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European Community (Economic Policy)

Volume 893: debated on Wednesday 11 June 1975

The text on this page has been created from Hansard archive content, it may contain typographical errors.

12.18 a.m.

I beg to move,

That this House takes note of Commission Document R/731/1/75.
Almost a year ago I had the privilege of initiating in this House the first debate on a report of the Scrutiny Committee. It was then on the economic guidelines applicable to last year. This evening I have the privilege of initiating the first debate on a report of the Scrutiny Committee after the referendum which confirmed Britain's membership of the European Community. It is again on the economic policy guidelines, applicable for the present.

The three documents covered by the Commission letter (R/731/1/75) are concerned with the adjusted economic policy guidelines for 1975, with the summary account of economic policies pursued in 1974, and with the report on the application of the Council decision on 18th February 1974 on the attainment of a high degree of convergence on economic policies of member States. Right hon. and hon. Gentlemen will recall the debate last July when I dwelt at length on the guidelines system. I pointed out that it provided a useful practical procedure for discussing national economic policies and their interaction and that it was an additional means for making our views on common problems known, in a way which may lead member countries to adopt policies which will ease the adjustment process.

The general guidelines—that is, the guidelines addressed to the member States collectively—recognise three major economic priorities—the correction of the balance of payments, the fight against inflation and the reduction of the level of unemployment; and on the basis of the external position and the rate of inflation the United Kingdom and Italy have been singled out as countries in which there is a continuing need to maintain overall policies of restraint, while vigorously supporting the necessary transfer of resources into the balance of payments and fixed investment.

Broadly speaking, we accept these general guidelines. Indeed, by his action in the recent Budget, my right hon. Friend the Chancellor of the Exchequer provided proof of this Government's determination to correct the structural weaknesses in the United Kingdom economy, made considerably more serious by the recent oil crisis. We have made a start. The statistics show a major swing of resources into the balance of payments last year. The prospect is for a further movement of resources into the balance of payments this year, and a deficit at least £1 billion less than the £3·8 billion in 1974. The medium-term intention to eliminate the deficit entirely is in accordance with the specific United Kingdom guideline that reducing the external deficit should remain one of the principal aims of economic policy.

Both the general guidelines and the specific United Kingdom guidelines emphasise the need for high deficit countries to contain the growth of real personal consumption in order to achieve the necessary reduction in the external deficit. In the United Kingdom personal consumption showed no growth at all in 1974, and it weakened further in the first quarter of 1975. The effects of the April Budget measures on real personal disposable income are expected to result in a further small fall after the Budget, thereafter showing little change from the level in the second half of 1974. But, while we accept the need for moderation at home, we believe that the surplus countries within the Community—the Netherlands and West Germany—have a particular responsibility to get demand moving. The guidelines recognise this, although we might place a rather greater emphasis on the rôle of a strong rise in consumption rather than investment as the basis of their re-expansion.

If the recovery is to be lasting, however, there is a need, stressed in the guidelines document, not only for a better allocation of resources but for a slow-down in the rise of costs and prices. The problem of inflation remains a serious threat to our overall economic strategy. Over the last year to March, earnings and retail prices have risen 27·9 per cent. and 21·2 per cent. respectively—a rate of wage and price inflation out of keeping with trends in other countries. Although British exports remain competitive at present, the continuation of a high rate of inflation would cast doubts on our ability to maintain this advantage in the months ahead. There are, however, as my right hon. Friend said in his April Budget Statement, good prospects of a slower rise in the cost of living in the second half of the year. By that time the effects of the Budget measures will have fed through to prices in the shops, and the benefit of lower food and commodity prices should be making itself felt. But everything depends on the success with which we tackle the problem of excessive wage settlements.

Although the problem of unemployment is covered only in the general guidelines, it must clearly be faced as one of our most serious problems Nevertheless, our record to date compares favourably with most other member countries, where the effects of measures taken or not taken have tended to be more restrictive than was perhaps intended, and there now appears to be general agreement that demand has fallen to an undesirable extent.

Looking ahead, the prospect for the United Kingdom is a continued rise in unemployment this year, and although some will say there was a case for reflation in the recent Budget, this argument takes no account of the unprecedented nature of the circumstances which face us in 1975, nor of the damaging consequence it would bring in its wake. It would worsen the balance of payments by increasing the demand for imports with possible adverse effects for exports. It would increase the demands made on the system at a time when inflation is continuing at a very high rate—a rate higher than that of our major trading partners, and so dangerous for United Kingdom trade and payments in the future. It would increase an already massive public sector borrowing requirement by a wilful act of policy. Brighter prospects in the export sector should, however, tend somewhat to offset the deflationary effects of the recent Budget.

The guidelines, drafted before the Budget, urged that
"vigorous efforts should be made to reduce the share of the public sector deficit in the GDP."
As a result of the Budget, the public sector deficit and the borrowing requirement should be much the same in 1975–76 as a percentage of GDP—8 per cent. and 10 per cent. respectively. The Budget tax measures, together with the public expenditure measures, will have a much greater effect in 1976–77.

On that very point, I think that the Minister said that the deficit as a proportion of gross domestic product would be approximately the same. He used the figures 8 per cent. and 10 per cent. Is he saying that it is increased from 8 per cent. to 10 per cent.?

I referred to the public sector deficit and the borrowing requirement, which, as the hon. Gentleman will realise, are two separate concepts.

The Budget tax measures, together with the public expenditure measures, will have a much greater effect in 1976–77, when it is essential that resources should be available for a switch into exports to take advantage of the recovery in world trade which is expected then.

The guidelines' implicit endorsement of the present monetary policy is welcome. Last year's borrowing requirement was financed in such a way that it did not lead to a rapid growth in the money supply, and the Chancellor has reaffirmed his determination to prevent the growth of money supply once again fuelling inflation. The guideline recognises that our domestic interest rates must take account of the needs of the external position and must be responsive to international development. But, as I said in the debate for last year, it is not possible to say in advance precisely what degree of relative attractiveness will be necessary at any particular time in the future, since this depends on the degree of international confidence in sterling at the time.

To sum up, the Government believe that the guidelines before the House tonight are appropriate to the Community's situation. The guidance which they contain forms a broad framework in which the United Kingdom Government, together with the other member countries, can develop their individual economic policies whilst taking account of their impact on each other.

