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Orders Of The Day

Volume 13: debated on Thursday 26 November 1981

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Supply

4TH ALLOTTED DAY—considered

Law And Order

4 pm

I beg to move,

That this House believes that the maintenance of law and order and preservation of liberty depend upon a relationship of confidence and co-operation between the police and local communities, and therefore draws particular attention to the need for community policing methods and an independent procedure by which complaints against the police can be examined; considers that inadequate help is given to the victims of violent crime; and further considers that urgent action is needed to deal with the crisis in the prisons.
Any right hon. or hon. Member introducing a debate under the general heading of law and order could clearly cover a very wide canvass. Those who have read the motion will note that it does not seek to go into the necessary background to such debates—for example, the influence of the planning of our cities and towns, the decisions taken by successive Governments and local authorities on housing programmes, and so on. There is an increasing awareness that rehabilitation of older property may lead to a more satisfactory community than the use of the bulldozer and the development of new and remoter housing estates without social facilities. Nor does the motion attempt to cover the role of education in this important area.

In drafting what I hope is a fairly non-contentious motion we have tried to focus on some of the issues concerning the combatting of crime, which has been the subject of increasing concern in recent years, and particularly on the methods of policing. In the interest of brevity I do not propose to say very much about the crisis in the prisons, partly because I hope that my hon. Friend the Member for Isle of Wight (Mr. Ross) will succeed in catching your eye later in the debate, Mr. Speaker, and talk about that. Furthermore, I learned last night that the Opposition had chosen the topic for an extended debate next week, and therefore it would be idle to go too deeply into the issue now.

It is appreciated by the House that this debate is taking place on the day following the publication of the Scarman report. Again, I should not like to trespass on the debate that the Government have promised on the details of the report, but it is useful to have an immediate opportunity to make comments on some of the important findings of the report.

It would be as well to refresh our minds at the start of the debate about some of the current crime statistics. Last year—I give the figures for England and Wales only because the statistics are collected slightly differently in Scotland—there were 97,000 crimes of violence 'against the person, 622,000 burglaries, about 15,000 robberies, and approximately 300 muggings a day were reported. The total number of offenders who were found guilty or cautioned in England and Wales increased from just over 2 million to 2,350,000—an increase of about 16 per cent. in one year between 1979 and 1980. Therefore, it is right that we should pause to express concern about the continuing and almost relentless rise in crime in our society.

I refer for a moment to the Scarman report. It is interesting that although it has been published for barely 24 hours it has already established itself in the public mind as a major social document, and it has received widespread support from chief constables, community leaders and politicians alike. That is why it is imperative that the Government should arrange a debate soon and act swiftly and imaginatively by implementing all the detailed recommendations in the Scarman report. It would be a mistake—I hope that I misunderstood the Home Secretary's approach yesterday—if the Government were simply to single out one or two reforms, however worthy, undertake to implement them and then brand the remaining detailed recommendations as merely a statement of Lord Scarman's philosophy. Lord Scarman referred in his report to the need for "urgent action" throughout. What is required is not Government acceptance of a statement of philosophy, but a Government programme for specific action.

The riots that took place earlier this year now seem to have occurred a remarkably long time ago. The House welcomed the Scarman report yesterday in a calm atmosphere. However, it is worth refreshing our minds about the real horror of the atmosphere of the period in April when the riots first took place. Lord Scarman summed it up very well in an early paragraph of his report. He said:
"During the weekend of 10–12 April the British people watched with horror and incredulity an instant audio-visual presentation on their television sets of scenes of violence and disorder in their capital city, the like of which had not previously been seen in this century in Britain."
I should like to pause on the three words "in this century". It is easy to exaggerate both the scale of rioting and the general levels of crime in our big cities, and to forget that there have been periods in our life, particularly in the last century, when to walk around the streets was infinitely more dangerous than it is today. Throughout these debates we must keep a sense of proportion when we listen to some of the more alarmist reports.

Even before the riots in Brixton there was general public concern about the methods of policing and the general principles that the Government were following in the development of a modern police force. Yesterday I selected one quotation from the Scarman report about the effects of racial disadvantage, but the report puts even that disadvantage in a wider setting. Lord Scarman spoke of the mood of despair in our inner cities. It is undeniable that successive Governments have devoted substantial resources to an attempt to cure the problem, but, as I hinted earlier, I am not sure that the money has always been put to the best possible and most imaginative use. Greater forward thinking on how we develop and redevelop the life in our inner cities, rather than simply looking at the amount of money that is available for it, might be more fruitful.

There is then the current problem, which we cannot balk, of the enforced idleness caused by unemployment. There is an old saying that idle hands find mischief. That is certainly true among younger people who feel deprived of any opportunity to make full use of their daily lives. Under the heading of racial disadvantage—this is not in Lord Scarman's report—I have been constantly critical of not only Government statements but statements by various politicians that add to the feelings of insecurity among the ethnic minorities. Talk of being swamped and about parts of the Government's British Nationality Act have helped to create an adverse climate.

The Scarman report makes generalised statements that are not limited to the Brixton experience, and it embodies points that many people have been talking about for some time. In my experience of speaking about police matters—I devoted part of my speech at our annual conference this year to criticism of police methods—I have found that if one attempts to criticise them, one is accused of being anti-police. As I am about to make some comments about police methods, I should like to say straight away that I have a brother who is a serving officer in the police force and that I have personal cause to be grateful to the police for their vigilance and protection during the present troubles in our land.

In my view, a bad policeman, like a bad clergyman, a bad teacher or a bad Member of Parliament, is a menace to society. As a society we are entitled to demand the very highest standards of our police, and any lapses should be rooted out.

That is why it is extremely important, irrespective of the Brixton experience and the particular recommendations of the Scarman report, to take up the question of liaison with the communities, as Lord Scarman recommended, and to evolve an independent complaints procedure. I listened carefully to the Home Secretary's answers at Question Time today, and I accept entirely that this is a most complicated matter that cannot be dealt with simplistically, but I understood him to give a commitment to it in principle. I hope that that is so and that he will not be long in bringing forward detailed proposals for general consideration in the House on this very important matter.

I was looking the other day at an opinion poll published some months ago about public attitudes to the police. The good news is that overall there is great confidence in our police force—and so there should be, as it compares favourably with those of many other countries—but there is also a disturbing increase in the number of people who distrust the police. Therefore, despite all the caveats mentioned by the Home Secretary, it is very welcome news that the Police Federation has switched its basic view about the moral proposition of an independent complaints system.

Last year, in England, there were 7,460 complaints against the police, but only 176 charges were brought. The Government must be prepared to devote at least some resources to setting up a system of independent investigation of complaints, which will remove the element of public anxiety about the police investigating and judging their own cases.

We should not listen to clichés about throwing money at problems. The Scarman report contains a number of specific and sensible reforms which, given limited funding, could be implemented almost immediately. Certainly the "radical option", as he described it, of a wholly independent procedure to deal with complaints is a candidate for fairly prompt action. Another is the proposal about police training, and the Home Secretary is to be congratulated on taking this up for immediate discussion with the chief officers.

I turn briefly to the difficult issue of positive discrimination, which was also mentioned at Question Time. I am sure that Lord Scarman was correct not to urge a quota system for the police force. In the United States, however, there is an obligation on companies to "use their best endeavours" to employ fairly from among the ethnic minorities. I believe that a similar provision for our police forces would be useful.

As specific instances of racial discrimination by the police are constantly brought to the attention of Members of Parliament, and were found to exist by Lord Scarman, it is astonishing that, so far as one knows, not one police officer has been dismissed for racial prejudice. A most important recommendation by Lord Scarman was that it should be made clear to the police that that would be the normal penalty for acts of racial prejudice.

A further suggestion to improve relations between the community and the police is to consider the Scottish experience of the prosecution system. It is interesting that in Scotland we have nothing like the same amount of antipolice feeling or criticism. I believe that that is partly because the process of prosecution is removed from the police and transferred to an independent prosecution system.

Our most important plea in introducing the motion is for a return to genuine community policing. That means a reversal of the policies that have been followed almost automatically in most constabularies for a long period. I remember a few years ago joining a community residents' association in a part of Liverpool protesting about the closure of a local police station. Over the years we have all seen the modernisation of police facilities involving the closure of local community police stations and their replacement by rather grander but inevitably more centralised offices. The result has been the withdrawal of police from local communities to centralised operating units and the increased use of motorised police.

In a discussion some years ago, a senior officer in my constituency made the obvious point that in the old days when a policeman operated on foot or on a bicycle in a particular community and had a specific territorial base, it was not so much that his presence on the streets or in the houses prevented crime more effectively than a Panda patrol, but that he was more aware of the problems in the community, such as problem families, people returning from prison or people suffering from stress due to marital or other problems. The Scarman report also draws attention to the role that the policeman could play in a far more social sense, but he cannot do so unless he is given a territorial responsibility and real involvement and recognition in a local community.

Perhaps the Minister will also say something about the role that might be given to the special constabulary. We often forget the value that we could obtain from that force. A few weeks ago I raised the subject of the resignation of Chief Superintendent David Webb in Birmingham on the ground that he felt obliged to abandon his community work because he was not getting sufficient support for it from senior officers. It is interesting to note that, among other things, he had been recruiting more and more people, particularly from the ethnic minorities, to the special constabulary.

Time and again, the approach that has come to be known as community policing has proved to be correct. Again, therefore, we look to the Home Secretary for a lead and the assurance that that approach will be given higher priority and will be accepted as Government policy for the future, Community policing should not become merely a minor cosmetic for any police force that wishes to be considered progressive. It will be no more than a token if it is suffocated beneath general policing methods which amount to a direct contradiction of it.

It is worth looking back to the comments of the chief constable of Devon and Cornwall long before the events in Brixton occurred. If anyone is tempted to sneer at his views because he is chief constable of Devon and Cornwall and not of the Metropolis, it should be remembered that he was assistant commissioner of the Metropolitan police before taking up his current appointment.

In a remarkable lecture about a year ago he said:
"People who are poor and have a chip on their shoulders against society are inclined to say: 'I am getting nothing out of life so I am going to be angry'.
If society then says: 'Okay, you can get as angry as you like, but I have a well-paid fat-cat police force and if you get angry I shall just clobber you,' then we are making a big mistake."
He concluded:
"One thing is certain—it is no answer to resort to brute force to try to control people."
If community policing works in Devon and Cornwall, including the city of Plymouth, it can work elsewhere, but it would be a mistake for the public or the House to assume that community policing is something exclusive to that constabulary. It is already practised successfully elsewhere. I have seen it in my own constituency as well as in part, though sadly not the whole, of Liverpool.

I noticed this morning in a press profile of Sir David McNee a reminder that when he was chief constable of Glasgow he was responsible for the introduction of community policing there. So it is not a madcap scheme dreamed up by some rural policeman. It is a tried and successful method of policing which should become the general policy of the land. It is important that the police are put back into the community, not just as law enforcement officers, but as social leaders working with local people.

I welcome what the Home Secretary said to me yesterday about his intention—whatever the legal difficulties—to look at the question of banning racial marches in our cities. About two years ago, when I first suggested that in a speech, I came under a lot of criticism from, among others, those in my party who thought that that was a highly illiberal suggestion. Since then, either the Home Secretary or the chief constables have had to make general bans on marches—which are much more illiberal—in order to stop one particularly unpleasant march.

We must now accept that if we can legislate—as we legislated some years ago against offensive notices to let rooms, which used such phrases as "No coloureds here"—we are entitled to say that it is madness to expect chief constables to make basically political decisions about the type of marches that are calculated to stir up racial hatred in certain parts of our towns and cities. Therefore the Home Secretary should look at the Public Order Act and make whatever changes may be necessary.

Given the terms of our motion, I should like to say a word about the victims of violent crime. However successful new policing methods might be, there will always, sadly, be victims of crime. They are the neglected party in current criminal justice procedure. They are viewed only in terms of the evidence that they are able to offer. Civilised society has a duty to care for the victims of crime.

The Criminal Injuries Compensation Board makes provision only for financial recompense for physical hurt. In the first six months of this year there were 368,000 burglaries and 9,900 robberies. That was a considerable increase over the numbers for the same period last year. Compensation orders are made only if specifically requested and if the criminal is caught. Otherwise, no provision is made by our society for the victims, who are sometimes old and infirm and who are left frightened—sometimes even penniless—and helpless to recover or replace their property or their self-confidence.

In the last few weeks my hon. Friend the Member for Liverpool, Edge Hill (Mr. Alton) has asked the Home Office and the Department of Health and Social Security whether we could devise a system to ensure that at least the weaker members of our society are visited by social security officials in the wake of reported crime, to ensure that they have simple basic things such as enough money for food—perhaps paid for, if necessary, from an emergency fund—and to ensure that damaged entry points are made good and, if possible, to offer alternative sheltered accommodation.

The giving of such attention and high priority to the victims of crime is long overdue. Perhaps the Home Secretary might wish to look at the recent Scottish experience, where sheriffs are increasingly using their new-found powers to demand on behalf of the victim, restitution from the sentenced criminal. The practice is new and is working quite well. Sheriffs are being encouraged to use that power in Scotland, but I do not believe that the power exists in England and Wales.

I am grateful to the right hon. Gentleman for giving way. I am rather surprised by his comments about the victims of crime. We may hide our light under a bushel, but has the right hon. Gentleman never heard of the national victim support scheme, which I founded, and which is supported by hundreds of volunteers throughout the nation?

There are now 140 victim support schemes, all managing on a shoestring. They were immediately supported by the Home Secretary when we requested aid to establish a national office. It is a growing voluntary force, and I am surprised that the Leader of the Liberal Party, of all people, should not be aware of such a powerful force in the land. It is the only body of its type in the whole of Europe that is run under the voluntary umbrella. I should like to feel that the Leader of the Liberal Party would not only pay tribute to it——

Order. The hon. Gentleman has made a long intervention, and I think that he has made his point.

I was not sure whether the hon. Gentleman was making his speech in the middle of mine, but I hope that he will catch your eye, Mr. Deputy Speaker, so that he can develop his theme. I had the great pleasure of visiting his constituency recently, but that was in a political capacity. I was not dishing out compliments then, but as the hon. Gentleman seems to be fishing for them now I should say that I readily accept that the work done by the voluntary organisation is splendid. However, I think that the hon. Gentleman will admit that the organisation is not nation-wide and that it is not a national scheme. I accept that it is a voluntary scheme.

I am sure that the hon. Member for Cheltenham (Mr. Irving) will be the first to admit that the scheme is not universal. If he wishes to place so much weight on the scheme, I invite him to talk to those victims of crime who feel, even now, that their needs are being ignored, while society, quite naturally, pays attention to the criminal.

I promised that I would be brief, and I have already spoken for too long. An apt final quotation from Lord Scarman's report is his quotation from President Johnson's Address to the Nation, which appeared at the beginning of the American Report of the National Advisory Commission on Civil Disorders, 1968. Lord Scarman was right to quote that, because President Johnson said:
"The only genuine, long-range solution for what has happened lies in an attack—mounted at every level—upon the condition that breeds despair and violence. All of us know that those conditions are: ignorance, discrimination, slums, poverty, disease and not enough jobs. We should attack these conditions—not because we are frightened by conflict, but because we are fired by conscience. We should attack them because there is simply no other way to achieve a decent and orderly society in America".
Lord Scarman said that those words should apply to Britain. In endorsing them, I am not suggesting for a moment that there are not evil and wicked people in our society rather than those who have been sinned against. However, we must pay more attention to the methods of policing that we use. We can be more effective in getting better value from our well-tried police forces in combating the rise in crime.

4.25 pm

The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) began his speech by saying that anyone who chose the topic of law and order as the broad subject for a debate had a wide canvas on which to paint. That is perfectly true. He also said that it was not his intention to trespass on the ground that Lord Scarman's report covered. However, the first part of his speech dwelt almost exclusively on that ground. I hope that he will forgive me if I do not take up every aspect of his speech. It is always welcome to this Government that the House should debate questions relating to the maintenance of law and order, and the preservation of liberty. There is no subject to which this Government attach more importance. It ranks equally with the defence of the realm. That is why we had, in Government time, a full day's debate last Friday, on the report of the Royal Commission on criminal procedure.

That very important report discussed many matters crucial to the establishment of—as the motion states—
"a relationship of confidence and co-operation between the police and local communities,"
I refer to such things as the power of the police to stop and search people in the street; the power of arrest; the circumstances in which the police shall be able to detain people after arrest; the judges' rules that govern how the police may interrogate suspects; and the right of silence. All of these matters affect how the police are trusted in the community.

I hope that the right hon. Gentleman will allow me gently to point out that, unhappily, throughout that important debate he exercised his right of silence—and, indeed, his right of absence—as did all his hon. Friends in the Liberal Party and allies in the SDP. On Friday, we had an alliance of silence on this subject. I must therefore begin by welcoming not only the wording of the motion, which we believe is plainly right, but also the right hon. Gentleman and his hon. Friends.

We shall, of course, be discussing Lord Scarman's report at an early date. Therefore, it is enough to say that yesterday my right hon. Friend stated in the clearest terms his acceptance of what he described as Lord Scarman's philosophy of policing, as well as his resolve that it should be carried into practice.

An essential component and objective of that philosophy is, in Lord Scarman's words, the establishment of a relationship of mutual trust and respect between local communities and the police. I was glad that the right hon. Gentleman pointed out the good news—that there is a great deal of confidence in the police. That is right. We all agree that we must seek to establish a relationship of mutual trust and respect. That is what a relationship of confidence amounts to, and without it we can look in vain for the co-operation of the local community with the police that the motion calls for. I believe that we are all agreed on that.

It follows, therefore, and it is almost a truism, that policing must take account of, and respond to, the special needs and characteristics of the local community. That is the essence of what are generally known as community policing methods. That is not a new concept. The right hon. Gentleman did not need to say that this was not a madcap concept dreamed up by a chief constable in a remote part of Western England. No one would dream of suggesting that it was. It has a long and honourable pedigree both in the Metropolitan Police and other forces. As Mr. Barry Pain, the chief constable of Kent and the chairman of the Association of Chief Police Officers said recently, it goes back to 1829.

There is no one model for universal application. There can be as many variants as there are communities, and probably there should be. In recent years, chief officers have made sustained efforts to experiment and to develop them, and certain features that are worth identifying are common to the most successful schemes. These schemes demonstrate a move away from what is sometimes called "reactive" or "fire brigade" policing towards a preventive approach. Everyone welcomes that. They lay emphasis on the need for the police to enlist the help of other agencies—both voluntary and statutory, to co-operate with the police in dealing not merely with crime and its effects, but also in the long term with the conditions associated with criminal activity.

Behind them all lies a recognition of the part that the police can play in promoting a sense of community. I agree entirely with the right hon. Gentleman, who spoke of the advantages that can flow from a police officer just being around. One example he used was that such an officer would be able to notice someone who had come back into the community from prison. The advantages of what we describe loosely and without definition as "community policing" are self-evident. Among them is the advantage that a police officer so employed can promote a sense of community, of belonging to a community.

First and foremost, by a distance, there is in these successful schemes of community policing an emphasis on returning officers to the beat. I am sure that that is what the public want. They are right in wanting to see it. It is on the streets of our towns and cities, and in the lanes and the villages of our rural areas, that the police make their most effective contribution. It is here that they preserve the peace, offer to villains the risk of getting caught and most effectively reassure the public.

An important achievement of the Government is that since my right hon. Friend the Home Secretary took office, the police service in England and Wales has been increased by 7,500 officers. Without doubt, that is the result of our decision to implement in full and at once the recommendations of the Edmund-Davies committee on police pay.

My right hon. Friend has also urged chief police officers to do their best to ensure that the police are not used on work that does not require their particular skills, and they have willingly complied with that suggestion and advice.

In London, where the Metropolitan Police numbers 25,000 for the first time in its history, the commissioner's policy of using civilians has enabled 233 sergeants and 673 constables to be released from their desks for operational duties in the community—on the streets.

The motion is silent about this, but we should not forget that, in addition to confidence, the maintenance of law and order depends on the police catching those who commit crimes and deterring others who would like to. If they do not catch them or deter them, no amount of good works in the community will win the police the community's confidence.

I now turn to that part of the motion that calls for
"an independent procedure by which complaints against the police can be examined".
I have already mentioned it, and in the circumstances I can pass briefly over it.

It is perfectly true that public confidence requires this, but it is also true—we do not hear so much about this—that any procedure should deserve and attract the confidence of police officers. On that the motion is silent. I want to say three things about it: first, we already have an independent examination procedure, introduced by Parliament during the lifetime of the last Government; secondly, it is not working well enough to command public confidence in full; and, thirdly, to quote what my right hon. Friend said yesterday, it must be "substantially reformed". He will bring forward proposals to the House as soon as he can.

Again I gently point out that this was discussed by the Royal Commission and was valuably debated last Friday when the right hon. Gentleman and his hon. Friends were "playing away".

Sadly, as the motion says, it is also often true that inadequate help is given to victims of violent crime. In one sense, no compensation can remedy that injury. Perhaps the best help can come from within the community itself, in the form of prompt, sensitive, neighbourly support.

My first duty on joining the Home Office in January was to go to the annual meeting of the National Association of Victim Support Schemes. I was glad that my hon. Friend the Member for Cheltenham (Mr. Irving) intervened in the right hon. Gentleman's speech. He was too modest to say that he was the founder, or at least he was too modest to say it with the conviction that would have registered with me. It is a great achievement that these 140 branches should now be established throughout the country under the wing of the national association.

