than the dignity of Members of this House.

We could devise a highly selective scheme, but that would put the "pauper" stigma on many people. There is a need for subsidies to be across the board, even though they are not selective and perhaps consume more public money than other methods. Many hon. Members will recall the stigma which, during the 1920s and 1930s attached to people like myself, who, because of family circumstances, had to wear what were called "corporation clothes ". They comprised a grey suit with a red stripe and a pair of boots which must have been made in John Brown's shipyard, because they never wore out. I still recall those days.

I do not have any prejudice against those who were the masters at that time for doing those things. They were wrongly advised. They did not realise what they were doing to people. I realise that subsidies cannot be continued for ever, but I hope that as long as they do go on they will be across-the-board subsidies. If they go to people who do not need them, that is a justifiable extravagance if at the same time their use prevents any stigma attaching to poorer families. That is why family income supplement had such a poor take-up rate. The across-the-board subsidy has a 100 per cent. take-up.

I would have accepted the political honesty of the argument advanced by Conservatives in seeking to reduce food subsidies if they had carried that argument to its normal conclusion. I have never heard Tory Members saying that the tax relief on mortgages— a subsidy which goes to people owning houses worth £25,000, £30,000 and more— should be ended.

There was another form of relief for people who had second homes. I never heard anyone criticising what seemed to me to be a wasteful expenditure of public money. A whole range of subsidies goes to the better-off. Thousands of poor families who pay income tax are helping those on large incomes to pay for their fashionable houses— houses such as poor people can never aspire to.

The hon. Member for Gloucester said that the Opposition were considering a phasing-out period of three years. I would like to hear what the hon. Member for Oswestry (Mr. Biffen) has to say about that. I am sure that he does not regard three years as a reasonable period. With his philosophy, I am sure that that is three years too long. The hon. Lady talked about a lack of resources, and said that a lack of Civil Service assistance had prevented her from making the best case. I thought that Tory Central Office was a great provider of information. Perhaps the chopping of heads that is going on there does not lend itself to efficiency.

We have heard quotations from previous Chancellors— Sir Stafford Cripps, Lord Butler, and others. The hon. Lady must accept— she was in the House at the time— that the man who did most to stoke up inflation was a Chancellor of recent times— the present Lord Barber. The hon. Member for Oswestry was a consistent and honourable critic of the Tory Government's financial policies. Indeed, he was a prophet. and foresaw the calamity which faced us just before the February General Election. He often chided the then Chancellor about his policy of money supply which was stoking up inflation and which began the trend that has led us to our present serious problems.

I accept that there is a high rate of inflation. I accept that the rate of inflation is falling in other countries, but not quickly. I do not claim to be an economics expert, but I would point out that we have a lower level of unemployment than do many other countries. As long as we have a high rate of inflation. I maintain that there is a need for subsidies of this nature.

I apologise to hon. Members, in that I shall have to leave the Chamber when 1 have finished my speech to attend an important meeting elsewhere in the House.

6.15 p.m.

I assure the hon. Member for Glasgow, Queen's Park (Mr. McElhone) that I will at once acquit him of any discourtesy if he leaves the Chamber. My only regret is that it may be some time before he is able to read my remarks in Hansard. None the less, I shall be referring to him in my speech so he need not feel too neglected.

There is something of a tradition that the Report stage of a Bill sees the same band of the faithful in the rather cavernous surroundings of the Chamber conducting the controversies which were fought over in a rather more intimate fashion in Committee. This afternoon has been no exception. We are all veterans of one sort or another. The hon. Member for Colne Valley (Mr. Wainwright) carries not only the Prices Bill Ribbon but also the Prices Bill Ribbon and Star because, like me. he has seen through two of these Bills. We hope that we shall be spared another. When the hon. Member talked about the graveside rehearsal he was clearly speaking with some optimism.

I regret that there has not been a wider audience for these debates. This argument is very much about the social wage, or at the least the food subsidy component of the social wage. I see from the nods of the hon. Member for Brigg and Scunthorpe (Mr. Ellis), an Assistant Government Whip, who is doubtless sensitive to the mood of his back bench flock, that this is a topic of sonic considerable concern. I have no doubt that had they reflected more carefully on the order of business his hon. Friends would have been here to make clear their views on the subject, because this debate proceeds under the impending prospect of the Budget.

There are three points I wish to raise. The first relates to the phasing out of subsidies which, I hasten to assure you Mr. Deputy Speaker, is related specifically to the amendment. Second, I would like to take up some of the points made by the hon. Member for Aberdare (Mr. Evans) about the degree of education contained in this process. Third, I wish to make a few comments on the taxation implications, which, again, were touched on by some hon. Members.

The amendment. which seeks to delete £1,200 million and insert £1,000 million, is, as the hon. Member for Aberdare said, a re-run of an exercise in Committee when we sought to insert the figure of £900 million rather than £1,000 million. What we were trying to do was to give some reality to the aspiration of the Secretary of State when she said on 30th January :
" It still remains our intention eventually to run down the programme, but the timing of any running down of the food subsidy programme must be related closely to the introduction of appropriate social benefits."—[Official Report, 30th January 1975 ; Vol. 885, c. 636]
Since a great deal of the subsequent discussion has been about social benefits as well as the food subsidy programme I do not think there would necessarily be a great gap between the two sides on that. It will not be any refinement of social policy that will govern the rundown but other, much more sombre external restraints which inevitably befall any economy which is as heavily dependent upon overseas borrowing as we are.

We know from the Government's Public Expenditure White Paper, Cmnd. 5879, paragraph 36, that the Government
" will also aim to reduce expenditure on food subsidies during the course of the Survey period."
There is not really a great divide, I suppose, at this point in my argument, between the two sides of the House. We are seeking, through the means of a standard form of amendment, to glean a little more of the Government's thinking about their pace of rundown.

We would be excused for not being over-impressed by the public expenditure figures because we know— this is not a party point— that public expenditure forecasts are unreliable guides to the future behaviour of Governments. Probably the only column of figures which has any credence in that document is that containing the public expenditure proposals for next year. Everything thereafter is a declaration of good intent.

We naturally had our appetites whetted when we read in the Sunday Telegraph of last Sunday under the heading
" Food subsidies on way out
an article by Mr. David Steer, the agricultural correspondent, in which he said :
" The present plan under discussion inside the Department of Prices and Consumer Protection is to end all food subsidies by early 1976."
I was invited by the hon. Member for Glasgow, Queen's Park, to say how I felt about the possible liberal timescale that is envisaged by my hon. Friend's amend- ment. I am happy to support the amendment, which I thought my hon. Friend the Member for Gloucester (Mrs. Oppenheim) moved with great erudition and grace. She referred, among others, to Sir Stafford Cripps, who must have passed this life before she was born. Hers was a charming performance, and I am happy to support the amendment, but if I am to believe the Sunday Telegraph it looks as though the Government have acquired the grisly logic of my reasoning. We should like to know more about the timescale which the Government have in mind for reducing food subsidies. I could quote from the White Paper or refer to the right hon. Lady's professed objective of running down the subsidies and I should, therefore, like to know what the Government have in mind.

That takes me to my second point, which is the educational one, that all this will involve a painful process. We have to resist the temptation smugly to point out to Labour Members that we have pointed the way which they are now following. One has only to listen to this debate to realise that the right hon. Lady does not merely have the disagreeable task of following rather tardily in the wake of my right hon. Friends but is being encouraged by some to pursue exactly the opposite policy and not reduce food subsidies— which, after all, is her own professed policy— but increase them. We had that argument advanced by the hon. Member for Cannock (Mr. Roberts).

I regard also as evidence of substance, which deserves careful treatment by whoever winds up the debate, the evidence that has been presented by the TUC in its Economic Review for 1975. This says, in paragraph 103:
" In order to protect the position of family budgets in the coming year the TUC recommends that an extra £100 million should be allocated this year to food subsidies on top of the amount already being spent."
In case anyone thinks that this is an alternative to expenditure on other social policies, let me tell the House that under Table 15 entitled "Main Expenditure and Tax Changes "in its Economic Review, the TUC advocates not only the additional food subsidies of £100 million but an allocation for one-parent families and for further family allowances.

This is one of the terrifying unrealities of political debate as currently conducted. The right hon. Lady and the Government are being pressed to increase food subsidies, and also to increase other social expenditure. Indeed, perhaps the biggest villain of all— except that he is a man of such charm and, I hope, of limited political muscle ; I do not mean that unkindly— is the hon. Member for Cannock, who produced a scheme for reducing the pensionable age for men from 65 to 60 and invited the House to vote on his Ten-Minute Rule Bill.

I think that the hon. Gentleman is misrepresenting the scheme somewhat. It involves a base retiring age of 60 and provides a flexible system for retirement between the ages of 60 and 70. It does not involve an immediate financial cost, which would be rather prohibitive, with a drop to the age of 60. It is typical of the scheme that there will be no financial cost whatsoever, but if there is it will be marginal.

I have no wish to stray from order, but I congratulate the hon. Gentleman if he has devised a scheme which seemingly provides the attractiveness to the male national insurance contributor of being able to retire at 60 without any further impost on public funds.

I realise that, but the attractiveness of the scheme lies in its seeming simplicity.

In the educational battle that has to proceed about food subsidies I think one is entitled to refer to what was said by the hon. Member for Aberdare. He said that this amendment would reduce the figure from £1,200 million to £1,000 million, but in Committee upstairs we moved an amended figure of £900 million, and from that he sought to draw the conclusion that we were edging forward towards the Government's view about food subsidies.

That is not the area where the educational battle will take place ; it will occur between the Treasury Bench and the TUC, because the advice being proferred by the TUC is simply not capable of being put into effect by the Government in the Budget. The advice that is being proffered by the hon. Member for Can- nock is not capable of being put into effect in the prospective budget.

Painful times lie ahead for all of us, but in political terms they will be more painful for hon. Members below the Gangway than for those who sit opposite the Treasury Bench and who invite them to pursue the more stony path of economic reality.

That takes me inevitably to the third consideration— the tax proposals. For one awful moment I could visualise circumstances in which the hon. Member for Brigg and Scunthorpe (Mr. Ellis) would run hotfoot to the Treasury and say, "I have news for you. Because of what has happened at the Report stage of the Prices Bill, you will have the chance of pleasing in one Budget both the hon. Member for Cannock "— because taxes will be increased, so that his advocacy of higher taxes will be sublimated— "and also those Tories who are advocating lower rates of food subsidies "because I am certain that we, too, will eventually be placated. Indeed, we have ample evidence that it is the Government's intention to reduce the rate of subsidies, but it is unrealistic to think in terms of food subsidies without tax concomitant.

I think that there are now quite serious implications for all those who are concerned about the direction of taxation under the current economic management of this country. One has only to turn to paragraph 28 of the Public Expenditure White Paper, Cmnd. 5879, to see there all the possible rates of growth which were considered by the Government when indicating what they thought should be the range of options. It says:
" In all three cases, the rate of increase would be significantly less than the growth rate of output, and this suggests that there would be an increase in the burden of taxation."

6.30 p.m.

This brings us back to the heart of a great deal of argument about whether this is one of the most sensible means of pursuing a social policy, about the whole concept of the social wage and whether the totality of taxation which must finance this expenditure will come in so distinctive a fashion from a different class of the community from those who will be the major recipients.

Those of us on the Opposition benches, whether we sit on the Liberal bench, the United Ulster Unionist bench or even the Scottish National Party bench— I dare say they would be at one with us— are convinced by overwhelming logic that with public expenditure and taxation at their present levels the same sections of the community who would be pre-eminently financing these expenditures would be those supposedly benefiting from them.

The whole matter becomes a grotesque and frightening exercise of transferring not from Peter to Paul, but from Peter's right pocket to Peter's left pocket. Already, some thoughts along these lines have been indicated by the Chief Secretary to the Treasury. When speaking at Worsley, in Lancashire, on Saturday of last week he was reported as saying :

" Varying the level and growth of our spending at home is an effective way of adjusting the balance of payments. Given the huge size of the deficit we must tighten our belts. Everybody, including the Government and local authorities, must bear their proper part in this exercise of restraint."

He went on to say, in the context of the general increase in the burden of taxation :

" It cannot be loaded completely on to the shoulders of a few millionaires. There aren't enough to go around."

The Chief Secretary did not put it in more harsh terms, doubtless for fear of causing unnecessary offence to his friends from the Tribune Group. But that is the underlying reality. That is what makes this, as a technique in social policy, as much a busted flush as a technique of manipulating the Index of Retail Prices, so preventing the triggering of thresholds.

I believe that we have to proceed to that final consideration. Many who watch what goes on in the House and are still kind enough to believe that it is of some significance, indicating the heart and mind of the nation, will wonder what Parliament will do and how it will think about these affairs in the context that we now have, apparently, a borrowing requirement of between £6,000 million and £8,000 million. This is a situation in which our whole national finances seem perilously dependent upon our ability to borrow in the Middle East— an area notoriously volatile. In that situation, I should have thought that every wellwisher to this country would hope that we would do everything possible as quickly as possible to bring total public spending and total public revenue into some balance.

In those circumstances, it is the transfer payment and subsidy payments just such as these which are the obvious candidates for retrenchment. We may like to argue this in terms of social policy and to put forward what we believe are alternatives and superior ways of attending to the social programme with other torms of social expenditure as an alternative to payments on subsidies. What is expected of us from the friendly world outside is that we should see this as an area of major retrenchment tout court, not as an area where we are going to save in order to have more money to spend elsewhere. There will be some measure of that, I do not deny, but there will be a moment of truth which will break on us sooner rather than later.

The way we react in this debate and the way we vote will be an indication to the would outside whether the House is yet prepared to face some of those realities.

These amendments go to the very heart of the debate over our subsidy policy, and therefore they are very important. The amendments are constructive, in that they show the clear intention of the Opposition, if these amendments are accepted, to phase out subsidies and to give the Government some latitude over the time that they would take over the phasing out.

In Committee it was generally felt by both sides that the long-term effect of subsidies would be no solution to our problems and that, in principle, they were undesirable as a long-term solution. However, there was some agreement that they could play a short-term solution to some of our economic difficulties, in that they could possibly have a short-term effect in cushioning a sudden and steep rise in the basic cost of food. This could be helpful to Government if it would enable them to persuade the people to accept a voluntary incomes policy.

It seemed to me that there was something in this argument in the period 1973–74, when many of the costs we were facing resulted from substantial increases in world commodity prices outside the control of any Government. I believe that at that time there was a limited case for food subsidies, but only as a temporary measure. Those days have gone. World commodity prices are not rising. They are tending to fall. Still in this country we have very high rates of inflation. They are domestic rates of inflation which we create ourselves. We can have as much or as little inflation in this country as we determine, from factors under our control.

Therefore, the real debate is not about whether subsidies are likely to be a long term feature of our economy, but about the rate at which we should phase them out. I do not believe that it has been entirely obvious to some of the back bench supporters of the Government, but the Government are themselves, in effect, beginning to phase out subsidies as they have to admit that they cannot match the increase in the prices of basic foods with further subsidies. They are having to weigh the realities of the situation, that the rise in prices of basic foodstuffs cannot be matched with increases in subsidies. The effect is gradually to reduce the significance of subsidies, and there is, therefore, a tendency to phase them out.

Our proposal is that subsidies should be phased out over about two years. The effect would not be anything like as dramatic as hon. Members on the Labour benches have tried to make out. The effect of reducing the subsidy bill next year by half would be about ¾per cent. on the Index of Retail Prices and this is at a time when prices are going up by 20 per cent.

I therefore believe that it is important to give serious consideration to the amendments, which are designed to give a lead to the Government on a method of phasing out subsidies, not in one year, but in two years. We suggest reducing the figures over the next two years so that we can get back to facing reality and dealing with the problems of inflation and, indeed, helping the poorer off sections of the community in a much more effective and efficient manner.

The amendment inevitably raises all the same arguments that a rose in Committee. It will profoundly relieve you to hear, Mr. Speaker, that I do not intend to return to all those arguments.

The proceedings in Committee were characterised by a great deal of amica- bility. Despite all the evidence to the contrary, there was fundamental agreement on the principal purpose of our amendment, namely, the phasing out of food subsidies. There are declarations on both sides to support that view. The difference of opinion a rose not on the principle of the phasing out but on the pace. The amendment has been tabled in an attempt to quicken the pace.

One overwhelming impression which remains is the slightness of the impact of subsidies by comparison with the weight of effort which goes into the whole administration of the food subsidy system. At the end of the day we are faced with the bare, crude arithmetical calculation that the spending of about £1,200 million. as envisaged, over two years results in an average arithmetical benefit, per person, of 25p per week. That is an astonishing exercise in the machinery of government.

Over the course of the months during which subsidies have been introduced we have seen that vast numbers of people are engaged in the administration of the subsidy system. To quote the Chancellor of the Exchequer in his Budget Statement last November. in another connection, it is like burning down the House of Commons to roast a chicken.

We are not in disagreement about the Secretary of State's proposed objective to help those who need help most. We are fundamentally divided on the method used to achieve that end.

Faced with the attempt to secure the needs of the worst off and most in need of help, we must look for other reasons. We accept the very praiseworthy reasons advanced by the Secretary of State, but we doubt their effectiveness. Inevitably we are forced to look for less praiseworthy reasons for the retention of the subsidy system.

We are beginning to believe that, perhaps in some natural sequence of events. this is a resolute defence of the Secretary of State's empire. The right hon. Lady recently gave a television interview. I must be careful here, because not only is she supported this evening by her cohort of civil servants under the Gallery ; she is flanked by her two principal lieutenants. If the hon. Member for Colne Valley (Mr. Wainwright) is right, and we are attending a funeral, perhaps they are here in the rôle of undertakers' mutes I do not know.

A remarkable reply came from the Secretary of State during that television interview. She was asked whether her Ministry actually did anything. That was an extraordinary question from an otherwise friendly interviewer. The right hon. Lady replied that the Department did something ; it administered the subsidy system, and that involved a great deal of work.

It is the raison d'être that we have a subsidy system to employ the very many people engaged in the administration of the system within the Secretary of State's Department. This has behind it a much more serious and fundamental point. It is not a criticism alone of the Secretary of State or of the Department of Prices and Consumer Protection. Over the years, under Governments of both colours—red and blue— there has been, increasingly, a trend of people moving from productive employment to nonproductive employment. Over the 10 years to 1972, the increase in the number of those engaged in local government was 48 per cent. and in the number engaged in national government 11 per cent.

If this trend continues, a serious situation will develop, in which the natural wealth of the country, from which all these social measures are to be derived, will increasingly diminish through lack of application by the people available to do the work.

6.45 p.m.

Bureaucracy is not an unimportant matter when we consider the whole question of a subsidy system, because it requires people to be engaged in nonproductive work. Less than half the work force is now engaged in the production of tradeable goods, as they are called— in other words, the very goods we need to produce not only for our use here at home but to export and earn our way in the world, to create the very wealth which hon. Members on both sides wish to see diverted to those in need.

It is important that this empire should not be defended for its own sake. We know from our experience of large organisations how they take on their own justification, over the years, by the very merit of the everyday work they do, which comes to be seen as inevitable when it is, perhaps, nothing of the kind.

The second suspicion that comes upon one is that this is, perhaps, some part of a political public relations exercise. Again, a hint was given in that self-same television interview when it was stated that although there was a recognition of the ultimate futility of trying to cope with raging inflation by such measures— the scale of benefit would be minimal ; about 5 per cent.— the Secretary of State, in a vivid phrase, said "We will be cutting off the top from the mountain." When we are faced with inflation in excess of 20 per cent. a year, and rising, such an effect is minimal. This is no mere mountain ; it is a volcano which continually erupts, and which, as my hon. Friend the Member for Gloucester (Mrs. Oppenheim) has indicated, is well in excess of the rates of inflation operating in other parts of the comparable industrialised world.

So we must be suspicious that here, too, there is perhaps the dramatist's attempt to suspend disbelief— the device by which we are invited not to believe the evidence which is before our very own eyes, that although prices are rising very rapidly in the shops the very fact that it is known that the Secretary of State for Prices and Consumer Protection has introduced food subsidies in some way consoles the forlorn housewife in the belief that prices are not rising after all. I hope that this is an unworthy suspicion and will be disproved, but on the evidence that we have considered at great length in recent weeks it is very hard not to believe it.

So we return to more forthright colleagues of the Secretary of State on the Government Benches, who would like to see not less but more paid in subsidies. This is an extraordinary proposition, and is against the evidence of their own Minister. I gather from listening to them that they tend to believe that these subsidies and all the social service measures they bring forward are derived from taxation. As my hon. Friend the Member for Oswestry (Mr. Biffen) has so brilliantly argued, we cannot say that. More likely it is that these social measures are being achieved by foreign borrowings on a scale never known before in this country, certainly not in peacetime, and now estimated to be running at about £8,000 million a year.

When hon. Members quote with some derision the very sensible statement that one cannot have what one cannot afford they are, perhaps, being a little less careful than they might otherwise be. It is true that, normally, one cannot have what one cannot afford. But there is a method by which it can be done, and it is called hire purchase. That is the present state of this country. We are in hock up to the hilt to the Shah and to the sheikhs of Araby, who are lending us money for us to sustain a level of living far beyond that which we are earning.

We must recognise that the food subsidy system, so long as it continues, conceals the reality of the situation from the people. With a debt of that order running at about £8,000 million a year, it is time for home truths. Where better to make a start in telling the people a few home truths than in the home, by letting the housewife know the true price of food, by phasing out these food subsidies as quickly as we possibly can.

Exactly that which was predicted during our de-dates on Section 1 of the Prices Act 1974 has come about. Within a period of a few months, the Government, having embarked on a policy of food subsidies, have to come back to the House of Commons and ask for more. Yet, despite the predictability of the Government's conduct this afternoon, there is an air of unreality about this debate because the Secretary of State has to walk the most terrifying tightrope which will require all her charm and skill to negotiate successfully.

What the right hon. Lady has to do is, at one and the same time, to justify to the House an increased maximum figure of £1,200 million on food subsidies and not only to convince her hon. Friends, notably her hon. Friends below the Gangway— I suppose she has some—that this sum of £1,200 million is necessary now, but to prepare them for marching in precisely the opposite direction within a very few months.

The level of food subsidies and the decision about their level is passing, if it has not already passed, from the Secretary of State and the British Government to the oriental money lenders upon whom we are becoming increasingly dependent. It is true that the right hon. Lady and other Ministers still give the appearance of exercising power, but more and more power is passing from the Government to these upon whom the Government depend for borrowing money.

I have great sympathy with the right hon. Lady, because the stronger the case which she makes for sticking to the figure of £1,200 million as the total amount of food subsidies which the Government may spend the more difficult it will be for her when the inevitable U-turn takes place later this year.

I wish to turn to a point made by my hon. Friend the Member for Oswestry (Mr. Biffen) in a characteristically excellent speech. He said that the right hon. Lady had sought to defend food subsidies partly on the ground that even though on her own admission, 52 per cent. of the total expenditure on those subsidies goes to families earning more than £50 a week, that did not matter very much because the money was levied in taxation from the rich. That just is not true. The so-called redistributive element in food subsidies is more of a myth than a reality.

The proposal to continue and, indeed, to extend food subsidies at this time is a sign that the Government are still going in the wrong direction— but at least we have the assurance that the Chancellor of the Exchequer has indicated that on all other aspects, and notably in the nationalised industries, we are moving away from subsidies. It is a great comfort to the Opposition that the right hon. Lady will at least shortly be following where her right hon. Friend has begun to lead.