As the House will realise, the process of consultation involved in the preparation and discussion of the guidelines is as important as the detailed text of the document itself. It is through this continuing debate, through the exchange of views at meetings of the Council and other bodies, that we are able to bring our influence to bear on the development of economic policies within the Community. The preparation of the guidelines forms a focus for this activity. The document is perhaps the formal, as opposed to the efficient, element in the system.

Against that background, the Government believe that it would be right for the House to take note of the guidelines. If it does so, the Government will lift their reserve on their adoption.

12.28 a.m.

This is the first European, or Common Market, debate since the referendum. It is interesting that in recent weeks there has been a very high level of exchanges in the country from all sides. We have heard what I can only describe as the still, quiet voice of the Minister as we get down to some of the practicalities.

I welcome the debate and, indeed, the guidelines. First, I think that the debate demonstrates to anyone who may still be in doubt that this House can, and does, consider proposed Community decisions, which may affect our national interest, before they are adopted. Secondly, it demonstrates that the House retains the right, which we could exercise tonight—although I, for one, would not advise it—to reject such decisions out of hand if it were minded so to do.

In reality it is extremely unlikely that any European measure would come to that, because the Government would be most ill advised to put to the House any legislation for which they did not believe that there was a majority. In that rare event all the experience of the Community suggests that, one way or another, there would be a compromise designed to meet our national needs or the needs of any other dissenting country, not to speak of the need to meet the political difficulties of the member country involved.

These matters have been debated at length over recent weeks, but it is right that tonight I should record, after the referendum, that Parliament here demonstrates that it has not surrendered its legislative power to Brussels and that the House is, and will continue to be, an essential sovereign part of the legislative machinery of the Community as well as remaining the undoubted legislature of this country regarding our domestic affairs.

I was glad to hear the Prime Minister in his statement on the referendum say that he expected
"to develop the scrutiny arrangements to make them more effective. I trust that there will be an early debate on the recent Report of the Procedure Committee on European secondary legislation."—[Official Report, 9th June 1975; Vol. 893, cc. 36–7.]
This debate tonight, which is on an important matter, ought not to be taking place at this late hour when it is inevitably so thinly attended. I am sure that the Paymaster-General will accept that it is wrong that this matter should have been first considered by the Scrutiny Committee and that the Treasury memorandum, which the right hon. Gentleman has laid before the House, should have been prepared in March, and here we are in mid-June only now beginning to consider it. I suspect that we are considering it now because the Government wish to withdraw their reservation so as to get on with the decision in the Council of Ministers.

I make the point that we must do a better job in the House at a time when the public can observe, and, indeed, at present listen to, our proceedings in examining these matters which come to us from the Community.

I hope that the right hon. Gentleman will take back to his right hon. Friend the Leader of the House the wish of the Opposition that the Prime Minister's undertaking, that the work of the Scrutiny Committee will be developed and that we shall have an early debate on the Select Committee's report, will be implemented very quickly.

I welcome the debate because of the subject matter. It is dealing with what is now by any measure the most urgent matter—economic policy—of the many problems which confront us. Inflation is now very nearly out of control. Public, spending is rising at a rate which we cannot afford. Debt is at a prodigious level—probably beyond our ability to finance it—and the pound is, in terms, on the skids.

Against that background it is right that the House should debate the economic management of the country, and we are indebted to the Commission and to the right hon. Gentleman for enabling us to debate that matter, even at so late an hour.

I welcome the Treasury's confirmation in the accompanying memorandum, which the right hon. Gentleman quoted, that it welcomes the recommendations of the Commission on what we ought to do to overcome our economic problems. The right hon. Gentleman said that the recommendations of the Commission are, in the words in the memorandum,
"broadly in line with the policies already being pursued by the Government. They will be taken into account in the formulation of any further economic policy measures."
I will come to the Commission's diagnosis of our problems and its proposals for dealing with them in a moment. At the outset, I want to ask the Paymaster-General this specific question: do all the economic Ministers in the Government believe with him that these recommendations of the Commission are broadly in line with what is needed for the country? Specifically, do they all agree with the Commission, first, on page 1, that a more active co-ordination of economic policies within the Community appears from now on to be essential to reduce unemployment?

The Opposition endorse that recommendation. So, too, does the Paymaster-General. But what about the Secretary of State for Energy, who has repeatedly told us that membership of the Community has already cost us more unemployment and that many more jobs will be lost as a result of the decision taken by the British people to remain in the Community? Does he, as a member of the Cabinet, agree with the recommendation of the Commission for a more active co-ordination of economic policies within the Community? The Treasury says that it agrees. Can I be assured that all economic Ministers in the Cabinet agree with that statement?

Secondly, the Commission says in section 1·5 that overcoming the economic crisis requires stern action to hold down the rate of
"growth of wages and prices to permit a gradual improvement in profits and in the propensity to invest".
Those are the words of the Commission, and I am glad to read in the covering memorandum from the Treasury that that is in line with Government policy. I should like to know from the right hon. Gentleman, however, why such action recommended by the Commission on the growth of wages has not yet been taken. The Commission recommends it, the right hon. Gentleman says that it is in ine with Government policy, but nothing has been done.

In most other Community countries, notably Germany, France and the Low Countries, not only have measures of this kind been applied for several months but in most cases, notably Germany, these remedial measures are paying off. We are entitled to ask why the Government, if they say that that is the right diagnosis and accept that it is in line with their policies, are still putting off the action that is required.

Can the hon. Gentleman help the House by telling us exactly where he was quoting from in Section 1·5? His might be a different text from the one I have.

Perhaps I can help the hon. Gentleman. It says that

"certain preconditions are required; changes in the growth of wages and prices".
That is rather different from the words used by the hon. Gentleman.

No. The quotation, which I have copied out very clearly from here, is in the Commission's recommendation. I think it is to hold down the rate of

"growth of wages and prices to permit a gradual improvement in profits and in the propensity to invest".
But I will of course, with pleasure, look at what the hon. Gentleman has said, and if he is correct in his interpretation I shall happily change to the form of words which he has proposed. It makes no difference, however, to the substantial point which I am making and asking of the right hon. Gentleman: why have not the Government taken action to achieve what is recommended and what he has told us is in line with the Government's policy?

