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Pay And Prices

Volume 958: debated on Wednesday 15 November 1978

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

With permission, Mr. Speaker, I wish to make a statement on pay and prices.

For the past five weeks, the Lord President of the Council, the Secretaries of State for Employment, Prices and Consumer Protection and Industry and I have been engaged in intensive discussions with the six trade union leaders who represent the TUC on the National Economic Development Council to see whether we could reach a better understanding on how to handle pay negotiations in the current round. We have also seen the CBI regularly during this period and have given it the opportunity to make representations to us.

We finally reached agreement with the six representatives of the TUC last Friday on a statement covering collective bargaining, costs and prices. I shall arrange for the text of the draft statement and associated TUC guidance to negotiators to be circulated with the Official Report. The economic committee of the TUC endorsed the statement yesterday morning. The general council of the TUC, however, found it impossible to take a decision either for or against the statement yesterday afternoon. Nevertheless, I think it may be useful if I describe to the House the nature of the statement and comment on the situation that has developed.

Both sides in our discussions started by agreeing that the fundamental objective of economic policy in the coming year must be to keep the annual rate of inflation from rising above its present level and, indeed, to bring it down further if possible, because otherwise it will not be possible to reduce unemployment, promote growth and improve real living standards.

In their White Paper in July, the Government committed themselves to the view that inflation cannot be kept down unless the level of pay settlements is not above 5 per cent.

The White Paper allows some flexibility around this limit by permitting the use of the so-called "kitty" principle within groups, by allowing self-financing productivity deals and by envisaging exceptional treatment in certain circumstances which are very closely and carefully defined.

In our talks with the TUC, the Government Ministers were exploring ways in which additional flexibility might be achieved or particular problems eased without endangering our control over inflation. We ranged over the role and effectiveness of the Price Commission, the problems of the low paid and comparisons between pay in the public services and the private sector. The progress that we made is recorded in the draft joint statement.

An important disagreement on the methods of achieving our common inflation objective remained at the end of our discussions. The Government were unable to discover a satisfactory substitute for the policy that they set out in the White Paper last July. So we reaffirmed in the draft statement the views that we expressed in that White Paper, including the 5 per cent. limit on settlements and the use of discretionary action where necessary to support it.

On its side, the TUC remained committed to voluntary collective bargaining and expressed the view that, provided that negotiators observed the guidance which is set out in the annex attached to the joint statement, voluntary collective bargaining would result in settlements consistent with keeping inflation at its present level. We made no attempt to paper over that disagreement in our statement.

In our talks with the CBI over the period, it repeated its belief that the clauses now inserted in Government contracts which oblige contractors to observe current pay policy could enable the Government to take action in support of their policy which would have an unreasonably adverse effect on some contractors. The Government will now be discussing the operation of the clauses with the CBI and will consider any proposals to extend the scope of the provisions for arbitration which they contain in the light of the need both for fair treatment for Government contractors and for an effective counter-inflation policy.

Perhaps the most important element in the statement that we agreed with the six representatives of the TUC was our agreement to keep a close watch on progress towards our inflation objective and to consider action which may, from time to time, be appropriate to make sure that we stay on course. I should like to invite the CBI to meet us from time to time on a similar basis, because I believe that we could all learn a lot by regular contact in this way to ensure that we keep the rate of inflation down.

And this would make an important contribution to the success of the wider-ranging annual discussion of the prospect for pay and prices, the first of which is planned for next year.

I do not pretend that our problems would all have been solved if the TUC general council had joined the Government in supporting the statement. They can be solved only in the wide range of individual negotiations and settlements which will take place over the next nine months. Even if the statement had been agreed yesterday, there would still have been very important differences of approach between the Government and the TUC, but I believe that a firm commitment to achieve a common objective and a determination to look honestly at the facts, month by month as the round proceeds, would offer us a significantly better prospect of achieving our common objective of keeping inflation down.

There is no question now of trying to renegotiate the statement which the general council was unable to support. The general secretary of the TUC made this clear yesterday. However, the Government and the TUC have both asserted their belief that there must be each year a thorough discussion between them so that there is a broad understanding on pay and prices for the period ahead. The Government will, in any case, continue their regular contacts with the TUC on the whole range of other questions in which we recognise a common interest.

