asked the Chancellor of the Exchequer what is the marginal rate of income tax for a pensioner couple with an income equivalent to average male earnings and composed of the flat-rate State pension and income from their savings for retirement.

The marginal rate on a total income of £4,900, which consists of £1,520 basic State pension for 1978–79 and investment income of £3,380, would be 48 per cent.

Does the Minister realise that 48 per cent. is an absurdly high rate of tax to apply at that level of income, the level of average male earnings? Does he recognise that applying it to investment income in the form of a surcharge unfairly penalises those retired people, especially small business men and those who have been self-employed, who derive Hart of their retirement income from their savings instead of from occupational pension schemes?

Yes, but such a person by definition would have no occupational pension scheme as premised in the illustration given by the hon. Gentleman, nor would he have any retirement annuity contracts. Accordingly, he would be very ill-advised to proceed in that particular way. I note the interest of many Opposition Members to cancel the investment income surcharge, but I still maintain that there is a great difference between income which is earned and income which is unearned.

Many pensioners are rightly concerned about marginal rates of income tax, but does my right hon. Friend agree that the vast majority are more concerned about a very sharp increase in the television licence fee? Does he not agree that the time has now come to scrap the television licence and to shift the cost on to the Exchequer?

I know that there are a number of charges about which pensioners feel particularly badly. But one advantage they have had under this Government has been regular and continuous increases in their retirement pensions. I think that is the right way to give them the rightful treatment which they deserve.

Is it the Chancellor's ambition, as a result of the sort of rates of tax which the Minister is describing, to be the first Chancellor of the Exchequer to treble the yield of income tax during his period of office, because he has very nearly achieved that?

The hon. Gentleman fails to note what has happened in the last two Budgets, when we have seen income tax rates decline and an improvement in the income tax system generally. Opposition Members should note that this continuous improvement which we have been able to sustain has by no means come to an end.

asked the Chancellor of the Exchequer what recent discussions he has had with the building societies about the level of mortgage interest rates.

The Building Societies Association made clear on 10th November that its decision to increase the recommended rate of interest on mortgages was taken in the light of the rise in the general level of market interest rates, which was emphasised by the decision to set MLR at 12½ per cent. from midday on Thursday, 9th November. The Government were notified before the announcement, but no discussions then took place.

Is my right hon. Friend aware that 30 years ago the Attlee Government took powers to take rents out of the market economy and to control landlords? Why do not this Government do the same for owner-occupiers with mortgages and control the building societies?

I understand my hon. Friend's concern about the increase in mortgage rates, but if the building societies had not raised their rates they would not have been able to attract the necessary funds to sustain mortgage lending. We all would wish them to be able to do this.

I note the anxiety that exists within the Labour Party for the mortgagors, but what is preventing the Chancellor from overcoming the problem by altering the rate of tax payable by the building societies? Is it not correct that after each Budget the composite rate of tax for the coming year is decided? Why cannot this be done when the mortgage rate goes up by 2 per cent?

That would amount to another subsidy on housing. My understanding is that the Conservative Party is in favour of phasing out all housing subsidies.

Will my right hon. Friend prevail upon the building societies to reduce the mortgage lending rate with the same speed and alacrity following a reduction in MLR as that with which they put it up following an increase in MLR?

I shall certainly use my influence to that end.

Is it not a fact that the rise in interest rates and mortgage rates is the inevitable consequence of the excessive public sector borrowing requirement in the last Budget of which we warned the Chancellor both at the time and prior to that Budget?

No.

asked the Chancellor of the Exchequer what further measures he has in mind for controlling inflation; and if he will make a statement.

I refer my hon. Friend to the statement that I made to the House on 15th November.

Does the Chancellor agree that the increase in MLR is doing nothing to help the Government control inflation—in fact, it will have the opposite effect? Does he not accept that the three-year-old Government policy, as I read it, was to have a strong pound, a strong balance of payments and therefore be able, with strong currency reserves, to withstand short-term fluctuations of market rates from outside? Therefore, why was it necessary, with the balance of payments almost in surplus and with strong currency reserves, to push up MLR instead of fighting off these short-term fluctuations, as was the Government's strategy back in 1976?

Private market rates had already risen by 14 per cent. on average since the MLR was fixed at 10 per cent. in June. The increase in market rates was due in part to the increase in American interest rates and in part to uncertainties about inflation in the coming year because of uncertainties on the pay front. I believe that the increase in MLR, which the Government decided a fortnight ago, will help to control the money supply and to keep the monetary aggregates under adequate control in order to ensure that inflation does not rise in the coming year.