If I may now turn briefly—

Perhaps the hon. Gentleman will allow me to continue. Many hon. Members wish to speak, and it is exceedingly unpopular when the Front Benches hog all the time.

I want now to deal with the substance of the proposed guidelines and the draft decision. On trade deficits the Commission identifies three groups of nations: those which, like Germany and the Netherlands, have accommodated themselves to the oil problem and now have large trade surpluses; those, like France and Denmark, whose policies are leading to an improvement in their balance of payments; and, thirdly, those which, like ourselves, with Italy mentioned, are still wallowing in heavy trade deficits.

In the latter case—our own—the Commission finds that there needs urgently to be, and I think I am quoting correctly,
"a transfer of resources…into the export sector, and, internally, into those investments yielding the highest return in the long term…this process,"
the Commission says in Section 2.3,
"requires a moderation in the rise of the standard of living. If such moderation is not shown, inflation will continue to affect economic activity and employment…and those countries—"
Britain and Italy—
"would have increasing difficulty in borrowing abroad to finance their excessive expenditure on consumption."
Again, that is the Commission's recommendation and I could not put it better.

I also had the impression that the Chancellor of the Exchequer and the Secretary of State for the Environment had now seen the light and accept the Commission's diagnosis. But what are they doing about it? Talking about suicide is all very well, but what our partners in Europe are plainly looking for, and what I suspect they may yet insist on if, as is more than likely, we have to go with the begging bowl asking for a loan, is not fine words at the Guildhall but some action, and that has not yet been taken. Since he has said that he accepts these recommendations, I must ask the right hon. Gentleman: why are the Government still hesitating to bring those actions before the House?

It is thanks to the good sense of the British public that we now have the ques- tion of our remaining in the EEC behind us. There is no excuse for the Chancellor failing to get on with it and bring in the economic measures which have now become a necessity to undo what many of us believe to be the damage caused by him and his colleagues.

Finally, I turn to the specific guidelines proposed by the Community for each individual country. They are couched in fairly general terms because, as some of us have never ceased to insist, the Commissioners can only propose in these matters: it is the Council of Ministers which disposes, and on that body, like every other member, Britain has its veto.

What strikes one most vividly about these country-by-country guidelines is the open contrast between the condition of Britain after some 18 months of the present Government's management and that of nearly every other member State. In the case of Denmark, the Commission talks of "near-stagnation" but goes on to describe "the easing of personal taxation" and the setting of the stage for "a more moderate rise" in wages and salaries.

It reports that the measures taken by the German Government
"…should bring about a gradual upturn in the economy. Indeed, there are already some signs of a recovery in business confidence…the annual GDP growth rate could reach 3 to 4 per cent. by the end of the year. The employment situation should improve. The increase in prices should further slow down."
How I wish that that report could be made of the United Kingdom.

The Commission says that France is experiencing a gradual upswing:
"…the rise in consumer prices will continue to slow down".
It will probably be less than 10 per cent. per annum by the end of the year. The same goes broadly for the Netherlands and only slightly less so for Belgium.

But what of the United Kingdom? The Commission says:
"The prospects of the British economy seem to be virtual stagnation in activity between now and the end of the year, continued unemployment, further rapid rises in prices and wages and a slight lowering in the substantial deficit on current account."
That is the diagnosis of our candid friends, and it is in these cases a devastating indictment of the economic management of the present Government.

Essentially, the Commission recommends two things, and the right hon. Gentleman was fair in referring to them—first, that reducing the external deficit should remain one of the principal aims of economic policy. I was glad to hear the right hon. Gentleman say that he hoped that there would be an improvement of £1 billion on the balance of payments account. But the Commission goes on to say that, to achieve that,
"it is essential to contain the growth of private consumption in real terms.…In particular, care should be taken to avoid increases in incomes designed to offset anticipated price rises."
I am glad to know that the Government accept this recommendation; but have they told the NUR? Have they the agreement of the TUC? There is no evidence that they have.

Second, the Commission advises:
"Vigorous efforts should…be made to reduce the share of the public sector deficit in GDP".
Again I wholeheartedly agree, but where is the right hon. Gentleman making these necessary cuts? How can he square a programme of more than £2,000 million in subsidies for food and council rents and artificially low prices in the public sector with his acceptance of this explicit recommendation? How does he propose, to use the Commission's terms, which he says he believes to be in line with the Government's policy, vigorously to reduce the public sector deficit with a commitment to nationalise aircraft, shipbuilding, building land and the rest at a cost of a further £2½ billion?

We welcome the Commission's intelligent diagnosis of the Community's problems and its suggestions, for they can be no more, of ways and means by which each one of our countries should put its own house in order. We would not necessarily support every word of the guidelines in respect of either the Community as a whole or Britain in particular, but we welcome the Commission's concern and value its advice as that of candid friends.

I therefore advise my hon. and right hon. Friends to endorse the general guidelines laid out in that document, thereby authorising the Government to withdraw the reservation they made until Parliament had debated it. Any doubts the Opposition may feel reflect not upon the Commission's diagnosis and guidelines, but upon the will and ability of the Government to carry them through for the good of our country and for Europe as a whole.

12.46 a.m.

As has already been mentioned, this is not only the first debate on European Community affairs since the referendum, it is also virtually the anniversary of the first debate in this House on a report from the Scrutiny Committee which took place last July on the guidelines for that year.

Unfortunately, as occurred last year, we are subject to certain problems over documents. Clearly the hon. Member for Bury St. Edmunds (Mr. Griffiths) was quoting from an earlier version of the document than the one I have before me. According to the explanatory memorandum which the Government have circulated, the document we are being asked to take note of is not the document which will be considered by the Council of Ministers when the Government remove their reservation. The guts of the document we are considering tonight is the proposal for a Council decision.

It is the Council of Ministers which has to make decisions on the guidelines. The draft decision on an unnumbered page about halfway through the mass of paper involved contains Article 1, which says that member States shall pursue their economic policies in conformity with the guidelines specified in the annex to the decision. That decision is similar to the one discussed last year which was criticised in the House as going further than was thought appropriate for the Council to go.

