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Orders Of The Day

Volume 974: debated on Monday 26 November 1979

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Supply

[6TH ALLOTTED DAY]— considered

Mortgage Interest Rates

3.56 pm

I beg to move,

That this House recalls the statement in the Conservative election manifesto that "the prospect of very high mortgage rates deters some people from buying their homes and the reality can cause acute difficulties to those who have done so", notes that the manifesto attributed high mortgage rates to Government financial mismanagment, and condemns the present Government for applying policies which result in the mortgage rate being increased by the largest amount ever to the highest rate in history.
The facts of the situation are only too plain. On 1 January 1980—

Order. I see that a number of right hon. and hon. Members are standing while the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is addressing the House. We can have only one hon. Member addressing the House at a time.

On 1 January 1980 mortgage rates will rise by 3·25 per cent., the highest increase ever, to 15 per cent., the highest rate ever. As a result, mortgage holders face the largest increase in repayments in real terms that owner-occupiers have ever been forced to endure.

For the £5,000 mortgage there will be a net increase after tax of £2.05 a week, for the £10,000 mortgage the increase will be £4.10 a week, and for the £15,000 mortgage it will be £6.15 a week. These figures are the levels paid after average tax relief. There will be some families—admittedly only a few—who are on low incomes and pay little tax and who are struggling to buy their houses who will find that the gross sums they are required to pay are very near to the net sums after tax.

In those circumstances it is no wonder that The Daily Telegraph, of all papers, says that the Secretary of State is beginning to show "considerable despair". There is no wonder either that the Financial Times, of all papers, says that the Chancellor of the Exchequer shows signs of being "considerably chastened". I am sure that the House needs no description of the anxieties and hardships that increases of this sort will cause.

I suspect that very few hon. Members on Conservative Benches, as well as on this side of the House, will share the view of the hon. Member for Lichfield and Tamworth (Mr. Heddle) who suggests that those who have complained about high mortgage rates causing hardship and anxieties are making a great deal of fuss about nothing. In fact, there will be hardship and there undoubtedly is anxiety, particularly among young couples buying or hoping to buy their first homes, and among those families with modest incomes who have managed their present repayments only after making sacrifices. Even now, these people are on the margins of being able to afford to buy their houses and not being able to afford it, and they will find that the new increases are literally beyond them.

The most significant indication of how bad things will become was found in The Times on Saturday. The Times is a paper which normally prides itself not only on its rigid financial probity but on its rigid respect for the law. Yet on 24 November one of its correspondents, talking about the prospects facing mortgage holders after 1 January, gave advice to those who would be in extremis. To them he said that they should first consider passing their mortgages on to their children instead of regarding that as unthinkable, as it was 10 or 15 years ago. Secondly, he suggested that endowment holders should ignore their legal obligations to complete repayments within a fixed term and hope that the law and the building societies would turn a blind eye because the situation had become so desperate. If The Times is simultaneously recommending such extraordinary financial expedient and such a remarkable flouting of the law, things have become extreme.

No one will doubt why this has occurred. There is no doubt either—and this has been reported in all but the most sycophantic of newspapers—that the increase on 1 January will have a con- siderable effect on the living standards of the people of this country. For families who are buying their houses from average and below average incomes, whatever benefit they might have expected from a reduction in income tax has been wiped out, to coin a phrase, at a stroke. In addition, they will have to pay higher prices because of increased VAT, higher national insurance contributions, higher prescription charges, higher prices for school meals and higher rates. It is now easy for owner-occupiers to count the real cost of Conservatism. I suspect that before long council tenants will be making the same gloomy calculations and coming to the same conclusion.

I doubt whether either group will need reminding where the responsibility and the blame lie. If they need a reminder, they can turn to the wit and wisdom of the Chancellor of the Exchequer, who said in May 1978 in one of those statements he issues from time to time:
"Signs for borrowers are ominous. The current lending rate of 8½ per cent. is under threat. There is talk of it going up by 1½ per cent."
Some of us will look back on those days as halcyon days. He went on to say, regarding it as an enormous and intolerable increase:
"Let us make sure that the blame is placed fairly and squarely where it should be placed."
He came to the simple conclusion that, however they wriggle and whatever the arguments, the blame should lie on the Government of the day. I am sure we all say "Amen" to that—[Interruption.] Does the Financial Secretary want to say something? [HON. MEMBERS: "He dare not."] There is no doubt that whatever owner-occupiers will suffer on 1 January is the direct result of the economic and financial policies that the Government have chosen to follow.

It is not simply monetarism that they choose to follow—to which all the blame has been attached by the right hon. and learned Member for Hexham (Mr. Rippon) who, in a most impressive letter to The Times, said that monetarism was at the root of our problems—but excessive monetarism. Not only is it excessive monetarism; it is incompetent monetarism. As every correspondent or commentator of any consequence has said over the last three weeks, the increase in the minimum lending rate to 17 per cent. and the consequent increases in other interest rates are the direct result of the Government's incompetent attempts to deflate the economy and to reduce direct taxation at the same time.

Those two aims are mutually incompatible. They have turned the Government's economic policy into a farce and even penalised those whom it was most anxious to assist. I offer two quotations to support my view. First, the Financial Times, on the general level of interest rates, said:
"The pains we have so far suffered have not been in the cause of deflation. They have only brought us to the point where deflation can begin. It is a forbidding thought."
I have no doubt that the whole country agrees.

The Daily Telegraph drew a different moral. Typically it was less interested in the high economic argument and took the low political point:
"Mrs. Thatcher aptly described the Conservatives as the home-owners party. Sustained high mortgage interest rates could seriously erode this natural affinity."
It could indeed.

While we are on the subject of blame, as were the Financial Times and The Daily Telegraph—blame for the uniquely high interest rates and blame for the suffering that house owners will face after 1 January—a word or two should be devoted to where the Secretary of State for the Environment believes that the blame should rest. Certainly he did not accept any responsibility on behalf of the Government. Nor did he blame the Government's predecessors, the Labour Government. He blamed the British people. He spoke of:
"The self-imposed tragedy of a nation which has abandoned any sense of reality about the awfulness of its position."
I am sorry that the British people are proving unworthy of the Conservative Government.

However, I congratulate the Secretary of State on not falling into another pitfall into which some of his less subtle colleagues might well have fallen—the temptation to blame the previous Labour Government, or the "Gillingham syndrome", that is, the idea that everything that has gone wrong since 3 May—

When the right hon. Gentleman last referred to me, I asked him a simple question—what cuts his party would have made had it been in government? The Financial Secretary made clear that heavy cuts would have had to be made.

What I wanted to ask the hon. Member for Gillingham (Mr. Burden), hoping that he would feel it necessary to comment on my reference, was that, while he no doubt believes that the increase in mortgage rates is the direct result of what the Labour Government did before 3 May, why was he negligent in not explaining that fact to the Prime Minister? In June and July the Prime Minister assiduously gave the impression, as I shall demonstrate shortly, that everything was all right, that mortgage rates would soon fall and that the building societies could postpone their natural and anticipated increase.

In a moment or two, I shall pursue the question of what happened in those difficult and painful days. There were strange examples of meetings that did not take place and advice that was or was not given by officials to the building societies. There was also the strange case of what it was the Secretary of State congratulated the building societies upon when he met them on the Monday after they decided not to increase their rates.

Before I turn to those matters, I shall turn to a more important question which deals with the future rather than the past—how long the punitive rates of mortgage repayments and interest are likely to last.

I do not propose to ask the Financial Secretary to give the House an indication of when he believes that the minimum lending rate is likely to fall. I agree that that would be a foolish question, so much so that I cannot understand why the Secretary of State for the Environment asked it on 21 June 1978. Another point that he made in that debate was that under the last Labour Government mortgage rates were on average 2 per cent, higher than they were under their Conservative predecessors. That is a crude calculation. However, I give the Secretary of State credit for making only slight exaggeration. I accept his figure at face value, that is, that the five years of Conservative rule, which preceded the five years under the Labour Government, produced mortgage rates of about 2 per cent. higher than under the Labour Government.

Does the Secretary of State believe that that pattern will persist? Does he believe that the average mortgage rate under the Conservative Government, a Government elected in May of this year and which might run till 1984, will maintain that pattern? Does he believe that the average rate will be lower or higher than under the Government's predecessors? If he believes that it will be higher, I hope that he will avoid the temptation to do what he did on Friday when, on behalf of the Government, he blamed the people. I suspect that the people will do the opposite. They will, quite rightly, blame the Government.

All the signs are that the high rate will persist. I regret that as a politician and mortgage holder, and I hope to be proved wrong. Nevertheless, all the evidence suggests that recent gloomy predictions that high mortgage rates will last are true. If the Secretary of State can assure us that those gloomy predictions are based on either false evidence or false conclusions, nobody in the House will be more pleased to accept that assurance than I.

I fear that there are three reasons why that assurance must and will be difficult to give. First, the minimum lending rate will persist at its historically high level as the Prime Minister persists with her monetary remedy to all our problems. As her monetary remedies continue to fail, there is no evidence that the Prime Minister is prepared to make judgments about our economic position according to fact rather than to her personal dogma. Indeed, the Prime Minister suffers from what is rightly described as the "certainty of the second rate". She will pursue her programme until it has been clear to everyone for some time that it is bound to fail. As she pursues it, MLR and mortgage interest rates will remain high.

Is the right hon. Gentleman opposed to high interest rates? If so, why did he remain in the Cabinet when MLR went up to 15 per cent?

I was never in a Cabinet when rates were as high as they are today. I was a member of the Cabinet when interest rates moved up and down but the motion, apart from referring to extracts from the Conservative manifesto—against which the hon. Gentleman will presumably vote—makes the true and central comment that mortgage rates are rising by the largest amount on record to the highest rate on record. That is a unique achievement with which no other Government can compete.

The second reason for my fear that high interest rates will persist concerns another piece of Conservative dogma, namely, the selling of council houses and the desire to finance those sales through building societies. That intention and obsession of the Government is bound to push up and hold up mortgage rates. The chairman of the Building Societies Association told me and a group of my right hon. and hon. Friends on Wednesday that surely we and the Governmet must know that there was no way in which the societies could attract the extra money to finance council house sales without increasing the rate to lenders, and that if that were done the rate to borrowers would have to be higher than it would otherwise be. Putting aside all the other disadvantages, problems and reasons why the compulsory sale of council houses should not go ahead, the Government's obsession with that policy will impose an extra burden on owner-occupation by forcing up and holding up mortgage rates.

The third reason why mortgage rates will remain high, perhaps even after MLR falls, concerns the damage done to building societies by the Government in July. As a result of that Government action, they managed to produce the highest mortgage rate in history and a mortgage famine simultaneously. That is no mean achievement. For the past three months, only seven mortgages have been provided for every eight that were made available to intending home buyers in the previous two years. The building societies expect that for the next year, even with rates running at the current uniquely high level, there will be a mortgage famine, not least because of the Government's behaviour in July.

Will the Secretary of State for the Environment throw a little light on what happened in the first two weeks of July and explain why the building societies were encouraged to believe something that has turned out to be palpably untrue and were therefore allowed to make decisions on that false belief which have been enormously to the disadvantage of the societies and mortgage holders?

The sequence of events was something like this: there was a meeting in July of the point advisory committee in which the building societies discuss problems with officials from four departments—the Treasury, the Department of the Environment, the Registrar of Friendly Societies and, I think, the Inland Revenue. The meeting considering the 2 per cent. increase in MLR and how the societies should react to it. The meeting took place against a background of newspaper reports, which anyone who has ever followed politics would believe to be co-ordinated, indeed orchestrated, reports from Government sources saying that on the previous day Ministers had considered the mortgage rate and believed that there was no reason for it to be increased and that building societies would be best advised to hold down the rate for some months.

At that meeting, representatives of the building societies pressed officials to try to find out whether the Government intended to approach them. Officials could not comment on whether there should be a ministerial initiative, but they said that it was the Government's belief that mortgage rates should not be increased in the summer. Indeed, the chairman of the Building Societies Association told me and my colleagues on Wednesday that the officials had given one specific reason why rates should not be increased in July. The reason was that if they had been increased all the benefits given by the Budget would have been absorbed.

Influenced by that, by the orchestrated newspaper campaign describing Ministers' attitudes and particularly by the Prime Minister urging in the House on 5 July that building societies should think long and hard before putting up their rates, the societies concluded that MLR would fall between the summer and Christmas and that they could therefore take the risk of increasing the rate to investors, but not to borrowers—in anticipation of the hints, nudges and winks which they believe the Government had passed their way.

When the Building Societies Association council met on the Friday it decided on higher rates for lenders, but no increase for borrowers. On the Monday, representatives of the building societies had the pleasure of meeting the Secretary of State for the Environment who, I understand, told them that there was nothing to talk about, that they had made the right decision and that he was grateful and congratulated them on it. I do not say that that is exactly what was said, but I understand that it was the general drift of the conversation. If I have done the conversation, the situation, the winks, nudges and indications or the Government's attitude less than justice, I have no doubt that the right hon. Gentleman will correct me when he replies.

The net result was that the building societies, anticipating an early fall in MLR, did not increase rates in the way that they regarded to be necessary and prudent. Indeed, one society, having anticipated an increase in rates on 1 January to over 12 per cent., did not even send out the increase notices. It believed that the Government's indications were so strong that MLR and the mortgage rate would come down and the increase notices would not be necessary.

As hon. Members will know from newspaper reports, there were allegations that the Prime Minister, in particular, with her comments about the need for building societies to think long and hard and her implication that they should live off their reserves, had duped the societies. [HON. MEMBERS: "Hear, hear."] Some of my hon. Friends say "Hear, hear" but I do not make that charge. I believe that the Prime Minister was guilty of something that she will find even more difficult to admit. She was wrong.

I believe that the right hon. Lady genuinely thought that her monetary solution in the summer would put everything to rights. She believed that the pressure that she hoped to place on the economy, the added doses of inflation that she imposes on us week by week and month by month, would mean that the uniquely high interest rates would not persist. But they did. They are now at a record level and mortgage holders are suffering more than ever before.

I hope that there will be no weak-minded questions about whether I am glad or sorry that the mortgage rate did not go up in the summer. I am desperately sorry that it is going up by as much as it is in January, that the higher rates will persist for so long, and that the Government have brought that about, not least by their behaviour in the summer.

Looking at the other side of the coin, is the right hon. Gentleman also sorry that the increase in the mortgage rate means an increase in the rates paid to investors, who outnumber borrowers by two to one, and that, as a result, the mortgage famine may be less in evidence in the spring that it has been in the autumn?

That is not the opinion of the building societies. I do not know whether the hon. Gentleman was here when I said that the Government's unique achievement has been to achieve record interest rates and a mortgage famine simulutaneously. It is not the opinion of the building societies that the position will improve. My right hon. and hon. Friends and I were told only last Wednesday that the unhappy position of only seven mortgages being available for every eight that were granted last year will persist into 1980. I am glad that the hon. Gentleman has given me an opportunity to reiterate that fact.

As well as telling us what the Government did in the summer, I hope that the Secretary of State will tell us why they thought it right to enter into this exercise of quasi-intervention or semi-interference. The Daily Telegraph gave the reason in a leading article.

It said:
"What counts in this case is that a large majority of mortgages are actual or potential Tory voters who are quite liable to take it out on the Government which bumps up the bills from the building societies."
The Government have bumped up the bills from the building societies. However, because they postponed doing that the Government have made the situation worse, and made it last longer.

In the past six months the Government have attempted to defend everything they have done according to three clichés. They have not defended their actions on their merits, on the facts, or on the evidence. The first cliché that the Government use is that it is all necessary, no matter how painful, in order to attain economic recovery. The second is that it is all the responsibility of the Labour Government. The third queries how anyone dare complain. Everything, they say, was promised and foreshadowed in the election manifesto.

The new economic policy—the basis for all those sacrifices and to which everything has been subordinated—turns out to be no more than old-fashioned deflation, dressed up in fancy language. In addition, that old-fashioned deflation has been incompetently applied. This week The Economist asserted that we have first concluded
"the six months when the Government veered off course."
The Economist concluded that we cannot afford another autumn like 1979. I am sure that that sentiment will be echoed by every owner-occupier.

No one will say that the sacrifices that are being demanded are in the good cause of economic improvement, because economic improvement is not in sight.

The second cliché—that the Labour Party is to blame—is not for a moment credible.

Will the hon. Gentleman wait, because I want the Government to take their pick.

If the Labour Party is responsible, the Prime Minister was being less than frank in July. By July the Prime Minister had had 10 weeks to open the books and read them. I give her credit for understanding them. If our present suffering is the result of something that happened 10 weeks before the announcement—the implications, nudges and winks that the minimum lending rate might come down at any moment—why did the Prime Minister not admit that the situation was so bad? Why did she encourage building societies to take action that would prove to be against the interest of their members?

The argument of the right hon. Gentleman is false in three respects. First, he has ignored the fact that international interests rates have gone up since May. Secondly, he said that building societies are making only seven advances, although last year they made eight. They are making only seven advances this year partly because of the inflationary element within the cost of a house. The right hon. Gentleman will find that the actual advances are far greater than last year. Thirdly, the right hon. Gentleman said that the Labour Party is not responsible. However, the public sector borrowing requirement inherited by the Government was phenomenal.

The hon. Gentleman intended to explain why it was all the Labour Party's fault. He then veered off course and explained that international events were also concerned. I concede that the pressure of international rates has had a little to do with it, but the idea that that has forced up the minimum lending to 17 per cent. is, frankly, bizarre.

That high rate could have been avoided had a different, non-monetary strategy been pursued. If everything is the fault of the high public sector borrowing requirement that the Government inherited why did not the Prime Minister know that in July? If she did know that in July, why was she not more frank about it with the building societies?

Now that the right hon. Gentleman has had another 10 minutes to think about my previous question, will he answer it? What is so wrong with a minimum lending rate of 17 per cent. when the Labour Cabinet was in favour of, and imposed, a rate of 15 per cent. in October 1976.

I have taken advantage of those 10 minutes. In 1976 the minimum lending rate ran at 15 per cent. for six weeks. If the hon. Gentleman thinks that the present figure will run for six weeks or less, I shall concede his point.

Is the right hon. Gentleman aware that, in response to a written question in October, I ascertained that the Labour Government borrowed $23 billion on which the interest is $2·7 billion? That sum has not been repaid. The Government raised £79 billion on Government stocks issued on the home market on which the interest is £6 billion. If that did not leave the Government with a legacy of debt, I do not know what a debt is.

I am aware of that point because the hon. Gentleman keeps telling me. He told me about that figure during our last debate. My complaint about him is not that he tells me too often, but that he does not tell the Prime Minister.

Despite the enormous burden of debt perceived by the hon. Gentleman, the Prime Minister said in July that everything was all right. She said, "Do not put the rates up at Christmas. Help is at hand. The minimum lending rate may fall." If Conservative Members knew that things were going to get worse, why did not the Prime Minister know? They will have to answer that question. They must be careful not to fuel the charge—the charge that I have been anxious to avoid—that the Prime Minister knew but, for political reasons, chose to tell the building societies something different.

The right hon. Gentleman has offered us a most tantalising prospect. He suggested that high interest and mortgage rates might have been avoided if other policies had been followed. Will he elaborate?

That issue will be elaborated in some detail on Wednesday. The time has come not for continual deflation but for a measure of controlled expansion. That is dependent on the Government abandoning some of their dogmas. The Government should conclude that the only way to manage the economy properly is to tackle costs at their source. I have no doubt that hon. Gentlemen wishing to pursue that subject will find plenty of opportunities to do so on Wednesday.

I have given way several times, and I propose to continue.

A third cliché on which the Government have relied when things have gone badly during the past six months is that no one is entitled to complain because everything was described in the manifesto. Therefore, the Government say, the British people should have known what was coming to them. Much that is written in the manifesto about mortgage rates is incorporated in our resolution. That is one reason why the resolution does not have the elegance that we would have liked.

In case Conservative Members have forgotten what the manifesto said, and so that they know exactly how to forswear themselves this evening, I shall remind them. Seven months ago the Conservative Party said:
"The prospect of very high mortgage interest rates deters some people from buying their homes"—
we all agree with that—
"and the reality can cause acute difficulties to those who have done so."
Again, we all agree with that. The manifesto then went on quite baldly, blandly and without any qualification to say that the Conservative Party's plans would lower interest rates.

Those are some of the words that Conservative Members will have to eat later tonight when they vote. As all Britain knows, that promise was wrong and the assurance was false. Government supporters will troop into the Lobby this evening to vote down those words on which they fought the election. They will do it as if they have forgotten their promises or failed to notice that their promises have been broken. But the British people have noticed, and I do not think that they will forget.

4.30 pm

The whole House will be grateful to the right hon. Member for Birmingham, Sparkbrook (Mr Hattersley) for the new clarity that he has brought to the economic policies of Her Majesty's Opposition, because it will enable observers to make a balanced judgment between what Her Majesty's Government are determined to achieve and what the Opposition would like to put in its place. I think that it would be fair to summarise the right hon. Gentleman's position as being in favour of higher public expenditure, because he is now leading a campaign to increase public expenditure levels. I understand that he wants less monetarism at a time when most economic experts in the Labour Party have come round to supporting more monetarism.

I understand that the right hon. Gentleman now wants a controlled expansion of the economy. In the absence of the economic growth that was a feature of the Labour Administration, I take it that that means that we are to have yet more borrowing. To go with more borrowing, I take it that we shall also have higher taxes as another way of paying.

I understand that the right hon. Gentleman then wants to tackle costs at their root, which I think is the new euphemism for a prices and incomes policy to replace the one that destroyed the previous Labour Government.

That is a broad summary of the right hon. Gentleman's speech. We shall look forward to hearing that speech in three or four years' time. I should have thought that the right hon. Gentleman would give us a little more time to forget the record of the Labour Government before inflicting it on us today.

If there is one lesson that we should have learned by now, it is that inflation leaves no part of our society unaffected. For as long as we pay ourselves extra earnings unmatched by extra wealth and the Government borrow the money to finance them, these debates will go on in one form or another. There is no purpose, in anything other than the shortest of terms, in attempting to isolate mortgage rates from the prevailing economic climate. To subsidise them would simply encourage house price increases and switch the burden from those who have just bought to those who are saving to buy.

The central task is to change the economic climate, and it is that that the Labour Party and the right hon. Gentleman, now freed from the responsibility of office, are determined to frustrate. Every warning by the former Prime Minister and Chancellor from this Dispatch Box in the early months of this year is now abandoned, as the consequences that they forecast so clearly in January now come about. Indeed, by their cynical pretence that they never foresaw those consequences they aggravate the problems and harden the attitudes that must change if we are to conquer inflation.

No one is more guilty of this than the right hon. Member for Sparkbrook, who has put his name to the campaign to keep up the levels of public expenditure that were financed upon a concept of growth that had already disappeared before the Labour Government were destroyed.

The Secretary of State is now speaking about public expenditure. Does he realise that by what he is doing now he is increasing public expenditure by £390 million a year? That is the cost of tax relief on the extra mortgage interest that will be paid. Does the Minister further realise that for every council house that he forces councils to sell he will grant an extra public expenditure tax relief on the mortgage? I challenge the Secretary of State to deny the accuracy of the figure that I have just given. I do not think that he realises that in making this announcement he is making a rod for his own back and for the whole country.

The hon. Gentleman is, in effect, saying that I am transferring wealth to working people as a result of the proposals to sell council houses. I am trying to do just that. Indeed, I believed that the hon. Gentleman wanted to do that. We shall have an opportunity to examine the basis of the figures underlying council house sales when the legislation to enact that proposal comes before the House.

It is curious that the Labour Party, having had full access to the resources of the Civil Service for six years, never saw fit to produce, other than by leaks, the calculations that have suddenly become of such massive concern.

Will the Secretary of State answer the first point made by my hon. Friend the Member for Salford, East (Mr. Allaun), namely, that by the very act of raising interest rates in this manner he is substantially increasing public expenditure and the public sector borrowing requirement? That is an essential point, which he completely ignored in his reply to my hon. Friend.

The hon. Gentleman is correct. There is a consequential increase in the limited area to which attention has been drawn. We are looking for massive savings and disinflationary tendencies, which dramatically outweigh the significance of the narrow point put by the hon. Gentleman. We are working towards the time when the interest rate starts to come down. Those figures will disappear when the permanent benefits that we seek materialise.

The first crucial link that we have to establish is the connection between the rates of interest prevailing in the market and those charged and paid by the building societies. The building societies attract much of their funds from the same people as the central Government. As one hon. Member made clear, it must be remembered that there are 18 million savers, all of whom have to be persuaded voluntarily to leave their resources with the building societies. As long as the central Government are borrowing at the levels of between £8 billion and £9 billion a year, all interest rates will be affected. Building societies do not set interest rate levels. They react to the market, and in Britain today the market is dominated by the high demands of Government borrowing.

I was interested in the questions posed by the right hon. Member for Spark-brook. He asked: why has there been a change since MLR was increased in the summer? I should have thought that he would be aware that in the United States, for example, prime rates have risen from 11½ per cent. to about 15¾ per cent. since the summer. Even in Japan and Germany, interest rates have doubled in an equivalent period.

I should have thought that the right hon. Gentleman would be aware that there have been two significant strikes—one in the collection of VAT and the other in the collection of telephone bills. Those strikes have deprived the Exchequer of £1 billion, which has had to be replaced by additional Government borrowing with consequential effects on interest rates. By the end of this financial year there will still be a shortfall of £½ billion, even allowing for the collection of those debts. Therefore, there have been two significant changes since midsummer, when MLR went up.

If the right hon. Gentleman attributes such substantial significance to the effect of those two strikes, when the shortfall is made up—and that will be in a short period—may we assume that MLR will come down?

The hon. Gentleman cannot have been listening to the figures. I made it clear that even by next April we shall still be £½ billion adrift in the collection of the revenues that I have described. Therefore, two critical features have changed since my right hon. and learned Friend was questioned about the midsummer changes.

But let me also deal with the right hon. Gentleman's questions about the dialogue between the building societies and the Government. It seemed to come as a surprise to the right hon. Gentleman to hear that there was any discussion between officials in my Department and the Treasury and the building societies. However, if he consults his right hon. Friend the Member for Stepney and Poplar (Mr. Shore), the former Secretary of State, he will learn that there is a continuing discussion about a whole range of issues, and rightly so. When we were dealing with the increase of the MLR in midsummer, it was quite natural—it would have been unforgivable if it had not happened—for the various officials of the appropriate Departments and the building societies to discuss the outlook.

Before the occurrence of the two critical events to which I have drawn attention, it was very much the Government's hope—my right hon. Friend the Prime Minister made it clear—that it would be a short-term position. However, it did not turn out to be short-term. We then had a number of options.

The first option was what we said to the building societies in answer to their questions. The second was whether we should abandon the policies of combating inflation upon which the Government were embarked and in which they were determined to succeed.

In answer to both those questions, the position is clear. In the present unsettled international climate, it would have been wrong for the Government to indicate in any way to the building societies that we could foresee an early end to the present high levels of interest rates. Equally, it would have been wrong for us to abandon the policies upon which the counter-inflationary pressures were being developed. So in our relationships with the building societies we have merely continued to do what all previous Governments did as a method of good government. But we have refused absolutely, in the light of worsening international economic circumstances, to change the underlying strategy of fighting inflation upon which this Government were first and foremost elected.

I am sure that the right hon. Gentleman understands that this debate is limited to three hours. The right hon. Member for Sparkbrook gave way a number of times, and I try to do so wherever possible, but I want to conclude my speech as soon as I can to enable as many hon. Members as possible to make their contributions.

The right hon. Gentleman has put forward a large number of reasons why the Government have taken this decision but he has not yet touched upon the effect on borrowers. What advice would he give to a young man who came to see me over the weekend? He earns a little more than £5,000 a year. He is a young school teacher who, 18 months ago, took out a £15,000 mortgage. He is now expected, pre-tax, to pay a little more than £41 a month in addition to his existing repayments. What advice would the right hon. Gentleman give him?

I shall want to deal with that specific case in the course of my remarks, because it is of very great importance to a considerable number of people. If the House will allow me, I intend to come to that specific question in a few moments.

The right hon. Member for Sparkbrook asked me, in what was a wholly misinformed passage of his speech, about the consequences of council house sales on the relative demand for mortgage funds. The right hon. Member will be aware that the financing of council house sales, if it is done in the private sector, will demand resources from the building societies. It is with that in mind, amongst other priorities, that I have asked the building societies to join me in setting up a working group in order to see what further supplies of finance can be made available from the private sector to the building societies for on-lending.

The second matter, which is the one that the right hon. Member simply has not grasped, is that the statutory right to a 100 per cent. mortgage, which is enshrined in our commitment to council tenants, will to a substantial extent be financed by the provision of local authority mortgages. In effect, the provision of local authority mortgages in its simplest is a question of dividing existing local authority debts into relatively small packages and passing them on to council tenants, who will then begin to repay them at a faster rate than they would be paid if the local authorities paid them out of their own resources.