Will the Chancellor of the Exchequer tell the House, particularly in view of the NUM pay claim which was announced yesterday, what positive action he has taken with the chairmen of the nationalised industries to ensure that they understand what sanctions will be applied against their industries if they settle above the Government's required norm, and how those sanctions will be applied?

The hon. Member should know that in the nationalised industries, as throughout the public sector, the Government, as the paymasters and the employers, will ensure that the White Paper guidelines are observed. We succeeded in doing so last year, and questions of that nature do not come well from the Conservative Party in the light of its own history with the mining union.

Will the increase of 30 per cent. in the television licence fee have a marked effect on the cost of living of lower income families and pensioners, and thereby make the effect of inflation on them very much worse?

I am not aware of any increase in the cost of the television licence.

Will the Chancellor accept that any sanctions he might wish to bring against Ford's would be likely to cut off his own nose to spite his face? Is he aware that the only sensible sanction would be a tax surcharge on the Ford employees who have run away with the loot? Does he accept that the President of the United States, in his address to the nation, has now advocated exactly this? In his press conference on the failure of the TUC-Government talks, the Chancellor of the Exchequer said that this was no longer impossible, and that he would like to have a look at it.

There are so many things that I want to look at, and this is one of the many. I referred in my speech on that occasion to a very interesting booklet published by the Brookings institute on the use of tax in support of pay policy in which the administrative problems, which I have often described, are very well brought out.

The Chancellor has referred to rather simpler possible measures which he might have in mind. Does he recollect saying in the statement that he quoted on 15th November that he would contemplate either increasing taxes or cutting public expenditure? Will he tell us which of those he has in mind and where he would intend to cut public expenditure?

The obvious answer to that is "No". I made it clear that an increase in taxation or a cut in public expenditure would be an inevitable consequence of a wage explosion, and I see that the general secretary of the TUC accepted this in a speech he made in Leek on Friday of last week. But there is no sign as yet of a wage explosion.

asked the Chancellor of the Exchequer whether joining the European monetary system will be helpful to the stability of sterling.

If the system were lasting and effective, membership of it would be helpful to the stability of sterling.

That qualifies as a typical non-answer from the Chancellor. Why is he so adamant against Britain accepting a wider band arrangement at the start like Italy, particularly since such a band appears to be closely aligned with the Treasury's current management of the sterling exchange rate? Is it not a fact that the Chancellor, having had one eye blacked by the unions over pay policy, does not dare to get the other one blacked over EMS by the Tribune Group?

My eyes are quite clear, though they may be a little pink because of the long discussions I have had on the EMS with my colleagues abroad. On the question of the wider band I do not believe that a wider band would be helpful to sterling, any more than the Irish or French Government believe that it would be helpful to the French franc or the Irish pound. I can understand the reasons why the Italian Government believe that it might be helpful to the lira, and if they wish to make use of this option I would strongly support their right to do so.

Does my right hon. Friend agree that it would be a disaster to join the EMS, particularly in the light of the findings of a very important House of Commons Committee which forecasts that unemployment will rise by more than 1 million and that there will be a lack of growth by 8·4 per cent. by 1981?

I regret to correct my hon. Friend, whose support I always welcome on these occasions, but I read the report of the Select Committee very carefully. It avoided coming to any conclusion. I notice that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) having expressed strong opposition to EMS outside, has decided for political reasons that he is now strongly in favour. Of course the Conservative Front Bench is divided, as always, into three parts like Gaul.

Is not any system for the international maintenance of currency parities almost bound to cause inflation somewhere—namely, amongst those countries which would be called upon to lend large quantities of their own currency in order to maintain the parities?

Wth great respect, we had a system of fixed, but adjustable, parities for a quarter of a century under Bretton Woods, and during that period the general rate of inflation was very much lower than it has been at any time since that system collapsed.

Does my right hon. Friend agree that, if there is no convergence between the real economies of the countries concerned, the EMS will not work, and if there is such a convergence, the EMS is not necessary?

I think that this syllogism, if that is the right word for it, attractive at it is, does not comprehend the whole of the truth. The fact is, for example, that the European currency snake—and I have made it clear that the Government would never join an organisation of that nature after the experience of the Conservative Government, who joined it and came out again within seven weeks—has survived despite substantial differences in performances on inflation and balance of payments between its member countries, and my hon. Friend and the House would be wise not to be too dogmatic on this question.

Does the right hon. Gentleman agree that it would be unwise for the discussion on this matter to proceed on the basis that the figures quoted by the hon. Member for Nelson and Colne (Mr. Hoyle) represented a reality of forecast or assumption? Does not the Chancellor agree that that suggests that the Government have been unwise not to play a greater part in leading and informing public debate in this country? Will he indicate whether the Government's decision or line of decision on the matter is likely to be revealed to us in the Green Paper which I understand is to be published tomorow? Will he give an assurance that, whatever decision the Government or other Governments come to on the present proposals, he will do everything possible to maintain the opportunity of the United Kingdom to play a full part in promoting greater monetary co-operation in Europe?