This is an important body. It co-ordinates the activities of all the local schemes, whose appearance we warmly welcome and whose volunteers we greatly admire. I am glad to say that this year we have been able to increase the grant to the national association to just over £23,000.

Financial compensation, as distinct from support within the community, is important to the victims of violent crime. The State's contribution is made mainly through the criminal injuries compensation scheme, whose chairman of the board is Mr. Michael Ogden, QC. Last year, more than 20,000 awards were made, to the value of more than £21½ million. We have improved that scheme by extending it to victims of violence in the home—a long neglected category.

But criminals can also be made to pay—and a good thing too. We intend to improve the existing ability of the courts to order criminals to compensate themselves those whom they have violently attacked, or otherwise harmed. The right hon. Gentleman was wrong when he said that a court could not make a compensation order if it was not asked for one; courts can and do make such orders. In 1980 nearly 128,000 compensation orders were made in England and Wales.

It is right that we should strengthen the law here, so that where a criminal's means are not sufficient to allow him to pay both a reasonable compensation order and a reasonable fine imposed by the court, the duty to compensate his victim shall have priority. We shall make early proposals to achieve that end.

We intend also that parents can be ordered themselves to compensate the victim of an offence committed by their child, unless the court is satisfied that it would be unreasonable to do so in the circumstances. We are well aware that to the victim of crime it often seems that his interests count less than the interests of the criminal. These measures will help to correct that impression.

I am glad that the right hon. Gentleman has been able to sweep up, as it were, into this omnibus motion, a reference to what it rightly describes as the crisis in the prisons, even though the "urgent action" which it calls for to deal with this is left unspecified. I know that he said that he proposed not to deal himself with that part of the motion, but he will forgive me if I do, because the Government regard it as a matter of extreme importance, as has my right hon. Friend the Home Secretary from the first day he assumed office.

No Home Secretary has done more than my right hon. Friend to draw attention to the dangerously and scandalously overcrowded state of the prisons in England and Wales. A measure of overcrowding exists when there are more than 37,000 prisoners locked up. Certified normal accommodation is 39,000. The current figure is just under 44,000, and the local prisons are the worst.

This is a problem of great gravity which my right hon. Friend inherited. He has consulted very widely on means to lessen the pressure on the prisons. He of all people, needs no reminding of the need for urgent action. During the prison officers' dispute last year, he asked for and was granted emergency powers by Parliament.

The Government recognise the duty to provide the prison accommodation that our criminal justice system really needs. It would have been better if that had been more widely recognised in the past. For 40 years after 1918 no purpose-built closed prison or borstal institution was constructed.

We have therefore, allocated extra resources to the prisons. Six new prisons are to be started, or have already been started, between this year and 1984. Design work on two others is in progress, and feasibility studies are being carried out for a third and fourth. Major reconstruction work at over 60 establishments during the 1980s is planned, at a cost of about £360 million. Simply maintaining the structure of the existing prisons is costing £20 million a year. That is the answer to those who appear to light upon so simple a solution to this problem as bricks and mortar.

However, this cannot provide immediate relief to the problems of overcrowding, and indeed it has to be seen against the background of further decay in the existing prison estate.

That is one reason—but not the only reason—why the Government have seen so much significance in the lead set by the Lord Chief Justice in the Court of Appeal to bring about a reduction in the length of prison sentences, in cases where that would be proper.

This action has already begun to have a perceptible effect on the size of the sentenced prison population, as may be seen in the latest statistics, but an effect which unfortunately has been at least in part offset by the increasing number of cases which have had to be dealt with by the courts. Accordingly, it is clear, and again I believe generally accepted, that some new measure is needed to deal with the problem. The question is, what new measure?

Earlier this year, in the document embodying the results of our review of the parole system, we put forward the idea that for shorter sentence prisoners—including those now ineligible for parole—there might be provision for early release on licence to supervision in the community. This idea was put forward for discussion and comment, because my right hon. Friend and I thought that it deserved serious consideration. It received the approval of the Select Committee on Home Affairs, and it was welcomed in other influential quarters, too.

But in our system of criminal justice, it is the courts that have, subject always to the maxima fixed by Parliament, the duty of passing sentences that they consider, in the exercise of their judicial discretion, will meet the justice of each particular case. That is their responsibility. It would hardly be wise if the consultation process were to take no heed of opinion from that quarter and from the probation service, as to the likely outcome of the change that was proposed if it were to be applied mandatorily, without regard to the circumstances of each individual case. It would be especially unwise at a time when sentence lengths are beginning to come down, in response to the guidance of the Court of Appeal.

So there is no question here of the courts thwarting the will of Parliament, as has been so unwisely suggested elsewhere, or not loyally acknowledging its sovereignity. But until they are deprived by Parliament of all judicial discretion—and may that day never come—they will rightly continue to assess what sentence the justice of each particular case requires. That is bound to take into account the actual time that will be served in prison.

In the event, we formed the view that our first proposal would be likely to counteract the very welcome downward trend in sentence lengths. So we accordingly have turned our attention again towards what has long been Conservative policy in principle, reflected in section 47 of the Criminal Law Act 1977, which itself represented a Conservative amendment to that measure—the concept of the sentence that is partially suspended, the first part being served in prison.

This has the great merit of keeping the question whether to release a prisoner with the sentencing court, rather than imposing a blanket release for all cases. The gravity of the offence can be marked by the totality of the sentence imposed. The circumstances of the offender can be reflected in the proportion of the sentence suspended. We intend that a proper case can be dealt with by the court being able to order that as little as 28 days of a sentence shall be served in custody.

We believe that by this means there is a prospect of obtaining more quickly, and without distortion of sentencing practice, a saving in the prison population substantially greater than we would gain from supervised release in practice. We had thought that 7,000 places, at best, might be saved by that method, but, in the light of our consultation, we discovered that that estimate was quite unrealistic. We now believe that, under section 47, the optimum saving may be as much as 4,000 places. The reason why we are now more optimistic than we were a few months ago is that the consultations we have held give us good grounds for confidence that the judiciary would use partially suspended sentences in such a way as to avoid the risks we had previously foreseen.

In dealing with that matter, the Minister has not mentioned community service orders. Whilst acknowledging the discretion of the court in individual circumstances, may I ask whether he is satisfied that a proper assessment of this system has been made, or that the alternative is widely advertised and developed where it is suitable and where suitable personnel are recruited to operate it?

Community service orders are one of the great success stories of recent developments of sentencing practice. There has been a marked increase in recent years in the number of community service orders. We very much welcome that, and encourage courts to make use of them whenever this is practicable. We shall continue to do that. We shall bring forward shortly proposals enabling courts to make a community service order for a child of 16. The threshold at present is 17.

I have tried to offer the House our thoughts on the various components of this broadly drawn motion. The right hon. Member for Roxburgh, Selkirk and Peebles was right in saying that this is, to a great extent, an uncontroversial matter. It is, nevertheless, an exceptionally important matter. The maintenance of law and order and the incidence of crime and of criminality set problems that are among the toughest and most intractable for any Government to grapple with. We must have rules that permit our police to be efficient while requiring them to be fair. The community must have confidence in its police. The community has to care properly for the victims of crime. The prisons have to be humane as well as secure. To all these objectives, the Government attach very high importance and we look forward to the assistance of this debate.

4.51 pm

It is by an extraordinary coincidence of timing that hon. Members are able to discuss in this debate many of the fundamental and underlying issues to which reference is made in Lord Scarman's report which was the subject of a statement yesterday to the House. The issues that we face are very grave. The growth of crime is a cause of concern to every household. The growth of violent crime—the growth of violence as a whole in our country—is a particular cause for concern. To that problem of violence there is no solution. Indeed, there is much dispute as to its causation.

I suppose that I can claim to have supported practically every liberal reform that has come before the House. Yet, on the issue of violence on television, I hold views that I suppose some would say were deeply reactionary. I am convinced, although I know that I have not much evidence to pull to my support, that as a society we have tolerated for far too long the continued expression of violence through television at all hours of the day and night and frequently seen by young children. We shall never do justice to the issue of the growth of violence until we apply our common sense to it.

The IBA working party on the portrayal of violence on television in 1973 took note of the fact that research clearly indicated
"that it was precisely the immature and emotionally insecure who tended to be most dependent upon, and the heaviest consumer of, that kind of television output which had the highest violent content".
The crucial factor is "Who are those affected by violence?" Most of the population may be able to absorb this continued portrayal of violence in the home without their threshold of abhorrence of violence being lowered. I suspect, however, that there is a significant group in the population who are deeply affected by it. It is a matter of high priority, I believe, that we tackle the problem. There may not be a great amount of evidence. As a natural scientist, I like to have the maximum amount of research before making a decision, but, repeatedly, one comes to the conviction that, on this issue, one has to trust one's common sense. I recognise openly that I have no quick or simple solution to the problem of violence.

I should like to turn to the question of our approach to Lord Scarman's report. There is much wisdom in the report. There is much wisdom in many previous reports that have come before the House. I am worried that what will happen to this report is what has happened to many in the past. A very important White Paper in 1975 on racial discrimination warned of many of the issues that have now come about. There have been repeated reports by Select Committees containing detailed propositions worked out and agreed on an all-party basis. The problem has been the implementation and the effectiveness of the measures taken. There is a danger that this country has become more expert than almost any other in suffocating a report and in embracing a report with general praise and generalised endorsement of its philosophy but not following it through with the most detailed implementation.

I say to the Home Secretary, who commands a great deal of respect on both sides of the House and who, I think, with a great deal of prestige and authority, is coming, in a reasonable time, to the end of his political career—[HON. MEMBERS: "Not at all."] I believe that the right hon. Gentleman has indicated that he sees his future in that way. His record includes what, in my view, is one of the most imaginative proposals ever produced. I refer to the 1973 Sunningdale attempt to resolve the problem of Northern Ireland. I hope that the right hon. Gentleman will stick firm on all these issues and will come to the House, when it debates the Scarman report, with the most detailed implementation proposals. Another generalised debate would not befit the mood of the House.

I hope also that the Minister of State will not back off from his clear intention to take a dramatic and bold step to cut the prison population. I understand the resistance that his proposal has encountered. I understand the arguments by the judiciary. I believe, however, that the time has now come when a decision has to be taken in the House. A step has to be taken that leads to a dramatic fall in the prison population. Only by implementing the proposal that he has put forward will the hon. and learned Gentleman achieve that aim. I hope that he will not be dissuaded from taking the decision.

I agree with much of the Scarman report and its recommendations. I wish to concentrate on some aspects that are either unclear or that I wish to criticise in order to focus the debate on some of the proposals that I hope the Home Secretary will bring forward. Lord Scarman says in his report that he does not believe that institutional racialism exists in Britain. I wish I believed that this was true. One can look at this Chamber, and one can look at this Parliament, but one sees no representative of black opinion. One can look at most council chambers dealing with issues of racial tension and racial stress and ask how many councillors represent black opinion and the ethnic minority groups. One can look at the decision-making procedures of Government, the senior civil servants, the senior military figures and the police force. Everywhere there is a totally inadequate representation of the black community.

It would be a great mistake if we did not recognise the dissatisfaction about the structure of decision-making reflecting black opinion. We should accept that something much bolder has to be done. I deal first with the police. The ethnic minority in the whole population of the United Kingdom is 4 per cent. The ethnic minority represented overall in our national police forces is a mere 0·27 per cent. In the GLC area the ethnic minority represents 14 per cent. of the community. The ethnic monority represented in the Metropolitan Police is a mere 0·5 per cent. Something has to be done. The Police Complaints Board has at present no ethnic minority member.

Until we can reflect a much higher percentage of ethnic minorities in many of our crucial and critical decision-making bodies, it will be very hard to resist the argument that there is a form of institutionalised racialism. Furthermore, we have a generation of decision makers who are still being greatly influenced by a past colonial climate and by the years before we had a large and growing ethnic community in our midst. I do not, therefore, accept, the view that we do not have institutionalised racialism in Britain.

One of the interesting things about the Kernow report, which looked at the American racial problem, was that it was quite open about saying that it existed. The Scarman report would have carried more conviction if Lord Scarman had at least explored the area of governmental and council and institutional decision making, and perhaps been a little more critical about our inability to reflect there the minorities within our society.

I come from the West Country and I strongly endorse all that has been said about community policing, but I agree with the Minister that it is not new. It is a great mistake to see the advocacy of community policing as being only within the West Country. The chief constable in my area has my complete confidence and support, and I believe that all hon. Members representing West Country constituencies take the same view of him. The chief constable has become an advocate of community policing, but he would trace its origins back through the history of the police force.

It is important to recognise that there will be variations and different ways of introducing community policing in different parts of the country. I want to see a diversified police force. I am not in favour of steps being taken towards a national police force. I wish to see the police authority and the chief constable, in the closest consultation with the local community, developing a somewhat individualistic attitude to policing.

One of the most important recommendations in the Scarman report was that a statutory duty should be imposed on police authorities and on chief officers of police to co-operate in the establishment of consultative arrangements. When the Home Secretary made his statement in the House yesterday his wording was slightly different from that in the Scarman report. I may be pedantic in picking up this point. The Home Secretary may have meant "statutory", but he said:
"I accept the need to develop formal arrangements in every police force area for consultation".—[Official Report, 25 November 1981; Vol. 13, c. 891.]
There is a difference between "formal" and "statutory", and I believe that Lord Scarman was right in insisting that there should be a statutory arrangement. It is a very important obligation, and I hope that the Home Secretary will clarify that aspect of the report.

The question of stop and search causes me concern. In my area, the police do not have the right to stop and search. The vast majority of police forces in Britain do not have that right. I understand that it exists only within the Metropolitan area, in Liverpool, and in some parts of the West Midlands. I grow more and more concerned about the operation of the stop and search policy. I agree with the proposition that a mobile special police unit is necessary. Although that is an unpopular recommendation of Lord Scarman, I believe that it is justified. But I am not happy—nor was the Royal Commission on criminal procedure—with the present position.

The Royal Commission recognises that there must be safeguards to protect members of the public from random, arbitrary and discriminatory searches. But it is extremely difficult to see how such safeguards can be produced. The onus of proof of the effectiveness of stop and search powers is on those police areas which currently exercise them. The statistics show how infrequently the practice leads to arrest. Therefore, one is bound to question whether it is necessary.

Between January and July 1981, in four major inner city areas, there were 3,842 stops by the police, leading to only 179 arrests. A large number of citizens was inconvenienced. It will be very difficult to produce the safeguards proposed by the Royal Commission, and I urge the Home Secretary to look closely at the matter.

In my experience, nothing is harder than for a Minister to divest himself and his Department of responsibilities. There will be endless arguments as to why the Home Secretary should retain powers. I was involved in this aspect of policy when I was a Minister in the DHSS. Endless attempts have been made by successive Governments to improve co-ordination.

I was particularly concerned with how to improve provision for the group under five years of age, and with the difficulty of securing a policy for children, for children's law and for the care of the family, when those questions concerned the Department of Health and Social Security, the Department of Education and Science, the Department of Employment, the Department of the Environment and the Home Office. The problem is well known to the Minister. Machinery of government changes is usually the refuge of last resort and frequently the refuge of despairing initiative, and I am 10th to recommend them, but all the evidence of the past 20 years seems to be that the Home Office is incapable of carrying out the responsibilities in these areas, and particularly in race matters.

The more I look at the necessity of involving local government in the partnership arrangements and in the programme area schemes, the more I become convinced that we shall not get the co-ordination that is crucial if the prime responsibility remains with the Home Office. There is now an overwhelming case for the transfer of its responsibility to the Department of the Environment.

The Policy Studies Institute has just produced an important study entitled "Policy and Practice in the Multiracial City". Underlying its detailed criticisms of the problems of central and local government relations and the lines of communication is the need for a transfer of responsibility for race relations to the Department of the Environment, accompanied by a ministerial action group or task force to take the lead in implementing changes. There is a great necessity to have a Cabinet subcommittee—perhaps chaired by a non-departmental Minister, but with the overall responsibility lying with the Department of the Environment—to try to bring together all the issues.

Various Select Committee reports have drawn attention to examples where local authorities were doing well, where low-cost schemes had produced imaginative cooperation, and where it had been possible to bring play groups into primary schools and to use their classrooms. This had made it possible to have a low-cost alternative to nursery education, sometimes extremely successfully.

The best examples should be brought to the attention of all local authorities, and there should be more effective pump-priming machinery. Some of the partnership schemes have worked very well, but in some areas there are complaints that the ethnic minorities are not represented in the decision making and are not consulted adequately or early enough. That question should be examined. I hope that the Home Secretary will look carefully at the PSI study to which I have referred and make recommendations relating to it.

My hon. Friend the Member for Wrexham (Mr. Ellis) initiated a very important Adjournment debate on 6 July 1981 on the Rampton report concerning West Indian schoolchildren. There is grave danger that the Government will lose sight of that report. There is a real need for the Home Secretary to tell us what targets he is setting some of the local authorities in areas of considerable stress. For example, what targets is he setting them for nursery education provision, for pupil-teacher ratios and for special education for children who come from homes where there is a serious language problem?

It is not enough to make generalised statements. If money is to be made available, it is legitimate that the House should be told where it is going. I am in favour of earmarking funds. Without earmarking I do not believe that we shall ever achieve the coherent implementation that we all want. We all say that we want a constructive strategy and a coherent pattern. Very often the result is an incoherent pattern and few constructive proposals.

Our experience of earmarking funds is not good. When I was the Minister for Health I earmarked £3 million for the implementation of Lord Butler's report on abnormal offenders, with a view to introducing regional security units. A few years later a Select Committee discovered that most of the £3 million had been wafted away by regional health authorities and that all too little of it had gone to where it was allocated.

The House has a right to become much tougher over the allocation of resources. If we allocate resources on the bases of perceived need and positive action, we want to know that they are being spent on genuine schemes. Some of the schemes that have been submitted give the impression that they are too generalised. Sometimes there is rather too much on the cultural side. The schemes are not sufficiently specific and they are not oriented to real need. It is difficult for central Government to interfere in the decision making of local government and I am not keen for it to interfere. The partnership concept is a good one, but there is insufficient monitoring.

Why is it that the Tavistock report on the Civil Service has been quietly shelved? It recommended that we should monitor the progress of the Civil Service in introducing blacks into the Civil Service. That is not being done. Why did we not take the bold decision of including the ethnic question in the most recent census? I was a member of the previous Labour Government and I know why it was not included. That Government were frightened of including it. Despite the overwhelming endorsement of all the professionals that the question should be included, the Labour Government succumbed to what I believe was an irrational prejudice. There was not ethnic pressure. All the major ethnic groups said that the question should be included. I hope that the House insists that the question be included in the 1986 census. I hope that we shall be prepared to accept a monitoring procedure.

Quotas have been rejected for the police. It may be that that is right. I know that there are arguments against quotas. However, at the very least we should have an annual report on the progress that has been made in introducing more blacks into police forces throughout the country. I hope that the Secretary of State will produce detailed proposals on how he will make it easier for the percentage to be increased.

If the Government have to wait a week or two before initiating a debate on the Scarman report, I urge them to take that course and to wait until they can present detailed proposals. There is a great danger of having too early a generalised debate in which we shall not be able to concentrate on specifics. I should prefer a slightly longer pause that will enable the Government to present detailed proposals. The House would then be able to consider whether the Government's response to the Scarman report was what the nation needed. It is no longer sufficient to produce a generalised endorsement. We must grapple with the detail. It is on the detail that in 10 or 15 years we shall be able to judge whether there has been success.

5.15 pm

There is not much for which the right hon. Member for Plymouth, Devonport (Dr. Owen) stands with which I agree, but I support his argument about violence on television. Young and impressionable people are inspired by what they see to engage in the wrong sort of pursuits. I suggest that many are desensitised by a continual diet of violence on television. That makes them unconsciously accept more real violence in our society, and that has a damaging and a long-term detrimental effect. I am glad that the right hon. Gentleman advanced that argument.

I am speaking in this debate mainly because a week ago a woman constituent told me that her young daughter had recently started working in London and that, two days before she spoke to me, as her daughter walked out of Clapham underground station she was set upon by a gang of coloured youths. She was mugged, robbed and quite seriously injured. My constituent asked "What are you, my Member of Parliament, and the Government going to do about this increasingly difficult type of offence?" I was much impressed by what she said. The young woman concerned had only recently started to live in the Metropolis. She is thoroughly respectable and just setting out on her career.

Crime has reached epidemic proportions. Two sinister aspects are associated with it. The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), the Leader of the Liberal Party, referred partly to them in a fairly low-key speech. First, there is the greater use of violence by all who indulge in criminal activity. It is really tough violence. Secondly, there is the vicious targeting of the weakest in our society. Gangs of coloured and white people—this is not an ethnic issue—now use violence more frequently. There has been a definite move over the past few years—especially the past two years—to attack defenceless old ladies and young women, who may be frail, and the disabled.

Four months ago I broke my hip. I was using two sticks. Now I use only one. I was told when I went to America in September to be careful because I was a natural target, as I appeared to be disabled. I understand that it is necessary for the slightly less able and the less mobile to be careful here as they might well be attacked by criminals. It is the duty of society to respond toughly. The Government's first duty is to protect the lives and property of their citizens. Those who are attacked often rate only a paragraph in their local newspapers, but often their lives are ruined. Old ladies live in terror of being mugged again or of having their houses or flats broken into.