Will the Secretary of State make two matters quite clear? Is it his wish, as it has been his stated wish in the past, that the purchase of most local authority houses should be financed by the building societies? That is what he said. In the past he said that the advantage of that was that it reduced the public sector borrowing requirement. If that remains his wish, does not he agree with Mr. Leonard Williams, the Chairman of the Building Societies Association, that financing those sales in the way that he chooses is bound to push up and to hold up the rate?

The right hon. Gentleman has misunderstood what I said. I am anxious to achieve the position in which, wherever possible, within the resources of the building societies, mortgages should come from the private sector. That has to be the first line of appeal. But where the building societies, for whatever reason, in their commercial judgment have not the resources to provide that cash, the statutory right to a 100 per cent. mortgage will fall to be honoured by the local authorities.

If there is a shortage of finance in the hands of the building societies, obviously they will decide, as a matter of commercial practice, whether resources are to be made available to council tenants, who have a statutory right of appeal to their local authorities for money, or whether they should go to their normal borrowers in the private sector. The right hon. Gentleman's argument is quite misleading, therefore.

I move to another question that is bound to be asked in this debate—the possibility of temporary subsidies to the building societies.

I accept that the right hon. Gentleman did not ask about it, but it is a question that is bound to be asked in the debate and it may be helpful if I make my views clear, so that the House knows the Government's thinking.

I do not believe that there is any doctrinal view on this subject. I have no doubt that there can be occasions on which such subsidies may be appropriate. However, I do not believe that they would be appropriate on this occasion.

The first argument against such a proposal is that of the cost. To achieve a 2½ per cent. reduction in the mortgage rate would cost £155 million for three months—an annual rate of £600 million. It would all have to be borrowed, which would aggravate further the underlying problems with which we are trying to cope. If one subsidises the mortgagor, there is an immediate argument for subsidising industry, which would have a similar and even more pressing case. That, once again, would lead to further borrowing and a further aggravation of an already difficult situation.

But even for individual mortgagors the pattern of hardship is so widely dispersed as to make subsidies highly questionable. Let us consider the person who bought his house in 1970. Then, a first-time purchaser paid, on average, £4,300. In capital terms, his mortgage repayments are tied to 1970 values, but since then his income has trebled and the capital value of his house has quadrupled. It is difficult to see that a person in those circumstances can claim a need for subsidy at the expense of other taxpayers.

The real problem comes from those who have bought only recently or those who are also saving to buy. An examination of the individual circumstances to which the right hon. Member for Spark-brook drew attention brings one to realise the complexity of the position, and I now suggest to the House how it should be dealt with.

Looking at the housing market at large, one sees that under the last Government prices were soaring and that there has only recently been a significant levelling off in the rate at which those increases were taking place. In the last 18 months of the previous Administration, while house building was declining, prices rose by 35 per cent., and in the last 12 months house prices have doubled in some parts of the country.

Anyone who borrowed to buy in that climate is likely to be in the most exposed position in the present circumstances. Therefore, I welcome very much—I hope that this is the answer to the right hon. Member for Sparkbrook—the indications from the building societies, just as they gave similar indications in 1976 to the previous Government, that they will extend the repayment terms wherever possible and not look for increases in monthly instalments.

I hope very much, as I am sure the whole House does, that the present level of interest rates will exist for only a short period. However, it is essential to take action now to maintain our fight against inflation without which the long-term problems will assume increasingly the characteristics of the short-term problems.

I said that there was a second category of people badly hit by recent events. I refer to those people who are saving to buy. They have seen the prices of houses rising faster than their ability to save. They start saving at one figure only to find that it is quite inadequate by the time that they have gone through their planned saving period. This is just as much a part of the national economic problem as are high interest rates.

If we are to achieve our aim of wider home ownership, we must pursue policies that restrain soaring house prices whilst encouraging the growth of real disposable income.

Therefore, we must all welcome the fact—this is the answer to the hon. Gentleman—that the dramatic increase in house prices that was a characteristic of the latter period of the Labour Government and the earlier period of the present Government is now showing a significant change.

The difficulties faced by those who are saving to buy cannot be better put before the House than by referring to the scheme that the Labour Government produced to try to cope with the problems of new home purchase.

Anyone enrolling in Labour's scheme in December 1978 could qualify for a grant of £100 and a loan of £600. If he hayed for two years, he becomes entitled to the £100 and £600 by December 1980—in other words, an entitlement of £700. That has to be compared with an increase in value of the average house of £8,000 over the past two years. The figures lead us to realise that attempts by artificial means to provide aid to prospective house purchasers are in no way comparable with the scale of the problem of combating inflation. That is the fundamental challenge that remains central to our policies.

Help for the new buyer and for the housing market is dependent not only on macro-economic judgments and policies. The Government have acted across a wide sectrum to set a basis for long-term improvement. We are considering the constraints on the availability of land for development. We have removed the Community Land Act and modified development land tax. It is interesting to remember that for all the overtones of repression that came from the Community Land Act in three years it provided only 300 acres for the builders. Its effect on diminishing land supply was incalculable.

We are taking measures to release publicly owned land that can be put to more useful purposes. In the first six months of government we have already sold off 1,000 acres of surplus land. The practice of offering public sector land all round the rest of the public sector before sale has been abolished. It was an encouragement to organisations to buy that which they did not need in anticipation of demand that often did not materialise.

Planning processes are being subject to detailed scrutiny to hasten the decision-taking processes. We intend to exempt many small planning matters from detailed control.

We are clarifying the overlapping responsibilities for planning in local government.

I am trying to set our priorities in the order in which we see them. First, we are determined to adhere to the central theme upon which the Government were elected, namely, to pursue with every weapon at our disposal the battle against inflation. There are limits to the possibility—indeed, the desirability—of protecting people from the consequences of their own actions. Last winter's pay claims are this year's borrowing requirement, interest rates and mortgage bills.

In addition to the battle against inflation, the Government are doing all that they can to encourage home building and ownership. I shall quote from two speeches made by prominent builders in the past few days. Only last Tuesday the president of the House-Builders Federation, Mr. Donald Moody, said at the federation's annual conference:
"It must by now be fully understood that it helps no one, least of all house purchasers, to hold down the mortgage rate if that results in shortages of funds for house purchase."
That is one builder who understands the need for realism in economic policy.

Several days later Mr Barratt, who is the chairman of the largest private house building company in Britain, made the following statement at the annual general meeting of his company:
"I find it sad that the media are painting a scenario of gloom and disaster when a whole new world has opened up for Britain and British industry by a Government which at last recognises economic facts of life and is prepared to acknowledge these realities in its economic policies. As far as we, who are operating in the building industry, are concerned, the obstruction under which we have operated for the past five years has gone and has been replaced by positive encouragement."
The only question left for the House is whether it believes the men who are building houses or the right hon. Member for Sparkbrook, who is attempting to build a reputation. It is a choice between experienced integrity and cynical opportunism.

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
"while recognising that the present level of mortgage interest rates place an additional burden on home owners, realises that this group cannot be totally insulated from the general level of interest rates in the economy; and reaffirms its support for the essential measures which the Government has taken to reduce its claim on public expenditure and to combat inflation."

4.55 pm

The Secretary of State has failed to consider the realities. One glaring reality is that house owners are being sacrificed, with the mortgage rate increase, on the altar of the Government's obsessive commitment to almost exclusive monetarist control of the economy. That is what is behind the huge increase in the mortgage rate. It is absurd for the right hon. Gentleman to seek to justify the increase on the grond that it must be seen in the context of the Government's attempt to reduce inflation. It can be seen only as yet another of the Government's achievements in producing severe deflation. Behind all the fancy language describing the Government policies, what we are really seeing is 1930s-type deflation with a vengeance. On this occasion it is the home owners who will carry the major load.

Leaving aside the basic economic fallacy, there are two other issues raised by the latest hike of mortgage interest rates to which I shall draw attention. The first issue is one on which the right hon. Gentleman was questioned. He failed to give a satisfactory answer. I refer to the misallocation of the nation's resources. That becomes an acute issue with mortgage tax relief being granted in the most regressive fashion on an interest rate of 15 per cent.

Housing already absorbs more than £6 billion of borrowing each year, which is about two-thirds of the public sector borrowing requirement, to which such inordinate attention is constantly being given by the Government. Even before the latest increase, about £1¼ billion was being given by means of income tax relief to home owners. That will rise steeply to about £1¾ billion with the huge increase in interest rates.

The grossly unfair distributional effects of yet further increased mortgage tax relief will soften the cost for the higher paid at the expense of poorer tenants, who will almost certainly face large rent increases. Surely that cannot be a rational allocation of resources when the Government purport to be trying to increase investment in industry and are prepared to introduce savage cuts in public and social services so that public sector borrowing does not pre-empt funds for industry. If that is the Government's policy, and I believe that it is, will not a huge increase in mortgage tax relief to 4½ million owner-occupiers do exactly what I have described?

House values have already risen about l2½ times since the Second World War compared with a five-fold increase in industrial share values. If the Government are putting a stop to any increase of public expenditure, how can they not put a stop to the endless escalation of mortgage tax relief, at least at the higher tax rates? If there are to be cash limits on public expenditure so as not to preempt funds for industry, surely there must be a similar limit on mortgage tax relief at, for example, £l billion.

Secondly, there are the income distributional effects represented by the increased rates. I shall leave aside the balancing effect of the increased rate of value added tax. The budget handouts represented a gain for all sections of the population. There was a small gain for the lower paid and a larger gain for the very rich. The rise in mortgage interest rates will eliminate all the gain for all but the higher paid while leaving the top earners with a huge tax gain.

This Budget largesse was offset at the time by a VAT increase, which was enough to turn the tax gains into a net loss for all those earning less than £12,000. These swingeing increases in mortgage rates have transformed even that degree of inequality so that the threshold for any gain, in the Prime Minister's new Tory Britain, has been raised to an earnings level of around £20,000 after taking account of the Budget gains, of VAT and of the mortgage rate increases—

Leaving aside rate increases, which are still to come, no one earning less than £20,000 will make a net gain over the last six months. After that, if one happens to be one of the lucky people above that level, the sky is the limit. Even after the VAT and the mortgage rate increases, the gains for those earning over £20,000 are still considerable.

The broad effects of Tory income distribution over the last six months are becoming clear. If one combines the tax gratuities in the Budget with the higher mortgage payments, net of tax relief, because that is what is actually paid, there has been a net loss, based on figures given in a Treasury answer of 21 November and on building society figures for increases in net mortgage payments, for everyone earning below £15,000 a year. Net losses range from £1 a week for the lowest paid to nearly £3 a week at the technical, supervisory and lower management level. Not until one reaches earnings around four times the average national level does one find gains still being registered, post-Budget and post-mortgage increases, of £3 a week. Thereafter, not even the soaring mortgage cost increases can obliterate the massive tax gains that have been given. The senior manager earning around £25,000 a year, based on Treasury figures, is still registering a net increase, after the mortgage cost increase, of over £50 a week. For everyone earning less than £25,000 there is a net loss.

The VAT increase takes matters further. Looking at the three together—the Budget, VAT and mortgage increases—the effect on the lower-paid worker is a net loss of £2·50 a week. The average earner will be about £4 a week worse off, the supervisory and lower management grades about £7 a week worse off, the middle management and professional grades about £7·50 a week worse off, and even the higher management level about £6 a week worse off. Only those earning above £20,000 a year—precisely I per cent. of taxpayers—have gained.

In Tory Britain, 99 per cent. of the population have had to take a loss over the last six months. I am taking the situation up to the mortgage rise in January. Against this, the cosseting of the richest 1 per cent. is almost proverbial. Even after the unprecedented VAT and mortgage cost increases, the average member, not the richest member, of this highest paid 1 per cent. of earners is still left with a gain of around £40 a week, the equivalent of well over half of the average national wage, net of tax.

All households with earnings between about £3,000 and £10,000 a year—the vast majority of people in Britain today—are now about 4 per cent. worse off as a result of the main Government financial changes made since last May. By comparison, the £25,000-a-year family is now 8 per cent. better off. Even these calculations understate, in full, the changes that have been made. They exclude higher bus and rail fares, increased prescription charges and swingeing rent and rate increases on the way, as well as major cuts in public and social services, all of which will tend to hit hardest the poorest.

The calculations also exclude the effect of the Budget's raising of the threshold for the investment income surcharge that exclusively benefits those well endowed enough to have substantial unearned income. The Chancellor of the Exchequer hailed his own efforts in June as presenting an opportunity Budget. What he did not say was that the opportunities would be concentrated on only 1 per cent, of the population, to be paid for by all the rest. That is the essence of the new Tory Britain.

5.5 pm

Stabilisation of the economy and the conquering of inflation is a painful business. The country learnt that between 1974 and 1979. It is continuing. This debate serves as a verbal epitaph of the extravagance of the previous Government—

It is naive for the hon. Gentleman, in a sedentary position, to say "Rubbish." It takes at least six months for the cost of funding public borrowing to work through the economy. This Government have been in office for barely six months. They have not had time to bring down public spending and so bring down the rates of interest that have to be paid on the public borrowing requirement. But the Government have started, and will continue, on that path.

I detect a faint ring of hypocrisy in the Opposition's motion. We are not talking about a real rate of interest of 15 per cent. We are talking about an actual rate of interest, paid by the building society borrower, of 10½ per cent., after tax relief has been taken into account. That is against a backdrop of rapidly rising house prices over the last five years of 30 per cent. or more a year. That hypocrisy becomes louder still when we examine the Labour Government's record on other interest rates.

The house purchaser, about whom the Opposition are weeping crocodile tears today, was having to pay 22 or 23 per cent. to borrow money from a hire-purchase company to buy a car or furniture or to improve his home during the last five years. The average rate of inflation over the last five years was at least 21 per cent.

That faint ring of hyprocisy becomes even louder when one considers the prudent widow who was brought up to believe in saving for her future and for a rainy day. If she had invested £500 on 1 March 1974—I choose that date advisedly—in one of our major building societies, she would today be left with £342·33, taking account of inflation and the added benefit of interest paid to her. Meanwhile, if she had invested £1,000 on 1 March 1974, she would have been left today with a mere £685 of her lifelong savings. If a married couple had done the same with £5,000, they would have been left with £3,428 today. What did we hear from the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) about the plight of the investor?

I beg to differ from my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle). It is not two investors who are needed to fund one mortgage but five. We should be concerned about the plight of the investor as well as the plight of the borrower.

I should like to put the mortgage problem into context. My right hon. Friend the Secretary of State for the Environment referred to houses bought by first-time buyers 10 years ago. Ten years ago, the average mortgage was £3,300. Today, the average mortgage is £11,700, an increase of about three and a half times. Ten years ago, the average income of the first-time borrower was £1,680 a year. Today, it is £6,500 a year, an increase approximately fourfold. Ten years ago, Mr. and Mrs. Average Homebuyer paid 19 per cent. of their income towards a mortgage. Today, due to the intervening rise in property prices, that represents a mere 7·9 per cent. of their income.

We should concern ourselves with the people who are really hit by the rise in inflation brought about by five years of extravagant Government spending—the first-time buyer and the small investor. I listened carefully, but I have heard nothing so far, either from the right hon. Member for Sparkbrook or from his hon. Friend the Member for Oldham, West (Mr. Meacher), about a solution to the plight of the first-time buyer and the plight of the small investor, without whom the whole property market would collapse and the whole building industry would fall. I did not hear one word of constructive comment or one suggestion as to how their problems could be solved.

Let us suggest perhaps that the investor's savings should be inflation-proofed—possibly index-linked. Let us suggest to the Building Societies Association that perhaps it should devise a scheme which would enable the poor widow who had invested her £500 to be guaranteed at the end of the term to have as much as she began with plus the interest that had accrued. The unit trust movement has done it, so perhaps the Building Societies Association could devise a similar scheme. It would require Treasury consent and an amendment to fiscal law, but there would need to be no amendment to the Building Societies Act or the Trustee Investments Act.

Let us consider the plight of the first-time borrower and suggest to the building societies that they should consider relaxing their rules of borrowing, perhaps by granting 100 per cent. mortgages. We might ask them to grant mortgages on unimproved properties in inner cities and on properties of three storeys that do not have front gardens. That would introduce greater flexibility in their lending terms.

Let us also encourage the building industry. The Government have started to do that by abolishing the Community Land Act and reducing the rates of development land tax. Let us try to exemplify those builders by suggesting that they incorporate deferred payment schemes to enable first-time buyers to proceed with their purchases after the mortgage interest rate has risen, provide moving-in schemes, part-exchange schemes, deposit savings schemes and interest-free loans on the deposit.

I should like to nail one lie to which the right hon. Member for Sparkbrook referred—

Order. The word "lie" is unparliamentary.

I apologise to the right hon. Member for Sparkbrook, Mr. Deputy Speaker. The lie was not his. It was perpetrated by Shelter. I referred to it in a weekend speech which was reported in The Guardian today, and to which the right hon. Member for Sparkbrook referred earlier.

I have discussed the plight of the mortgagor with directors of 10 national and local building societies since the announcement by the Building Societies Association last Thursday. Each of them has told me that in cases of genuine hardship, provided the mortgagor's record of repayment has been satisfactory, their mortgage term will be extended and the mortgagor will not be required to increase his monthly repayment.

I conclude with two quotations, one from an editorial in the Estates Gazette, probably the most highly regarded and most respected journal among those involved in the housing market, of 17 November. It said:
"Artificially pegged mortgage rates would add a new distortion to the housing market at a time when at least some of its inherited twists are being unravelled. Subsidies are generally indiscriminate in their operation, and the availability of mortgages at well below the prevailing level of other interest rates would quickly be followed by a rise in house prices, while an unacceptably low return for investors would reduce building society receipts, result in severe mortgage rationing and, in the longer term, mean fewer new housing starts and a consequent rise in unemployment in the building industry."
I am sure that the Opposition would wish to avoid that.

My second quotation is from someone with whom I am sure the right hon. Member for Sparkbrook would wish to associate himself, the right hon. Member for Leeds, East (Mr. Healey), who on 9 November 1978, as Chancellor of the Exchequer, said
"If the Government were to…fail to take timely action when necessary and lose control of the money supply, the sufferings of the whole of the British people, whether mortgagors or not, would be infinitely more serious than suffering brought about by increases in mortgage rates."—[Official Report, 9 November 1978; Vo. 957, c. 1233.]

Order. I remind the House that this debate ends at 7 o'clock. Perhaps I may also mention that Mr. Speaker's computer fails to pick up speeches of less than 10 minutes.

5.14 pm

The title of this debate should have nothing to do with mortgages. It is, I suspect, the first of a long, sad series of debates that we shall have on the Government's money supply policy. We shall no doubt have debates before long about unemployment, industrial investment, the collapse of small businesses and, I expect, the collapse of the small builder. They will all revolve around the Government's basic dogma that everything can be solved if only they can control the money supply.

I do not dispute that an impressive historic record can be produced relating inflation to money supply. I do not for one moment deny that there is such a connection. But the Government are not arguing that there is a connection. They are arguing that one is controlled by the other. I have not seen one paper written by any financial journalist providing evidence to support that theory. Nevertheless, the Government's policy today is based on the single and final belief that we can correct all problems in our society by controlling the money supply, and that control inevitably makes all other aspects of the economy suddenly fall into place. I do not share the Government's view, and I believe this to be the first of a series of debates that will sadly demonstrate that I am right.

The hon. Member has slightly misunderstood and misrepresented the Government's economic policy. Is he aware that the Government have stated repeatedly that without control of the money supply we cannot bring down inflation? They have not said that control of the money supply is the only means of doing that.

I look forward to reading that in Hansard and trying to work out the difference between those two statements. From any point of view, the only line of action on which the Government appear determined to maintain course is their monetary targets, and everything else is meant to fall in behind.

The Government hope increasingly as the weeks pass that control of the money supply will lead to lower pay demands. They are wrong, but they hang on to that hope. This is not the time to debate the matter, but clearly this country needs some form of pay policy.

The problem is sadder than is shown by a mortgage rate of 15 per cent. In the 22 months from January 1978 to October 1979 house prices in this country rose by about 47 per cent. That means that a house costing £10,000 in January 1978 will now cost about £15,000. The increase in the mortgage rate in that period from 8·5 per cent.—its lowest level during the Lib-Lab pact—to the current 15 per cent. means that repayments on such a house have risen from £81·50 to £193·50 a month. That is a staggering increase of 130 per cent. in just two years.

Such an appalling rise must have a dramatic effect on the prospects of people to own their own houses, to sleep peacefully at night and to balance their individual accounts. The Lib-Lab pact can claim some success in terms of mortgage rates. When the pact began, the rate was 12·25 per. At the end it was 9·75 per cent., and the all-time low during the life of the pact was 8·5 per cent. in January 1978.

I remember the Conservative Party in my part of the country chiding my Liberal colleagues and me for keeping in office a party which allowed mortgage rates to reach nearly double figures. I can assure Conservative Members that in my area, where the Liberal Party is far from dead, we shall remind the Conservatives of all these figures at the next general election.

I listened with great interest to the hon. Member for Lichfield and Tamworth (Mr. Heddle), who fought a marginal seat at the last election. I wonder how many times he made a speech such as that we have just heard in defence of high mortgage rates when he was trying to wrest the seat from Labour. I suspect that the speech was invented recently and that those facts were never mentioned at the time of the election.

The next point about mortgages is this. Perhaps this is the saddest point of all as there is some truth in what the Minister said. Those who, like myself, got into the mortgage club a decade ago have been helped by inflation at the same time. The saddest aspect is people buying new houses.

I suppose that I should declare an interest as I am at this moment negotiating a mortgage. My local small building society tells me that it can lend only one and three-quarter times a person's salary at the current levels of interest. There is some disagreement about that between different societies, but none appears to be willing at the moment to lend more than double a person's present salary, with a mortgage rate of 15 per cent.

The consequences of that are dramatic, if a young married couple are to have any prospects of purchasing a property for the first time. The national average wage is about £100 a week. In my area it is probably less than that. However, we shall ignore that fact for the sake of this debate. I shall take the example of the person earning the national average of £100 a week, looking forward to buying his first modest property. One and three-quarter times £5,000 a year is barely £9,000. Just what kind of property can anybody buy in my part of the country, or most others, with a total borrowing capacity of £9,000?

The Government have already seen us return to a position in which buying a property is not possible unless daddy offers or lends £5,000 or £6,000 of his own money. The people whom I see do not very often have fathers, mothers or in-laws who can lend them that sort of money. The undoubted result, which is already to be seen in one's individual constituency, is that the importance is not whether we do or do not sell council houses. Speaking for myself, I have no great opposition to selling them. However, that is not the main housing issue of the day. The main issue of the day will quickly become whether we are building enough council houses for the massive increase in demand that we shall shortly experience in this country.

There are not that many people under the age of 30 who earn much over the national average wage. A person tends to become prosperous later in life. Let me reduce the age to 27 or 28. There are not many people over that age who earn a great deal over the national average wage. Those people marry, and wish to have children. They are forced to look to the local authority for housing. I can assure them that in my area—as I know that a number of hon. Members can unfortunately assure their constituents—there is very little prospect of the Government encouraging the local authorities to build houses for them.

We therefore have a 15 per cent. mortgage rate. How long for? That must be the question most people are asking. A 15 per cent. rate for six weeks or even, I suppose, a couple of months will not make that much dramatic difference, although it will cause a great deal of worry. Are we talking about 15 per cent. for the next year, or most of next year? What does the Minister think about the possibilities of increasing the rate yet further? I should have laughed off the suggestion of 15 per cent. if someone had asked me that question six months ago. Perhaps we should not laugh off the possibility of 17 per cent. or 18 per cent. Is the Minister saying "This far and no further"? Will he give us a guarantee that it will be no further and that the Government will consider some kind of short-term bailing out, at least of the first-mortgage holders, if there is any real risk of the rate going further than that?

The Conservative Party is making a dramatic mistake. I do not believe that all its members actually believe that the money supply policy, on which all this is based, is what is required to put Britain right. I must warn Government supporters that they must tell their own party that the Government must get off this ludicrous money supply hook if they wish to defend their positions in their own constituencies at the next election, whenever it comes.

I have seen parties do things for their own self-benefit that were difficult to explain. But no greater folly have I ever seen than a Government sacrificing their own supporters for a narrow short-term dogma. I warn Government supporters that there is still time to tell their Government to do something other than simply control the money supply. I warn them quite firmly that the money supply restrictions will upset in particular those who run small businesses, those trying to buy houses and those trying to invest in industry. If I have discovered anything in my 15 or so years in politics, it is that they, historically at least, have been the backbone of the support of the Conservative Party. I must warn the Government and tell them—perhaps even thank them in a sarcastic way—that they are doing my party a greater service than any other Government who have ever represented the nation in this House.

5.26 pm

I do not think that I shall follow the remarks of the hon. Member for Truro (Mr. Penhaligon) in his appreciation of the Lib-Lab pact. I pass that over by saying that the hon. Gentleman is keen on giving the Conservative Party advice. I understand that during the time of the Lib-Lab pact the Liberal Party was supposed to give the Labour Party some advice. I remind the hon. Gentleman that the Labour Party subsequently lost the general election. Therefore, I do not think that Government supporters want to take much notice of the warnings given by the hon. Gentleman.

I do not think that we can consider the question of mortgage interest rates in isolation. It is high time that people throughout the country, and not only in the House, realised that for too long and for too often we have lived in cloud-cuckoo-land in our appreciation of the economy. We seem to have thought that if there were any deficiency the Government could spend money and deal with it. If that logic were correct—if by increasing public expenditure everything would be all right—the solution would be easy. We could have prosperity tomorrow. However, hon. Members on both sides realise that the economy is suffering from overspending in the public sector. That is what the general public are paying for at the moment.

I do not think that we pay sufficient attention to the public sector borrowing requirement. Everybody knows that this year it will be about £9,000 million. That is what we are overspending as a nation. One sometimes must pay back whatever one overspends as a nation or indeed as a housekeeper. The sum of £9,000 million is difficult to understand. If we ask how much we are overspending per week, the answer is £170 million. We are overspending by about £22 million a day.

That consequently means that the Government of the day—we cannot cut Government expenditure just like that, overnight—have that borrowing requirement. That money must be borrowed in the market, with all its international pressures. Quite obviously, the huge public sector borrowing requirement must affect the rate of interest that we pay. There is no point in thinking that we can, by increasing public expenditure, necessarily put ourselves into prosperity. All that we shall do is to increase the demand on borrowed money. That will push up interest rates even further.

When the Government came to power we thought that the borrowing requirement would be about £8,500 million. That proved to be false. However, we must pay attention to the fact that, in view of the VAT and telephone strikes, the Government's cash flow was depleted. Consequently the public sector borrowing requirement has been that much increased.

I do not like the amount of hypocrisy displayed by Members of the Opposition when we discuss owner-occupiers. Many Members of the Opposition do not believe in owner-occupation. It is hypocritical for them now to hold themselves out as champions of the owner-occupier and his high mortgage rates.

I must declare an interest. I am a vice-president of the Building Societies Association. I hasten to add that that is a purely honorary job. Neither I nor any other vice-president takes part in the deliberations of the association with officials, Ministers or others.

We cannot leave the subject of building society interest rates without taking into account pressures in the international market. All hon. Members know—it is no use making party points on the subject—that the interest rates in America, Japan, Germany have all risen. We cannot isolate ourselves from the international forces affecting interest rates. Consequently, the MLR goes up, and nobody regrets that any more than I do. But we cannot kid ourselves that we, as a country, can continue to live on tick—that we can borrow and borrow and have all the good things that we would like to have. There comes a time when one has to say "Stop". It is as simple as running a household. If our income is £50 a week and we are spending £55, we can get by for some weeks but eventually it will catch up with us and we shall have to cut our spending. The same thing applies to the nation, and I do not understand why people do not realise it.

I am sorry that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is not here. During his speech I think that he unwittingly misled the House, when he said that building societies this year were giving only seven-eighths of the number of mortgages that they gave last year. In fact, the amount of the individual advances granted is higher this year because of the increased prices of houses. It is no good just looking at the mortgage interest rates and the first-time buyer and thinking that that is the whole of the mortgage question. It is not. In addition, one of the reasons why house prices have escalated is that with our Rent Acts there is a great deal of under-occupied property which could be used for housing people who are without accommodaion and who want to be first-time buyers because they cannot get rented accommodation.

In a similar vein, I cannot understand the argument about the sale of council houses. Mortgages for council houses could be obtained from the building societies if they had sufficient money. If that failed, the Government would have to do a kind of book entry with the local authorities so that the council tenant would get his house. Here, a sense of hypocrisy creeps in, because many Labour Members do not want people to buy their council houses. That was nothing to do with mortgage interest rates. It is clearly a political doctrine. Some Labour Members think that it is better to keep a person in a council house, on the premise that there will be a pool of houses that can be let. That is nonsense. There are council houses in my constituency. Once a tenant goes in, it is impossible to get him out. That council house is not in a pool. It is available only if the tenant moves. It is hypocritical of Labour Members to try to stop the sale of council houses on the premise that the building society interest rate is too great.

We must realise that building societies will not raise their interest rate if they have many demands for advances. The mortgage interest rate is fixed irrespective of the number of demands for advances. The market forces determine the interest charged by building societies. The market forces—I am delighted that the right hon. Member for Sparkbrook has returned—are determined to a certain extent by international forces.