I can certainly give the latter assurance. The right hon. and learned Gentleman is quite right. The type of model published by the Select Committee in an annexe on the basis of arbitrary assumptions is, as the Financial Times said today, a sort of parlour game which throws very little light, and the Green Paper makes clear what will be likely to happen if we join a particular scheme of a particular nature.

The right hon. and learned Gentleman asked for a review of this matter. I draw to his attention the views of the hon. Member for St. Ives (Mr. Nott), also an Opposition Front Bench spokesman, who made a speech on this matter yesterday, in which the only concrete proposal was that we should replace sterling with the deutschemark. He concluded his speech by advising the Conservative Party to

"avert arguments about being pro or anti-Europe as well as the debate between fixed or floating exchange rates. Instead, they should 'pronounce our enthusiasm' for greater monetary co-operation in Europe."

That type of agnostic ambiguity is not a very useful contribution.

asked the Chancellor of the Exchequer if he will now publish all the working papers prepared on the subject of the European monetary system.

asked the Chancellor of the Exchequer if he will make available all papers relevant to the current discussions on the European monetary system.

I have laid before the House a memorandum which includes the basic document outlining the proposed scheme and a Green Paper will be published tomorrow.

Will my right hon. Friend make a gesture, even under our limited open government policy, by publishing the following Cabinet documents: GEN 136(12)78, on the likely foreign reactions to Britain's membership; GEN 136(13)78, on the economic implications: and GEN 136(14)78, on the problems of the fixed exchange rate? They all show conclusively that the consequences to Britain would be catastrophic.

The answer, shortly, is "No, Sir."

Why not?

If I may give one good reason, I notice that in reporting what purported to be the contents of one of the papers mentioned by my hon. Friend, The Times gave a totally false impression of both its contents and its status.

I do not see that that is an answer. I still cannot see why the papers cannot be published.

Does not my right hon. Friend agree that the Government have practised closed Government on this issue? As he has not had the courtesy to inform the House, will the Green Paper include the substantive conclusions reached on Monday and Tuesday at the Finance Ministers Council? Why did he not tell the House? Does the plan match the eight conditions that my right hon. Friend mentioned in his evidence to the Select Committee?

As is normal on these occasions, I have made a written statement which describes the results of the Finance Ministers Council meeting on Monday. The Green Paper to be published tomorrow will describe them in greater detail, as I know my hon. Friend would wish.

On the question of open government, I cannot recall any other Chancellor of the Exchequer giving evidence for 90 minutes to a Select Committee, answering in full every question he was asked on a matter. It comes rather ill from my hon. Friend if he believes what he said about open government.

Does not the Chancellor agree that the papers might have dealt with the important subject of the location of the European monetary fund when it is established in several years time? Would he be in favour of its being located in London?

I would rather know what the fund is and what it will do. As that will not be decided for two years, I should like to defer a view as to where it should be located, if and when it comes into existence.

asked the Chancellor of the Exchequer if he will make a statement on the effect of the recently announced increase in minimum lending rate.

The increase in MLR had its intended effect of stabilising market interest rates. The new level of short-term interest rates is ½ per cent. to 1 per cent. higher than the level ruling immediately before the change. The increase in long term rates was much less, on average about one-quarter. These changes reestablished conditions in the gilts market in which it was possible to resume funding the PSBR on a significant scale.

The clearing banks have since raised their base rates by 1 per cent. The Building Societies Association announced an increase in the recommended mortgage rate by 2 per cent., although most of that increase was in response to the increase in market rates which preceded the increase in MLR, as the association stated very fairly in announcing its decision.

The possibility of a reduction—[HON. MEMBERS: "Too long."] With respect, I was asked to make a statement on the effect of the recently announced increase and I think that I owe it to my hon. Friend to do so, however inconvenient it is to hon. Members opposite to hear it.

The possibility of a reduction in interest rates depends largely on the prospect for inflation, and therefore critically on moderation in pay settlements in the coming months.

I am grateful to my right hon. Friend for that answer. Is it not true that the policy was intended to be anti-inflationary? Do not such supposedly anti-inflationary policies as raising the minimum lending rate have in the end the reverse effect? Do not they result in cutting living standards by, for example, the raising of the mortgage rate? Is not this an incitement to people to claim higher wages rather than an encouragement to them to moderate their claims?