We were, therefore, very pleased to be able to read in the explanatory memorandum that at the meeting of the Council of Ministers on 18th March the Council amended the wording on this point to read
"adopted the guidelines which are specified in the annex to this Decision for the Member States in the elaboration of their economic policy."
That is a very much milder wording than that included in the original decision last year.

The difficulty is that the House is not being asked to take note of these documents as amended by the Council of Ministers on 18th March. The House is being asked to take note of the decision as it originally was. It seems rather unsatisfactory that we are not able on this occasion to take note of the document which will be considered and which will, I assume, be approved by the Council of Ministers at its meeting when it comes to it.

No doubt my right hon. Friend the Paymaster-General will be able to explain why the "take note" motion is so short on this occasion. We have had longer versions in recent debates. It would have been helpful if some reference had been made to the amendments made to the draft decision.

Perhaps the right hon. Gentleman would be willing to help the House. Is it not the case that the document provided to us has been amended by the recent meeting of the Council? Although the amendments may be modest, the document we have before us is not the same as that which will be before the Council of Ministers at its next meeting.

Order. The Minister must seek leave not from me but from his hon. Friend if he wishes to intervene. The Chair does, however, frown upon two interventions at the same time.

My hon. Friend is wrong in suggesting that this "take note" motion is incorrectly worded. What the House is asked to do is to take note of Commission document R/731/1/75. There are various versions of the document. The one before us is described as "R/731/1/75 rev" in the explanatory memorandum.

To inform the House of the latest position I drew attention to the fact that there had been an amendment in the wording of the decision as a result of the discussions in the Council of Ministers of 18th March so that it now reads:
"The Council adopted the guidelines which are specified in the annex to this Decision for the Member States in the elaboration of their economic policy."
There is no document which incorporates that decision. Assuming that the House was prepared to take note of this motion, at the next meeting of the Council of Finance Ministers, which takes place next week, this will be before the Council, the United Kingdom reserve will be withdrawn and there will then be a document which incorporates as a decision the words in the explanatory memorandum. Although it is complicated, I do not think that it is wrong.

I am glad to have that partial explanation. If the Minister looks at his explanatory memorandum he will see that at the bottom of the first page he makes it clear that at its meeting of 18th March the Council amended the wording in the draft decision. The point I was making is that it would have assisted the House if the "take note" motion had drawn attention to this explicitly by adding the words

"as amended by the Council of Ministers on 18th March 1975."
That would have assisted the House in making sure what it was that we were taking note of and what it is that the Council of Ministers will be deciding at its next meeting.

I turn to the substance of these guidelines. In many ways they are much more satisfactory than those we had to deal with last year. For example, I remember that in last year's debate my right hon. Friend agreed that it was not satisfactory that the Council should be setting us a specific target for the improvement in our balance of payments over the year. This year, instead of a numerical target, there has been a general, verbal statement. This is a considerable improvement. On the other hand, the general tone, particularly of the introductory chapters, of the guidelines document is still pretty low-grade economic journalism compared with documents produced by the OECD. We cannot really be satisfied with it. I hope my right hon. Friend and other Ministers will draw the attention of the Commission to this and try to improve the quality of future reports.

In the guidelines dealing with the United Kingdom there is a reference to an adjustment to indirect taxes. I assume that this is a suggestion that those indirect taxes which are not ad valorem but specific should be indexed. As this is a specific proposal to the United Kingdom, what is the Treasury's attitude to the proposal, and are there likely to be amendments in Committee on the Finance Bill to incorporate the proposal? It is an interesting idea, but it would have been helpful if the Paymaster-General could have given us an indication of the Government's attitude.

The words are:

"In addition an adjustment of certain indirect taxes to price movements could be considered."
Does my hon. Friend read those words as implying a reduction in tax or an increase in tax? Why does not the document say to which indirect taxes it refers instead of referring to "certain indirect taxes"?

I am asking my right hon. Friend the Paymaster-General to elucidate this matter and to give us what the Prime Minister refers to as "a little éclaircissement". I assume that certain indirect taxes are specific rather than ad valorem, that in an inflationary situation they do not have the same buoyancy as do other indirect taxes and that, therefore, there is a case for making them ad valorem rather than specific, but I am sure that my right hon. Friend will clarify that matter.

In the second document, the report on the application of the Council decision, in paragraph 1.2.5 on page 1 it is said:
"Article 5, which states that the annual report must be brought to the attention of the national parliaments, has been implemented more in form than in substance and in varying ways in the Member States. It does not appear that this document has had much influence on debates within the national parliaments."
At least this Parliament had the opportunity to spend one-and-a-half hours discussing this report, the Scrutiny Committee has seen it, and we are again today discussing guidelines and proposals. I hope that when the Council of Ministers considers this matter again it will be made clear that, even if other Parliaments do not discuss these reports, the House of Commons, albeit at an absurd hour, gives some attention to them.

12.58 p.m.

As those before me in the debate have pointed out, this is a weird subject for our first Common Market debate after last week's little local difficulty. The weirdness of it was increased by the sombre, not to say almost morgue-like, tones in which the debate was introduced by the Paymaster-General.

As the explanatory memorandum points out,
"Her Majesty's Government reserved their position on the draft decision pending completion of United Kingdom parliamentary scrutiny procedures."
It is to be presumed that after the "take note" which will occur in three-quarters of an hour or so the eager chargers will be released and Her Majesty's Government will be free to assent to the platitudes and fatuities with which the document abounds.

Although it is difficult to say whether the Government were conforming with the guidelines or the guidelines were conforming with the Government, it still did not become quite clear whether the guidelines on page 18 represented what the Government of this country were trying to do or were achieving.

I draw attention to the reference to the share of the GDP that is represented by the public sector deficit. If I understood him correctly, the Paymaster-General said that this was approximately 8 per cent. in the last financial year and is expected to be approximately 8 per cent. in this financial year. I think that is what the right hon. Gentleman said. In that case, the "vigorous efforts" which should be made, according to the EEC, "to reduce the share of the public sector deficit" in this year compared with last have either not been vigorous enough or else attended by singular misfortune. In addition, there is the mysterious reference, although it is guarded in the language in which it is introduced, to an adjustment of certain indirect taxes to price movements. Although that is in the guidelines to the Government, the Government's representative has not so far deigned to indicate what it might mean.