I begin by dealing with some of the points raised in this interesting but repetitive debate. Virtually every argument advanced in the debate has been deployed at considerable length and in detail in Committee. It is difficult to find new arguments on either side, and I strongly suspect that we both remain highly convinced of the arguments which we have been advancing for many months.

What I find very strange are the Opposition's continual attempts to suggest that in some odd way the position of the Government has altered. In fact, the position of the Government has been consistent throughout. When we introduced the original Prices Bill in the spring of 1974 we made it clear that we believed that food subsidies have a significant transitional role to play in a state of high inflation. We made clear that we were not wedded to their perpetual continuation, but we indicated that we believed that they had a serious rôle to perform at least for some years.

The interesting thing is that the Opposition came round to agreeing with us. As recently as six months ago that is what they said in their election manifesto. It is they today who are in full retreat from their own manifesto statement, who appear to want to have nothing to do with food subsidies and who find themselves expressing a rigidly orthodox free market view. It is a remarkable conversion. It is not a view which we share, and it would be gracious of the Opposition to recognise that under new leadership, in terms of their Shadow Minister and the Leader of the Opposition, they appear to have adopted a much stronger line than they did when fighting the last election.

The hon. Lady the Member for Gloucester (Mrs. Oppenheim), in a charming admission, said "When we are in opposition we propose." But it is the Government who dispose. It is our view that food subsidies have a very important function to perform in terms of protecting the least well-off against some of the blows of inflation until such time as there can be an adequate social system to protect them.

My hon. Friend the Member for Cannock (Mr. Roberts) was right in saying that we have this frequent repetition by the Opposition of the need to phase out subsidies and to introduce social services, many more of which have been advanced while the present Government have been in office than in the previous four years when the Conservative Party was in office.

The two most substantial real increases in pensions were made by my right hon. Friend the Member for Lanark (Mrs. Hart) in 1964–65 and then by my right hon. Friend the Member for Blackburn (Mrs. Castle) in 1974–75 with a 30 per cent. increase in the pension level. The first proposal for an increase in family allowances for seven years has been made this year. There was no increase whatsoever in family allowances in the period when the present Opposition party was in power. The first serious proposals for extending family allowances to the first child was made by the present administration.

The Opposition really must come off the seesaw on which they find themselves when they constantly advocate that we should phase out food subsidies and bring in social service benefits when they did not bring in food subsidies or benefits on the right scale.

Is the right hon. Lady about to unveil a policy for dealing with the intolerably low earnings of 2 million of our citizens who are in dire need?

The hon. Gentleman has consistently argued this point. Of course, the Government accept that there are anomalies in the social contract based on low pay. Secondly, it is not least this group whom we have in mind in our food subsidy policy, a group which cannot be reached in any other way.

A number of points have been made, not least by the hon. Member for Rom-ford (Mr. Neubert) and also by the hon. Member for Pudsey (Mr. Shaw) about the colossal administrative and bureaucratic machine which I am supposed to have erected. I am supposed to spend my time admiring this Heath Robinson machine consisting of thousands of civil servants who are uselessly employed on pointless subsidies.

I am sorry to have to reiterate that food subsidies are administratively just about the most economic system devised for helping the lower income groups. The straight cost, it is worth repeating, is 1p of administration for every £7,000 worth of subsidy, compared with 1p of administration for every 4p of subsidy in the case of butter tokens. If the Opposition push me, I can be very dull on the subject of family income supplements, rent rebates, rate rebates and many other things. Virtually every means-tested benefit, in terms of useless bureaucratic expenditure and bureaucratic employment, requires incredibly more administration.

7.0 p.m.

One thing that worries me is when my right hon. Friend sometimes talks about the long-term aim of phasing out food subsidies. Will she say what is her long-term argument for moving in this direction?

I hope that my hon. Friend will allow me to proceed, and I will come to that aspect of the matter in due course.

Do the Minister's expenditure figures include expenditure by local authorities for providing staff for enforcing the regulations and putting them into effect?

These are essentially central Government figures because it is impossible to allocate expenditure on the different functions of the trading standards officers. However, the hon. Lady will see that the increased expenditure in that field is lower than in the case of most means-tested benefits as a proportion of the whole.

The hon. Member for Pudsey managed to squeeze into a debate on food subsidies a speech about the Price Code. Quite a lot of the arguments that he was advancing appeared to be directed against such matters as the base date for baking, which has been one of the great causes of difficulty for the baking industry, as the hon. Member will no doubt readily admit. This is something we are gradually trying to change in the light of investment, and, although he does not believe that the investment relief and productivity deduction go far enough, I hope that the hon. Member will give credit in agreeing that this is not a doctrinal matter and that we have attempted to move to meet the real grievances, where they are real, of some of the food manufacturers.

I shall come later to what the hon. Member said about phasing out subsidies, But first I should like, greatly daring, to raise one point that was mentioned by the hon. Member for Oswestry (Mr. Biffen). I fully appreciate that our views could not be further apart, and I hope that he will also accept that there is no necessary consequence for public sector borrowing requirement of the food subsidy policy. There is only a requirement if that subsidy policy makes a net call on the public sector borrowing requirement.

Like my hon. Friends, I believe that there is a strong case in a society under great economic pressures for, if necessary, increasing taxation in order to finance this kind of policy, and I make no bones about that. We believe that in a society under stress the Government, above all, have a major responsibility to protect the least well off. The hon. Member will recognise that, in spite of his remarks about the Government's public sector borrowing requirement, the monetary supply figure. known as M3, the broader figure, has increased at only just over half the rate of the last couple of years of his party's administration.

One of the reasons for that we debated in Committee. I hesitate to repeat it, but I shall be brief. The truth is that there has never been any basic eschewing of subsidies by the Conservatives. There has been something of this basic rejection at least in recent years by the Liberal Party, though not actually in earlier years, but there has been no such approach by the Conservatives. Their figures for subsidy ran at the high level of about £800 million in the last full year of their administration. Some £500 million went to nationalised industries, about £300 million to private industry— I can now see that my original figure was incorrect— and £112 million on milk, and the same on butter. That is just short of £l.000 million in subsidies of one kind or another.

The only difference between the Conservatives and ourselves was that they preferred to subsidise nationalised industries and private companies to a greater extent and food to a less extent. It will therefore not do to pretend that we are here having a debate on principle— a principle which my party has never worried about accepting. The debate is about the choice of subsidy, not about the principle of subsidy.

The Opposition have reiterated that we should phase out subsidies, and they keep talking as though this is something new, a kind of revelation today. I stand by what I have said repeatedly, that the Government are committed to a phasing out, but a very gradual phasing out. Opposition Amendment No. I would leave a total figure of subsidies of £1.000 million. The second amendment would rule out any extension of the ceiling to £1,700 million which is implicit in subsection (3). That would have a simple effect. Expenditure this year is estimated at £550 million in money terms—in real terms the figure will be slightly below last year's £516 million, which is about £488 million in real terms. The Opposition would then say that last year's £516 million and this year's £550 million would exceed the limit and therefore the subsidies would be chopped. Alternatively, the Government could go back to the trade and tell it to halve the present subsidies, but the trade would not like that.

The hon. Member for Gloucester said she had consulted the Food and Drink Industries Council and it had suggested a phasing of three years, but the Opposition must be quite clear what they are proposing. If the amendments were made the phasing would be over one year. It would be quite impossible for the trade to adapt to that because half the outstanding amount has already been spent in the figures we have been using here, so that there would be only about another £500 million to come. We have had no representations for such a rapidly accelerating phasing out from the trade, though we have had rather different representations. Perhaps I may quote two of them.

The Milk Marketing Board's consumers' committee for England and Wales, which is concerned with the underlying source of the food which encompasses three of the subsidised products— butter, cheese and milk itself— and the largest part of the food subsidy programme, said in its report on 12th February :
"The Chairman of the Milk Marketing Board has expressed the hope, and so have the Dairy Trade Federation "—
which I believe to be a significant part of the food manufacturing and food producing sector—
" that when the time comes to remove these subsidies the process will be a gradual one to avoid violent changes in consumption and to give the industry time to adapt its policies and resources to new market conditions. On behalf of the consumer, where the household budget would be affected by any marked rise in the price of milk, we endorse this hope."
In paragraph 80 the report repeats the same advice in respect of butter and cheese.

The official representations made to us, therefore, by the Food and Drink Industries Council do not align with the Opposition amendment, which would require on any possible basis a catastrophically rapid rate of rundown.

Is the Minister going to tell us her timetable for phasing out food subsidies? The only indication so far is contained in the Public Expenditure White Paper, which makes it clear that it will be 1984 before they run down and out.

The Public Expenditure White Paper indicates figures for four to five years. It does not indicate what lies beyond that, and the hon. Member for Oswestry will only too readily say, if I do not, that it would be extremely foolish for any administration to predict what will happen in six, seven or eight years' time. So it is our intention to phase subsidies out gradually, though I cannot say exactly when. The House knows perfectly well that the power is in its hands. In the spring of 1976, if I am to go up to the ceiling of £1,700 million which is implicit in the Bill, I shall have to return to the House for an affirmative order. Anything beyond that would require a complete new Bill.

In my Department we have consistently put ourselves in the position of having to return to the House repeatedly for further legislative authority to continue. Throughout the Committee proceedings and on Second and Third Readings of the original Prices Bill no suggestion was made to the effect that the Bill would not be extended. Indeed, it was implicit in our debates that it was bound to be extended.

The right hon. Lady has repeated the welcome news of her intention to phase out these subsidies. Although there may be some dispute about the pace of the phasing, may we assume that the right hon. Lady does not accept the advice contained in the Trades Union Congress Economic Review that food subsidies should now be increased?

I think that it would be unwise to say whether I do or do not accept that fadvice. As I have made clear repeatedly in the House, the purpose of the subsidies is to try to offset the effects of inflation. At the moment we are working on the basis of there being a mild fall in commodity prices. I cannot predict what would happen if that course were to change rapidly. The hon. Member for Oswestry will have to await the decisions announced in the Budget. Of course, the TUC is not proposing a figure over a certain period which would make a sharp difference to the general intention of a gradual phasing out.

I must say to the House— if I do not do so it will reach a false conclusion— that when I talk about a gradual phasing out of food subsidies I am in no way suggesting that there is nothing effective to be done as regards the redistribution of pricing policies. I have the greatest sympathy with the remarks which have been made on that subject by a number of my hon. Friends. We have often subsidised those elements in prices which are least likely to benefit the less well off.

My hon. Friend the Member for Cannock mentioned the subsidy proposed by the right hon. Member for Finchley (Mrs. Thatcher) during the last election. The right hon. Lady proposed to increase extensively the subsidy given to owner-occupiers. There are many other examples.

In Committee I gave the example of the way in which some of the subsidies of nationalised industry prices are being phased out by the present administration. Those subsidies were of much greater benefit to the better-off sections of the community than to the less well-off. In that respect they do not compare favourably with food subsidies. That is because of the proportion of expenditure by the poor on food. The opposite is the case for the straight forward reason that in the past year the index for pensioners, the only poor group for whom we have complete statistical indices, has for the first time in five years increased less rapidly than the index for the general community.

It can also be said that the index for food has for the first time in a number of years increased less rapidly than the RPI generally. That by itself would be a sufficient reason for the corpse still being alive and walking and very far from its coffin. I say that in answer to the hon. Member for Colne Valley (Mr. Wainwright).

In anything I may say about the gradual phasing out of food subsidies in the interests of other sorts of benefit I want to make it crystal clear that one of the functions of my Department is to ensure that what I can describe only as regressive pricing policies cease to be regressive. One of the things that I have learnt in my year in this office is that it is not only in incomes where there is a considerable gap between rich and poor. That gap also exists in pricing policies.

We encounter the gap when we compare the interest rates that the poor pay to obtain credit against the interest rates that those with substantial security have to pay. Whether it is the subsidies to the large consumers of power as against the subsidies to the small consumers of power, whether it is the steady increase in the price of necessities as against the price of less essential goods, with services going up in price less rapidly than the essentials of energy and food, or whether it is in housing, where very often in the past those who had the largest mortgage gained the most from taxation, when we consider pricing policies in the same light as incomes policies it is clear that so often the poor are penalised. Any phasing out of food subsidies that takes place will take place in the light of a move towards changing the policies that I have mentioned so that they are no longer regressive in the way that they have been for so long.

7.15 p.m.

This has been a useful debate. It has demonstrated, if it needed further demonstration, precisely how limited are food subsidies in their usefulness as a means of fighting inflation.

Perhaps it is unfair to judge by the results, but the events of the past year have shown conclusively that food subsidies are not a magic wand that can be waved to defeat the forces of inflation. The Secretary of State may tell us about the different movements of the retail price index, the food price index or the pensioners' index ; and she may describe the way in which all the different indices move at the same time, but whatever the difference between those indices, that pales into insignificance when we recall the increase in inflation that has taken place in the last year.

The different indices pale into insignificance when we remember that the year-on rate of inflation is 20 per cent. compared with the rate of 13 per cent. when the right hon. Lady came to power. Let us remember that the one-month figure for inflation on an annualised basis is now 35 per cent. What use, in that situation, is ½ p per person on the tea subsidy or ip per person on the flour subsidy? All that is very small beer compared with the tremendous acceleration of prices generally.

I remember once participating in a debate on social security, when one benefit had been increased by 10p. The right hon. Member for Blackburn (Mrs. Castle), the present Secretary of State for Social Services, scoffed at 10p. She said that she would not bother to bend down in the street to pick it up. I wonder what her invective would be about the sort of sums we are talking about now.

How very different, too, is the reality of inflation compared with what we were told by the Chancellor in his best 8·4 per cent. accent. It is unfair to contrast the hours of courtship with the years of possession, but the British people will not forget. We, too, cannot forget precisely what the Chancellor told us during the last election. One of his utterances which has received rather less publicity than others was the statement he made during the election, that as from next Easter there would be a steady and continuous fall in prices.

Well, I am a generous man. Leaving aside the phrase "a fall in prices ", by which I think he probably meant a fall in the rate of inflation, the Chancellor has three weeks in which to show that his prediction will come right. There is precious little evidence of that forecast even moving in the right direction. How very different were the remarks quoted in the Press recently by the hon. Member for Birmingham, Ladywood (Mr. Walden). He said that in every month of this Government the rate of inflation has not merely risen but accelerated. [Interruption.] The right hon. Lady says that is not true, but it was what the hon. Gentle- man said. That is what he chose to contrast with the Chancellor's remarks. Perhaps the Secretary of State will care to take up the matter with her hon. Friend.

I like to be fair to the Government. There have been some forecasts and some speculation as to whether the rate of inflation may not reduce a little in the second half of this year. Let us make no mistake about it, if the rate of inflation decelerates in the second half of the year that will not be because of the social contract or because of subsidies but because of the recession and the level of unemployment.

The Chancellor has talked of not using unemployment as a means of combating inflation and he has attacked the self-confessed monetarists on the Opposition benches. He talks soft and acts hard. I do not criticise the Chancellor for the action he is taking, but I do criticise those who believe him when he says that he is not using unemployment as a weapon, and I criticise the way in which he says one thing and does another.

If we jog backwards we recall that the original aim of subsidies was to persuade the trade union movement to moderate its wage demands. That manifestly has not happened in the last year. It is clear beyond a shadow of doubt that wages and earnings have outstripped the rise in prices. Prices in the last year have gone up by the staggering amount of 20 per cent. and wages have gone up by 30 per cent. Even on last month's figure, when prices are shown on an annualised basis to be going up by 35 per cent., wages went up by the skyscraping figure of 56 per cent. What a contrast with the situation in the United States, where prices are going up by 11 per cent. and wages by 9 per cent.

The astonishing thing surely is not that subsidies have not succeeded in persuading trade unions to moderate their wage demands but that anyone should ever have believed that they were likely to do so.

Another original objective of subsidies was to minimise the impact of the rise in raw material prices, but now the rise in wages has taken over as the main cause of inflation and the Government are using subsidies to pay wage increases, which is precisely the situation which subsidies were introduced to avoid.

Furthermore, for all the money that is being poured out in food subsidies— nearly £600 million a year— food prices are still rising. The prices of milk, butter, cheese. bread, sugar, sausages, bacon and pork are all going up, or have gone up.

All this massaging of the retail price index is totally irrelevant to real problem of inflation. Manipulating the retail price index does not counter inflation ; all it does is to suppress the symptoms of inflation. My hon. Friend the Member for Malden (Mr. Wakeham) argued well that although subsidies may temporarily reduce the appearance of inflation and suppress inflation they give only a temporary alleviation. One soon moves into the period when costs go up again and a decision has to be taken whether to let the costs work through or to provide more money for subsidies to peg prices at their existing level. One simply goes on deferring the evil day when the taxpayer and the consumer have to face reality.

In politics there is an old adage that when one is in difficulty one changes one's ground. Now we are told that subsidies are part of the great process of the redistribution of income and wealth. That is a blanket phrase which, like all blankets, is used to conceal a multitude of sins.

I reiterate what my hon. Friend the Member for Pudsey (Mr. Shaw) said— that food subsidise are like buckshot ; a lot misses the target. Food subsidies are a highly inefficient way of helping the poor as well as being an extremely costly one. We know that 50 per cent. of the subsidies go to households with incomes of more than £50 a week. I have no doubt that property developers, merchant bankers, Japanese tourists and Arab business men who sample Délices des Dieux on the cheese board at the newly reopened French "Caprice" restaurant are grateful for the difference which the introduction of food subsidies has made to their living standards. Perhaps when they pore over the cheese board at the "Caprice" they remember the words of the Chancellor on the radio when he said that subsidising bread helps the millionaire if he eats some bread, but if he feels guilty about it he can always send a donation. Perhaps it is not the millionaire in the "Caprice" who should feel guilty about it. Perhaps those who should feel guilty are the politicians who connive at and accept such a scandalous misuse of public funds.

The Secretary of State will no doubt think that I am being extremely selective in naming the beneficiaries of food subsidies. She would probably choose to mention pensioners, nurses, large families and low-wage earners, some of whom, no doubt, are getting tired of being mentioned in every bogus piece of social justice which she chooses to trot out. Her list is just as selective as the one I quoted, because the reality is that 52 per cent. of the population get 50 per cent. of the benefit of food subsidies.

From the article by Professor Ritson of Reading University, which featured in our debates in Committee, we know how the benefits of food subsidies break down between various income groups. He said that those who earned less than £23 a week are net beneficiaries, but he also said that those who earned between £23 and £41 a week receive over £200 million in food subsidies and pay only £100 million, and that those who earn between £41 and £70 a week receive £240 million in food subsidies and pay only £140 million. 1 do not believe that in the debates on the Bill the Secretary of State has made a convincing case on the redistributive justice of food subsidies.

We are sometimes told that food subsidies redistribute between those with families and those without families. That is undoubtedly true, and it might be a compelling argument if food subsidies were not being financed out of indirect taxation, as the Chancellor in his Budget speech specifically said they were. That is why food subsidies are nothing more than a pious fraud. They are financed to a large extent out of levies on beer, tobacco and other commodities that are paid for out of the income of those who are meant to be the beneficiaries of food subsidies.

If everything the hon. Gentleman says is true, why did the Conservative Party advocate the retention of food subsidies during the last election campaign?

What we made cleat during the last election and what is made clear in our amendment today is that we think that food subsidies, as they exist, should not be abolished overnight but should be phased out. That is the argument which was developed with such conviction and skill by my hon. Friend the Member for Gloucester (Mrs. Oppenheim).

The argument has been put forward that food subsidies are of great benefit because there is a 100 per cent. take-up, as there is not for social service benefits. That argument is supposed to make the case for food subsidies overwhelming. But there are social security benefits that are not means-tested. There are methods of improving the take-up of benefits. If that is the crux of the Government's argument, it is a great pity that they chose to ditch the tax credit scheme, by which they could have given direct help to the people who are most in need.

I come now to the argument that food subsidies are important because the lower-paid spend a larger proportion of their income on food. There is force in that argument, but it is in danger of being overstated. As Professor Ritson pointed out in his article in New Society, what is remarkable in this country is how little expenditure on food varies between different income groups. He said that in the last six months of 1974 the lowest 10 per cent. of the lowest income group consumed only 10 per cent. less meat than did the average of all householders. Even if there are differences between low income families and average families, it is not true to the same extent of pensioner households. Therefore, that is not a convincing argument.

Apart from the feeblesness of the argument put forward by Labour Members in justification of the subsidy policy, there are two weighty, and in our opinion, serious, reasons why subsidies must be phased out— and phased out more quickly that is at present envisaged. One reason was mentioned by my hon. Friend the Member for Oswestry (Mr. Biffen)— the heavy burden of public expenditure and the borrowing requirement in this country. Leaving aside all questions of seeking to find other ways in which the additional money could be spent— for example, in welfare benefits— there is a need to reduce public expenditure. There is a compelling case on that ground.

At present the Government borrowing requirement is at least £6,000 million, and some people believe that it amounts to £8,000 million. That would mean £450 for every household. There is the strongest suspicion that the control of Government expenditure is totally nonexistent. The poor Chief Secretary has done his best but has produced a White Paper in which public expenditure goes ever upwards but in which there is no room for private consumption. Labour Members do not seem to care about the public expenditure problem. They get excited about a contribution to the European budget of £120 million but when two and a half times that amount is spent on the milk subsidy, and 10 times that amount on food subsidies as a whole, they do not seem to turn a hair.

As my hon. Friend the Member for Eastbourne (Mr. Gow) said, the Government, because of their borrowing requirement. are in a most precarious situation. They want to phase out food subsidies, but the question is whether our creditors and the sheikhs will be able to wait that long. We believe that there is a strong case for moving faster than the Government envisage.

The second objection to food subsidies was embodied in the excellent speeches by my hon. Friends the Members for Pudsey (Mr. Shaw) and Romford (Mr. Neubert), and lies in the distortions caused by subsidies. These distortions lead to increases in consumption, effects on the balance of payments, like the rocketing imports of butter, and effects on production which can exacerbate shortages.

In certain cases, one may find that food subsidies will prevent some price reductions. Many major retailers in the past have been able to negotiate discounts with bakers of up to 28 per cent., but the Secretary of State takes the view that it is not right that the subsidised firms should profit in that way. Therefore, the discount has been limited to a maximum of 22½ per cent. with the result that we have had higher bread prices.

There are also the effects of the butter subsidy on margarine producers and the distorting effects in that respect. We must also consider the distorting effects of bread subsidy and the extent which it has shifted consumption from some types of bread that are not subsidised to others that are subsidised.

My hon. Friend the Member for Pudsey also referred to the milk subsidy. The right hon. Lady tried to deal with that point in Committee. She said that milk consumption had increased only a little since the subsidy was introduced. That may be so, but a small increase in total liquid milk consumption may be important for the much smaller market which uses milk for manufacturing purposes. People engaged in making manufactured products are gravely concerned about the increase in consumption caused by the milk subsidies. We believe that the case for phasing out the subsidies more rapidly than the Government envisage is a strong one. They are putting the country in a difficult precarious financial situation.