It is the case that the increase in mortgage rates will add somewhat to the retail price index—something under half of 1 per cent. in the coming months. But I believe that if the Government had not shown their determination to control the monetary aggregates the increase in inflation would have been much higher and much more damaging to the prospects of the pay policy. But I strongly agree with my hon. Friend that low rates of inflation should encourage moderation in pay settlements, and I hope and know that he will support the Government in seeking a response from the trade unions to the fact that the rate of inflation has been cut by half in the past 12 months and living standards have risen by 7 per cent.

When will the Inland Revenue be recoding home buyers to enable them to get the tax relief due to them as a result of the sharp increase in interest rates? Can the right hon. Gentleman confirm the alarming reports that this is to be delayed for several months, probably until August? If so, why?

The hon. Gentleman would contribute to the ease with which the House gets through its business if he read the Order Paper occasionally. He would then discover that the next Question is devoted entirely to that matter.

rose

Order. We are running very much behind time.

asked the Chancellor of the Exchequer whether he has any proposals to reduce the amount of tax relief allowed on mortgage interest payments.

No, Sir.

While thanking the Chief Secretary for ignoring the proceedings of the Labour Party conference, may I ask him whether he will now address his mind, following the recent stabilisation, as the Chancellor describes it, in mortgage interest rates, to the question of the Inland Revenue failing to recode people's tax and therefore in effect reducing the interest rate relief?

I can tell the hon. Gentleman that since January this year the allowance in the coding has been taken at 9½ per cent., whereas for the greater number of mortgage payers the actual interest they were paying was 8½ per cent. So for the rest of this income tax year, 1978–79, there will be for a large number of taxpayers an underpayment of tax; for others there will be an overpayment but of fairly modest proportions. In fact, it will depend upon when the increase takes place. For some, it will take place almost immediately; for others it may be up to six months from the date of the announcement. Thus, the hon. Gentleman will see that at the most the situation will be nothing like what he and some others have indicated.

What is likely to be the approximate total value of the subsidy at the end of the current financial year given to owner-occupiers as a result of the increase in mortgage interest rates?

The present estimate of tax relief in 1978–79 is £1,110 million.

asked the Chancellor of the Exchequer what is his estimate of the extent to which petrol tax would have to be increased if the whole of the excise duty on private cars were transferred to a petrol tax; and what proportion of private motorists would benefit from the change.

As my right hon. Friend the Secretary of State for Transport told the House on Tuesday, the Government propose to phase out the vehicle excise duty on all petrol-driven vehicles and replace it by an increase in petrol taxation by 1983. I estimate that an increase of about 19p per gallon in petrol taxation would be required to replace the revenue from VED on petrol-driven vehicles in 1978–79. This could be expected to reduce the cost of private motoring for something over 8 million out of the 14 million motorists in the country.

Do not these figures confirm that the petrol tax is not only more equitable than the vehicle excise duty because it taxes actual road use, but benefits the majority of motorists, especially the less affluent?

I do not think that there is any doubt that the taxation of petrol rather than the taxation of cars results in the taxation of use. In so far as it is possible to do that at present, over a considerable phasing-in period, that is to the advantage both of motorists and those in the industry generally.

Is the right hon. Gentleman aware of the cost of living implications for rural areas? Many of these areas are bereft of alternative transport, in some cases through action by Governments in London, particularly with regard to the railways. Has he any plans to alleviate these extra costs to the rural areas?

The right hon. Gentleman is correct in drawing attention to the problems of those in rural areas. But they will receive some benefit both from the fact that they will be enabled to keep a car on the road more easily, because of the reduction in the vehicle excise duty, and from the provision that we made in the Transport Act for those who share journeys to share the petrol costs.

Does the right hon. Gentleman agree that there is a danger that motorists will end up with the worst of all worlds, in that they will have to pay not only the 19p extra per gallon but a registration charge to cover the administrative expenses of maintaining the bulk of the existing work force at the Swansea licensing centre?

The hon. Gentleman fails to take into account the way in which the duty on petrol has declined over the past few years in real terms. If we were to bring the cost of petrol up to what it was under the last Conservative Administration, we should have to increase the duty by 30 per cent. That shows the real result of what this Government have done over the past four and a half years.

I am in general agreement with what my right hon. Friend said, even in relation to rural areas, but does he not agree that there is a problem here? In working out the position of the average rural motorist, the Government's paper forgets that there is a wide scatter of non-average motorists within that average. That is especially true of the more remote areas, which have the added burden of dearer petrol. Will my right hon. Friend examine those aspects?

I am aware of the important point that my hon. Friend makes, but the vehicle excise duty has been evaded on a wide scale over the past few years. Our estimates are that evasion was between 7 per cent. and 9 per cent. I think that it was right that when the conditions were opportune a move of this kind should take place.

asked the Chancellor of the Exchequer what rate of pay increases is being used currently by the Government in determining cash limits for the 1978–79 estimates.