Meanwhile, the Government, of course, remain committed to their 5 per cent. pay policy, as they would have been also if the TUC had accepted the draft agreement. The policy described in the White Paper remains the best basis for the attack on inflation and we know that this view is shared by the great majority of the British people.

Does the Chancellor understand that there is total agreement throughout the House on the need to lower the rate of inflation and on the need, if that is to be achieved while unemployment is kept down, for continued moderation in the general level of pay settlements? Do not yesterday's events show that the Government's attempts to achieve those objectives by the imposition of a rigid, arbitrary pay limit have proved not only wrong-headed but wholly counter-productive?

I should like to ask the Chancellor some questions about his policy on sanctions in pay bargaining. Does he intend to apply the 5 per cent. limit across the board in respect of settlements at that level, or some other level? Does he intend to apply those sanctions in every case, and, in particular, does he intend, and if so when, to apply them in the case of the Ford negotiations? Does he realise that a commitment to entirely arbitrary action of the sort that he has so far outlined is likely to do far more harm than good?

Can the right hon. Gentleman give us an assurance about the Government's intentions on price controls? Does he realise that any tightening of price controls will destroy profits, discourage investment and destroy jobs?

Can the Chancellor also say something about the outlook for mortgage interest rates? Does he remember, at the time of his Budget Statement last year, congratulating himself on the fact that the average couple would be paying £20 a month less than the year before? Has not that benefit now been entirely swept away, and is that not a direct consequence of the Chancellor's folly in increasing public spending by £4,000 million this year?

Now that the Government have been driven to rely, in what the Chancellor described as
"the wide range of individual negotiations and settlements",
on the good sense and responsibility of average trade unionists, does the right hon. Gentleman not bitterly regret that every piece of industrial legislation passed by the Government in the past four and a half years has served only to diminish the authority of the moderate and responsible trade unionists and to strengthen the hand of the militants?

Does not the failure to reach agreement in yesterday's talks finally show that the myth of the social contract—the very foundation of the Government's claim to have support from the people—has been totally destroyed?

I could answer the right hon. and learned Gentleman by saying "No, Sir", but I shall try to answer the individual points one by one. First, I do not agree that the inability of the general council to agree with the joint statement yesterday has the implications that the right hon. and learned Gentleman suggested. He should recognise that the trade union leaders who represented the TUC in the talks with my right hon. Friends and myself, and who represent half the total membership of the TUC, fully supported the statement which the general council found itself unable to support. Those leaders were joined in the general council by, for example, representatives of the National Union of Mineworkers, the National Union of Railwaymen, and many others.

Secondly, on the question of the 5 per cent. pay policy, I recall that the right hon. and learned Gentleman and his right hon. Friend the Member for Lowestoft (Mr. Prior) have both made clear that they support 5 per cent. as about the average level by which settlements should increase. [Interruption.] The right hon. and learned Gentleman must not mutter in his beard, as he is so used to doing. Some of us are getting rather tired of being pursued by the Sheep of the Baskervilles during questions about a statement of this nature.

The right hon. and learned Gentleman must not deny that he supports 5 per cent. as the average level for settlements this year. His right hon. Friend the Member for Lowestoft has said the same. The question has been to what extent 5 per cent. should be the level for every settlement. The Government have listed —I referred to this matter in my statement—some areas where settlements other than 5 per cent. are permissible—for the low paid, for people who make self-financing productivity deals, and so on—within the existing policy. Some day, perhaps, the right hon. and learned Gentleman will tell us how he proposes to achieve a 5 per cent. level of settlements without giving the sort of guidance that we have given.

As for the question of sanctions against companies that breach the guidelines, the Government will continue to use the discretionary powers that they possess, taking into account factors such as the effect on employment in areas of very heavy unemployment, as was done in the case of the Otis Elevator Company last year.

The Government will, of course, now consider the question of price control on its own merits, in the light of their own view of the situation, but the particular commitments that we were prepared to make in the statement can no longer be considered as necessarily binding in the light of the general council's decision.