Division No. 142.]AYES[7.35 p.m.
Arnold, TomHowell, David (Guildford)Penhaligon, David
Atkins, Rt Hon H. (Spelthorne)Howells, Geraint (Cardigan)Powell, Rt Hon J. Enoch
Bennett, Sir Frederic (Torbay)Hutchison, Michael ClarkPrior, Rt Hon James
Benyon,W.James, DavidRathbone, Tim
Berry, Hon AnthonyJessel, TobyRees-Davies, W. R.
Body, RichardKilfedder, JamesRenton, Tim (Mid-Sussex)
Boscawen, Hon. RobertKing, Evelyn (South Dorset)Roberts, Michael (Cardiff NW)
Braine, Sir BernardKnight, Mrs JillRoss, Stephen (Isle of Wight)
Brittan, LeonKnox, DavidSainsbury, Tim
Brotherton, MichaelLamont, NormanShaw, Giles (Pudsey)
Buchanan-Smith, AllickLane, DavidShepherd, Colin
Budgen, NickLawrence, IvanShersby, Michael
Clark, Alan (Plymouth, Sutton)Le Marchant, SpencerSims, Roger
Clarke, Kenneth (Rushcliffe)Luce, RichardSmith, Cyril (Rochdale)
Cooke, Robert (Bristol W)Macmillan, Rt Hon M. (Farnham)Speed, Keith
Cope, JohnMates, MichaelStainton, Keith
Crowder. F. P.Mather, CarolStanley, John
Dean, Paul (N Somerset)Mayhew, PatrickSteel, David (Roxburgh)
Douglas-Hamilton, Lord JamesMeyer, Sir AnthonyStokes, John
Dunlop, JohnMiller, Hal (Bromsgrove)Stradling Thomas, J.
Emery, PeterMills, PeterTaylor, Teddy (Cathcart)
Fisher, Sir NigelMiscampbell, NormanTebbit, Norman
Fletcher-Cooke, CharlesMoate, RogerThomas, Rt Hon P. (Hendon S)
Fookes, Miss JanetMolyneaux, JamesTownsend, Cyril D.
Fowler, Norman (Sutton C'f'd)Montgomery, FergusWalnwright, Richard (Colne V)
Gilmour, Rt Hon Ian (Chesham)Morrison, Charles (Devizes)Wakeham, John
Gow, Ian (Eastbourne)Morrison, Hon Peter (Chester)Warren, Kenneth
Gray, HamishNeave, AireyWeatherill, Bernard
Grimond, Rt Hon J.Nelson, AnthonyWinterton, Nicholas
Grylls, MichaelNeubert, MichaelYoung, Sir G. (Ealing, Acton)
Hamilton, Michael (Salisbury)Newton, Tony
Hannam, JohnOppenheim, Mrs SallyTELLERS FOR THE AYES:
Hawkins, PaulPage, Rt Hon R. Graham (Crosby)Mr. Fred Silvester and Mr. Russell Fairgrieve.
Hicks, RobertPardoe, John
Higgins, Terence L.

Allaun, FrankBuchan, NormanDunn, James A.
Anderson, DonaldCampbell, IanEadie, Alex
Armstrong, ErnestCanavan, DennisEdge, Geoff
Atkinson, NormanCartwright, JohnEllis, John (Brigg & Scun)
Bain, Mrs MargaretClemitson, IvorEllis, Tom (Wrexham)
Barnett, Guy (Greenwich)Cocks, Michael (Bristol S)Evans, Gwynfor (Carmarthen)
Bates, AlfColeman, DonaldEvans, loan (Aberdare)
Bean, R. EColquhoun, Mrs MaureenEvans, John (Newton)
Bishop, E. S.Dalyell, TarnEwing, Harry (Stirling)
Blenkinsop, ArthurDeakins, EricEwing, Mrs Winifred (Moray)
Boardman, H.Dempsey, JamesFaulds, Andrew
Boothroyd, Miss BettyDoig, PeterFernyhough, Rt Hon E.
Brown, Hugh D. (Provan)Dormand, J. D.Fitch, Alan (Wigan)
Brown, Robert C. (Newcastle W)Duffy, A. E. P.George. Bruce

The Government have got themselves impaled on a hook. The Secretary of State is beginning to see the logic of events. She is beginning to realise that subsidies are not a good idea. I appeal to the Secretary of State— as I understand, from the Crossman diaries, Lord Gardiner appealed to a Cabinet subcommittee— is it impossible to drop an idea which has been found to be impracticable, or must it continue simply because it appears in the Labour Party manifesto? That is one reason we believe this nonsensical idea should be scaled down much more rapidly.

Question put, That the amendment be made:—

The House divided : Ayes 99, Noes, 134.

Gould, BryanMarquand, DavidSilverman, Julius
Gourlay, HarryMarshall, Dr Edmund (Goole)Skinner, Dennis
Graham, TedMellish, Rt Hon RobertSmall, William
Grant, George (Morpeth)Mlllan, BruceSmith, John (N Lanarkshire)
Grocott, BruceMiller, Dr M. S. (E Kilbride)Spriggs, Leslie
Hamilton, W. W. (Central File)Miller, Mrs Millie (llford N)Stewart, Rt Hon M. (Fulham)
Harper, JosephMitchell, R. C. (Soton, Itchen)Swain, Thomas
Harrison, Walter (Wakefield)Morris, Charles R. (Openshaw)Taylor, Mrs Ann (Bolton W)
Hatton, FrankMoyle, RolandThomas, Dafydd (Merioneth)
Hayman, Mrs HelenaMurray, Rt Hon Ronald KingThomas, Ron (Bristol NW)
Henderson, DouglasNewens, StanleyThompson, George
Hunter, AdamNoble, MikeThorne, Stan (Preston South)
Jackson, Miss Margaret (Lincoln)O'Halloran, MichaelTinn, James
Janner, GrevllleO'Malley, Rt Hon BrianTorney, Tom
Jones, Alec (Rhondda)Orme, Rt Hon StanleyUrwin, T. W.
Jones, Dan (Burnley)Ovenden, JohnWainwright, Edwin (Dearne V)
Kerr, RussellPalmer, ArthurWalker, Terry (Kingswood)
Kilroy-Silk, RobertPark, GeorgeWeetch, Ken
Lamborn, HarryPavitt, LaurieWeitzman, David
Leadbitter, TedPeart, Rt Hon FredWelsh, Andrew
Lewis, Ron (Carlisle)Pendry, TomWhite, Frank R. (Bury)
Loyden, EddiePerry, ErnestWhite, James (Pollok)
Lyons, Edward (Bradford W)Phipps, Dr ColinWilliams, Alan (Swansea W)
McElhone, FrankPrescott, JohnWilliams, Rt Hon Shirley (Hertford)
Mackenzie, GregorReld, GeorgeWilson, Alexander (Hamilton)
Maclennan, RobertRoderick, CaerwynWise, Mrs Audrey
McMillan, Tom (Glasgow C)Rodgers, George (Chorley)Woodall, Alec
McNamara, KevinRooker, J. W.Young, David (Bolton E)
Madden, MaxRoper, John
Magee BryanRose, Paul B.TELLERS FOR THE NOES
Magulre, Frank (Fermanagh)Sheldon, Robert (Astiton-u-Lyne)Mr. James Hamilton and Mr. David Stoddard
Marks, KennethShort, Mrs Renee (Wolv NE)

Question accordingly negatived.

Amendment proposed : No. 2, in page 2, line 21, leave out subsection (3).— [ Mrs. Sally Oppenheim.]

Division No. 143.]


7.47 p.m.
Arnold, TomHawkins, PaulPardoe, John
Atkins, Rt Hon H. (Spelthorne)Hicks, RobertPenhaligon, David
Bennett, Sir Frederic (Torbay)Higglns, Terence L.Powell, Rt Hon J. Enoch
Benyon, W.Howell, David (Guildford)Prior, Rt Hon James
Berry, Hon AnthonyHowells, Gereint (Cardigan)Rathbone, Tim
Body, RichardHutchison, Michael ClarkRees-Davies, W. R.
Boscawen, Hon. RobertJames, DavidRenton, Tim (Mid-Sussex)
Bralne, Sir BernardJessel, TobyRoberts, Michael (Cardiff NW)
Brittan, LeonKllfedder, JamesRoss, Stephen (Isle of Wight)
Brotherton, MichaelKing, Evelyn (South Dorset)Sainsbury, Tim
Buchanan-Smith, AllckKnight, Mrs JillShaw, Giles (Pudsey)
Buck, AntonyKnox, DavidShepherd, Colin
Budgen, NickLamont, NormanSims, Roger
Clark, Alan (Plymouth, Sutton)Lane, DavidSmith, Cyril (Rochdale)
Clarke, Kenneth (Rushcliffe)Lawrence, IvanSpeed, Keilh
Cooke, Robert (Bristol W)Luce, RichardStalnton, Keith
Cope, JohnMacmlllan, Rt Hon M. (Farnham)Stanley, John
Crowder, F. P.Mates, MichaelSteel, David (Roxburgh)
Dean, Paul (N Somerset)Mather, CarolStokes, John
Douglas-Hamilton, Lord JamesMayhew, PatrickStradling Thomas, J.
Dunlop, JohnMiller, Hal (Bromsgrove)Taylor, Teddy (Cathcarl)
Emery, PeterMills, PeterTebblt, Norman
Falrgrieve, RussellMlscampbell, NormanThomas, Rt Hon P. (Hendon S)
Fisher, Sir NigelMoate, RogerTownsend, Cyril D.
Fletcher-Cooke, CharlesMolyneaux, JamesWainwright, Richard (Colne V)
Fookes, Miss JanetMontgomery, FergusWakeham, John
Fowler, Norman (Sutton C'f'd)Morrison, Charles (Devizes)Warren, Kenneth
Gilmour, Rt Hon Ian (Chesham)Morrison, Hon Peter (Chester)Weatherill, Bernard
Gow, Ian (Eastbourne)Neave, AlreyWlnterton, Nicholas
Gray, HamlshNelson, AnthonyYoung, Sir G. (Ealing, Acton)
Grlmond, Rt Hon J.Neubert, Michael
Giylls, MichaelNewton, TonyTELLERS FOR THE AYFS
Hamilton, Michael (Salisbury)Oppenhelm, Mrs SallyMr. Spencer Le Marchant and Mr. Fred Silvester.
Hannam, JohnPage, Rt Hon R. Graham (Crosby)

Allaun, FrankBean, R. E.Buchan, Norman
Anderson, DonaldBishop, E. S.Campbell, Ian
Armstrong, ErnestBlenkinsop, ArthurCanavan, Dennis
Atkinson, NormanBoardman, H.Cartwright, John
Bain, Mrs MargaretBoothroyd, Miss BettyClemitson, Ivor
Barnett, Guy (Greenwich)Brown, Hugh D. (Provan)Cocks, Michael (Bristol S)
Bates, AlfBrown, Robert C. (Newcastle W)Coleman, Donald

Question put, That the amendment be made :

The House divided : Ayes 98, Noes 133.

Colquhoun, Mrs MaureenLewis, Ron (Carlisle)Roper, John
Dalyell, TamLoyden, EddieRose, Paul B.
Deakins, EricLyons, Edward (Bradford W)Sheldon, Robert (Ashton-u-Lyne)
Dempsey, JamesMcElhone, FrankShort, Mrs Renee (Wolv NE)
Doig, PeierMackenzie, GregorSilverman, Julius
Dormand, J. D.Maclennan, RobertSkinner, Dennis
Duffy, A. E. P.McMillan, Tom (Glasgow C)Small, William
Dunn, James A.McNamara, KevinSmith, John (N Lanarkshire)
Eadie, AlexMadden, MaxSpriggs, Leslie
Edge, GeoffMagee. BryanStewart, Rt Hon M. (Fulham)
Evans, Gwynfor (Carmarthen)Maguire, Frank (Fermanagh)Stoddart, David
Evans, loan (Aberdare)Marks, KennethSwain, Thomas
Evans, John (Newton)Marshall, Dr Edmund (Goole)Taylor, Mrs Ann (Bolton W)
Ewing, Harry (Stirling)Mellish, Rt Hon RobertThomas, Dafydd (Merioneth)
Ewing, Mrs Winifred (Moray)Millan, BruceThomas, Ron (Bristol NW)
Faulds, AndrewMiller, Dr M. S. (E Kilbride)Thompson, George
Fernyhough, Rt Hon EMiller, Mrs Millie (llford N)Thome, Stan (Preston Soutn)
Fitch, Alan (Wigan)Mitchell, R. C. (Soton, Itchen)Tinn, James
George, BruceMorris, Charles R. (Openshaw)Torney, Tom
Gould, BryanMoyle, RolandUrwin, T. W.
Gourlay, HarryMurray, Rt Hon Ronald KingWainwrignt Edwin (Dearne V)
Graham, TedNewens, StanleyWalker, Terry (Kingswood)
Grant, George (Morpeth)Noble, MikeWeetch, Ken
Grocott, BruceO'Halloran, MichaelWeltzman, David
Hamilton, James (Bothwell)O'Malley, Rt Hon BrianWelsh, Andrew
Hamilton, W W. (Central Fife)Orme, Rt Hon StanleyWhite, Frank R. (Bury)
Harper, JosephOvenden, JohnWhite, James (Pollok)
Harrison, Walter (Wakefield)Palmer, ArthurWilliams, Alan (Swansea W)
Hatton, FrankPark, GeorgeWilliams, Rt Hon Shirley (Hertford)
Hayman, Mrs HelenePavitt, LaurieWilliams, W. T. (Warrington)
Henderson, DouglasPeart, Rt Hon FredWilson, Alexander (Hamilton)
Hunter, AdamPendry, TomWise, Mrs Audrey
Janner, GreviHePerry, ErnestWoodall, Alec
Jones, Alec (Rhondda)Phipps, Dr ColinYoung, David (Bolton E)
Jones, Dan (Burnley)Prescott, John
Kerr, RussellReid, GeorgeTELLERS FOR THE NOES:
Kilroy-Silk, RobertRoderick, CaerwynMiss Margaret Jackson and Mr. John Ellis.
Lamborn, HarryRodgers, George (Chorley)
Leadbitter, TedRooker, J. W.

Question accordingly negatived.

Motion made, and Question, That the Bill be now read the Third time, put forthwith, pursuant to Standing Order No. 56 (Third Reading), and agreed to.

Bill accordingly read the Third time and passed.

Social Security Benefits Bill

Lords amendments considered.

Clause 1

Rates Of Basic Scheme Benefits

Lords amendment : No. 1, in page 2, line 17, leave out from "substituted" to "paragraphs" in line 23 and insert "" £20 "and at the end there shall be inserted:

" With effect from such day as may be prescribed in the week containing 6th April in a year mentioned in the first column below, this subsection shall have effect with the substitution for "£20" of the amount specified in relation to that year in the second column below—

1977"£" "
(4) In'".

7.58 p.m.

The Minister of State, Department of Health and Social Security
(Mr. Brian O'Malley)

I beg to move, That this House does agree with the Lords in the said amendment.

I understand that it will be for the convenience of the House to discuss at the same time Lords Amendment No. 3.

These amendments deal with the vexed subject of the earnings rule on which we have had vigorous and controversial debates in recent weeks. I think that this evening we may have reached tranquillity, because I cannot believe that the Opposition would be able so to contort themselves as to do anything but agree with the recommendation that we should accept the amendment made in another place.

The amendment puts into proper form the relaxation of the earnings rule which was agreed to when the Bill was reported back to the House from Standing Committee. It clarifies the wording of subsection (3). We are doing nothing new. All that we are doing is to put into proper legal form the intention of the House expressed in the vote some weeks ago. I understand the difficulty of drafting amendments in proper legal language. There were serious defects in the drafting of the amendment which was made then.

8.0 p.m.

The Government do not propose to reopen the argument about whether the changes proposed, and now embodied in the Bill, are justifiable in present economic circumstances. The Bill, as amended, will achieve the objectives of the original amendment. The earnings limit below which retirement pensions are not affected will be increased from £13 to £20 from April this year ; to £35 from April 1976 ; and to £50 from April 1977. That was clearly the wish of the House. I ask the House, in making a judgment on that statement, to look back at the Divisions when we last considered the subject.

When the Bill went to the other place it referred to the earnings limit being changed

"in the year following the coming into force of the said Act of 1973"—

the Social Security Act. But there is no single date on which that Act comes into force. The important contribution provisions of the Act will come into force next month, but other provisions have been in force since various dates from July 1973. The Bill, as amended in the other place, leaves no room for doubt about when the various phases of relaxation of the earnings rule should come into operation.

Another important consideration is that the Bill would have left a void after the £50 earnings limit had operated for one year. Some hon. Members might say that that is the situation they wish, although the House decisively rejected an amendment which would have had the effect of bringing the earnings rule to an end even in the year 1980.

It is relevant to consider the reservations expressed by the hon. Member for Wells (Mr. Boscawen) in Standing Committee, where he frankly recognised the economic and financial difficulties of the country. He believes, as I believe, that there is a case to be made for a progressive relaxation of the earnings rule as financial resources become available, but at no time did the Opposition Front Bench take the view that it would be economically desirable to abolish the earnings rule completely as from 1978.

It was clearly not the intention of the House that there should be a void. It would have led to odd consequences and disadvantages for prospective pensioners. I said in Committee more than once that the retirement condition and the earnings rule ran hand in hand, and that if the earnings rule were removed the retirement condition would automatically need removal as well.

If hon. Members did not accept the amendment made in another place, there would be odd consequences which they may not have had the opportunity to consider. Those consequences arise largely because the amendment derives from the drafting of the existing legislation. If there were no earnings limit, it would no longer be possible for a person to be treated as retired if his future earnings were expected to be below the amount of that limit, as happens now. Instead, he would have to satisfy the remaining parts of the retirement condition and show that the work he intended to do would be only "occasional "or

" inconsiderable in extent "


"otherwise not inconsistent with retirement "

That would bear most hardly on the low earner. It would be particularly inequitable at a time when existing pensioners were being completely freed from any earnings limit.

The Bill, as amended, will allow the £50 earnings limit to continue after its introduction in April 1977 until amended under the regulation-making powers which already exist. But, for technical reasons, these powers could not be used to provide for an earnings limit if none already existed.

The power conferred by the amendment which we moved in the other place, to prescribe a day in a particular week— the first week of the income tax year— from which the second and third stages of the relaxation of the earnings rule are to be brought in, will simply enable us to get over the technical difficulties, arising out of the pay days that there are for different benefits, which might otherwise have prevented the relaxation from reaching all the beneficiaries concerned in the same week.

On the first occasion, in April of this year, there are obvious reasons for ensuring, as the amendment does, that the relaxed rule will start to operate at the same time as the increased rates provided by the Bill will become payable— that is, from the beginning of the next financial year. That is clearly what hon. Members had in mind when the Bill was before us earlier.

The amendment with which I am asking the House to concur thus tidies up subsection (3) and removes the ambiguities which were in the Bill when it left us. Therefore, I hope that the amendment will commend itself to the House.

Amendment No. 3 is beneficial. It extends to wives residing with industrial injuries disablement pensioners who are entitled to unemployability supplement the relaxed earnings rule which is provided under subsection (3) of Clause 1 for the wives of retirement and invalidity pensioners.

It is desirable that the wives of unemployability supplement beneficiaries under the industrial injuries scheme should continue to be treated in the same way as the wives of invalidity pensioners under the national insurance scheme.

The amendments arise, as the Minister said, from the proceedings in the House a short time ago when the Government suffered a notable defeat on the earnings rule. The consequence was a worthwhile relaxation in the earnings rule for retirement pensioners and the wives of invalidity pensioners.

One of the things which the Government are now doing, which we welcome, is to put right an oversight in the previous proceedings, by extending the relaxation to the wives of industrial injuries disablement pensioners who are entitled to unemployability supplement.

I accept that it is the Government's intention in Amendment No. 1 to tidy up the wording of the amendment drafted by my hon. Friend the Member for Kensington (Sir B. Rhys Williams), which was carried against the Government. Lord Wells-Pestell said on behalf of the Government in the other place:
" I want to make it perfectly clear…that this Amendment is not designed in any way to reverse or to modify the clear intention of those who supported the relaxation."— [Official Report, House of Lords, 27th February 1975 Vol. 357, c. 998.]
I accept the Government's good faith in that they were trying to tidy up the drafting to give effect to what they believed the House intended. Unlike, for instance, the other defeat which they suffered on the question of disabled housewives, they are trying to go back on the decision of this House and in practice avoid the consequences of the defeat they suffered on that occasion. It was the genuine belief of Lord Wells-Pestell that he was simply meeting the case of what had been carried in this House.

There is certainly no need for me to go over the general case for the relaxation of the earnings rule. It was accepted in the House on a previous occasion that it was a very much resented and unfair rule in the way in which it bore on retirement pensioners and that a relaxation of it, moving towards virtual abolition, was a very important encouragement to retired people who want and need to keep themselves in some sort of worthwhile work.

However, I should like to look at the tidying up which is being carried out. because the Minister has made it clear— and the amendment makes it clear— that the amendment is designed to ease the rule to £50 a week by 1977. That, I accept, is what the House believed it had carried on the previous occasion. On that occasion we moved another amendment to abolish the earnings rule completely, which was defeated because the Labour Members who had supported the Opposition on the first Division did not support us on the second.

But what have we actually carried, and why is it that the Government are anxious to tidy up what was carried against them in the House? Lord Wells-Pestell drew attention to the most important unexpected consequence of what we had done when he said :
"The technicality to which I referred at Second Reading was in relation to what was to happen after 1977. As the clause came from the other place "—
meaning this House—
" it would have meant that the earnings rule would have finished completely at that period."
The noble Lord spelled it out even more clearly when he said:
" As drafted, the Bill provides for no earnings limit once the £50 limit has been in operation for a year. The sponsors of the Amendment to the original Bill clearly did not intend the earnings rule to disappear in 1978 ; if they bad so intended, there would have been little point in their voting for the subsequent Amendment to abolish the earnings rule by 1980 or in their resisting the later Government Amendment at Report stage in another place to delete this provision from the Bill. Nevertheless, the Bill as it stands would mean that once the £50 had applied for a year there would be no figure by reference to which the earnings rule could operate. This would not only produce a result not intended when the provision was passed in another place, but would also have a very odd effect on the retirement condition."—[Official Report, House of Lords, 27th February 1975 ; Vol. 357, c. 997–9.]

8.15 p.m.

What emerges from that is this. One thing that we must concede— as I think my hon. Friend the Member for Kensington would concede— is that we did not realise that we had, in fact, abolished the earnings rule when we carried that amendment. Certainly the noble Lord who spoke for the Government and the Minister who has spoken today are quite correct. We did not realise the extent of the success that we had achieved, and we believed that it was necessary to go on to try to carry the second amendment. At that stage the Minister of State did not realise that what he had lost carried with it the consequences of the abolition of the earnings rule. But where the noble Lord and the Minister, if they tried to follow that line, would be wrong is in thinking that those of us on the Opposition side of the House who voted in both Divisions on that occasion intended to try to bring the earnings rule completely to an end.

It is our firm commitment to move towards total abolition of the rule. The Government's argument is that the votes on the previous occasion showed that this was not really the intention. Of course, it was the Labour Members who helped the Conservative Party to defeat the Government on the first amendment who did not vote in the second Division. They are not present now to say why they did not vote then. Possibly if they were present they might say that they decided to vote once against their Government on a three-line Whip and that that was enough for one evening. Perhaps recalling an occasion when dogs and licences were referred to at a party meeting, they decided that they had better not push very much further. I suspect that many of them thought that by what they had carried they produced a consequence that by 1977 the Government would have to abolish the rule anyway and that they could not go any further.

However, the Government are coming back now realising that on the first occasion we had abolished the rule. Now they are trying to reduce what we achieved to a mere easing of the rule, which will be little in advance of inflation at the present rate in 1977.