I have long felt that in a more ideal society we need a new approach to crime and the treatment of offenders. I am aware, from visits that I have made to special security prisons and from discussions that I have had with officials, that probably a majority of the inmates have some serious mental abnormality or personality defect.

I should like to see a more radical approach in the longer term, but that time is not now. A desperately serious situation has developed and the Government's remedies should match it. I do not think that we are supplying adequate remedies. I say that in the knowledge that the Government have done much to improve conditions and increase the strength of the police. By and large, the police are doing an excellent job, but they are constantly sniped at by Left-wing elements. However, they are apprehending a large number of criminals.

We know that our prison system is in disarray and that most of the population are still appalled by the imposition of light sentences for serious crime. The prison building programme is impressive, but we need a crash course to build more prisons. I do not accept that several years must pass before they are completed. Some people say that the building of prisons is negative, but prisons are required because of the large number of desperate and dangerous criminals in our society. The Government's duty is to institute a crash programme both of building new prisons and of refurbishing old ones.

There should be tougher sentencing for all crimes of violence. Let the perpetrators of violent crime, whatever their age or condition, whether they are unemployed or from one-parent families or whatever fashionable intellectual excuse may be put forward on their behalf, be in no doubt that, if they are caught, they will be sent to prison for a long time. The loss of liberty in unpleasant circumstances is a real deterrent for a criminal.

Why do we have a near-breakdown in law and order? All the advanced nations suffer from it, but we suffer rather more than others. We are rapidly approaching the position in the United States of America where very few people in the big cities are satisfied with what happens.

There are a number of reasons why we have reached our position. I advance a personal view. The problem has been created because parents have not fulfilled their basic responsibility of teaching their children the difference between right and wrong and the need for respect of one's neighbour. It has been created by the appointment of the wrong type of school teachers. Large numbers of teachers have failed to keep order and have encouraged aggressive thinking by their pupils. It has been created by unrealistic magistrates and the judiciary who have foolishly pursued liberal sentencing policies as crime has expanded apace. It has been created by politicians on the Left, who are always seeking to push forward the frontiers of permissiveness in all its forms, and those more on the Right, who are fearful of tough, positive action because of a backlash from the unsympathetic media, which in turn carry a great deal of responsibility for the deterioration that has taken place.

We should not be misled into thinking that a tougher approach means a less fair or unfeeling one. However, it means a realistic approach. Unless we are prepared to act significantly and more strongly than we have, our society will continue to deteriorate to the point where the majority will have to live a restricted and guarded life for fear of attack from the minority. Some old people in my constituency already do.

Twenty years ago, if one had said that elderly people in Leamington Spa were afraid to go out in the evening, there would have been incredulous cries of disbelief. Nobody would challenge that today. No hon. Member, unless he represents an extremely rural area, would not subscribe to that view. All of us have constituents who are frightened, particularly in the hours of darkness. We should all remember that.

It has always been said that the fear of detection was the main deterrent, but that should be matched by the fear of a substantial term of imprisonment if a crime of violence has been committed. I do not welcome the Home Secretary's suggestion for remitting parts of sentences. I am glad that, according to press reports, the judiciary has rejected that approach. Suspended sentences have been shown to be a mockery. They do not fulfil their intended function. Once the situation is under control, which we hope will happen soon, we can embark on more radical reform and perhaps a more liberal approach and then indulge in some of the theories put forward by many who have studied the problem.

The situation is extremely difficult and dangerous. Some say that the present position has been created by deprivation, injustice and high unemployment. I believe that it has been created chiefly by the absence of the basic discipline that our society has signally failed to implement in the last 25 years. That is the root cause of the trouble. We must face the consequences. If we do not, law-abiding society will make a more telling call for a robust and realistic approach.

5.25 pm

I do not agree with much of what the hon. Member for Warwick and Leamington (Mr. Smith) said, but I certainly accept that there is a need for greater parental responsibility. Many of the problems can be explained by the breakdown of family life. I agree with the right hon. Member for Plymouth, Devonport (Dr. Owen) that the showing of violence on television as had its effect over many years, and it continues.

The answer does not lie in incarcerating more and more people in prison. Community work and discipline are needed. It might be unpopular, but the introduction of periods of compulsory community service for the younger generation should be considered seriously. Such service gives youngsters from areas such as Brixton the opportunity to go to different parts of the country, to meet people from different walks of life and to find something worth doing which interests them. When they return they might have a different attitude.

Towards the end of the last war I served for four years in the Services. I met people whom I had not had the chance to meet before. I met boys from Dr. Barnardo's homes who had gone into the Navy at 16 years of age and signed on for 21 years. I met tough Glaswegians from the Gorbals who became my friends. I had not had the opportunity to meet them before. That opportunity affected my attitude to society.

I should like more of the younger generation in the Isle of Wight to be able to learn different skills and to meet people from different environments. I am sure that similar experience would benefit the people of Brixton and other areas where the ethnic minorities live.

My main anxiety is about the continuing crisis in our prisons. My constituency contains no fewer than three prisons. The May inquiry was initiated by the right hon. Member for Leeds, South (Mr. Rees) when he was Home Secretary, largely as a result of a public letter of despair from assistant prison governors. Despite that and the strenuous efforts of the all-party penal affairs group, the fourth report of the Home Affairs Select Committee published last July, the Home Office review of parole in England and Wales published last May, the Howard League, the National Association for the Care and Ressettlement of Offenders, Peter Evans, a regular correspondent in The Times and publisher of books on our prisons and the hon. Member for Cheltenham (Mr. Irving) whose concern is well known, we are on a time bomb. It took the courageous letter from the governor of Wormwood Scrubs to remind us of that.

If we do not take immediate action to reduce the gross overcrowding in our prisons we shall have a repeat of the riots of a few years ago. If that happens, I suspect that they will be more serious and widespread. We remember the riots in Hull and Parkhurst. They will spread among all prisons that are experiencing gross overcrowding, such as Wormwood Scrubs, Leeds, and Birmingham, and those that are not so affected.

The hon. and learned Member for Royal Tunbridge Wells (Mr. Mayhew) said that the Home Secretary had regrettably changed his mind on the well-supported modified form of parole. That is the third option, which I feel had a lot going for it, whereby short-term prisoners spend one third of their sentences in custody, one third is automatically suspended and the final one third is, as now, remitted but liable to forfeiture on bad behaviour.

Like Lord Longford, who made a notable speech in the other place last Tuesday, I regret that news, if true. His contribution was criticised, but I believe that it was sound and I recommend other hon. Members to read it. Instead, we gather that the Home Secretary is to rely on the courts being given the power to suspend part of a sentence as provided for under section 47 of the Criminal Law Act 1977 but never implemented.

I am not a lawyer, so to me the proposals look rather complicated. There is however a substantial difference between the two proposals because automatic parole means the immediate release of people already in prison. Despite the comments of the hon. Member for Warwick and Leamington, I believe that there are too many people in prison. I regret that we are having to build more prisons. The Dutch experiments of halving the number in prison has not led to a sudden increase in crime. Even in Mexico there is a more humane form of imprisonment than in this country.

They do not shoot them. They allow wives in, which we do not allow in this country.

By contrast, giving the courts the power to suspend part of a sentence may not have the desired effect of reducing the prison population. A recent press release by NACRO states:
"The accumulated evidence is not very encouraging. If the main objective of the suspended sentence was to reduce the prison population, there are considerable doubts as to whether it has achieved this effect. It may even have increased the size of the prison population. One reason for this disappointing result is that courts, initially at least, misused the sanction by passing it on offenders who would not, but for the existence of the suspended sentence, have been given a custodial sentence. Experience suggests that courts have passed suspended sentences greater in length than the sentence of immediate imprisonment they might otherwise have given, and when these have been activated in full the result has been a longer stay in custody for the offender".
A document published by the Home Office last May refers to the one-third idea. In paragraph 58 it states:
"A development along these lines would not be wholly novel. There is already provision, in section 47 of the Criminal Law Act 1977, for the courts to suspend between a quarter and three quarters of a sentence of imprisonment of between six months and two years. That section has not been activated because of fears that the new sentence would be used to give a 'taste of imprisonment' in cases where at present the courts would impose a fully suspended sentence or non-custodial sentence. Inevitably, too, in a proportion of cases the suspended part of the sentence would be subsequently activated. Thus there can be no certainty that implementing section 47 would achieve any reduction in numbers in custody and would not confer any advantage in the treatment of individual offenders. The new approach"—
the one-third idea—
"outlined above offers a rethinking of section 47, using a similar framework to extend the concept of parole to those at present ineligible."
Obviously that was the belief of the Home Office when that document was published, but there has been a substantial change of thought. I regret it. Too often a short custodial sentence is imposed when a community service order or fine would have sufficed.

Apart from parole or a suspension of sentence, if we wished we could introduce 50 per cent. remissions. We do that in Northern Ireland. Therefore, why cannot we do it here? We could reintroduce the amnesty. Mr. Churchill did that when he was Home Secretary. He is probably the last person to have done it. We could do it on celebrations of State occasions. I refer hon. Members to the leading article in The Times on 21 November which states:
"Whatever permanent system is introduced, it would have far better efficacy if it started on the base of 40,000 rather than more than 45,000 inmates of our prisons."
I gather that that figure is now 44,000. The article continues:
"For that reason, the possibility of an amnesty must be given serious attention."
As the right hon. Member for Devonport said, we should be making much greater progress to provide for the mentally sick in properly equipped regional secure units. It is a disgrace that the money that he provided, when he was the responsible Minister, was misused and that it has taken so long to provide such units. Parkhurst is a typical example of where there are many inmates who ought to be in such secure units. Those people are mentally sick.

Unless action is taken now to remove from prison those who could just as well repay their debts to society in other more sensible ways, I am convinced that we shall have an explosion of unparalleled ferocity. It is the responsibility of the House to prevent that event from happening. The sooner we take action, the better.

5.36 pm

I welcome the opportunity to make a short contribution to this valuable debate.

Our voters expect the Government to reduce the crime wave. From a Daily Telegraph poll, it is apparant that there is a wide gap of opinion between the majority of politicians and the public on precisely how to achieve that. The public want longer sentences to be imposed, the return of capital punishment and possibly corporal punishment. Such measures would not work, even if we could get them through the House of Commons. Therefore, what can the Goverment do? I feel that calls for more toughness on the part of the Government are chasing a mirage. It is not part of my job to sell mirages to my constituents. We must face the reality of the situation.

The inability of the Government to reduce crime is not because they are wet or that they have lost the will. To reduce the crime wave dramatically is not in their gift within the life of this Parliament. Extra prisons, longer sentences and harsher methods would do more in terms of retribution, at high cost to the taxpayer, than achieve the result of less crime or at least contained crime.

The causes of crime are elusive to identify and inevitably involve guesswork. The list is long. Many causes have been touched on in the debate. High unemployment makes a contribution to increasing the numbers of those tempted to follow a criminal life. Huge, soulless comprehensive schools, bad housing, bad or no recreation facilities, colour discrimination, lack of parental responsibility—which was touched on by my hon. Friend the Member for Warwick and Leamington (Mr. Smith)—television violence and increased prosperity, which has not been touched on in the debate, play a major part in the increase in crime.

However, it is unlikely that a modified system of justice, stronger sentences or even a penal system that involved terror would reduce crime's, accelerating momentum. There is little that the Government can do to insulate the United Kingdom from an international trend other than to take steps which will comfort the voter that all that can be reasonably done is being done.

Rising criminal activity has not suddenly occurred. It has been gathering pace for over 50 years. In 1903 the police recorded three crimes for every 1,000 people. In 1980 there were four crimes for every 100 people. In 1948 the Old Bailey operated four courts and now there are 24. Increased prosperity does not reduce crime. On the contrary, in all industrial societies crimes have surged as poverty has receded and relative prosperity has spread. The more possessions there are, the more policemen are needed to protect them.

What effective steps can the Government take? We have recruited 7,000 more policemen than there were in May 1979 to correct undermanning. That was the right thing to do. I understand that we require further police recruitment in the Metropolitan Police district. However, it is doubtful whether further recruitment would be followed by a corresponding reduction in either the number of indictable offences committed or the number of criminals brought to justice, because the police rely on the public for their knowledge of most crimes. An increase in the number of policemen will not necessarily increase public co-operation, which is vital. That is illustrated by a survey at the Old Bailey, which showed that in 90 per cent. of cases the identity of the suspect was clear from the first report of the crime. Therefore, if reports are not made by the public it is unlikely that police detection will result in their apprehending more culprits.

It is useful to consider foreign examples, from which we can learn. Recently in New York the police attempted to reduce the number of offences committed in the subway by flooding it with police officers. The number of thefts reduced dramatically, but unfortunately the thieves took to the buses. The costs of the operation were dramatic. It cost $35,000 for each successful capture against the average criminal's takings of $50.

The Government are embarking upon a prison building programme. As there are no votes in such a programme, they are the first Government in memory to take such an initiative. They should be highly commended for so doing. The programme is designed to prop up prisons that are falling down and it is hoped to ease congestion. Currently our prisons are chronically overcrowded and insanitary. Those who wish for harsher conditions in prisons will be comforted by the fact that it is difficult to see how prison conditions could be made much more nasty for the inmates. Our prisons are now a national scandal. Future generations will look back at the 1980s and wonder how any civilised society could tolerate such prison conditions, let alone fool itself into believing that such a system had much identifiable value or reform, other than keeping 44,000 people away from the public for some time in accommodation designed for 35,000 people.

Evidence from the United States of America shows that building more cells does not ease congestion. Fifteen states that increased their cell capacity by 50 per cent. increased their prison population by 57 per cent. Fifteen states that increased their capacity by 4 per cent. decreased their prison population by 9 per cent. The number of indictable offences committed in all 30 states remained constant. There is no evidence that longer sentences deter more successfully than shorter ones and at a cost of over £70,000 per cell built and £180 a week per prisoner, that matters. The major contributing factor towards a high prison population is not crime, unemployment, family breakdown or racial tension, but the availability of cells for the courts to fill with more people for longer sentences.

Although there are many violent and dangerous criminals who should be incarcerated for long sentences to protect the public, thousands of people either should not be in prison at all or could be there for a shorter time without exposing the public to risk. However, it is difficult for any Government to institute liberal reforms without criticism that they are soft. I congratulate the Home Secretary on his courageous work. I believe that he is a liberal, reforming Home Secretary. May I say—before he becomes too depressed by the words of the right hon. Member for Plymouth, Devonport (Dr. Owen)—that I hope that he remains Home Secretary for many years?

A precondition to the Government's ability to tackle constructively the deep-rooted problem is public recognition that there is no easily identifiable, hard-nosed solution to an easily quantified law and order problem, and public acceptance that we should send fewer people to prison for shorter sentences. However bleak the prospect of reducing the crime wave, the Home Office should undertake various reforms. The first is a review of offences that are currently imprisonable. Why are drunks, prostitutes, inadequates and vagrants gaoled? Why do we build more cells when the present accommodation is stuffed with many thousands of people who are no danger to society? Why is the number of people imprisoned for a month or less so different from the number in Holland? In Holland, half the prison population is there for periods of less than a month. In Britain only 18 per cent. are imprisoned for that short time. The crime wave in Holland is no worse or better than ours.

I welcome the introduction of legislation that will oblige criminals to pay compensation directly to their victims. In no other country is that done comprehensively. Currently the number of offenders making restitution is less than 5 per cent., which we should try to increase as much as possible.

The public can also play a part. To be realistic, they must stop asking the House to solve all problems. Crime is a problem for society as a whole. One of the better things that the public could do is to consider their own security. They can also help the police. That matter has been mentioned by many hon. Members, and the Scarman report contains many important recommendations about how the public can play a major part by assisting the police. Members of the public can also volunteer to become special constables. People have often written indignant letters to me complaining about how frightful everything is. I always write back to them saying that I am glad that they should express such a responsible view and that they should become special constables. I regret to inform the House that few people write back to tell me that they have become special constables. However, I commend it and it is certainly wished by police forces.

All those matters would not dramatically reduce the crime wave, but they would enhance the vital links between the police and the public. Also, if people wish to reduce violent tendencies among the young, they should write to the heads of the broadcasting authorities to request increased vigilance in the monitoring of programmes that include gratuitous acts of violence. If the power of advertising is so potent, how can anyone argue that a continuous diet of television violence does not brutalise?

5.47 pm

The House should be grateful to the Liberal Party for choosing this subject for a half day Supply day debate. It is fortuitous that it comes after the publication of the Scarman report yesterday, but it is useful for us to have a preliminary trot over the ground before we come to a more serious consideration of that report later. I agree with the Minister that it would have been useful to have had a Liberal presence in the debate last week on the Royal Commission report on criminal procedure. I hope that Liberal Members will join in those debates more often in the future.

As to the motion on the Order Paper, the Opposition are happy to accept all the propositions in it. Before I come to other aspects of the problem, I wish to make one point to the Minister that is in rather a different category from the rest. Recently I was appalled to receive answers from the Minister in response to questions about the number of people remanded in custody awaiting trial for very long periods. That problem exists in England and Wales but does not exist north of the border to anything like the same extent, because north of the border a law says that if a man is not brought to trial within a specified period he must be let out of prison. If we had such a provision south of the border it would force us to avoid the totally unjust position of some people being in custody awaiting trial for over two years.

I have asked the Minister a series of questions. The first was: how many people are in custody awaiting trial and have been for more than 12 months? The Minister's answer was that he could not say precisely. Then I asked him the same question with regard to 18 months and his answer was the same. So I asked the same question with regard to people who had been in prison for two years and more, and the answer was the same.

Is there any period for which the Home Office feels an obligation to find out how many people are in prison still awaiting trial? The person is innocent because he has not been tried. Even if he is ultimately found guilty, he may have a sentence that is not even custodial or a custodial sentence that is less than the period that he has spent incarcerated. It is monstrously unjust that such a person should be in custody for a prolonged period. It is the job of the Home Office, in conjunction with the Lord Chancellor's department, to make sure that it knows how many people are so held for longer than, let us say, six months. I should like to say three months. That information should be regularly available to the House when anyone asks for it.

The subject of law and order, including the public order aspects that have been touched on very much, has had a great deal of attention this year for the obvious reason of the riots but in other contexts as well. Many pieces of local legislation have been tidied up, which have brought to our attention the business of bans on marches—whether we should have selective bans and whether notice of marches should be given to the police.

We have been waiting for some time for the Home Office to complete its review of the Public Order Act. It is understandable that in the past month or two the Home Office wanted to wait for the Scarman report before making an announcement, but we should have an announcement soon on the Home Office's attitude to the review of the Act, even separately from other aspects of the subjects covered by the report.

A distinction is to be drawn between what I thought was the Secretary of State's reaction to the Scarman report and what I read in the newspapers this morning is his reaction. I read in some newspapers that he has accepted the recommendations in general, but what I heard the Home Secretary say yesterday—as has been pointed out by the leader of the Liberal Party and the right hon. Member for Plymouth, Devonport (Dr. Owen)—was that he accepted the philosophy stated by Lord Scarman but not necessarily all the specific recommendations.

I am not suggesting that it is possible within 24 or 48 hours for the Home Secretary to say "Stamp", to every detailed recommendation that Lord Scarman made, but, having read the report, I believe that it is possible for him to say not only that he accepts the philosophy but that the package of specific recommendations is one that he accepts in general. By that I mean that he would be able to accept and recommend to the House, shall we say, 80 per cent. or 90 per cent. of the specific recommendations for changes of law and of procedure.

The Scarman report is not like most other reports. It is not like the report of the Royal Commission on criminal procedure, although even that requires speedier action than some reports. The Scarman report has been produced in relation to a series of incidents of a desperate character. The response that it needs is a quick and specific one. If the Minister today, or the Secretary of State next week, were able to say that the Government expected to be able to recommend the House to implement 80 per cent. to 90 per cent.—or perhaps even 100 per cent.—of the specific proposals, that reaction would have a markedly different effect than simply saying that the Home Secretary accepted the philosophy behind the report.

As one who supports 80 per cent. or 90 per cent. of what the Scarman report recommends and who knows so much about our constitutional practices, surely the hon. Gentleman welcomes the Home Secretary's statement that a debate should take place in the House first. Is it not at that stage that he would expect the Government to specify which areas of the report they could accept and proceed with?

That is the kind of response that one would expect to most reports, but I am trying to distinguish between this and most other reports.

I believe that most of us feel that Lord Scarman has struck a wise balance. He has not only put in general recommendations; he has chosen some specific recommendations. If people wish to have ages to think about them, they must do so, but I think that the recommendations are sufficiently sensible on the face of it for the Government, because of the public effect that it would have, to be prepared to say that, with perhaps only occasional exceptions, they are prepared to go for the package. The Opposition are prepared to say that, and my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) did so yesterday.

There is nothing outrageous or very worrying about the recommendations. We all know that we shall not be making terrible errors if, for example, we were to make the machinery for community consultation by police authorities outside London based on statute, as Lord Scarman recommends, or not based on statute, as the Secretary of State thought of yesterday. There is no great difference of principle there.

I am not suggesting that the Secretary of State should prejudge the decision of the House. I should be the last person to do that. But he needs to make it clear very quickly on the Government's part—just as we have made it clear on the Opposition's part—that they accept the package with only, at most, occasional exceptions.

As we have waited months for the Scarman report, why should a few days make all that much difference? It is common sense to wait a while, debate the matter in the House and then take action, just in case it might be desirable to implement one or two elements in the report.