The right hon. and learned Gentleman's attempt to pose as the workers' friend does not convince any of us on the Government Benches when we recall the abuse that he has hurled at responsible trade union leaders in every other speech over the past 12 months. We on the Government Benches regard good working relations with the trade union movement as an important element in our policy. The general secretary of the TUC made it clear that the TUC took the same view. On the question of pay policy there has been a disagreement over the past 18 months. It continues, but the Government will do their duty honestly and courageously by the nation as a whole.

Although there is general disappointment that agreement with the TUC has not been reached, the Government should take heart from the fact that the vast majority of the people of this country, including trade unionists, support the Government's fight against inflation.

I give this message to my right hon. Friend, loud and clear: "Stand firm to what you are doing at the present time. The people of this country will thank you for it in the end."

I am grateful to my hon. Friend. In what he said he was echoing the words of Lord Allen, the chairman of the economic committee of the TUC, and of Mr. Tom Jackson, the chairman of the TUC general council, over the past 24 hours. Lord Allen rightly said that the disappointment that he felt at the general council's decision yesterday was unequalled and unparalleled in his 16 to 17 years' experience on the general council. But he also said—and I agree with hint—that he was convinced that the bulk of the general council, if they have to put their hand on their heart, would be violently opposed to a free-for-all.

I believe that the Government's policy is right. I think that the electors of Berwick proved that. I think that the members of the public who took part in the last Gallup poll and preferred the right hon. Member for Sidcup (Mr. Heath) to the right hon. Member for Finchley (Mrs. Thatcher) by such an overwhelming majority showed the same judgment and insight.

Is the Chancellor of the Exchequer aware that the most pathetic part of a rather pathetic statement was his assurance that the Government of course remained committed to their 5 per cent. policy? Of course? What policy?

Is the right hon. Gentleman also aware that it was always ridiculous to expect the TUC to enforce what this House itself has miserably and abjectly refused to enforce? Will he refuse to accept a suggestion from the Conservative Front Bench spokesman on employment that the TUC, the Government and the CBI should get together in some kind of forum? Does he recognise that this House is the only forum that is needed to do the job, that this House must take the decision, and that the time has come for this House to govern or go?

I always defer to the hon. Gentleman's experience when he refers to the pathetic. On the question of pay policy, I believe that the House would be very unwise to try to take a decision without the most careful consultation with those who are actually involved in pay negotiations, as represented by the TUC and the CBI.

I do not believe—if the hon. Gentleman wants an answer—that his approach to the matter, which is as exceptional in relation to his colleagues as are his views on Northern Ireland compared with those of the hon. Member for Berwick-upon-Tweed (Mr. Beith), who intervened a moment ago, should be taken too seriously by the country.

Is it not a fact that success in holding down inflation does not of itself create jobs, and that, on the contrary, manufacturing output is falling, so that any further deflationary measures would make matters worse? Will the Government concentrate more of their attention on bringing into operation the industrial strategy that they have worked out in detail with the TUC, so that we can expand the economy without sucking in imports?

I agree with my right hon. Friend that success in holding down inflation in itself is not sufficient to raise output and employment. The point that I have been trying to make in recent months is that the reason why this country has succeeded in reducing the rate of inflation by half and simultaneously increasing output and reducing unemployment by 90,000 is that it has added to fiscal and monetary policy a responsible and effective policy for pay. We propose to continue on that route.

As the main burden of the Chancellor's statement was to the effect that the talks did not really matter, so that failure did not matter, will he explain why he went into them? Can he reassure the House that after he has accounted for the Government's economic policy to the TUC in his annual meeting with it he will be good enough also to account to this House?

I think that the right hon. Gentleman and his hon. Friends, and indeed many of my own hon. Friends, would always ensure that if I were ever tempted to conceal from the House the results of my discussions with my trade union friends I should be unable to do so, but I give the House an assurance that the outcome of any discussions that we have on this matter will be reported to the House regularly and at the appropriate time.

With regard to the right hon. Gentleman's first remark, I do not believe that the statement that the economic committee endorsed without a vote and the six leading trade union members of the TUC agreed with the Government is without importance. I think that it was an important agreement, and I regret as much as many members of the TUC do that the general council found it impossible yesterday to take a decision on it.