We are taking this opportunity of demonstrating that we voted for both amendments on the previous occasion with the consequence of the abolition of the earnings rule. It was our intention to press upon the Government the abolition of the rule. It is the firm commitment of the Conservative Party to move towards the disappearance of the earnings rule from our retirement pension scheme. As the Minister will recall from our speeches in the prolonged debates, we accepted that as a consequence the retirement conditon had to go and we were moving towards a better old-age pension system.

The problems to which the Minister has referred, which would give some detailed difficulty in the abolition of the earnings rule if nothing more were done by 1978, could easily be put right by 1978 so that the earnings rule and the retirement rule could vanish together.

What change has taken place between the speech of the hon. Member for Wells (Mr. Boscawen) in Committee and the hon. Gentleman's speech on Report? What further change has taken place for the hon. Gentleman to undermine completely and dissent from his hon. Friend's remark? The hon. Member for Wells is on record as saying in Committee

" I could not recommend to my hon. Friends in the light of the exising economic circumstances that we go as far as Amendment No. 4 "—
that is the amendment which was eventually carried—
" We cannot ignore the effect and the cost of what is involved, virtually straight away for the first £20 and again next year with the next £35."— [Official Report, Standing Committee B, 5th December 1974 ; c. 62.]
Now the hon. Gentleman is wanting to go even further. What has changed so that he is now completely dissenting from the remarks of his hon. Friend the Member for Wells and making him look very silly?

Not at all. I am drawing the Minister into going back into the arguments that he used so unsuccessfully three or four weeks ago when he resisted this amendment. We debated those remarks then. They are taken from one portion of our Committee proceedings. It was then followed by a vote for the two amendments on the Floor of the House subsequently. The Minister will recall clearly the proceedings then, and that there was, indeed, a majority of the Committee who clearly disagreed with the Government. There was a period of delay and open discussion in the Committee before we agreed on which amendments we wanted to carry. But within half an hour of that remark being made, a clear majority of the Committee rejected the Minister's remarks about the amendments and carried both amendments. He was unable to use either that argument or any other to persuade the House to change its mind on Report. It is no good the Minister using the one debating point he had on the last occasion. He has lost that. The amendment shows the extent of what he has lost.

For our part, we are delighted to find how much we have achieved and we shall reinforce our commitment to move towards total abolition of the rule and not allow the Government to believe that they are getting away with a toning down to an easing of the rule in the coming years.

The Minister gave no indication about what the Government's intentions are. Never does he give any commitment about the abolition of the rule— except when it is hedged about with so many qualifications that it clearly comes within the dim and distant future. He is clearly trying to divert the House away from abolition and just to ease it to the lowest amount that he is able to carry in the House.

The Minister has referred to cost. We are about to attempt to reject this Lord's amendment because we prefer the consequences which flow from my hon. Friend's amendment. Therefore, I shall deal with cost because otherwise, were we to be successful on this occasion, we would risk the Chancellor of the Exchequer charging in once more, leaping to his feet in the style of a bold and somewhat over-excited rhinoceros, and ranting to us about the figures involved and the enormity of what we have done— taking his defeat with the extremely bad grace and style he did on the last occasion.

In another place it has been stated that the figures involved are: for 1975–76 £45 million, 1976–77 £85 million, 1977–78 £110 million. Those are the Government's estimates. All that cost falls on the National Insurance Fund, which is grossly in surplus at present because of the graduated contributions from ever-inflating salaries and wages. Indeed, the Exchequer contribution from the Chancellor's own revenues to the cost of this is exceeded by the tax revenue he is likely to get back. There is, of course, a net cost to public funds even against the National Insurance Fund.

We challenged the Government on those figures in Committee and in debate on Report. When the Treasury Minister defended the figures he made a pathetic attempt to explain the background to them. He was unable to justify them to the full satisfaction of hon. Members on both sides of the House. Those figures rise to £110 million in 1978.

On the last occasion we discussed this matter—when the Chancellor got excited about the £110 million— the very next day the Government brought forward the Prices Bill authorising £1,000 million to be spent on indiscriminate food subsidies. By chance, we find ourselves following the Prices Bill today. It is absolute humbug for the Government to lecture us on priorities. Their expenditure is spendthrift and indiscriminate in some directions and fairly miserly in this direction. We do not regret what we did before and we shall do it again if we get the opportunity.

We wish to persuade the House to reject the Lords Amendment so that the Bill will remain as we carried it in this House a few weeks ago.

I should like to correct the hon. Gentleman on one point. He quoted the figures of £45 million, £85 million and £110 million as being the cost to the National Insurance Fund. I hope he will accept that that is not the case and that he is incorrect. The figures he quoted are figures less tax, and the effect on the National Insurance Fund is shown by the higher figures of £60 million, £110 million and £145 million.

The £110 million is the net cost in terms of public expenditure to the National Insurance Fund less the tax returned. The final global figure is £110 million, the bulk of which will fall on the National Insurance Fund.

The £60 million, £110 million and £145 million fall on the National Insurance Fund. It is true that there will be clawback through the tax system, but that does not assist the National Insurance Fund and, therefore, we have to use the higher figure in estimating the cost on that fund.

I do not wish to speak at length, because this is a matter which has been picked over extensively.

Two points need to be made. I am rather surprised that the Minister of State has raised the cost argument again. Indeed, in his last intervention he sought to go over a lot of dry detail. I am sure that he is speaking in good faith, according to his lights ; but his lights seem to be a quivering lantern held before him by the blindest elements in the Treasury. He wants to know why my hon. Friends were convinced that they should support my amendment.

I shall put the argument to him which I am sure he will wish to use when explaining to a wider audience why the Government decided to maintain the amendment in the spirit of the Committee's amendment. It cannot cost the nation more to encourage people to go into productive work than to keep them in idleness, probably running down their savings and contributing nothing.

If the Minister will lift his eyes to the national picture and take his mind from purely departmental considerations he will realise that it is in the national interest to encourage people to continue working if they are capable of doing so after retirement. This argument is so simple that I am surprised that it has not reached the Minister. I hope that he will reflect on it in future.

Unfortunately, there has to be a future with the earnings rule because we have not had a commitment from the Government benches about the eventual abolition of the rule. The Government have had their opportunity. They have not only failed to seize it ; they have actually rejected it. This is a matter of surprise and disappointment to me. I drafted two amendments which were tabled in Committee. One was a talking point: it dealt with the timetable of gradual abolition. The other was the one I expected the Government to accept. suggesting total abolition in 1980.

That date is beyond any conceivable General Election date, and I thought that the Government's calculations would be that it would be easier to accept abolition then, when it did not oblige them to do anything in the immediate future. than a phased withdrawal of the rule beginning at once. I have had to give a great deal of thought to try to understand why the Government, and Labour Members generally, preferred the timetable which led only to raising the limit to £50 a week and did not wish to commit themselves to total abolition.

I am sorry to sound a jarring note here, but it is necessary to interpret the Government's mind. They are not sincerely dedicated to abolishing the earnings rule altogether. They prefer to leave it at a cut-off point somewhere in the neighbourhood of the national average wage, so that the better-paid and professional people will still incur the earnings rule after the age of 60 in the case of women and 65 in the case of men, as a sort of new kind of surtax.

This fits in with the thinking of Labour Members. I regret this bitterly, because it is all part of the class war mentality which is ruining the country, for which the Labour Party are largely to blame. In the way they have handled this issue we see the whole thing again in an unpleasant manifestation. The public will not realise the implications of this until the earnings rule rises to £50 ; but then if the Government have their way it will stay there. That has been made clear. This is deeply regrettable and we must protest about it.

I warn Labour Members that the campaign will go on and their thinking will have to be exposed to the public. This is not only because it is bitterly unfair and wrong but because while it remains it seems that we cannot readily move towards a unisex basis for the flat-rate pension or to the ideal of the optional retirement age, which is obviously the most humane way of dealing with the fact that not everyone is ready to retire at 60 in the case of women and 65 in the case of men.

This Procrustean bed of a fixed retirement age is something which must be

Division No. 144.]AYES[8.28 p.m.
Allaun, FrankHamilton, W. W. (Central Fife)Phipps, Dr Colin
Anderson, DonaldHarper, JosephPrescott, John
Armstrong, ErnestHarrison, Walter (Wakefield)Roderick, Caerwyn
Atkinson, NormanHunter, AdamRodgers, George (Chorley)
Bates, AlfJackson, Colin (Brighouse)Rooker, J. W.
Bean, R. E.Janner, GrevilleRoper, John
Bishop, E. S.Jones, Alec (Rhondda)Rose, Paul B.
Blenkinsop, ArthurKerr, RussellSheldon, Robert (Ashton-u-Lyne)
Boardman, H.Leadbitter, TedShort, Mrs Renée (Wolv NE)
Boothroyd, Miss BettyLoyden, EddieSilverman, Julius
Brown, Hugh D. (Provan)Lyons, Edward (Bradford W)Skinner, Dennis
Brown, Robert C. (Newcastle W)McElhone, FrankSmall, William
Campbell, IanMackenzie, GregorSmith, John (N Lanarkshire)
Canavan, DennisMcMillan, Tom (Glasgow C)Spriggs, Leslie
Clemilson, IvorMcNamara KevinStewart, Rt Hon M. (Fulham)
Coleman, DonaldMadden, MaxStoddart, David
Daly-ell, TarnMagee BryanSwain, Thomas
Deakins, EricMaguire, Frank (Fermanagh)Taylor, Mrs Ann (Bolton W)
Dempsey, JamesMarks, KennethThomas. Ron (Bristol NW)
Doig, PeterMarshall, Dr Edmund (Goole)Thome, Stan (Preston South)
Dormand, J. D.Mellish, Rt Hon RobertTinn, James
Duffy, A. E. P.Millan, BruceUrwin, T. W.
Eadie, AlexMiller, Mrs Millie (Ilford N)Walnwright, Edwin (Dearne V)
Ellis, John (Brigg & Scun)Morris, Alfred (Wythenshawe)Walker, Terry (Kingswood)
Evans, loan (Aberdare)Morris, Charles R. (Openshaw)Weetch, Ken
Evans, John (Newton)Moyle, RolandWeitzman, David
Ewing, Harry (Stirling)Murray, Rt Hon Ronald KingWhite, Frank R. (Bury)
Faulds, AndrewNewens. StanleyWhite, James (Pollok)
Fernyhough, Rt Hon E.Noble, MikeWilson, Alexander (Hamilton)
Fitch, Alan (Wigan)O'Halloran, MichaelWise, Mrs Audrey
George, BruceO'Malley, Rt Hon BrianWoodall, Alec
Gould, BryanOrme, Rt Hon StanleyYoung, David (Bolton E)
Gourlay, HarryOvenden, John
Graham, TedPalmer, ArthurTELLERS FOR THE AYES:
Grant. George (Morpeth)Pavitt, LaurieMr. James A. Dunn and Mr. Michael Cocks.
Grocott, BrucePendry, Tom
Hamilton, James (Bothwell)

Arnold, TomFookes, Miss JanetMayhew, Patrick
Atkins, Rt Hon H. (Spelthorne)Fowler, Norman (Sutton C'f'd)Miller, Hal (Bromsgrovs)
Bain, Mrs MargaretGilmour, Rt Hon Ian (Chesham)Miscampbell, Norman
Benyon, W.Gray, HamishMoate, Roger
Berry, Hon AnthonyGrylls MichaelMolyneaux, James
Body, RichardHamilton, Michael (Salisbury)Montgomery, Fergus
Boscawen, Hon. RobertHannam, JohnMorrison, Charles (Devizes)
Brittan, LeonHawkins, PaulNelson, Anthony
Brotherton, MichaelHenderson, DouglasNeubert, Michael
Buchanan-Smith, AlickHicks, RobertNewton, Tony
Budgen, NickHiggins, Terence L.Page, Rt Hon R. Graham (Crosby)
Clark, Alan (Plymouth, Sutton)Howells, Geraint (Cardigan)Penhaligon, David
Clarke, Kenneth (Rushcliffe)Hutchison, Michael ClarkPowell, Rt Hon J. Enoch
Cope, JohnJames, DavidRees-Davies, W. R
Crowder, F. P.Kilfedder, JamesReid, George
Dean, Paul (N Somerset)King, Evelyn (South Dorset)Renton, Tim (Mid-Sussex)
Douglas-Hamilton, Lord JamesKnight, Mrs JillRoss, Stephen (Isle of Wight)
Dunlop, JohnKnox, DavidSainsbury, Tim
Evans, Gwynlor (Carmarthen)Lane, DavidShepherd, Colin
Ewing, Mrs Winifred (Moray)Lawrence, IvanSims, Roger
Fairgrieve, RussellLe Marchant, SpencerSpeed, Keith
Fisher, Sir NigelMacmillan, Rt Hon M. (Farnham)Stokes, John
Fletcher-Cooke, CharlesMates, MichaelStradling Thomas, J.

changed. I hope that the Government are bending their mind to it. They have not shown any evidence that they are. There is room for fresh thinking. The Government have not begun it. Parliament will have to return to this subject.

Question put, 'That this House doth agree with the Lords in the said amendment —

The House divided : Ayes 106, Noes 77.

Taylor, Teddy (Cathcart)Weatherill, BernardTELLERS FOR THE NOES:
Tebbit, NormanWelsh, AndrewMr. Richard Luce and Mr. Fred Silvester.
Thomas, Dafydd (Merioneth)Winterton, Nicholas
Thomas. Rt Hon P. (Hendon S)Young, Sir G. (Ealing, Acton)

Question accordingly agreed to.

New Clause A


Lords amendment: No. 2, in page 2,

line 26, at end insert new Clause" "—
"A.—(1) Where the earnings of a person entitled to an invalidity pension or to a non-contributory invalidity pension, being a person who has not reached pensionable age, have exceeded £13·00 for the week ending last before any week for which he is entitled to an invalidity pension or a non-contributory invalidity pension, the weekly rate of pension for the last mentioned week shall be reduced—
(a) where the excess is less than £4, by 5 pence for each complete 10 pence of the excess, and
(b) where the excess is not less than £4, by 5 pence for each complete 10 pence of the excess up to £4 and by 5 pence for each complete 5 pence of any further excess.
(2) In this section "week", where used in the expression "week for which he is entitled ", means such period of 7 days as may be prescribed by regulations made for the purposes of this section."

I call the hon. Member for Exeter (Mr. Hannam) to move his amendment to the Lords amendment, with which it will be convenient to discuss the two amendments in the name of the hon. Member for Radcliffe (Mr. Clarke)—

In line 1, leave out ' an invalidity pension or to '.

In line 5. leave out ' an invalidity pension or '.

I also call attention to the fact that privilege is involved in this amendment.

I beg to move, as an amendment to the Lords amendment, in line 1, leave out from beginning to ' have ' in line 3 and insert:

A.— (I) This section shall apply to a person entitled to an invalidity pension of a noncontributory invalidity pension who, while continuing to be incapacitated for normal full-time work, becomes capable of undertaking light work in circumstances which satisfy prescribed conditions.
(2) A person to whom this section applies shall continue to be entitled to benefit for so long as the prescribed conditions are satisfied but where his earnings '.

The amendment seeks to improve the new clause which has been added by the other place so that it can become acceptable to the Government.

We are dealing with the earnings position of invalidity pensioners, the disabled persons under retirement age, but so severely incapacitated that they qualify for the special invalidity payments to themselves and their families.

Unlike the retirement pensioner, who can earn up to £20 a week without affecting his pension and who will be able to earn by 1977 up to £50 a week, the invalidity pensioner can at present earn only £4·50 a week before he loses his entire pension. In other words, a severe and sudden wages stop takes place at £4·50 a week. This can sometimes result in the loss of four or five times that amount of earnings. I will give an example later.

This is totally unfair. in the most excellent debate which took place in the other place on 27th February, when Lord Crawshaw, who is himself disabled, moved the new clause, noble Lords from all political parties supported him in the Lobby and they secured this notable improvement for disabled people.

However, in view of the Government's reluctance to accept the clause as it stands, the Disablement Income Group, which is an all-party organisation and pressure group, has under the drafting inspiration once again of Mr. Peter Large, its parliamentary spokesman, produced a way in the amendment of overcoming the definition problem of entitlement to earnings relaxation.

The amendment which stands in my name and that of my hon. Friend the Member for Wallasey (Mrs. Chalker), who unfortunately has been struck down by the same influenza bug as is causing myself and other hon. Members some vocal problems, would add an extra sentence in subparagraph (1) defining eligibility for a person who
" while continuing to be incapacitated for normal full-time work, becomes capable of undertaking light work in circumstances which satisfy prescribed conditions."
There are many hon. Members on both sides who have the interests of the disabled at heart. The all-party Disablement Group, of which I am secretary, seeks to lift disablement above party politics. Many important concessions have thereby been won from successive Governments. Last week, on the Report stage of the Finance Bill, the Government were nearly defeated on an amendment to relieve disabled people from the disgracefully low income surcharge level which is now to operate. If more hon. Members opposite had listened to the debate and heard the details of, for example, polio victims who are now being taxed on any income they receive over £1923 per week, many more than the eight or nine would have abstained.

The Minister of State, Treasury in that debate gave as his reason— it is linked with this debate— for not giving the concession, that the Department of Health and Social Security benefits were the right way of helping the disabled rather than Revenue concessions. This is why we have the amendment before us tonight. I hope that the Department of Health and Social Security Minister will accept his responsibility and accept the amendment.

The principle then, as now, is to help disabled people to earn their own way if they wish to and if they are able to and thereby reduce their dependence on State benefits. In case the Minister intends to deploy the argument that we are imposing an increase in Government expenditure, I wish to assure him that I believe that the result of the amendment would be the opposite.

We have at present what has been termed a "sick or fit situation. Either a person is considered sick or unemployable and receives State aid— invalidity pension, supplementary benefits and so on — or he does a little part-time work and earns more than £4·50 a week and thereby loses his invalidity pension completely.

The consequence is that many disabled people, who can easily be certified under the prescribed regulations we suggest in the amendment by a doctor or an occupational therapist as being fit for light work, are now staying at home doing nothing and, in their own definition, becoming State cabbages. The alternative is that they become a kind of slave labour, with employers who restrict their wages to the wage-stop limit of £4·50.

On top of that, there are all sorts of fiddles arranged whereby such people work in little joint businesses and arrange for all payments to go through their wives. Such things are inevitable when a wage stop operates at such a ridiculously low level. This wage stop constitutes an earnings stop and prevents many disabled people from doing useful work, it is a hindrance, and it does not encourage people to return to work.

With a sickness benefit it is different. After a spell away from work, the doctor prescribes an ability to return to work. For the disabled invalid there is a transitional rehabilitation period during which part-time work helps a person to get back to full-time employment, and, therefore, away from dependence on the State, which is surely what we all want to achieve if possible.

8.45 p.m.

The scale of earnings rule proposed in the new clause is identical to that which was originally proposed by the Government for retirement pensioners. The House, however, subsequently decided to increase substantially the retirement amounts, but the Minister cannot object to the reasonable exemption figure of £13 a week which is proposed in this new clause. In these days of hyper-inflation £13 can represent one or two days' work. That is the sort of period which we are suggesting for part-time work for a disabled person. Above the £13 earnings level and up to £17 there would be a 50 per cent. deduction from the pension of the £1 to £4, and above the £17 level a further 100 per cent. deduction would be made. An invalid earning £5 a day for three days' light work would lose £1 from his pension, and a person earning £7 a day for three days a week would lose £5 from his invalidity pension.

Contrast that fair and reasonable graduated earnings rule proposed here with a case which came to my attention recently of a 32-year old former librarian who 10 months ago became disabled from multiple sclerosis. He has taken up research work at home and recently received £47 for work done over a six-week period— about £8 a week. The Department of Health and Social Security removed his entire invalidity pension for that period, amounting to £73, so he lost £26 for working those few hours a week.

There are many other cases which can be quoted of people who are doing a few hours' work a week and earning up to £10 and will lose their entire invalidity pension. I hope that the evidence which I have produced will convince the House that it is wrong and unfair to allow major relaxations in the earnings rule as applied to retirement pensioners who are still able to work, while on the other hand applying a vicious wage stop to the disabled. It must be wrong to create a situation in which it is better to be a pensioner than a disabled person, where it pays to pretend to be incapable of work in order to obain the invalidity benefits, and in which a person who is willing to make a comeback and work again is prevented from doing so by the wages stop. Those of us who are actively involved in work for the disabled share the feelings of disappointment and frustration that all disabled and handicapped organisations are experiencing.

Following the Social Security Act 1973, the Secretary of State was required to make a report by September of that year on the workings of the Chronically Sick and Disabled Persons Act. A House of Commons paper published in July 1974 promised to look into the whole question of the wages stop. Nine months later many of the disablement organisations are anxiously awaiting the results of that Department of Health and Social Security inquiry.

I should like to quote from paragraph 51 of that report :

" Such evidence as there is, here and abroad, points to the possible value of a separate standard benefit to be paid to severely disabled people who are working despite their disablement "—

in other words, a wages supplement scheme, which disabled organisations are still anxiously awaiting. This proposed earnings rule is a step towards such a scheme, but without a massive charge on the Exchequer.

This fearful earnings disincentive— a disincentive psychologically and financially— must be removed, and I hope the Minister will not try to persuade us to accept some minor modification or slight uplift on the £4·50 wages stop. We want, and intend to have, at some stage for the disabled a graduated earnings rule, albeit at a much lower level than that applying to the retirement pensioner. The new clause which was accepted by the Lords introduces an earnings rule figure of £13 to £17 a week, which will allow a minimum period of rehabilitation. It will relieve the supplementary benefits system of many claims by disabled people, and it will also produce tax revenue for the hard-pressed Chancellor of the Exchequer. In addition, it will allow disabled people to regain their self-respect and independence.

The amendment standing in the names of my hon. Friends and myself has been grouped with that of my hon. Friend the Member for Exeter (Mr. Hannam), and both amendments are based on one carried in the House of Lords after having been moved by Lord Crawshaw, to whom the whole House is seriously indebted for having highlighted this problem. His interest in the disabled and his advocacy on their behalf is well known to us all. He succeeded in defeating the Government yet again. Once more we are debating a part of this Bill as a result of a Government defeat, and I calculate that there have been six such defeats on the Bill. That is no less than justice. There was, perhaps, room for a few more.

When the Secretary of State presented the Bill on Second Reading on 21st November last, on almost her last appearance in connection with it— I believe she has made one speech since— she described this in column 1558 as a "package of compassion ". She went away from our debates whilst the House opened that package to find just how little it contained. When we find that we have to amend the Bill in this way to eradicate its weaknesses we are convinced that the Labour Party, in government as in opposition, wears its heart on its sleeve in relation to this sort of subject. We see on closer examination, however, that the heart is not on quite straight.

The Government's genuine achievement so far in these matters is fairly limited, as, judging from the attendance in the Chamber, is their level of interest in it. I congratulate the two Labour back benchers who are in the House. It was significant that as soon as the debate about the disabled began there was no longer a solitary Labour back bencher in the House to participate. The only occupants of the Government benches were two Ministers, a Whip and a PPS. Perhaps that is a contrast with the professions of concern for the disabled by numerous Labour Members outside this House.

I come now to the amendment which deals with the non-contributory invalidity pension. This is an important new benefit which has been heralded for a long time but which was extremely disappointing when it finally appeared in the Bill. We believe the Government misled the disabled into expecting a great deal from this benefit, and then let them down. One of the difficulties we have argued about since the Bill was presented is the 100 per cent. earnings rule, which as my hon. Friend the Member for Exeter said, is probably better described as a wage stop.

How did the Government get themselves into the difficulty which led the other place to try to amend the Bill and improve it? The trouble stems from the fact that they have welded the noncontributory invalidity pension to the old invalidity pension and they therefore took the definition of "incapacity for work "as qualifying someone for the new benefit.