It is easy to be misled in studying the document and its implications by the extraordinary fatuity of so much that it contains. Although there is luxuriant material for reaching that judgment, I cannot forbear to bring to the attention of the House a point on page 8 where it reaches noble proportions. I refer to the passage at the end of paragraph 2.6 that reads:
"greater encouragement should be given to entrepreneurial spirit namely by giving clear guidance as to the type of development to be undertaken."
There may be something that has gone wrong in the translation, but most people would think that there was a contradiction between entrepreneurial spirit and waiting to get clear guidance from an authoritative governmental body as to the type of development which should be undertaken.

It is also possible to take too much comfort from the tone of resignation, if not despair, which pervades certain parts of the document. In the foreword we read that the Council has been concerned in its decision of February 1974 to achieve
"a high degree of convergence of the economic policies pursued by the Member States…".
But two paragraphs later we see the Commission obliged to admit that
"Discrepancies…in economic policy among the countries of the Community have never been so pronounced as at present…".
One's first impulse is to say, especially if one has felt certain anxieties as to the relationship between this House and this country and the Economic Community, "Well, it is only a tissue of fiction, there is no reality and no substance to it. Provisions are put forward but their non-realisation is accepted with a shrug of the shoulders. Why, therefore, should we worry if on paper we do appear to have subjected ourselves to the ultimate decisions of external bodies in the Community?"

I think that would be an unjustified deduction to be drawn from the document. I draw the attention of the House to two statements in the first document. Paragraph 1.1 on page 1 reads:
"However satisfactory"—
I think it means "successful" but it says "satisfactory"—
"the Member countries are…in reducing inflation, their actions will have repercussions on their partner countries at least as great as would any measures designed to encourage exports or restrict imports."
The document is here referring to the very type of economic intervention which runs counter to the general principles of the Economic Community, being contrary Ito the principles of an internal free trade area. So here is the significant statement that success by the various member countries in policies for reducing inflation will have repercussions on partner countries no less serious than measures which run counter to the basic principles of the Community would have.

Light is cast on the train of thought of the Commission by a sentence which occurs on the following page:
"Experience in the last few years has shown that balance of payments disequilibria cannot be dealt with solely by means of floating exchange rates."
Taken at face value, that statement is nonsense, because it is axiomatic that with a floating exchange rate payments in total must balance without intervention by Governments or by central banks. So one wonders why that statement should be made and why there is such insistence on the inadequacy of floating or free exchange rates to eliminate balance of payments disequilibria. The answer is that the two statements to which I have drawn attention are linked in the mind of the Commission and in the thinking and intentions of the Community. The Community does not look forward to a régime whereby the payments of the respective member States will be kept in equilibrium by an adjustment of the relative exchange values of their currencies.

Will the right hon. Gentleman make clear what balance of payments he is talking about? If he is talking about the current balance of payments, it is nonsense.

I wondered whether I should waste another minute by pointing out the additional nonsense in the Commission's formula, in the words which I quoted, because by definition a balance of payments always balances overall. When the Commission refers to disequilibrium in balance of payments, it means that sort of equilibrium which one decides to alter by specific Government intervention. There are many statements in these documents where the term "balance of payments" is illicitly used and where the expression should be "current balance" or "balance of trade" or even "balance of visible trade".

It is a grave defect that there should be unclarity on that substantial point; so I make no complaint about the intervention by the hon. Gentleman. But I return to the point which I was making. I was saying that the Commission and the Community look forward to a régime of fixed exchange rates; for it is true that under a régime of fixed exchange rates the correction by one country or another of the rate of deterioration of the domestic purchasing power of its currency is bound to have repercussions on the real economy of other member States.

Beneath the fatuity and acknowledged inefficacy of what is now happening in pursuance of last year's decision, there lies the intention—consistent with the nature of the Community in its other aspects of economic management—to move from a régime of floating exchange rates to a régime of fixed or fixedly interlinked exchange rates, which brings with it in turn the necessity of a coordination and correlation of the domestic policies of the different countries and of those policies in particular which are of most immediate interest politically and socially to their citizens.

My conclusion is simply that, although this document could be treated with light-heartedness and even with contempt as not being a document which bites or is intended to bite, nevertheless in its phraseology there is spelt out the dilemma which has run through all the debate on the Common Market hitherto, and the dilemma by which the Community today is faced: to go for minimum or to go for maximum; whether it is to be content to amble along with the chance coincidence of what the member States happen to decide to do, or whether it is to go for that economic and monetary and—if it is different from those two, which I doubt—political union, which all the declarations of the Heads of State, except our own, frankly recognise as the logical and, indeed, essential goal of its development.

That dilemma is still there, and as the months go by we shall look forward to seeing Her Majesty's Government executing an ever more painful performance of what I believe in other contexts is called the splits, as these alternatives widen and become more visible.

1.11 a.m.

The right hon. Member for Down, South (Mr. Powell) has shown further paradoxes in the paper before us. I begin with the paradox of the motion, which is to take note of the document. When our continued membership of the Common Market was in some doubt, when the Government were renegotiating—they said—some of the basic terms of our membership, perhaps a take-note, half-stalling, neither "yea" nor "nay", the motion might have been appropriate, but now that phase is over. I believe that it would even have been within the terms of the treaty for the Government to say that they approved. I could hardly see them putting down a motion saying that they disapproved, without being in breach of the treaty. Perhaps my right hon. Friend the Minister will say why we have such a motion in the circumstances in which we find ourselves since last Thursday.

Already this text of the document has received some skilled exegesis. Some of the texts do not even tie up. But this text is not available to the general public of the United Kingdom. I do not know whether it is easily available for representative organisations. When I made inquiries before the referendum as to how an ordinary member of the public could get hold of these documents I met a blank wall. Her Majesty's Stationery Office does not supply them. I am told that only the more important ones are printed in the Official Journal, some time after they are originally distributed.

We have been involved in other matters in the past few days, but if we had had time to seek the views of representative organisations in the United Kingdom we might have found that they had not been able to get hold of the document. I hope that my right hon. Friend, in this first debate in the new situation, will undertake to look into the availability of these documents.

One of the qualities of the House is that so many hon. Members can bring to bear the observations and knowledge of their constituents and various bodies. In these debates that has not been possible so far.