May I ask my right hon. Friend whether he will reflect a little now on minimum lending rate, and on the question why there was the unnecessary increase? Will he stop trying to make the trade unions a scapegoat for our inability to control the Bank of England, the City and the money market?

If my right hon. Friend took my advice he would not get into trouble as often as he does. Will he put away his blunderbuss and pick up his diplomatic bag, because we must put this jigsaw together again? None of us wants a Thatcher Government. Nobody in the trade union movement wants that.

May I ask my right hon. Friend to do two things? One concerns sanctions. I hope that he will not run around imposing sanctions on everybody. Certainly sanctions should not be imposed on trade unionists who are trying to get a decent bargain. Secondly, may I also ask my right hon. Friend about comparability in the public sector? I know that he made proposals yesterday. What does he propose to do about that?

Order. Before the Chancellor answers, may I say that if every question is as long as that one, many hon. Members will be disappointed, and, indeed, cut out?

I assure my hon. Friend that we share the same objective—to make sure that hon. Members on the Conservative Benches never again have responsibility for the affairs of this country. Of course I agree with him on that. Let me make it clear to him, as I hope I made it clear in my broadcast on Sunday, that the increase in MLR last week had nothing to do with the present pay situation. I know that he disagrees with that. We can discuss it next at Question Time, if lie has a Question down. As to whether I would have less trouble if I associated myself with all my hon. Friends' views, it is possible that I might have less trouble with some people but more with others. I shall have to make a judgment on the balance of advantage in that regard. Finally, I assure my hon. Friend that I have no intention of imposing sanctions on him.

In the Chancellor's many deliberations with various organisations, was any reference made to regional variations in prices, earnings and employment opportunities? Does he accept that, in Scotland, for example, where on any objective analysis, prices are higher, average family incomes are lower and unemployment, despite pay policies, is continuing to rise, there can be little sympathy for a policy that freezes differentials? Does he envisage any positive and early action on these issues, which would do a great deal to win the sympathy of trade unionists in Scotland?

I assure the hon. Lady that I am deeply concerned about the regional variations in the matters that she mentioned and take some comfort from the fact that the policies that the present Government have pursued over the last five years have substantially reduced these regional variations, both in pay and in employment, between Britain and Scotland. In case she had not the opportunity in August to see the detailed facts and figures that I gave to support this view, I should be glad to send her a copy of the speech that I made to the chamber of commerce in Edinburgh at the end of August.

What action will the Government take to ensure that the policy outlined in the White Paper on inflation will succeed? Is my right hon. Friend aware that if a tighter monetary and fiscal policy were introduced, it would surely be a confession of the failure of that policy, which would be deeply disliked on the Government side of the House?

I entirely agree with my hon. Friend that the case for a tighter monetary and fiscal policy will not exist unless there is the sort of wage explosion that we had three years ago and that I described the other day. However, in the case that we had such an outturn, the Government would have to accept their responsibilities to the nation, and I hope that they would have the support of my hon. Friend in accepting those responsibilities.

What consideration has the Chancellor given, in his so-called battle against inflation, to the overriding need to reduce Government expenditure and a borrowing requirement of £8,500 million for the current year? Does he understand that with that borrowing requirement there will he no prospect of success in the battle against inflation?

I think that our success in reducing the rate of inflation by half in the last 12 months, with a PSBR which, as a percentage of GDP, was somewhat higher than that now in prospect, is sufficient proof that the hon. Member's views on this matter are totally at variance with the facts.

Will the Chancellor bear in mind the fact that, when it comes to opinion polls being in favour of wage restraint, throughout the period from 1971 to 1974 the same thing applied, until the opinion polls ran out, the British people voted and the last Prime Minister but one was defeated on the same argument? Will he now understand that on this, which has not been his happiest day by far, it is time for him to stop the posturing about 5 per cent., understand that the outturn on wages next year will be over 10 per cent. and concentrate his gaze on things like prices and jobs? If he does that, he will ensure that he gets the support of hon. Members on the Government Benches and that those on the Opposition Benches will be defeated.