We spent a lot of time in the House arguing against this basis for the new benefit. We preferred that there should be an assessment of the degree of disability of individuals as the basis on which the non-contributory invalidity pension should be paid. However, the course adopted by the Government, which they say is administratively more convenient, means that the wage stop— or the 100 per cent. earnings rule— that applies to the contributory pension has been imported into the new benefit.

At present the only earnings allowed to the invalidity pensioner are the so-called therapeutic earnings of £4·50 a week, that figure having been maintained since 1972. It is available in extremely limited circumstances, which are set out in the regulations governing unemployment and sickness benefit. Therapeutic earnings are not normal earnings ; they are permitted only for limited categories of work. First, they are allowed if the work is undertaken under medical supervision as a part of treatment while the person concerned is a patient in or of the hospital institution, and if the earnings therefrom are less than the specified sum. Secondly, they are allowed for the work of a non-employed person where that work is not undertaken as a patient in hospital but is work which the person concerned has good cause for doing.

The figure is miserly. The definition of the kind of work that can be undertaken is extremely limited. To call them therapeutic earnings is something of an understatement. To many people who are disabled the earnings are therapeutic in more than a limited medical sense. Disabled people who are lucky enough to have some small occupation have a valuable way of keeping contact with the outside world and the world of work. It gives them some contact and activity outside the immediate range of what is necessarily a limited family and social life.

The injustice of the rule as it stands, as my hon. Friend the Member for Exeter has already well explained, is that it catches the very occasional and very light job. A disabled woman who does some envelope-writing for an organisation may easily find that she is earning more than £4·50 per week. It is not even like the retirement pensioner who loses some of his earnings. If more than £4·50 is earned there is a complete stop and the person concerned no longer qualifies for any benefit for the period that he or she is receiving a modest sum by way of wages.

By bringing that definition into their new benefit the Government have landed themselves with the problem which my noble Friend Lord Crawshaw has attempted to put right and which my hon. Friend the Member for Exeter is attempting to rephrase to deal with some of the practical difficulties.

One matter that needs to be highlighted, and to which we must return as we develop further the area of new benefits which is just being opened up, is the problem of the complete exclusion of the disabled who are in any kind of real work which provides an income, however modest.

I know that there are not many people who come into that category. That makes the public expenditure less if we try to do something to assist the disabled who are fortunate enough to have any kind of real sustained employment. It seems that there will have to be a new benefit in the form of some kind of wage supplement for those disabled who work. They tend to find that their earnings are lower than those with full physical and mental capacity. Their expenses are higher and their cost of living is higher, because of the extra expenses to which they are subjected because of their disability.

Given that we have embarked on the road of the non-contributory invalidity pension as it stands in the Bill, it seems that the disabled who work will have to wait for a new benefit and for new policies to be developed by the Government. We shall press the Government to develop such policies as soon as possible.

In the meanwhile, what are we to do with what we have already? We must try to avoid the full implications of the therapeutic earnings rule being applied to the non-contributory invalidity pension.

On looking at the amendment that was carried in another place, we share the Government's concern about the throwing over of the old rules for the contributory invalidity pension. It is the fact that the £4·50 that has remained for so long has always been accepted as being based on incapacity for work. It is applicable to those who receive sickness benefit for the specified time so that they move on to contributory invalidity pension. It is received so long as a person is out of work. It is not intended to be paid as any kind of wage supplement once the person concerned resumes employment. It has been accepted as a benefit based on incapacity for work, but it does not exclude capacity for some very limited work. That is why we have had the therapeutic earnings rule.

I can see difficulties for some one who has been a wage earner or salary earner who begins to receive sickness benefit and who is away from work because of an accident for long enough for him to receive an invalidity pension. The difficulty under the Lords amendment will arise if he finds that he can continue receiving his invalidity pension and at the same time have a steady little job on the side. A person may be capable of doing some gardening or some other jobs for his neighbours. The benefit would run until such time as the tribunal decided that he was capable of full-time work. This could be an encouragement to some not to go back to full-time work, and it could lead to some anomalies.

As that rule has stood for so long we are a little reluctant to throw it over, which is the effect of the Lords amendment and the amendment of my hon. Friend. We wish to explore the question whether different rules may be applied to non-contributory invalidity pensioners. They are the people who have never worked for long enough to acquire a contribution record. Can it be said that the same strict rules should apply to those who are disabled in childhood by accident, or are congenitally disabled, or are struck by a serious disease and have never been in employment? Can it be said that it would be wrong or anomalous if those people received slightly more than the therapeutic earnings rule allows for contributory invalidity pensioners who come out of employment?

My noble Friend hit upon the figure of £13. It is difficult to see why that should not be allowed when one considers the sort of people who receive the non-contributory invalidity pension. The idea needs to be explored. It is an unfortunate consequence of the Government's proposals that those people are caught by a wage stop. Our amendment seeks to remove from the Lords amendment the changes in respect of the contributory invalidity pension but to retain the Lords amendment for the non-contributory invalidity pension.

I look forward to hearing what the Minister has to say about this possible way of meeting the genuine hardship that the present arrangements will cause to some seriously disabled people.

9.0 p.m.

I support the amendment moved by my hon. Friend the Member for Exeter (Mr. Hannam), which follows logically from our recent debate when we relaxed the earnings rule for pensioners. Many hon. Members believe that the relaxation of the earnings rule for invalidity pensioners should have even higher priority than the relaxation of the rule for retirement pensioners.

The argument put forward in another place for resisting the amendment was that the invalidity pension is payable to people who are incapable of work and that there is no case for continuing to pay it when they stop work. That principle does not hold up because it has been conceded by allowing them to earn £4.50. The real argument is what should be the level of the disregard rather than whether the principle should be vigorously defended.

It was clear from the debate in another place that fixing the level at £4·50 acted as a deterrent to many people to continue to do work which might be valuable for the community. An analogy was made with unemployment benefit, and the argument advanced was that those in work do not claim unemployment benefit. Therefore, invalidity pensioners earning more than £4·50 should not claim the invalidity pension.

That is not a fair analogy. There is a clear distinction between those in work and those not in work. There is not such a clear distinction between those who are eligible for an invalidity pension and those who are incapable of earning more than £4·50. It is perfectly possible for a person to be in both categories.

One argument which is put forward for resisting amendments such as these is that of cost. At no time in the other place was the cost of the amendment declared. A reference was made to the cost being a deterrent, but I should like to know what is the cost of the amendment which was carried in another place.

Will the Minister clarify what happens when an invalidity pensioner reaches the age of 65? Is the earnings rule lifted from £4·50 to the normal disregard for pensioners, which is £20? If so, as they grow older they will be able to earn more. An anomaly would be created if invalidity pensioners were treated differently from retirement pensioners as they approached retirement age.

In another place the amendment was carried by 72 votes to 36. I hope that my hon. Friend's amendment, which clarifies the position and makes the case much more justifiable, will be carried by an even larger majority.

I shall not delay the House for long. We must remember the arguments on these amendment against the background that by 1977 a pensioner will be allowed to earn £50 per week before pension is reduced. In the present Bill there is a proposal to remove the situation which now exists by which the invalidity pensioner earning £4·50 a week suffers not some reduction of pension but a total removal of pension. It is an absolute pension stop. This is unfair and will encourage people to evade the rule. This is a section of our community which should not be subjected to such emotional presures. Furthermore, I believe that the £4·50 stop creates enforced idleness. The really serious aspect is that it will create a situation in which many of our older citizens are bored to tears.

Great emphasis has been laid on the question of costs, but as the situation stands the provisions are so unfair that it is difficult to justify the continuance of the present system on the basis of cost alone. There is little doubt that in regard to the cases which would benefit from a change the savings would pay for a large proportion of the proposals.

I should like to hear how much the amendments would cost to implement. It has been said that the figure of £4·50 was fixed in 1972. I do not know what wage inflation has been since that time, but it certainly has been substantial. Therefore, the value of the £4·50 has been substantially reduced. The Liberals will vote on this amendment with the rest of the Opposition.

I intend to oppose both amendments, and I shall be inviting the House to reject them. At the same time, at a later stage, I shall be asking the House to disagree with the Lords in their amendment.

I am sure the hon. Member for Rushcliffe (Mr. Clarke) would think it remiss of me if I did not respond in some slight way to his purely political points. He suggested that the Bill was a small package. It is a little surprising that he should take that view when we see that the increased benefits provided in the Bill amount to more than £1,100 million. By no stretch of the imagination could that be regarded as a "small package ".

The hon. Gentleman chided the Government for the absence of Labour Members. That shows a slight lack of gratitude since the hon. Gentleman was able to carry his amendment on an earlier occasion with the support of Labour back benchers.

The hon. Gentleman mentioned the £4·50 therapeutic earnings limit and said that the sum had been unchanged since 1972. The Conservatives were in power in 1972–73 and we heard no suggestion then that they would seek to increase those earnings.

Having had my little bit of fun, I turn to deal with the amendments. The new clause and the amendments will change the very nature of our existing invalidity pension and non-contributory invalidity pension. There is no dispute about the need or desire to aid the disabled. It is reasonable to say that since the Bill introduces two new benefits with regard to non-contributory invalidity pension and invalid care allowance—as well as increasing existing benefits for the disabled the measure is a true indication of the fact that we accept the need and are doing something about it.

The new clause seeks to introduce into the arrangements for existing contributory invalidity pension, and for the proposed new non-contributory invalidity pension, an earnings rule similar to that which currently applies to retirement pensioners.

The existing contributory invalidity pension is payable to those who are, and have for some time been, totally incapable of doing any work for which an employer would pay them. The non- contributory invalidity pension proposed in this Bill is no more than the same benefit without the contribution conditions. Both depend on incapacity for work. The very great majority of people who get, and who will get, this benefit earn nothing at all. A small minority—most of them mental patients who have been in hospital for a long time—earn a little by doing things which are therapy rather than work but which keep them from vegetating. Few of them have earnings of anything like £4·50 a week, which is—subject to various easements concerning working expenses—the amount of the current limit. But, overall, the general concept of total incapacity and the limited approach to therapeutic earnings is one of which we have experience on which we have built in establishing the invalidity pension and the NCIP.

The hon. Gentleman is describing his experience and that of his Department. I hope that it is not thought that that indicates that the effect of the rule is as limited as he suggests. Last week I visited the South Notts Centre for the Disabled. I heard many complaints there about the therapeutic earnings rule. It limits the availability of work to disabled people. They do not earn £4·50 because there is only limited work for them. The reason is that it is known by those responsible for the centre that they will not benefit if any paid work is found for them above that limit. Nevertheless, it has the effect of putting many people out of work altogether. The hon. Gentleman is quite wrong to describe the effect of the present rule as being quite so limited. What is more, my hon. Friend the Member for Exeter (Mr. Hannam) described the extent to which the rule is "fiddled "at the moment because it is so penal.

If the hon. Gentleman will bear with me, I shall deal in a moment with the level of therapeutic earnings.

We are discussing not earnings as normal people would regard them but the earnings of people who, if they are to qualify for the invalidity pension or the NCIP, must show their incapacity for work. If anyone is doing a substantial amount of work, he is not entitled to invalidity pension—and this is true even if he is earning nothing at all. With the Bill as it stands amended in another place, the ordinary person who had to do quite a number of hours' work during a week —whether full-time or part-time—to earn even £13 would not be eligible for invalidity pension. He would be ruled out because he was working, and, as such, could not be held to be incapable of work. On the other hand, a highly-paid professional man, for example, who could get a substantial income for a minimal amount of work might be eligible for benefit. This does not seem to me a very fair result.

Quite apart from the arguments of principle which tell against the clause, the House must realise that the cost might be substantial. The hon. Member for Rushcliffe asked specifically about the cost. No one can estimate what the likely cost is. People who are at present in employment might possibly move into the invalidity benefit stakes if therapeutic earnings were increased to a level which made it more beneficial for them to do so.

Hon. Members have spoken about the need to encourage rehabilitation. The effect of replacing the therapeutic earnings limit by a full-blown earnings rule would not only be inconsistent with the fundamental basis of invalidity benefit ; its effect in terms of encouraging rehabilitation might well be exactly the opposite to what I am sure was intended by the hon. Gentleman and by the sponsors of the clause in the other place. It would mean that invalidity benefit, which is tax-free, plus earnings would amount to substantially more than earnings for disabled people in sheltered employment and substantially more than the training or rehabilitation allowances that disabled people can get while being prepared for open employment. The higher the earnings limit, the greater the likelihood that benefit plus earnings would exceed earnings in open employment.

9.15 p.m.

Is it not clear from the amendment which I have tabled to the Lords amendment that we are describing clearly the undertaking of light work in circumstances carefully prescribed by regulations laid down? We have broken away from the original Lords amendment in the amendment. My amendment defines clearly the degree of light work for people who are not capable of normal full-time work. This is an important point.

I will deal with light work. My difficulty now, as I am sure the hon. Gentleman understands, is to deal with the two amendments and the new clause in one general debate rather than having three separate debates. I will deal specifically with light work because most hon. Members have already had experience of the use of the phrase "light work" which is not so easy to define as the hon. Gentleman seems to suggest.

These are some of the reasons for the announcement in my right hon. Friend's report to Parliament on "Social Security Provision for Chronically Sick and Disabled Persons ", House of Commons Paper No. 276, to which the hon. Gentleman referred. which was published in September. In that report my right hon. Friend indicated that the Government will take a good look at the problems of the disabled earner. We are in the main talking about the disabled earner rather than the person who is incapable of work. Once the mobility allowance and the other new benefits are properly launched, we shall be conducting further studies and consultations to see what further advances can be made to secure improvements in the level of income for disabled earners.

I believe that it is right to look at disabled earners as being in a different category from those in receipt of invalidity pension or non-contributory invalidity pension because the circumstances are so different. One group must show its incapacity for work whereas the other group has, to a greater or lesser extent, some capacity for work.

I want to make it clear to the House that in the meantime the Government do not propose to nullify the initiative taken in another place and to leave a void. The Government propose to bring forward a change which would otherwise have been reserved for a future occasion and to make regulations which will raise the present £4·50 therapeutic earnings limit to £7 from April this year. I am sure that that at least will be of some help in view of the criticisms that have been made of the level of therapeutic earnings. This change will apply not only to contributory and non-contributory invalidity pensions, but to sickness benefit, injury benefit and unemployability supplement under the industrial injuries scheme. Separate but corresponding provision will be made by prerogative instruments for unemployability supplement under the war pensions scheme. I should add that this matter has traditionally been dealt with in regulations, that it is not really proper to principal legislation, and that the appropriate new regulations are already in course of preparation.

To sum up, the restoration of the value of the existing therapeutic earnings limit in no way creates any great problem, but the introduction of a far more radical change would lead us into considerable difficulties in this respect.

I turn now to the two amendments. Like the hon. Member for Exeter (Mr. Hannam). I am sorry that the hon. Member for Wallasey (Mrs. Chalker) is not here. I am sure that had she been here she would have contributed to the debate with her usual enthusiasm and would no doubt have quite properly attacked me for something that I might have said. Perhaps, therefore, I should say that I am glad the hon. Lady is not here, but I do not mean it in that way.

The effect would be to change the nature of the invalidity pension and the non-contributory invalidity pension. That may be the hon. Gentleman's intention, but it is not the foundation on which our present invalidity pensions are based. The amendment would make these benefits payable not only to those incapable of work, whom we have provided for in our invalidity pensions and NCIP, but would also make the benefits payable to those who are capable of doing light work. The hon. Gentleman says that we can define that expression in regulations, but a definition is much easier talked about than implemented.

In my constituency, miners who have worked underground for many years are returned to the surface for what is called "light work ". I am sure that that definition of "light work" could not be used for what the hon. Gentleman suggests. Medical checks on people receiving sickness benefit and invalidity benefit are frequently made by doctors attached to my Department, who often say that a person is not capable of doing his normal work but is capable of doing light work. Do we say to such people "The light work which we shall prescribe and which we believe you must do is a normal, everyday job "? I do not believe that it is possible to have one definition for the cases in which the hon. Gentleman is interested and another for the ordinary category of those on sickness or invalidity pensions. We should be in impossible situations if we tried to deal with the matter in that way.

There is a worthy motive behind the amendment, which seeks some benefit from the clause but I must reject it because the result would be inconsistent with what we regard as the purpose of the invalidity pension or the non-contributory invalidity pension.

The amendment of the hon. Member for Rushcliffe would embrace the new clause inserted in another place, except that the clause would be confined to the non-contributory version of the invalidity pension. The amendment aims to import a full-blown earnings rule into the arrangements for the non-contributory invalidity pension, while retaining the therapeutic earnings limit of £4·50—soon to be £7—for contributory invalidity pension. The therapeutic earnings limit would also remain for sickness benefit, injury benefit and unemployability supplement under the industrial injuries and war pensions schemes. There would then be one rule for one benefit payable for incapacity for work—the NCIP—and another for four other benefits payable for the same contingency ; namely, incapacity for work. That sort of anomaly is hardly likely to commend itself to the hon. Gentleman when he gives it further study.

Apart from creating that glaring anomaly, the amendment is open to all the serious objections which I have already spelt out. It is impossible to reconcile a benefit which, under subsection (1) of Clause 6, can be paid only if a person is totally incapable of work, with the amendment, which would allow someone to do substantial amounts of work, even full-time under certain circumstances, and yet remain an invalidity pensioner.

We should go as far as we can to ease the restrictions on the existing incapacity benefits and on the non-contributory pension, and tackle the disabled earner problem, which is related to it, separately, but as soon and as effectively as we can. There are here, as the Government have indicated in the House of Commons paper, very real and complex problems which cannot be solved at a stroke merely by seeking to manipulate the existing benefits upon which much of our work has depended in the past.

On this basis and on the basis of the important point that the appropriate place for the therapeutic earnings limit is in a regulation, as with the present £4·50, and not an Act, I ask the House to oppose the amendments and, later, to support the disagreement on the new clause. I am sure that this is the best course and that we should deal with those who are capable of work but who need wage supplementation in a different way from the way in which we deal with those who are, by definition, incapable of work and the non-contributory invalidity pensioner.

I am grateful to the Minister for addressing himself to our two amendments. I listened with care to what he said. I see some difficulties in the amendment carried in another place and the alternative version proposed by my hon. Friend the Member for Exeter (Mr. Hannam). If one has this definition of "incapable of work ", one must be clear that one is not paying the benefit to people who are in ordinary employment. However, I think; that the Minister slightly overstates his case when he talks of people working substantial hours and being in ordinary work when he is talking of £13 a week. I could not understand his reference to the possibility of highly paid professional people being able to receive this benefit, with a £13 limit having been imposed in the amendment.

Having said that, the points that the Minister made, which we would certainly wish to contemplate, were about the possibility of people drifting in from low-paid ordinary work into even lower-paid work and receiving benefit, and the possibility of someone who has been in work getting the benefit and then facing a considerable disincentive when he contemplated trying to get back into full-time work rather than relying on the benefit that he had been getting plus a small sum within the £13 proposed.

There are these difficulties. It seems to me, however, that they do not apply quite so strongly in the case of the non,contributory invalidity pensioner. There is no question there of someone who has been in work drifting into the benefit. If he has been in work, he has a contribution record and cannot qualify for the new benefit. Similarly, again, the disincentive against drifting out is not quite the same, because the born disabled person is only too anxious to get into full-time work, if the opportunity ever presents itself.

In trying to reply, the Minister has underlined the difficulty that he has made for himself—the difficulty of using incapacity for work as the basis. There is considerable logic in what he says about the difficulties that flow if one uses incapacity for work as the basis for this new benefit as the Government have chosen to do.

The Minister said two things which are reassuring. First, as I have implied previously, the logical step from where the Government have chosen to start is to look separately at the problems of the disabled earner. These require careful study. It would be unfair to expect the Government to put forward detailed provisions now, because this is a separate problem. As the Minister has mentioned that he is commencing such study, however, which is encouraging, we shall press him for progress reports and, we trust, rapid progress. On the subject of the way in which the disabled earner can best be helped, we trust that this commitment will not be allowed to hang about for years before something is done.

I give the Minister some credit for one thing, because at least the efforts of my noble Friend in the other place have produced another look at the therapeutic earnings rule. The Minister has produced a commitment to raise it to £7. We welcome that. We congratulate him on having extracted it from his friends in the Treasury, who are more responsible, I suspect, than he is for the difficulties into which he gets on Bills of this kind, in both Houses of Parliament. As he has managed to extract some money from that source, even though the £7 will not do much more than keep in line with inflation we accept that he has done something, and that the thought that has gone into the earnings rule has had some effect.

The Opposition will return to the problem of the disabled earner whenever possible, to press the Government. We shall return to it on future uprating Bills, on the question of the level of the therapeutic earnings rule and, still, the question—which we should like to consider further—whether something may be done in relation to recipients of NCIP which would give them a slightly advantageous position, for reasons which we believe are defensible, vis-à-vis other benefits.

However, as the Minister has been able to bring some good news on this occasion, I beg to ask leave to withdraw the amendment.

Now there is a slight confusion, because I do not think the hon. Member has actually moved this amendment.

I should like to reply to the point made by the Minister in answer to my amendment.

Division No. 145.


9.32 p.m.

Arnold, TomHamilton, Michael (Salisbury)Newton, Tony
Bain, Mrs MargaretHenderson, DouglasPage, Rt Hon R. Graham (Crosby)
Body, RichardHicks, RobertPaisley, Rev. Ian
Brittan, LeonHowells, Geratnt (Cardigan)Penhaligon, David
Brotherton, MichaelKIKedder, JamesPowell, Rt Hon J. Enoch
Budgen, NickKnox, DavidReid, George
Clark, Alan (Plymouth, Sutton)Lane, DavidRenton, Tim (Mid-Sussex)
Cope, JohnLawrence, IvanRoss, Stephen (Isle of Wight)
Crowder, F. P.Macmillan, Rt Hon M. (Farnham)Ross, William (Londonderry)
Douglas-Hamilton, Lord JamesMates, MichaelShepherd, Colin
Dunlop, JohnMayhew, PatrickSims, Roger
Evans, Gwynfor (Carmarthen)Miller, Hal (Bromsgrove)Thomas, Rt Hon P. (Hendon S)
Ewlng, Mrs Winifred (Moray)Mlecampbell, NormanVlggers, Peter
Fisher, Sir NigelMoate, RogerWainwright, Richard (Colne V)
Fletcher-Cooke, CharlesMolyreaux, JamesWelsh, Andrew
Fookes, Miss JanetMontgomery, FergusWinterton, Nicholas
Gllmour, Rt Hon Ian (Chesham)Morris, Charles R. (Openshsw)TELLERS FOR THE AYES
Gray, HamishNelson, AnthonyMr. John Hannam and
Grylls, MichaelNeubert, MichaelSir George Young.