As stated in Cmnd. 7203, the assumptions used for the 1979–80 cash limits will reflect the Government's policy on pay.

From that non-answer, may I assume that the Government's 5 per cent. pay limit is the cash limit figure? If so, can the right hon. Gentleman tell the House how the Government intend to make it stick in the National Coal Board and with the National Union of Mineworkers?

The answer to the first part of the hon. Gentleman's question is "Yes". The answer to the second part is that we shall continue to persist with making our incomes policy work. I am sorry to see the hon. Gentleman smiling. I hope that he would expect and want us to be successful.

Does not my right hon. Friend agree that wages are only one element of inflation and that the disregard by my right hon. Friend the Chancellor of the Exchequer of the other elements is an indication that wages are seen, certainly by the Opposition, as the total cause of inflation? Does my right hon. Friend agree that it is about time the other elements of inflation were examined and decisions were taken on them?

My hon. Friend must know that neither my right hon. Friend the Chancellor nor I has ever said that wages are the only element in inflation. But I hope that my hon. Friend will accept that they are a very important element in inflation.

Since the Government set such great store by the much-advertised agreement with the TUC over stage 4, and since that agreement somewhat unexpectedly failed to materialise, how much higher does the Chief Secretary expect pay and price inflation to be in the coming year as a result of that grave setback—or was it just a load of eyewash in the first place?

The hon. Gentleman is probably in line with most of the Opposition Front Bench on three points. [HON. MEMBERS: "Answer."] I am about to do so. They are, first, that the hon. Gentleman would have it that the document was of no value; secondly, presumably, that it was a sell-out; and, thirdly, that it would not work. The fact is that the Government are continuing to discuss these matters with the TUC, and we shall continue to ensure that our pay policy works.

asked the Chancellor of the Exchequer if he is satisfied that the tax regulation on occupational pension schemes facilitates the transfer of such pensions on changing employment.

Yes, Sir. Inland Revenue practice in relation to the approval of occupational pension schemes allows transfer payments to be made freely between all types of approved schemes. I have no evidence that there is any general difficulty in such transfers. If the hon. Gentleman has any particular case in mind I suggest he should write to me.

Does not the Minister agree that the next major leap forward in occupational pensions is likely to be a greater facility for transferring a scheme on changing jobs? I take on board what the right hon. Gentleman has said, but will he look again at the operation of the tax system to see whether a better way can be found to ease the situation? At present, the cards appeared to be stacked against the employee changing his job.

In general, there is no impediment to transferring pensions from one employer to another as the employee changes jobs. If the hon. Gentleman has a particular case in mind, or seeks to make a particular improvement, I shall be glad to hear any suggestion from him.

Will the Government make it obligatory on occupational pension schemes that they should give full transferability of all accrued rights as a future condition of eligibility for tax concessions?

There is full transferability at present. Capital sums can be transferred, whether the benefit is a pension or even a lump sum payment. We have been extraordinarily helpful in ensuring that that comes about, to make sure that those who wish to move jobs have no disincentive in the form of tax treatment of their pension rights.

On a point of order, Mr. Speaker. In view of the unsatisfactory nature of that reply, I give notice that I shall seek to raise the matter on the Adjournment at the earliest possible moment.

asked the Chancellor of the Exchequer whether he is satisfied with the rate of economic growth.

I share the widespread satisfaction with the economic growth rate this year.

I thank my right hon. Friend for that answer, but does he agree that the main threats to continued growth are, first, the failure of parts of British industry to respond to the expansion of demand, and, secondly, the possibility of a pay explosion this winter?

Yes, Sir, I agree very much. I think that there are two problems. I dealt with the one on the supply side in some areas in a speech which I made at a TUC conference on the industrial strategy last Thursday. It is undoubtedly the case that a pay explosion would hit our hopes of maintaining the current rate of growth in the coming year.

Does not the Chancellor of the Exchequer agree that one of the biggest hindrances to economic growth is the high cost of imports? When will the Government bring out a positive policy on import substitution?

I am not quite sure what the hon. Member was suggesting. If the cost of imports were rather higher, perhaps we would import fewer of them.

Does not my right hon. Friend agree that the use of emotive language such as "pay explosion" does not help? Does not he agree, further, that Treasury orthodox policies of cutting back demand and making cuts in the standard of living of working people have been one of the major reasons for the lack of economic growth?