I draw my hon. Friend's attention to the fact that an important section of the British people did have the opportunity to express their view at the by-election at Berwick and East Lothian recently. In a by-election in which pay policy was a central matter of discussion, we actually increased our majority as a percentage of the total vote. My hon. Friend the Member for Berwick and East Lothian (Mr. Home Robertson), whose presence here we welcome as a result of that, was present at the by-election and my hon. Friend the Member for Bolsover (Mr. Skinner) was not.

On the second question, I accept that the Government will direct prime importance to the questions of prices and jobs, but my hon. Friend must accept that increases in wage costs are bound to send up prices. That is accepted by the trade union movement, which, in its resolution at the TUC conference, said that the containment of unit costs was one of its objectives in pay policy. I hope that my hon. Friend will accept the implications of that and support the Government's attempts to secure that outcome.

Does the right hon. Gentleman recognise that the failure to reach agreement on what was in any case an agreement to differ is no great catastrophe and in any case would probably have done more harm than good? When will the Chancellor stop blaming the people of this country for inflation and start to control the level of public expenditure and the borrowing requirement, which between them are the root cause of inflation?

I must confess that I find myself, if anything, slightly amused by the Opposition's difficulty in deciding whether what happened yesterday was a catastrophe for the Government or rather a good thing in disguise. Perhaps when they have taken their decision on this matter we can pursue it to more benefit. On the question of the money supply and the PSBR, Britain's PSBR is now below the average of many of our competitors. [HON. MEMBERS: "No."] Yes—as a percentage of GDP, it is well below those of many of our competitors. We have public expenditure under far better control than ever when the hon. Gentleman's party was in power, and he knows this as well as I. Why does he continue mouthing this monetarist gibberish, which he picked up from what his hon. Friend the Member for Horncastle (Mr. Tapsell) rightly described as adolescent scribblers in the City columns?

Does my right hon. Friend accept that many people will be sad about the apparent breakdown of talks with the general council of the TUC—not least the unemployed, the sick, those on small fixed incomes and the old-age pensioners? What was said to him by the trade union leaders whose members are applying for increases far in excess of the 5 per cent., and how would he deal with such matters? How did he explain to them what was different about the 8½ per cent. for Vauxhall's, l6½ per cent. for Ford's and the requests for 100-plus per cent. for agricultural workers and 40 per cent. for mineworkers? How did he explain those differences? Did he say that there was any difference between someone demanding a high price for a commodity and a trade union leader asking a high price for his commodity?

As I said in the statement drafted by my friends and myself—the six leading trade union leaders of the TUC and the economic committee of the TUC —all these issues must be faced squarely. Mr. Lawrence Daly is quoted today as saying that the agreement provided sufficient flexibility for unions to make sensible agreements. He is the representative of the NUM. Mr. Sid Weighell. head of the NUR, said:

"We are voting against a great opportunity".
and Mr. Barnett described the rejection as "incomprehensible". I must confess that I share their views.

Does the right hon. Gentleman recognise that his by now traditional abuse of my hon. Friend the Member for Cornwall, North (Mr. Pardoe) does not camouflage the failure to answer the basic question why the Government will not bring forward proposals and seek the approval of the House to make the pay policy effective?

The only difference between the abuse that I am occasionally compelled, in reciprocation and self-defence, to offer to the hon. Member for Cornwall, North (Mr. Pardoe) and the abuse that the right hon. Gentleman gives him is that I do it in public and he does it in private. I see that he agrees with that. We shall seek to make our views prevail by pursuing the policies in the White Paper.

Is my right hon. Friend aware that those Tories who argue that there is no special relationship between the Labour Party and the TUC are absolutely incorrect? There is a special relationship, which was shown in the vote by the trade unions at the Labour Party conference.

Is my right hon. Friend further aware that that special relationship can continue if the Government decide to carry out Labour Party policy, and that it is time not only to carry out party policy in relation to incomes but to concentrate on dealing with unemployment and the alternative economic and industrial strategy which the Labour Party proposed at its conference?

My hon. Friend and share the same objectives. I think that he would agree with me about that. He disagrees with the Government on many aspects of economic policy, as do some of his friends in the trade union movement. The chairman of the TUC general council, with whom I understand my hon. Friend had a friendly altercation at lunch today, shares the Government's view rather than his.