I hoped that I was covering the position of one or two elements within the report by saying that it would be unreasonable to ask the Secretary of State to say, "One hundred per cent. on every detail we will do exactly what Lord Scarman says". I am not asking that. I am saying that, given the nature of the report and the general consent that it has received in the past 24 hours, for its public effect, it should have a swifter, more positive and affirmative response than the Secretary of State has yet given it. Such a response is more justified in this case than it would be in the case of many other reports.

We are dealing with public confidence and with proposals that constitute a kind of a balance. We are dealing with a report from someone who has great experience in the field. I hope that the Government will give the response that I recommend rather than the response that they have made so far.

I come now to specific points covered in the report and reflected in the motion before the House. A significant paragraph, paragraph 5.62, deals with police authorities outside London. Lord Scarman states:
"many Police Authorities are somewhat uncertain of themselves and do not always exercise the firmness which the statute envisages as necessary to the discharge of their awesome responsibility to secure the maintenance of an adequate and efficient police force for their respective areas."
Some of us have argued for some time that the important thing to do first about police authorities outside London is to get them to exercise the power that they have and to press the frontiers of what that power really is in law. We cannot blame them altogether for not doing so, because, although Home Office Ministers in the past 12 months have made, so far as I have noticed, about three speeches saying that the police authorities outside London should take a more positive interest in the policing of their areas, that has not been the long-term orthodoxy of the Home Office and it most certainly has not been the long-term orthodoxy—and nor is it now—of chief constables.

Chief constables, who could have been guided in the matter by the Home Office, have tended to say that the less that the police authorities do the better. Therefore, if members of police authorities outside London have tended not to push their powers as far as they should and not to test and to use them as much as they should, the Home Office and chief constables must take a share of the responsibility. What some of us said about the powers of the authorities has been emphatically backed up by Lord Scarman. I hope that there will be a different attitude in future and that the Government will support his recommendation that the obligation on authorities to act to improve community relations will be made a statutory one. I hope that the Minister of State will say that tonight.

Lord Scarman said that in London the equivalent of the police authority should be the Home Secretary. The Opposition accept that proposal in the spirit I mentioned a few minutes ago, although there are some who would like to see a change in the arrangements of one sort or another. However, we accept what Lord Scarman has said. It is important, nevertheless, that the spasmodic and rather informal liaison arrangements, on many different bases, which exist in London boroughs should be formalised. There has been an informal police forum in Islington for a couple of years. I had difficulty in attempting to create that, but I have found, significantly, that the slight resistance by the police has been replaced by an enthusiasm and a desire to participate in discussions with the local councillors and Members of Parliament. The arrangements in Islington are adequate, but they could be greatly improved by being put on a formal and statutory basis.

I plead with the Secretary of State that, when police forums are put on a statutory basis, they should not be a means of liaison between only the police and borough councils. Members of Parliament, certainly in London, must be part of that arrangement. Although it may be difficult to build them into the general London operation, that can be done. There is no reason why the Members of Parliament for particular areas should not be members of liaison forums established for the Metropolitan Police districts.

The Home Secretary replied on the question of independent police complaints procedure during Question Time. He said that if there were a team of Ombudsman staff to investigate complaints against the police it might be better—if I understood him correctly—if it was not involved in investigating trivial complaints. That is exactly wrong. We cannot allow the police to reject a complaint as trivial—that has been the trouble. However, an independent organisation could be trusted to do that. One of the great advantages of an independent element in the investigation of complaints, as against their determination, is that it could reject the trivial complaints and not waste a great deal of time.

I was surprised that Lord Scarman referred to an attitude in the police force suggesting that the home beat officer did not have the same status as the rest of the force and was regarded as a "hobby bobby". I have not come across that attitude, but if it is widespread it needs to be eradicated.

When there is an ongoing community problem, the first thing we ask for is a home beat officer who will remain in the area for a long time. In London, such officers should be protected and not be whisked away to Trafalgar Square every time there is a demonstration. If the home beat officer has a low status within the overall police force, it is something that needs great attention.

I do not want to say anything about prisons because they will he dealt with thoroughly in next week's debate.

In conclusion, I hope that the Minister of State will give a more definite and forthcoming indication of agreeing with the Scarman report than has been given so far. I hope that he will take back to the Secretary of State the view that in order to get the Scarman recommendations strongly and quickly off the ground, it would be as well for him to come to the House not merely with specific proposals, as the Leader of the Liberal Party suggested, but with the specific proposals in the Scarman report and to say "We accept those almost entirely".

6.7 pm

We are dealing with two crises of extreme concern to all hon. Members and the country. One is the inner cities crisis, which is the subject of Lord Scarman's excellent report, and the other, which has been equally long-standing and is still with us in alarming proportions, is the prison crisis.

As my hon. and learned Friend the Minister of State said, the crisis in our prisons is dangerous and scandalous. Clearly it must be solved at the peril of disorder in a dimension that none of us wants.

I endorse what my hon. Friend the Member for Abingdon (Mr. Benyon) said about the high quality of my right hon. Friend the Home Secretary. I do not believe—this is said not in a party spirit—that in most hon. Members' assessment there has ever been a Home Secretary who has been so concerned about overcrowding in our prisons. I do not believe that anyone in history has done more to try to solve the problem. However, the problem is still with us and we must seek ways of overcoming the difficulties.

I spent many years considering the prison system and trying to discover an answer to the simple and stark question: how can we reduce the prison population? Are there people in prison who ought not to be there and who can be removed? The obvious answer to that question is "Yes, there are".

The people in prison who ought not to be there can be identified without difficulty. One does not have to spend years on the problem. Anyone who spends only an afternoon in a prison talking to prison officers and governors will soon discover their common sense and persuasive views on the persons who ought not to be there—the alcoholics and the mentally sick who deserve treatment and pity rather than custodial sentences by way of punishment.

However, we must not let the easy identification of people who could safely be released from prison conceal or distort the fact that the public are in no mood to see lenient sentences imposed for crimes that they believe are harmful and dangerous to society. In the view of the public, for an offence that involves violence there is no alternative to prison. I share that view. The sentence is not just to punish; it is to protect the public.

What can we do to reduce our prison population, which, after all, is the nub of the problem? One-third of that population consists of the most unpopular types of criminals in the country—burglars. No criminal incites the indignation of the public more than the burglar. Any suggestion that there should be a general amnesty or supervised release after serving one-third of the imposed sentence would rightly be met with a sense of outrage. The letting loose of people who should be kept in prison—certainly until they have been properly punished—would be an Executive decision. My firm belief, which is shared by most people in the country and by many of my right hon. and hon. Friends, is that the judiciary, not the Executive, should decide when and for how long a man or woman should be deprived of his or her liberty.

Over the last few years the judiciary, in its sentencing policy, has recognised the gravity of the difficulties with which we are now having to cope in our prisons. The judiciary, from the Lord Chief Justice, Lord Lane, down—instanced by the directives and cases in the Court of Appeal criminal division—is doing everything possible to understand and co-operate in the solution of the problem.

I was astonished when the noble Lord Longford in another place this week put forward the suggestion that the judiciary was thwarting the views of the Home Secretary and disregarding the will of Parliament. It was such a distortion of the truth that one can only hope and suppose that, as the years go by, the noble Lord's ability to mislead and to distort will be recognised for what it is.

I am delighted that section 47 of the Criminal Law Act 1977 is to be incorporated into a new Criminal Justice Act, with possible amendment. I congratulate my hon. and learned Friend the Minister of State because, although he is too modest to say so, he was the author of section 47. He believed in it throughout the years, up to its incorporation in the 1977 Act. I believe that it will help to reduce the prison population and will be understood and applied wisely by the judiciary.

Where there is a possibility or a danger of fire, it is prudent to have a fire brigade available. If there is a danger, or even a possibility, of the crisis in our prisons developing into a more serious crisis, it is prudent for the Government to have legislative provisions to enable them to deal with it as quickly as possible. The Government now have such powers under the Imprisonment (Temporary Provisions) Act 1980, but that is temporary legislation and can be activated only by an order, with the approval of the House. I do not think that many right hon. and hon. Members like temporary legislation of that sort. It usually gets on to the statute book in an emergency, and sometimes without the necessary thought that permanent legislation would undoubtedly attract.

Is it not time for the Government to include in the Criminal Justice Bill that they will shortly introduce—I am prepared to make only a broad suggestion—a provision that would be of assistance to them and of comfort to the country if we ultimately—I pray that we shall nor—have to face the consequences of the present prison crisis getting out of hand?

It may help the House if I indicate that we hope to begin the winding up speeches at about 7.10 p.m. If hon. Members who are called to speak show some restraint, more will be able to contribute.

6.17 pm

I cannot agree more with the hon. Member for Abingdon (Mr. Benyon) or the hon. and learned Member for South Fylde (Mr. Gardner) who said that there are too many people in our prisons. The suggestion in Lord Scarman's report for positive action may be one way of keeping the numbers in our prisons down, not just the alcoholics and the mentally ill people who should not be there in the first place, but the many other people who go to prison largely because society creates the conditions in which they commit the offences. I support the positive action recommended by Lord Scarman in the form of investment in our inner city areas, especially the areas of South London where I work, which need much investment to bring them up to any degree of civilised living.

I also agree with the hon. Member for Islington, South and Finsbury (Mr. Cunningham). I have always been puzzled as to why the Metropolitan Police should have been left out of the democratic process that is carried on in police districts outside the Metropolitan area—purely because of an historical accident—and why the Home Secretary should be the one person in charge of our police service. I welcome any suggestions for a liaison between the police and local authorities and I support the suggestion that Members of Parliament should form part of the liaison group.

I hope that eventually—as Liberals in London have already suggested—we can organise a form of police committee that will be responsible on a democratic basis for the police in London, not for its day-to-day running, but on the same basis as police committees operate in other police districts.

Does not the hon. Gentleman know that the Metropolitan Police is accountable to a police authority—my right hon. Friend the Home Secretary, who comes to the Chamber to account for the police in London? Does he not also know that in the 32 London boroughs there are liaison arrangements, with the possible exception of the London borough of Lambeth?

Of course I am well aware of that. I am also aware that the arrangements are informal. What the hon. Member for Islington, South and Finsbury proposed, and what I support, is that they should be more formal and put on a statutory basis so that the electors of the boroughs concerned can have a proper liaison with the police. I take the point that the Home Secretary is responsible to the House, but Liberal Members would rather that the police were accountable in a more direct and democratic way to the people for whom they have a responsibility and a charge.

I intervened to draw attention once again to the Home Office report on racist attacks. Sadly, such attacks are a phenomenon of the so-called decay in law and order. Following a meeting with the Home Secretary in response to anxiety expressed by bodies concerned with the welfare of ethnic minorities and communities, including the Joint Committee against Racialism, of which I am co-vice-chairman, the Home Secretary was shown a report compiled by the joint committee listing a large number of racist attacks and estimating a large incidence of such attacks in this country. The Home Secretary immediately undertook to carry out a study of such attacks and to produce a report. I record my thanks to him and to his officials for having carried out a very demanding task in a very short time and produced a report, which I am sure those who have read it will agree is both comprehensive and fair.

It will do the House no harm to be reminded of some of the figures that have led to the considerable concern in the House and elsewhere about racist attacks in this country. I quote briefly from the Police Review of 30 October this year:
"Racialist attacks against Britain's ethnic minority communities, especially Asian communities, are now occurring on a massive scale … The Home Secretary told a fringe meeting"—
a meeting organised by the joint committee—
"at the recent Conservative Party conference that 2,500 interracial incidents had been recorded over a two-month period and that a significant number had been attacks of a racialist nature."
I have with me a list of some of those attacks and a summary of the types of attack that have occurred in the United Kingdom in the past few years. For example, at Woolwich Arsenal railway station on 21 September 1980, 60 skinheads, all members or supporters of the British Movement, attacked a lone West Indian. They then attacked a police officer who intervened. Seven of them were later found guilty of offences at the Old Bailey. At Liverpool Street railway station on 25 May 1978, a gang of teenage British Movement members attacked a black family in the street. Three people were found guilty of affray and unlawful fighting.

In Lancaster, in February this year, a 12-year-old Asian boy was kicked at a bus stop. The man later accused and convicted of the crime said that he was an active supporter of the National Front. For his attack on the boy, he was fined £300 and ordered to do two hours community service.

There are also many incidents which it is considered could not have taken place spontaneously and must have involved some planning. At Thames polytechnic in Woolwich, in June 1979, a large group of young people disrupted an ethnic minority dance and left British Movement stickers. In Preston, in September 1980, National Front slogans and swastikas were daubed in bright blue paint on the eve of a major Right-wing demonstration in Chorley and Bolton.

In my own constituency of Croydon, North-West on 12 October 1980, slogans saying "Hitler was right" and "Scum" as well as swastikas were daubed on the walls of Croydon synagogue. Seven days later, at Ruislip synagogue, a pigs's head was found in the doorway with Klu Klux Klan stickers in its ear.

I am sure that the House will agree that these incidents must cause considerable concern. It is not merely that racist attacks are on the increase.

Why has the hon. Gentleman not mentioned all the attacks by black people against white people? Why does he not refer to the repeated mugging of elderly white people by blacks? Is he not aware that the blacks never mug their own race but only elderly and defenceless white people?

I am well aware that both blacks and whites mug people. That is not the point of my argument. My right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel) mentioned that at the beginning of his speech. Having worked in Brixton for six years, I am well aware of the incidence of criminal violence by one person against another.

I was making the point that, as my right hon. Friend said, there is a considerable element of political attack. The incidence of these attacks is not merely haphazard but heavily concerted and I suggest that there is great premeditation in the incidents that take place.

The Home Office report states in paragraph 55 on page 23:
"There was a widespread belief among the ethnic minorities that racial violence and harassment were being instigated or carried out by particular extremist organisations, but the police considered that there was rarely concrete evidence to substantiate this belief. Even the presence of slogans at the scene of an incident, does not necessarily prove that the offender belonged to a particular grouping."
In paragraph 58 on page 24 the report states:
"A number of local authorities, teachers and community relations councils, believe that racialist activity in schools is increasing."
In my view, that shows that a considerable number of politically motivated people, either by concerted action or through the inspiration of their political affinities, are injecting poison into the minds of the young people and the voters of this country. In so doing, they are provoking—intentionally or unintentionally—the type of racist attack that I have described and the type of assault upon persons that my right hon. Friend described. They are also—intentionally—doing that for one purpose: to subvert the democratic process of this country.

I am glad that the Home Secretary has said that he keeps an open mind on the subject, but I am sorry that he has not seen fit at this stage to investigate further the possibility of creating a special squad, in the first instance in the Metropolitan Police area, on the lines of the fraud squad or the drug squad. Such a force could investigate these matters, get to the root and inspiration of these attacks of mindless violence and calculated insult on members of ethnic minorities, and stamp out this canker in our society for ever. I am glad that the Home Secretary's mind is open. I hope that he will look again at that proposal and investigate the possible creation of such a squad more deeply. I hope that at least one squad will then be set up, if only on an experimental basis, so that we may begin to get to the root of this mindless political activity.

6.28 pm

I shall be brief, in view of the time available. I was interested in the comments of the hon. Member for Croydon, North-West (Mr. Pitt) about the racist attacks carried out by those very nasty people. He wanted strong action to be taken. I suggest that it might have been more helpful if he had said what should be done. He complained that one person who was convicted was given a small fine and some community work. Is he suggesting that more of these offenders should be sent to prison for longer periods, or is he thinking of some other method of punishment?

One of the problems is that there is a demand from many people that the prison population should be substantially reduced. On the other hand, as the hon. Member rightly said, there is evidence of a substantial increase in crime, not just by alcoholics or people with social problems but by real criminals engaged in activities that are making life a hell for many decent, law-abiding people. I accept that there is a serious problem of overcrowding in our prisons, but the House has an obligation to investigate ways in which to reduce the incidence of crime. The crime figures have increased sharply and substantially, and the report for the last quarter shows a further increase on last year's record figures. Table 2.2 in the recently published criminal statistics shows that the number of serious offences is about five times higher than it was 25 years ago. All the signs are that the increase will continue. I accept that minor changes could improve the situation. For example, the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) rightly said that England should seriously consider introducing Scotland's fiscal system of prosecution. More emphasis could be placed on investigating the link between alcohol abuse and crime. The Government are devoting much time and attention to the serious problem of smoking, but they could pay just as much attention to the problems of excessive drinking. Such drinking injures not only the drinker but the others involved. If we introduced a system of direct payment for supplementary benefit beneficiaries at all stages—and not only when those involved were in trouble with their rents, rates or electricity bills—much stress could be reduced.

I am grateful to my hon. Friend for that comment. In addition, we should promote a feeling of community. However, that has little relevance to those who live in areas of stress and whose main concern is to get out of them.

I hope that the Minister will seriously consider one point. It has been argued that sentences do not have much effect on the number of crimes committed. It has been suggested by several of my hon. Friends—and it appears to be accepted by many people—that whether sentences are short or long, tough or soft, the incidence of crime is not greatly affected. There is an argument for saying that the same incidence of crime could be achieved by using a lucky draw method when imposing sentences or by abolishing sentences altogether. It has also been suggested that if two thirds of a sentence is not to be served, prison overcrowding will be relieved and there will not be any significant effect on the amount of crime.

I wonder whether the Minister and his officials in the Home Office are prepared to consider the possibility that there has been a sharp increase in crime and a substantial increase in violence because we have eroded the deterrents. The erosion of deterrents may have made a substantial contribution to the increase in crime. Those who call themselves experts generally say that that is a load of rubbish. However, some of the specific instances in which deterrents have been removed and eroded show that a reasonable argument can be made for saying that their removal has a significant effect on the amount of crime.

We all know the consequences of abolishing capital punishment. Few would argue that there have been more killings and murders since then, but some would argue that that would have been the situation anyway. The case cannot be absolutely proved. We do not know how much violence and how many killings there would have been if capital punishment had still been a deterrent. There is no conclusive way of proving the proposition. But the figures for the number of serious crimes involving the use of firearms show that there has been a dramatic rise since the abolition of capital punishment.

It is generally accepted that when capital punishment existed as a deterrent, guns were not usually carried by criminals. When we consider the dramatic 500 per cent. rise in crime that has taken place in a short time and the number of serious crimes involving the use of firearms, we find that guns are being used for petty crimes, such as robberies in the home, robberies from shops and so on. There must be a good reason for the sharp and savage rise in the use of guns in such a short time. The implication is reasonably clear. The removal of the deterrent of capital punishment has led not only to more violence and more killings, but has contributed to a dramatic rise in the number of guns being carried.

Another, more limited example can be given. Following the decision of the European Court, corporal punishment on the Isle of Man has been abolished. The crime figures for the Isle of Man are so small that it is difficult to draw general conclusions. However, in the annual report of the Chief Constable of the Isle of Man in the year following that decision there was a sharp rise reported in the number of crimes of violence and of assaults. There is a danger that if we substantially reduce prison sentences and thus reduce the deterrent effect of penalties, our prisons, instead of being less full, will become full and overcrowded again.

Unless we have deterrents that strike fear into the heart of potential offenders, it is unlikely that we shall be able to curb or reduce crime. As a party, we have a special responsibility. Although many people supported the Conservative Party because they believed that we would try to bring public expenditure under control and ensure that our money supply did not go out of control, many of those who live in areas of stress are seriously perturbed—and often injured—as a result of the upsurge in crimes of violence and vandalism and they hoped and believed that a Conservative Government would give the containment of crime top priority.

It worries me that hon. Members have suggested a reduction in prison sentences and in the prison population but have not seriously argued that that, in itself, will reduce crime. The evidence is that such measures could lead to a serious increase in crime. Although the Minister's view seems well formed and perhaps a little inflexible on the general issue, I hope that he will give serious consideration, at some stage, to this question, particularly in view of the dramatic rise in serious crime. I hope that he will consider that if we could reduce crime we could make the lives of the general public more tolerable and less frightful. That might be achieved if, instead of reducing sentences and eroding deterrents, we had more effective deterrents. They would reduce crime, and thereby, the number of those who suffer seriously as a result.

6.37 pm

The hon. Member for Southend, East (Mr. Taylor) was a little unfair to my hon. Friend the Member for Croydon, North-West (Mr. Pitt), when he suggested that he had not put forward constructive proposals to deal with the serious problem of racist attacks and provocation in our great metropolitan areas.

My hon. Friend the Member for Croydon, North-West suggested that a special squad should be established, similar to the fraud squad, with responsibiliy for catching and bringing those who have committed racist attacks before the courts. I fully support my hon. Friend, because the establishment of such a special squad would act as a great deterrent to those who have embarked on a course that can only be described as a deliberate political attempt to incite racial discord and hatred.

Does the hon. Gentleman believe that once such nasty racists have been caught, their prison sentences should be reduced by two thirds, or that they should be sentenced to longer terms of imprisonment?

I shall turn later to the question of prisons and of the prison population. The view that we need, above all else, to get back to the good old, traditional, policing methods has united the House. That view holds that the police should be involved in the community, be recognised by the local community and that the local community should develop a feeling of confidence in their local police officers. There cannot be any substitute for returning to a closer concord between the public and the police. That is the foundation upon which our police force is established. It should be a co-operative effort. It should be the responsibility of the citizen and the police officer together to try to deal with the problems that occur from time to time.

The Minister might also care to look at the growing practice of closing local police stations. I understand the reasons for it. He rightly drew our attention to the substantial increase in the number of Metropolitan Police officers. I make no bones about it. I congratulate the Government on implementing the Edmund-Davies pay awards, improving police morale and attracting more young men and women into the Metropolitan Police. Much humbug has been spoken on this subject. The Government did a good job and deserve our congratulation.