We must get out of this party football over housing, mortgage interest rates, and so on. I am not necessarily blaming the Opposition for all our economic ills, but everybody knows that the economy is in a mess. We have for too long been overspending. The only way to get ourselves out of this awful whirlpool is to face up to the realities of life. Nothing is free in this life. Anything that we get must be earned.

5.35 pm

The hon. Member for Croydon, South (Mr. Clark) spoke of hypocrisy. If his arguments about belt-tightening are valid now, they were valid at the time of the drafting of the Conservative Party manifesto, when the Conservative Party said that its plans for cutting Government spending and borrowing would lower the mortgage rate. They were valid also in July, when the Prime Minister gave an indication to the Building Societies Association that the high interest rates, the record MLR at that time, would be of only short duration. That intervention by the Prime Minister was made purely for political reasons, knowing that if the mortgage interest rate had increased at that time it would have erased at one stroke the benefits that the Government claimed would be given to the average man as a result of the Budget.

What I find most significant about the debate is the new chastened Secretary of State who has emerged. Exit the brash Sir Galahad; enter the Micawber, hoping that something will turn up. He came in and rapidly departed, with his tail between his legs.

This record mortgage interest rate is important in itself. It is a crushing blow to the hopes of many new borrowers and many prospective new borrowers. It is important also as an indication of the credibility of the Government and of their policy on interest rates.

One knows the strategy of the Government at the time of the June Budget, which was so welcomed on the Government Benches. The Government talked of an incentive society, reducing the burden of taxation, abandoning incomes policies and relying wholly on monetary constraints. The monetarism that they now espouse is a fine paper model but clearly it does not work in the real world, where men and, indeed, banks do not act as rationally as the Government would wish. That scenario seemed implausible at the time—there was no empirical basis on which it could be founded—and it has appeared more implausible as it has unfolded, particularly because of the increase in MLR and the Budget.

In June the Chancellor boasted about the effect of the Budget on the average family man. He said that
"income tax changes mean that for the married couple where the husband earns £100 a week, which is close to average earnings, there will be an increase in take-home pay averaged over the remainder of the financial year of over £4 a week. The increases in VAT and petrol duty will increase average family expenditure by about £2·75. So that, taking both the direct and indirect tax changes into account the average family will be about £1·30 a week better off."—[Official Report, 12 June 1979; Vol. 968, c. 261.]
Where is that average family now? How much better off is it after these record mortgage increases? Where is now the boasted incentive, so shortly after the June Budget, when, indeed, the books were open? The picture could have been seen by the Government, had they chosen to see it. The assumption of the Prime Minister, assuming her bona fides—with the arm-twisting of the Building Societies Association by her or by the Secretary of State for the Environment—was that interest rates would fall reasonably speedily after the Budget. That has not happened. It has not happened because at that time the Government, as an act of policy, increased inflation by 4 per cent. as a result of the Budget changes and have increased inflation since as a result of other policy changes. That deliberate Government policy has added to inflation. The effect of this record mortgage interest rate will add something short of 1 per cent. to the RPI.

It was not only the average mortgage holder who was conned by the Tory manifesto. The man with a mortgage in excess of £25,000 had been led to expect some relief. I recall that in the Second Reading debate on the Labour Government's Finance Bill the then Shadow Chancellor said that
"the mortgage interest relief provision will continue as it was last year, in order to maintain the status quo at £25,000 maximum".
He added that the changes
"represent a continuing increase in the real burden of taxation."—[Official Report, 3 April 1979; Vol. 965 c. 1199.]
The implication was that at an early stage the next Tory Government would increase that limit and therefore reduce the burden on the man with a high mortgage.

In his speech today, the Secretary of State gave some indications that this record mortgage increase reflected a shift in Conservative policy. Was it such a shift, or were the Government simply reacting wildly to a crisis of their own creation? Are they acknowledging the many complaints that the attractiveness of the financing of housing is at the cost of industrial investment and away from the stock market—the crowding-out argument? Are the Government deliberately trying to make housing more expensive, on the brave but perhaps rather foolhardy argument set out by the hon. Member for Lichfield and Tamworth (Mr. Heddle) in his speech today and in his response to The Guardian? If he carries on in that way and says these things to the mortgage holders in his constituency, I suspect that he will be a young man with a great future behind him.

The argument about crowding out has a certain plausibility, but if this is part of deliberate Government policy the Government should say so clearly and use all their other available means to divert financial resources into industry. But it sounds unlikely because we have to recognise that at a time when the Government are increasing the housing problem in the owner-occupied sector they are also making more difficult the possibility of having council houses, because of their reduction in finance for local authorities. There has been a fall in starts in the private sector this year, in any event. It is also inconsistent with the previously announced plans of the Government.

In mid-August, it was said that the Treasury was undertaking a long-term study to increase the finance for the mortgage market by attracting funds from banks, insurance companies and pension funds. Here I stress that the word used was "increase" and not "substitute". The argument about a deliberate policy is not, therefore, supported by the establishment of that study in August, or by the announcement on 8 November this year by the Secretary of State that he was establishing a new group to review finance for home ownership, as the Government's objective was
"to encourage a substantial growth in home ownership."
What a launching present for this new group established only on 8 November.

One must accept that the interest rate increase reflects in part the movement in world rates and that we cannot be immune from that development, but there has been a deliberate increase in our domestic rates as a result of Government policy, partly from the Budget, as I have mentioned, but also indirectly by the ending of exchange control. The Government have increased rates to prevent money fleeing overseas from this country—money that might otherwise have been used for the purchase of Government stock. Therefore, they have to increase domestic rates to attract money that might otherwise flow overseas.

The increase in rates is in part the reflection of world developments, but it is in substantial part the result of deliberate Government policy since June. I wonder what is now the feedback from the constituents who, presumably, Conservative Members have met over the past weekend. I wonder how many Tory voters, seduced by the promises of tax reduction in the Tory election pledge, now realise the extent to which they have been conned. How many Tory voters will be better off as a result of the combination of the Budget and this mortgage increase?

If there is any mitigation, the Government might claim that this is an unfortunate increase, which has resulted from a variety of reasons—world rates, the delay in the collection of VAT, and so on—and that it will be of short duration. But what is the evidence for the suggestion that it will be of short duration? We know that the interest rate structure will reflect quite faithfully the rate of inflation in the economy as a whole. The current rate of inflation is 17·2 per cent. We know that that rate of inflation will be fuelled by a series of increases which are now in the pipeline—electricity, gas, coal, rail fares, rates—and that, therefore, the prevailing inflation rate will increase to not less than 20 per cent. The prospect of there being a rapid fall in the mortgage rate is a very dim one. Even though some building societies, as the hon. Member for Lichfield and Tamworth said, may say that they will extend the mortgage terms to soften the blow, I wonder for how long they will do that. Several societies have said that they will do it for only a short time and for those who have taken out their mortgages after 1976–77, or in that sort of period. Perhaps there will be some mitigation, but it will be a very small degree of mitigation, given the expected length of duration of these very high interest rates.

There will also, of course, be an increase in the pressure on building society rates as a result of the Government's policy on the sale of council houses. In support of that proposition, I quote from the Government's own consultation paper on the sale of council houses, in which paragraph 19 states that
"The Government will encourage as many tenants as possible who buy their homes to fund their purchase with a private sector mortgage."
Even before the record increase that this Government have imposed on mortgage rates, we had the warning from Sir Hubert Newton, quoted in The Guardian of 23 October last, that
"a mortgage rate of 16½ per cent. against a current 11 per cent. would be needed if societies had to attract extra funds to meet the increased demand for home loans"
That was from those currently in the council sector. That is another factor which will, at the very least, keep rates at their historic high level and is likely yet further to increase the rate of mortgage interest.

I accuse the Government of economic incompetence, of blindly following an untried economic doctrine, and of being out of touch with our own people. We know that a Cabinet of millionaires is unlikely to sympathise with new and prospective borrowers from building societies. I accuse the Government of destroying the basis of their electoral support more speedily than any other Government in our history.

5.49 pm

Until that last sentence, I thought that the hon. Member for Swansea, East (Mr. Anderson) was doing a rather good job in opposing the Government. Until that very last moment, I thought that his speech was considerably better than that of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). At least I had some clear idea of what the hon. Member thought. I also had some idea of what the hon. Member for Oldham, West (Mr. Meacher) thought. He thought that the tax relief on mortgage interest should be disallowed. That was obvious from the drift of his speech. I do not think that that is the right hon. Gentleman's policy, and I do not think it is the Labour Party's policy, but no doubt it may be as time goes on, because we know that several Labour Members are strongly in favour of such a policy.

I start by reminding the right hon. Member for Sparkbrook of four sentences with which I am sure he will agree. They are these:
"I cannot pretend that interest rates at current levels are in any way pleasing to the Government. They have already had a most unwelcome though inevitable effect on mortgage rates and while they last will put a strain on many parts of the economy. But it is quite wrong to suggest that they mean abandoning all our hopes for a rapid increase in our manufacturing investment and output. We do not want interest rates to continue at this high level and we hope that once the money supply is back on course any effect which the squeeze may have should not carry through to investment intentions."—[Official Report 11 October 1976; Vol. 917 c. 45–46.]
Those four sentences were said by the right hon. Member for Leeds, East (Mr. Healey) in the House on 11 October 1976, a few days after he had announced the decision to raise the minimum lending rate to 15 per cent.

Recently we had a tribute to the effectiveness of that policy, and to the effectiveness of the one that we know must be followed now, from no less a person than the previous Chief Secretary to the Treasury, the right hon. Member for Heywood and Royton (Mr. Barnett), when he said in an article in The Guardian, which no doubt must have got him into serious trouble with his own party:
"All in all, there are no miracles left. We have to face the unpalatable fact that with, at best low rates of economic growth, and at worst nil or even negative growth, public expenditure cuts will be necessary…this seems self-evident, yet even to whisper that a future Labour Government will have to cut public expenditure brings forth serious charges and dire threats of expulsion"
or, indeed, if he did not say it, failure to be reselected by his constituency organisation.

I think that most hon. Members know perfectly well that the Government had no choice but to raise MLR the other week, just as the Labour Party had no choice but to raise it to 15 per cent. in October 1976. It is interesting to see what happened two or three months after the Labour Party raised MLR to 15 per cent., when the then Chancellor of the Exchequer, in December of that year, had to come back to the House with the International Monetary Fund package, a package that was considerably deflationary and which substantially cut public expenditure in real terms the following year.

A number of interesting things happened in 1977 as a result of the IMF cuts. First, inflation fell. Secondly, interest rates fell. The spokesman for the Liberal Party, the hon. Member for Truro (Mr. Penhaligon), who has now left the Chamber, implied that that was a result of the Lib-Lab pact. I do not think that anyone really believes that. I think that everyone believes that it was the result of the IMF cuts, which forced public expenditure down, and, therefore, forced interest rates down, and, therefore, forced inflation down. Unfortunately, once that had been done, the Labour Government then started spending again, and in 1978 and 1979 we found ourselves in our present difficulties.

The House will have noticed that there was one significant omission from the speech of the right hon. Member for Sparkbrook. Indeed, it was so significant that when my right hon. Friend the Secretary of State for the Environment came to his speech he had assumed that it would be there and had written something into it. I see the right hon. Member for Sparkbrook nodding. I am glad that he noticed the point. That was only a suggestion of a subsidy for mortgages.

I make this point because the Leader of the Opposition, in June of this year, rose at the Dispatch Box and referred my right hon. Friend the Prime Minister to the recycling arrangements which the late Mr. Anthony Crosland made in March 1974, soon after the Labour Government took office, when he advanced to the building societies £500 million as a loan to prevent mortgage interest rates from rising then. Clearly, by referring to that in the House in June of this year the Leader of the Opposition was expecting the Government to do the same. The Government did not do the same—any more than the Labour Government did the same in 1976 and 1978, when mortgage interests again rose sharply.

In 1976, for example, mortgage rates rose to a record level of 12¼per cent. On 9 November 1978, when the MLR had risen again, mortgage rates rose again, to 11¾per cent., having come down in between.

There was no action by the Labour Government then. The only reason why the recycling exercise took place in March 1974 was that everyone in the country knew that there would be another election in six months' time. When that problem did not exist in 1976 and 1978, the Labour Government did the only effective thing that they could do. They continued with the IMF cuts, they continued with their policy of reducing public expenditure, solving the problem of IMF cuts, and they allowed mortgage interest rates to rise without taking any action in the matter at all.

That being so, one would have hoped for a rather more constructive attitude from the right hon. Member for Sparkbrook this afternoon. I hope that we shall have one from the right hon. Member for Manchester, Ardwick (Mr. Kaufman) when he winds up the debate. I shall make a comment about him shortly.

The right hon. Member for Sparkbrook offered us no alternative strategy whatever. When interrupted by my hon. Friend the Member for Wycombe (Mr. Whitney), who asked what his alternative policy was, there was a rather embarrassed mutter, as a result of which it appeared that his policy was that public expenditure should rise, taxes should rise and mortgage interest rates should come down. It was not immediately clear how those desirable aims were to be achieved.

I think that the right hon. Gentleman must think back to his days in the Cabinet, which, after all, are not so very long ago. He knows perfectly well that had he been a Minister now he would not have been advocating policies of that kind. He knows that had Labour won the election he would have been supporting a Labour Chancellor in the proposals for public expenditure cuts which that Labour Chancellor would have had to bring to the House in May or June of this year, and which the former Chief Secretary, the right hon. Member for Heywood and Royton, admitted in his article in The Guardian in September were essential. I think that the right hon. Member for Sparkbrook was less than frank with the House in pretending that there were easy solutions to this problem.

We know the right hon. Gentleman's record over public expenditure. He was the man who got rid of the food subsidies which Mrs. Shirley Williams introduced. That was one of the contributions that he made to cutting public expenditure—and quite right he was, too, because those food subsidies were a total waste of money. They made no difference to inflation, and it was the right hon. Gentleman's job to unwind them.

However, I am less than encouraged to see that the right hon. Member for Ardwick will be winding up this debate. I am very fond of the right hon. Member, and he and I have had some good times debating with each other. I watched with fascination his correspondence in The Daily Telegraph with a Mr. Nichols, which I believe has now come to a conclusion. I remember the right hon. Gentleman, when he was Under-Secretary of State for the Environment during the passage of the Housing Rents and Subsidies Bill—I think that it was during the Committee stage in February 1975—saying something to the effect that he very much hoped that housing subsidies would be able to go up and up, and that he wanted to be able to embarrass the Chancellor by subsidies being higher and higher. I am most grateful to the right hon. Gentleman for his nod of assent.

Without having the record in front of me, I think that what I wanted to do was to embarrass my right hon. Friend by house building and, therefore, by seeing housing expenditure rising higher and higher. While I was at the Department, that happened. Unfortunately, with my departure it collapsed—but that was a coincidence.

The right hon. Gentleman has addressed the House with his usual modesty in these matters. We all know that the cause of his leaving the Department and the collapse of the housing policy subsequently under the Labour Government were interrelated. Whether everyone else would be so immediately convinced is a matter which I leave the House to judge.

However, the right hon. Gentleman, whether it be when he was in the Department of the Environment or subsequently in the Department of Industry, has not shown himself particularly conscious of the need for public sector economies. He has, rather, had a system of dipping his hand firmly into the taxpayer's pocket and throwing the money around as widely as he possibly can. I do not believe that that is a policy that is of any use to this country.

Therefore, if the right hon. Member for Ardwick and the right hon. Member for Sparkbrook are to criticise the level of MLR, they must explain, first, whether the Labour Party believes in monetary policy at all. If they do not believe in that at all, they must explain what the right hon. Member for Leeds, East did throughout the time he was Chancellor. They must also explain whether they believe in reductions in public expenditure. If they do not believe in such reductions, why was the former Chief Secretary so insistent in September of this year that they must take place?

These may be embarrassing questions to right hon. Members on the Opposition Front Bench. They certainly were not alluded to in the speech of the right hon. Member for Sparkbrook. However, the right hon. Member for Ardwick has a splendid opportunity tonight. There is not a tremendous crush of Members wanting to speak. He will probably have a good period of time in which to deploy his alternative policies. He will be able to tell the House what his party's attitude towards monetary policy is, what it is towards subsidising mortgages, and what it is towards cutting public expenditure. But I bet that he will not do any of those things.

6 pm

The hon. Member for Melton (Mr. Latham) seems to fall into the same trap as many Conservative Members have been falling into recently. It is that of accusing the previous Labour Government of being profligate spenders and increasing public expenditure so that it was going through the roof and, at the same time, accusing the Labour Government of cutting public expenditure and of doing the same kind of things that his Government are now doing.

Conservative Members cannot have it both ways. They tried to have it both way during the general election campaign in claiming that they would cut public expenditure while not affecting essential services, such as housing and social services.

During the election campaign the Conservatives also claimed to be the friends of the owner-occupier, and yet we have now seen the present Government launch a massive attack on the owner-occupier by creating an economic situation in which it will be virtually impossible for many hundreds of thousands of owner-occupiers to pay their mortgages. It will also be virtually impossible in the foreseeable future for people on average and just above-average incomes to be able to afford to buy a house.

The Government's policy of forcing local authorities to sell council houses will also hit the owner-occupier. Their paranoia in attacking council housing and forcing council house sales in areas of housing shortage when local authorities do not want to sell is having, and will have, the spin-off effect of attacking and hitting owner-occupiers in those areas as well.

With the mortgage interest rates that now exist, and with council houses being sold, it will be virtually impossible for the owner of an average-priced house in a town or city area to sell that house. The market has been destroyed, as well as mobility within the owner-occupied sector. It will make the lack of mobility that we are told exists in the public sector of housing fall into insignificance.

Another effect of the Government's policies of increasing the MLR and forcing up mortgage interest rates is that it will do the opposite of what they suggest is their policy. As was said earlier, they are increasing the public sector borrowing requirement. They are increasing by a massive sum the amount of subsidy that will be paid by central Government to owner-occupiers. In 1977–78, when building society rates varied between 8½ per cent. and 11¾ per cent.—an average of 10 per cent.—tax relief from the Chancellor of the Exchequer to owner-occupiers cost £1,210 million. At 15 per cent., which is the present rate of interest, it would have cost £1,815 million. In the next 12-month period it will cost far more than that, because outstanding mortgage debt is now greater than it was in 1977–78. It is likely to cost £2,100 million.

Conservative Members suggest that by quoting these massive subsidies, which they are supposed to be against, we are suggesting that we are against helping owner-occupiers. Not at all. Neither are we suggesting—certainly, I am not—that there should be a total end to income tax relief on the interest that an owner-occupier pays on his mortgage. But to pretend that these subsidies, as the Secretary of State did earlier, will go to working people, and that the Government are distributing wealth to working people, is the greatest piece of misleading information.

In fact, the opposite is true. The way in which we subsidise owner-occupiers is based on the unassailable principle that the richer one is, the more help one needs with one's housing. Let us look at the figures. A man with a £10,000 mortgage at a 15 per cent. rate of interest will get £450 tax relief if he pays income tax at the standard rate of 30 per cent. If that man is sufficiently well off to be taxed at 60 per cent., the help that he receives will be £900. If he is taxed at a rate of 75 per cent., because of investment income surcharge at 15 per cent. the help that he will receive will be £1,125. If he is taxed at a rate of 75 per cent. and has an investment income surcharge of 15 per cent., he is not likely to have a £10,000 mortgage. If such a person has a £25,000 mortgage, which is the maximum sum on which he can get tax relief, he will get help to the tune of £3,375 a year.

Therefore, the subsidies that are being handed out by the Government to owner-occupiers go to the people who are better off. The better off one is, and the bigger one's mortgage, the bigger the subsidy. All that I am suggesting is that that is iniquitous.

Can the hon. Gentleman tell us how much a man who is being taxed at 98 per cent. will receive?

I do not have the figures, but I am glad that the hon. Member made that intervention, because the concern shown by Conservative Members for people who are taxed highly contrasts sharply with their lack of concern for the council house tenant.

Does the hon. Gentleman agree that under Labour a person on the 98 per cent. rate of tax got more subsidy than he is getting at the moment?

No, I do not agree. As I have said, I do not have the figures relating to that tax band. However, there is a contrast between the subsidies that are given to owner-occupiers and the subsidies that are given to council house tenants. As I have shown, there will be a massive increase in the amount of subsidy that will go to owner-occupiers. This is at a time when the Government are freezing, and threatening to reduce, subsidies to the public sector and to council house tenants. This is particularly iniquitous because of the way in which the different systems work.

At present, subsidies that go to the public sector are directly related to the production of new houses or to the improvement or modernisation of older houses. A local authority receives subsidy in relation to the size of its house building programme or its improvement or modernisation programme. The opposite is true of the subsidies that go to the owner-occupied sector. If we stopped building private sector houses tomorrow—if no more houses were built for owneroccupation—subsidies to the owner-occupied sector would continue to increase. Only one-fifth of new lending is for new houses. Four-fifths of the lending to owner-occupiers relates to trading up—that is, a person selling one house and buying another that costs more—or to transfers from renting. If not one more new house were built, mortgage debt, and consequently tax relief on mortgages, would continue to increase by between 7 per cent. and 10 per cent. a year, even if interest rates did not increase.

There is something wrong with a system that causes subsidies to be handed out in this way. I suggest that the way in which we subsidise the owner-occupied sector is one of the things that is causing house prices to escalate, because we are subsidising the buying and selling of existing houses rather than the building of new houses.

I cannot quite follow the hon. Gentleman's argument. If a would-be owner-occupier did not take the opportunity of buying his own home and remained on the council house waiting list, would that increase pressure on the public sector borrowing requirement? Does the hon. Gentleman accept that that is true?

I am not one of those hon. Members who is particularly concerned about the public sector borrowing requirement. On the one hand, Conservative Members claim to be concerned, but on the other we have a Conservative Government who, because of their actions on interest rates, are forcing up the public sector borrowing requirement. I would welcome more pressure on the public sector borrowing requirement caused by the building of more council houses and the provision of more houses in both the public and private sectors.

I do not want to continue for much longer, because I know that other hon. Members want to speak. It is the greatest irony that we have a Conservative Government who can clearly be seen to be attacking the owner-occupier and who, by their policies and the way in which they have mismanaged the economy, will cause great hardship to existing home owners as well as to would-be home owners.

Finally, 2,500 families became homeless last year because they could not afford their mortgage repayments. With mortgage rates at the present appalling level, that figure will increase dramatically. It will be another massive extra burden placed on local authorities and voluntary organisations that are trying to deal with people who are homeless because they cannot keep up their mortgage repayments, which in itself will increase the public sector borrowing requirement.

6.10 pm

I have listened to the debate with an element of growing astonishment, not only because of some of the arguments presented by the Opposition but also—if this is such a desperate and serious charge—the relative lack of fire in what they had to say. Notwithstanding the denials made by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) at the outset of the debate that the present situation was partly the responsibility of the previous Government, the course of this debate is the clearest possible evidence that the Opposition are well aware that their public borrowing legacy was a significant contributor to the present high level of interest rates and the rates that mortgagors have to pay.

No one—from my right hon. Friend the Secretary of State who opened the debate to my hon. Friend who will close it, and every other Member who has spoken—denies that the present level of the minimum lending rate is a disaster for the country and something that we all wish to avoid and hope to see reduced at the earliest opportunity. That is not the matter in dispute.

I am sorry that the right hon. Member for Sparkbrook is not present. To treat the House, as he did, to a recitation of what the newspapers thought rather than indicate the Opposition's policy is not to give the debate the merit it deserves in the eyes of many whose mortgage and other borrowing interest rates are so high.

It is not a cause of dispute that mortgage interest rates are too high and that mortgagors will be hit. Although it has not been mentioned, the construction industry, which is so often the first casualty of high interest rates, may also be hit. That much is self-evident. We can all accept that that is so.

The hon. Member for Swansea, East (Mr. Anderson) mentioned high interest rates as an element of deliberate Government policy. That is, at best, a half truth. It is true that the Government are prepared to have high interest rates to contain the money supply, because we believe that that is an important component, though not the sum total, in the control of inflation, but it is untrue to say that for some masochistic, self-destructive reason the Government have artificially forced up the level of interest rates. That is absurdly untrue.

The hon. Member for Truro, (Mr. Penhaligon), whose party is so concerned about this matter that its members seem to have left the Chamber after making their contributions, listed the many sectors of the community that he claimed voted Conservative—I have no reason to disagree with him—that would be badly hit by a high level of interest rates. The hon. Gentleman is right. Many of the supporters of the Government who gave us such a clear majority at the last election will be affected by these rates. So it must surely be self-evident to everyone that the last thing that the Government would do as a deliberate act of policy would be to inflict a high interest rate unless it was for a purpose. That purpose, as we see it, is the control and reduction of future inflation. That is a policy that surely should be shared by all hon. Members.

We believe that we cannot achieve the containment of inflation, and with it the reduction of interest rates, without, first, a reduction of the public sector borrowing requirement and, secondly, control of the money supply. I believe that most Opposition Members will recognise that as being so, even if, at the moment, for understandable reasons, they are not inclined to admit it. The truth is that mortgage interest rates cannot be divorced either from other interest rates in our domestic economy or, as the hon. Member for Swansea, East stated, when he spoke rather well, from the general level of world interest rates.

If the hon. Member for Huntingdonshire (Mr. Major) believes that we cannot insulate mortgage interest rates from interest rates in general, will he explain how in the United States, for example, over most of the post-war period, mortgage companies have effectively done that in relation to Federal Reserve finance and how, on the Continent, mortgage financing effectively operates insulated from the rest of the banking system?

That is a totally different system of finance, as the hon. Member for Vauxhall (Mr. Holland) is well aware. If he wishes to debate the American and British systems of financing housing, I should be delighted to do so, but not when there are five minutes or so left before the winding-up speeches begin.

A little earlier, Opposition Members charged that there was a measure of Government incompetence in relation to interest rates rising to their present level. There has been much rather sterile talk about "our interest rates never reached more than 15 per cent. and the Government have produced a minimum lending rate of 17 per cent." If one considers the position in relation to the rest of the world one cannot, as has been said, isolate oneself from that. I believe that Opposition Members will agree with that.

At the time when the previous Government imposed a minimum lending rate of 15 per cent., the interest rates in New York were about 5 per cent. At present, when we have a minimum lending rate of 17 per cent., interest rates in New York are 15 per cent. or thereabouts. If relative incompetence is to be a charge on the present Government, they escape from that charge relatively unscathed.

A moment ago I mentioned the PSBR. That is an element of considerable concern in connection with our domestic levels of inflation and interest rates. Even after what the Opposition have charged as excessive cuts in public expenditure, the PSBR anticipated in the Budget was £.8¼ billion, and it is likely to be a little greater at the outturn of the year. The sheer difficulty of funding that amount is a material factor in connection with the level of interest rates. Surely that is something that the Opposition must recognise as partly attributable to the legacy that we inherited and one that we, in the short term, have been unable to do anything about. If, as I am sure they do, Opposition Members accept that we must contain inflation, they must also accept that we must seek to reduce the PSBR and consequently reduce, over a period of time, the general level of interest rates, not least in the interests of mortgagors.

I cannot understand how Opposition Members are able, at an early stage of this Parliament, to mount an attack in the terms of the motion without recognising their past contribution to the present situation. Whether Opposition Members like it or not, many owner-occupiers, or would-be owner-occupiers, not least in the council house sector, will see in the attitude of the Opposition a large measure of hypocrisy. Despite many Opposition Members opposing mortgage interest relief and other elements of policy that would lead to greater owner-occupation, they now bring this sort of motion before the House. I hope that the motion will be decisively defeated.

6.18 pm

I shall be very brief because I know that both Front Benches want adequate time to reply to the debate. One aspect of this problem that appears to have been overlooked is the role of the building societies. I am surprised that in the discussions that have taken place some pressure has not been brought to bear on the building societies and the role that they play. I understand that my right hon. Friend and other hon. Members on the Opposition Benches met the Building Societies Association recently, and the Secretary of State has made it perfectly clear that he intends to set up a working party to see how best these problems can be dealt with in future.

I suggest to the Secretary of State that the working party—I would call for something stronger, such as a committee of inquiry—should consider the activities of the building societies. There are over 300 building societies, all supposedly in competition with each other yet all charging basically the same rate of interest. In every High Street one can find as many as eight, 10 or even a dozen building societies, all with swanky offices. If it is not a wasteful organisation, I should like to know what is.

What has anybody done about that? Over the last eight years I have tried to get successive Governments to institute an inquiry into the activities of building societies. They spend vast sums of money advertising in the media and no one seems to question that at all. I think that it is completely unnecessary. Building societies are supposed to be non-profit making, yet they make vast profits in excess of liquidity and these go into the reserves, which are never touched.

No, I will not give way. I do not have much time, and the Front Bench speakers want to start their winding-up speeches very soon.

On a point of order, Mr. Speaker. The hon. Member referred to profits being made by building societies. I do not think that they make profits. Perhaps the hon. Member will elaborate.