Are we to understand that the Government are determined to prevent any pay settlements in the nationalised industries which exceed the Government's 5 per cent. guidelines? It so, how do the Government propose to achieve that?

The answer to the first question is "Yes". The answer to the second question is, by pursuing the policies in the White Paper.

Does my right hon. Friend agree that one of the reasons why the general council was unable to agree to the statement was the Chancellor's own words last weekend, when he said that the only difference between his own monetarist policy and the monetarist butchery advocated by the Conservatives was a matter of Christian semantics? Is my right hon. Friend now saying that the Government's policy is to reduce the money supply and the borrowing requirement, irrespective of the damage that that could do to recovery and full employment?

I never used the word "semantics". I am not quite sure what it means. I said that there are as many types of monetarists as there are Christians. I said that I regarded the Leader of the Opposition as Torquemada in this instance. I would not assume the central role in Christianity by contradistinction, but I would regard myself as a more charitable person than the Leader of the Opposition, if we are comparing one sort of monetarist with another.

The Chancellor of the Exchequer has a great knowledge of history. Is he aware that he is assuming the mantle of Lord Snowden—that is, Philip Snowden, not the present Lord Snowdon? Is the right hon. Gentleman aware that it looks as if he is about to produce the biggest split in the Labour movement since 1931, for which we shall not condemn him? Is he aware that he is inclined to dwell on Conservative divisions, but on these matters we are all united against him?

In his rather bizarre comparison the right hon. Member is perhaps confusing my interest in photography with my interest in economics. My impression was that the right hon. Member's memory of history was defective last week, when he expresed views about a piece of recent history involving military aid to Zambia.

Does my right hon. Friend agree that the failure of the general council to endorse the statement yesterday is a set-back to the low paid and the workers in the public services?

I believe that the situation could be so regarded. But the Government remain concerned with the plight of the low paid. We are anxious to ensure that people in the public service receive comparable pay for comparable work. That element in the discussions still remains in the Government's mind.

Does the Chancellor of the Exchequer realise that more and more these days he sounds like the chorus in the Greek tragedy that the relations between this Government and the TUC have become? Does he not think that in the few months that are left to the Government the time has come to make one more attempt at reforming union power, restraining their unfettered demands and introducing democratic procedures to replace their undemocratic ones?

I am a little bemused by the continual switching of the Opposition from recent political history to ancient literature. I do not regard myself as the chorus in a Greek tragedy. As the Prime Minister said when he opened the debate on the Queen's Speech, because of the interdependence of our society and economy, the problem of the power of individual groups, whether or not they are trade unions, creates problems for all of us. These problems can best be resolved by persuasion and common sense.

Does my right hon. Friend agree that the progress that we have made in recent years in tackling inflation has been due to the co-operation that he has obtained from the trade union movement? Will he and the Government continue their efforts to overcome the present difficulties and to achieve cooperation and understanding on general economic policies? In particular, does he realise that, psychologically, the increase in the minimum lending rate to 12½ per cent. came at the wrong time in the discussions? Will he therefore consider taking international actio·1 so that there is disarmament on interest rates?

I confess that l believe that in the circumstances if I had delayed the increase in interest rates until this week it could have been badly misunderstood by our friends in the trade union movement. I am comforted that Mr. Murray, when he spoke on television last night, said that, although it was not welcome to many members of the TUC, he thought that it had not determined the way in which the voting took place finally.

I made it clear in my statement that the Government are determined to continue discussions with the TUC on all matters on which we accept a mutual interest. I hope that we shall be able to implement our joint agreement in the document "Into the Eighties: An Agreement"—which was agreed without dissent at both the TUC and the Labour Party conferences—to discuss by spring next year the outlook of pay and prices for the following year and to try to reach agreement on how to deal with the situation.

Is the Chancellor of the Exchequer aware that his description of the consultations with the CBI and the discussions about contracting and other matters implies that the discussions were on a narrow front? In view of the breakdown of the Government's talks with the TUC, will the Chancellor undertake to hold much wider ranging discussions with the CBI, including discussions on the unemployment effects of sanctions on pay and the whole range of issues? Does he agree that the CBI showed in its conference last week that It has more chance of a constructive dialogue with the Government than does the TUC?