We are debating the matter much too late at night. But for chance, it may have been three hours later. We debate it under a business guillotine of an hour and a half. But this material is not secondary in the sense in which statutory instruments have been. I believe that it is a primary document. The social security matters that we discussed earlier, and the question whether the Government can afford them, may well depend, in the end, on the macro-economic questions which we are discussing. I hope that if we have another such debate it will come first, perhaps for three hours until 7 o'clock. We can afterwards discuss our municipal legislation, which is what I understand legislation originating in this House is now to be called in technical terms.

The right hon. Gentleman the Member for Down, South talked about convergence of economies. I am not clear to what we are supposed to be converging. There seems to be within this document a belief—it may be naive—that convergence, of itself, cures economic ills. I suppose it may, if one has identified the desirable objects to which one has to converge. One age's economic wisdom is the economic folly of the next. Suppose the convergence to which any commission might have us move is not that which cures the ills which it is supposed to cure? Suppose that it exacerbates them? To use an analogy with which the right hon. Member for Down, South may be more familiar, convergence in the economic sense might be a Procrustean bed on which we have to fit our nation. The people who will suffer, whose limbs are cut and chopped and moved, are not necessarily those who are the decision makers in the economy; they are those who take the backlash.

On page 1 of the Commission document we are told:
"But it also assumes great importance as far as the movement of labour is concerned as well as for monetary and financial relations, particularly in the field of investment and the establishment of joint enterprises in the partner countries."
We are told, I suppose, that in order to reach this convergence we must speed up our movement of labour. Economists have been justifying that internally in this country for many years, but it cannot be looked at just in terms of economics. There is a social secondary effect of which we are all aware, even within our own country, and I suspect that it would be equally so on a European scale.

The tax question has yet to be replied to, and I am very sorry that when my right hon. Friend introduced this document he did not refer to it, for quite clearly it is in addition to what the Government are doing. These words are clearly in the text, on page 18:
"In addition an adjustment of certain indirect taxes to price movements could be considered."
I am very sorry that we have had to prise it out of him. Perhaps in his reply he will deal with it. One might have thought that the Government would be frank. It is up to my right hon. Friend, when he goes to the Council, to find out exactly what is meant, if he does not know already. If he does, will he tell us, and will he undertake to report back to this House what the Council had in mind? Can he tell us what commodities are involved? Is it an ad valorem matter, as my hon. Friend the Member for Farnworth (Mr. Roper) pointed out, or something else? If, as the Commission said in March, it could be considered, have the Government considered it? If they have considered it, what conclusion have they come to?

In summing up, therefore, I hope that my right hon. Friend will pay particular attention to this point, and also tell us specifically how he intends to report back to this House the result of that inquiry, and whether the Council decides that the Government's consideration of this matter is satisfactory or is not.

1.18 a.m.

Quickly commenting on the fact that this is the first occasion on which we have debated a paper of this kind since the referendum, I, too—rather curiously perhaps—join with one of the observations made by the hon. Gentleman the Member for Newham, South (Mr. Spearing). It seems to me that if the purpose envisaged in these debates is to try to ensure that Ministers go to the Council of Ministers in the Community armed with the strong views of Members of the House, they could be better framed than within a "take note" debate. I therefore take that view, also.

I draw attention to the fact that this is not a piece of secondary legislation. This falls within the remit of the magic phrase "et cetera"—the remit of the Scrutiny Committee—which covers matters which do not form secondary legislation, as such. It none the less comes within the purview of that Committee and therefore can be referred to the House for debate if appropriate.

I have two observations, one on the procedural aspect and one of substance.

The timing of this debate is noticeable. I refer not to the deplorable business of taking these important matters at this late hour, but, first, to the fact that we are half-way through 1975 and that we were half-way through 1974 before starting to give advice to Ministers about the way in which they should look upon guidelines which had been developed in the Community. It is a curious way of planning, and I doubt whether it could guide ministerial decisions on matters concerning the management of the economy.

My other observation about the timing which may come up within the framework of the debate which will take place, I hope, as a result of what the Prime Minister said in his recent statement, is that here, again, we have the Government bringing forward a document of this kind for debate purely for their own convenience. The Government want to get something through the Council, and therefore they have decided that the House is now ready to take this, whereas the object of the work of scrutiny and of this debate is to take in time matters so that the Government may digest and chew on what the House says to them. That is not just for the convenience of the Government, therefore, and it should not be so interpreted.

I come, then, to my observation of substance. In some ways, the report on the 1974 performance was more interesting even than the suggestions for the conduct of the 1975 one. I draw attention to item 2.1 in page 3 of Con. (75) 93 Final dated 17th March, which refers to failures of the member countries to abide by the guidelines and attributes those to certain causes, amongst which is the lack of wholeheartedness with which the measures were undertaken and the lack of a broadly-based agreement on the policies which should be followed.

I am anxious to put some firm thoughts into the mind of the Minister in this case. If there is truth, as I believe there to be, in the fact that the economies of the nine member countries are substantially interrelated and that actions by one have profound effects on results in others, I hope that the faults which have been detected and reported upon in the paper to which I have referred will not be perpetuated.

I ask the right hon. Gentleman to consider the words he used in addressing the House tonight. They spoke to me of that kind of broad-brush acceptance which is so easy to evade. The right hon. Gentleman said that, broadly speaking, the Government accepted these general guidelines. We know the meaning of that kind of phrase. Then he said that everything depended on the success with which we tackled excessive wage settlements. The injunction within the framework of the guidelines is that they should be tackled. There is no general and philosophical commentary on what may or may not happen.

The right hon. Gentleman referred to these guidelines as "a broad framework". If there is real importance in this matter, as I believe, I hope that, armed with a measure of certainty about the future conduct of the Government in relation to Community affairs, the right hon. Gentleman will seek to move from broad frameworks and generalised statements of consent into some more positive action to try to apply, in this sadly desperate country, some of the rather sensible measures which seem to have been developed during the course of discussion in the Community. I like to think that we shall see something more sharp-edged and less broad and blunt in the future.

1.25 a.m.