I still say that the building societies make a profit at the end of each year. It then goes into reserves—

The hon. Member should look at the building societies' annual reports. He will then see what I am talking about. The building societies also employ part-time directors who attend meetings once every two months. Those same directors get an inflation-proof pension after 10 years' service. Is this right? I urge the Government to look seriously at some of these problems when they hold this committee of inquiry. If they are not prepared to do that, they should refer the activities of the building societies to the Monopolies Commission or some other committee of inquiry. They owe that to the country.

6.22 pm

The frivolous and complacent speech by the Secretary of State, who is not in his place this afternoon, failed to match the seriousness of the situation that we are debating. We are now facing Britain's gravest housing crisis in post-war times. For both tenants and purchasers, finding and paying for a home will be more difficult and expensive than ever before. Fewer houses will be built, rents and house prices will hit an all-time record height, and finance will be scarce and more costly than ever before.

All this has not come about by accident. It is the direct consequence of policies pursued deliberately by this Government. As my hon. Friend the Member for Swansea, East (Mr. Anderson) pointed out, the Government's spending cuts have reduced the council house building programme to its lowest for more than a generation. This year and next the Government are cutting housing investment funds by £598 million—a devastating 21 per cent.

Last year's programme was poor, and no one makes excuses for it, but it will appear as a triumphant success compared with 1979–80. Housing starts are likely to be down by 25 per cent., and in turn 1980–81 looks like being even worse. Last week the Minister did not deny that council house starts in 1980–81 would total a miserable 45,000. Those are the facts behind the Secretary of State's bogus claim today that the Government are doing all that they can to encourage house building.

Not only will there be fewer new houses; all council houses will cost their tenants more than ever before. In his announcement 10 days ago on the rate support grant settlement, the Secretary of State smuggled in the confession that his rent guideline assumed an average rent increase of £1·50 a week. Life under this Secretary of State will make council house tenants long for the idyllic days of the Housing Finance Act.

The outlook is even grimmer for those who are buying a home and for those with an increasingly forlorn hope of buying one. It is constructive after only six months to contrast the record of the Tory Government, and the prospects ahead for home buyers under that Government, with the record and achievements of recent Labour Governments. While the Tories mouth slogans about helping home buyers and then kick them in the teeth, Labour Governments act to help those buying their homes.

Every positive action of recent years to help home buyers has been taken by Labour Governments. Labour introduced the option mortgage scheme, which so far has benefited 1,250,000 house buyers. Last year Labour introduced the home purchase assistance scheme for first-time buyers, and 55,000 first-time buyers have already benefited from that. Labour acted in 1974 when the mortgage rates were about to go up to 13 per cent. We kept them down with our loan scheme to the building societies at minimal cost to taxpayers.

Labour introduced the stabilisation scheme. Under the last Labour Government, house prices rose at less than three-quarters of the rate that they rose under the Conservative Government who were in office until 1974. Under our last Government, mortgage interest rates rose three times and fell five times. Under this Tory Government and their predecessor, mortgage rates fell once and rose five times, until they reached the all-time crisis record of 15 per cent.

It is not surprising that the rate of increase in home ownership under the last Labour Government was almost twice as great as that under the previous Tory Government. When Labour left office just over six months ago, more people owned or were buying their own homes than at any time in this country's history. A massive 55 per cent. of all households were home owners. That progress towards a property-owning democracy with a substantial and growing public rented sector was brought to a grinding halt on 4 May.

Two Tory Ministers share the responsibility for that—the Chancellor of the Exchequer and the Secretary of State for the Environment. They are men obsessed with a purblind pursuit of salvation through usury. That obsession has led directly to the disastrous 15 per cent. mortgage rate announced last week.

Remember what the Chancellor told the House in his Budget Statement five short months ago. I quote:
"The Budget is designed to give the British people a greater opportunity than they have had for years to win a higher standard of living."
He also said:
"Every family in the land will have more money coming in."—[Official Report, 12 June 1979; Vol. 968, c. 262–3.]
That was the promise made by the Chancellor in his Budget. Now we have the morning after.

My hon. Friend the Member for Swansea, East reminded the House today of how the Chancellor rhapsodised about the benefits that his Budget brought to a typical married couple with the husband earning £100 a week. The Chancellor told us that his income tax cuts would give this average man £4 a week in tax cuts. Of course, the Chancellor immediately swiped £2·75 of that back with his VAT and petrol duty increases. Even so, he told us, that would still leave Mr. Average with £1·30 a week more.

The Chancellor has soon settled Mr. Average's hash. If that man is repaying an average £12,000 mortgage over 25 years, he will now have to find another £6·78 a week in additional mortgage interest payments. That alone leaves him £5·48 worse off after this opportunity Budget—and that does not take account of the 25p a week extra in national insurance contributions imposed on Mr. Average last week by Newham's gift to Daventry. Newham's loss is Daventry's loss. Nor does it take account of his increased rate bill, his dearer television licence, prescription charges that have been increased twice over and all the other benefits bestowed upon him by this bounteous Government. Presumably that was what the Secretary of State meant to-day when he said that he was transferring wealth to working people.

Not only are most mortgage payers much worse off after the Budget; they are being made to contribute towards making even richer the affluent minority who will still be better off. The Chancellor's monetarist monomania, by forcing mortgage rates up from 11¾ per cent. to 15 per cent., has foisted on Britain's 5,250,000 mortgage payers an additional annual tax of £996 million a year, or £190 a head. That cool £1 billion is the contribution that mortgage payers will have to make towards the £1,400 million tax relief that the Chancellor gave in his Budget to the 6 per cent. richest tax payers. At least, the mortgage payer should be grateful for one thing—he has a mortgage to repay. Countless others cannot get a mortgage at all.

The other achievement of the Government's dear money policy is the creation of unprecedented mortgage famine. As the president of the House-Builders Federation said about two weeks' ago,
"The shortage of mortgages is almost unbelievable."
The chairman of the Building Societies Association confirmed to me last week that the building societies now give only seven loans for the eight that they gave last year.

Those are the grim facts at national level. However, in branches around the country would-be borrowers are now learning the facts of Tory life. This weekend, I spoke on the telephone to managers of several building society branches. No one place is completely representative and it is impossible to pick out an average town or city that represents all mortgage payers. However, I chose two localities that I believed might offer an interesting point of view. One was Finchley, the Prime Minister's constituency.

All the branch managers whom I telephoned in Finchley told me the conditions that they are laying down to would-be borrowers. They are making loans only to applicants who can prove that they have invested in their society for a prescribed minimum period. At the Nationwide and the Woolwich Building Societies in Finchley the prescribed minimum period is six months and at the Anglia Building Society it is a year. If investors want to get the Abbey habit in Finchley as borrowers, they must have saved with the society for a minimum of two years.

That is not all. In most cases, Finchley man or woman is required to have savings with the society of his or her choice amounting to 10 per cent. of the loan that is sought. There is more to come. Societies are now looking in what one representative called "greater detail" at criteria affecting multipliers of income. That is the language used in Finchley—in Manchester we call it a means test. If Finchley man can clear all those hurdles, how long will he have to wait for a mortgage? At the Nationwide Building Society he will will do quite well. The Nationwide is a good building society—I invest in it myself. Finchley man will have to wait only until January. At the Abbey National Building Society he will have to wait until late January, the Anglia Building Society cannot help until mid-February, and at the Woolwich Building Society he will have to wait until March.

However, all that information is more cheerful than some that I was given by the other centre that I telephoned—Henley, the constituency of the Secretary of State for the Environment. I discussed the matter with the manager of the Portman Building Society. He was good enough to tell me that he voted for the right hon. Gentleman the Secretary of State in the election. He told me that his society
"are having to say no to an awful lot of good investors".
The Abbey National Building Society told me that it had heard in nearby centres of borrowers phoning on Friday after the announcement about the 15 per cent. rate to cancel their dealings. The South of England Building Society branch in Henley told me that would-be borrowers, even if they satisfy all the conditions, will still have to wait until April for a mortgage. That is the crisis that the Secretary of State has visited upon his unoffending constituents.

Since his appointment, the Secretary of State has spent his time careering around the country on publicity jaunts. We all remember his bloodcurdling massacre of the quangos. That dauntless exercise resulted in the elimination of 0·017 per cent. of the public sector borrowing requirement. No doubt that is what the Secretary of State meant today when he told us that he is making "massive savings" in the PSBR. Never mind—it won the Secretary of State a great deal of headlines. Of course, for our itinerant Secretary of State the shortest distance between two points is not a straight line but a headline.

Yet it was the Secretary of State who, when the mortgage rate rose to 9·75 per cent. under the Labour Government last year, declared from this Dispatch Box, with high indignation,
"that the problems of the building societies are symptomatic of the declining confidence in the Government's overall economic policies."—[Official Report, 14 June 1978; Vol. 951, c. 993.]
Good words. They apply much more fittingly to the crisis created by the right hon. Gentleman's Government. Nevertheless, the Secretary of State is, after all, an amiable figure, who is always good for a laugh. The Daily Mail recently summed up his antics in a leading article headed, appropriately:
"Another hoax by Headline Heseltine".
In this unprecedented mortgage crisis, there is someone much more significant whose personal credit is at stake—the Prime Minister. For years she has presented herself as the symbol of cheaper mortgages. We all remember that in September 1974, reported in The Times under that famous headline:
"Tories pledge 9½ per cent. mortgage rate by Christmas",
she said:
"Our plans for a 9½ per cent. mortgage are absolutely unshakeable."
It was the Prime Minister who wrote in an article in The Daily Telegraph:
"The building societies' … difficulties are not of their own making, so it is only right that the Government should consider new ways of helping them to keep down the mortgage rate".
That article was headed:
"What platform for the Tories—the owner-occupiers' party? "
In February, when the minimum lending rate rose for three weeks to 14 per cent., the right hon. Lady said that
"an increase in interest rates to 14 per cent. is a potential disaster for home buyers … it is the home buyer and the small business who are having to pay the price for the Government's economic failure."—[Official Report, 8 February 1979; Vol. 962, c. 550.]
It was the Prime Minister who signed last April's Tory election manifesto—on which all Conservative Members were elected six months ago—with that now notorious pledge which bears repetition:
"The prospect of very high mortgage rates deters some people from buying their homes and the reality can cause acute difficulties to those who have done so. Mortgage rates have risen steeply because of the Government's financial mismanagement. Our plans for cutting Government spending and borrowing will lower them."
The Prime Minister is fond of justifying some of her more odious actions by claiming that she has a mandate for them. That is a mandate if ever there was one—a specific promise to lower mortgage rates. The Prime Minister has betrayed that promise and all those whom that promise deceived into voting for her.

However, she and the Secretary of State have found a new excuse for that betrayal. They blame the unprecedented mortgage rates on—wait for it—wage claims. The Prime Minister tried it on in the House last Thursday. The Secretary of State, with his penchant for lurid language, went one better in the statement that some of the press described as being made by a "rattled man". He blamed the increase to 15 per cent. on what he called
"Vicious strike-backed inflationary wage claims".

The Government came to power not only on a solemn promise, a mandate, to bring down mortgage rates but also on a solemn promise, a mandate, to champion free collective wage bargaining. As their manifesto put it

"Pay bargaining in the private sector should be left to the companies and workers concerned".
That scapegoat will not run. The real culprits are sitting on the Government Front Bench. The Tory remedy for a genuine economic problem has created an unnecessary economic crisis. Home owners are the latest casualties of that Tory crisis, and that is why we ask the House to support our motion.

6.40 pm

I make clear at the outset that in no way do we make light of the impact of present interest rates on those who have bought their homes, particularly those who have bought them fairly recently, on those wanting to buy and on the house building industry. However, it is the foremost interest of everyone, whether owning or renting a property, that inflation is controlled. My right hon. and learned Friend the Chancellor of the Exchequer is absolutely right to make that his priority. In doing so, he is following a familiar path, well trodden by his predecessor.

As my hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) reminded us, the right hon. Member for Leeds, East (Mr. Healey) said, when he increased MLR by 2½ per cent:
"If the Government were to … fail to take timely action when necessary and lose control of the money supply, the sufferings of the whole of the British people, whether mortgagors or not, would be infinitely more serious than suffering brought about by increases in mortgage rates".—[Official Report, 9 November 1978; Vol. 957, c. 1233.]
We have listened carefully to Labour Members. In speech after speech, we have heard the strongest condemnation of high mortgage interest rates, yet throughout the general election campaign and since then, in speech after speech, conference resolution after resolution and debate after debate in the House, the nonstop cry of the Labour Party has been for higher and higher public expenditure—which could only mean interest rates still higher than those that Labour Members have condemned.

My hon. Friends the Members for Croydon, South (Mr. Clark) and Huntingdonshire (Mr. Major) have referred to the size of the predicted expenditure of the Labour Government. To see the scale of that proposed expenditure, one needs to look no further than the motions tabled by the Opposition on the Supply days in this Parliament. Today is the sixth allotted day and on each of the previous five Supply days the Opposition motions have called for more public expenditure, which could only drive interest rates, and therefore mortgage rates, still higher.

As there is an Opposition motion before us, it is reasonable to ask what would be the levels of public expenditure, the public sector borrowing requirement, MLR and the mortgage rate if, by any mischance, the Labour Party were conducting our affairs. I do not know whether Labour Members would wish to be credited with their election manifesto commitments on public expenditure, with the resolutions on public expenditure passed by their party conference or with their commitments to increase public expenditure as set out in their last public expenditure White Paper. Perhaps the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who has been urging local authorities to
"use the law at every turn to frustrate Tory plans",
would like to be credited with the lot.

Whether we take the 57 commitments to increase public expenditure set out in the Labour manifesto, the 10 Labour Party conference resolutions representing increased public expenditure passed last month, the White Paper commitment to increase public expenditure in real terms by 2·1 per cent. this year and a further 2·3 per cent. next year or the new commitment to expansion that the right hon. Member for Sparkbrook made on behalf of the Opposition today, it is beyond any, shadow of doubt that if the policies of the Labour Party were being pursued, interest rates and the mortgage rate could only be substantially higher than they are today.

The additional public expenditure required next year to finance the commitments in the previous Government's public expenditure White Paper, admittedly now repudiated by the former Chief Secretary to the Treasury—though by no one else on the Opposition Front Bench—would have amounted to £3,500 million. Today, as on every previous occasion, the Opposition have been conspicuously silent about how such a sum could be financed.

No doubt some Labour Members would say that it should be financed by a wealth tax, but that would leave about 90 per cent. of the £3·5 billion still to find. The standard rate of income tax would need to be 38 per cent. VAT would have to go to more than 20 per cent. Not even the right hon. Member for Leeds, East in his halcyon "We'll make the pips squeak" days advocated taxation of such a monumental order of magnitude.

Given the unwillingness of Labour Members to contemplate tax increases of that size and their repeated opposition to further public expenditure cuts, the inescapable conclusion is that their expenditure commitments would have had to be financed overwhelmingly by borrowing. If it is necessary for MLR to be at 17 per cent. and the mortgage rate to go to 15 per cent. to finance the present borrowing requirement, one shudders to think to what levels both rates would have been driven in order to finance the reckless and vastly greater borrowing of the Labour Party.

Can the Minister confirm that the statistics that he has been throwing at us were prepared by the same civil servants as have managed to give misleading answers to my hon. Friend the Member for Blackburn (Mr. Straw) and myself in the past?

The figures in the public expenditure White Paper were the figures of the previous Administration.

If there is any single factor that lies at the heart of the present record level of interest rates, it is the monumental weight of debt put round the necks of every man, woman and child in this country over the past five years.

The most accurate observation made before the 1974 elections about the future Administration was that made by the right hon. Member for Sparkbrook when he said:
"We will be an expensive Government with an expensive programme. Our election Manifesto can hardly promise a taxpayers' Eldorado."
The right hon. Gentleman can say that again. Within one month of coming into office in February 1974, the right hon. Member for Leeds, East told the House with pride that he had secured the largest loan ever raised in the international capital markets. That set the pattern for the next five years.

I admit that along the way the then Chancellor of the Exchequer had his celebrated crisis of conscience when he said:
"We cannot go on living on tick like this."
Unhappily, we went on living on tick and five years later the tick amounted to an extra £42,000 million—an additional burden of debt of £2,100 on every house- hold in the land. We have heard a lot of talk about post-dated cheques, but that £42 billion is the biggest post-dated cheque of them all.

With the borrowing has come the debt interest. During the previous Government's term of office, annual expenditure in debt interest increased enormously in real terms. As my right hon. Friend the Prime Minister has said, we would not have a borrowing requirement to finance this year were it not for the need to service our debt. On what possible grounds can Labour Members condemn present mortgage rates when they directly and inescapably relate to the need to finance debts incurred by the previous Labour Government?

A number of Labour Members have questioned our control of the money supply. Contrary to the erroneous impression that they have tried to convey, we have never maintained that money supply is the sole instrument of economic policy, but we consider that control of the money supply is one of the essential preconditions for controlling inflation. That will come as no great surprise to Opposition Members.

If there was any economic issue about which the Labour Government claimed greater virtue—in debate, in Question Time, and both inside and outside the House—it was their control of the money supply. During the last five years the pages of Hansard are littered with clarion calls from the right hon. Members for Leeds, East and for Cardiff, South-East (Mr. Callaghan) to control the money supply. Three years ago the right hon. Member for Leeds, East said:
"the recent measures that the Government have taken to tighten credit and to ensure that their published guidelines for growth in the money supply are met in the current year are a necessary element for the fulfilment of their economic policies … Such adjustments may be painful, but this Government will not shirk from making them it the situation requires it. We did not shirk last week".—[Official Report, 11 October 1976; Vol. 917, c. 46–8.]
We did not shirk the week before last.

The Opposition have failed to explain why, having said emphatically three years ago that they would not shirk the consequences of controlling the money supply, they are willing to do so completely now.

Much has been said about election commitments. The memories of the Opposition are perhaps rather short. I seem to remember that during the 1964 election campaign a leading spokesman for the Labour Party suggested that if the Labour Government were re-elected they would consider mortgages of about 3 per cent. The right hon. Member for Manchester, Ardwick (Mr. Kaufman) chose not to dwell on the clear commitment given in the 1974 Labour manifesto:
"Local Councils' lending will be expanded so that they can play a major part in helping house purchasers."
In an intervention, the right hon. Member for Ardwick referred to the fact that the council house building programme collapsed only after he had left the Department. I listened, waiting for the right hon. Gentleman to say that, during the time that he was a Minister in the Department of the Environment, local authority mortgage lending had been nearly halved. While he was a Minister, money for local authority mortgage lending was deliberately switched out of mortgages into municipalisation. I listened for him to say that the previous Labour Administration had so reduced lacal authority mortgage lending that for the last three years the new amounts lent had been so low that they had been exceeded by the amount repaid.

If the right hon. Gentleman wishes to play with words such as "conned", I suggest that he looks first at the Labour Administration's failure to fulfil their manifesto commitments on local authority mortgage lending. During the last election, the right hon. Member for Spark-brook referred to a Labour Party commitment. If that commitment had been implemented, it would have been an unmitigated disaster for home buyers. I refer to his commitment that mortgage rates should be made subject to the authority of the Price Commission. I wonder what the situation would be now if the Price Commission had become involved.

Both this November and last November—under the previous Labour Government—the building societies have had to respond rapidly to sharp upward movements of the minimum lending rate. If the building societies had been prevented from raising their interest rates by the intervention of the Price Commission, it would have resulted in punitive losses of income for the 20 million building society investors and a catastrophic outflow of funds from building societies. That would have been the inevitable and disastrous consequence of that commitment.

The right hon. Member for Ardwick spoke in glowing terms of the achievements of the Labour Administration for home buyers. He did not mention that the annual average rate of increase in home ownership during the period of the Labour Government was lower than that of any Administration since that of Mr. Attlee.

The hon. Gentleman previously gave me a parliamentary answer—I have it in my hand—showing quite clearly that owner-occupation during the period of the Labour Government rose at nearly twice the rate during the period of the Conservative Government between 1970 and 1974. That information was given to me by the Minister.

I have established that the annual average rate of increase in home ownership during the period of the Labour Government was lower than for any Administration since that of Mr. Attlee.

Order. The right hon. Gentleman knows our customs. If the Minister does not give way, he must be allowed to continue.

The right hon. Member for Ardwick chose to make no mention of the fact that in every year of the Labour Administration the number of mortgage loans extended to first-time buyers was below the record number of loans achieved by the Conservative Administration in 1971–72. The biggest contradiction is that, despite the right hon. Gentleman's protestations about concern for first-time buyers and everything that he said about the desirability of home ownership, he still advocates a policy of denying home ownership.

Order. We now have three right hon. and hon. Members on their feet. If the Minister does not give way, he must be allowed to continue.

The right hon. Gentleman still advocates that policy of denying home ownership to the largest group of potential first-time buyers—council tenants.

Order. I shall say it for the third time so that the whole House will understand. If the Minister does not give way, it is our custom that he be allowed to continue with his speech.

On a point of order, Mr. Speaker. I accept what you have said. However, it is equally in order for hon. Members to seek to ask the Minister to give way.

The speeches that we have heard concerning the difficulties experienced by first-time buyers would have carried more conviction if steps had been taken during the past five years to clear some of the more glaring legislative road blocks. However, nothing was done, apart from the ill-fated home loans scheme. No legislative measure was passed to ease the problems of first-time buyers. Many measures were talked about, but none appeared on the statute book.

No action was taken to allow housing associations to improve homes for sale, as well as for renting, thereby providing a new source of low-cost funds for first-time buyers. No action was taken to give local authorities the equivalent of an improvement

Division No. 110]

AYES

[7.01 pm

Adams, AllenBottomley, Rt Hon Arthur (M'brough)Cocks, Rt Hon Michael (Bristol S)
Allaun, FrankBradley, TomCohen, Stanley
Anderson, DonaldBray, Dr JeremyColeman, Donald
Archer, Rt Hon PeterBrown, Hugh D. (Provan)Concannon, Rt Hon J. D.
Armstrong, Rt Hon ErnestBrown, Robert C. (Newcastle W)Conlan, Bernard
Ashley, Rt Hon JackBrown, Ron (Edinburgh, Leith)Cook, Robin F.
Ashton, JoeBuchan, NormanCox, Tom (Wandsworth, Tooting)
Atkinson, Norman (H'gey, Tott'ham)Callaghan, Rt Hon. J. (Cardiff SE)Craigen, J. M. (Glasgow, Maryhill)
Barnett, Guy (Greenwich)Callaghan, Jim (Middleton & P)Crowther, J. S.
Barnett, Rt Hon Joel (Heywood)Campbell, IanCryer, Bob
Beith, A. J.Campbell-Savours, DaleCunliffe, Lawrence
Benn, Rt Hon Anthony WedgwoodCanavan, DennisCunningham, Dr John (Whitehaven)
Bennett, Andrew (Stockport N)Cant, R. B.Dalyell, Tam
Bidwell, SydneyCarmichael, NeilDavidson, Arthur
Booth, Rt Hon AlbertCarter-Jones, LewisDavies, Rt Hon Denzil (Lianeill)
Boothroyd, Miss BettyClark, David (South Shields)Davies, Ifor (Gower)

grant so that they might improve properties for sale—especially to first-time buyers. No action was taken to remove the well-known legislative obstacles facing shared ownership schemes that are of particular benefit to first-time buyers. No action was taken to allow housing association tenants to convert a part equity share in their homes into full home ownership. No action was taken to give any council or new town tenants the right to buy their homes.

The verdict of The Times on the measures taken by my right hon. and learned Friend was that they were painful but necessary, and that in the long run the increase in MLR

"will do far less damage than the alternative would have done."

The Opposition's motion represents a dismal combination of economic irresponsibility and political humbug. I ask the House to throw it out.

Before the Minister sits down, I should be grateful if he would clarify the answer that he gave to me in which he stated that in 1971, on the census, the percentages of all owner-occupied households was 50·2 and in 1974 was 52—an increase of 1·8 per cent.—and that by 1978 it had reached 55 per cent.—an increase of 3 per cent., or almost double the rate of increase under the previous Conservative Government. Is that reply inaccurate, is it to be involved in the inquiry into his other replies, or is he now admitting that what he said in his speech is untrue and that the reply that he gave to me is accurate? The House has a right to know one way or the other.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 258, Noes 304.

Davis, Clinton, (Hackney Central)Jones, Rt Hon Alec (Rhondda)Roberts, Gwilym (Cannock)
Davis, Terry (B'rm'ham, Stechford)Jones, Barry (East Flint)Robertson, George
Deakins, EricJones, Dan (Burnley)Robinson, Geoffrey (Coventry NW)
Dempsey, JamesKaufman, Rt Hon GeraldRodgers, Rt Hon William
Dewar, DonaldKerr, RussellRooker, J. W.
Dixon, DonaldKilfedder, James A.Roper, John
Dobson, FrankKilroy-Silk, RobertRoss, Ernest (Dundee West)
Dormand, JackKinnock, NeilRoss, Stephen (Isle of Wight)
Douglas, DickLambie, DavidRowlands, Ted
Douglas-Mann, BruceLamborn, HarryRyman, John
Dubs, AlfredLamond, JamesSandelson, Neville
Duffy, A. E. P.Leadbitter, TedSever, John
Dunlop, JohnLeighton, RonaldSheerman, Barry
Dunn, James A. (Liverpool, Kirkdale)Lestor, Miss Joan (Eton & Slough)Sheldon, Rt Hon Robert (A'ton-u-L)
Dunnett, JackLewis, Ron (Carlisle)Shore, Rt Hon Peter (Step and Pop)
Dunwoody, Mrs. GwynethLitherland, RobertShort, Mrs Renée
Eadle, AlexLofthouse, GeoffreySilkin, Rt Hon John (Deptford)
Eastham, KenLyon, Alexander (York)Silkin, Rt Hon S. C. (Dulwich)
Edwards, Robert (Wolv SE)Lyons, Edward (Bradford West)Silverman, Julius
Ellis, Raymond (NE Derbyshire)McDonald, Dr OonaghSkinner, Dennis
Ellis, Tom (Wrexham)McElhone, FrankSmith, Rt Hon J. (North Lanarkshire)
English, MichaelMcGuire, Michael (Ince)Snape, Peter
Ennals, Rt Hon DavidMcKay, Allen (Penistone)Soley, Clive
Evans, Ioan (Aberdare)McKelvey, WilliamSpearing, Nigel
Evans, John (Newton)MacKenzie, Rt Hon GregorSpriggs, Leslie
Ewing, HarryMaclennan, RobertStallard, A. W.
Fields, AndrewMcMahon, AndrewSteel, Rt Hon David
Field, FrankMcMillan, Tom (Glasgow, Central)Stewart, Rt Hon Donald (W Isles)
Fitch, AlanMcNally, ThomasStoddart, David
Flannery, MartinMcWilliam, JohnStott, Roger
Fletcher, L. R. (Ilkeston)Magee, BryanStrang, Gavin
Fletcher, Ted (Darlington)Marks, KennethStraw, Jack
Foot, Rt Hon MichaelMarshall, David (Gl'sgow, Shettles'n)Summerskill, Hon Dr Shirley
Ford, BenMarshall, Dr Edmund (Goole)Taylor, Mrs Ann (Bolton West)
Forrester, JohnMarshall, Jim (Leicester South)Thomas, Dafydd (Merioneth)
Foster, DerekMartin, Michael (Gl'gow, Springb'rn)Thomas, Jeffrey (Abertillery)
Foulkes, GeorgeMason, Rt Hon RoyThomas, Mike (Newcastle East)
Fraser, John (Lambeth, Norwood)Maxton, JohnThomas, Dr Roger (Carmarthen)
Freeson, Rt Hon ReginaldMaynard, Miss JoanThorne, Stan (Preston South)
Garrett, John (Norwich S)Meacher, MichaelTilley, John
Gilbert, Rt Hon Dr JohnMellish, Rt Hon RobertTinn, James
Ginsburg, DavidMikardo, IanTorney, Tom
Golding, JohnMillan, Rt Hon BruceUrwin, Rt Hon Tom
Gourlay, HarryMiller, Dr M. S. (East Kilbride)Varley, Rt Hon Eric G.
Grant, George (Morpeth)Mitchell, R. C. (Soton, Itchen)Wainwright, Edwin (Dearne Valley)
Grant, John (Islington C)Molyneaux, JamesWalker, Rt Hon Harold (Doncaster)
Hamilton, James (Bothwell)Morris, Rt Hon John (Aberavon)Watklns, David
Hamilton, W. W. (Central Fife)Morton, GeorgeWeetch, Ken
Hardy, PeterMoyle, Rt Hon RolandWellbeloved, James
Harrison, Fit Hon WalterMulley, Rt Hon FrederickWelsh, Michael
Hart, Rt Hon Dame JudithNewens, StanleyWhite, Frank R. (Bury & Radcliffe)
Hattersley, Rt Hon RoyOakes, Rt Hon GordonWhite, James (Glasgow, Pollok)
Haynes, FrankOgden, EricWhitehead, Phillip
Healey, Rt Hon DenisO'Neill, MartinWhitlock, William
Heffer, Eric S.Owen, Rt Hon Dr DavidWigley, Dafydd
Hogg, Norman (E Dunbartonshire)Palmer, ArthurWilley, Rt Hon Frederick
Holland, Stuart (L'beth, Vauxhall)Park, GeorgeWilliams, Rt Hon Alan (Swansea W)
Home Robertson, JohnParker, JohnWilliams, Sir Thomas (Warrington)
Homewood, WilliamPendry, TomWilson, Gordon (Dundee East)
Hooley, FrankPenhaligon, DavidWilson, Rt Hon Sir Harold (Huyton)
Horam, JohnPowell, Rt Hon J. Enoch (S Down)Wilson, William (Coventry SE)
Howells, GeraintPowell, Raymond (Ogmore)Winnick, David
Huckfield, LesPrescott, JohnWoodall, Alec
Hudson Davies, Gwilym EdnyfedPrice, Christopher (Lewisham West)Woolmer, Kenneth
Hughes, Mark (Durham)Race, RegWriggiesworth, Ian
Hughes, Robert (Aberdeen North)Radice, GilesWright, Sheila
Hughes, Roy (Newport)Rees, Rt Hon Merlyn (Leeds South)Young, David (Bolton East)
Janner, Hon GrevilleRichardson, Miss Jo
Jay, Rt Hon DouglasRoberts, Albert (Normanton)TELLERS FOR THE AYES.
John, BrynmorRoberts, Allan (Bootle)Mr. Hugh McCartney and
Johnson, James (Hull West)Roberts, Ernest (Hackney North)Mr. Ted Graham.
Johnson, Walter (Derby South)