Whether or not one uses phrases such as "pay explosion", I think that the House would agree—I know that my hon. Friend will—that a position where increases in pay of 30 per cent. which lead to increases in the rate of inflation of 28 per cent. which are accompanied inevitably by increases in taxation thereby leading to a fall in real pay, as the general secretary of the Union of Post Office Workers pointed out was the experience of his own members in 1975, is one to which we do not want to return. I hope that I shall have the support of all my hon. Friends—and in fact, of all hon. Members on both sides of the House—in ensuring that we do not.

Has the Chancellor of the Exchequer estimated roughly what growth rate he thinks will be required over, say, the next two or three years within OECD to get us back to what he would regard as full employment? Does he see that growth rate taking place?

All economists have found it impossible to understand the relationship between employment and growth rates as it has developed over recent years. It is within the memory of the House that most economists have been predicting a very large increase in unemployment in this country over the past 12 months. In fact we have had a fall of more than 107,000, thanks to the policies of Her Majesty's Government which I know have the support of all my hon. Friends, including my hon. Friend the Member for Bolsover (Mr. Skinner).

In the interesting speech to which the right hon. Gentleman referred a moment ago, he will recall that he said that growth would fall off sharply next year, and he attributed this largely to the fact that manufacturing industry would not be as competitive as agriculture, distribution and private sector services. Why is it that the heavily unionised sector of the economy is so much less efficient than the largely non-unionised sector?

The hon. Member is talking—I am trying to find a polite word for "tripe"—[An HON. MEMBER: "Balderdash"] Yes, balderdash. As I pointed out in my speech, large sections of manufacturing industry which are heavily unionised have a very high growth rate and compare favourably in growth with other parts of the world. The problem that we have to face is how we raise the performance of the less efficient parts of industry to that of the more efficient parts. The fact that differences of performance can exist on this scale between one sector and another—even in the same sector between one firm and another—suggests that the answer is not to be found in tax regimes, unionisation, welfare States or any of the nostrums peddled so regularly by the Conservative Party.

asked the Chancellor of the Exchequer whether he will make a statement about the operation of the Government's black list as it applies to withholding Government contracts from companies deemed to be in breach of the Government's pay guidelines.

asked the Chancellor of the Exchequer what is the current number of firms on the Government's black list for paying their work people a legal wage increase in excess of the voluntary pay guidelines; and what is the total number of firms which have been on the black list at any stage, including those since removed from it.

There are currently 65 firms subject to discretionary action for reaching pay settlements outside Government pay guidelines. Such action may include the withholding of Government contracts. Ninety-four firms have at one time or another been subject to discretionary action, including 29 which are no longer subject to such action.

Does not the Chief Secretary understand that there is an overriding need for a full statement by the Chancellor of the Exchequer or himself about the way in which the black list will operate and that that statement also requires the approval of this House? Will he understand that the basis on which the Government are seeking to operate is unlawful—[Interruption]—in the sense that it does not have the specific approval of Parliament?

I simply do not agree with the hon. Gentleman, and I find the cheers of Opposition Members somewhat surprising. It would be an abuse of the responsibility of Government to allow increases in the private sector of the kind now being claimed and do only what the Opposition want us to do—have strict cash limits on the public sector.

If a firm on the black list, as Ford is likely to be next week, still submits the most advantageous tender to the Government but it is re- jected to the disadvantage of the taxpayer, is it then the Government's intention to invite Toyota and Datsun to fill the gap?

It is the Government's intention to defeat the problem of inflation. As this is the overriding national interest, I had hoped to have the support of the Opposition instead of the carping criticism that we receive constantly.

Let us suppose that the Government stand by idly and allow wage increases of 16½ per cent. or more to those with high salaries and relatively high wages. What is the Government's estimate of the effect of that lack of action, first, on unemployment and, secondly, on the level of wages of low paid workers?

I am obliged to my hon. Friend. The fact is that we do not intend to stand by idly. We intend to make our counter-inflation policy work. I hope that we shall have the support of everyone who has the national interest at heart.

Will the Chief Secretary return to the supplementary question put to him by my hon. Friend the Member for Eastbourne (Mr. Gow)? Instead of using general phrases such as not intending "to stand by idly", will he say whether there is any authority in law whereby the Government can require local authorities to refrain from making their purchases at the best prices in the interests of their ratepayers? Is there any legal authority for that?

I can tell the right hon. and learned Gentleman that there is no abuse of the law if the Government use discretionary action—[Interruption.] The Government are using discretionary action where it is specifically provided by Parliament. It would be an abuse of our responsibilities if we failed to do that.

Order. I shall allow Prime Minister's Questions to run one minute longer, because we are a little late starting them.

asked the Prime Minister if he will list his engagements for 23rd November.

This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be holding further meetings with ministerial colleagues and others, and attending a reception given by Her Majesty The Queen.