Allaun, FrankDeakins, EricGrant, George (Morpeth)
Anderson, DonaldDempsey, JamesGrocott, Bruce
Armstrong, ErnestDolg, PeterHamilton, James (Bothwell)
Atkinson, NormanDormand, J. D.Hamilton, W. W. (Central Fife)
Bates, AltDuffy, A. E. P.Harper, Joseph
Bean, R. E.Dunn, James A.Harrison, Walter (Wakefield)
Bishop, E. S.Eadle, AlexHunter, Adam
Blenklnsop, ArthurEllis, John (Brlgg & Scun)Jackson, Miss Margaret (Lincoln)
Boardman, H.Evans, loan (Aberdare)Janner, Greville
Boothroyd, Miss BettyEvans, John (Newton)Jay, Rt Hon Douglas
Brown, Hugh D. (Provan)Ewlng, Harry (Stirling)Jones, Alec (Rhondda)
Brown, Robert C. (Newcastle W)Faulds, AndrewKerr, Russell
Callaghan, Jim (Middleton & P)Fernyhough, Rt Hon E.Lamond. James
Campbell, IanFitch, Alan (Wlgan)Leadbitter, Ted
Canavan, DennisGeorge, BruceLoyden, Eddie
Clemitson, IvorGould, BryanLyons, Edward (Bradford W)
Cocks, Michael (Bristol S)Gourlay, HarryMcElhone, Frank
Dalyell, TarnGraham, TedMackenzie, Gregor

By leave of the House.

The problem of definition is one which we always seem to come up against. We had exactly the same situation in the debates on disabled housewives, when we sought to define household work. The point has been made again and again by the disabled organisations that if the experts from the Disablement Income Group or other organisations were given the task of defining light work, such as the work which lift attendants do, they would have no difficulty in prescribing those regulations within one week. The Minister has moved only a small way towards helping those disabled people who want to rehabilitate themselves in normal employment. The £2·50 increase barely keeps pace with inflation and does nothing to help the cases I quoted, such as that of the ex-librarian on £8 a week.

I am afraid that I have to ask hon. Members to support my amendment.

Question put. That the amendment be made :—

The House divided : Ayes, 54, Noes 109.

McMillan, Tom (Glasgow C)Ovenden, JohnTaylor, Mrs Ann (Bolton W)
McNamara, KevinPalmer, ArthurThomas, Ron (Bristol NW)
Madden, MaxPavitt, LaurieThorne, Stan (Preston South)
Magee. BryanPhipps, Dr ColinTinn, James
Maguire, Frank (Fermanagh)Prescott, JohnUrwin, T. W.
Mahon, SimonRoderick, CaerwynWalnwright, Edwin (Dearne V)
Marks, KennethRodgers, George (Chorley)Walker, Terry (Kingswood)
Marshall, Dr Edmund (Goole)Rooker, J. W.Weetch, Ken
Millan, BruceRoper, JohnWeitzman, David
Miller, Mrs Millie (Ilford N)Rose, Paul B.White, Frank R. (Bury)
Mitchell, R. C. (Soton, Itchen)Sheldon, Robert (Ashton-u-Lyne)White, James (Pollok)
Morris, Alfred (Wythenshawe)Silverman, JuliusWilson, Alexander (Hamilton)
Morris, Charles R. (Openshaw)Skinner, DennisWise, Mrs Audrey
Moyle, RolandSmall, WilliamWoodall, Alec
Murray, Rt Hon Ronald KingSmith, John (N Lanarkshire)Young, David (Bolton E)
Newens, StanleySnape, Peter
Noble, MikeSpriggs, LeslieTELLERS FOR THE NOES
O'Halloran, MichaelStewart, Rt Hon M. (Fulham)Mr. Donald Coleman and Mr. Tom Pendry
O'Malley, Rt Hon BrianStoddart, David
Orme, Rt Hon StanleySwain, Thomas

Question accordingly negatived.

I beg to move, That this House doth disagree with the Lords in the said amendment.

Question put and agreed to.

Lords amendment disagreed to.

Subsequent Lords amendments agreed to.

Clause 7


Lords Amendment : No. 5, in page 7, line 6, leave out from "employed ;" to end of line 9.

I beg to move, That this House doth disagree with the Lords in the said amendment.

With this it will be convenient to discuss Lords Amendment No. 6, in page 8, leave out lines 15 to 17.

I draw the attention of the House to the fact that Privilege is involved.

The Government's purpose in asking the House to disagree with these amendments is so that they may restore Clause 7, which provides for the invalid care allowance, to the form in which it was originally introduced. This would enable the Government to pay the allowance to relatives of severely disabled persons receiving attendance allowance, as a first step. Later, when we had "run in" the administrative machine which will have to be created for the allowance, we would hope to extend it to the equally deserving case of non-relatives.

The amendments which have been made in another place are, in substance, the same as those moved and defeated in this House on Report.

9.45 p.m.

I must make it patently clear again that the reason why right hon. and hon. Members on the Government side of the House voted against the amendments was not that they disagreed with the principle of giving non-relatives the invalid care allowance. Quite the contrary : we are just as keen as anyone anywhere—and that includes another place—to see the ICA extended in this way. What my right hon. and hon. Friends were and are saying is that the Government are justified in treading warily and that the success of the introduction of ICA in particular, and of the Government's unfolding programme in general, must not be jeopardised.

The Government's opposition to the amendments made in another place is based on the fact that in proposing an ICA at all we are moving into unknown territory. Until my right hon. Friend's report to Parliament on "Social Security Provision for Chronically Sick and Disabled People" was published on 13th September 1974, successive Governments over many years had said consistently that those who are to be helped by the invalid care allowance could be dealt with only through supplementary benefit.

We have now undertaken to help such people without means-testing, and we are incorporating credits with the benefit. This is an enormous step forward, and I suspect that some of those who have long pleaded for an invalid care allowance have been surprised that it is now being legislated for.

We have acted, and we are providing a new benefit where other Governments offered only sympathy. We have said that at least 11,500 people might benefit. Yet such is the dearth of statistics that we should not be very surprised if a substantially greater number did so. Add to that the fact that ICA is an entirely new concept and the case for proceeding cautiously is compelling.

As the Bill stood when it left this House, we would have had the power to bring in the deserving cases of nonrelatives—I make no apology for emphasising yet again that the Government are as much concerned about these cases as any right hon. or hon. Member on either side of the House—in a progressive and systematic way, once we had got over the initial and major hurdle of paying the benefit to relatives. This still seems to the Government to be the right approach, leaving aside the question of the cost, which might be considerable. For every 2,500 additional beneficiaries, the cost would go up by an extra £1 million.

There is, however, another question to which I beg the House to give the most serious consideration. Neither the extension of ICA to non-relatives, nor even the ICA itself, can be looked at in isolation. ICA is part of a structure of benefits that are related one to the other but are at the same time separate, in the sense that they deal with different contingencies affecting disabled people. It is one of a series of improvements in social security benefits, which the Government are anxious to introduce, and which can be introduced only on the basis of a carefully phased programme for which the necessary resources in terms of money, skilled manpower— both medical and lay —and office buildings will have to be found.

The House as a whole will readily appreciate that a formidable array of tasks faces the Department over the next few years. Known commitments alone entail increases in pensions and other benefits for about 11½ million beneficiaries at each uprating. The Bill deals with only the first of this year's upratings, and there will be another of these massive operations for the staff to cope with before the year is out. There are also the increases in family allowances for about 4½ million families and the revision of supplementary benefit disregards affecting some 800,000 people.

Next month sees the introduction of the new earnings-related contribution, with consequential effects on contributory benefits. We have ahead of us also, as a result of the provisions of the Bill, the introduction of the non-contributory invalidity pension for chronically sick and disabled people. There will be a total of well over 250,000 people involved, including patients in mental hospitals and disabled housewives. In due course there will be the new mobility allowance, which will eventually reach up to 100,000 beneficiaries.

Is it really to be wondered that the Government want to proceed carefully with the invalid care allowance? Is it too much to ask that we should allow a little while longer for the staff, who have to bear the brunt of the work involved in all the demands that we make on them, to get the ICA on to a working basis?

The invalid care allowance has been designed primarily to meet the case of the single daughter who would be a breadwinner in paid employment but for the need to stay at home to look after a severely disabled parent or parents. The Government do not, however, intend to confine ICA to the daughter-parent relationship. The nub of the Government's case is that the power will be exercised and that the deserving cases of non-relatives will be brought into the ICA arrangements, once we have got over the initial and major hurdle of paying the allowance to the relatives. It would be deeply unfortunate if anyone thought that we do not intend to bring caring non-relatives into the scheme as soon as we can.

There are some very good arguments for introducing overnight all the new benefits which assist chronically sick and disabled people and their families—not only the ICA, but also the noncontributory invalidity pension, the housewives' invalidity pension and the mobility allowance, as well as all our other improvements in which disabled people will share. However, it would not be in the interests of either the people for whom the benefits are intended or of those with the job of administering them to try to do the impossible. The Government have put forward an unprecedented number of proposals in a very short space of time and it is inevitable that it will take time to implement them. That is why the Government are seeking to stick to the phased timetable for ICA, to allow us to take one step at a time. There is very little difference between us, and I hope that the House as a whole will join me in disagreeing with the Lords amendment.

This is the third of the major groups of amendments that have been carried by Parliament against the Government's advice and have greatly improved what we believed was a very inadequate Bill when it was brought before the House last October.

The first of the amendments was the phasing out of the earnings rule. The second was the extension of the noncontributory invalidity pension to cover the disabled housewife who cannot perform normal household duties. That was a very necessary measure which the House carried a few weeks ago. We are delighted that the Government have been sufficiently wise as to keep that in the Bill.

The third group of amendments concerned the extension of the new invalidity care allowance to groups of people who are not relations. I am glad that the hon. Gentleman gave an undertaking tonight that it is the Government's absolute intention to introduce this allowance as soon as possible for those who are not blood relations. We believe that it is vitally necessary that they do so, became the Government are creating, by seeking to overthrow the Lords amendment, a host of cruel anomalies which will be a stick for beating their own backs.

I assure the Government that it is always the cruellest anomalies that come back on the unfortunate Government of the day who introduce a new benefit. The Conservative Government found that when we introduced the invalidity pension and other benefits. It is the small anomalies that harm the major provisions of a new benefit so much.

The Under-Secretary referred to the desirability of proceeding carefully. They are already proceeding carefully. It is not proposed to introduce this new benefit until 1976–77, so there is plenty of time in which to get the Department organised, to get the plans laid and to get ready to introduce this new benefit

The hon. Gentleman will recall that I said that the invalidity care allowance is one of a series of new benefits which we are phasing in. It is the totality of what we are seeking to carry through which makes it essential that we should introduce each step of a new benefit in an orderly manner.

I have not argued against introducing it in 1976–77, but I suggest that when it is introduced in 1976–77 it is introduced in the way proposed in the Lords amendment. One reason is that by excluding those who are non-blood relatives the Government are making their task harder because they will have to identify relatives. This surely means another process. By making this allowance available to anyone, whether he is a relative or a non-relative, looking after either a friend or a relative who is seriously ill, we are not creating any further work for the Department. We are creating less work because it will not be necessary to identify relations. The assumption will be that anyone can benefit from the Bill provided he complies with the necessary qualifications. That is the first point I make against the argument that more time is required in order to proceed more carefully.

My second point deals with the necessity to help as soon as possible those persons who look after a friend. At present anyone who gives up work in order to help a seriously disabled or chronically sick person who is not a relative is not entitled to draw supplementary benefit. That has been an age-old regulation of the Supplementary Benefits Commission. I think the Under-Secretary of State will agree that that is so.

There are not many of these people. but their position is the more difficult because they are left with the dilemma of deciding whether or not they should give up work in order to help a friend. I was given an example of a person with whom another lady had been living for many years. She had to decide whether she should give up work in order to attend her friend who had developed serious mental illness over a period of time, and who finally became a severe schizophrenic. Should she give up work and receive no supplementary benefit, or should she continue in work and allow her friend to go into a home or a place of residential care? That is the dilemma which faces some people. We on this side of the House want, by means of this measure, to overcome that sort of difficulty as soon as possible. We accept the invalid care allowance, and we congratulated the Government when the Bill was introduced on having presented the idea. We understand why it will not be possible to introduce it before 1976–77.

It being Ten o'clock, the debate stood adjourned.



That, at this day's sitting, the consideration of Lords Amendments to the Social Security Benefits Bill and the Export Guarantees Amendment Bill may be proceeded with, though opposed, until any hour, and that the Motion relating to the European Monetary Cooperation Fund may be proceeded with, though opposed, until half-past Eleven o'clock or one and a half hours after it has been entered upon, whichever is the later.—[ Mr. Dormand.]

Social Security Benefits Bill

Question again proposed, That this House doth disagree with the Lords in the said amendment.

We feel very strongly that we want the scheme introduced in the way that the Lords have amended it. But there is a further reason for doing so. This was made clear by Baroness Seear in another place. She has quite clearly had a great deal of experience of these matters since she is Chairman of the National Association of Single Women and Dependent Relatives. The point she made is that often there is a good social reason why a person looking after a relative should not be doing so, why he or she should be going out to work and another person should be living-in and looking after the disabled person. I am sure that the Minister understands that.

If the Minister persists in seeking to disagree with the Lords amendment we shall have to press the matter to a Division. I hope that he will have second thoughts. There is not much that divides us on this issue, only, it seems, differences arising for administrative reasons. I hope that I have persuaded the Minister that for a very strong administrative reason it would be better to introduce the ICA without the distinction between relatives and non-relatives.

The Minister says that he is concerned about this issue, and I am inclined to believe him. He says that he will oppose the Lords amendment because of the time factor, because the uprating is causing great problems among his staff, and because of some of the reforms being brought in. The tremendous turmoil into which we are getting over the upratings is mainly a reflection of the terrible problem of inflation. The whole Bill is mainly about inflation. Great pride is taken in the fact that we are now spending about £1,100 million extra on benefits, but we shall have to devise some new terminology to cope with inflation, because much of this money is not real "purchasing" money, it is "Monopoly" money, and those who are receiving it know that.

We are asking that the invalid care allowance should be made available to persons other than strict blood relatives of the severely disabled. I do not know what the definition of "relative" is, because I have read somewhere that we are all related to each other by the 37th generation. We are told that if the daughter looks after the mother she will receive assistance, and that if one brother looks after another brother he will receive assistance. If there are two sisters looking after each other we shall give them assistance. In all the cases that I have mentioned there would be some responsibility, in a moral sense, to look after the relative.

The question is not whether we include the non-relative but whether we include relatives and non-relatives at the outset. It would be most unfortunate if anything said in this debate gave the impression outside the House that we were excluding non-relatives. That is not our intention.

I understand that. We wish to give the Government a little encouragement to bring forward these measures a little earlier than is intended. Where there is some sort of moral responsibility among relatives we shall give an invalidity care allowance. We are saying that two people who have no strict moral commitment—for example, one friend choosing to look after the other—should also receive the allowance. It was admitted in another place that the bulk of these cases is covered by the blood relative definition. The number of people involved in the category to which I am drawing attention is small. Therefore. I cannot understand the arguments, that are put forward.

The question of cost has been raised. In fact, our suggestion is one of the best ways of saving money. I know from my own experience that the poor person who is in need of an invalidity care allowance and who is not given it goes into an institution. What are the current costs of looking after a person in an institution? If we save one person from entering an institution we shall probably cover the cost of six people receiving the invalidity care allowance.

Division No. 146.]AYES10.8 p.m
Allaun, FrankGraham, TedOvenden, John
Anderson, DonaldGrant, George (Morpeth)Palmer, Arthur
Armstrong, ErnestGrocott, BrucePavltt, Laurie
Atkinson, NormanHamilton, James (Bothwell)Pendry, Tom
Bates, AlfHarrison, Walter (Wakefield)Phlpps, Dr Colin
Bean, R. E.Hunter, AdamPrescott, John
Bishop, E. S.Jackson, Miss Margaret (Lincoln)Roderick, Caerwyn
Blenkinsop, ArthurJanner, GrevilleRodgers, George (Chorley)
Boardman, H.Jones, Alec (Rhondda)Rooker, J. W
Boothroyd, Miss BettyKerr, RussellRoper, John
Brown, Hugh D. (Provan)Lamond, JamesRose, Paul B.
Brown, Robert C. (Newcastle W)Leadbitter, TedSheldon, Robert (Ashton-u-Lyne)
Callaghan, Jim (Middleton & P)Loyden, EddieSilverman, Julius
Campbell, IanLyons, Edward (Bradford W)Skinner, Dennis
Canavan, DennisMcEIhone, FrankSmall, William
Clemitson IvorMackenzie, GregorSmith, John (N Lanarkshire)
Cocks, Michael (Bristol S)McMillan, Tom (Glasgow C.)Snape, Peter
Coleman, DonaldMcNamara, KevinStewart, Rt Hon M. (Fulham)
Dalyell TarnMadden, MaxTaylor, Mrs Ann (Bolton W)
Deaklns, EricMagee, BryanThomas, Ron (Bristol NW)
Dempsey, JamesMaguire, Frank (Fermanagh)Thorne, Stan (Preston south)
Dolg, PeterMahon, SimonTinn, James
Dorm'and, J. D.Marks, KennethUrwin, T. W.
Duffy, A. E. P.Marshall, Dr Edmund (Goole)Wainwright, Edwin (Dearne V)
Dunn, James AMillan, BruceWalker, Terry (Kingswood)
Eadle, AlexMiller, Mrs Millie (Ilford N)Weetch, Ken
Ellis, John (Brigg & Scun)Mitchell, R. C. (Soton, Itchen)White, Frank R. (Bury)
Evans, Gwynfor (Carmarthen)Morris, Alfred (Wythenshawe)White, James (Pollok)
Evans, loan (Aberdare)Morris, Charles R. (Openshaw!Wilson, Alexander (Hamilton)
Evans, John (Newton)Moyle, RolandWise, Mrs Audrey
Ewlng, Harry (Stirling)Murray, Rt Hon Ronald KingWoodall, Alec
Faulds, AndrewNewens, StanleyYoung, David (Bolton E)
Fernyhough, Rt Hon ENoble, Mike
Fitch, Alan (Wigan)O'Halloran, MichaelTELLERS FOR THE AYES:
George, BruceO'Malley, Rt Hon BrianMr. Joseph Harper and
Gould, BryanOrme, Rt Hon StanleyMr. David Stoddart.
Gourlay, Harry

Arnold, TomBoscawen, Hon. RobertClark, Alan (Plymouth, Sutton)
Atkins, Rt Hon H. (Spelthorne)Brittan, LeonClarke, Kenneth (Rushcliffe)
Bain, Mrs MargaretBrotherton, MichaelCope,John
Berry, Hon AnthonyBuchanan-Smith AlickDouglas-Hamilton, Lord James
Body, RichardBudgen, NickEwlng, Mrs Winifred (Mora))

We are saying that in the short term we are being cruel to people who would much prefer to stay at home as their health deteriorates quickly. In the long term the Government and my party have the same objective, but in the short term, why do we penalise a loyalty based on friendship? For example, two women may well have a loyalty based on friendship. Why penalise that loyalty? It is admitted by the Government that such people are a minority. Why should we exclude them from the invalidity care allowance. I ask the Government to consider this matter again. If the allowance is not extended in the way we suggest, I must warn the Government that the Liberal Party will be after them. We feel that we must vote with the Conservative Opposition.

Question put. That this House doth disagree with the Lords in the said amendment :—

The House divided :Ayes, 105. Noes 76.

Fairgrieve, RussellMacmillan, Rt Hon M. (Farnham)Shepherd, Colin
Fisher, Sir NigelMarshall, Michael (Arundel)Silvester, Fred
Fletcher-Cooke, CharlesMates, MichaelSims, Roger
Fowler, Norman (Sutton C'f'd)Mayhew, PatrickSpeed, Keith
Gilmour, Rt Hon Ian (Chesham)Miller, Hal (Bromsgrove)Steel, David (Roxburgh)
Gray, HamishMiscampbell, NormanStokes, John
Gryils, MichaelMoate, RogerStradling Thomas, J.
Hannam, JohnMolyneaux, JamesTaylor, Teddy (Cathcart)
Hawkins, PaulMontgomery, FergusTebbit, Norman
Henderson, DouglasMorrison, Charles (Devizes)Thomas, Rt Hon P. (Hendon S)
Hicks, RobertNeave, AireyThompson, George
Higgins, Terence L.Nelson, AnthonyViggers, Peter
Howell, David (Guildford)Neubert, MichaelWainwright, Richard (Coine V)
Howells, Geraint (Cardigan)Newton, TonyWeatherlll, Bernard
Hutchison, Michael ClarkPage, Rt Hon R. Graham (Crosby)Welsh, Andrew
James, DavidPaisley, Rev IanWinterton, Nicholas
Kilfedder, JamesPenhaligon, DavidYoung, Sir G. (Ealing, Acton)
Knight, Mrs JillPowell, Rt Hon J. Enoch
Knox, DavidReid, GeorgeTELLERS FOR THE NOES
Lane, DavidRenton, Tim (Mid-Sussex)Mr. W. Benyon and Mr. Richard Luce
Lawrence, IvanRoss, William (Londonderry)
Le Marchant, SpencerSainsbury, Tim

Question accordingly agreed to.—[ Special entry.]

Lords amendment : No. 6, in page 8, leave out lines 15 to 17.

Question proposed, That this House doth disagree with the Lords in the said amendment.—[ Mr. O'Malley.]

Question put and agreed to.

Subsequent Lords amendments agreed to.

Committee appointed to draw up Reasons to be assigned to the Lords for disagreeing to certain of their amendments to the Bill : Mr. Boscawen, Mr. Kenneth Clarke, Mr. John Ellis, Mr. O'Malley and Mr. Alfred Morris ; three to be the quorum.—[ Mr. O'Malley.]

To withdraw immediately.

Reasons for disagreeing to certain of the Lords amendments reported, and agreed to ; to be communicated to the Lords.

Export Guaranteesamendment Money (No 2)

Queen's Recommendation having been signified—


That, for the purposes of any Act of the present Session to make further provision in connection with the powers and duties of the Secretary of State under the Export Guarantees Acts 1968 and 1970, it is expedient to authorise the payment out of moneys provided by Parliament of the expenses of the Secretary of State under arrangements for making payments to persons who have entered into export

5(1) For the purpose of encouraging trade with other countries, the Secretary of State may with the consent of the Treasury make arrangements for making payments to persons carrying on business in the United Kingdom, the Isle of Man or the Channel Islands who have entered into export contracts, being payments related to such increases in the cost of labour, materials or other matters as may be specified by or under the arrangements.
(2) Arrangements under this section may contain such terms and conditions as the Secretary of State thinks fit, including provisions requiring payments to be made to the Secretary of State as consideration for his entering into the arrangements.
10(3) Any expenses incurred by the Secretary of State under this section shall be paid out of moneys provided by Parliament, and any sums received by him by virtue of this section shall be paid into the Consolidated Fund.
15(4) Subject to subsection (5) below, no arrangements shall be made under this section after the expiration of the period of two years beginning with the date of the passing of this Act.
20(5) The Secretary of State may by order extend the period during which arrangements may be made under this section by not more than one year at a time; and any order under this subsection shall be contained in a statutory instrument, and no such order shall be made unless a draft of it has been laid before and approved by resolution of the House of Commons.—[Mr. Deakins.]

Brought up and read the First time.

10.22 p.m.

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

With this, it is suggested that we discuss the following amendments to the proposed clause :

(a), in line 5, after "materials ", insert

' design and consultancy services, research, development '.

(b), in line 6, at end insert

' but excluding increases in interest costs '.

(c), in line 11, after "Parliament ", insert

' and shall be separately treated and identified in the accounts of the Export Credit Guarantees Department '.

(d), in line 20, at end insert

' but the Secretary of State shall not make more than five such orders under this subsection'.

contracts, being payments related to increases in the cost of labour, materials or other matters.—[ Mr. Deakins.]

Export Guaranteesamendment Bill

As amended ( in the Standing Committee), considered.