NOES

Adley, RobertBell, RonaldBoscawen, Hon Robert
Alexander, RichardBennett, Sir Frederic (Torbay)Bottomley, Peter (Woolwich West)
Amery, Rt Hon JulianBenyon, Thomas (Abingdon)Bowden, Andrew
Ancram, MichaelBenyon, W. (Buckingham)Boyson, Dr Rhodes
Arnold, TomBest, KeithBraine, Sir Bernard
Aspinwall, JackBevan, David GilroyBright, Graham
Atkins, Robert (Preston North)Biffen, Rt Hon JohnBrinton, Tim
Atkinson, David (B'mouth, East)Biggs-Davison, JohnBrittan, Leon
Baker, Nicholas (North Dorset)Blackburn, JohnBrocklebank-Fowler, Christopher
Banks, RobertBody, RichardBrooke, Hon Peter
Beaumont-Dark, AnthonyBonsor, Sir NicholasBrotherton, Michael

Brown, Michael (Brigg & Sc'thorpe)Heddie, JohnOnslow, Cranley
Browne, John (Winchester)Henderson, BarryOppenheim, Rt Hon Mrs Sally
Bruce-Gardyne, JohnHeseltine, Rt Hon MichaelOsborn, John
Bryan, Sir PaulHicks, RobertPage, John (Harrow, West)
Buck, AntonyHiggins, Rt Hon Terence L.Page, Rt Hon R. Graham (Crosby)
Budgen, NickHill, JamesParkinson, Cecil
Bulmer, EsmondHogg, Hon Douglas (Grantham)Parris, Matthew
Burden, F. A.Holland, Philip (Carlton)Patten, Christopher (Bath)
Butcher, JohnHooson, TomPatten, John (Oxford)
Butler, Hon AdamHordern, PeterPattie, Geoffrey
Cadbury, JocelynHowe, Rt Hon Sir GeoffreyPawsey, James
Carlisle, John (Luton West)Howell, Rt Hon David (Guildford)Percival, Sir Ian
Carlisle, Kenneth (Lincoln)Howell, Ralph (North Norfolk)Peyton, Rt Hon John
Carlisle, Rt Hon Mark (Runcorn)Hunt, David (Wirral)Pink, R. Bonner
Chalker, Mrs. LyndaHunt, John (Ravensbourne)Pollock, Alexander
Channon, PaulHurd, Hon DouglasPorter, George
Chapman, SydneyIrving, Charles (Cheltenham)Prentice, Rt Hon Reg
Churchill, W. S.Jenkin, Rt Hon PatrickPrice, David (Eastleigh)
Clark, Hon Alan (Plymouth, Sutton)Jessel, TobyPrior, Rt Hon James
Clark, Dr William (Croydon South)Johnson Smith, GeoffreyProctor, K. Harvey
Clarke, Kenneth (Rushcliffe)Jopling, Rt Hon MichaelPym, Rt Hon Francis
Cockeram, EricJoseph, Rt Hon Sir KeithRaison, Timothy
Colvin, MichaelKaberry, Sir DonaldRathbone, Tim
Cope, JohnKellett-Bowman, Mrs ElaineRees, Peter (Dover and Deal)
Cormack, PatrickKing, Rt Hon TomRees-Davies, W. R.
Corrie, JohnKitson, Sir TimothyRenton, Tim
Costain, A. P.Knox, DavidRhodes James, Robert
Cranborne, ViscountLamont, NormanRhys Williams, Sir Brandon
Crouch, DavidLang, IanRidley, Hon Nicholas
Dickens, GeoffreyLangford-Holt, Sir JohnRidsdale, Julian
Dorrell, StephenLatham, MichaelRifkind, Malcolm
Douglas-Hamilton, Lord JamesLawrence, IvanRippon, Rt Hon Geoffrey
Dover, DenshoreLawson, NigelRoberts, Michael (Cardiff NW)
du Cann, Rt Hon EdwardLee, JohnRoberts, Wyn (Conway)
Dunn, Robert (Dartford)Lennox-Boyd, Hon MarkRost, Peter
Durant, TonyLester, Jim (Beeston)Royle, Sir Anthony
Eden, Rt Hon Sir JohnLewis, Kenneth (Rutland)Sainsbury, Hon Timothy
Edwards, Rt Hon N. (Pembroke)Lloyd, Ian (Havant & Waterloo)St. John-Stevas, Rt Hon Norman
Eggar, TimothyLloyd, Peter (Fareham)Scott, Nicholas
Elliott, Sir WilliamLoverldge, JohnShelton, William (Streatham)
Emery, PeterLuce, RichardShepherd, Colin (Hereford)
Eyre, ReginaldLyell, NicholasShepherd, Richard(Aldridge-Br'hills)
Fairgrieve, RussellMcAdden, Sir StephenShersby, Michael
Faith, Mrs SheilaMcCrindle, RobertSilvester, Fred
Farr, JohnMacfarlane, NeilSims, Roger
Fell, AnthonyMacGregor, JohnSkeet, T. H. H.
Fenner, Mrs PeggyMacKay, John (Argyll)Smith, Dudley (War. and Leam'ton)
Finsberg, GeoffreyMcNair-Wilson, Michael (Newbury)Speed, Keith
Fisher, Sir NigelMcNair-Wilson, Patrick (New Forest)Speller, Tony
Fletcher, Alexander (Edinburgh N)McQuarrie, AlbertSpence, John
Fletcher-Cooke, CharlesMadel, DavidSpicer, Jim (West Dorset)
Fookes, Miss JanetMajor, JohnSproat, Iain
Forman, NigelMarlow, TonySquire, Robin
Fowler, Rt Hon NormanMarshall, Michael (Arundel)Stainton, Keith
Fox, MarcusMates, MichaelStanbrook, Ivor
Fraser, Peter (South Angus)Mather, CarolStanley, John
Fry, PeterMaude, Rt Hon AngusSteen, Anthony
Galbraith, Hon T. G. D.Mawby, RayStevens, Martin
Gardiner, George (Reigate)Mawhinney, Dr BrianStewart, Ian (Hitchin)
Gardner, Edward (South Fylde)Maxwell-Hyslop, RobinStewart, John (East Renfrewshire)
Garel-Jones, TristanMayhew, PatrickStokes, John
Glyn, Dr AlanMellor, DavidStradling Thomas, J.
Goodhew, VictorMeyer, Sir AnthonyTaylor, Robert (Croydon NW)
Goodlad, AlastairMiller, Hal (Bromsgrove & Redditch)Tebbit, Norman
Gorst, JohnMills, Iain (Meriden)Temple-Morris, Peter
Gow, IanMills, Peter (West Devon)Thatcher, Rt Hon Mrs Margaret
Gower, Sir RaymondMiscampbell, NormanThomas, Rt Hon Peter (Hendon S)
Grant, Anthony (Harrow C)Mitchell, David (Baslngstoke)Thompson, Donald
Gray, HamishMoate, RogerThorne, Neil (Ilford South)
Greenway, HarryMonro, HectorThornton, Malcolm
Grieve, PercyMontgomery, FergusTownend, John (Bridlington)
Griffiths, Peter (Portsmouth N)Moore, JohnTownsend, Cyril D. (Bexleyheath)
Gryils, MichaelMorgan, GeraintTrippier, David
Gummer, John SelwynMorris, Michael (Northampton, Sth)Trotter, Neville
Hamilton, Hon Archie (Eps'm&Ew'll)Morrison, Hon Charles (Devizes)van Straubenzee, W. R.
Hamilton, Michael (Salisbury)Morrison, Hon Peter (City of Chester)Vaughan, Dr Gerard
Hampson, Dr KeithMudd, DavidViggers, Peter
Hannam, JohnMurphy, ChristopherWaddington, David
Haselhurst, AlanMyles, DavidWakeham, John
Hastings, StephenNeale, GerrardWaldegrave, Hon William
Havers, Rt Hon Sir MichaelNeedham, RichardWalker, Bill (Perth & E Perthshire)
Hawkins, PaulNelson, AnthonyWalker-Smith, Rt Hon Sir Derek
Hawksley, WarrenNeubert, MichaelWall, Patrick
Hayhoe, BarneyNewton, TonyWaller, Gary
Heath, Rt Hon EdwardNormanton, TomWalters, Dennis

Ward, JohnWhitney, RaymondYoung, Sir George (Acton)
Warren, KennethWickenden, KeithYounger, Rt Hon George
Watson, JohnWiggin, Jerry
Wells, John (Maldstone)Wilkinson, JohnTELLERS FOR THE NOES:
Wells, Bowen (Herl'rd & Stev'nage)Williams, Delwyn (Montgomery)Mr. Spencer Le Marchant and
Wheeler, JohnWinterton, NicholasMr. Anthony Berry.
Whitelaw, Rt Hon WilliamWolfson, Mark

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 32 ( Questions on amendments), and agreed to.

Mr. Speaker forthwith declared the main Question, as amended, to be agreed to, pursuant to Standing Order No. 18 ( Business of Supply).

Resolved,

That this House, while recognising that the present level of mortgage interest rates will place an additional burden on home owners, realises that this group cannot be totally insulated from the general level of interest rates in the economy; and reaffirms its support for the essential measures which the Government has taken to reduce its claim on public expenditure and to combat inflation.

National Enterprise Board

7.15 pm

I beg to move,

That this House condemns the action of Her Majesty's Government on Rolls-Royce which forced the unanimous resignation of the National Enterprise Board; and deplores the damage done to Britain's industrial reconstruction by the Government's policy.

The motion has two aspects to it. The first is the unique occasion of the entire board of a nationalised corporation resigning, perhaps not at the instance of the Secretary of State but in direct opposition to his views. The second is not only the damage that this does but the damage to industrial reconstruction and to the prospects that flow from it.

I deal first with the resignation itself. As I say, it is unique. One has heard of the case where a chairman and a Secretary of State have had a difference of opinion. This can happen very often, and no blame need be attached to either if the chairman resigns. No blame need be attached to either if out of loyalty, friendship or conviction one or two of the chairman's colleagues decide to resign with him. But when a whole board resigns, it is at least open to question whether the handling by the Secretary of State is all that one would wish. If there is one thing that a Minister should be capable of dealing with, it is the management of men. Why else is he a Minister?

On this occasion the entire board found itself in total disagreement with the Secretary of State. What is interesting about it is that the Secretary of State cannot quote it as a very good illustration of the Government's philosophy. We have had many lectures from the right hon. Gentleman on the Government's philosophy towards industry and towards the nationalised industries in particular.

Only recently, on 20 November, the right hon. Gentleman gave us another little lecture. It was on the occasion of the Second Reading of the British Aerospace Bill. What he said then was in amplification of what he had said on many pre- vious occasions. He said that the Conservative Government would not interfere at all in management and that their duty was merely to create an economic climate in which industry could flourish.

The first half of this Supply day shed some light on the economic climate that this Government have been creating, but to that I intend to return a little later. However, on 20 November the right hon. Gentleman was discussing the Government's relationship with British Aerospace, having been questioned about defence and other contracts between the Government and the proposed new company. He said:
"We intend to maintain these quite separate from the Government's relation with the company as shareholders."—[Official Report, 20 November 1979; Vol. 974, c. 228].
Here we have a new creation by the Government—about fifty-fifty Government and private. That was the basis of the British Aerospace Bill. But the argument was that the Government should maintain a totally separate basis and should not interfere in any way. We were dealing with a very large industry. British Aerospace is an enormous industry. There are enormous defence contracts upon which the whole aerospace industry depends, as well as other Government contracts. It was proposed that we should take this step because it was the Government's philosophy to let the industry get on with the job.

On 21 November, the following day, in a statement on Rolls-Royce, the Secretary of State informed the House:
"Rolls-Royce is a company … with which, inescapably, the Government have exceptionally close connections and where important decisions lie directly with the Government."—[Official Report, 21 November 1979; Vol. 974, c. 388.]
Was that not true of British Aerospace the day before? What happened in those 24 hours? We are told that the shareholdings leave the National Enterprise Board and go direct to the Secretary of State.

I said that on 20 November the Secretary of State had given us one example of his philosophy. We had another example on the following day, but a conflicting one. On 20 November he said something that I found extremely interesting in the light of events only 24 hours later. He said that a business—the right hon. Gentleman always talks about business when he means industry, but I shall let that pass—would not function best when depending on Ministers and civil servants
"however well intentioned they may be."—[Official Report, 20 November 1979; Vol. 974, c. 216.]
I understand that. That is another example of the right hon. Gentleman's philosophy. The right hon. Gentleman says "Do not, whatever you do, let an important enterprise get into the hands of Ministers and civil servants, 'however well intentioned they may be'." It seems that on 21 November he goes back on the philosophy of 20 November. Perhaps the right hon. Gentleman will be in a position to give us some further information when he catches your eye, Mr. Deputy Speaker, in a short while.

On two occasions during the proceedings in Committee on the Industry Bill my hon. Friend the Member for Thurrock (Dr. McDonald) has asked whether it is true that the Midland Bank has been approached to act as a consultant for Rolls-Royce. To that question we have had no answer. If that is true, it indicates that there is a third basis rather than the two apparent conflicting philosophies. If it is not true, the policy of 20 November has been taken over by that of 21 November.

That is the right hon. Gentleman as a philosopher, but let us take him in another role that every Minister must have from time to time, namely, a peacemaker. As he said, it took him no more than a short while to realise that there was conflict between Rolls-Royce and the NEB. He said in his July statement that the National Enterprise Board would have responsibility for looking after the interests of national companies. He said that clearly. He added that the NEB would have his full support.

That was the right hon. Gentleman being clear and decisive. He was telling us exactly where we stood. However, in his statement on 21 November he told us that there was friction between Rolls-Royce and the NEB. He said that the friction
"is inherent in the relationship"—[Official Report, 21 November 1979; Vol. 974, c. 388.]
—that is, between the NEB and Rolls-Royce. It may be that he thinks that that friction is inherent in the relationship between all holding companies and subsidiary companies. Is that true? In most instances holding companies and subsidiary companies work together.

It is true that there was a written memorandum of agreement between Rolls-Royce and the NEB. I grant that that is unusual. It does not often happen between a holding company and a subsidiary company. However, we are dealing with two important companies, each of which has a point of view. The written agreement, the peace treaty, that the right hon. Gentleman had backed—he had given his full support to the holding company in July—was well known to him. He was well aware of its contents. Therefore, he was well aware that the friction was exacerbated by certain criticisms that the chairman and board of the NEB had of the management of Rolls-Royce.

The criticisms—I shall not go into them beyond saying that they were important in the running of Rolls-Royce and in the company's direction—had the full endorsement of the right hon. Gentleman. Indeed, he agreed with me only the other day that that was so. He had seen them before the half-yearly financial statement of the NEB appeared, on which occasion the criticisms were made public. He had seen them before the meeting took place.

Is it not true that the National Enterprise Board had brought to light criticisms with which the right hon. Gentleman agreed? We do not know about that as our questions have not been answered. They may or may not be criticisms which the Midland Bank will be called upon to consider and act upon as a consultant. As I have said, we do not know because our questions have not been answered. However, the criticisms were endorsed by the right hon. Gentleman, so the NEB was proved right.

If that is so, what made the right hon. Gentleman move from giving the National Enterprise Board his full support? He moved from that position to one so antagonistic towards the board that the whole board, even the non-executive directors, said "Thank you very much, we have had enough and we are resigning." Were the right hon. Gentleman's statements about non-interference not to be taken literally? Of course, he has on so many occasions expressed his philosophies in the House. He did so as recently as the day before the statement in which he announced the resignation of the entire board. Were his statements about non-interference uttered in what might be described as Pickwickian language? I suggest that that must be so.

The old board resigned in toto and a partial board was appointed. The right hon. Gentleman says that he left vacancies. The vacancies were not being filled but the new half-board was appointed before he had accepted the full resignations that he knew would take place. He knew when he accepted the names of the new board that the entire old board would resign.

The right hon. Gentleman must answer our questions. Did he inform the new board members before he approached them to become members that the whole of the old board would resign, every one of them, including the non-executive directors? If he did so inform them, and I believe that he must have done, they knew for certain the penalty for disagreeing with the right hon. Gentleman, even if the whole board was unanimous. They knew that they must never question his view. They knew that they had to accept from the start their subordinate position to the right hon. Gentleman, which in many instances would mean a position subordinate to officials, however "well intentioned they may be". That is why the board will have no power and no independence.

When I deal further with the issue of independence, I come again to the agreement that was made between Rolls-Royce and the NEB. I refer especially to the part of it which confirms that, whenever the chairman of Rolls-Royce seeks a meeting with the Secretary of State, the chairman of the National Enterprise Board has a right to be present. That is obvious if they are discussing Rolls-Royce matters. That is why I dismiss from my mind the answer given me by the right hon. Gentleman. I probed him twice, but he never properly replied. He merely told me that he had had a private meeting with the chairman of Rolls-Royce. He said that that was to discuss chairmanship. I believe that the chairman of Rolls-Royce had intimated to the permanent secretary —I am not certain whether he should have told the permanent secretary without telling the chairman of the NEB—that that was what the private meeting was about.

What the Secretary of State did not tell me was how many meetings he had alone without the chairman of the National Enterprise Board having been invited but with civil servants present on a minuted basis. It is important that we should know that information. His words were:
"I said that I had had only one meeting privately with the chairman of Rolls-Royce. Of course, one meets both the chairman of the Board and the chairman of Rolls-Royce on occasions other than private meetings."—[Official Report, 21 November 1979; Vol. 974, c. 392.]
That is not the answer to the question I put. Perhaps the right hon. Gentleman will now give me the answer.

If the National Enterprise Board is to have independence, it must have not only a board that is independent but also a staff that is conscious that it is independent. Its morale depends entirely on that. If the staff know that any views expressed, though approved by the board, can simply be vetoed by the Secretary of State and, if necessary, the whole board asked to resign, there will not be very good morale in the NEB.

It is also the essence of independence, which protects the staff and the public, to have a strong board. A number of names, some of them distinguished, have been given as members of the new board. How can such a board ever develop the strength of the old board without trade union members? It has not got trade union members. One reason is that trade unionists regard with distaste the fact that Rolls-Royce has been taken away from the National Enterprise Board. I do not know whether that alone would have made them refuse membership. The basic reason was that the board was never consulted. There were no meetings with the Secretary of State. The board was never allowed to develop its views. The right hon. Gentleman merely said "I know you have offered your resignation if I decide to take Rolls-Royce away. Very well, I accept your resignation."

The tragedy is that management and trade union members of the National Enterprise Board during its two years of existence have worked closely together. They have worked together well as a team in working sector groups and in NEDO. What will be the effect on that? I must confess to feeling disturbed about the possibility of considerable damage being done to that partnership. The damage goes much wider. It will affect the whole of our industrial reconstruction. How is the new board, whether a half board or, at some later stage, a whole board and staff, to do its job, even one as emasculated as that given to it? Perhaps this is where the Midland Bank comes in—

As the right hon. Gentleman is talking about the NEB in general terms, will he comment on the action of his hon. Friend the Member for Nuneaton (Mr. Huckfield)—I was not able to warn him that I would be raising this point—who marched in Birmingham with the Communist shop steward, Mr. Robinson, in direct encouragement of a strike that could be crucial to British Leyland? Does the right hon. Gentleman approve that sort of action by one of his Front Bench spokesmen?

My hon. Friend will have to answer for himself. No doubt he will. I was dealing with the National Enterprise Board. My marching days—

The right hon. Gentleman must be careful at this moment. I have to say that. His own record during the past day or two has not been totally lily-white. I am thinking of Port Talbot.

The serious aspect of this matter is the damage to industrial reconstruction. I asked how the board and staff were to do the job in the circumstances. It will be interesting if the Secretary of State can tell the House whether the board and staff knew that any independent decision to which they may come is subject either to the Secretary of State's ultimatum and diktat or perhaps to the diktat of the Midland Bank, which would be even worse.

Will my right hon. Friend ask the Secretary of State whether he has con- sidered whether he is entitled to take these actions in regard to the NEB in advance of the passing of the Industry Bill?

I dare say that the Secretary of State can answer for himself. I shall try to help him out. I imagine that he is entitled to take this action, strictly in law, because he can do what he likes with the National Enterprise Board at any time. That is exactly the trouble in which we find ourselves. I am sorry to be brief in reply to my hon. Friend. I am conscious that this is a short debate. Many of my hon. Friends and no doubt hon. Members on the Government Benches are anxious to speak.

Another matter to which I wish to refer is the uncertainty. We have several times asked the Secretary of State what is to happen at British Leyland. It is not only that hon. Members in this House have a right to know. It is also a fact that the whole motor car industry and the country have a right to know.

Will the right hon. Gentleman comment on the proposals by Mr. Robinson that any restructuring in British Leyland should be stopped by sit-ins?

I have not seen such a proposal. This is not the place to comment on that. This is the place to comment on the National Enterprise Board, as I am trying to do.

I will not give way. There is no time and I cannot answer frivolities. What the country needs is a rescue operation—

That is right. It could get a rescue operation through a new Government. It is possible, however, that, for a month or two, we are landed with the old one. It would be pleasant if we had the same powers over this Government as the Secretary of State took over the National Enterprise Board.

We need industrial reconstruction. We need it badly. Time is going fast. We have seen the regional functions cut away. We have seen £250 million, £50 million in Scotland, cut off regional aid. The functions in the North and the North-West are the only ones left regionally to the National Enterprise Board and a staff that are likely to be demoralised by what has happened.

The general role of encouraging public enterprise has been taken away from the National Enterprise Board. Much of its role in acting as a catalyst in private enterprise has also gone. As a result of action in the last few days, the adult education role which the right hon. Gentleman thought that the Board might continue to operate with new companies, because the private sector was unable or unwilling to help, is under pressure from the right hon. Gentleman. This has happened despite the limitation for which the hon. Member for Lincoln (Mr. Carlisle) requested when he called on the Secretary of State to return companies other than Rolls-Royce to the private sector
"as soon as they can face it."—[Official Report, 21 November 1979; Vol. 974, c. 398.]
This has taken place on top of an economic climate that the right hon. Gentleman was going to substitute for good industrial reorganisation. It is an economic climate that has brought a minimum lending rate of 17 per cent. and a cut in public spending on roads of £200 million. How does one get industry moving without roads? The steel industry, shipbuilding and the textile industry have been decimated. Only one additional brick is being added to the wall of intransigence and dogma that we see tonight. I appeal to my right hon. and hon. Friends to support the motion in the Lobby.

7.40 pm

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:

'welcomes the Government's decision on Rolls-Royce, expresses its appreciation of the services of the members of the National Enterprise Board who have recently resigned, welcomes the appointment of a strong new board to carry forward the work of the National Enterprise Board and the intention to make further appointments, and endorses the Government's determination to strengthen the role of private capital in industrial reconstruction.'.
The right hon. Member for Deptford (Mr. Silkin) devoted most of his speech to the resignation of the entire board of the NEB. He warned us that he would spend an equal amount of time on the damage done by the resignation of the board to the reconstruction of British industry. In the event, he did not spend that time on the second subject. I do not think that he was able to pursue it because the House would have laughed at the claim that the regeneration of British industry depended on a single board, no matter how distinguished.

The Secretary of State must read Hansard tomorrow. He will find that he is quite incorrect. At no time did I say that I would give equal time to the two matters. I said that this was to be a very short debate. I was interrupted by Conservative Members on two occasions.

The right hon. Gentleman said that there were two headings to his speech. He developed one and neglected the other, presumably because it was too weak to develop.

My right hon. and hon. Friends and I have no criticism of the National Enterprise Board, which has, much to our regret, resigned. We have respect for the members of the board as individuals, and the disagreement was no reflection upon them either as individuals or as a board. They were given a very difficult role to fulfil when, in addition to all their other tasks, the last Government required them to conduct monitoring of Rolls-Royce.

I and my right hon. and hon. Friends on coming into office inherited what can only be described as a state of friction between two distinguished boards. I made inquiries of the NEB within a month of coming into office about the prospects for Rolls-Royce.

Does the Secretary of State really dismiss what is in effect the constructive dismissal of the chairman of the TUC economic committee so lightly?

I do not accept that there was any constructive dismissal. I shall reply to the speech of the right hon. Member for Deptford in sequence, and I shall come to that point.

I began on the assumption that there was a simple friction of personalities causing a difference of view between the boards of Rolls-Royce and the NEB. As the months passed I came more and more to the conclusion that this issue was not one of a simple conflict of personalities but an incompatibility of the roles of the two boards, given the unique relationship between Rolls-Royce and the Government. I explained that to the House in my statement and in answer to questions on it last week.

When I told the NEB board of the Government's decision, I was faced with the categoric reply that if the decision were adhered to the board as a whole would resign. I make no criticism of the board for taking that decision. The members of the board took it honourably and, as they saw it, in the interests of the country. But it was they who faced the Government with the categoric decision after the Government, in seeking to resolve the friction which had existed since long before we came to office, decided to carry out one of the options open to them.

I realised that the result of adhering to that decision might be to lose all the members of the National Enterprise Board. Let us consider, however, the choice with which the Government were faced. On the one hand was the decision of the Rolls-Royce board to resign if it were left under the supervision of the NEB. On the other hand was the categoric assurance by the NEB that if a decision to separate the two boards were made its members would all resign. I should have been criticised whichever choice I had made.

If I, by my decision, had lost the entire board of Rolls-Royce, that would have been one lot of criticism. We came to the other decision, and the right hon. Member for Deptford has criticised me. He has done so because I did not manage to succeed in the almost impossible task, which had baffled my Labour predecessor, of acting as peacemaker between these two boards.

Does the Secretary of State not accept that the antipathy to the NEB within Rolls-Royce came largely from Sir Kenneth Keith? Does he not agree that since Sir Kenneth had intimated that he was about to retire, all the Secretary of State had to do was to wait for the retirement and, indeed, to expedite it?

Sir Kenneth Keith had presided over a remarkable success story. He had presided over a team that had achieved a remarkable success in putting Rolls-Royce back in joint lead in the markets of the world for aero engines. It is true that I knew of his intention to resign. However, I also knew that among that small group of people capable of taking on the chairmanship of Rolls-Royce and qualified to succeed Sir Kenneth there was widespread—I do not say total and universal—reluctance to take the chairmanship if Rolls-Royce were left under the supervision of the NEB.

I will not give way. I an anxious to make a brief speech.

The right hon. Member for Deptford went on to tease me with a couple of inconsistencies. He said that because I believed and had said that businesses would flourish best if they were answerable not to Ministers and civil servants but to consumers and investors, therefore I was being inconsistent in saying that when I had the power—which will be when the Industry Bill becomes law—I would transfer the shares to the holder of my office. However, there is no inconsistency because it is my earnest hope that sooner rather than later Rolls-Royce will also go into the private sector. This is merely a transitional stage.

The right hon. Gentleman then went on to tease me about moving Rolls-Royce from the hands of the NEB into the hands of Ministers and civil servants. However, the point of the move is that Rolls-Royce at the moment is in the hands not of one of those layers but of both. It makes sense that Rolls-Royce, in its unique position, should be relieved of the double supervision.

In examining the choice before him, did the Secretary of State consider examining the causes of the friction between the chairman of Rolls-Royce and the chairman of the NEB?

In so far as it was proper for a Minister to know what had happened before he took office, I knew that the friction existed before the change of Government. It was not proper for me to inquire what had happened before. I had concluded from my analysis of what I knew from my time in office that the problem would not be resolved simply by a change of personalities.

The right hon. Member for Deptford asked me two or three specific questions. The Department has not had any contact with the Midland Bank about possible employment of consultants in relation to Rolls-Royce. The Department is continually in discussion with banks, businesses and professional houses about the part-time or full-time secondment of individuals from those establishments. For all I know—I do not keep in touch with it—there may be a discussion with the Midland Bank about the secondment of an individual. If so, it has nothing to do with the monitoring on anything else of Rolls-Royce.