I am always anxious to have constructive discussions with the CBI, as with the TUC, but the hon. Member is wrong if he thinks that our discussions with the CBI do not range as widely as our discussions with the TUC. They cover every aspect of economic policy. The question of the impact of price policy on company liquidity and profits has been a matter of almost continuous consultation between my right hon. Friend the Secretary of State for Prices and Consumer Protection and the CBI.

As I made clear in my statement, in the last few weeks we have agreed that we shall pursue the question whether it is possible to extend the arbitration procedure in the operation of the pay clauses without damage to our co-anter-inflation objectives.

I seek the help of the House. If Hon. Members co-operate and ask brief questions, I hope to call all those who have been rising in their places.

If the talks with the TUC have revealed that there is a capacity to control prices more effectively than in recent years, has not my right hon. Friend a responsibility to implement that course of action regardless of whether there is a formal agreement with the TUC?

My hon. Friend must understand that the central element of the TUC input to our discussions was the proposed guidance to negotiators that asked them to concentrate on containing unit costs, increasing productivity and having regard always to the price effect of settlements to ensure that the price effect of individual settlements did not jeopardise the achievement of our common counter-inflation objective.

Of course, we shall want to discuss these matters with the TUC, but the extent to which the Government could accept a responsibility for tightening price control would inevitably have to depend in some part on the will and ability of the TUC to prevent increases in unit costs which would be bound to lead to a loss of market share and a fall in investment.

Does the Chancellor agree that if he is to take on the role of arbitrator between prices and pay he must show that he is scrupulously fair? Does he appreciate that his failure to reply to the question of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) about what he will do over sanctions with Ford shows that he is incapable of being fair on issues of this sort?

My inability to reply to the right hon. and learned Gentleman's question about Ford was based upon total ignorance of the sort of settlement that Ford will finally make. As soon as we know the final settlement we shall tell the House what sanctions, if any, we propose to impose. I do not think that the hon. Gentleman should be under any misapprehension that if the settlement reached is outside the guidelines we shall use our discretionary powers in consequence.

Does my right hon. Friend share my view that there is nothing Socialist about free collective bargaining? Will he say a word about the longer-term development of incomes policy as being the only way of establishing some fair relativity and preserving and improving the position of the low paid?

I agree very much with my hon. Friend. Do not let us forget that the economic committee and representatives of a majority of members of the TUC supported the agreement. Even if the agreement was not finally endorsed by the general council, it has enabled both the Government and the TUC to get a better feeling of how to deal with the longer-term problems of pay policy. I think that our discussions will stand us in good stead when we come to the annual discussion to which we are committed by the document "Into The Eighties: An Agreement" about the prospect for pay and prices in the following year.

Is the Chancellor aware that his view and, apparently, that of Mr. Murray, that MLR has no relation to pay policy and restraint, will not be shared by the thousands of people who will face much bigger mortgage bills? Will he tell the House whether he believes that the crippling rates which he, and not any foreigner, has imposed are likely to increase or decrease the likelihood of his achieving his mythical 5 per cent?

Mr. Stow, who is head of the building societies' national association, made it perfectly clear when he announced the increase in building society mortgage rates that it was due to the increase in market rates which had taken place in the previous months—

The hon. Member may disagree with what Mr. Stow said, but he is the man who is responsible and he said it. He said that it was due to the increase in market rates, which was simply emphasised by the increase in MLR.

In adopting his 5 per cent. norm, what assumption did my right hon. Friend and his colleagues make about the rate of increase of commodity prices, in particular of the prices of food, and of the rate of increase of the prices of manufactured imports during the coming 12 months?

We made assumptions about that, and I shall put them very broadly. Our success with inflation last year was significantly aided both by the increased strength of the pound—which was due in part to the weakness of the dollar and, in part, to a much smaller increase in commodity prices than was expected, which in turn was due to the low level of world economic activity—and by the fact that there was no increase in oil prices last year. I do not think that we can rely on any of these factors coming to our assistance next year. That fact was taken into account when we set the 5 per cent. limit on earnings.