Since, evidently, the Prime Minister will have some time to spare, will he find the time to review an ITN programme broadcast on 29th January of this year which featured a number of IRA members exhibiting an M60 machine gun in Londonderry, and will he seek to establish why no prosecution of these godfathers of murder has resulted from this incident, despite the fact that two of the offenders were positively identified from the ITN film?

I am grateful to the hon. Member for giving me prior information of his concern about this matter. Although I have had the opportunity of looking at it only in a preliminary way, it is quite clear that it is an unsatisfactory position. However, the law relating to the admissibility of photographic evidence is universal throughout the United Kingdom. I understand that there are certain difficulties about the proposal which the hon. Member made, but I have asked the Ministers responsible to pursue it.

Will my right hon. Friend find time today to look at the newspaper reports this morning that the Cabinet have decided to increase the cost of a television licence to £27? Is he aware that this represents almost a week's income for a pensioner couple? How much longer can we go on having a system where the Savoy Hotel, with 400 sets, pays for one licence exactly the same price as we are now expecting pensioners to pay? Should not we begin to take this out of taxation?

There are a number of anomalies in respect of television licences, and my hon. Friend has drawn attention to one of them. However, I could not recommend to the House the abandonment of the £300 million or so which is derived at the moment from television licences, and put it on taxation.

As regards the amount of the licence fee, I understand that it is still among the cheapest, if not the cheapest, in Europe, and certainly the service is the best.

May I question the Prime Minister about his sanctions policy in general and particularly with regard to Ford? Is he aware that we consider the sanctions policy, as at present operated, to be unfair, arbitrary and unjust in that the decision is made behind closed doors and there is no appeal against it? How can the Prime Minister possibly justify penalising a company which has already paid very dearly for trying to support his policies? Against whom would such sanctions be directed—the company or those who work for it?

The right hon. Lady and the Opposition generally have made their position clear on a number of occasions. They do not like action being taken against firms. We believe that it is the best thing to do and we shall continue to do it when we think that it is necessary. There is no requirement upon the Government to purchase products from any firm or group of firms. Therefore, we shall refrain from doing so, if we believe that it is in the best interests of overcoming inflation to do so.

May I ask the Prime Minister a specific question? What was a profitable company such as Ford to do when it could afford to pay the increases? Was it expected to hold out until it became a loss-making company, just like British Leyland?

The right hon. Lady's cloven hoof shows through as soon as she refers to British Leyland. She correctly draws attention to the dilemma, as she often draws attention to many dilemmas, without suggesting a suitable answer. I am not saying that Ford does not have a great problem here. But there is an overriding national interest. The overriding national interest for the Government is to keep down inflation. We intend to take all possible steps to do so.

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Before the right hon. Lady puts her question for the third time, let me say, as regards Ford, that I have nothing to say about Ford at the moment because it is important that the firm should be notified before anything is said in public. That is our usual practice.

Is my right hon. Friend aware that the United States Government are following exactly the same policy of sanctions against firms which break the pay guidelines? Is it not, therefore, rather hysterical to describe this policy as arbitrary and unjust?

The right hon. Lady's view is that it is unjust and unfair and she is entitled to say that. On the other hand, standing here, I have to take the whole of the national interest into account. Frankly, in government, it is a question of the whole of balancing one unfairness against another when reaching decisions.

asked the Prime Minister if he will list his engagements for Thursday 23rd November.

I refer the hon. Member to the reply which I have just given to the hon. Member for Londonderry (Mr. Ross).

Does not the Prime Minister realise that not only must he make a full disclosure to Parliament of what sanctions he intends to impose on the Ford Motor Company, but he must say what precisely is the legal and constitutional basis of those sanctions? Is he further aware that the secret blacklisting procedures which put on those sanctions are absolutely unacceptable in a parliamentary democracy?

There is no secrecy about this— otherwise I do not know why everyone on the Opposition Benches should be shouting "Ford" at me. The secrecy is certainly not between the Government and the companies concerned. There is nothing hidden from them. If the companies wish to make the fact public they may do so, and if they give the Government permission to do so, the Government will make it public. This is a matter between the Government and the companies in the first place.

Will my right hon. Friend find time in a very busy day to consider with his colleagues the sale of Harrier aircraft to China, because this is a pressing problem which needs to be resolved quickly?

I am not sure that the problem is as pressing as all that. Our relationship with China, as I have made clear to the Vice-Premier of China, must proceed on a balanced basis. Political, trade, cultural and defence relationships must move together. One will not get ahead of the other. I believe that the Vice-Premier understands that. There are important matters which we shall certainly take our full time to consider before reaching a conclusion.