I was asked whether I had given the House full information about any private meetings that I might have had with Sir Kenneth Keith in breach of—

—about any meetings that I might have had with Sir Kenneth Keith in breach of the memorandum of understanding. I have here to correct an error. I told the House under questioning last week that I had had one such meeting with Sir Kenneth Keith. I was wrong. I had two such meetings with Sir Kenneth Keith. I had a private lunch with Sir Kenneth Keith in addition to that. However, that had no relationship whatever to the NEB. I had a private lunch at which I was told something about the business. It was not relevant in any way to the subject that we are discussing, whereas one of the two meetings that I had, which was attended for part of the time by one civil servant, did have as its theme the position of Sir Kenneth Keith as chairman of Rolls-Royce and his determination, as he previously warned my permanent secretary, to leave that office at about the end of this year.

The real point of the question is the memorandum of agreement. Was the chairman of the NEB invited?

No, he was not. These were two specific meetings about the proposed resignation of Sir Kenneth Keith. He was not invited. I was, perhaps—I am not sure—in breach of the memorandum of understanding. I may have been. But it had nothing to do with the relationship between Rolls-Royce and the NEB; it was about the personal decision of Sir Kenneth Keith.

I was asked whether the members of the new NEB board were informed that they were being asked to fill vacancies that would be left if the then existing NEB board members all resigned. The answer is "Yes". They were informed. The approach to them was made on the assumption that the outcome of the present discussions would be followed by the realisation of the threatened resignation of the entire board.

I must assert that the distinction of the names of the new members of the NEB is sufficient assurance of their integrity and independence. However, it must also be recognised by the House that these individuals who were invited to become directors of the NEB were all well aware of the philosophy of the Government towards the board. They had made themselves aware of the general theme that was expressed by my right hon. and hon. Friends and myself in the House.

My right hon. Friends and I very much regret that, for reasons which we understand, the trade union members have not been replaced. I have not even approached individual representatives of the trade unions to ask them to accept membership at the moment, as I am advised that that would not be productive. However, I hope that the time will come when the trade unions will recognise that the NEB still has a role to play which it regards as important and which is in the national interest as well as the interests of the trade unions and their members, so that individuals from the trade unions will take the vacant seats left for them.

I was asked by the right hon. Member for Deptford about the implications of the Government's decision for British Leyland. I can only repeat that the British Leyland board has made a case to me to be treated in the same way as Rolls-Royce. I acknowledge that there are some factors that are similar to those in the Rolls-Royce situation, but I do not regard British Leyland as on all fours with Rolls-Royce. I shall therefore listen carefully to any case that the British Leyland board makes to me. It is a very distinguished board. However, I do not in any way commit myself to giving it the same answer as was given to Rolls-Royce. I shall listen to its case.

I want to emphasise that there is no difference—nor has there been any difference—between the NEB, Rolls-Royce, the Department of Industry and myself on the imperatives facing Rolls-Royce, which has had a triumphant success in getting a huge order book. That huge order book in itself involves extra cost in carrying the necessary stocks and investment for carrying out the order book. While the orders have been secured, the exchange rate has gone against Rolls-Royce. The differential inflation rates have also gone against Rolls-Royce. There is a clear need—Rolls-Royce, the NEB and the Government recognise it, and have recognised it for some time—for Rolls-Royce to improve its financial and productivity performance. Sir Kenneth Keith has acknowledged that in his speeches for some time.

The Government very much regret that the unavoidable choice which had to be made by the Government in the situation—and which was inherited by the Government but not created by them in any way—led to the disappearance of a distinguished board of people. We regret that it has not been practicable at this stage to fill all the seats of the NEB, as we would wish. The vacant seats for trade union representatives remain. At the appropriate stage I shall seek to secure that they are filled.

I must refer to the point from which the right hon. Gentleman flinched. We must neither exaggerate nor underestimate the role of the NEB. In its early years the board was dogged by the excessive pretensions imposed upon it at the time of its birth. The House will remember that it was born as the central plank in the great programme envisaged or dreamt up by the previous Government under the pretentious title "The Regeneration of British Industry".

A single board, however distinguished, cannot bring about the regeneration of British industry, especially when the Labour Government, which set up the NEB, proceeded to imprison British industry in the most hostile climate that had been known for decades. Therefore, I emphasise that the NEB had a useful and important role to play, but we do the country, the board and its valuable staff no service at all by exaggerating that role. It will be played by the new board, although I very much regret the absence of trade union members, as well as it was by the last board. As the amendment shows, the Government wish to pay tribute to the service of the former board. We believe that the board will be strengthened. We hope that it will be strengthened in due course as a result of the return of trade union members. We believe that the more that private enterprise plays its full part in investment and expansion of industry, the better. We welcome the new board because it shares that philosophy with the Government. I hope that my right hon. and hon. Friends will reject the motion and vote for the amendment.

7.58 pm

First, I join my right hon. Friend the Member for Deptford (Mr. Silkin) in condemning the situation that led to the mass resignation of the whole of the NEB board, including the chairman, Sir Leslie Murphy. At the same time I point out to the Government that the board was composed of men of the highest integrity, drawn from industry—industrialists themselves—and prominent leading trade unionists. They achieved for themselves the unique distinction of having worked tremendously hard to make a success of what was in every respect a difficult role to fulfil. I only hope that the new board, when it is completed, will achieve, in turn, at least an equal reputation.

I remind the Secretary of State for Industry of his statement last week that certain places on the board had been left vacant and that he was writing that day to the TUC. What kind of response did he get from the TUC? Presumably the letter was based on an invitation to the TUC to provide names of people who might become members of the board.

The letter did not contain an invitation. It contained a lengthy explanation of what had happened.

I am grateful to the Minister for that correction. I should have thought that if it was not done on that date it should have been suggested to the TUC by now that it should consider making nominations to fill those vacancies.

I wish to draw a veil over recent events and to some extent to attempt to broaden the debate. The actions of the Government in the last few weeks over the National Enterprise Board, Rolls-Royce and the denationalisation of certain public enterprises have created a good deal of anxiety in the minds of many people in the industrial world—not least among those experiencing difficulty in finding employment. There are youngsters looking for their first jobs as well as many steel men who have been regularly displaced from industry. Some of the questions that will be posed on that subject in the debate need answers.

I recall that one of the important roles of the National Enterprise Board was to supplement investment in industry where the private sector was failing, in many cases where risk capital was not being invested and was not likely to be invested. The Government amendment to the Opposition motion states, among other things, that the House
"endorses the Government's determination to strengthen the role of private capital in industrial reconstruction".
Those words might sound optimistic, but, when we have just learnt that industrial capital investment declined by 2·5 per cent. in the last six months in comparison with the previous six months, we are entitled to be pessimistic about the comments in that amendment and about reliance on private investment. The present position may be due to a downturn or a cyclical trend, but it carries with it the inevitability of increasing unemployment. It creates an opportunity for us to fill the gap in industrial development by the simple expedient of allocating more capital resources, rather than less, to the NEB.

The National Enterprise Board is one of the sacrificial lambs to the Government's policy of massive cuts in public expenditure, many of which are wholly unsocial and a further manifestation of a high degree of political dogma. One hopes that the NEB will not be left simply to deal with emergency cases—the hospitalisation of lame ducks, and so on—that sufficient growth capital will be made available to small firms, which are the seed corn of industry in many areas, and that there will be increasing investment in new technology, especially in the exciting and new development of microelectronics.

Japan and the United States are rapidly developing a monopoly in these matters. The United Kingdom will suffer an escalation in job losses as a result of the use of these new technologies, while not having the opportunity to participate fully in the industrial revolution which will improve the living standards of millions of people not only in this country but in other parts of the world. That is the logical outcome of greater investment in the microchip industry.

This is not the time to extend the debate to cover the social consequences of this industrial revolution in microelectronics, but today I received two letters from highly responsible groups of people in different parts of the country, pointing out the importance of planning ahead against the development of this industry, the threat to jobs, the use of leisure, and ensuring in general terms that no one is worse off as a result.

I feel that we are entitled to speculate about the future role of the National Enterprise Board in the light of Government policy. I am prompted to ask the Minister, when he winds up the debate, to say whether the Government are as fully committed as their immediate predecessors were to the regional policy aspects of the work of the NEB. Those Labour Members who were then in the Government, especially those hon. Members representing the development areas, will recall how we greeted enthusiastically the proposal to set up the National Enterprise Board and how we cried out for badly needed investment in industry. We welcomed the innovatory role of the NEB and looked forward with considerable anticipation to the spin-off result that we expected from the work of the NEB.

We had then, and still have, the Northern regional board and the North-Western regional board. I should like to know whether the Secretary of State and his colleagues are genuinely committed to a regional policy. Will the regional boards continue to operate in the future as they have done over the past few years?

I listened to the dispassionate approach of the Secretary of State last week when he answered questions on the Rolls-Royce issue. I could not gather any degree of enthusiasm about the Government's policy towards the regions. If the Secretary of State is only mildly enthusiastic about regional policy, surely he will consider—it is not too late—implementing the commitment by the outgoing Labour Government to set up a Northern Development Agency, which could work as a complement to the National Enterprise Board and make its own significant contribution.

It is not too late for the Secretary of State and his colleagues to undergo a transformation or conversion, as did St. Paul on the road to Damascus. When the Minister winds up the debate, I hope that he will give us some hope about the future role of the National Enterprise Board in relation to the northern regions.

8.8 pm

I found the opening speech from the Opposition unusually ineffective. The right hon. Member for Deptford (Mr. Silkin) added nothing new to what he said during Question Time last week when my right hon. Friend the Secretary of State made a statement. He put the matter much more concisely during Question Time than in his speech today.

I am sorry that it has been proved necessary for the members of the National Enterprise Board to resign. I believe that it was right and proper that my right hon. Friend should state clearly and simply what caused the resignation, as he saw it, but, even more important, that he should pay particular tribute to the members of that board for their considerable service to the country in the past.

Will the hon. Member bear in mind that this House has not yet had an explanation of what was wrong? All we have had is a fictitious description. When we are making comments about the commendable work of the NEB, this House had better be sincere about it and insist that we should have more information.

I respect the hon. Gentleman, as I know he respects me, across the Floor of the House, but I think that it would be better if he were not to make his speech by way of an intervention in mine.

I wish to turn now to one, and only one, aspect that arises because of the resignation, and that is obviously tied up in the industrial reconstruction mentioned in my right hon. Friend's amendment. The political control of industries, either nationalised or with large public sector shareholdings, has been for many years and still is today one of the more complex problems still requiring a solution from politicians. Indeed, the very nature of the motion and the amendment on the Order Paper this evening, and now under discussion, is active proof of the truth of my hypothesis.

What is strange is that hon. Members on both sides of the House, while differing so much in philosophy and entirely unable to agree on the extension or otherwise of nationalisation, are likely to be in complete agreement about the ends desired of nationalised industries. By this I mean that when institutions or industries are in the ownership of the public, the management of those industries and Ministers—whether Tory or Socialist—responsible for those industries wish to see them functioning as efficiently as possible and with the greatest benefit possible for the British people—who, after all, are the taxpayers, and in this instance the shareholders.

What is quite evident is that neither side of the House has evolved or developed a method of management or of managerial control that is satisfactory either to the industries themselves or to our supporters on either side of the House. After all, it was the Socialists who appointed Sir Michael Edwardes, yet many Opposition Members are today baying at his heels over the strong action for which I wish the House would give him support in the reorganisation of British Leyland.

Although they were appointed by the Socialists, it must be admitted that there are several highly successful entrepreneurial capitalists among those who have just resigned from the NEB. If any of my colleagues doubt me, they have only to look at the record of Sir Jack Wellings, who has brought a marvellous breath of fresh air to those nationalised bodies to which he has generously given much time since he joined the Coal Board in 1973. If we could get away from political claptrap, the debate could be of real interest and real use in finding a solution to the problem of the management of public enterprises and nationalised industries.

Before I set out to give the House one thought that I have on this matter, Mr. Deputy Speaker, I wish to ask the Minister who is to reply to the debate several questions that I hope will establish the background to the thinking that I am trying to put to the House.

As Rolls-Royce has been taken away from the NEB, how is the supervision of that company to be carried on by Ministers? It is all very well to suggest that certain guidelines will be set by the Secretary of State and that the fulfilment of these will be the basis of the judgment of the success or failure of the company. But life is not as simple as that, and the civil servants within the Ministers' departmental control cannot and will not leave the matter in such an amorphous position. These civil servants have to protect their Minister. They will protect him, just as they protected Ministers in the past, and just as they protected me when I was lucky enough to serve in that Department.

The guidelines that are being carried forward will need to be looked at, and the advice of these civil servants will be sought by the management of Rolls-Royce on investment decisions, on closure decisions, and even—although it may be denied—on decisions concerning levels of remuneration. The Department of Industry will have to react to these inquiries. If anyone is in doubt about this, let me refer to a note circulated by the director of public affairs of Rolls-Royce Ltd, only today, in which he says, in paragraph 1, that
"All major policy decisions have always been taken by the Government, which has never ceased to monitor the company's performance closely through both the Department of Industry and the Ministry of Defence."
If anyone doubts what I am saying, let him consider that statement by Rolls-Royce.

How many civil servants does the Minister envisage will now be employed in working and monitoring and consulting on the Rolls-Royce account? By way of contrast, I should like to know how many people were employed by the NEB to do the same task.

Why does the Minister believe that the excellent civil servants in his Department—and I mean that only as a matter of praise—will be any better at the somewhat unusual task, for civil servants, of monitoring Rolls-Royce than the industrial specialists recruited by the NEB to do the same task?

Lastly, I come to what is perhaps the most difficult question. In considering industrial reconstruction, are the Government wishing entirely and completely to repudiate sections 7 and 8 of the Industry Act 1972? If that is not their wish—as I believe to be the case—is it not fair to say that the Government accept that at times there is aid and investment which should be made available to industry and to commerce of a sort that the market, the joint stock banks or the merchant banks consider to be, in banking terms, unbankable—aid that they would be unwilling to advance because of the extreme risk and the lack of security?

I accept that these may be and should be exceptional cases. Obviously, we do not wish to use this investment as a means of increasing the public sector. The Opposition would disagree on that, but that is one of our areas of disagreement. It may be that only an initial injection of aid or loans should be allowed in order to make certain that we do not get into an open-ended commitment of a Leyland proportion. But, even with these limitations, do the Government believe that all supervision of public sector or nationalised industry is best carried out by and only by the Civil Service, or by the Civil Service advising the Minister?

I am not usually associated with the views of my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), but the House may recall that in the very detailed considerations of the Select Committee on nationalised industries several years ago he was to be found advocating a separate Minister for nationalised industries, with a specialist Department, recruited mainly from industry, which should have the task of the supervision of these industries.

I do not go as far as that, but from my experience I should like to make two specific declarations. The first is that supervision, when it means management control of nationalised industries by civil servants, and then ministerial responsibility, should be discouraged and stamped on whenever possible. Where there is a statutory authority through the Minister to this House, it is nearly always impossible—this is so whether with Conservative Governments or Socialist Governments—for the sticky fingers of Ministers and civil servants not to interfere in the managerial construction and decision-making of those industries reporting to that Minister.

I therefore wish to advocate that whenever supervision is necessary this should, if possible, be done by an independent industrially experienced and industrially oriented committee authorised to report direct to Ministers. I believe that such a solution could well obtain the backing of both sides of the House, and in so doing it might well find the management of nationalised industries having a sympathetic and understanding industrial ear for their own problems and equally experienced advice which could, when discipline was necessary—there is no doubt that it is necessary at times—apply guidance and advice coming from the voices of men who had themselves been in similar positions to the managers of the nationalised industries.

When the Minister reflects on this one proposition, will he see whether it could be developed? If it could be developed, it might well maximise the working and the benefits of public enterprises and nationalised industries, and, again, it might even mean that debates such as this debate tonight would be superfluous.

8.21 pm

That was quite an outstanding speech in its thought and its clarity of expression. I say only one thing to the hon. Member for Honiton (Mr. Emery): why sketch in the blueprint when one can fly in the production model? What the hon. Member was describing was the National Enterprise Board. What he was describing was the NEB performing the functions which we set out for it during the previous Administration.

I want to take only a few minutes' time and to confine my remarks to Rolls-Royce and its position under the new dispensation, as the hon. Member has just described it. But I would say at the outset that I have the gravest regret about the resignation of the NEB and the way in which it has come about. I think it has weakened the NEB, and it has not strengthened Rolls-Royce. I think that I should say exactly why.

I think that it has weakened the NEB because the board, which has had its problems, and inevitably so—both with some of the companies that it has administered and with Governments of both major parties and civil servants working for those Governments—nevertheless had built up a body of expertise and a degree of trust which will now be severely threatened, both by the haemorrhage of talent consequent upon the resignations and by the attitude of hostility that there will now be on the part of the trade union movement.

However I look at the new membership of the NEB, I do not see it as being the equal of the old. An unnamed Minister was quoted in the press last week as saying that it was not exactly a galaxy of talent. There are talented people on the new board, but it clearly has major omissions. Perhaps it has some commissions which may raise the odd eyebrow. I raise an eyebrow at the presence on it of a representative of GEC. I shall say why. A number of the companies which the NEB is administering are directly competitive with GEC and some of GEC's enterprises. When the Minister of State replies to the debate, I should like him to see whether he can reassure me, and other hon. Members who feel this, that there is not a serious problem of a conflict of interests on this point.

I turn now to the question of Rolls-Royce. The Secretary of State has praised the revival of Rolls-Royce under Sir Kenneth Keith. Of course, we have to say in reply to that that a good part of that revival has taken place under the auspices of the NEB. Sir Kenneth has never made any secret, in private conversation with me as a constituency Member of Parliament in Derby, or with any other hon. Member on either side of the House, of his deep dislike for the NEB. We take that as read. He has described it as a bureaucratic contraceptive—a contraceptive which stops him having as many babies as he wants to have. He has a great many babies on the go at present.

The slight problem here is that any body which is regulatory, which is attempting to hold to account in an informed way bodies spending the sums of public money involved in an enterprise such as Rolls-Royce, is bound to have a contraceptive effect in that sense. The Public Accounts Committee is a contraceptive. The Comptroller and Auditor General is a contraceptive—and quite rightly so. The problem for the House tonight is to consider the style and leadership of Rolls-Royce as it has been set out under Sir Kenneth Keith and as it no doubt is now intended to continue under his hand-picked successor—because he has again made no secret of the fact that he wanted Sir Frank McFadzean to succeed him. I question how widely the Secretary of State trawled elsewhere in his attempts to find a new chairman for Rolls-Royce. How far can Rolls-Royce under this management be allowed to go its own way, and how far, indeed, will it be effectively audited by the civil servants of the Department of Industry? Those are the two questions.

I would be the first, living in and conscious of the heart-beat of Rolls-Royce all the time, to acknowledge the great successes that there have been. But the strategy involved is in many ways a dangerous one. I do not say that to discount it or to disparage it. I simply say that the American strategy, which is effective in what Sir Kenneth Keith has embarked upon with Rolls-Royce, is extremely risky. In that high-risk game, we are reminded, wherever Rolls-Royce employees live, of the last episode of very high-risk strategy in the American market and the bankruptcy of 1971 and the agonies to which that led.

The high-risk strategy—the Boeing deal, the decision now to go ahead with the construction of plant in Miami and Atlanta, Georgia, the decision to announce a quite unprecedented guarantee for the construction of the Boeing 757 aircraft—necessarily raises questions of audit of a very serious nature, particularly when there are those within Rolls-Royce, as well as outside, who would ask some questions about the company's decisions over the last three or four years. Did Rolls-Royce really gets its calculations vis-a-vis the exchange rate right? Was it wise to make so many deals in dollar terms with an exchange rate of $1·85? Looking ahead, when Rolls-Royce makes its assessments and says that it wants £200 million from the taxpayer and an equivalent amount from the market, has it taken suf- ficiently into account both the exchange rates that will prevail over the next two or three years and the level of market demand?

One of the areas in which Rolls-Royce was caught very badly short two years ago was in underestimating the speed of the upturn in the aviation market. The aviation market is a funny thing. It tends to be going up precisely when other things are going down because of the very great lags involved. So there is no particular paradox now in seeing the order books for civil aviation in a more healthy state than they have been for many years just as Western Europe and the United States are on the brink of a major recession.

When I look at the clash between the NEB, the apparent arguments over the NEB's calculation that Rolls-Royce was in the market for funding to the degree of £700 million over the next two or three years and the Rolls-Royce counter-argument that it only wanted a couple of hundred million from the taxpayer in that same period, I think that we might well end up splitting the difference. We might well find that both arguments are wrong and that the watchdog body was right to challenge the slightly bland estimates that are emerging from the company.

I say that as someone who wishes the company well, and the House will realise why with my constituency interest. We are now in a position where for a variety of reasons, some of which were touched on by the Secretary of State, Rolls-Royce suffers from both low productivity and difficulty in getting its production right, as well as anything like a proper return on its equity. The figures will not look too good for this year. There are a variety of reasons for that.

What we in Derby fear, and what those who follow the affairs of Rolls-Royce fear, is that we may now be in a position where the company is involved in very great risks indeed over the next two or three years—because of necessity, it is a high-risk strategy—when the audit may be weaker than we would desire.

The hon. Member for Honiton put his finger on it, and so, in briefer and more brutal words, did Sir Leslie Murphy in his statement of resignation or dismissal, however one describes it, when he said:
"I have no confidence that Ministers advised by civil servants who have no business experience are competent to discharge the task previously carried out by the NEB."
That is the crucial issue. We must remember what caused the bankruptcy of Rolls-Royce in 1971. On the one hand, it was engineering and managerial hubris of a very high degree and, on the other, a bad audit by civil servants under Governments of both parties—of our party as well as under the Government of the right hon. Member for Sidcup (Mr. Heath). When I think of the high-risk strategy then, the brilliant and dynamic people who pursued it, and the relevant failure of the Department of Trade and Industry adequately to monitor the last 18 months of the progress of Rolls-Royce before the crash, I now go cold at the thought that we may be moving into that position again.

It may be said by hon. Members that there is now one big difference—that Rolls-Royce is now a publicly owned company, which was not the case in 1971. It may be argued that there is this direct input, to which the hon. Member for Honiton referred. As he said, quoting the Rolls-Royce press statement today, Rolls-Royce appears to regard it as true for the foreseeable future that there will always be a very tight relationship between the Government of the day and the company when
"all major policy decisions have always been taken by the Government which have never ceased to monitor the company's performance closely through both the Department of Industry and the Ministry of Defence."
The monitoring will go on. The question mark that we have raised concerns the capacity of those who will be carrying out the monitoring and the audit, unless a skilled team is recruited to do it.

I come to my final worry, which is that even this condition, in the insouciant words of the Secretary of State, appears to be blown away, because in reply to me the other day the Secretary of State said—I think he said it in the debate today—that he expects the company to be returned to private ownership. In other words, he expects it to be flogged off.

There was a report in the Financial Times the other day about the interests of GEC. Referring to Sir Arnold Weinstock, it said:
"Sir Arnold confirmed yesterday that GEC had been involved in talks about Rolls-Royce for some years but no conclusion has been reached. The talks have covered ideas such as a full merger, GEC taking over Rolls-Royce's industrial gas turbine work … and GEC helping to strengthen the aero-engine manufacturers' management."
GEC is a successful company. But one can load too much on even a very successful company, particularly in view of the investment risks involved here. Looking back at the sad history of British Leyland, I believe that we loaded too much on the successful parts of that, as merger followed merger, in the hope that good would drive out the bad. Of course, the reverse was the case.

Is it seriously the intention that Rolls-Royce should be sold off back to the private sector? Is that is the intention, it makes nonsense even of the assurance that we had about the auditing of Rolls-Royce that is promised. Indeed, it makes nonsense of the suggestions for tightening control through the Department of Industry. Of course, I hold a different view from Conservative Members about the advisability of a massive increase in the private sector as against an increase in the public sector. I am a mixed economy man, and my criterion for public ownership is not doctrinaire at all. It is whether or not the degree of input of public investment requires direct public accountability. We shall lose that if we take Rolls-Royce out of the public sector and flog it off to Arnold Weinstock or anyone else.

Those are the questions I have to ask today. In the absence of the Secretary of State, I would say that there is one remarkable thing about him which I greatly admire. He has the courage to admit his mistakes afterwards and is not one to create a desert and call it peace. The time comes when the right hon. Gentleman calls it a desert, as witness the National Health Service. However, I hope the Secretary of State will have the courage to come back—if not today, at some future time—and say that it was a fundamentally mistaken decision that so hamstrung the NEB. I believe that that decision will, in the long term, weaken Rolls-Royce.

8.30 pm

The House will no doubt pay great attention to what the hon. Member for Derby, North (Mr. Whitehead) has said. Derby is the home town of Rolls-Royce, and any drama over a large company dominating a town must be immensely worrying for those who work in it and for the hon. Gentleman's constituents generally.

I begin by referring to the terms of the motion where it says that the resignation of the entire NEB board has done damage to Britain's reconstruction. The House will accept, as my right hon. Friend the Secretary of State said, that the two are totally unconnected. Whatever view one might or might not have about the NEB, to pretend that it had any connection whatever with the reconstruction of the British industrial scene is absolute nonsense. As my right hon. Friend said, if there are difficulties in British industry today it is because of the anti-enterprise climate that has been with us for too long.

The resignation of the NEB board was a rather curiously petulant act of little significance in the long term. If we look briefly at the financial achievements of the NEB since it came into office in 1975, we see that it has been very poor indeed. If, for example, we consider that of the taxpayers' money put into the NEB, £1·4 billion, a profit of £30·7 million was made last year, and that after extraordinary items there was a loss of £40·3 million, we realise that that is not a good return on capital. It is not a handsome return on £1·4 billion of taxpayers' money.

If we take out Rolls-Royce and British Leyland, which is something that the NEB liked to do when considering its figures, and consider only the investments that the NEB has made on what it likes to call its "entrepreneurial judgment", we see that on a capital of £300 million the board last year made a loss of £5·27 million, so the record of the NEB has not been good. For that reason I do not shed any crocodile tears for the members of the board tonight. I fully accept, of course, that, as honourable men, they did the job to the best of their ability. The strange thing is that the NEB clearly thinks—presumably, that is why the board has resigned —that the removal of Rolls-Royce from under its wing has done damage to it.

Since they were transferred to the NEB in February 1976, the Board has complained about Rolls-Royce and British Leyland and said that these two large lame ducks were landed on its plate and it therefore was not fair to judge the return on those companies in relation to the general return on capital within the NEB. The Board has complained that it has been landed with these two companies and never wanted them. Therefore, I should have thought that if Rolls-Royce were taken out the NEB could say "That is better. We can now be judged on our own entrepreneurial skills "—so-called—"and the companies in which we have invested."

The nub of this debate is about how good the NEB was at monitoring Rolls-Royce. The NEB and, as the hon. Member for Derby, North said, Rolls-Royce have failed to get to grips with the financial problems of exchange control and currency fluctuations. The NEB seems to have slipped up on all of these matters, and that illustrated a lack of financial discipline within the Rolls-Royce company that the NEB did nothing about.

There are arguments that have been well rehearsed here and in other places about the duplication and confusion of having two boards of directors—which is really what it came to—to run one company. My hon. Friend the Member for Honiton (Mr. Emery) has great experience of industry, but I disagree with him about the duplication of these boards. Having an NEB board as well as a Rolls-Royce board has made it difficult to run those companies efficiently.

My hon. Friend quoted from the Rolls-Royce circular, but he did not quote the last sentence, which says:
"This effort has always far exceeded that of the NEB in both time and technical competence."
In effect, Rolls-Royce is saying that the Department's monitoring, which was going on in parallel with that of the NEB, was superior in technical competence. We should pay great attention to that, because that was the view of Rolls-Royce over the four-year period that it was under the wing of the NEB.

Hon. Members will remember the report that the NEB made to the House in January about Rolls-Royce. The report claimed, quite rightly, great successes for Rolls-Royce in the £2,000 million worth of sales achieved for the RB211 engine. I read that report very carefully, and there appeared to be no reference whatever to whether the company would make a profit out of the order. It is a wonderful thing to have an order, but it is rather more sensible to make a profit out of it. Therefore, I deduced from that that the controls by the NEB were not particularly effective. That being so, why not remove them? Why have this extra layer of control?

I have not understood the hon. Member's argument. I thought that the argument was about friction. The hon. Member should bear in mind that we wanted a serious debate on this matter, without impugning the character, integrity, financial expertise and accountability of the NEB, which has been excellent ever since it was formed. Perhaps the hon. Member will desist, because we are not here to discuss the matters that he is discussing.

The hon. Member must allow me to make my speech as I wish, within the rules of order. This debate is about technical competence in monitoring. Personalities come and go. We all pass from the scene in due course, therefore personalities are least important. The important thing is how these bodies do their monitoring. The fact is that Rolls-Royce, which has had the experience, came to the conclusion that the monitoring from the Department of Industry was actually better than that of the NEB. I should prefer the better monitoring system to the second-class one, and, in any event, I do not like the idea of haying two layers of monitoring and two boards of directors. That only leads to confusion. Therefore, I believe that my right hon. Friend has done the right thing and taken a bold and courageous decision which will be in the long-term interests of Rolls-Royce. Time alone will tell.