There is one interesting aspect of this wadge of papers, namely, that Table I, which follows page 19 in the first lot of papers, contains forecasts of consumer prices for 1975. It is the practice of the United Kingdom Treasury in, for example, the Financial Statement, not to publish any current price forecasts; not to publish, indeed, any forecasts of price indices. Yet here we have a forecast of the consumer prices index for 1975.

These are alleged to be tentative forecasts by the services of the Commission. I inquired of the Commission what its services are. I also inquired of our permanent representative in Brussels what these services are. I found that all that they amount to are secretarial services to a committee of representatives of national Treasuries or Finance Ministries. What this seems to be, therefore, is a forecast supplied to Brussels by the United Kingdom Treasury, given a figleaf called "the services of the Commission", and then handed back to this Parliament. That seems an extraordinary way for us to obtain prices forecasts relating to our own economy.

This raises a further question about the way in which the Commission should operate in dealing with broad questions of economic policy. I understand—again from our permanent representative in Brussels—that in a recent speech the President of the Commission outlined two major proposed developments during the current year. One was the export-import bank, which is not a matter for debate tonight. The other was a proposed economic institute of the European Communities. It is not very clear what this is to do, where it is to do it, for whom it is to do it, how it is to be staffed, or anything else. But it is a matter which clearly would be of considerable importance in the institutional development of the Community, and something on which my right hon. Friend the Paymaster-General may be able to comment.

The most important omission in the Chancellor's Budget speech this year—and a matter which has subsequently become perhaps the most important immediate influence on the economy—was the question of the Government's policy towards the management of the exchange rate. I do not think that the right hon. Gentleman said anything about that in his Budget speech, yet we have had statements from him in recent weeks saying that he hoped that it would not go any lower, and when it did he said that he hoped that it would not go any further lower, and so on. Yet we have in these guidelines the very important expression of hope, in paragraph 2.8, that
"An orderly financing of deficits should, thus, be arranged while waiting for the adjustments in real flows to be realised".
This is much the biggest single service which the European Communities may be called upon to give to the United Kingdom within the next few weeks, or, indeed, at any time. I should like to be assured that arrangements are in hand—I would not expect my right hon. Friend to be explicit as to what they are—to enable the Community to act firmly, so that we are able to deal with any massive flows across the exchanges in an orderly way with the help of our friends in the Community, and are able to adjust our real flows.

There are very encouraging figures for the first quarter balance of payments for the United Kingdom. I hope that they will be maintained. I refer to the United Kingdom balance of payments for the first quarter of 1975. The details were given on the news tonight.

I am grateful. I meant the current balance of payments.

Our ability to deal with such a situation will depend on whether the trade unions feel that policies are being imposed on us by gnomes or by the Commission, or that the decisions have been arrived at in an orderly way by ourselves.

These are matters of the greatest importance, which go far beyond the scope of this debate, but at least we could have an assurance that the mechanics of the Commission and the Community are properly organised and working smoothly.

The debate will finish at 1.48 a.m. I understand that it is desired that the winding-up speeches should begin in three minutes' time.

1.32 a.m.

A limitation of three minutes on a speech is a grand excuse for ditching all the more complex aspects of the contribution which I should have liked to make. I shall therefore concentrate on one point, namely, the wholly unsatisfactory state of these debates.

Now that the referendum result means that we approach these matters in a slightly different context, I hope that the hon. Member for Bury St. Edmunds (Mr. Griffiths), who opened the debate from the Opposition Front Bench, will not take it unkindly if I say that he placed a very charitable interpretation on how satisfactory these arrangements were for demonstrating the way in which the House would be able to exercise power over the executive in its relationships with the Community institutions.

The position is unsatisfactory. As these debates are no longer part of the run-up to a referendum campaign, I detect that that sentiment is shared by many hon. Members who have spoken in this debate, irrespective of the way in which they voted last Thursday. I am glad to see the assent of the hon. Member for Farnworth (Mr. Roper).

I should like to give one example. The right hon. Member for Down, South (Mr. Powell) referred to the sentence:
"Experience…has shown that balance of payments disequilibria cannot be dealt with solely by means of floating exchange rates."
That is a formidable proposition. It totally contradicts the view expressed by the CBI in November 1973 when, referring to flexible management exchange rates between member States within the Community, it said:
"British industry's view remains that this is the most efficient istrument for easing the transfer of resources within member States."
Normally a House confronted by that kind of paradox or dispute would have the opportunity of representations from outside interests, so that its debates could be better informed. This debate, which takes place at night, half blinkered, is unsatisfactory. The practice cannot be persisted with, and I trust that there will be no repetition of it.

1.34 a.m.

I should like to echo the comments of my hon. Friend in the short time remaining.

I would like to emphasise that it is unworthy of Westminster to try to deal with important topics, such as are dealt with in this paper, in such a short time. Everyone who contributed to the debate has felt the embarrassment that we all must share that we are contemplating such subjects in an unworthy way.

It is difficult to be optimistic about economic and monetary union, especially in view of today's news about the exchange rate for the pound. However, there are certain resolutions which we can take, especially in the light of last week's vote. If we are to make progress towards economic and monetary union we must try to find ways of reaching agreement on policy. It is worth looking at the approach to agreement on policy. Clearly Parliament must work out an entirely new procedure. Hon. Members on both sides have made that clear enough.

Members of the Strasbourg delegation can hardly draw specific conclusions about the feelings of this House from what is said in debates such as this, late at night.

Then there is the approach to agreement on policy at Community level. There is no shortage of bodies—the Commission, the Council, the Parliament, the Economic and Social Committee, the Committee of Central Bank Governors, the Monetary Committee, the Economic Policy Committee, the European Fund for Monetary Co-operation, the European Investment Bank. All are working to reach agreement on policy. Indeed, lately we have also had the Marjolin Committee, whose report has seemingly vanished from sight. We have had advice from the Bank for International Settlements, the OECD and the IMF. But the Community has no effective centre for decision on economic and monetary policy. Even if it had, implementation would have to be carried out through national Governments and central banks, which did not work together too harmoniously in 1974. We have to ask whether they will do so in 1975.

The document before Parliament has been described by an hon. Member as "low-grade economic journalism". The lack of felicity of the wording has been pointed out by the right hon. Member for Down, South (Mr. Powell). It is an elementary analysis, putting forward simple remedies; and it is not always consistent within itself. We need to recognise that the Commission has to reconcile the policies of Governments of different philosophies. It has very little leverage.