Is the Prime Minister aware that it is intolerable that Ford should have to conduct negotiations with the question whether sanctions will be applied to it depending. not on the law of the land or any predictable thing, but upon his fickle whim? Is it not a principle of British justice that a person knows what the consequences of his actions will be before he undertakes them? Will he now tell the House what he intends to do?

I notice that the hon. Gentleman says that this is illegal. If it is, it can be challenged in the courts. So far no one has produced any evidence to me that the right of the Government to withhold orders from any firm has any element of illegality about it. I would be glad if someone would tell me what the illegality is.

Is my right hon. Friend aware that it is the height of hypocrisy for people to worry about sanctions on employers when in the past they have been keen to impose sanctions upon workers? Further, is it not true that the 5 per cent. policy is not the accepted policy of the Labour movement? Instead of listening to those on the other side of the Chamber on this matter, will my right hon. Friend concern himself with the views of the Labour movement and change the policy before it is too late?

I apreciate the way in which my hon. Friend puts his supplementary question. As we well know, the Opposition do not care whether the policy succeeds or whether inflation goes up. That is not their concern. While I am always ready to listen to the views of the Labour and the trade union movements on this issue, and take them seriously into account, I cannot depart from the basic fact, which I believe the country well understands, namely, that if there is an increase in overall earnings of much more than 5 per cent. during the coming year inflation will rise again into double figures, and unemployment will go up. I cannot depart from my responsibility to state that because of the dislike of anyone, whether he be friend or foe. That is why the Government will use every opportunity that they can—every weapon and instrument at their disposal—to ensure that inflation does not rise into double figures and that unemployment does not go up. We shall fail in some cases, as we have failed with Ford, but we shall succeed on others. I know that I have the understanding of the whole country for what we are trying to do.

asked the Prime Minister if he will pay an official visit to Northern Ireland.

Visits to Northern Ireland are not announced in advance.

May I ask the Prime Minister to discard any gratuitous personal insults which he may have been asked to utter on this occasion by his right hon. Friend the Secretary of State for Northern Ireland and accept that I am not calling for the immediate withdrawal of British troops? Will he instead recall that in his own book he stated his marked reluctance to commit troops in the first place, precisely because he feared that that commitment would become permanent? Does he recognise that the very permanence of our commitment may be persuading some of the politicians in Northern Ireland that they do not need to make the compromises necessary for a political settlement?

I am glad to hear that the hon. Gentleman is not calling for the withdrawal of British troops. That is helpful in existing circumstances. Otherwise, comfort is given to those who believe that violence can achieve what reason will not achieve. As regards the veto power—I think that that would be the correct way of summing up the hon. Gentleman's words—I realise that the present posture means that we may not make any progres on constitutional reform in Northern Ireland. My right hon. Friend the Secretary of State for Northern Ireland is doing things in the best possible way, by having a series of discussions with all of the parties. It remains our strong policy that, as soon as it is possible to achieve any measure of acquiescence and agreement, we shall be happy to introduce constitutional reforms into Northern Ireland to enable both communities to take part in an acceptable form of government.

Does not my right hon. Friend agree that the recent decisions of the Government, such as that concerning the legislation which I understand we are to discuss next week dealing with extra seats, makes the majority in Northern Ireland even more intransigent when it comes to making any concession whatever to the declared policy of the Government and the party?

Should we not look carefully at that type of legislation and possibly, even at this late stage, withdraw it?

This legislation arises from a recommendation by Mr. Speaker's Conference, which I believe was unanimous or almost unanimous. It is always the Government's responsibility and practice to carry out such legislation. I quite realise that my hon. Friend may take the view that the legislation would make the majority more intransigent. However, that would be a short-sighted way of approaching this issue on the part of the majority. The events of the past 10 years have made the majority realise more and more that the minority community must be integrated into the affairs of the Province.

Is the right hon. Gentleman aware that when he next visits that Province he will be gratified to find an increase in public confidence throughout the community? Is he further aware that he will note the successful recruitment of all the security forces, which is making it possible for the Army to play more of a proper part in the security of the Province and for the security in practice to be taken over by the police and the UDR?

I am obliged to the right hon. Gentleman, because this is and should be the policy. I am glad to hear that it is being successful. The policy is that the RUC should take the prime role in security in Northern Ireland with the Army in a supporting role.

My right hon. Friend the Secretary of State has given me details of the number of civilian and Service deaths and injuries in the past 12 months. I am glad to see that, despite the recent explosions, the figures are on a downward path. It looks as if what my right hon. Friend and others have said is true—that the ordinary people in Northern Ireland are sick and tired of the violence. They would like to see some constitutional development but they are prepared to accept the present situation if it means that violence, death and bloodshed can he restrained.

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Prime Minister—statement.