I warn the House that logic dictates that my right hon. Friend should now do the same thing over British Leyland. At this moment that company trembles on the precipice with its latest strike. This most expensive lame duck with £1,000 million of taxpayers' money committed to it should have the same logic applied to it as was applied to Rolls-Royce. The unnecessary bureaucratic layer of the NEB should be removed. The position of British Leyland is so important that decisions are bound to be taken by my right hon. Friend, so why have another layer in between?

Having sat through the last Parliament, when most of this money was spent on British Leyland, I must point out that Parliament was never told the truth about the company. The British Leyland saga, and its monitoring by this Parliament, has been a disgraceful farce, because we have not been told the truth. There has been no projection of profits in six months. United States companies have quarterly forecasts and quarterly balance sheets of what they have achieved and what will happen in future. Why not British Leyland? There has never been one such report.

In 1978 the pre-tax profits of British Leyland were £15·3 million—a derisory figure when the investment put into that company is taken into account. Yet, after that result was announced, the NEB approved a further several hundred millions of pounds of taxpayers' money to go into British Leyland. Why was that done when the result was so bad? We do not know what contribution has been made to the investment programme of British Leyland from internally generated profit. In a debate last April my right hon. Friend the Secretary of State talked about the expected contribution of £200 million from BL between 1978 and 1981 from its own internally generated profits which would match the investment of taxpayers' money. We can only assume that none of that has arisen and that BL has not made sufficient—or any—profit to contribute towards its investment programme. I admit that I am talking in the dark. Should we not be told? Would it not be better to take BL out of the NEB? My right hon. Friend will always be responsible, whether the NEB exists or not. Why do not we face the realities?

In its last report on BL the NEB talked about an 18·5 per cent, increase in productivity. That was the basis upon which the House of Commons was asked for more money. In the event BL achieved a decrease in productivity of minus 3 per cent., yet the company was still given the money. That is the sort of monitoring carried out by the NEB. It is totally ineffective and it duplicates the monitoring that is carried out by my right hon. Friend and the civil servants in the Department of Industry, which is always carried out with a company with that size of investment.

Those of us who have read the NEB reports on BL over the last three or four years know that in every report there have been false dawns, none of which has occurred but all of which have been supported by the NEB. Perhaps that was inevitable—the Edwardes plan was its creation. Michael Edwardes was the board's nominee. Mr. Edwardes' director of strategy was the recent head of the NEB BL evaluation unit. Connections were too close to ensure detached assessment. I believe that that is as true today of BL's connections with the NEB and the House as it has been from the beginning.

I hope that my right hon. Friend will listen carefully to the evidence about removing BL from the extra layer of control. It would help BL at this time to remove further conflict and confusion. In the past the NEB has acted as an advocate rather than an assessor, and an advocate rather than a monitor. That is not what is required. As my right hon. Friend knows, in the case of Rolls-Royce he is the shareholder. He carries out monitoring because he is a large shareholder. However, he will not run the company and he will not run BL, nor will he want to. The House of Commons in its traditional role of controlling public expenditure will appreciate that the control should be direct.

I do not believe that the old NEB will be greatly lamented or missed. I hope that the new board under Sir Arthur Knight will take a more detached and critical view of the company and its portfolio. That is the board's duty, and I believe that my right hon. Friend has instructed it to do just that. I hope that the NEB will take a critical view of its activities and, as soon as possible, bring the companies in its portfolio to a state where they can be returned to the market. They will be totally removed from the public sector and from meddling by the House of Commons or the NEB. I believe that to be my right hon. Friend's aim, and I support him totally in that aim.

Order. Before calling the next speaker, I should tell the House that I understand that it will be convenient for the winding-up speeches to begin at 9.20 pm. Short speeches will enable me to call more of the hon. Members who wish to speak in this important debate.

8.49 pm.

I support the motion condemning the Government. The recent resignations are obviously signs that all is not well and that relationships are not good. It is doubtful whether we shall ever know the full facts of the meetings and negotiations that resulted in not just one or two board members but the whole board deciding to resign.

Recent events have caused great unease and a loss of confidence. I doubt whether things will be any better now that the Secretary of State has set up the new board. There is no trade union representative on the new board to support the venture or even to identify with the rather doubtful structure of a board that will apparently meekly accept all the diktats of the Secretary of State and the Government.

I found great support for the NEB during the general election campaign and I do not recall any criticisms or suggestions for major changes. Those in the North-West recognise that 30,000 jobs in the North and North-West are being assisted by the NEB. That means that not only 30,000 workers but 30,000 families are being assisted. That is of great importance.

Companies have tottered in the past not because of a lack of skill among the workers of the industries but aften because of incompetent managements. Rolls-Royce is a classic example. What happened to that company was not a reflection on the skills of the workers, but they were, nevertheless, nut at great risk because of the lack of judgment in that company.

Conservative Members want to reverse the trend and to go back to the sort of managements that ran these companies when they failed. The Labour Government had to step in to help and to make those companies successful. I do not know how Conservative Members can justify returning those companies to the private sector when one takes into account the amount of taxpayers' money that has been used to bring about revivals and to restore confidence in a number of industries.

The Secretary of State says that the like to know what sort of role the right hon. Gentleman envisages for the board. I am suspicious about his attitude to the future role of the NEB. The confidence of workers in the various firms being assisted by the board will not be improved if they believe that their futures could be at risk and that their firms may collapse, with all the job losses that could result.

The debate so far has concentrated on British Leyland and Rolls-Royce. What about the other companies, such as Ferranti in my constituency, that have been assisted? The National Enterprise Board loaned Ferranti £6·3 million. Once again, with much trade union co-operation, that company became successful. Conservative Members refer to the lack of profits made, but in 1978 that company made a profit of £9·12 million. By 1978 sales had doubled in a new and exciting technology. However, these same workers are once again afraid that they will see the new technology that they have encouraged and promoted taken away and stolen by other private companies. That would be a travesty of justice.

In Manchester, Fairey Engineering, which went into liquidation in 1977, was aided by the NEB and consequently 1,700 jobs were saved. The NEB was born from the failures of private companies.

If I were a Conservative Member, I should be embarrassed to stand here this evening and defend the about-face of the NEB. I should be particularly embarrassed in view of the extent to which the Conservatives have failed in the past. They created this disaster quite unnecessarily. British engineers do not deserve such treatment. Sometimes it is understandable that workers rebel. It is understandable that they should express their anger because they find that they are paying the price, although they have done nothing wrong.

What is so magical about private companies that have so often failed and collapsed with the complete loss of an industry to the cities, the towns and even the nation? Those firms were not backed by banks and had to go to the NEB for finance. What has the Minister done for those industries? From the day that the Government came to power it has been clear that if we are not careful the innocents in industry will pay the price, with their jobs, because of the political dogma and spite exercised by the Government.

The hon. Gentleman says "No", but I have no confidence in the Government. If one goes into the North-West of England and speaks to industrial personnel there, one finds that they agree with me rather than with the hon. Gentleman.

The greatest damage that has been done has been the loss of good industrial relations. If confidence is to be engendered it is essential to have good industrial relations. However, we do not see any confidence. We have already received representations from men in the factories who are giving not just their time but their lifeblood and skills. Other people are giving only money, but these people are giving their all. One might think that those who work in an industry have more at risk than those who give only their money and are playing—tinkering about. The Opposition are correct to condemn the Government. I believe that industry will endorse the Labour Party's attitude.

9 pm.

I welcome the opportunity of speaking in the debate because I believe in the role of the National Enterprise Board. I regret that some of my hon. Friends signed an early-day motion at the tail end of last week, in effect, welcoming the resignation of the board.

I am pleased that the Government intend to retain the NEB. It would have been a near-disaster to have abolished it, just as when we abolished the IRC in the early 1970s. I support the limited role that we now have for the NEB.

I am sorry that the debate and the whole approach to the NEB have been clouded by the affairs of Rolls-Royce and the resignation of the board. I believe that the NEB is, or should be, larger than both of those matters. However, I share the sentiments expressed about Rolls-Royce by the hon. Member for Derby, North (Mr. Whitehead). As he knows, many of my constituents are in the Rolls-Royce work force at Barnoldswick, and they are concerned about the future of the company.

Unfortunately, too many Labour Members take an ideological stand on the NEB and see it as a further thrust of Socialism. I am sorry that the right hon. Member for Deptford (Mr. Silkin) is not in the Chamber, because I am about to quote what he said on a recent visit to Scotland. The right hon. Gentleman said that had Labour been in office it would have been pouring money into the depressed areas through the NEB and the Scottish and Welsh Development Agencies. Apart from the fact that we do not have the money to pour in, those sentiments are incompatible with what Sir Leslie Murphy, the former chairman, said in the NEB's 1978 report:
"The NEB is not a source of subsidised finance. Its involvement is limited to those cases which show a real prospect of commercial returns and it is right that that should be so."
I believe that the NEB has a practical role to play. The experience of the business men and trade unionists who were on the board, and of those who are now on the newly constituted board, enables them to take better decisions, on balance, than many of the civil servants.

I must declare an indirect interest in the workings of the NEB. I was instrumental in introducing a mining machinery manufacturing company—Pitchcraft in Barnsley—to the NEB. I am happy to say that the NEB invested money in that company and made a profit out of a subsequent sale to Booker Brothers McConnel. That introduction was made on an entirely altruistic basis. There was no personal involvement.

Some of my hon. Friends have rightly drawn attention to some of the investment mistakes made by the NEB. Of course it has made mistakes. So have many companies, investors and merchant banks in the private sector. Venture capital is not easy to decide. It is wrong to denigrate the NEB because of certain mistakes that it has made.

The NEB has now gained the confidence of a substantial proportion of in- dustry. It has been working closely with some of the joint stock banks and with particular elements of the financial institutions. Some of the pension funds were jointly involved in NEB investments. On balance, the majority of the business community and of informed journalistic opinion supported the continuation of the NEB.

The Government, in their first Budget in June, marked out what I term the tennis court. Unfortunately, a combination of the world recession and rising interest rates has effectively nullified much of the Budget. I do not believe that many hon. Members on either side of the House or many people in the country realise the seriousness of the economic situation that will face us in the early 1980s or the number of casualties that will arise from the heavy blizzard that is to come. As the hon. Member for Manchester, Blackley (Mr. Eastham) said, it is certain that in the early 1980s we shall have the new Ferrantis and the new ICLs which will need the intensive care of the NEB or a similar body before they are returned to the private sector. This is probably where the two of us disagree in ideological terms.

I believe that the NEB has done a lot, especially in the regions. However, earlier this morning I was speaking to the North-West director of the NEB. He is extremely concerned about the events of the last few days which have caused the flow of new propositions to dry up. It is vital, therefore, that the first task of the newly constituted NEB is to restore morale. As I said in my opening remarks, the NEB is larger than Rolls-Royce or any other existing board.

I believe passionately in private enterprise. But I also believe that there is a time when the State has a role to play. Our economic problems are far too serious for party political point scoring.

9.5 pm

I shall try to make my remarks fairly brief, because many of the very intelligent arguments of the hon. Member for Nelson and Colne (Mr. Lee) are among the matters to which I intended to refer.

I want, first, to comment on the position in my own constituency and to ask the Minister to say how a company such as Monotype Holdings, which has a substantial interest in the Dunfermline constituency, is likely to fare in terms of continued support through the National Enterprise Board.

As the hon. Member for Nelson and Come pointed out, in this debate we are talking about more than Rolls-Royce and British Leyland, and I want to ask the Minister where he disagrees with the statement made by one of the NEB's principals which appeared in the 1978 report. It reads:
"The NEB cannot and does not seek to involve itself in the day-to-day management of companies. It would be to duplicate the management skills which are to be found in the companies. In effect the NEB delegates to the boards and managements of subsidiaries the responsibility for running the companies efficiently within a broad strategy approved by the NEB to achieve agreed objectives."
Where is the difference, if any, between the strategy which will be imposed on a company such as Rolls-Royce in its direct relationships with the Minister's Department and that type of statement made by the NEB itself?

We are discussing a philosophy in relation to a mixed economy, not a mixed-up economy. We are trying to analyse the boundaries of public intervention and public accountability, at the same time allowing the flexibility of day-to-day management decisions to take its course. This is a very difficult area. It is one on which we have tried throughout the last 17 years and more to get some guidelines, and it is only now with organisations such as the NEB that we have a remote chance of achieving some success.

If we bring these accountability decisions into the orbit of a Department of State, we shall be bringing these decisions into areas of activity and concern which lack flexibility and decentralisation. I am not maligning civil servants; they are very good at defending their Ministers. But, by their very nature and the fact that they have to defend Ministers and often aid the defence of Ministers here in drafting answers to parliamentary questions and hon. Members' letters, they have a centralising element. That is disadvantageous to the operations of industrial concerns.

It is difficult for an organisation such as the House—I am a member of the Public Accounts Committee and so I am especi- ally aware of the difficulties—to achieve a balance between public accountability and allowing an organisation to take risks. It is a good industrialist who takes risks and is right about 80 per cent, of the time. That industrialist is magnificent it he is right about 90 per cent, of the time He is marginally good if 50 per cent, of his decisions are correct. What guarantee is there to the House and to the country that the interrelationship between the Department of Industry and organisations such as Rolls-Royce will get even 50 per cent, of the decisions correct?

I know Sir Frank McFadzean well and I admire him. However, I think that the wrong decision has been made. With great respect to the previous chairman of the NEB, Sir Frank should have been made chairman of that organisation. It would have been much more sensible to put him in charge of the NEB instead of placing him in charge of Rolls-Royce.

Sir Frank was formerly chairman of Shell Transport and Trading. He was in charge of the operations of a loosely organised concern. The peripheral concerns, the independent national companies of Shell, are allowed to take intricate investment decisions in an almost arm's length relationship. That is the type of philosophy that should be applied to the operations of the NEB. I press the Government to take cognisance of the organisational and personnel problems in bringing such organisations in direct contact with the Civil Service.

9.12 pm

In common with the hon. Member for Dunfermline (Mr. Douglas), I am a member of the Public Accounts Committee. I remind the House of an answer that was given to a question on 8 May 1978. The question was put to Sir Leslie Murphy by my right hon Friend the Member for Taunton (Mr. du Cann). Sir Leslie said:

"I have never knowingly gambled on anything. I have never placed a bet in my life, so perhaps I can go on the record for that."
However, there is a first time for everything. There is no doubt that earlier this month Sir Leslie gambled. He gambled that my right hon. Friend the Secretary of State would not wish to face the political consequences of the mass resignation of the board of the NEB. As my right hon. Friend has already said, he was faced with the alternative of the resignation of the board of Rolls-Royce or the resignation of the board of the NEB. In my view, my right hon. Friend made the right choice.

If Sir Leslie lost his first bet, it is apparent that he does not appear to realise it. In the Financial Times on Saturday, Sir Leslie was quoted as saying:
"I believe the Board will have a future and if I have to be sacrificed in order to achieve that, I am willing to be sacrificed."
Those are splendid words, patriotic words that are worthy of the highest praise from Parliament. The only snag is that the talk of sacrifice is misguided and totally out of place. No one has been sacrificed. Sir Leslie held a pistol to his own head and to his surprise it was loaded.

Concern has already been expressed that other members of the board have suffered a similar fate. Tribute has been rightly paid to them. They are important, successful and interesting people. However, as a Member of this place I do not know exactly what they have contributed to the success or failure of the board. I do not know how frequently the board meets. I do not know whether any of the non-executive directors have visited the board's investments before decisions are taken. Which of the members of the old board are prepared to take responsibility for only one year ago investing £4½ million of British taxpayers' money in British Tanners? That was a bad mistake. The decision was taken against all the advice of industry as a whole.

The resignation of the old board is to be welcomed because I believe that the new board will have a fresh approach. It will not be prepared to invest taxpayers' money in enterprises that have no chance of success to allow them to compete on an unfair basis with companies in the private sector that themselves are successful.

9.15 pm

The amendment to the Leader of the Opposition's motion contains words of which the House and those outside might take some positive notice. Those words state that the Government

"expresses its appreciation of the services of the members of the National Enterprise Board who have recently resigned"
and
"welcomes the appointment of a strong new board to carry forward the work of the National Enterprise Board …"
I do not know whether it is a very strong board. It seems to me to be only half a board at the moment. There is nothing strong about it. By the use of the word "strong" in relation to the new board, the amendment suggests that the previous board was not strong.

The Secretary of State nods his head. He is always in a permanent state of nodding. I do not know whether it is a nervous reflex. We on this side of the House know that he has been against the board ever since it was established. The only person oscillating in the House is the Secretary of State.

I can recall a debate in the House last year on the NEB when its record was questioned only by the right hon. Gentleman. Then came May. The right hon. Gentleman was faced with the realities of life. He is not seeking to take up a posture of opposing the board and wanting to banish it. He now seeks to modify the board. No one knows what he means. He does not even know himself. I understand that he told the House tonight that the board has a useful role to play. That is belated thinking by the great philosopher. It is a great admission.

The hon. Member for Surrey, North-West (Mr. Grylls) made an unthinking speech, lacking in courtesy and attention to the integrity and efficiency of the members of the National Enterprise Board who have now resigned. The hon. Gentleman described the board members as acting petulantly. I have had recent experience of the National Enterprise Board. I was surprised at the care, attention, consideration and thoughtfulness of the board and particularly Sir Leslie Murphy and his deputy. According to the Secretary of State, the sheet has been cleaned. His friends have been put on the board. We know that—never mind that little luncheon the right hon. Gentleman had with the chairman of Rolls-Royce about which nothing was said. I could not have had a luncheon in such circumstances without mentioning the matter.

The regions have benefited from the co-operation that hon. Members have enjoyed with members of the board. My right hon. Friend the Member for Houghton-le-Spring (Mr. Urwin) has already mentioned this matter. Now that the principle of "I'm in charge" has been invoked by the Secretary of State and his friends placed on the board, answerable to the right hon. Gentleman and his civil servants, does he believe that hon. Members will receive the same accommodation from the new board as we received from the old board? I suspect that if I asked pertinent questions of the new chairman he would find it necessary to avoid answering me until he had spoken to the Secretary of State seeking advice on the answer he should give.

A lot of nonsense has been talked in the House tonight. Conservative Members have sought to commend the members of the old board but without really meaning what they have said. I refer in particular to the hon. Member for Surrey, North-West, who spent his time dealing with technical monitoring. But the NEB function was not one of technical monitoring. Its function was to monitor financially, and no one in this House can criticise the efficacy of the NEB on that score.

Many of the contributions from the Conservative Benches have been disappointing because of the dogmatic and prejudiced nature of their approach. From the Opposition side of the House have come serious and sincere expressions to the members of the board who were forced on grounds of principle and integrity, and in defence of their efficiency, to resign. That is what the Secretary of State must bear in mind.

9.21 pm

The motion moved by my right hon. Friend the Member for Deptford (Mr. Silkin) condemns the action of the Government with respect to the NEB and Rolls-Royce and, by implication, the stewardship of the Secretary of State for Industry.

It is interesting to reflect that throughout what has admittedly been a very short debate only one Conservative Member welcomed the events of last week, and only one other speaker in the whole debate has supported the Secretary of State The right hon. Gentleman cannot feel very sanguine about that. In the short debate there has been a marked lack of enthusiasm on the Conservative Benches for the actions that the right hon. Gentleman has been pursuing in respect of the NEB.

The right hon. Gentleman's role in this matter has been one of confusion and of changes of mind—the latter on his own admission. He did not come to office with the intention of taking Rolls-Royce away from the NEB. He changed his mind on that. He has changed his mind on the manifesto commitment of the Conservative Party, which was to abolish the NEB. He tended to vacillate in the Second Reading debate on the Industry Bill as to what his real intentions were for the NEB. His actions with respect to the Board and Rolls-Royce seem, to say the least, to lack definition.

The right hon. Gentleman is not carrying too much conviction, particularly as one who says that he does not believe in ministerial and governmental interference in the first place, when he says that he believes that the Department of Industry is best placed to deal with Rolls-Royce, particularly in its present circumstances. He appears, then, to have had several changes of mind in a few short months in office.

The result of his uncertainty is an air of total uncertainty in his party. The Right wing of his party is not particularly happy about the circumstances which prevail. The right hon. Gentleman's uncertainty has certainly created an air of uncertainty within the TUC. I thought that the Secretary of State—strangely, for him—was a little less than candid with my right hon. Friend the Member for Houghton-le-Spring (Mr. Urwin) in that regard. He referred to his letter to the TUC about the matter. I have a copy of it here. The right hon. Gentleman said that it did not contain any invitation to the TUC. However, it says in the penultimate paragraph:
"I have left vacancies on the board which I hope can be filled by trade unionists at a later date."
If that is not an invitation, I should like to know what is. It is very strange that the Secretary of State should not have been properly and fully forthcoming on that point.

The right hon. Gentleman must greatly regret the circumstances that he has created In regard to the TUC. He must also regret the uncertainty that he caused to British Leyland, Fairey, Ferranti, Inmos and the titanium project. All those are affected by the air of uncertainty that now surrounds him and his attitude to the NEB. Indeed, more than 60 companies in all are affected and a great many people's jobs are at stake.

The Secretary of State introduced a Bill to restrict the purposes and functions of the NEB. There was no real argument in favour of the Bill on Second Reading. There was an assertion of the right hon. Gentleman's doctrinaire attitudes, certainly, but there was no real argument based on economic or industrial grounds to support what he was doing. There was no mention of the fact that at the same time he was taking powers away from the NEB in respect of other countries, among our partners and competitors in France, Germany, Italy, Australia, and Canada. Those are hardly Left-wing Administrations.

The Bill also reduces the proposed finances of the NEB and limits its action on investment. Indeed, it gives more power to the Secretary of State himself. That aspect of the Bill is also very strange, seen against the long-standing background of the right hon. Gentleman saying that he does not believe in a role for the Government in the direct management of industry. We all acknowledge that there was a long-standing difference of opinion between the National Enterprise Board and Rolls-Royce. Against that background the arch-priest of nonintervention became directly involved himself. Why did he do that? In his statement on 21 November he said that
"Rolls-Royce is a company of a scale and importance such that the supervision of its board by another board, however eminent and accomplished, is bound to give rise to strain.
Moreover it is a company with which, inescapably, Government have exceptionally close connections and where important decisions lie directly with Government."
Later on, in reply to my hon. Friend the Member for Derby, North (Mr. Whitehead)—who made a most incisive and perceptive speech about this issue this evening—the right hon. Gentleman said:
"I am sure that the House would be surprised if I did not hope that Rolls-Royce would finish up firmly and profitably in the private sector."—[Official Report, 21 November 1979; Vol. 974, cc. 388–94.]
If that is so, what of this special close involvement with the Government? What will become of it then? If it is so much in the national interest for this involvement to be maintained, established, or to be made more effective, what will happen if he sells off Rolls-Royce either in whole or part? He must know that his attitude in this matter affects the management not only of Rolls-Royce but of the other companies that I have already mentioned.

There is a special relationship between the Government and Rolls-Royce. It is very simple. It is public money—public expenditure. I have a question for the Minister of State about that. I hope that he will tell us where the Secretary of State has failed. Is it the Government's intention to bring about a financial restructuring of Rolls-Royce in this new relationship? Will they ensure that Rolls-Royce stays within its budget forecasts? This, after all, goes to the heart of the difference between the NEB and Rolls-Royce.

Contrary to the assertion of the hon. Member for Surrey, North-West (Mr. Grylls), the NEB was trying to be an effective steward of public expenditure. That is where the real difference of opinion lay. The NEB sought answers, as was its duty. Sir Kenneth Keith refused to reply. The question has got to be "Why?" The treatment of the board by him and the Secretary of State borders on double dealing—less than candid, to say the least.

I understand that when he met the board on 7 November the Secretary of State asked for 24 hours in which to consider its position. In the event he took two weeks. He did not return to the board. He did not give it an answer. He did not debate or discuss the issue with it. At the end of that two weeks he effectively dismissed the members of the board. Those are the facts. The Secretary of State, who prides himself on his intellectual honesty, will have great difficulty in the weeks and months ahead in getting away from the fact that his actions in this matter have been of a very dubious nature. He had considerable difficulty even in remembering how many meetings he had had with Sir Kenneth Keith. I think that that is deplorable. How are we to view what has happened against that kind of background? One ex-board member—not a trade unionist—said to me "If this is an example of the Government's attitude to public administration, it stinks." I agree with his comments.

The Secretary of State has destroyed the independence and credibility of the NEB. It is no wonder that the board resigned, and it is no wonder that there has been a complete revulsion on the part of the trade union movement. I can tell the Secretary of State what is the response to his letter. The finance and general purposes committee of the TUC met today and decided that because of his actions there was no basis on which its members could serve the new board. [HON. MEMBERS: "Shame."] I agree that this is a matter of considerable regret, particularly as I belong to the school of argument that wants a consensus approach in these matters.

Hon. Gentlemen who said "Shame" should direct their remarks at the Treasury Bench and not at the TUC. The Secretary of State has brought about those circumstances, not anyone in the trade union movement.

What are to be the terms of reference of the new board? The Secretary of State has created a new board of people who appear to be placemen. Certainly, at best they cannot claim independence or credibility, and at worst—as my hon. Friend the Member for Derby, North said—there are some serious questions to be asked about them. The new chairman replaces a former colleague who was dismissed in the most disgraceful circumstances. The vice-chairman, Sir John King, is emotionally and ideologically opposed to the whole idea of the National Enterprise Board, as he said in a letter to The Daily Telegraph on 3 May. It is pathetic that a man could then accept the vice-chairmanship of the very organisation that he sought to denigrate so effectively.

It is also a matter of perhaps even greater concern that Mr. Robert Clayton of GEC should be appointed to the new board. He is known to work for a company that has designs not only on Rolls-Royce but on several other companies in the control of the National Enterprise Board. He is known to be chairman of GEC-Fairchild Limited, one of the prin- cipal competitors of Inmos. May we have an assurance that a man in this position will not be shown confidential documents? If we cannot have that basic assurance about this man's role, we must say categorically that his appointment is against the public interest.

It is also woefully inept and extremely regrettable that appointments of this kind are made at the same time as the Secretary of State asserts that there will be an independent role for the new board. It is not tenable to argue that way, and I do not believe that he expects us to believe that it is so.

There must also be questions about the ever-smooth transition of Sir Frank McFadzean to yet another chairmanship of a public company, and his relationship with Sir Kenneth Keith in this respect is again a matter for serious public concern.

These are issues that go to the root of the differences between the Secretary of State and the ex-members of the NEB. The Secretary of State has created anger, confusion and mistrust. He has destroyed the credibility of the NEB and his own credibility—if he ever had any—in relation to the trade union movement. He appeared not to notice his impact on David Basnett, the chairman of the TUC economic committee. How the Secretary of State can believe that any constructive proposals can be forthcoming from the TUC after his treatment of David Basnett, I fail to understand.

The NEB remains. We are not quite sure why. We are not quite sure on what basis. But it has major responsibilities to the public and responsibilities for a great many jobs. I cannot bring myself to believe that the Secretary of State sought to put himself in this position. Did he really not care about trade union involvement and the contribution of the trade unions? Did he not value it at all? Was he in any doubt about their intentions? I do not believe that for a moment. He knew quite clearly what their intentions were.

What has the Secretary of State achieved by all this? He has got himself into considerable difficulty. He has damaged—perhaps fatally—the credibility of the NEB, as his hon. Friend the Member for Nelson and Colne (Mr. Lee) pointed out, particularly with small companies and with entrepreneurs. The right hon. Gentleman has certainly not helped his own position in terms of the developing recession and the economic and industrial difficulties that we are likely to face. He has reduced his room for manoeuvre. He has reduced the flexibility of the Government to deal with the mounting problems.

I believe that the right hon. Gentleman, in his dealings with Rolls-Royce, will also regret the absence of an independent and detached point of view in overseeing the very large amounts of public money which are likely to be needed to go on funding that company.

As bankruptcies and unemployment mount, he has the colossal nerve to say that the Government, unlike the previous Labour Government, had come to office to create the right conditions and climate for industrial expansion. He says that when we have MLR at 17 per cent. and overdrafts at 20 per cent.—

If the hon. Lady believes that, she lives in cloud-cuckoo-land. Far from improving the climate, the right hon. Gentleman and his colleagues in the Government have made it seriously worse. That is the reality of the situation. If the hon. Lady does not believe that, she ought to go back to her abacus.

The former board was protecting the national interest in these matters. It was protecting public expenditure. It was protecting jobs. It was carrying out its difficult duties. I agreed with the hon. Member for Nelson and Colne when he said that the NEB cannot possibly have 100 per cent. success in these matters. There have been some failures. That is absolutely right. No one on the Labour Benches would pretend that the NEB would not have failures from time to time, or that on its own it could bring about a complete restructuring of British industry—a view that the Secretary of State wrongly attributed to my right hon. Friend. We do not believe that for one moment. But the NEB was doing an effective job and now it is no longer in a position to do so.