Having said that, I have to say that if the process of closing police stations continues, it will detract from the feeling of confidence that we must re-establish among local communities. A police station in operation is an important factor in many communities, particularly in areas of great stress. As well as taking the credit for the increase in the number of police, the Government must also meet the costs of the additional stations and equipment that those extra police officers require.

The idea of lay visitors to police stations is an excellent suggestion. That would be a tremendous advance. It would establish confidence, and, perhaps even more important, counter some of the alarming and sometimes untrue stories that we occasionally hear.

If the Home Secretary is to take this idea seriously—I hope that he does—perhaps he will include Members of Parliament among the lay visitors. Nothing would be more beneficial to many of the absent Labour Members than to obtain a closer understanding of the problems that confront the police force. It would be no bad thing if they visited a local police station and saw constables struggling with a lunatic drunk who was creating havoc and perhaps assaulting police officers. That would do much to expand understanding and sympathy among Labour Members, because they would see for themselves just what goes on in police stations. The idea of lay visitors should be implemented, if only to improve confidence.

Many hon. Members have referred extensively to Lord Scarman's report, and the House will not be surprised to learn that I have several comments to make. I regard as essential the proposal to amend the Public Order Act 1936. When we discuss the Scarman report, I hope that the Government will not merely indulge in a general debate. As my right hon. Friend the parliamentary leader of the SDP the right hon. Member for Plymouth, Devonport (Dr. Owen) has said, we shall expect positive proposals in response to Lord Scarman's report.

I hope that the Government will pass through both houses with the utmost speed amendments to the Public Order Act, enabling the police to require advance notice of street processions, particularly political street processions. It is intolerable that such processions can be held without the requirement at least to notify the police that traffic problems could result. Advance notice of such processions is not an attack upon the liberty of the subject or on the right to demonstrate; it is merely a means of ensuring that demonstrations are carried out in a reasonable fashion.

We should also consider an immediate amendment to the Public Order Act, introducing the power to ban a specific and named march without the necessity of using the blanket ban. Nothing would do more damage in parts of my constituency, which contains many ethnic minorities, than a provocative National Front or Fascist march. I and every other responsible citizen would be put in an intolerable position.

When the British Movement last planned a march through the borough of Bexley, I appealed personally to people to stay away. I did so on the basis that the march should not be allowed through an area of racial tension. If such a provocative march was planned to go through such an area, and was not banned, an impossible burden would be placed on responsible local councillors to make the plea to stay away. It is vital that that amendment be made as a matter of considerable urgency. It would provide substantial assurance to the ethnic communities that the Government are alive to their problems and are taking positive action to solve them.

Lord Scarman also suggested improvements in the consultative arrangements. I pay tribute to the police in my area, who have established fairly close links with the ethnic communities. It is now necessary to move further and to formalise the requirement for proper consultation. That can now be done. Lord Scarman takes the view that under existing powers chief police officers can move forward in that direction. I hope that the Government will make it clear that they want such consultative arrangements to extend beyond the local authorities. We should seek to involve representatives of the churches, the ethnic groups, Members of Parliament and chambers of trade. The consultations should be as representative as possible so that all sections of the community are aware of the problems faced by the police and the action that the police feel might be necessary to deal with those problems. I hope that widespread consultation will be introduced as a matter of urgency. Indeed, I hope that it will be announced by the Home Secretary during the debate on the Scarman report.

Lord Scarman rightly calls for a review of the functions of community relations officers. I believe that he has got it right. It is time that there was a review. The job of the CRO is mediation. That should be his prime function. I fear that in many areas CROs have gone beyond that prime function. It is time that their role was redefined. Those who feel that they cannot work under any redefined system might well do better to try to solve the problems of racism by joining some other organisation.

I shall refer briefly to prisons. Once again, I congratulate the Government without reservation on the programme of prison building and rehabilitation upon which they have embarked. The Minister was right to point out that this has not been done in any significant way for many years under either Labour or Conservative Governments. The Government therefore deserve our congratulations.

I urge caution about shorter sentences and earlier parole. It would be monstrous if, by administrative decree, we took away from the courts the sole responsibility for hearing the case, evaluating the evidence and seeing the person in the dock. We must be very careful about that matter.

As regards parole, it would be devastating to public opinion if the feeling spread that the Government would be making it easier for those convicted of crimes of violence to receive an early release from prison. I urge great caution.

Despite the fact that I have congratulated the Government on their building programme, even in the present economic recession I believe that they ought to embark on a crash programme because providing places in prison would deal with many of the problems with which we are confronted without, perhaps, the necessity of using administrative means to interfere with the authority of the courts. This would also have a considerable impact upon unemployment, inasmuch as it would bring people back into constructive work. We must not let the word get around that the present Government and the House of Commons will be soft on thugs and people who have been convicted of acts of violence.

My last point is important. I want to ask a question of those on the Opposition Front Bench representing the Official Opposition—who are unsupported by any of their Back Benchers, who believe, I take it, that Lord Scarman's report and all the problems of law and order that confront us are of little consequence. I am glad that a former Home Secretary is sitting there. I want to ask the right hon. Member for Leeds, South (Mr. Rees) a question. If he cannot answer it, I should like him to convey it to the Leader of the Opposition and to the Labour spokesman on home affairs.

I have in my hand a report published in "London Briefing" and signed by Mr. Peter Tatchell. He is not only the secretary of the Bermondsey constituency Labour Party but also, I understand, the prospective Labour parliamentary candidate who is aiming to succeed that distinguished Member of this House, the right hon. Member for Bermondsey (Mr. Mellish). Mr. Peter Tatchell says in the report:
"we must look to new more militant forms of extra-parliamentary opposition which involve mass popular participation and challenge the government's right to rule."
Do the Official Opposition support that? Are they prepared to denounce Mr. Peter Tatchell and those who support him? If they cannot answer now, let the Leader of the Opposition or the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) answer that question. That is the question that the people of Bermondsey will ask when the right hon. Member for Bermondsey resigns his membership of the House, and it is the question that the British people as a whole will ask. Is the Labour Party soft? Will it support outside activity challenging the Government's right to rule?

It is a fundamental question, not only on law and order but democracy itself. It demands an answer.

6.53 pm

I want to consider the last line in the motion, which deals with the "crisis in the prisons". Hon. Members on both sides of the House—notably my hon. Friend the Member for Abingdon (Mr. Benyon) and my hon. and learned Friend the Member for South Fylde (Mr. Gardner)—have noted that a great deal can be done to get out of our prisons the drunks, the disturbed and others. I am sure that my right hon. Friend the Home Secretary and my hon. and learned Friend the Minister of State are well aware of the problem and will do all that they can to help in that regard. Sadly, we need more accommodation. I congratulate the Government, as have many others, on the amount of effort that has been put into providing the new accommodation that is so urgently needed. The Minister of State told us that £360 million is involved.

I agree with hon. Members who have said that there is still a grave need for more prison accommodation, unfortunately, because the public would not willingly countenance a situation in which they felt that those who had committed serious crimes were not being made. to serve their sentences for sheer lack of accommodation. That matter can be examined on other occasions. I do not want to deal with it now.

I want to consider briefly the two proposals that have been made to see whether it is possible to reduce the numbers in prison.

I am pleased that blanket parole no longer appears to feature as a priority in the Government's thinking. I am sure that my right hon. Friend, in his judgment—I emphasise that it must have been his judgment—was right to make that change. It is a question not of the judges influencing him or of undue pressure, but of a decision having been made, it seems, on purely common-sense lines.

If those who sit in judgment and have the duty of imposing a sentence feel that it is certain that two thirds of that sentence will, one way or another, be removed, the only likely human reaction will be to increase the initial sentence. That point was dealt with by the right hon. Member for Plymouth, Devonport (Dr. Owen). I should have thought that such a step, rather than clearing the prisons, would be more likely to fill them.

However, I sincerely welcome the proposals to implement section 47 of the 1977 Act. As has been noted, my hon. and learned Friend the Minister of State was the author of the amendment concerned. Over the years a number of us have hoped to see it activated as quickly as possible.

The only point I make is that we should not provide another form of suspended sentence. The suspended sentence has probably led to more, rather than fewer, people being in prison. Often people commit other crimes, having been given suspended sentences, and naturally the courts say "You have had your chance. You are on a suspended sentence. Therefore, you will serve that sentence." The accused then ends up serving the old sentence and the new one. That is proper. We cannot give people a chance and then simply ignore it.

What is being offered in this initiative is that judges will be able to say to convicted persons "You must learn what prison is like. You will go in for 28 days, and thereafter you will be released." So often in courts one knows all too well that if only the person concerned had a taste of prison, he would never offend again. Why give him the full six months if we can get away with one month which will teach him a lesson?

The crime may be such that one could not, in all conscience, simply impose a sentence of one month in all. But if a person transgresses again, he must pay for his misdemeanour. I welcome that proposal.

Lastly, I believe that judges can be trusted. Sometimes one feels that that view is not well received in the House. Judges do not send people to prison if they feel that they can keep them out. That certainly applies to the younger judges. The way forward is to trust judges and to give them this power. It is a creditable and important step.

6.58 pm

I am pleased that the motion and some of the contributions to the debate have tried to help to fight a view seemingly held by many citizens in this country—namely, "Do not worry if there is a problem, especially if it is nothing to do with us personally. Let the State fix it." For years I have been getting exactly the same feeling on the topic of law and order, especially concerning children's offences—"It is not the public's worry at all. It is a matter for the police and the courts to solve."

A strikingly close parallel is found in the education complaints received by hon. Members relating to the fact that teachers do not seem to have the discipline or to keep the control that existed in former times. Discipline is the responsibility of schoolmasters and respect for the law a province for the police and the courts but it should not be forgotten that both are primarily the responsibility of every parent to instil into a child. Hon. Members must do everything in their power to stop the shift of that moral obligation on to the shoulders of the State.

I echo the words of my hon. Friend the Member for Warwick and Leamington (Mr. Smith). I support warmly the idea of requiring parents to pay fines imposed on children under 17 years of age unless the court feels that the circumstances are unreasonable or unsuitable. The vast majority of parents realise their responsibilities for their children. There is a minority that does not. The proposal I have mentioned could act as a spur to concentrate in the minds of those parents the fact that they are responsible for the behaviour and discipline of their children.

Many people, especially youngsters, drifting down the road towards crime would be dissuaded and redirected by an improvement in communications. The visible remoteness in the past of our police force, literally driven into panda cars to cover their patch, has produced a feeling among youngsters of alienation and a feeling that policemen are almost a separate species.

It is my hope and belief that the support given by the Conservative Party—I also here pay tribute to my right hon. Friend the Home Secretary for his efforts—to the creation of an extra 7,500 jobs for police officers will put more bobbies back on the beat. I hope that this improvement will continue. I am glad to say that it is happening in the division that covers my constituency. Policemen are back on the beat, talking to and helping the general public. I hope that this leads not only to a reduction in crime but also to an increase in understanding and friendship.

I shall not discuss tonight the reason behind man's behaviour patterns and his reaction to circumstances in certain ways. It is an extremely complex and difficult subject to analyse. I can only say from studying the Scarman report that phrases leap out of the pages time after time. I give these examples:
"Distrust of police action on the streets was too common a phenomenon of life in Brixton";
and
"The worst construction was invariably put upon police action even when it was lawful, appropriate and sensible."
Those phrases illustrate the need for a closer and personal contact between members of the public and our police force. I echo the plea of my hon. Friend the Member for Abingdon (Mr. Benyon) on behalf of the special police force. I recognise that hon. Members of the official Opposition have heeded his words and have probably rushed out to join the special police force tonight which explains why they are not present. Members of the special police force in my Division, which covers also the constituency of my hon. Friend the Member for Watford (Mr. Garel-Jones), have been addressed at the House of Commons by my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths). Whether or not it was due to our influence I do not know, but there has since been increased recruitment into the special police force. I should like to think, when hon. Members take an interest in this area, that an improvement will be seen in the numbers that come forward.

There is not sufficient time available for me to deal with the variety of sentences available to the courts. It must, however, be right to have available as wide a variety of sentences as possible. In this world of equality, there has been pressure to try to deal with every sentence and every crime as if it were a grade on a ladder. It is time to examine some of the minor offences to see whether they should be punishable by prison sentences or whether the attempt should be made to find more enlightened methods to try to help and reform. It is possible that the short, tough sentence at a detention centre, with the emphasis on hard and constructive activities, with discipline, inspection and drill, will deter youngsters from reappearing before the courts. The youngster might even be given a sense of responsibility, a sense of discipline and an appreciation of a framework of life in which to live, which might be lacking at the time in his personal circumstances.

In some cases the parent should be much more involved in imposing discipline on children. Parents should not be able to opt out in the belief that the State will take responsibility. I welcome the idea that 16-year-olds should be made eligible for community service orders. A youngster will have far more respect for property and people if he is confronted by, and then has to rectify, the damage that he has caused. That changed attitude, I hope, will be transmitted to his friends and companions. I should like to see progress made towards an environment in which people can be discouraged from slipping deeper into more serious levels of crime—not only for the good of the individual and society but for the practical and economic reason of trying to keep down the horrific cost imposed on the State in running prisons.

I should like to refer to the unfortunate victims of crime. There seems to be a feeling that, provided the State picks up the tab and pays for compensation, everything will be all right, and that if at the same time the person who has caused the damage or the personal injury suffers by some custodial sentence, justice will be seen to be done. I hope that more effort will be made to ensure that the individual offender is made to pay directly to the victim in some measure for the pain and suffering he or she has caused. I know that there are ways in which the individual offender can be made to pay. However, there is also a fairly widespread belief that it is not worth the financial trouble to enforce it in any depth. The criminal injuries compensation scheme has been revised. Grant aid has been provided to the National Association of Victim Support Schemes. The policy relating to compensation orders has been reversed. I should like to see vigorous implementation of a policy to ensure that the offender personally is confronted with, and pays for, his crime.

In these comments, rushed and hurried as I have been obliged to make them, I wish to make clear my view that the community only as a united society will defeat crime. Only with its wholehearted support will society's agent, the police force, help to achieve that aim.

7.07 pm

In the moments still available for my contribution to the debate, I can hardly do justice to the issues that have been raised. I merely say that the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) has done a great service in allowing many hon. Members to talk about the complex issues of law and order.

I shall confine my remarks to Lord Scarman's report, which I regard as a watershed. The report is moderate, sensible and balanced in every possible way. Lord Scarman's reference to the work of the House and the Home Affairs Select Committee pleases me. He is right to draw attention to the social conditions that are such an important part of the problems in inner cities.

I know that my right hon. Friend the Home Secretary, probably in the new year, will give a detailed response to the 57 recommendations made in the report of the Home Affairs Select Committee. The recommendations are important because they cover the whole range of Government, practically every Government Department, local authorities, commerce and the citizen. I look forward to debating those recommendations and the Home Secretary's response to the report early in the new year. The Select Committee's report, together with the Scarman report, will provide a programme of action and progress in the inner cities in future years that the whole House, I am sure, will welcome.

We have been talking about crime and prisons. If we are sincere about wanting to reduce the prison population and to control crime, we have to develop, in consultation with the police and the citizens as a whole, a better method for preventing crime. One third of the prison population is composed of burglars. If we want to prevent them from going to prison, we must first prevent them from being burglars. That is the challenge that falls to us and to the constabulary. I hope that in the coming debates we may have an opportunity to explore some of these ideas in greater depth.

7.10 pm

By leave of the House, Mr. Deputy Speaker, I should like to reply. I thank the hon Member for Paddington (Mr. Wheeler) for his remarks. I agree with him that this has been an extremely useful debate. In his short contribution he summed up the connection between the two themes that have been running through our debate this afternoon—the reduction of the prison population and the more effective policing of our communities. He was right to tie the two together.

I was grateful for the Minister's response at the beginning of the debate. It was a positive one, except in one respect. He must have been a little taken aback at the sudden shouts that greeted him when he said that there was no need to say that community policing schemes were not some sort of madcap schemes thought up by a country bumpkin. But there is need to say that, because that is precisely what has been said, even by responsible figures in the Police Federation, in the course of the heated and lively debate on police methods.

I thought that the Minister was slightly smug in that one section of his speech, when he said that the advantage of community policing was self-evident. It may be self-evident, but alas, it is not nearly sufficiently put into practice as a matter of general police policy. Why, otherwise, did Chief Superintendent Webb resign from the force in Birmingham when he felt frustrated at being unable to pursue his particular ideas?

It is true, as the hon. Member for Erith and Crayford (Mr. Wellbeloved) said, that the Government are to be congratulated on the increase in police numbers. The Minister was right in saying that that flows from the implementation of the pay reports. The Minister gave us some welcome figures on the number of civilians who have taken over from the police, thus releasing more police for other work.

What is needed is a commitment from the Government—if we can have it in the Minister's reply we shall have achieved something—that there will be a policy introduced generally throughout the police force in favour of a return to locally based community police stations and the man on the beat. That, more than anything else, is what we have been seeking in the debate.

I welcomed some of the other items that the Minister mentioned, including the commitment to bring forward proposals to extend compensation to the victims of crime. To that extent the Minister's response was extremely valuable.

My right hon. Friend the Member for Plymouth, Devonport (Dr. Owen) the leader of the Social Democrats, in mentioning violence on television, must have been surprised by the chorus of unanimity with which his remarks were received. He was almost making a confession that, as a liberal, he thought it necessary to control some of the output of television. But I find that need, too, as a Liberal. I hope that the board of governors of the BBC and the board of the Independent Broadcasting Authority will note that it was a unanimous view in all parts of the House that the level of violence on television has become unacceptable and has, in our view, a contributory effect to the growth of violence in our society.

My right hon. Friend the Member for Devonport was right also to warn the Government against giving generalised philosophical welcomes to the Scarman report without backing it with a commitment to the specific recommendations. The one criticism of the Scarman report which I shared with him was the sweeping reference that Lord Scarman made to there being no institutionalised racialism in this country. As my right hon. Friend showed, there is a good deal of unconscious institutionalised racialism that we ought to tackle.

I was not entirely happy with my right hon. Friend's suggestion that the responsibility for race relations should be transferred from the Home Office to the Department of the Environment, which is, if anything, an even greater amalgam of Ministeries. I thought that my right hon. Friend was on sounder ground in recommending that there ought to be a Cabinet sub-committee of the various departmental Ministers, including an Education Minister——

There simply is not time for me to give way, and I hope that the hon. Gentleman will understand. I want to reply to as many of the speeches as possible.

The hon. Member for Warwick and Leamington (Mr. Smith) made a fairly standard speech calling for tougher sentencing and the building of far more prisons. Apart from that being a rather depressing counsel of despair, it seemed to omit one word that has not featured at all in the debate—recidivism. There is a good deal of evidence that the long-term crowding together of prisoners provides more breeding grounds for further crime. That is true not only of our prisons but of prisons everywhere in the world. The hon. Member seemed to overlook that aspect.

The hon. Member's contribution was in marked contrast to the welcome remarks of the hon. Member for Abingdon (Mr. Benyon), who spoke of the very high cost to the taxpayer of the doctrine of retribution, instead of concentrating expenditure on the solving of crime. He gave us interesting evidence from different states in the United States on their prison sentencing policies.

My hon. Friend the Member for Isle of Wight (Mr. Ross) stressed, as did other hon. Members, the responsibility of parents and aired his view—with a note of apology that I thought was unnecessary—that there was a case for considering some form of compulsory community youth service. It is a view that I share, even though not everyone in my party shares it.

My hon. Friend pleaded for regionally secure units for the mentally sick. The hon. and learned Member for South Fylde (Mr. Gardner) also said that there are too many people in our prisons who ought to be catered for elsewhere. I am sure that the whole House would support what my right hon. Friend the Member for Devonport said in asking what had happened to the funds allocated to regional health authorities for this purpose and then not used.

I was most grateful for the speech of the hon. Member for Islington, South and Finsbury (Mr. Cunnningham), because he was the only representative of the official Opposition present throughout the entire debate. I thought that was something of an achievement, especially at a time when even his own credentials as a member of the Labour Party seem to be a matter of some public speculation.

I thought that the hon. Member for Erith and Crayford was right to take the hon. Member for Islington, South and Finsbury to task by asking whether the Labour Party will stand for the rule of law. If it does not stand for the rule of law against the increasingly lunatic pronouncements of its parliamentary candidates, we shall be in real trouble in trying to enforce the ordinary rule of law in our streets. Whatever we may think of the politics of any Government at any time, the idea that one should undermine the right of the Government to rule seems to me to be an extraordinary proposition to come from anyone seeking election to this House in the name of the Labour Party.

None the less, the hon. Member for Islington, South and Finsbury, in speaking from the Opposition, made a constructive speech in which he drew attention to the better practice that we have in Scotland of placing a limit on the length of time for which persons can be detained in custody without trial. That practice could well be copied south of the border.

The hon. Member pressed for more specific implementation of the Scarman report and made an interesting point about the development of local liaison committees in the London boroughs involving Members of Parliament—a point supported by my hon. Friend the Member for Croydon, North-West (Mr. Pitt). The hon. Gentleman's remark about the status of the bobby on the beat was important. I have never understood why we have continued to diminish the influence of the bobby on the beat, especially with the advent of personal radios and levels of communication which the former bobbies on the beat did not have. The hon. Gentleman made a sound point that ought to be pursued.