Fundamental questions on economic and monetary policy within the Community remain unresolved. De we believe in floating or fixed rates? Do we want steady monetary conditions or do we prefer to aim first at steady economic growth? Are we seeing the reconstruction of the snake? Will it go back into the tunnel? In other words, will the French franc join the deutschmark area shortly? And will the deutschmark itself re-establish a fixed relationship with the United States dollar? There is no agreement on fundamental questions of that kind.

What about the new unit of account? Will it be the pivot for the economic and monetary union which may be developing in due course? Or will the snake be the pivot? They must tend to drift apart, and the Community will have to choose.

Despite these difficulties, which we must not minimise, there are some things on which we can congratulate ourselves within the Community. For current account transactions, agreement on the new unit of account is a decided advance. On capital account, the draft directive on the harmonisation of the rules for credit institutions holds out some hope that we may work towards a unified capital market in due course.

Despite all the difficulties of the last year, the fabric of the Community remains intact. Its economy slowly grows in coherence each year through the development of exchanges of goods and services.

I hope that Britain will now be able to make the contribution that only Britain can make to the development of economic and monetary union through our pragmatism and resolve in the coming year.

1.38 a.m.

A large number of points have been made in the debate and I shall deal with as many as possible.

There appears to be fairly general agreement in the House that to deal with matters of this importance at this hour and in this form with this sort of motion is unsatisfactory. That is a matter of which I can take note and offer the House the assurance that it will be considered. Indeed, I think that there is a form under which we are preparing to consider the way in which we conduct these debates. The House, or some hon. Members, may know that before we entered the Community, when the European Communities Bill was before the House—indeed, with the support at the time, probably, of my hon. Friend the Member for Farnworth (Mr. Roper)—I raised the question of the way in which we would handle these matters. Therefore, this point is certainly not unwelcome to me. I welcome on board all those who have contested our membership of the Community in the past and now see the importance in the new situation created last Thursday of having satisfactory ways of handling these debates.

My hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) made the point that it was important that people in this country should not think that policies are being imposed upon us and should know that they are decided by the British Government. That is the position. These are guidelines. They are guidelines which are developed in the course of continuing discussion between member States, but the decisions remain with the Governments of the member countries. In this instance the economic policies of this Government have been decided by this Government, but taking account of the views of other member States and of the discussions which have gone on between member States.

However, as a result of discussion in the Council of Ministers we achieved the amendment in the wording of the decision to which my hon. Friend the Member for Farnworth referred. Last year there was a great, perhaps unnecessarily prolonged, discussion on this point concerning the wording with which we were faced last year, and hon. Members made fun of it. Particularly I remember the hon. Member for Banbury (Mr. Marten) speaking of the wording we then had in the decision. This matter was raised in the Council of Ministers and on this occasion it has been changed to a form of words which more satisfactorily represents the real nature of the decision, namely, that these are guidelines, leaving the power of determining policy in the hands of national Governments.

The right hon. Member for Knutsford (Mr. Davies) found it unsatisfactory that we were discussing this decision half-way through 1975 when it relates to 1975. I emphasise to him two points. The first is, as I said in opening in those morgue-like tones to which the right hon. Member for Down, South (Mr. Powell) referred, that this was the formal document before the House but the efficient clement in this procedure is the continuing discussion between member States. It is obviously important that the House of Commons should consider these matters, and I take that point, but there have been particular circumstances this year which the right hon. Gentleman will acknowledge. Had it been decided by the people of the country last Thursday to come out of the Community, it would not have been terribly relevant what the guidelines were. They become relevant when the people of the country decide that we are staying in the Community. This has conditioned the timing on this occasion. I hope that on future occasions the House will be debating these matters earlier.

I am sorry the right hon. Gentleman thinks that words like "broadly accept" or "broad framework" represent insufficient attention to the wording of the decision. On the other hand, other hon. Members have severely criticised the quality of the wording. They have found it economically inadequate. They have found it to be poor economic journalism. Phrases like that have been used. The phrase "broadly accept", represents, I think, the right position for the Government to take. We do not accept every word of this. There are, I would think, faults in the analysis at various points, and no doubt the words of the right hon. Member for Down, South will be noted by those who draft these documents and they will be more careful in future, knowing that he is likely to be around to comment on them. "Broadly accept" is the right term to use in relation to this document.

Will the right hon. Gentleman, therefore, call for an amendment of Article 1 of the decision, which says that the member States will pursue their economic policies in conformity with the guidelines?

I think that the right hon. Gentleman has missed the explanatory memorandum which I put before the House and his Committee, which shows that the words have been changed. They were changed as a result of the Council of Finance Ministers on 18th March.

I think it does. This is nothing but guidance. As such, we are asking the House to take note of it.

I shall look into the point of my hon. Friend the Member for Newham, South (Mr. Spearing) about the availability of documents. He and my hon. Friend the Member for Farnworth complained that I did not explain the words:
"In addition an adjustment of certain indirect taxes to price movements could be considered".
My hon. Friend the Member for Newham, South thought that I should have referred to this and said that he had had to prise it out of me. The meaning of those words is reasonably clear. It was a point made by my right hon. Friend the Chancellor in his first Budget speech. He pointed out how certain specific duties had fallen out of relationship with present price movements because of inflation. He said as long ago as March 1974 that he would have to consider this matter. Having considered it, he took action in his Budget in April 1975. The point is not terribly obscure. I hope that the House will not consider it inappropriate or too dictatorial or binding of the Commission to ask us to consider something, especially when it is something as obvious as this. So we considered it and action was taken.

The right hon. Member for Down, South saw in all this a fundamental dilemma about the development of the Community. Of course there is such a dilemma. One of the interesting things about life is that there are always dilemmas. One was that which he expounded. Another is that I have to finish in two minutes, so I cannot enter into this too fully. Different people supporting membership of the Community have different personal resolutions of the dilemma. During the debates on the European Communities Bill I stated my personal resolution of that dilemma, and I remember the right hon. Gentleman leaping to his feet and saying "Here at last we have a statement that is acceptable"—

It being one and a half hours after the commencement of proceedings on the motion, the debate stood adjourned.