The Secretary of State has reduced his control over these events by the action he has taken. As a result, he may find himself involved in more public expenditure, not less, because of that lack of control. As unemployment rises, and as people pay for the policies of the Secretary of State and the Government with their jobs, the Secretary of State will regret his actions. He will regret his abject misjudgment and mismanagement of a board which has been playing a constructive, effective and even unique role in our industrial policy. We believe that it was a crucial role, too. His hon. Friends and he may smile, but we believe that in the end their jobs will also be forfeit as a result.

9.39 pm

This was supposed to be an all-out attack on the Government. It has gone off with all the enthusiasm of a firework left out in the rain since 5 November. We started off with what was, for a three-hour debate, far too long a speech from the right hon. Member for Deptford (Mr. Silkin), a speech that was excessively boring. We ended up with a contribution from the hon. Member for Whitehaven (Dr. Cunningham) which sank to the depths of personal criticism of my right hon. Friend the Secretary of State, which is totally unworthy of the hon. Gentleman. Also, the hon. Gentleman could not resist a slur on the integrity of Mr. Clayton, who has just been appointed to the NEB.

Let me finish. It was very much a slur on the integrity of Mr. Clayton, saying that he was incapable of distinguishing between responsibilities in his position on the NEB. Mr. Clayton is a research engineer of international reputation, and I have no doubt that he will observe the accepted standards in regard to propriety in this matter.

The Minister of State is wrong. I made no comment on Mr. Clayton's personal qualities. I commented on the unfortunate fact that he was the chairman of one of the main competitors of Inmos, and in those circumstances I asked how there could exist a situation in which Inmos trusted him.

On another occasion the hon. Gentleman might explain to the House why Sir Jack Wellings, who was on the board, was not in the same position of conflict as chairman of the 600 Group, a well-known machine tool group. Why was he not put in the same position vis-a-vis Alfred Herbert? While on the NEB, Sir Jack Wellings was responsible for decisions in regard to Alfred Herbert. The same integrity applied to Sir Jack Wellings as does to Mr. Clayton. It was an unworthy slur by the hon. Member for Whitehaven.

I start, as many other speakers have started, with my own tribute to the late board members. They are men of great competence. I have no doubt that they will continue to serve British industry, in either the public or the private sector, as they have done in the past. Their resignations are to be deeply regretted. I think that it was for them a matter of principle and that they believed that in some way my right hon. Friend's actions reflected on their competence. However mistaken that reaction, one has to respect their views. But I think that some small encouragement is to be gained out of a mass resignation on grounds of honour or principle, because there is no reflection on the individuals concerned; nor, in the circumstances—and bearing in mind how the board was composed—should the unanimous decision have been taken for political reasons. Therefore, we very much hope that the trade unions will think very seriously about filling the seats on the board deliberately left empty by my right hon. Friend.

The right hon. Member for Deptford told us that the board members had resigned because they did not like the decision to take Rolls-Royce away from the NEB and because they had not been consulted. Those are two reasons why, for their own good, they might have decided to resign. We get a slightly different story from the hon. Member for Whitehaven, who seemed to be acting tonight as a sort of messenger boy for the TUC. I sincerely hope that he is wrong.

Under the previous Administration, the TUC asked for the privilege to be put on the board of the NEB. Tribute has been paid today, and previously, to the role that the TUC members played. Trade union leaders are, I think, aware of the fall from grace that some of them have suffered in the public mind in recent years. I believe that in wisdom they will wish to discourage any impression that their motivations in this matter have been political—as opposed to sharing a common view and act of resignation with the whole board—and that they will prefer to demonstrate that their original seeking after board representation flowed from a wish to look after their members' interests and to serve British industry.

As for the new board, I wish Sir Arthur and his colleagues well. They have an important and continuing job to do, and from what I know of Sir Arthur I am sure that he will fight his corner as hard as anybody.

Some of my hon. Friends and Labour Members asked a number of questions and I shall try to answer them if I can.

Will the hon. Gentleman explain precisely what Sir Arthur's corner is, because it seems to me that his corner has gone out of the window? On the basis of the appointment, he has obviously decided to wind down the NEB, which is precisely the opposite of what the Labour Party put into operation.

The hon. Gentleman listened to my right hon. Friend describing the future role of the NEB. I shall return to that. That is the corner that Sir Arthur will fight—for the future of the NEB and for the role that it now has. I hope that the hon. Gentleman will allow me to answer some of the rather more important questions that his hon. Friends asked.

The hon. Member for Dunfermline (Mr. Douglas) asked about the future of Monotype Holdings. That is a matter for the NEB, but in no way is it affected by the decision of my right hon. Friend in regard to the future of Rolls-Royce.

My hon. Friend the Member for Surrey, North-West (Mr. Grylls), as usual, made a useful contribution, and referred particularly to the lack of profitability of many of the companies within the NEB's holding. He rightly drew our attention to the fact that that state of affairs cannot continue without an injection of public funds, which has its consequences elsewhere.

I shall return to the invaluable contribution of my hon. Friend the Member for Honiton (Mr. Emery). I shall also deal with several other points.

The crux of the debate has been the question of duplication between the role of the NEB and that of the Department of Industry. My right hon. Friend put considerable emphasis on this. I do not know whether the House is aware of the extent to which that duplication existed. It is true that the NEB said that it would stand back from management decisions, but it required to see plans and budgets, to have full-scale quarterly and periodic reporting and to approve expenditure down to £5 million. That would seem to be sufficient.

When one looks at the role of the Department during this time, one finds that under NEB guidelines the same sort of monitoring—following almost exactly the same subjects, such as forward plans and budgets and major investment decisions, but this time only if above £10 million—had to go before the Department and, in many cases, to Ministers. That has presented difficulties, and no one can say that the monitoring has been entirely successful. One wonders how it is that the budgets for Rolls-Royce for 1978 and 1979 were not available to the Department until April in each respective year. Nobody can say that the system has worked really efficiently.

As has been said in the debate, there have been factors arising out of the position of Rolls-Royce as a supplier to the Ministry of Defence. In that case there is almost continuous monitoring by the Ministry of Defence in respect of orders, overseas supplies and licences of all kinds. I say to my hon. Friend the Member for Surrey, North-West that that is where the distinction between Rolls-Royce and British Leyland lies. Of course there are similarities, and one can argue that the extra layer of supervision exists for British Leyland as for Rolls-Royce, but that is only one consideration that we had in mind when we took the decision about the future of Rolls-Royce. As I have said, the close relationship between Rolls-Royce and the Government on defence matters does not apply to British Leyland.

The Minister said he would answer the debate, but he has not, as yet, answered one question. Will he now answer one of my questions? At what point is it envisaged that Rolls-Royce should be sold back to the private sector, and what is the timetable? As and when that happens, what kind of accountability will there be?

The hon. Member for Derby, North (Mr. Whitehead) caught me just as I was trying to find my note about the points that he had made. The point he made in his speech was not the same as the question he has just put to me. He was asking how this close relationship between the Ministry of Defence and Rolls-Royce was compatible with the return of Rolls-Royce to the private sector. The answer is that that is exactly what we shall do with British Aerospace, and if we can do it with British Aerospace—which we shall do successfully—it can be done perfectly well with Rolls-Royce.

My hon. Friend the Member for Honiton, in probably the best contribution to the debate, introduced the important question of the role of public money and the control of it, whether through agencies or directly through the Department. I would commend to my hon. Friend the work done by the Expenditure Committee in 1971–72, when this matter was looked at in considerable detail.

It is possible for supervision to be carried out through the Department. It is done effectively in relation to certain other nationalised industries and it was also done effectively during the five years between the nationalising of Rolls-Royce and that company being handed over to the NEB. If anyone doubts how it worked or whether it worked well, I commend him to look at the minutes of a meeting between Mr. Ian Morrow and the Select Committee to which I have just referred, in February 1972. There, Mr. Morrow described how good his relationship was with the Department and how satisfactory that relationship was in terms of the passing of information and the control, as far as it was necessary, by officials.

Mr. Morrow went so far as to say that the officials with whom he dealt knew more than the board of the company because of the attention they had paid to detail. He was asked specifically:
"Can you really say that the contacts you have in the Government Departments are sufficiently expert to be able to read your balance sheets and all the other information and be fully informed of what is going on?"
Mr. Morrow answered:
"Yes, I think so."
Since that time, the Department has considerably strengthened itself with the establishment of the industrial development unit, which is staffed by those expert in business and finance seconded from outside the Civil Service. They have given excellent service and they will continue to do so.

Will the Minister inform the House whether the Government have yet decided on the financial duty of the new board? If so, what is it? Will he now answer, because lie has not given any indication in his summing up? This is one chance for him to make his name.

Presuming that the hon. Member was referring to the new NEB, I must point out that there is no need for a change in financial duty until disposals of assets or the transfer of Rolls-Royce take place. Therefore, there is no change at this moment in the financial duty imposed on the NEB.

A number of hon. Members have sought to show that there is no future for the NEB. My hon. Friend the Member for Nelson and Colne (Mr. Lee) was very strong in his support of a future for it. He should not need reassurance from me. We have spelt out clearly that the board will continue with its casualty clearing role. The right hon. Member for Houghton-le-Spring (Mr. Urwin) asked about the regional role. That, too, continues and we have specified that the board will be active in areas of high unemployment. The special role in new technology will also continue but with the added incentive that the board is required to introduce the private sector at the first appropriate moment.

The Secretary of State has explained very carefully why we believe it necessary that Rolls-Royce should be withdrawn from the responsibility of the NEB, and should report instead direct to him through the Department of Industry. There are particular special circumstances in the Rolls-Royce case. The relationship between the Government and Rolls-Royce is inevitably close, and once the Industry Bill becomes law the Secretary of State, with the benefit of the Department's industrial development unit with its direct business experience, will once again take up the reins from his predecessor.

To suggest that Rolls-Royce will be in any way damaged by the change of responsibility can only be harmful to that company's prospects. Fortunately, Rolls-Royce's customers and suppliers can judge the emptiness of such suggestions by the nature of their source. Those customers and suppliers will look forward, as we shall, to the day when the financial quality of the company is reflected in the private sector participation in ownership and in the strength of its shares on the Stock Exchange.

It is through the private sector route that the future of so many of our nationalised industries must lie. The potential of new industry should be subject to the test of private risk taking. It is so easy for the Government or their agencies to spend other people's money. The future of all industries depends ultimately on their fitness to compete. That fitness can be achieved only through the disciplines of the market place and can be proved only by those disciplines. That is why the Industry Bill requires the NEB to dispose of its shareholdings as soon as appropriate. That policy would have been pursued in response to Parliament's wishes by the previous board. The new board will pursue that policy with vigour in the knowledge that it will be for the benefit of its subsidiaries, their managements and work forces and Britain's industrial economy.

I ask the House to show its support for this policy and for the Government's recent decision on Rolls-Royce, which were taken in the best interests of the company. I hope that the House will also show support for my right hon. Friend the Secretary of State, who is laying the foundations for industrial recovery in this country.

Question put, That the original words stand part of the Question:—

Division No. 111

AYES

10.0 pm

Adams, AllenFoot, Rt Hon MichaelMeacher, Michael
Allaun, FrankFord, BenMellish, Rt Hon Robert
Anderson, DonaldForrester, JohnMikardo, Ian
Archer, Rt Hon PeterFostar, DerekMillan, Rt Hon Bruce
Armstrong, Rt Hon ErnestFoulkes, GeorgeMiller, Dr M. S. (East Kilbride)
Ashley, Rt Hon JackFraser, John (Lambeth, Norwood)Mitchell, Austin (Grimsby)
Ashton, JoeFreeson, Rt Hon ReginaldMitchell, R. C. (Soton, lichen)
Atkinson, Norman (H'gey, Tott'ham)Garrett, John (Norwich S)Morris, Rt Hon John (Aberavon)
Barnett, Guy (Greenwich)Gilbert, Rt Hon Dr JohnMorton, George
Barnett, Rt Hon Joel (Heywood)Ginsburg, DavidMoyle, Rt Hon Roland
Beith, A. J.Golding, JohnMulley, Rt Hon Frederick
Benn, Rt Hon Anthony WedgwoodGourlay, HarryNewens, Stanley
Bennett, Andrew (Stockport N)Graham, TedOakes, Rt Hon Gordon
Bidwell, SydneyGrant, George (Morpeth)Ogden, Eric
Booth, Rt Hon AlbertGrant, John (Islington C)O'Halloran, Michael
Boothroyd, Miss BettyHamilton, James (Bothwell)O'Neill, Martin
Bottomley, Rt Hon Arthur (M'brough)Hamilton, W. W. (Central Fife)Owen, Rt Hon Dr David
Bradley, TomHardy, PeterPalmer, Arthur
Bray, Dr JeremyHarrison, Rt Hon WalterPark, George
Brown, Hugh D. (Provan)Hart, Rt Hon Dame JudithParker, John
Brown, Robert C. (Newcastle W)Hattersley, Rt Hon RoyParry, Robert
Brown, Ron (Edinburgh, Leith)Haynes, FrankPendry, Tom
Buchan, NormanHealey, Rt Hon DenisPenhaligon, David
Callaghan, Rt Hon. J. (Cardiff SE)Heffer, Eric S.Powell, Raymond (Ogmore)
Callaghan, Jim (Middleton & P)Hogg, Norman (E Dunbartonshire)Prescott, John
Campbell, IanHolland, Stuart (L'beth, Vauxhall)Price, Christopher (Lewisham West)
Campbell-Savours, DaleHome Robertson, JohnRace, Reg
Canavan, DennisHomewood, WilliamRadice, Giles
Cant, R. B.Hooley, FrankRees, Rt Hon Merlyn (Leeds South)
Carmichael, NeilHoram, JohnRichardson, Miss Jo
Carter-Jones, LewisHowells, GeraintRoberts, Albert (Normanton)
Clark, Dr David (South Shields)Huckfield, LesRoberts, Allan (Bootle)
Cocks, Rt Hon Michael (Bristol S)Hudson Davies, Gwilym EdnyfedRoberts, Ernest (Hackney North)
Cohen, StanleyHughes, Mark (Durham)Roberts, Gwilym (Cannock)
Coleman, DonaldHughes, Robert (Aberdeen North)Robertson, George
Concannon, Rt Hon J. D.Hughes, Roy (Newport)Robinson, Geoffrey (Coventry NW)
Conlan, BernardJanner, Hon GrevilleRodgers, Rt Hon William
Cook, Robin F.Jay, Rt Hon DouglasRooker, J. W.
Cowans, HarryJohn, BrynmorRoper, John
Cox, Tom (Wandsworth, Tooting)Johnson, James (Hull West)Ross, Ernest (Dundee West)
Craigen, J. M. (Glasgow, Maryhill)Johnson, Walter (Derby South)Ross, Stephen (Isle of Wight)
Crowther, J. S.Jones, Rt Hon Alec (Rhondda)Rowlands, Ted
Cryer, BobJones, Barry (East Flint)Ryman, John
Cunliffe, LawrenceJones, Dan (Burnley)Sandelson, Neville
Cunningham, Dr John (Whitehaven)Kaufman, Rt Hon GeraldSever, John
Dalyell, TamKilroy-Silk, RobertSheerman, Barry
Davidson, ArthurKinnock, NeilSheldon, Rt Hon Robert (A'ton-u-L)
Davies, Rt Hon Denzil (Llanelli)Lambie, DavidShore, Rt Hon Peter (Step and Pop)
Davies, Ifor (Gower)Lamborn, HarryShort, Mrs Renée
Davis, Clinton, (Hackney Central)Lamond, JamesSilkin, Rt Hon John (Deptford)
Davis, Terry (B'rm'ham, Stechford)Leadbitter, TedSilkin, Rt Hon S. C. (Dulwich)
Deakins, EricLeighton, RonaldSilverman, Julius
Dempsey, JamesLestor, Miss Joan (Eton & Slough)Skinner, Dennis
Dewar, DonaldLewis, Ron (Carlisle)Smith, Rt Hon J. (North Lanarkshire)
Dixon, DonaldLitherland, RobertSnape, Peter
Dobson, FrankLofthouse, GeoffreySoley, Clive
Dormand, JackLyon, Alexander (York)Spearing, Nigel
Douglas, DickLyons, Edward (Bradford West)Spriggs, Leslie
Douglas-Mann, BruceMcCartney, HughStallard, A. W.
Dubs, AlfredMcDonald, Dr OonaghSteel, Rt Hon David
Duffy, A. E. P.McElhone, FrankStoddart, David
Dunn, James A. (Liverpool, Kirkdale)McGuire, Michael (Ince)Stott, Roger
Dunnett, JackMcKay, Allen (Penistone)Strang, Gavin
Dunwoody, Mrs. GwynethMcKelvey, WilliamStraw, Jack
Eadie, AlexMacKenzie, Rt Hon GregorSummerskill, Hon Dr Shirley
Eastham, KenMaclennan, RobertTaylor, Mrs Ann (Bolton West)
Edwards, Robert (Wolv SE)McMahon, AndrewThomas, Dafydd (Merioneth)
Ellis, Raymond (NE Derbyshire)McMillan, Tom (Glasgow, Central)Thomas, Jeffrey (Abertillery)
Ellis, Tom (Wrexham)McNally, ThomasThomas, Mike (Newcastle East)
English, MichaelMcWilliam, JohnThomas, Dr Roger (Carmarthen)
Ennals, Rt Hon DavidMagee, BryanThorne, Stan (Preston South)
Evans, Ioan (Aberdare)Marks, KennethTilley, John
Ewing, HarryMarshall, David (Gl'sgow, Shettles'n)Torney, Tom
Faulds, AndrewMarshall, Dr Edmund (Goole)Urwin, Rt Hon Tom
Field, FrankMarshall, Jim (Leicester South)Varley, Rt Hon Eric G.
Fitch, AlanMartin, Michael (Gl'gow, Springb'rn)Wainwright, Edwin (Dearne Valley)
Flannery, MartinMason, Rt Hon RoyWalker, Rt Hon Harold (Doncaster)
Fletcher, L. R. (Ilkeston)Maxton, JohnWatkins, David
Fletcher, Ted (Darlington)Maynard, Miss JoanWeetch, Ken

The House divided: Ayes 256, Noes 312.

Wellbeloved, JamesWilliams, Rt Hon Alan (Swansea W)Wrigglesworth, Ian
Welsh, MichaelWilliams, Sir Thomas (Warrington)Wright, Sheila
White, Frank R. (Bury & Radcliffe)Wilson, Gordon (Dundee East)Young, David (Bolton East)
White, James (Glasgow, Pollok)Wilson, Rt Hon Sir Harold (Huyton)
Whitehead, PhillipWilson, William (Coventry SE)TELLERS FOR THE AYES:
Whitlock, WilliamWinnick, DavidMr. James Tinn and
Wigley, DafyddWoodall, AlecMr. John Evans.
Willey, Rt Hon FrederickWoolmer, Kenneth

NOES

Adley, RobertEggar, TimothyKing, Rt Hon Tom
Alexander, RichardElliott, Sir WilliamKitson, Sir Timothy
Alison, MichaelEmery, PeterKnox, David
Amery, Rt Hon JulianEyre, ReginaldLamont, Norman
Ancram, MichaelFairgrieve, RussellLang, Ian
Aspinwall, JackFaith, Mrs SheilaLangford-Holt, Sir John
Atkins, Robert (Preston North)Farr, JohnLatham, Michael
Atkinson, David (B'mouth, East)Fell, AnthonyLawrence, Ivan
Baker, Nicholas (North Dorset)Fenner, Mrs PeggyLawson, Nigel
Banks, RobertFinsberg, GeoffreyLee, John
Beaumont-Dark, AnthonyFisher, Sir NigelLennox-Boyd, Hon Mark
Bell, RonaldFletcher, Alexander (Edinburgh N)Lester, Jim (Beeston)
Bendall, VivianFletcher-Cooke, CharlesLewis, Kenneth (Rutland)
Bennett, Sir Frederic (Torbay)Fookes, Miss JanetLloyd, Ian (Havant & Waterloo)
Benyon, Thomas (Abingdon)Forman, NigelLloyd, Peter (Fareham)
Benyon, W. (Buckingham)Fowler, Rt Hon NormanLoveridge, John
Best, KeithFox, MarcusLuce, Richard
Bevan, David GilroyFraser, Peter (South Angus)Lyell, Nicholas
Biffen, Rt Hon JohnFry, PeterMcAdden, Sir Stephen
Biggs-Davison, JohnGalbraith, Hon T. G. D.McCrindle, Robert
Blackburn, JohnGardiner, George (Reigate)Macfarlane, Neil
Body, RichardGardner, Edward (South Fylde)MacGregor, John
Bonsor, Sir NicholasGarel-Jones, TristanMacKay, John (Argyll)
Boscawen, Hon RobertGilmour, Rt Hon Sir IanMcNair-Wilson, Michael (Newbury)
Bottomley, Peter (Woolwich West)Glyn, Dr AlanMcNair-Wilson, Patrick (New Forest)
Bowden, AndrewGoodhew, VictorMcQuarrie, Albert
Boyson, Dr RhodesGoodlad, AlastairMadel, David
Braine, Sir BernardGorst, JohnMajor, John
Bright, GrahamGow, IanMarland, Paul
Brinton, TimGower, Sir RaymondMarlow, Tony
Brittan, LeonGrant, Anthony (Harrow C)Marshall, Michael (Arundel)
Brocklebank-Fowler, ChristopherGray, HamishMates, Michael
Brooke, Hon PeterGreenway, HarryMather, Carol
Brotherton, MichaelGrieve, PercyMaude, Rt Hon Angus
Brown, Michael (Brigg & Sc'thorpe)
Browne, John (Winchester)Griffiths, Peter (Portsmouth N)Mawby, Ray
Bruce-Gardyne, JohnGrylls, MichaelMawhinney, Dr Brian
Bryan, Sir PaulGlimmer, John SelwynMaxwell-Hyslop, Robin
Buck, AntonyHamilton, Hon Archle (Eps'm&Ew'll)Mayhew, Patrick
Budgen, NickHamilton, Michael (Salisbury)Mellor, David
Bulmer, EsmondHampson, Dr KeithMeyer, Sir Anthony
Burden, F. A.Hannam, JohnMiller, Hal (Bromsgrove & Redditch)
Butcher, JohnHaselhurst, AlanMills, Iain (Meriden)
Butler, Hon AdamHastings, StephenMills, Peter (West Devon)
Cadbury, JocelynHavers, Rt Hon Sir MichaelMiscampbell, Norman
Carlisle, John (Luton West)Hawkins, PaulMitchell, David (Basingstoke)
Carlisle, Kenneth (Lincoln)Hawksley, WarrenMoate, Roger
Carlisle, Rt Hon Mark (Runcorn)Hayhoe, BarneyMolyneaux, James
Chalker, Mrs. LyndaHeath, Rt Hon EdwardMonro, Hector
Channon, PaulHeddle, JohnMontgomery, Fergus
Chapman, SydneyHenderson, BarryMoore, John
Churchill, W. S.Heseltine, Rt Hon MichaelMorgan, Geraint
Clark, Hon Alan (Plymouth, Sutton)Hicks, RobertMorris, Michael (Northampton, Sth)
Clark, Dr William (Croydon South)Higgins, Rt Hon Terence L.Morrison, Hon Charles (Devizes)
Clarke, Kenneth (Rushcliffe)Hill, JamesMorrison, Hon Peter (City of Chester)
Cockeram, EricHogg, Hon Douglas (Grantham)Mudd, David
Colvin, MichaelHolland, Philip (Carlton)Murphy, Christopher
Cope, JohnHooson, TomMyles, David
Cormack, PatrickHordern, PeterNeale, Gerrard
Corrie, JohnHowe, Rt Hon Sir GeoffreyNeedham, Richard
Costain, A. P.Howell, Rt Hon David (Guildford)Nelson, Anthony
Cranborne, ViscountHowell, Ralph (North Norfolk)Neubert, Michael
Critchley, JulianHunt, David (Wirral)Newton, Tony
Crouch, DavidHunt, John (Ravensbourne)Normanton, Tom
Dickens, GeoffreyKurd, Hon DouglasOnslow, Cranley
Dorrell, StephenIrving, Charles (Cheltenham)Oppenheim, Rt Hon Mrs Sally
Douglas-Hamilton, Lord JamesJenkin, Rt Hon PatrickOsborn, John
Dover, DenshoreJessel, TobyPage, John (Harrow, West)
du Cann, Rt Hon EdwardJohnson Smith, GeoffreyPage, Rt Hon R. Graham (Crosby)
Dunlop, JohnJopling, Rt Hon MichaelParkinson, Cecil
Dunn, Robert (Dartford)Joseph, Rt Hon Sir KeithParris, Matthew
Durant, TonyKaberry, Sir DonaldPatten, Christopher (Bath)
Eden, Rt Hon Sir JohnKellett-Bowman, Mrs ElainePatten, John (Oxford)
Edwards, Rt Hon N. (Pembroke)Kilfedder, James A.Pattie, Geoffrey

Pawsey, JamesShepherd, Richard(Aldridge-Br'hills)Trotter, Neville
Percival, Sir IanShersby, Michaelvan Straubenzee, W. R.
Peyton, Rt Hon JohnSilvester, FredVaughan, Dr Gerard
Pink, R. BonnerSims, RogerViggers, Peter
Pollock, AlexanderSkeet, T. H. H.Waddington, David
Porter, GeorgeSmith, Dudley (War. and Leam ton)Wakeham, John
Powell, Rt Hon J. Enoch (S Down)Speed, KeithWaldegrave, Hon William
Prentice, Rt Hon RegSpeller, TonyWalker, Bill (Perth & E Perthshire)
Price, David (Eastleigh)Spence, JohnWalker-Smith, Rt Hon Sir Derek
Prior, Rt Hon JamesSpicer, Jim (West Dorset)Wall, Patrick
Proctor, K. HarveySproat, IainWaller, Gary
Pym, Rt Hon FrancisSquire, RobinWalters, Dennis
Raison, TimothyStainton, KeithWard, John
Rathbone, TimStanbrook, IvorWarren, Kenneth
Rees, Peter (Dover and Deal)Stanley, JohnWatson, John
Rees-Davies, W. R.Steen, AnthonyWells, John (Maidstone)
Renton, TimStevens, MartinWells, Bowen (Hert'rd & Stev'nage)
Rhodes James, RobertStewart, Ian (Hitchin)Wheeler, John
Rhys Williams, Sir BrandonStewart, John (East Renfrewshire)Whitelaw, Rt Hon William
Ridley, Hon NicholasStokes, JohnWhitney, Raymond
Ridsdale, JulianStradling Thomas, J.Wickenden, Keith
Rifkind, MalcolmTaylor, Robert (Croydon NW)Wiggin, Jerry
Rippon, Rt Hon GeoffreyTebbit, NormanWilkinson, John
Roberts, Michael (Cardiff NW)Temple-Morris, PeterWilliams, Delwyn (Montgomery)
Roberts, Wyn (Conway)Thatcher, Rt Hon Mrs MargaretWinterton, Nicholas
Rost, PeterThomas, Rt Hon Peter (Hendon S)Wolfson, Mark
Royle, Sir AnthonyThompson, DonaldYoung, Sir George (Acton)
Sainsbury, Hon TimothyThorne, Neil (Ilford South)Younger, Rt Hon George
St. John-Stevas, Rt Hon NormanThornton, Malcolm
Scott, NicholasTownend, John (Bridlington)TELLERS FOR THE NOES:
Shelton, William (Streatham)Townsend, Cyril D. (Bexleyheath)Mr. Spencer Le Marchant and
Shepherd, Colin (Hereford)Trippier, DavidMr. Anthony Berry.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 32 ( Questions on amendments), and agreed to.

MR. SPEAKER forthwith declared the main Question, as amended, to be agreed to, pursuant to Standing Order No. 18 ( Business of Supply).

Resolved,

That this House welcomes the Government's decision on Rolls-Royce, expresses its appreciation of the services of the members of the National Enterprise Board who have recently resigned, welcomes the appointment of a strong new board to carry forward the work of the National Enterprise Board and the intention to make further appointments, and endorses the Government's determination to strengthen the role of private capital in industrial reconstruction.

Law Reform (Miscellaneous Provisions) (Scotland) Bill Lords

Order for Second Reading read,

Ordered,

That the Bill be referred to the Scottish Grand Committee.—[ Mr. MacGregor.]

Select Committees

Order. Before calling the hon. Member for Carlton (Mr. Holland) to move the first of the motions relating to Select Committees, I should say a word about the procedure to be followed in the light of the motion on the business of the House agreed to earlier. I am prepared to allow—I think it is important for hon. Members to hear this—a general debate on the first motion. That will then permit all subsequent Questions to be put without further debate, even if proceedings end before the expiry of one and a half hours.

In the general debate reference may be made to the amendments. When the Questions are put at the conclusion of the debate in respect of the motions to which amendments have been tabled, there may be a vote on the first name in the motion, or on subsequent names. However, amendments proposing the addition of new hon. Members to any Committee will not be called for a Division unless the House has first negatived a name proposed in the motion.

10.15 pm

Mr. Philip Holland
(Carlton)