New Clause 1


Government Amendments Nos. 3, 4 and 11 and the proposed amendment to Amendment No. 11, in line 3, at end add

' but subsequent to 20th February 1975 '.

and Government Amendments Nos. 12 and 13.

On 20th February, my right hon. Friend the Secretary of State announced that, in view of the difficulties facing major capital goods exporters, an amendment would be introduced to the Export Guarantees (Amendment) Bill. This would provide some measure of protection to such exporters by partially covering them against a higher than expected rate of inflation.

Before I refer to the details of the clause, there are one or two general points I should like to make. During the Second Reading and Committee stages of this Bill, many Opposition Members referred to the particular and serious problems facing capital goods exporters and main contractors and to the need for some measure of Government assistance. I believe that the measures which will be introduced as a result of this clause will provide this assistance and that they will be generally welcomed by both sides of industry. I am conscious that some may feel that they do not go far enough, but this is a point to which I shall return.

The decision to introduce this kind of arrangement is not one which the Government have taken lightly. British exporters of major capital goods have been at an increasing disadvantage compared to those who enjoy some measure of protection from their governments against high and unpredictable levels of price changes. As the House knows, successive British Governments have long tried internationally to persuade others to discontinue their practice of indemnifying their exporters against rises in costs. Despite making clear in these representations that we might otherwise have to give British firms some similar support, 1 regret to say that these efforts met with little success. The Government feel, therefore, that the time has come to provide assistance to those United Kingdom exporters facing the most serious problems.

The precise details of the scheme are being drawn up as quickly as possible, and we hope that they will be finalised by the time the legislative process is complete. Discussions are already in progress with industry between Government Departments. However, the broad principles of what we contemplate are clear.

Essentially, the scheme is designed as a temporary measure to meet the abnormal difficulties of cost inflation. We certainly do not see the scheme becoming a permanent feature of ECGD's facilities and services.

The scheme certainly involves assistance to exporters, but with the specific aim of restoring their competitiveness in the major capital goods field. It will thus be confined to this field where the need for help is most serious and pressing. What is more, it is not a blank cheque or an open-ended commitment to pay irrespective of the level of cost inflation. In practice, it will contain positive incentives for exporters to control their cost increases which exporters unavoidably incur. It will also contain a specific incentive to exporters to go for cash contracts which immediately benefit the balance of payments as opposed to credit contracts.

In drawing up the scheme regard must of course be paid to one point I made during my speech opening the Second Reading debate—namely, the difficult, but inescapable, problem of striking a balance between the support and promotion of exports and the cost of doing this. We believe that the guidelines set out by my right hon. Friend the Secretary of State for Trade represent a reasonable balance.

With the need to strike this balance very much in our minds, we have decided to exclude production line goods from the scheme. Restriction of the scheme to major capital goods contracts inevitably raises problems of definition. These will not be easy to solve, but I am now consulting my colleagues and industry with the aim of establishing sensible guidelines as soon as possible.

Let me now turn to the clause. This is widely drawn and there are a number of good reasons for this. Details of how the scheme will operate are still being worked out. I do not apologise for my right hon. Friend announcing the scheme in principle before all the details had been finalised. Evidence was reaching the Government that British firms were beginning to hesitate to sign a number of major capital goods contracts in highly important markets because of the insurmountable problems from unpredictable upsurges in their costs. It was necessary to give them some reassurance rapidly. There was an element of psychological stimulus here which, when we come to look back, may well prove to have been just as important as the precise details of the scheme.

In addition, there is, I think, a real need for the powers to be drawn in such a way as to enable ECGD to be able to react flexibly and quickly to changing situations.

Subsection (1) enables the Secretary of State, acting through ECGD, to make arrangements for making payments to persons carrying on business in the United Kingdom who have entered into export contracts. For the purpose of this Bill the term "export contract" means a contract in respect of which guarantees have been or can be given under Sections 1 or 2 of the 1968 Act. In other words, arrangements may be applied to contracts which ECGD has not in fact guaranteed but would be able to do so. The payments will relate to such increases in the cost of labour, materials or other matters as may be specified by or under the arrangements. These arrangements must be for the purpose of encouraging trade with other countries and can be made only with the consent of the Treasury.

In practice, therefore, the Secretary of State, via ECGD, will have discretion both in terms of the contracts "covered" and on the terms of the arrangements made. This is, I think, desirable for all kinds of reasons, not least to reflect the points that I have just made.

The term "arrangements" follows the use of the same term in Sections 1 and 2 of the 1968 Act and in Section 1 of the 1972 Act in relation to overseas investment insurance. The arrangements will in practice be embodied in a formal agreement in each individual case with the persons concerned after discussions and negotiations with ECGD.

The scheme will apply to major capital goods contracts with an individual value of £2 million or more with manufacturing periods of two years or more. Exporters will have to bear or pass on to buyers at least the first 10 per cent. per annum of increased costs, but the Government will then cover 85 per cent. of eligible

The restriction to 85 per cent. or 90 per annum band above that minimum level. In the case of cash contracts this protection will be increased to 90 per cent. within a 15 per cent. per annum band.

The restriction to 85 per cent, or 90 per cent. within the band provides some incentive to exporters to try to control their costs. The wider band of 15 per cent. for cash contracts, rather than credit contracts at 10 per cent., gives an incentive for the exporter to try for cash payment rather than to offer credit terms. Cash payment produces a quicker return to the balance of payments and the absence of credit also avoids the need to provide fixed rate finance at the special export rate. The fact that the 10 per cent. thres- hold is a minimum means that the band of cover can float. The exporter can take cover from 10 per cent. to 20 per cent., for instance, or he can choose cover from, say, 13 per cent. to 23 per cent. or from 18 per cent. to 28 per cent. He therefore has a further incentive to pass on the maximum possible amount of cost increase to overseas buyers.

Payments under the arrangements will be related to such increases in the cost of labour, materials and other matters as may be specified by or under the arrangements.

10.30 p.m.

The hon. Gentleman is reading what he has to say, and, as always, is reading it carefully. But it is difficult to catch exactly what he says at the speed at which he is reading it. Could he explain in his own words the percentages to which he is referring?

I apologise for perhaps going a little too quickly, but I thought that most hon. Members here had served on the Committee. However, obviously some did not.

I shall read out the percentages again for the benefit of the House. Exporters will have to bear, or pass on to buyers, at least the first 10 per cent. per annum of increased costs. But the Government will cover 85 per cent. of eligible cost increases above that level, within a 10 per cent. band above that minimum level.

The 10 per cent. threshold before the Government start bearing a share of the eligible cost increase is a minimum figure, so the exporter could choose to have 85 per cent. of his eligible cost increases met between, say, 10 per cent. and 20 per cent. or if he took a different view about the course of inflation or his ability to pass on his cost increase to overseas buyers, he could have a band from, say, 15 per cent. to 25 per cent. He would bear or pass on the first 15 per cent. in that case, at his own choice, and 85 per cent. of the difference between 15 per cent. and 25 per cent. of eligible cost increases would be covered by the Government.

This is a rather complicated matter. Does the hon. Gentleman say that the option will be at the beginning of the manufacturing period or at the end? In short, is he saying that the manufacturer may take a different view of the expected rate of inflation from the Government?

The manufacturer may well take a different view of the percentages that will have to be entered into at the time of entering into the arrangements with ECGD—in other words, at the beginning of the manufacturing period.

There appears to be an anomaly, in that in Clause 1(1 )(a) there is a reference to persons who have entered into export contracts. That wording does not appear in the 1968 Act. There seems to be an implication that customers must have entered into export contracts, whereas the 1968 Act and previous Acts relate to people carrying on business. Is there an implication that this is a different formula, or that this type of export credit guarantee can be given only after the contract has been entered into?

The arrangements will be discussed between ECGD and the exporter at the time when the exporter is considering entering into an export contract in an overseas market. He will obviously want to know roughly what sort of support he is likely to be able to receive, and whether any contract he enters into will be eligible under this legislation. It will have to be done at the time when he enters into the contract, because the arrangements must apply for the purpose of furthering trade and exports. If an exporter has entered into a contract already there is no incentive to furtherance of trade in subsidising him, if that is what we are doing as a result of the introduction of this mechanism. It is only if this will make a difference that we shall be furthering trade.

I completely agree that that is what one would logically expect. I am only surprised that the Bill is not worded in that way.

I assure the hon. Gentleman that that is the intention. Perhaps I may return to the point later if there is still doubt about it.

In the individual contract, the escalation cover will relate solely to net increases in the amounts of the specific categories of variable United Kingdom costs which right at the outset have been identified by the exporter and accepted by ECGD. These categories are, essentially, his raw materials, components and labour costs. It will not cover his profits. The maximum rate of cost increases which can be covered under the scheme must be verifiable against some generally accepted independent index or formulae. Where in a particular trade it is the usual practice to base cost escalation clauses in contracts upon some well established and representative market indices, ECGD will normally expect to follow that practice although it would wish to satisfy itself that to do so would conform to the principles of the scheme. In other cases it may be necessary to use the Government's own published indices of movements in materials and wage costs for the industrial sector in question. However, whatever the precise index used in the individual contract, the exporter will not be able to claim more than the rise shown by that index, even though his own costs on that particular contract may actually have risen faster. Furthermore, if his own costs rise by less than the index, his entitlement will be limited to that lesser amount as evidenced by independent certification.

In this connection, I should make it clear that it would not be possible for ECGD to vet each case in fine detail without setting up a small army of inspectors, whose activities could be guaranteed to increase industry's costs still further. However, the Department will have the right to check, which it intends to exercise in a proportion of all cases as well as whenever it considers it necessary in a specific case. There is certainly no question of exporters writing in whatever cost increases they please. Because they will be meeting 15 per cent. of cost increases within the band of cover they will in fact have an incentive to hold their costs below the index level. Settlement will normally be made at the end of the manufacturing period, when it is clear how their costs have actually risen.

I understand the Minister to say that the responsibility for vetting what are the bona fide cost increases lies with the ECGD, but I understood him to say earlier that it is not necessary to have an ECGD credit in order to be able to qualify for this particular piece of export benefit. In the case of an exporter who has not got export credit, who does the vetting?

It would certainly still have to be the ECGD, because the exporter would be entering into a separate arrangement with ECGD. Even if he is not making use of any ECGD facilities in any other respect, he would be making use of them in this respect if he wished to take advantage of this cost escalation scheme. As public expenditure is involved, it is only right and proper that there should be some check, and we believe that the ECGD, with its widespread knowledge and contact with industry, is the most appropriate and the best body to do this.

Subsection (2) provides that the arrangements may contain such terms and conditions as the Secretary of State thinks fit. This follows similar provisions in relation to loans and grants in Clause 1(3). This subsection also empowers the inclusion in the arrangements of provisions requiring payments as consideration for entering into the arrangements. This will enable a premium to be charged for these facilities.

A flat-rate premium will be payable. It will be calculated by reference to the manufacturing period of the individual contract. At the end of the day, the net cost of operating the scheme will turn on how much industry's costs do in fact escalate over the next few years, the form of cover taken by exporters and, above all, on the success of the scheme in encouraging additional exports. However, it would be quite wrong to pretend that the scheme can in any sense be operated on a self-balancing insurance basis. It would, for example, be not only difficult but counter-productive and therefore most unwise to try to balance expenditure by making exporters pay ECGD if their costs proved to be lower than expected. In financial terms, therefore, this is essentially a one-way scheme. For this reason, it will be accounted for quite separately from ECGD's other operations. Payments under it will not, therefore, affect ECGD's reserves or the premiums which the users of its other facilities have to pay.

Subsection (3) contains the normal financial provisions. Expenses incurred in connection with the arrangements are to be defrayed out of moneys provided by Parliament while sums received, for example, premiums, are to be paid into the Consolidated Fund. This provides Parliament with control over the moneys since such moneys will have to be voted.

Subsection (4) provides that no arrangements shall be made after the expiry of two years from the date when the Bill becomes law.

The hon. Member is raising so many points that they could be embodied in a completely separate Bill. He is saying that this is not an insurance scheme at all. If so, why did the Secretary of State for Trade say in his statement :

"A Government amendment will accordingly be introduced to the Export Guarantees (Amendment) Bill to give the Export Credits Guarantee Department the necessary powers partially to insure exporters against a higher than expected rate of inflation."—[Official Report, 20th Feb. 1975 ; Vol. 886, c. 1566.]
The Minister has just said that it is not an insurance scheme at all. Further, he is saying that a premium will be charged. There must be some Government expectation as to what the rate of inflation will be over 10 per cent.

An insurance scheme involves some sort of spread of risk. There is no spread of risk in present and foreseeable circumstances. In other words, if inflation went down to a minus level, there might be a spread of risk and if the scheme were self-balancing in that way, with exporters paying if the rate of inflation was below zero—a negative rate —the Government would benefit. We cannot operate the scheme on that basis because it is obviously not within the bounds of practical possibility. The hon. Gentleman's second point was on premiums—

I still do not understand why the Secretary of State referred to it as insurance. It is not insurance. My second point was simply that the Minister says that there is to be a premium. That must, presumably, be related to some estimate by ECGD or the Government of the risk involved, which in turn involves some assumption about the rate of inflation. What rate of inflation is being assumed?

Dealing with the hon. Gentleman's first point, my right hon. Friend was using the word "insure" in a different way from that in which the hon. Gentleman uses it in referring to an insurance scheme. Someone can be insured against the possibility of something happening, which is what the scheme does. We are ensuring that exporters will not have to meet all the extra costs as a result of an excessive or particularly high rate of inflation over the next few years. My right hon. Friend was correct to use the word "insure ". It is not an insurance scheme in the actuarial sense of the term—which I think was the way in which the hon. Gentleman was using it—whereby there is a balance of risk as between the party who is being insured and the insurer, with the insured paying an annual premium against some risk, such as burglary or the loss of his car. Here the risks are all one-way.

The lion. Gentleman's second point concerned the premium. That will not be related to an assessment of the payout under the scheme. It will have to be related partly to the exporter's liability and partly to the costs of operating the scheme. We want to ensure that the ECGD is not out of pocket on its administration. It may be necessary to take on a few extra staff to deal with the checking that may be involved from time to time. Therefore, the premium will basically relate, not to the scheme as an insurance scheme, but to ECGD administration costs.

I have said that the flat-rate premium will be calculated by reference to the manufacturing period and that the scheme cannot be self-balancing. I have pointed out that the scheme could come to an end after two years, and we make it clear in subsection (4) that that is our intention. Subsection (5) enables the Secretary of State to extend this period by not more than one year at a time by order. This arrangement will, of course, enable Parliament to debate any extension of the scheme which might be proposed at the end of the initial two-year period and subsequently.

The other amendments are minor and consequential, with the exception of the new Government amendment providing that these arrangements may be made in respect of contracts signed on or after 20th February.

An essential feature of the scheme is to get it off the ground at the earliest possible date. It was, therefore, highly desirable for ECGD to give exporters as from 20th February, the date of my right hon. Friend's statement, some undertaking that—subject of course, to the obtaining of the necessary legislative powers—cover would be available in respect of contracts signed after 20th February but prior to the passing of the legislation. This new amendment will enable ECGD to undertake, before the Bill becomes law, that it will enter into cost escalation arrangements if and when it becomes law. This will cut out delay in assisting exporters, and therefore avoid the risk that valuable export orders might be lost pending the Bill's enactment. Exporters can accordingly make their export contracts in the knowledge that, subject to the passage of the legislation and to their compliance with the requirements of the scheme, they will in due course receive cost escalation protection from ECGD.

With this aim in mind, ECGD began receiving applications immediately after my right hon. Friend's statement: but the tailoring of the scheme to each individual case will take a little while to work through. For example, the applicant has first to furnish a fair amount of detail about the cost components of the tender. Any commitment by ECGD to disburse funds must of course be conditional upon the passing of the legislation now before us ; but, subject to that, detailed negotiations can usefully proceed meanwhile.

Like the schemes operated by the French and the Italians, the arrangements will not be available for exports to other EEC markets.

We regard the scheme as an important development. It is designed to reduce an unpredictable risk and in a way which will share the costs and benefits between exporters, buyers and the scheme. It represents a positive response to representations made by industry.

10.45 p.m.

The Under Secretary of State for Trade, with his usual panache, took us with almost breathtaking speed through a very complicated new clause. Indeed the provision is so complicated and such a departure from traditional ECGD practice that, as my hon. Friend the Member for Worthing (Mr. Higgins) said, it justifies a Bill to itself.

The Minister made two specific comments that caused me some concern. He said that the precise details of the new cover were being drawn up at present, yet, as he also said, the possibility of providing a cost escalation cover has been mooted for a long time. I should have thought it better for the cover to have been drawn up more precisely within the ECGD Department before the details or the bare bones of the scheme were publicly announced, otherwise there is a danger of confusion in people's minds, with exporters queueing at the gates of the ECGD without the ECGD knowing fully whether those exporters will qualify. In this case a little less haste and more precision would have been advisable.

The Minister in describing the cost escalation cover said that the risks were all one way. I do not think that is so. I understand that the premium is to be 1 per cent. and as the cover is for a tranche of 10 per cent. inflation per annum, it is a one-in-ten shot as to whether one will make on the policy or lose on it. But this is far from being an insurance cover as such. It will end up as being a subsidy to British exporters with major contracts. It is far better we should recognise it and call it that.

Against that background, I give a general welcome to the scheme. It is a new departure for ECGD and it is right that it should be treated carefully. In the past, as the Minister said, ECGD has run its books as a mutual insurance operation. Effectively, the underwriting operations paid for themselves, taking one year with another. To use the popular jargon, they washed their face. They have done so with increasing success in past years. In the financial year 1973–74 the credit insurance scheme produced a net transfer to revenue account of £24 million. This was by far the highest figure that ECGD had ever achieved. I understand that the figure may well be increased in the present financial year, due particularly to the cash flow from buyer credit. It would be right for this addition to the revenue account of ECGD to be used to reduce the premiums paid by the ordinary exporter in this country, so that the benefit of the underwriting success of ECGD—let us treat it as such—should be used to bring down the cost of insuring for the whole range of exporters from this country. This would have the effect of increasing the attractiveness of ECGD and seeing that a higher percentage of British exports follow through the Department than is the case at present.

I was very pleased to hear the Under-Secretary say categorically that the cost of this new cost escalation cover would not fall on the shoulders of the average exporter and that it would be treated as a separate item, or, to put it the other way round, the revenue surplus of ECGD would not be all used to subsidise the cost of this new scheme. I think that is most important, because if the underwriting profits of ECGD—those that ECGD achieves through good underwriting throughout the world—were absorbed in the cost of the new scheme, that would be detrimental to the general run of exporters and would have a bad effect on the management of ECGD which prides itself on obtaining an overall profit while at the same time trying to bring premiums down.

I should like to ask a few specific questions which I hope the Under-Secretary will answer at the end of this debate on the new clause. I hope he will be able to tell us—and this takes up a point raised by my hon. Friend the Member for Worthing (Mr. Higgins)—based on the average inflation rate in the last two years, what he expects the likely annual cost of this scheme to be. I realise that the Secretary of State for Trade, in introducing this new scheme on 20th February, refused to do this. He said it was impossible. But at that time I think he was casting forward.

I am sure that on an extrapolation of inflation rates over the last two years, some estimate of cost must be available. I think it should be declared because it has been the custom in the past with ECGD that whenever it has got involved in a new form of expenditure an estimate has been given. For example, when the refinancing scheme started there was an estimate of total sums involved likely to reach £350 million.

Then on the question of control, it seems to me that this will need very careful control indeed. It is a new departure for ECGD. It will involve ECGD in monitoring the costs of major British exporters. Is ECGD properly staffed to handle this? How many new staff will it require? I should have thought, at a rough guess, that it could lead to a doubling of ECGD staff if they are to become involved in a careful analysis of the costs that a number of exporters will claim under this cover.

The Under-Secretary referred to using Government indices for wages and raw materials and an independent certification of costs that exporting companies will claim. But, obviously, this will call for a great deal of checking, and I should like to be assured that the question of cost and the number of staff involved has been thoroughly thought through by the Department.

I turn now to our amendments to the new clause. In tabling Amendment (a), we sought to bring into the category of those who could claim relief under the cost escalation clause such companies as plant designers, engineering consultants and those specifically involved in exporting not their goods but their skills and technology. The Secretary of State for Trade, when introducing the scheme, spoke of its particular importance in such markets as the Middle East, and it is in just such markets that designers and consultants are involved, exporting traditional skills and new technologies from this country. I noted that the Under-Secretary said that production line goods were excluded. I know that some of my hon. Friends will wish to speak about that, and I shall not anticipate their remarks.

Amendment (b), in my name only, suggests that increases in interest costs should be excluded. I had two specific purposes in view here. First, I had it in mind that progress escalation payments should be made to the manufacturer during the course of the four or five-year contract. Plainly, if his claim for money due because of inflation was met by payments made in that way, there would be no interest accruing, and that would serve the purpose of my amendment. I understood the Under-Secretary to say that such progress payments would not in fact be made, and that payment would be made only at the end of the contractual period.

I said that they would not normally be made. But, of course, there may be exceptional circumstances in which there is a very long gap between entry into the contract and actual delivery and final payment at the other end, and in such circumstances we may have to look at it again. In normal circumstances. however, what I said applies.

I am grateful for that assurance. In my view, the net should be widened somewhat, because there must be cases in which, for cash flow reasons, unless they can count on getting these payments during the course of the contract, exporters will be put off entering into a contract or tendering for it at all.

My second purpose in Amendment (b) concerned the question of the interest rate on money that the exporter would pay in the United Kingdom during the period of the contract. Someone bidding for a major overseas contract inevitably takes a view of what his United Kingdom cost of money will be. That view may be right or wrong. It is arguable that, because Government policies have the greatest effect on the cost of money—just as they do under this Government on wage rates—a case can be made that an increase in the cost of money in the United Kingdom should be covered under the cost escalation policy.

On balance, however, I think that that would be wrong, because one has to take a view when bidding for a contract. If one's view is wrong, one may then argue with the ECGD that it should help effectively to bail one out, whereas, in fact, it has been a matter of judgment at the time of bidding for the contract. I feel that the exporter's judgment on the question of the interest rate applicable in the United Kingdom should stand. I would appreciate hearing the Under-Secretary's thoughts on that point.

11.0 p.m.

Our Amendment ( c) has already been dealt with by the Under-Secretary. He said that the sums involved in the new cost escalation cover would be separately

treated and identified in the accounts of the ECGD, and that is absolutely right. I hope that he will therefore accept our amendment.

Our Amendment ( d) follows very much from the tabling of the new clause. We are seeking to limit the number of annual orders by which this scheme can be extended to five, and that is in line with the Under-Secretary's comments when he said that this was a new scheme. We shall all have to wait to see how it works, and therefore it is appropriate that the number of extensions should be limited to five. It seemed an appropriate number because the Under-Secretary said on Second Reading that the limits in the Bill would be adequate for approximately the next five years. It seems correct to tic in the number of annual orders to the same period.

Our final amendment refers again to the Government's new clause. We accept that contracts signed after 20th February but before the Bill becomes law should qualify for the new cover and that the increases in costs experienced by exporters within that time should fall within the scope of the scheme. We believe it is important that it should be limited to increases in costs which take place after 20th February, however.

Government Amendment No. 11 is loosely and poorly worded and it would be better if this were made clearer and more precise by the addition of the words

" subsequent to 20th February 1975 ".

Under that proposal increases before that date cannot be compensated for under the cost escalation cover. These are serious and valid points and I am sure the Government will consider them with care.