I was delighted to hear the contribution of my hon. Friend the Member for Croydon, North-West, because I missed his maiden speech. I am delighted that he is taking such an active role in the work of the House at an early stage. He was right to draw our attention to the report of the Select Committee on racial attacks. I am sorry that he was so blatantly misunderstood or misrepresented by some Conservative Members who seem unable to distinguish between politically motivated racial attacks and attacks that merely happen to be by a member of one race on a member of another.

The debate would not have been complete without the remarks of the hon. Member for Southend, East (Mr. Taylor), which seemed to come straight from the Conservative Party conference. I thought for a fleeting moment that the move to Cathcart from Southend, East had done the hon. Gentleman some good. He made some sensible remarks about excessive drinking being a cause of crime. Those remarks lasted for no more than a couple of minutes and the hon. Gentleman then took his usual path of deterrence, and capital and corporal punishment, which he admitted experts would describe as a load of rubbish. I have never known him allow any expert to deter his prejudices on any topic. He was in no danger of allowing that to happen this evening.

The hon. and learned Member for Blackpool, North (Mr. Miscampbell) made some interesting observations about suspended sentences possibly leading to a larger prison population He welcomes the new initiative that my right hon. Friend has taken, as we all do.

Finally, the hon. Member for Hertfordshire, South-West (Mr. Page) reminded us again of the need for parental and teaching discipline. He referred to what he described as "panda car alienation" and the need to bring the police nearer to, into and among the community.

The message that has come from the debate and from both sides of the House to the Home Secretary is that the House will support a modern police force that works among and alongside those whom it serves.

7.23 pm

With the leave of the House, Mr. Deputy Speaker, I shall add my thanks to those that have already been expressed to the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), the leader of the Liberal Party, for the opportunity that he has given us to participate in an extremely interesting debate, which has been distinguished by hon. Members on both sides of the House finding a great deal of common ground. I have, alas, to omit from that compliment those who normally occupy the Opposition Back Benches, who have been absent throughout the debate, with the honourable exception for part of that time of the hon. Member for Newham, South (Mr. Spearing).

The Government will always hold to two propositions: first, that there must always be prison sentences, and long prison sentences available for those who are convicted of violent offences so that for the duration of those sentences they will be unable to commit further offences against the public; secondly, that prison accommodation must always be available as a front line of defence for the public We owe it to the public, and especially, as my hon. Friend the Member for Southend, East (Mr. Taylor) said, to those who voted for the Conservative Party in the 1979 election in the belief that the containment of crime would be a Conservative Government's top priority, as it is, to ensure that those two policies remain unchanged.

The right hon. Member for Plymouth, Devonport (Dr. Owen) asked whether the Scarman report would be neglected as have so many others. I take that rather hard when my right hon. Friend the Home Secretary expressed yesterday a degree of acceptance for proposals in the report. Such acceptance when making a statement on a report on behalf of the Government is almost without precedent. Those who have asked today—the hon. Member for Islington, South and Finsbury (Mr. Cunningham) is one—that the Government should say during the debate "Yes, we accept the whole thing lock, stock and barrel, give or take a few propositions", are not being realistic.

My right hon. Friend has said that on the matters whose acceptance he announced yesterday he needs to take the opinion of the House that will be expressed in the debate that is shortly to take place in Government time. He has explained that he will consider what is said and then introduce his proposals. I cannot believe that it would be other than irresponsible when dealing with issues of such complexity and importance to take any different course.

My hon. Friend the Member for Warwick and Leamington (Mr. Smith), who has kindly explained to me why he cannot be present, spoke of a constituent who recently was robbed in London. By that means he drew vivid attention to the fears of so many of our fellow citizens. He said that in many instances parents have not fulfilled the basic responsibility of parenthood. I entirely agree with that argument, which was taken up by my hon. Friend the Member for Hertfordshire, South-West (Mr. Page). Those who have not fulfilled that responsibility are in the minority. However, many of those who have taken part in the debate have welcomed our proposals for increasing the ability of the courts to bring home to parents their responsibilities. My hon. Friend claimed that suspended sentences had been a mockery but I do not think that that is quite fair. My hon. and learned Friend the Member for Blackpool, North (Mr. Miscampbell) observed that at present suspended sentences have to be wholly suspended. He said that in the early years following the introduction of suspended sentences they were imposed in cases where sentences of immediate imprisonment would not have been imposed, and that when subsequently there were further offences the earlier suspended sentences had to be activated. Lessons have been learnt by the judiciary at all levels from that.

The hon. Member for Isle of Wight (Mr. Ross) said that suspended sentences may have increased the prison population. That is much the same argument. The great advantage of section 47 of the 1977 Act, which will be implemented if Parliament agrees, and whose scope will be wide, is, as has been stressed by the hon. Member for Erith and Crayford (Mr. Wellbeloved) in an important speech, that the decision will always rest with the court whether any part of the sentence should be suspended. The decision should be a judicial one. In the circumstances outlined by the hon. Gentleman the decision would be a judicial, not an Executive, one.

I pay a special tribute to the speech of my hon. Friend the Member for Abingdon (Mr. Benyon), who said, fairly, that the public on the whole want longer sentences. He believes that they should not come about. He claimed that there is no evidence—this is true—that longer sentences have an effect in reducing the likelihood of reoffending. My hon. Friend has tabled a most helpful early-day motion and I draw the attention of the House to early-day motion No. 43. My hon. Friend congratulated my right hon. Friend the Home Secretary on his work in seeking to reduce the numbers of those in prison and in seeking shorter sentences. I am grateful for what he said. He raised a most important issue when he said that the public must play their part and that they must look after their own security. That issue was taken up by my hon. Friend the Member for Paddington (Mr. Wheeler). My hon. Friend made a special plea for more volunteers for the special constabulary, with which I am glad to associate the Government.

The hon. Member for Islington, South and Finsbury said that my right hon. Friend should accept the Scarman report as a package. He asked for a statutory obligation for consultative arrangements. My right hon. Friend said yesterday that he would implement formal arrangements and that the introduction of statutory arrangements would depend on the progress that is made. Of course, statutory arrangements would need legislation. My hon. Friend the Minister of State, Home Office yesterday met the London boroughs and that has already been put in train. The door is not shut to statutory arrangements for consultation but we must wait and see how we get on.

My hon. and learned Friend the Member for South Fylde (Mr. Gardner) referred in a helpful speech to the virtues of partially suspended sentences and said—I am sure that he is right—that the section would be understood and applied wisely by the judiciary. He added that there might be a future emergency during which the size of the prison population got out of hand, in which event there would be a case, as he argued, for a provision to be inserted in legislation and to be implemented by order.

Others have spoken of the need for a crash prison building programme, especially the hon. Member for Erith and Crayford. There is no such animal. We cannot have a crash prison building programme. There are years between conception and completion. If we were to short-circuit the procedures, local consultation would suffer. One feature to emerge from the debate is the need for local consultation on these matters. Furthermore, leading the opposition to the proposed prison in Woolwich is his hon. Friend the Member for Woolwich, East (Mr. Cartwright) and that, perhaps, brings the matter a little nearer home.

I thank the hon. Member for Croydon, North-West (Mr. Pitt) for his kind remarks about the Home Secretary and his officials in respect of the report on racialist attacks. That is a very important problem about which he knows much and about which he made an important speech.

We have had a valuable and, to me, encouraging debate because of the wide agreement and the sharing of objectives that has become manifest through the speeches from all parts of the House. It is true, as my hon. Friend the Member for Southend, East reminded us, that the Government came into office committed to support the rule of law in an increasingly violent world. Our resolve has been demonstrated both in the programme of measures that I outlined when I first spoke, and which appeared to have generous support—for which I am grateful—and in our support for the police during the disturbances of this summer.

Law and order remain a continuing and top priority commitment for the Government. Whatever the difficulty, we are determined to take all the steps open to us to ensure that law-abiding citizens are protected from criminals. I take heart from all that has been said in the House this afternoon, which shows that we have wide support for our resolve.

Question put and agreed to.

Resolved,

That this House believes that the maintenance of law and order and preservation of liberty depend upon a relationship of confidence and co-operation between the police and local communities, and therefore draws particular attention to the need for community policing methods and an independent procedure by which complaints against the police can be examined; considers that inadequate help is given to the victims of violent crime; and further considers that urgent action is needed to deal with the crisis in the prisons.

Interest Rates

7.32 pm

I beg to move,

That this House recalls Mr. Chancellor of the Exchequer stating in his 1981 Budget speech that "the burden of income tax and excise duties has to rise in order to secure lower interest rates"; regrets that interest rates are now higher than after his Budget; and calls upon him to implement lower interest rates in order to assist enterprise to provide jobs, capital investment and better housing.

I have to announce that Mr. Speaker has selected the amendment standing in the name of the Prime Minister.

The Chancellor of the Exchequer seems to have cast himself with frigid perfection in the role of Jack Frost because the first shy signs of a modest industrial recovery are being nipped by United Kingdom interest rates which are considerably higher than the average in the rest of the world. There have been many signs that a likely consequence will be a return to further recession in the first part of next year.

In contrast to most previous periods of high interest rates, the present substantial margin over the going rate of inflation means that we now have a heavy real interest rate. For instance, the days have gone when a householder with a mortgage knew that the house was increasing in value at a rate roughly equivalent to his mortgage interest rate. The real rate of interest is now at a considerably higher level.

For businesses, the days have ended when they could cheerfully divide the interest burden by half on the ground that the other half was being paid by the corporation tax man. Taxable profits in most industrial companies are now so low that corporation tax does not enter into their calculations.

There is therefore a great deal of avoidable misery. There is also a threat of under-equipped, broken-backed industry when world recovery eventually comes. That may mean that a great part of British manufacturing industry will not be able to respond to that recovery and we shall reap the appalling consequences.

For instance, only yesterday the CBI issued a statement that manufacturing investment, including leased assets, is 12½per cent. down on the previous year. That tells a grim story. The position is summed up well in an interesting and recently published report by the chairman of the Conservative Small Business Bureau, the hon. Member for Surrey, North-West (Mr. Grylls). The report, on page 7, states:
"Current interest rate levels militate against medium to longterm investment, weaken the competitive position of our industry by increased costs and inevitably create greater unemployment."
That is not controversial.

The short-lived interest rate drop which occurred, to our relief, in the Budget Statement last March was said by the Chancellor of the Exchequer to be the result of higher taxation which he then imposed. The autumn return to high interest rates means that the country is still swallowing the tax medicine of the last Budget, although the promised cure has already disappeared. The Government still make a virtue of turning down all manner of useful capital spending projects. Some of these are essential. One thinks of the casualties to our sewerage systems and the miles of railway track that soon will be unusable because of lack of maintenance. The Government offer nothing on the other side of the account, by way of relief on interest rates. That must be because of the Government's obsession with a dubiously measured money stock and their high sterling policy which they believe supports their money supply policy.

We are in the worst of all economic worlds, and our motion is aimed at that. We moved the motion for the sake of the future of British industry, for the sake of jobs and on behalf of people with house mortgages and other borrowings.

I shall try to anticipate some of the criticisms that may be made. Of course, we accept that lower interest rates—and we are talking not of a mere half-point drop—are likely to have an effect on the international value of sterling. We accept that 6 cents off sterling and an equivalent drop against the other major currencies would be no disaster. It would bring benefits to our exporters whilst raising import costs slightly. We do not pretend that that consequence can be avoided, but we believe that it is well worth the benefits that substantially lower interest rates would bring.

We are talking not about a half-point drop. I cannot imagine that it has ever entered the mind of the Financial Secretary to shoot a fox.

I do not know about that.

Perhaps the hon. Gentleman will tell us about it. It was a gamble—some may say reckless—to have announced a week in advance that we wished to discuss the level of interest rates. Perhaps we hovered more than usual round the teleprinter in case a few hairs on the tail of our fox had been shot off by the banks in the last day or two. They have not been shot off, but, if they had, a half-point drop would be only a few hairs off the tail. We are aiming at a more substantial drop, of at least two points.

The Financial Secretary has criticised, outside the Chamber, the interesting package of proposals by a recent member of the Cabinet, the right hon. Member for Chesham and Amersham (Sir I. Gilmour). The Financial Secretary said that reflation could not be combined with lowering interest rates. I do not agree with him. I believe that a carefully selective reflation, if protected by an incomes policy, need not prevent lower interest rates. However, we shall not have that carefully selective reflation, so the Government owe us a reduction in interest rates.

Even if we were to have a sudden Pauline conversion of the Cabinet and carefully selective reflation, there would still be room for reducing interest rates. There is sound evidence in the financial market that a higher immediate public sector borrowing requirement for profitable capital projects would do no harm to lenders' confidence. It would help to relieve the well justified market fears of under-invested industry being unable to cope with recovery if there were signs that the Government were helping to get private sector investment going, as well as attending to urgent needs in public sector capital projects.

There is clear evidence that a reduction of two points in interest rates would fairly soon relieve the PSBR substantially because it would relieve the cost of servicing the national debt. The Treasury model is in the care of Treasury Ministers, and although they ridicule it at times, at other times they have to rely on it. It shows that by 1984 a drop of two points in interest rates now could relieve the PSBR by as much as £2½ billion a year—partly by reducing the cost of servicing the national debt, but much more by increasing the buoyancy of the revenue as a result of increased activity.

In saying that I am relying not purely on City gossip, still less on my own authority, but on a substantial interview in The Guardian on 6 November with a great authority in the City, Mr. Gordon Pepper of Greenwells, who must be held in considerable esteem in most sections of the Conservative Party. He categorically said:
"I would also be prepared to see the PSBR rise provided the extra funds were put into genuine profitable investment: into public sector assets that earned or were likely to earn a real return."
He went on in an interesting way from the depth of his experience to complain that there was still too much focusing on the demand for credit and not enough consideration being given to the enormous supply. There are many ways in which the Government could attack the credit that is available if they were to give their minds to it. The scope for extending the indexation of gilts is by no means exhausted. I hope that the Government will reveal that in the next few months. There is also scope for greatly increased borrowing by the European Community, which has been proposed in detail by the West German and French Governments.

The Government's stubborn and static posture is adding to the loss of morale in industry and to the sufferings of the unemployed. If it continues in that way, the Government's strategy will be shown in the next Budget to have been self-defeating.

My hon. Friend the Member for Truro (Mr. Penhaligon) will deal with the Government's amendment when he replies to the debate. However, the amendment is staggering in its arrogant complacency. Without a word of explanation it refers to the Government's economic strategy. It does not state whether it is referring to this Thursday's economic strategy or the economic strategy of a fortnight ago when we were told that the Chancellor of the Exchequer would resist any attempts to expand the PSBR for next year.

To anyone of my vintage, the amendment has a sad ring of those old Conservative slogans "Trust us; give us a doctor's mandate; cling tight to nurse." The doctor has been shown to be a quack and the nurse to have no qualifications. At this hour the people of Crosby are probably showing that they have lost all confidence in the Government's economic strategy and want to get rid of them as soon as possible.

7.45 pm

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

"this House expresses confidence that the Government's economic strategy is the best course for restoring this country to prosperity".
It is a pleasure to have the opportunity to debate economic policy with the hon. Member for Colne Valley (Mr. Wainwright) and the Liberal Party. At least it is an improvement on the debates that we have had recently with the Labour Party. There is no need for us to debate the wilder notions of the Labour Party and of the right hon. Member for Stepney and Poplar (Mr. Shore), with their colossal spending plans, shopping lists of public expenditure proposals and tax reductions, for which they have no conceivable means of finding finance, disguised by their plans to turn Britain into an East European seige economy.

That compliment to the hon. Gentleman does not imply that I shall be able to agree with everything that he said, as I shall make clear later. However, we can at least start from the shared premise that the world exists and that Britain is part of it. That means that the debate can take place within the realms of the possible and on the basis of certain shared assumptions.

Whatever the Labour Party may believe, the Liberal Party will surely realise that we cannot insulate ourselves from developments abroad. We are, and will remain, members of the European Community. We cannot put a ring fence around that Community. High interest rates are currently a world-wide phenomenon; they are a product of excessive demand for credit from public and private sectors taken together throughout the world. Recent high interest rates stem from the realisation of Governments throughout the world that they must now restrain inflation and that that requires tight monetary policies.

The realisation has also dawned that those countries must cease adding to the demand for credit through their PSBR. It does not make any difference whether Governments ask for credit for capital spending or for revenue spending. It is not the destination to which the spending is pledged that pleases or displeases markets, it is the supply of the funds. The hon. Gentleman said that the markets would be happy to provide that, if it was for a cause espoused by the Liberal Party. I do not believe that that is true.

Is the hon. Gentleman aware that at the moment there is a Bill before the House to increase the borrowing ability of British Nuclear Fuels Limited to £3½ billion? That is to be done on a Government guarantee. We are told that that money will not count against the PSBR. When the Minister was challenged he said that that was because the Treasury says that it does not count. Could not we apply that attitude to a few other things?

That would not help if the question is how to borrow the money. What affects the PSBR depends on how much money has to be borrowed, as I intend to show.

As a result of the prudent measures taken by my right hon. and learned Friend the Chancellor of the Exchequer in the Budget last March, we were able to reduce interest rates both absolutely and relatively. For several months we were able to hold our interest rates below those in other industrial countries. For a time short-term interest rates here were as much as two or three percentage points below the average for other industrial countries. The Liberal motion acknowledges that.

During the summer, external pressures, particularly dollar interest rates, mounted to the point where they could no longer be ignored. Although bank base rates remained at 12 per cent. until mid-September, rates in the market had begun to rise, reaching about 14 per cent. in July and August. In that way the market was signalling the need for interest rates to rise. Meanwhile, the weakening exchange rate in conjunction with signs of an acceleration in bank lending made it necessary for us to respond, unless we were going to let good financial management go to the wind.

The Liberal Party motion calls upon the Government to implement lower interest rates. How are we to do that? I ask the hon. Gentleman who criticises our policy on interest rates to come clean about what he would have done at that time. The alternatives—I was there so I experienced the options being put to me—were to accept the trend towards higher interest rates, which is what we did, or to resist that trend, which would surely have set off a potentially dangerous inflationary spiral, fuelled by excessive monetary expansion and a falling exchange rate. Were we wrong to take the former and more prudent course? What would the Liberal Party have done under those circumstances? How would it have implemented lower exchange rates?

If that is so, why did the Bank of England intervene last week to keep up interest rates, to the perplexity of all those who work in the City?

The right hon. Gentleman has had experience in the Treasury. He should understand the technical operations of the Bank of England, and it would be wrong of me to spell them out. Despite four years in the Treasury the right hon. Gentleman now says that he did not understand the Bank of England's action.

The hon. Gentleman must not misquote me. I said that no one in the City understood it. If the hon. Gentleman would leave his brief for a moment, read the financial press and talk to people in the City, he would see that their incomprehension was as great as was possible.

The right hon. Gentleman has drawn the wrong conclusion from events at that time.

The Financial Secretary gave us an interesting history of the late summer and early autumn. Surely he will not try to conceal from the House that since then American interest rates have come down considerably. On his own logic, if he felt it necessary—I do not agree with him—to put up interest rates to follow America in the early autumn, why does not he or the Chancellor of the Exchequer bring interest rates down, as the storm has abated in the United States of America?

I hoped that the hon. Gentleman would answer my question, but he has not. I shall come to his point in a moment. He will not answer my question, because he would have done exactly the same as the Government if he had responsibility for those matters. He knows that. Others like the hon. Gentleman are aching to find a painless way whereby we can be protected from the turbulence of the real outside world. I am sure that the Liberal Party would reject the idea of a ring fence of exchange controls, whether it is round Britain or the European Community. Such ideas are not workable. They ignore the harsh reality that much of the capital that must be attracted or retained by the industrial countries belongs to people outside Britain and the Community and, as such, could not begin to be touched by proposals of that sort.

For example, the surpluses of OPEC funds would continue to flow freely around the world in search of the best return. The recent history of exchange controls shows that those ideas do not work. Exchange controls did not protect Britain in 1976 and they are not protecting France and Italy now, both of which countries have higher interest rates than Britain. By contrast, in Germany and the Netherlands—which allow free capital movements—interest rates are lower than in Britain. The secret of lower exchange rates lies not in controls but in pursuing economic policies that will lead to lower, not higher, inflation rates. Liberal Party economic policy, with which I shall deal in a moment, inevitably leads to higher interest rates.

I admit that external forces are only part of the story. Another part is high domestic borrowing by the Government and the private sector. While making allowance for the recession, the Budget of last March sought to reduce the public sector borrowing requirement from 6 per cent. to 4½ per cent. of gross domestic product. Recovery from the Civil Service strike is now proceeding well and the backlog of tax will probably be reduced from a peak of nearly £6 billion to nearly £4 billion by the end of November. We expect the outcome for the public sector borrowing requirement to be close to the forecast. 'The deficit has been met largely by sales of debt outside the banking system. While that is good news from the point of view of the long-term reduction of inflation rates, debt sales to the public of about £1 billion every month have been an undoubted extra cause of the high level of interest rates. The consequence of those factors is long-term rates of between 15 and 16 per cent.

In addition, the rapid growth of bank lending to the private sector is worrying. Although it is difficult to be precise, the growth of sterling M3 in recent months has probably been above the target range. I am sure that the House will agree that we do not wish to make the position worse.