During his discussions with the TUC did the Chancellor or any of his colleagues draw attention to the fundamental inescapable relationship between the supply of energy and the growth of national wealth? Did he draw the attention of the TUC to the targets of the EEC which are to attempt to reduce the availability of oil from more than 600 million tonnes to just over 500 million tonnes in the next five years? Does that not point to the need for a dramatic increase in national productivity, which is the only way of giving any form of target or norm a realistic meaning?

I am appalled to realise that I did not draw the attention of the TUC to this element in a report by the European Commission. If he reads the draft statement, which will be published in Hansard, the hon. Gentleman will know that an improvement in productivity was a common objective of both sides in the discussion, and that it is central both to our hopes of improving employment and of keeping inflation under control.

Does my right hon. Friend agree that over the longer term there is no historical evidence that wages policy is successful, or can be allowed to continue? Is it not now time that the Government turned their minds away from their obsession with 5 per cent. and towards the real problems facing the country—problems of the regeneration of industry, of investment, of regional and industrial policy and of bringing down the tremendously high level of unemployment?

I do not agree that the lesson of history is that wage policies have no effect on inflation rates, even in the longer run. The fact that the American, French, Dutch, Danish and Italian Governments are all now trying to introduce wage policies along the lines put forward by the British Government suggests that they share my view about historical precedents—

I do not agree. I think that our policy has been very successful over the past three years. I think that the TUC would concede that.

A prime objective is to bring down unemployment, but I also agree with what was said in the draft statement, namely, that our fundamental objective must be to keep inflation from rising, because unless we can succeed in that there is little hope, in the longer term, of increasing employment or living standards.

Does the Chancellor agree that to the outsider the key paragraphs 5 and 6 in the draft statement read not as a plan for agreed action but rather as a statement of honourable disagreement? Therefore, in the battle against inflation, what has been lost by the failure to agree?

If the hon. Gentleman ever got involved in the business of Government he would know that it is very largely a matter of accepting disagreement between various elements in society and trying to identify and build on areas of agreement. That is what we were trying to do in the statement. I think that we succeeded in finding very important areas. I have described in my statement why it is a great disappointment to me, as it was to the members of the TUC team who discussed the matter with us, that the general council found it impossible to endorse the statement.

Does my right hon. Friend agree that the unspecified public expenditure cuts proposed by the Conservatives and the free-for-all advocated by our mutual hon. Friends below the Gangway are equally unacceptable to the people of Britain? Does he agree that the overwhelming majority of the people of this country support the Government's stand on this issue?

I entirely agree with my right hon. Friend. No member of this House is better qualified to endorse the truth of that statement than he, whose presence here is living witness to the truth of what he says.

Is the Chancellor satisfied with the current position in which an individual trade unionist can be called out on strike in breach of an agreement entered into in his name but with minimal consultation in pursuit of an inflationary wage increase, and in which, if he refused, he would run the risk of losing his job, perhaps for ever if he is in a closed shop?

I deeply deplore those cases—there have been some recently—in which trade unions have broken contractual agreements in order to call their members out rather than pursue negotiations within the framework of contracts which have been made.

Is the Chancellor aware that he is right to say that the majority of the people of this country want to control inflation, and does he agree that this must include the majority of trade unionists? In these circumstances, does he not feel that he and his Government are in a unique position at the moment to take advantage of the mood of rank and file trade unionists to secure some form of balloting before men are called out on strike to support inflationary wage agreements, with which many of them do not agree? Will he and the Prime Minister put their heads together and accept that they would get such a proposal through this House with overwhelming support from both sides?

I spend a great deal of my week keeping my head close to that of the Prime Minister.

Does the Chancellor understand that the whole concept of discretionary sanctions, whereby the big boys get away with bogus deals, is totally unacceptable to industry, to the people of this country and to this House? What does he have to say to the company in my constituency which has been on the Government's black list for three years for doing what it thought was correct and in the interests of all concerned?

I am glad to be assured by the hon. Gentleman that when we take discretionary action shortly against one of the big boys we shall have his wholehearted support.

Following is the draft statement by the Government and the TUC.