I share the reservations which the Under-Secretary seemed to be expressing about the need to introduce the new clause. It is not insurance in any of the normally understood uses of that word and it is, as he said, essentially loss making. That applies, however, on the assumption which he expressed that a mere 10 per cent. inflation is, I think he said "outside the bounds of possibility ". Some of the electorate were led to believe that a rate of inflation of less than 10 per cent.—I believe 8·.4 per cent. was the figure given—might have been possible. That now seems to be outside the bounds of possibility. I do not disagree, but it is interesting that the Government should now take that view and make provision accordingly in the new clause.

That approach was confirmed because it was openly stated that the risks were to be all one way. I have these reservations about the new clause, but I also accept that other countries, particularly the French are making these sort of provisions. I accept that as the Government and their predecessors have been unable to persuade the French not to do this kind of thing we must introduce a similar scheme ourselves.

My main reason for intervening is to query the use of the words "capital expenditure ". The Under-Secretary of State used them this evening and the Secretary of State used them in February. I appreciate that the clause is essentially permissive in the way in which it is drawn. It is not confined to capital expenditure. It is not really confined in any other way. Nevertheless, the Under-Secretary of State has made it clear, as did his right hon. Friend, that the help given under the clause will be restricted as to amount—namely, £2 million—on an individual contract and to a minimum length of time—namely, two years. I accept those restrictions, but why the further restriction on capital goods?

I raise that point because of a constituency interest. I received a letter this morning from the managing director of the Guided Weapons Division of the British Aircraft Corporation. The corporation has a considerable factory in my constituency as well as elsewhere. Since the Secretary of State's announcement the corporation has been discussing with the Department, and through its trade association, the sort of contracts which will qualify. It finds that what are, in the managing director's phrase, loosely described as capital items are to be the only items that will qualify. That loose description is the phrase used by the Under-Secretary of State this evening. They are not, as I understand it, the only goods that qualify under the French scheme, for example. I do not have detailed information about the Italian scheme.

However, there is a real difficulty. I shall read a short extract from the letter that I received from the managing director of the Guided Weapons Division. It reads:
" In these respects a £50 million contract to supply a quantity of Rapier Fire Units and missiles to an overseas customer is no different from a 150 million contract to supply a nuclear power station, which would be regarded, I understand, as a `capital contract' and thus qualifying."
Earlier the letter reads:
"Unfortunately, we find in discussions between Trade Associations and officials, that it is the intention to restrict this facility to what are loosely described as ' capital items'
… In the letter it is pointed out that contracts involving "production runs" are not provided for in that context. The £50 million contract for Rapier fire units and missiles obviously involves a certain element of production runs although it is a very large contract. The letter continues:
" Our competitors in France manufacturing guided weapons do have available to them schemes having some similarity to the British scheme."
He argues—and there is a lot of strength in his argument—that large contracts even in the nature of revenue items should receive the same assistance as capital items. It seems that to do otherwise implies that there is something more desirable in capital exports than exports of revenue type goods. I do not see that there is an essential difference. I do not think that an essential difference should be incorporated in the regulations—I know that it is not proposed to incorporate it in the clause—adopted under the clause by the ECGD and by the Department of Trade. It is proposed that only capital items should benefit. That seems to me to be a mistake.

I welcomed the introduction of the scheme in principle so I am not in the best position to express strong reservations about it, but I will refer to three.

One of the possible dangers of introducing such a scheme is that it will trigger off retaliatory action internationally, and that has possibly already happened. Does the Under-Secretary of State think it coincidental that within seven days of the announcement of the scheme in the House the Exim Bank announced, on 27th February, a further improvement of its scheme, and that the Press release specifically referred to the need to meet competition? By taking action which is overtly of a subsidy nature there is a danger of triggering off retaliatory action which could be counterproductive and endanger British exporters.

I warmly support my hon. Friend the Member for Mid-Sussex (Mr. Renton) in drawing attention to the absence of any estimate of the cost of the scheme over the next two years. It is essential that the Minister should give the House some indication of the cost, because the commitment is open-ended. It depends on estimates of likely rates of inflation and the extent of the take-up of the scheme. We may be talking about a very substantial sum, and it is incumbent on the Minister to say what is the Government's thinking on the public expenditure implications of the proposal.

If the proposal had been introduced when the Bill was initially drafted the public expenditure implication would have had to appear in the explanatory memorandum. The Government should not be able to avoid their obligations to tell the House what will be the cost merely because the scheme has been introduced on Report.

I also express concern about the parliamentary accountability aspects of the scheme. I understand that the legal position is that a highly generalised power is being given to the Secretary of State to enter into arrangements with individual companies which will effectively increase their profitability on individual contracts. Under the new clause the Secretary of State has complete freedom to regard as allowable costs—
" such increases in the cost of labour, materials or other matters as may be specified by or under the arrangements."
Those arrangements are entered into solely between the Secretary of State and individual companies. Legally, Parliament will give the Secretary of State the ability to make almost any cost allowable as to between 100 per cent. and 85 per cent. for reimbursement. In financial terms we are offering something which is more generous than tax allowability.

When one contrasts the position under the Finance Acts, where income tax and corporation tax are concerned, which define in detail what is allowable and not allowable for tax purposes, with this highly generalised statement which financially has an even more beneficial effect than tax allowability, one cannot help but notice the inconsistency. If the clause is passed without greater definition, we shall be failing in our obligation to make this public expenditure properly accountable to Parliament.

I welcome the changes embodied in the clause, but I deplore the way in which the House first learned of them. I do not wish to comment on the practice of Ministers in successive Governments making announcements to the Press, but what happened here was a leak which occurred while the Committee was sitting. It was unfortunate that members of the Committee had to read about the proposals in the columns of the national Press.

11.15 p.m.

My hon Friend the Member for Ton-bridge and Malling (Mr. Stanley) has referred to the dangers of retalitatory action, and it is right and proper that he should, but I have always found it rather tedious that it seems that the French are always able to give beneficial and advantageous terms to their exporters but that the danger of retalitatory action is always used as a reason why we must never jump in and follow. Obviously there is a risk which must be carefully balanced.

These proposals in themselves are not going to usher in a golden age for British exports because the key word in exports is reliability and that means reliability in delivery and in performance. If we do not have those twin reliabilities, we never get to the stage when we are in the final negotiations and finance is the critical element.

I have no doubt that there are many situations where it is essential to have the same room for manoeuvre which is available to our foreign competitors. I therefore welcome these provisions to counter cost escalation and also the provision for performance bonds with certain limits, but my biggest welcome is for the attitude which this clause reveals: it seems to be recognizing the hard fact of exporting life, that there are no prizes for the runner up. One either gets the contract or one does not.

It seems also to represent a move in the direction of getting business for this country and away from a particular sort of commercial purism which is only too ready to ignore employment considerations for British industry, import substitution considerations and considerations relating to what is often referred to as an expansion from a commercial bridgehead. To make such an extension. it is useful to have the commercial bridgehead there in the first place.

Finally, I should like to follow up the point made by my hon. Friend the Member for Gloucestershire, South (Mr. Cope) when he referred to the Guided Weapons Division of the British Aircraft Corporation. I should like to refer to the manufacture of aircraft and to ask, in the words of the Under-Secretary, about production-line goods because aircraft are made on a production line. They are extremely expensive items and I would have thought quite essentially the sort of thing we should be exporting. It is initially a low-cost item which has added value put on it by British skill and technology and ends up as a high-cost export item.

It is a production-line creation. Are aircraft to be specifically excluded from these provisions because of the way they happen to be built? I should like the Under-Secretary to answer that question.

I had not intended to contribute to this debate and I rise with some trepidation because I was not a member of the Standing Committee and I am sad to admit that I was also not present during Second Reading.

At a cursory glance I am very concerned to see the figures of £12,200 million and £3 billion in the Bill. There is no excuse then for a Member of Parliament not listening, commenting and trying to contribute to the debate.

This immense sum is a potential liability to the hard-pressed taxpayers, and not least to those in the worthy constituency of Chichester, but I recognise that the benefits of the Bill will accrue to many of the industries, particularly the light industries in the Chichester district, increasing exports to the Continent, and that they will benefit considerably from this sort of provision.

I should like also to sound a grave note of caution, that there has been a great deal of talk about the provisions of this new clause providing a counter to cost increase. It provides no such thing. What they provide for is to pay for the cost increases, and the biggest question is whether it is a proper expenditure to pass on these cost increases to the taxpayer, through whatever system.

I recognise that the question which must then be asked is whether the benefit through such encouragement of potential exports outweighs the liability which accrues to our taxpayers as a whole. The probable answer in this case is that it does, but I believe that such provisions and guarantees should be subjected to the most stringent restraint in terms of overall liability.

I endorse the comments of my hon. Friend the Member for Tonbridge and Mailing (Mr. Stanley) in seeking clarification of the total amount payable under this provision. Secondly, we have heard a good deal of discussion, perhaps semantic discussion, about the difference between subsidy and insurance.

I accept the Under-Secretary's explanation of the disparity in the statements made on this previously, but it would be better if administrative and other costs were included in the potential liability under this clause. In other words, the cover granted should perhaps be that much less than it would otherwise be, the difference between the amount suggested and the amount to which it could be reduced being that which is currently payable under the clause in terms of a premium. This would seem much neater, and it would get over what is a disguised subsidy. I believe that it should be clear for people to understand exactly what it is, and that it should also be quantified in terms of a subsidy and not in terms of an insurance.

I seek some greater clarification oil Amendment No. 11. I endorse what has been said to the extent that this seems an open-ended commitment to provide that the clause shall be applicable to cost increases before 20th February of this year. This seems to be like insuring a house once it has burned down. It is quite different to guarantee cover for potential or likely cost increases where a risk is undertaken. But this amendment implies that cost increases which have occurred already and are quantified will be allowed to be covered by the provisions of the clause. This is a complete departure from the intention of the clause and will enable unfair competition on quite a relevant scale.

I want to sound a note of general caution. In the past few weeks in a variety of different spheres—in fisheries, in agriculture and, especially in my constituency, in horticulture—there have been increasing calls for subsidies of one kind or another. We also hear increased calls for import controls. We have heard raised this evening the question of retaliation. This is very dangerous talk. We must guard against the possibility of starting some sort of subsidy war which will help none of us. I say no more about that. I am sure that it is a subject on which there will be a great deal of comment. But it is relevant to some of the technical provisions contained in the clause.

I want to mention three points. First, I must pursue the boring technical drafting point on the new clause.

Section 1 of the Export Guarantees Act 1968 provides that
" the Board of Trade may with the consent of the Treasury make arrangements for giving such guarantees to, or for the benefit of, persons carrying on business in the United Kingdom."
Section 2 provides that
" the Board of Trade may with the consent of the Treasury make arrangements for giving such guarantees to, or for the benefit of, persons carrying on business in the United Kingdom ".
In both instances there is an assumption that people are carrying on business and that the export credit guarantee is to be given for the purpose of enabling them to carry on such business.

The new clause begins with the words:
" For the purpose of encouraging trade with other countries, the Secretary of State may with the consent of the Treasury make arrangements for making payments to persons carrying on business in the United Kingdom.who have entered into export contracts ".
The use of the past tense, which was not used in the previous Act, must be explained. I am sure that the Under-Secretary agrees that the purpose of the new clause is to enable people to enter into export contracts. However, that is not what the Bill states. If the Bill does not make that clear, there is a grave danger that this House may pass into law something which will mislead generations of businessmen.

Secondly, this may seem a sad day for British trade because we are beating our ploughshares into swords, our pruning hooks into spears and clearing the decks for action for a credit war. We must ask for an assurance that every step is being taken internationally to reduce credit subsidy and that the Government are in touch with other Governments to ensure that appropriate steps are taken, perhaps through the setting up of an international conference, to see that we are not triggering off a credit war. This is a critically important matter. The new clause might, as has been said, appropriately form a new Bill. If we are asked to incorporate the new clause into the Bill, which has been given consideration in Committee and elsewhere, we must have that form of assurance.

Thirdly, it would be inappropriate for this discussion to pass without attention being drawn to the great crime of our time—inflation. The new clause is like feeding aspirin to a dodo unless we can find a way to tackle inflation. To make a cheap, but important, political point, inflation must be tackled. It is not good enough to use inflation as a weapon, as accuse the Government of using it. It is not good enough to allow inflation to redistribute assets, wealth and incomes. The real problem to be tackled is inflation. The new clause merely provides a palliative to deal with one aspect of inflation—that concerned in international trade. We want a Government who are prepared to tackle inflation.

I could not agree more strongly with what my hon. Friend the Member for Gosport (Mr. Viggers) said about the need to control inflation. Indeed, when the Secretary of State for Trade made his statement on 20th February I pointed out that compensation for the effects of inflation on exports is a poor substitute for beating inflation.

It is important to stress that many people in industry in this country would like the same degree of protection against inflation as that that the Government propose to give to those in other countries under the provisions of the new clause.

I should like to take up the point made by the Under-Secretary of State about insurance. It seems quite fantastic for the Secretary of State for Trade to come to this House and, in the statement to which I have referred, clearly state that it was a scheme for insuring things—an insurance scheme—and for the Under-Secretary tonight to say that it is not an insurance scheme at all. This is what we have from two Ministers who have prime responsibility for the insurance industry and are proposing to introduce legislation to deal with insurance companies which get into difficulties. It seems clear that the Secretary of State for Trade has not the remotest idea what is and what is not insurance.

I should like to take up a number of important points that have been made by my hon. Friends and to emphasise that we expect clear answers to them from the Minister. Although we are debating this important measure late at night, it is important that we get clear replies.

11.30 p.m.

My hon. Friend the Member for Gosport compared the wording of the new clause with that of previous legislation. The Minister said that there was no intention that the effect should be different, but the Government's intention is in no way relevant to what the courts may decide to be the meaning of the words. I should like a clear answer on this subject. The Government's hope may turn out to be a disappointed hope if the wording is not correct.

We have before us this evening a Bill as amended by Standing Committee D, but the new clause does not have an explanatory and financial memorandum, as when a Bill comes to the House for Second Reading. Yet it is clear that the consequences of the new clause will significantly change the financial effects of the Bill. It may be a convention of the House that hon. Members are expected to know what has happened between Second Reading and the next stage when the Bill is considered on the Floor of the House, but that does not apply in this case and the House should be given the Minister's best estimate of the likely cost of the new clause. Estimates may be difficult to make, but they are important in this context.

My hon. Friend the Member for Mid-Sussex (Mr. Renton) suggested that the new clause might involve a doubling of the staff of the ECGD. This new clause could well have formed a Bill on its own, and it is essential that we have a clear statement of the Minister's expectation of the increase in the number of staff in the ECGD and his own Department if the House agrees to the new clause.

The hon. Gentleman implies that there might be a vote on the new clause. I hope that he will think seriously about what he has just said. I could, but will not, quote the representations that we have had from British industry throughout the country asking for a step such as this. It is most ungenerous of the hon. Gentleman and politically unwise to suggest in the form of a threat that action will be taken this evening to stop the clause from going through.

The hon. Member must not be so sensitive. Whether my hon. Friends decide to vote on the clause is a matter for them.

The point that I am making is that we expect to have proper answers when Government expenditure of this kind is being considered. Whether or not there have been representations and discussions, the Minister must not assume that that exonerates him from giving the House sufficient information to make a decision in these matters.

I make it absolutely clear that we expect an answer on this subject.

Neither the Bill nor the new clause imposes a limit on the size of the contract charge covered by these arrangements, but our understanding from the Secretary of State's statement is that the limit will be £2 million and that contracts of less than that figure will not be covered. My hon. Friend the Member for Gloucestershire, South (Mr. Cope) stressed the importance of this measure to his constituents and my hon. Friend the Member for Gosport emphasised that there were many people in the export business throughout the country who would like the protection offered by the new clause. That we accept, but we are not clear why the Government feel that there should be a cut-off point of £2 million. Why are exports of a production line type not to be covered? I mentioned that in the Second Reading debate. I do not feel that the Minister has spelled this out in sufficient detail, and many of my hon. Friends are concerned about the point.

I now turn to a different aspect of the matter. We have agreed throughout with the Minister that the degree of support for exports must be related to the cost. It is also true that the cost must be related to the return to the economy. I think that that is common ground between the Under-Secretary and myself and, I imagine, the whole House. It has been made clear by the Secretary of State for Trade and the Prime Minister himself that one of the main purposes of the clause is to facilitate exports to Iran and, following the Prime Minister's visit, to the Soviet Union.

Now that all the hullabaloo about the Prime Minister's visit has died down we are still unclear what the value of the export credit terms will be. Cmnd. 5924 is a lengthy document, which gives some indication of the situation and refers in particular to the credit terms, saying that they shall be the most favourable terms possible. We must consider whether the terms are not so favourable that the gain to the British economy is debatable. I shall be grateful if the Minister will clarify precisely what the terms are. They are not clear from the Cmnd. Paper.

I understand that the rate of interest, as with other exports, is to be 7·25 per cent. I believe that that is the figure that has been mentioned. In addition, exports to the Soviet Union are to be protected against cost escalation. We also understand—it has been mentioned in an article in the Financial Times, and it was referred to in an after-dinner speech by the Prime Minister a short time ago —that there are to be certain provisions with regard to exchange rates.

If an export is made to the Soviet Union under the new clause, what will be the position if the sterling exchange rate declines in terms of the Soviet Union or some other currency? Will the Soviet Union be protected against that as well? That will be to its advantage in those circumstances.

Taking all those three components together, it seems to me that the advantage we are offering to countries to which we export is likely more than to offset the profit margin. It is not just a question of turnover. It generates employment, but so does making things and giving them away. It is the profit margin that is important.

Certainly, jobs. But it is no good having jobs if we are going to give our resources to other people for nothing.

The clause has been related by the Secretary of State and the Prime Minister to the question of exports, following the visit of the Prime Minister to the Soviet Union between 13th and 17th February. Under the new clause and under the preferential interest rate agreements—and also in terms of the exchange rate—those who are investing in the Soviet Union or elsewhere are in an advantageous position as compared with people investing in this country, in terms of real assets. People investing in this country do not get the benefit of low interest rates, or protection against inflation.

The document to which I have referred, reporting the Prime Minister's visit, refers to a two-way exchange of goods as listed in Annex I. For instance, there will be the
"Supply of equipment for projects of the oil refining and petrochemical industries."
That is in the United Kingdom. In the Soviet Union there will be the
"Supply of equipment for enterprises in the chemical, oil refining and petrochemical industries …."
May we have a statement from the Minister explaining whether the credit terms given to people in this country will be the same as, or more or less favourable than. those which we propose to give to the Soviet Union under the clause?

I turn to the main point which has been made on the insurance scheme. It now appears that it is not an insurance scheme at all. Clearly, what the Government propose is simply to make a charge for the costs which are likely to be incurred as a result of the scheme being operated by the ECGD. I understand that no insurance premium in any sense is to be charged. The hon. Gentleman said that those taking advantage of the arrangements which the Government propose would simply incur the costs of operating the scheme.

Fundamentally, the scheme is simply a palliative. It is important if we are to remain competitve. It is also important that we should continue to avoid a credit war, and that we should continue the negotiations so far unsuccessfully carried out by the Government to prevent a further increase in credit term competition. If it happens, there will be transfers of assets from this country and others which may well work out, net, to our disadvantage.

Overall, this is not something which can be ignored in the present situation, in which the Government apparently propose to cover inflation over a 10 per cent. rate, when the present rate is about 20 per cent. What is the Government's expectation? Is the Minister seriously saying that it is thought that the rate of inflation will be 10 per cent. over the next year? That appears to be what the Government are saying, because the clause purports to cover risks of a rate of inflation over that expected and the floor is put at 10 per cent.

I have not kept an exact count of the number of questions put to me, but I shall do my best to reply to them all.

In the staffing of the ECGD, we must strike a balance between inserting into industry an army of ECGD inspectors and vetters and the need for proper control over public expenditure. We intend to get the balance right, and to keep our increases in staff and costs to a minimum, consonant with our need to ensure that public expenditure is safeguarded.

The hon. Member for Mid-Sussex (Mr. Renton) asked about the surplus in our accounts, and the effect it might have on the premium. The surplus shown in the accounts represents to a considerable extent premiums received and held by ECGD against risks which will continue under medium-term and long-term credit for a number of years, so the surplus is not a ground for reducing premiums in the short term or for reducing current premiums.

The cost to public funds will depend on the form of cover taken by the exporter, rates of inflation and the level of our exports. In a direct sense, the eventual cost of the scheme will be related to its success in meeting its major objective of enabling United Kingdom exporters to obtain contracts abroad that they would not otherwise have obtained. Therefore, it is difficult to make a realistic estimate of the likely cost. No payments will be made until the end of the manufacturing period, and as the minimum qualifying manufacturing period is two years no payments will be made from public funds until the financial year 1977–78. In the meantime, we shall be acquiring premiums which will more than cover ECGD's costs in running the scheme.

On what basis will the surplus be decided? If it is to be more than the costs of running the scheme, how will the Government decide how much more they should charge?

The Government have decided provisionally that the charge shall be 1 per cent. Obviously, in the light of circumstances and experience of this scheme, which as everyone has recognised is completely new, we may have to make adjustments upwards or downwards. But at least we think that 1 per cent, is setting the level as realistically and fairly as possible in the interests of exporters, the ECGD and public expenditure considerations, bearing in mind that we have had no experience of operating such a scheme.

11.45 p.m.

How can the Under-Secretary decide that 1 per cent, is a realistic level at which to set the premium if he has no idea of the likely cost of the scheme? Furthermore, will he say whether the 1 per cent, also applies to the case scheme as well as to the forward schemes?

Yes, the 1 per cent, applies to both schemes. We had to start somewhere, and we have to get some idea of what the cost might be to ECGD. We have obviously to take on some more staff in order to get the costs of particular firms. Much will depend on the use that is made by firms of this scheme. Some may think that it is not worth while ; others may not be eligible, and so on. The guidelines which we are intro- ducing, the ground rules, could well be changed in the light of experience. This again might affect ECGD costs.

The hon. Gentleman seemed to come close to saying, before my hon. Friend the Member for Mid-Sussex (Mr. Renton) intervened, that because no actual cash would have to be paid out for two years, it did not much matter, in the sense that all that one was doing was entering into a commitment for the future and that that did not matter. While that seems to be in accordance with the general Treasury petty-cash accounting which is conventially follows, it does not seem very satisfactory from the point of view of control of public expenditure. Although the amount actually spent in the course of this scheme will depend on the factors which the Under-Secretary mentioned, it will depend primarily on the Treasury, because every arrangement entered into is with the consent of the Treasury. Has the Treasury any top figure in mind at which it will say, "No, that is enough ", or has it no idea of how far it is prepared to go in this matter?

The prime purpose of this is to increase British exports of major capital goods. To the extent that we can do this without public expenditure running away with itself, we shall do so. If it were to be the case that the implications, because of either rising inflation or large numbers of contractors taking advantage of the scheme, were such that we decided to call a halt, obviously we should need to reconsider. But frankly, at this stage we feel that the variables are such over the next couple of years —the rate of inflation and the number of people who may take part in what is, after all, a very new scheme—that until we have seen some of the scheme in operation over the next year or two it is very difficult to make more than a wild guestimate "of the cost. That is why we have the two-year limitation. I hope that the hon. Gentleman takes that point. We have made it two years. We hope that in that time, by international agreement, we shall be able to ensure that other nations come into line in agreement with us, and that we shall get rid of cost escalation schemes altogether and work towards a period of credit peace, which we shall encourage.

I share that hope, but is it the case that the Treasury has no maximum in mind at present?