In January 1981, the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel)—who is no longer in the Chamber—put forward a 10-point programme for economic recovery. He wished to spend more on energy conservation, nationalised industry investment, the infrastructure and training—much the same programme as that put forward by his hon. Friend the Member for Colne Valley. He wanted a lower pound and lower interest rates, as did the hon. Gentleman. These were to be achieved by an incomes policy. The policy of the Liberal-SDP alliance appears to be that lower interest rates should be implemented and that higher inflation will be avoided by a tax on employers who pay wages above the norm, which will result in a reduction in unemployment. No one could wish for that eventuality more than I. No hon. Member would be more pleased if we could get rid of all the unpleasant, distressing factors of the economic world in which we live.

However, may I suggest gently to the hon. Member for Colne Valley that we cannot leave the matter there? We must also try to understand the world in which we live. We must ask ourselves why interest rates everywhere are high. We must draw on our experience and common sense. We must try to avoid the rhetorical gesture and resist the temptation to cobble together a set of ideas and call that a policy. The hon. Gentleman put forward a soporifically apolitical panacea of a policy. The Liberal Party imagines that, because it wishes to harm no one and do itself some good in the process, it can suddenly escape from the restraints under which the so-called political parties—such as the Conservative and Labour parties—have in the past had to operate. It should know better because it has been around for a long time.

Successive Governments have had to apply a financial discipline. Whether through adherence to exchange rate policy or to monetary targets, successive Governments have had to restrain Government borrowing as part of their discipline and they have had to adopt a view of interest rates to rein back private sector credit.

Many of us have been following with great interest the round by round controversy between the hon. Gentleman and his right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour). The right hon. Member for Chesham and Amersham has put forward certain proposals, including lower interest rates. He has also made some other suggestions, which have been reiterated this evening. I understand that those proposals have been put through the Treasury model, which is under the hon. Gentleman's control. Does he accept that the results of the model are reliable, because they show that if the proposals were carried out the retail price index would fall, employment and productivity would rise and the world would be a much sunnier place? He controls the instrument. Does he accept that result?

I am grateful to the right hon. Gentleman, because he confirms what I say. My right hon. Friend fed into the model the same assumptions as were fed in by the hon. Member for Colne Valley—that everything would come out rosy. So of course he gets an answer that is pleasing. However, what one gets out depends on the assumptions that one feeds in.

I assure the hon. Gentleman—as would the Library staff—that I put no assumptions into the model. I do not have the power, certainly not the capability, to do so. I simply put a series of propositions to the Treasury model. Built as it is under the supervision of Treasury Ministers, it gave answers similar to those cited by my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond).

I do not have the skill to build computers or models. The model was not built under my guidance. However, if one puts in assumptions about what will happen, one gets the answer that one wants. That is what my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) did.

If one wants to spend more of the taxpayers' money and borrow more, models show that that would exert upward pressure on interest rates. If the hon. Gentleman wants more money spent and raised in taxes, that would inevitably exert greater pressure on industry and destroy jobs. If, on the other hand—this is a policy that I expect he would decide to follow—one let loose the levers of monetary constraint and abandoned the fight against inflation, sterling would fall, inflation would rise, interest rates would follow inflation in an upward spiral and confidence, investment and jobs would be the casualties.

The idea that the Government can borrow more, deceive their borrowers by paying less for what they borrow—and devalue the currency, or both, and then try to counter rising wages and prices with an incomes policy—which is the essence of the Liberal prescription—is not credible. It has been tried and failed too often for us to believe it.

I do not know how the hon. Gentleman wants to implement his lower interest rate ideas. I do not know whether he wishes to give some groups more special help with interest rates than has already been given. We are pressed to provide lower interest rates for this or that category of borrower.

I make only three points about that approach. First, by increasing Government borrowing to pay for special categories we should merely delay any fall in the general level of interest rates. Secondly, in a financial system as open and competitive as ours it is extremely difficult to ensure that the benefit of privileged interest rates goes where it is intended and that it does not leak into the wrong sector. Thirdly, there are ways in which companies and others can and do obtain the benefit of lower interest rates. There is the generous system of tax allowances. Through the mechanism of leasing, lower interest rates can be enjoyed even by tax-exhausted companies. The average rate of interest paid through leasing is about 9 per cent. Currently about £6 billion is lent to companies through leasing.

In recent months companies have substantially improved their liquidity and profitability, and that trend shows sign of continuing. We must bear in mind that, compared with wages, interest charges are a relatively small element in the costs of most businesses.

The hon. Member for Gateshead, West (Mr. Horam) wrote in the SDP economic policy paper that
"to suppose the first requirement"—
of industry—
"is to lower interest rates is to totally misunderstand business psychology."
It will be interesting to see whether the hon. Gentleman will be here to support the Liberal motion at 10 o'clock tonight.

There is also help for individuals with mortgage interest relief. For a person with a mortgage, who is paying tax at the basic rate, the Exchequer bears 30 per cent. of the increase in interest rates. The individual is effectively paying only 10½ per cent. after tax relief at current interest rates. At the same time the borrower is exempt from capital gains or any tax on the imputed income from owner occupation. The result of that is, as one would expect, a heavy demand for mortgage finance, which shows that interest rates this year have not put house purchase beyond people's means. The building societies have been able to maintain a high level of lending, and the banks have also found ready takers for their mortgage lending. About £6½ billion has been advanced in mortgages in the first nine months of this year.

In discussing interest rates we need to consider the position of lenders and borrowers through mortgages. Savers and depositors are much more numerous than borrowers. They have suffered in the past from a combination of low interest rates and high inflation. We must look at both sides of the equation.

Even other forms of consumer credit that do not benefit from tax relief have shown great strength. Bank lending to persons other than for housing has grown by no less than 30 per cent. over the past year.

To sum up, we have come through a difficult period in the world's economic history with less difficulty than many of our competitors. Our present interest rates have not stopped essential borrowing for industry or for house purchasing. It is ironic that, had we accepted the Liberal prescription, the result would probably have been to make both those successes unobtainable and, indeed, to have created even higher interest rates.

8.6 pm

My first task is pleasing. I welcome the Financial Secretary once more to our debates. It is a pleasure to see him at the Dispatch Box for the time being. However, I wish to give him a little advice. He should not take too literally the Treasury slabs. Ministers may make use of them when they have nothing to say on an arcane subject, but I understand that the hon. Gentlemen knows quite a bit about the matters with which we are dealing in this debate, so it would be preferable for him to rely on his knowledge and understanding.

The astonishing thing about the debate is not the motion but the amendment. I have seen the great divisions of political and economic opinion on the Government Benches. They have rightly been paraded, and they form an essential part of the economic debate. It is, therefore, incredible that, far from taking account of the divisions, the amendment merely "expresses confidence" in "the Government's economic strategy". That is totally inadequate.

The Government inherited a minimum lending rate of 12 per cent. It shortly increased to 17 per cent., and it was between 14 and 16 per cent. for several months. We have come to associate that crippling level of interest rates with the Government.

When the present Chancellor of the Exchequer spoke from the Opposition Benches on 30 November 1976 he talked of the "crippling rates of interest" that were then current. He called them "a tax" on "British industry". That phrase is not current, but I understand the point and I am surprised that present interest rates have not been thought of in that way.

Earlier this year, in its bulletin, the CBI tried to quantify the extent of the tax. The Chancellor of the Exchequer agreed in his evidence to the Select Committee on the Treasury and Civil Service that a rise in interest rates of two percentage points cost industry about £700 million a year. As the hon. Member for Colne Valley (Mr. Wainwright) rightly stated, the reduction in interest rates at the beginning of this year from a very high level to a lower but still high level was assumed to be a benefit to industry and was accompanied by a failure to index allowances and, therefore, was paid for by increased taxation. It was argued that industry would benefit and the person in work, who was still earning and obtaining advantages from being part of the dwindling working population, would pay for the assistance given to industry.

The benefit, if that is what it can be called, given to industry was not only withdrawn but a further impost was added to the shoulders of industry. Instead of the Government coming to the House and saying "Because industry will no longer get that advantage and the benefit is being replaced by a further tax, we will ensure that those who pay for the benefit will be recompensed", there has been silence from the Government. The Financial Secretary has taken refuge—it is a peculiar form of refuge—in other countries' level of interest rates.

There is no question but that the United Kingdom has one of the highest interest rates in the world. If we consider France, Germany, Japan, the Netherlands, Switzerland, the United Kingdom and the United States, we discover that France, for reasons we know about, has the highest level of interest rates, but then comes the United Kingdom. The reason for that is not easy to understand unless we take into account what the Chancellor of the Exchequer said last week about interest rates. I put the same question to the Financial Secretary that I put to the Chancellor of the Exchequer, who gave a hopelessly inadequate response. Why did interest rates not come down last week when the United States' interest rates came down? The Chancellor of the Exchequer has been pleading that interest rates the world over have been high. However, they have not been as high as the United Kingdom's and other countries have not had the benefit of North Sea oil which is of enormous assistance to Britain's balance of payments. Even without that advantage, other countries' interest rates have not been as high and have been reducing.

The Bank of England intervened to keep interest rates up. The Financial Secretary must be aware of that and he will need to consider what the City of London is saying and doing; part of his responsibilities must be to understand these types of movements and the way they are interpreted. Therefore, far from there being a simple interpretation, there was complexity—nobody understood the situation. The Chancellor of the Exchequer said that it was because of his monetary policy. I should like that monetary policy to be spelt out more fully. If it is still in operation, why should our interest rates rise when those in other countries are, relatively speaking, falling?

Does the right hon. Gentleman agree that it is the Government's legitimate role to iron out the wild fluctuations in interest rates which would occur if they responded to every change in the American rates which are linked to the monetary base system? The volatility of the American rates means that, although they were reduced a few days ago, they will increase again. Is it not a legitimate role for the Treasury and the Bank of England to smooth out the curves in the interests of the people at home to create less volatility?

I wish that I saw the situation in the way that the hon. Member does. I do not see us "smoothing" at all. I see a great volatility in the United Kingdom. Between the 1979 election and November of the same year there was an increase from 12 to 17 per cent. in interest rates. What we were discussing last week was movements not of 1 per cent. but about ¼ per cent. in the wrong direction. We are perplexed by the movements in the rate and, of course, I understand that the Bank of England has a proper role in trying to take a view on the level of interest rates that the Government want—not just the markets. The Government dictate the markets as well, despite the ending of the minimum lending rate. We are not in the hands of the market because the market pays great attention to what the Bank of England does and the Bank of England is instructed by the Treasury in the time-honoured way.

Although the United Kingdom's interest rates are said to be affected by events in other countries, they are higher than those in other parts of the world and higher than they need be. The argument frequently used—we have not heard it today but I expect that we shall if only in the reply—comes in connection with the crowding-out of the economy and the way in which money spent on increases in pubic expenditure needs to be offset by reductions in private investment. It is argued that, if the PSBR is increased by £100, private investment suffers by £100. We must deal with that argument fully. I question it. I hope that the Financial Secretary who, by implication, has assumed that relationship, will also question it. The two proposals do not go together, because the PSBR may be increased for many reasons. It is argued that if there is a demand for money, the greater the demand the greater the interest rates. An increase in public expenditure means more demand for more money.

I did not use the "crowding-out" argument which the right hon. Gentleman—he has a large slab, which is not even a Treasury briefing, which he is going to say to the House—referred to. The argument I used, which is different from the crowding-out argument, is that heavy borrowing results in heavy interest rates. That is the argument that the right hon. Gentleman must deal with.

That is a matter of the greatest importance because, throughout most of last year, the Chancellor of the Exchequer placed primary emphasis on the crowding-out principle. Does not that principle govern the Treasury today? The Opposition must be entitled to an answer to that question because they understood that that was the main argument and why it was necessary to reduce public expenditure, so that the money that went into public expenditure could go into private industry and investment.

It was the wilful use of money to finance the public sector that prevented the private sector from achieving the great things which were at one time predicted for it by the Government. Is the hon. Gentleman abandoning all that?

No, I cannot give way.

The Financial Secretary made a point of great importance because many people spent much time examining these matters, contradicting the Chancellor of the Exchequer and finding him maintaining what we and other people saw as nonsense and what the Financial Secretary is beginning to see as nonsense. The matter cannot end there. We must discover whether the Chancellor of the Exchequer supports the major argument which he has used on many occasions in the House and in evidence to the Select Committee on the Treasury and Civil Service. The hon. Gentleman does not move to dissociate himself from the remarks that he has made. We must take note of that and bring it to the attention of the Chancellor of the Exchequer at the earliest opportunity.

If the crowding-out argument can be jettisoned, there are many other aspects of the Government's policy that can be jettisoned because there are other elements that are just as nonsensical. This piece of nonsense did not stand by itself on a pinnacle. There were many other similar peaks that are also worthy of demolition. I hope that the hon. Gentleman will look at some of these other aspects with his critical eye. He will find similar nonsenses and I hope that he will show an equal readiness to jettison them.

The argument was posed that the demand for money led to a greater level of interest rates and that as public expenditure meant a demand for more money interest rates would be higher. That is more nonsense because it does not depend on the kind of public expenditure. We have heard a simplistic argument—that public expenditure is of a uniform kind: if we increase public expenditure—whether on the old-age pension, building a road or building a productive factory—we increase interest rates. It is all the same. We must move away from that premise and behave as adults. I hope that the hon. Gentleman will turn his attention to that sort of simplistic nonsense.

Of course, some of those arguments lead to the fact that as we cannot afford so much public expenditure we had better close a productive capacity and put people on the dole and in that way reduce public expenditure and interest rates. Anyone with any understanding whatever of these matters will know how much that is costing in unemployment benefit, loss of taxation, and so on. When those costs are added together, there is not much saving of public expenditure. On the other hand, in some areas, if we cut public expenditure, we shall get a true saving. If we get rid of an official who has been doing nothing useful, that is a true saving of public expenditure. If capital expenditure is cut, we shall lose industry, put people out of work and lose the corporation tax and investment that comes from that industry. If we do that, we shall have not only the losses that I have described, but even more.

We must also consider the expenditure that goes out of the country in the form of capital flows. It is interesting that, following the abolition of exchange controls, the Bank of England Quarterly Bulletin shows that outward portfolio investment has increased enormously. That money, if it had not been available for outward portfolio investment, would have been used for the purchase of gilts. It would be interesting to know whether the hon. Gentleman thinks that if the money had not been available for the purchase of portfolio investment overseas it would have brought interest rates down because some of the money would have been used in the purchase of gilts.

The sums are large. From £146 million outflow in the first half of 1979, the figure increased to £309 million in the second half. In the first half of 1980, the figure was £424 million and in the second half £1,055 million. In the first quarter of 1981, the figure was £1,290 million and in the second quarter £1,180 million. Those figures are published in the Bank of England Quarterly Bulletin for September 1981. Those are enormous outflows. That money would have gone into private investment and into purchases of gilts. When the hon. Gentleman complains about there being insufficient money for investment, we must not accept fully his crocodile tears because we know that the Government's actions are responsible.

There is a certain spiral in these matters. As interest rates move up, they cause unemployment by slowing down investment in this country. As unemployment rises, the PSBR automatically rises to take account of that public expenditure. As the PSBR rises, the hon. Gentleman will come to the House and say that interest rates are necessarily high because of the rising PSBR. As those interest rates rise and unemployment rises, the PSBR rises. This spiral of insanity leads to greater deflation.

What damage is being caused to industry by the present levels of interest rates? I said that the CBI spoke of £700 million as being the benefit to industry of a two point reduction in interest rates, but we must see what is happening to investment.

Does the right hon. Gentleman accept that £700 million is approximately 0·28 per cent. of industry's total costs?

I am interested to hear that the hon. Gentleman thinks that the figure is so small. The Chancellor boasted in page after page of his Financial Statement this year that the CBI said that that was one of the important measures that the Government could take. The Government responded, and then withdrew by increasing interest rates subsequently. The Government have the power to act on these matters, and when they act wrongly, as the CBI and the Opposition accept, we must condemn the Government accordingly.

In the second quarter of 1979, investment in plant and machinery amounted to £761 million. I single out plant and machinery because that is the best way of ascertaining the level of investment. Industrial buildings can be erected for a variety of reasons, not all of which apply to an immediate need for investment. Plant and machinery are rarely bought, except when the economy is expanding or when the demand in industry is increasing or when industry sees prospects of increased demand in the months or years ahead.

From a level of investment of £761 million in the second quarter of 1979, there has been a continual decline in the purchase of plant and machinery until it reached the abysmal level of £600 million in 1981. A further decrease is forecast. The problem, of course, is that a number of manufacturers are being forced out of business and are therefore selling their machinery overseas. Some of our best machinery and our most modern industries are suffering in this way, to the disadvantage of Britain as a whole.

An important point must be established here. Will the Minister tell us what is now the major determinant of monetary policy? It used to be sterling M3, but many people in financial circles doubt whether that is now so. Is the major determinant now the exchange rate? Certainly some of the actions of the Governor of the Bank of England acting on behalf of the Treasury are unclear in this respect. Will the Minister therefore tell us whether the major determinant is sterling M3 or the exchange rate?

Finally, I wish to consider the effect of interest rates on bank profits. In his Budget Statement on 10 March 1981, the Chancellor referred to taxation of bank profits.

I have given way to a number of Conservative Members. Perhaps the hon. Gentleman will allow me to continue my speech.

In his Budget Statement, the Chancellor said:
"bank profits in recent years have increased sharply, both absolutely and by contrast with the experience of most other businesses. A substantial part of these profits is the direct consequence of high interest rates in recent years".
He continued:
"the contrast with the sharply reduced profits of industrial companies is, if anything, more striking. In present difficult circumstances, I cannot avoid the conclusion that I should require the banks to make a special fiscal contribution."—[Official Report, 10 March 1981; Vol. 1000, c. 772.]
Despite the hopes and intentions of the Government at that time, interest rates have remained high. We must therefore assume that bank profits will also be high. Will the Minister tell us today whether it is intended to include windfall tax measures in the next Finance Bill? Will he undertake to consider this in order to ensure that the burden is seen to be fairly shared by those in a position to obtain advantage from high interest rates as well as by industry generally?

An interesting motion has been put forward by the Liberal party, but the Government amendment can only be described as fatuous. We must therefore treat the amendment with the scorn, contempt and derision that it deserves. I ask my hon. Friends to ensure that it is rejected.

8.32 pm

I am grateful for the opportunity to participate in the debate. I am also somewhat surprised, as this is the eleventh occasion in two and a half years on which I have sought to participate in an economic debate, but the first on which I have been successful. I therefore express my gratitude to you, Mr. Deputy Speaker, for this opportunity to make my economic maiden speech.

Today is a significant day in economic matters, as two items of economic news have been made known, not in the House but from the normally reliable source of the Treasury. Both items are significant.

First, we have learnt that public spending next year is likely to be £4 billion to £5 billion higher than was originally intended. I confess that I regard that as good news, although I know that that feeling will not be shared universally by Conservative Members. I suppose I regret slightly that the extra demand will drift into the economy almost by default rather than being injected through a deliberate programme of capital works or national insurance surcharge reduction. Nevertheless, I welcome it.

Secondly, and equally significantly, it appears that the increase is likely to be paid for. We have on the tapes the rumour—it is no more than that—that council rents may rise by £3 per week, that unemployment benefit may rise by 3 per cent. less than the rate of inflation and that the real value of students' grants may not keep pace with inflation to anything like the extent that would appear to be necessary. All that may not be bad if it does not constitute the whole package.

I do not intend immediately to start fulminating about injustice to council tenants or the unemployed if plans for child benefit or supplementary benefit mean that the package as a whole will be acceptable; but the initial auguries are not good. On the information available so far, I have a nasty suspicion that the overall effect of the package may well be deflationary or that the burden of paying for unemployment may be unfairly placed upon those who are themselves unemployed. If that transpires, I shall have great difficulty in supporting such a package in the Lobby.

I should like to see an increase in demand stimulated by the Government. That will no doubt lead many of my hon. Friends to say that there is no alternative. They say "If the Government are to spend more money, where will it come from? Are they to increase taxes, print it or borrow it?" I shall be deliberate in answering that question. It would be counter-productive to raise money by taxation. If we are to stimulate demand, it makes no sense to change cash from one pocket to another. I should be reluctant to increase the money supply by much more than the Treasury intends.

Slightly more, perhaps, with 15 per cent. spare capacity in British industry, one is bound to question whether an increase in monetary demand will have the same inflationary consequences as it has had in the past when industry has been operating much nearer to full capacity. Therefore, I would borrow the cash, as necessary. Some of my hon. Friends say that would put up interest rates and drive Britain into deeper debt. I do not think it would. First, if we are talking of an increase in public expenditure of £4 billion or £5 billion, that is, in gross terms, some 5 per cent. of total current Government expenditure. In net terms, I guess it would be less than 2½ per cent. It must be possible to sell that amount of increased Government debt to the non-banking institutions without putting up interest rates, particularly when they are showing a declining inclination to invest their cash in equities. But significantly, the tale we were told in the spring was that it was Government borrowing alone that was responsible for putting up interest rates. That seems now to have evaporated like the morning mist. Now, so far as I can see, interest rates are high for a variety of reasons that are almost unrelated to our domestic borrowing requirement, but are very closely related to the need to protect the currency.

In fundamental terms, the Government have two economic strategies available. They can have a relatively high £ sterling, protected by high interest rates. Those high interest rates will give them the liberty to borrow more money and it will be necessary to borrow that money to prevent the ramifications for industry, caused by high interest rates and a high currency, from being too serious. Or alternatively, the Government can refuse to defend the £ sterling. Interest rates will therefore not be too high but, at the same time, the Government must control borrowing for fear that that will have an effect on interest rates. What worries me is that the Government are not pursuing either economic policy at the moment. Either policy would be logical, but we have a system of a high currency and high interest rates and we are not availing ourselves of the opportunity to borrow the extra cash that those high interest rates would enable us to do.

Some people say that the biggest problem is not interest rates but the fact that Britain is yearly, daily, getting deeper into debt as a nation. I know that many of my hon. Friends say that. There can be only one answer to that. I have tried to think of a more delicate way of putting it, but the answer is that it simply is not true. Britain is not more in debt now than at any time in the past. I shall draw attention to a comparison with a manufacturing company which, I think, bears some relevance. A business man in a manufacturing company is not normally too worried about the size of his overdraft in absolute terms. However, he is crucially worried about the ratio between that overdraft and what his company possesses or what it sells. That is called the debt equity ratio in normal City terms. For the Government, the nearest equivalent is the debt income ratio or the ratio of our national debt to our gross domestic product.

I shall briefly present four facts. First, our national debt is now 49 per cent. of our gross domestic product. In 1960, it was 109 per cent. of our gross domestic product. Secondly, the public sector borrowing requirement, as an issue, did not figure anywhere in Budget debates throughout the 1960s. Thirdly, the proportion of Government income spent on interest charges has not changed significantly for 20 years. Fourthly, while we in Britain have slavishly reduced the real value of our national debt by 23 per cent. in the past 10 years, the United States of America has increased its national debt by 14 per cent., Germany has increased its national debt by 107 per cent., and Japan—our most feared industrial competitor—has increased its national debt by 350 per cent.

When I hear some of my hon. Friends talking about the nation's indebtedness, I cannot but believe that they are reacting like a young housewife in a newly-mortgaged neo-Georgian house on an estate somewhere near Bishops Stortford. I can imagine a husband coming home and saying "My dear, I am sorry, but I have lost my job. I am unemployed." I can then imagine his wife saying "That is awful. That is the worst thing that could have happened. Obviously, the first thing we must do is to pay off the mortgage. To that end, we must sell the car and all the furniture." In saying that, the wife overlooks the fact that the husband may need the car to get another job and that the kids will scream their heads off if there is no furniture in the house. Above all, she overlooks the fact that the house has increased in value since they bought it while the mortgage is being gradually paid off.

8.41 pm

I am pleased to speak after the hon. Member for Skipton (Mr. Watson) and to congratulate him on the fact that his assiduous persistence has, on this occasion, been rewarded. His contribution was considerably damper than the and contribution made by the Financial Secretary to the Treasury.

I hope that the hon. Member for Skipton will pardon me if I do not take up his remarks. As he probably knows, Liberals are already on his heels in Skipton. I shall concentrate my remarks not on the hon. Gentleman's reservations about Government policy but on Government policy. As he has done for many years, the Financial Secretary pleased us with his bland and languorous gentility. I probably disagree with him as much as I would disagree with Arthur Scargill, but I should think that an exchange with the Financial Secretary is considerably more civilised. That does not detract from the fact that, ultimately, he said nothing to defend the present interest rate, to deny that it can be reduced or to respond to the effects of the present level.

I shall concentrate not on the mechanism for changing the interest rate—which my right hon. Friend the Member for Colne Valley (Mr. Wainwright) dealt with and to which my hon. Friend the Member for Truro (Mr. Penhaligon) will no doubt return in response to the Minister's remarks—but upon the effects of the savage rise in interest rates. It is important that the House should realise what they are. After all, the Government must consider what is happening within the realm. If the situation is serious, the Government must somehow find a way of doing something about it. The hon. Member for Winchester (Mr. Browne), who appears to have left the Chamber, said that. After all, politics is, above all else, about finding ways of solving impossible problems. If society's problems were not so difficult, we would not need politicians. As the Financial Secretary probably knows and appreciates, many business men would be happy if there were no politicians. Business men continually tell me that and say that the less interference there is, the better. However, we need politicians, because we need to mitigate many of the circumstances that arise.

We operate in a mixed economy. One of the Liberal Party's complaints against the Government is that they do not recognise the public element of the mixture. Similarly in terms of their declared policy through the Labour Party conference, the Opposition apparently wish to dismiss in large part the private enterprise element of the mixture. At present, we inevitably pay heed to the cry of the market in the creation of such things as the National Enterprise Board, the Scottish Development Agency and the Highlands and Islands Development Board. We do so because we recognise that the mixed economy means an acceptance that fewer market forces require adjustment, both for social and economic reasons.

The Minister told us that what he is doing has some sort of ineluctability about it. In effect, he is really saying that there is no alternative. Despite the fact that we are having a debate, the hon. Gentleman smoothly disregarded any arguments such as those made by my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond) in an intervention.

We are not discussing the whole general economic spectrum, even though the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) sought to widen the area of debate. It is undeniable that the concurrent establishment of a prices and incomes policy would have a profound effect. We may argue about what the effect might be but the Lib-Lab pact—much abused in those days—reduced inflation to 7 per cent. A view on the exchange rate different from that presently held by the Government would also have a profound effect.

I am sure the Minister accepts what was said by the right hon. Member for Ashton-under-Lyne about Britain having one of the highest interest rates in the world. He should also recognise that he is now subject to a wide spectrum of criticism, but at no stage in his speech did he do so. That criticism is not confined to the Liberal Party or the SDP. It is clearly in evidence in the CBI, the chambers of commerce and, dare I mention it, in speeches of the right hon. Member for Sidcup (Mr. Heath) who, after all, was leader of the Conservative Party and Prime Minister. I would have thought that the Minister ought to pay some regard to this.

Because of my responsibilities for foreign affairs and for Scotland in the Liberal Party, I tend to make general speeches, but for once I shall behave like a Back-Bencher and speak about the impact of national policies on the Highlands and Inverness-shire.

I have spoken to a wide cross-section of people in my area about the interest rate problem, and although I am speaking about the Highlands, I suspect that the picture that emerged can be mirrored throughout the length and breadth of the United Kingdom. First, the industries most likely to be able to borrow in search of expansion are those that have capital assets. That is a simple and obvious statement. In the Highlands, and probably in many other areas, that means agriculture, where there is land and possibly buildings that are owned; it means tourism, where there is a hotel; it means fishing, where there is a boat. It is as simple as that. I shall deal with each section. All of those industries, although important to the Highlands, are also important to the country's general economy.

First, as regards agriculture, this argument is probably more general than particular. What is fundamentally bad is that those most hit by interest rate increases are those who, for very valid reasons, have embarked on, or been encouraged to embark on, either land reclamation programmes or stock build-up programmes, both of which take a good deal of time. Many of these exercises in the Highlands have been undertaken with loan support from the Highlands and Islands Development Board. That is an organisation about which the Minister knows. I suspect that he does not basically approve of it, knowing the way in which he thinks.

However, the HIDB is deeply concerned about this matter and is prepared to be quoted as being concerned about it. Hon. Gentlemen generally know that the HIDB is able to offer loans at fixed interest, grants, and interest-free holidays on loans up to three years. In a sense, that is a very flexible package for a development agency; but is has drawbacks. The fixed interest loans—this is often forgotten by hon. Members—are at a level about 3 per cent. below the going rate. While it is fair to say that an agricultural enterprise, in so far as it is able to peer into the future any more than the rest of us, should properly take this into account in deciding whether to embark on such a loan, there are three points which hon. Members ought to bear in mind this connection.

First, it is very difficult for any enterprise—agricultural or otherwise; but I am talking about agriculture particularly—to forecast the sort of jumps in interest rates which we have encountered, and therefore it is not fair to say that it should have taken this into account when it took a loan.

Secondly, the loan will continue to carry the going rate at the time it is made even if the going rate drops. I stress that point. If an enterprise gets a loan over 10 years at 15 per cent., the rate will be 15 per cent. to the end of the 10 years, come what may.

Thirdly, the present going rate is a deterrent to engaging in any expansion. In the case of the HIDB, the result has been to divert money from the manufacturing and risk area into rescue operations. That means that while its total budget has been held up against inflation, it is less able to do what it is supposed to do—engage in manufacturing risk. I made that point last Thursday during the debate on the Scottish economy.

The second section is tourism. It is an industry that earns us a great deal of foreign exchange. The last three years have been bad years. The tourist flow has diminished. That is not just my experience and that of others in the Highlands. It is the experience in Truro, in the West Country generally and in other areas of England. At present, in my part of the world, there are four hotels on sale in the small village of Newtonmore. A hotel in Inverness was sold for £80,000 the other day. Its owner had turned down an offer of £120,000 three years ago.

The general picture is very serious. In that circumstance, the improvement of facilities to attract the tourist is vital. The basic thing is that hotel owners are not prepared to embark on any improvement of facilities because of present interest rates.

Thirdly, fishing is severely affected by the continuing failure to reach agreement on a common fisheries policy. It is also affected by fuel prices and landing prices for fish. The position of fishermen is appalling. All are in serious debt but have to pay these interest rates.

This brings me to my final point.—[interruption.] Conservative Members should stop grumbling. There are endless opportunities for them to dilate on the Government's policy or the lack of it. Liberal Members do not have many opportunities. It is not unreasonable sometimes for us to take advantage of any such opportunity.

The Financial Secretary is not just a Treasury Minister. He is also a Conservative theorist. At the end of the day, if the wealth-producing group in this country is exceeded by the wealth-consuming group, we are in trouble. A great many existing companies cannot borrow at a level that enables them to continue. It is also true that a great many companies and people with ideas find it impossible to start for the same reason. To find 20 per cent. interest charges at a time of thin profits makes matters impossible. Times are particularly bad for companies engaged in exports, normally on a fixed contract. Those companies cannot build into the contract the effect of interest charges.

The Government's economic policy is not succeeding. This is shown by the number of unemployed and in the views expressed by industry at every level. Liberals believe that some action on interest rates would perhaps not solve the problem but would greatly mitigate the damaging general effect of the Government's policies.

8.56 pm

I shall endeavour to keep my remarks short. A number of hon. Members still wish to speak. I listened carefully to my hon. Friend the Financial Secretary. I must confess that although I have a personal interest in this matter, without intending any pun, I do not think he is right in assuming that interest charges are necessarily of less significance to businesses than labour costs. This really depends on the industry and how capital intensive it is. Most of the small businesses in my constituency are capital intensive, or at least rely on customers who have capital intensive businesses. In the same way that the buying or selling of owner-occupied homes causes a chain reaction, so does stocking for business. The direct result of destocking on small businesses is, I fear, unemployment.

It is my personal regret that the Government have not tackled the question of the public sector borrowing requirement as early as I felt they should have done. Both central and local government had a honeymoon period lasting between a year and 18 months under this Government whereas businesses, particularly small businesses, started to feel the effects of the screw within the first three to six months. This considerable gap has caused private industry to descend much faster and further because of the time it has taken to bring the public sector borrowing requirement under control through action on central and local government. This is a grave error. I hope that this will not be regretted by the Government in the months to come. The longer the matter is put off, the more difficult it is to resolve. It has to be put right to the benefit of the wealth-creating sector, which desperately needs more orders if it is to survive.

In the same context, there are many areas in which the public sector borrowing requirement could have been brought under control. One of the issues that irritate business men possibly more than anything else is the index-linked pension. To a struggling business that is not sure whether this time next year—or even this time next month—it will be able to meet its daily costs, the knowledge that someone who retired a few years ago on a pension of £8,000 is now receiving a pension of £22,000 is a major irritant. I hope that the Government will fulfil in the near future their promise to review the matter. Indeed, I hope that it will be reviewed in such a way that those who expect to receive index-linked pensions will be invited to make a major contribution towards their cost. It is not fair that those who do not have the benefit should be expected to foot the bill. I hope that it will be dealt with as a matter of urgency.

I fondly believed that when minimum lending rate was abolished the market would be left free. It was, therefore, with some surprise and concern that I noted a week or two ago that the Bank of England had intervened to keep up interest rates, at a time when industry is suffering badly. If the Government are to encourage businesses to take the kind of action that will sustain and increase employment, inevitably they must deal with interest rates. I hope that they will not intervene again in order to maintain interest rates at a high level.

I assure the Financial Secretary that my constituents suffer very badly from high interest rates. They are longing to see them reduced so that they can take on additional employees. They have to look carefully at the sums they are paying to their banks by way of overdraft interest, and decide whether they can maintain employment at the present level. I know of several firms that have done just that in the last month and have been obliged to make further employees redundant because they found it impossible to maintain their interest payments in any other way. There is no question but that that is happening. The Government know that if every small business man were to take on one or two extra employees, unemployment would be far less severe than it is. I urge the Financial Secretary to consider the matter most carefully.

I note the Government's amendment, that
"this House expressed confidence that the Government's economic strategy is the best course for restoring this country to prosperity".
I am concerned about the issues that I have mentioned. But I believe that the Government are the only body capable of taking the necessary action. I ask them to take it, and to take it quickly.

9.03 pm

I cannot resist the temptation to compliment and congratulate the hon. Member for Skipton (Mr. Watson) on making one of the few really intelligent speeches on economic affairs that I have heard from the Conservative Benches for a long time. If, as he said, it was his economic maiden speech, I hope that we shall hear more frequently from him in future on economic affairs, so that we may benefit from his sound views.

The right hon. Member for Ashton-under-Lyne (Mr. Shelton) speaking for the official Opposition, described the Government's amendment as fatuous. He was right, but it has the advantage of broadening the debate away from interest rates. It would have been extremely difficult to discuss interest rates meaningfully in isolation from all the other interlocking economic parameters.

To seek success in one of the parameters at the expense of failure in others is surely not a wise policy to follow. The obvious example is the policy of the 1930s when inflation was virtually zero. That hardly commends itself as an economic policy to be followed in the 1980s, although it appears that it is precisely that policy that is being followed.

I have been struck by the deliberately civilised and moderate way in which our society has viewed the deepening crisis over many years. That remarkable feature is one of the parameters that will impinge more directly on our economic affairs than the Government appear to realise.

Apart from parameters such as interest rates, inflation, investment, production and exchange rates, there are social and political parameters. There are the intermediate parameters, partly technical and partly economic, that include objectives that can be measured. There are parameters, partly social and partly political, that are less tangible but none the less real. It is in that area that the Government are coming unstuck.

It is clear that the Government assume that only impersonal market forces determine the economic situation. Against that background the nature of the crisis that we are facing should be extremely surprising to them. I am referring not to the gravity or degree of the crisis but to its qualitative nature. It is unique. It is the first time that we have experienced such a crisis. Incomes and prices have been rising, yet the economy has been declining.

In the 1930s we had low wages, low inflation and high unemployment. In the 1960s we had high wages, high incomes and a growing economy. We now have the apparent paradox of rising inflation and a stagnant economy. The reason for that lies in the second type of parameter that I have described. That is the halfway house between the technical-economic and the social-political. It is clear that firms, unions, and those in the industrial world have substantial market power. A great chunk of the economy is either monopolistic or oligopolistic. It is major error of judgment on the Government's part to rely solely, as they seem bent on doing—certainly this is the impression to be gained from the speech by the Financial Secretary to the Treasury—on the mechanistic approach. They are relying on a monetary squeeze to achieve their economic aims. They are putting pressure on the liquidity of firms and companies to squeeze out inflation.

The Government's mistake is being compounded at the point of production. When firms go out of business, their employees become unemployed, but there is more to it than that. Firms need to invest. For a long time current incomes have been given priority at the expense of investment.

The mistake is being compounded further, because unemployment is adding to inflation. A man who is unemployed still has some demand, but that demand is not met by the corresponding productive effort that he would otherwise make. The logical consequence—the hon. Member for Skipton referred to it in passing—of the mechanistic approach is to cut back the purchasing power of the unemployed. We have heard rumours that there is to be a cutback in real terms in unemployment benefit. Leaving aside subjective questions of equity, for sheer economic and technical reasons the policy of the Government is profoundly misguided.

The point that, more than any other, must be put across to the Government is that inflation is an extremely complex problem. There is a supply side as well as a demand side. I shall quote from what I consider to be a profoundly wise broadsheet produced a few years ago by the Social Science Institute called "Reshaping Britain—A programme of economic and social reform". I re-read it recently and was struck by the prescience of the authors because what they spelt out can be checked now and their forecast and prognostications are remarkably accurate.

Amongst other things, they said that:
"For example, a credit squeeze as such is likely, on its own, to hold back production (through shortage of funds for work-in-progress and capital investment) more than It checks consumption spending."
It is clear that there are all kinds of services such as those of a dentist or a policeman. If I ask for a standard of service for which, if I am on the dole, I cannot pay in output, I cause inflation. The position is quite obvious but the Government cannot quite grasp it.

I worked in the coal industry and any colliery manager will tell hon. Members what anyone in industry would say. This sums up my argument. A good output will cover a multitude of sins. The Government are trying to eradicate all sins but there is no output and they could have done the whole thing much more easily if demand was really stimulated.

The Government are trying to control inflation by acting on total demand through their money supply, interest rates, budgetary surpluses or deficits, exchange rates and so on. However, the plain fact is that the bargaining power of the industrial world is too strong for the Government, even with 3 million unemployed. The question was asked, and still has to be asked: at v, hat level will the total of unemployed be sufficiently large for the middle range, the partly technical-economic and partly social-political, parameters be met?

The broadsheet states:
"We think not only that the current crisis is now propelled by market and bargaining power, but also that such power has become strong enough in Britain to render the existing form of economic management, that is to say, broadly, global demand management, insufficient to maintain stability without the support of income restraint, at least for the medium term "
Those words are profoundly wise and as appropriate today as when they were written six years ago.

I make one final point to illustrate the difficulties arising at the point of production as a consequence of the squeeze on liquidity. There are some dynamic firms of which the Government frequently boast. Their growth in productivity is reasonably adequate and fast. However, unions in these companies insist on having incomes increased in relation to the increase in productivity. Other companies do not have that productivity and the less efficient industries do not have that investment. The rate of inflation is being built into the system. It is tending towards the substantial difference between the growth of productivity in the more dynamic industries and the average growth of productivity throughout the economy as a whole.

It is difficult to know how to advise the Government, because they are rigidly and mechanistically committed to their policies. Mr. Roy Jenkins described a carefully thought-out and excellent package at Warrington. It is significant that four days later, although there was plenty of opportunity to consider it, the Chancellor of the Exchequer went to Warrington and did not even refer to it. It was a major issue in that by-election, yet he did not refer to it. That was extraordinary.

There is no point in advising the Government to go ahead on that basis. The Government must change their policy. If they want not to make a U-turn but to change surreptitiously, there is a route that could prevent the disaster—lowering interest rates. Their policies will not work. That is clear. They will bring us all down. They will sink the ship.

9.15 pm

We must be brief in what is a short debate.

I am amazed that people who talk about statistics say that 2 per cent. off the interest rate for industry represents only 0·48 per cent. of its costs. I am a business man and I talk to many business men in the Midlands. The figure is not 0·48 per cent. when £700 million is involved. The amount is often the difference between life and death for business. I wish that people would not talk so casually about percentages.

I am told that the average motorist drives about 1 million miles without an accident. To those involved in the carnage on the roads that is a small consolation. Percentages are not what matter. To industry £700 million is a huge sum. If one is heavily overdrawn and making a nil profit, interest rates matter and they should be considered.

The only genuine criticism that I have about the Government's economic policy—because the main thrust of what is being done is difficult but necessary—is that the Government are placing too much reliance on the view that if we can keep a strong foreign exchange, that will somehow have a tremendous effect upon inflation.

The most important thing that we can do is to restore the confidence of people involved in business that interest rates are going in' the right direction. Business must be confident that it is safe to borrow money to restore and make fruitful their businesses.

One of the problems is that Britain's tax system encourages the diversion of savings into housing, Government securities and debentures. We should try to discriminate in favour of direct investment in industry. Many people who invest money ask "Why take the risk? It is not worth it." The House must decide that we cannot be a service industry country and that we must invest in enterprise. Enterprise made the country grow.

I believe that the banks do an honest task. They are prepared to help companies, particularly those that have the assets to more than cover what they are willing to lend. Although I do not go all the way with continental banks, the British banking system should be more prepared to take risks. Investment means risks and some losses are necessary for profits to be hewn from enterprise. I have mentioned to bankers more than once—and although bankers have banked on me for many years I am still willing to risk that overdraft to say it—that there must be a greater commitment and a greater sense of involvement. They must be more prepared to use their interest rate profits to help the genuine and necessary growth of this country.

Crowding out is a doubtful argument. It is used by economists. We all know that if there are 10 economists there are 11 opinions. On the Treasury Seclect Committee, if there are 10 economists, there will be 12 opinions. Crowding out to me and to business people means not that one cannot get the money, but that the cost of the money is at a level at which one cannot make a reasonable profit if it is borrowed. That is what Government borrowing is doing. It is forcing up the cost of money to the level at which industry cannot make a profit.

I give one word of advice to Government and to those who urge Governments to spend money. A sum of £1 million left in the hands of private industry and private individuals is worth £5 million of State spending. What happens in the State sector is clear. Water workers say that an 8 per cent. increase is not enough. There are factories in my constituency where workers are lucky to get a 1 or 2 per cent. increase. I would tell the water workers that if the sewage came out on to the streets, we would send their addresses to the people who suffer.

The miners say that a 9 per cent. increase is not enough, whereas my constituents are lucky to get 1 per cent. Let us buy the coal from Belgium or Australia where it is cheaper. We should not be blackmailed by those who are involved in State enterprise. If they do not wish to do the job at a decent price, so be it. The country cannot place itself continually in a situation where because the State pays, the people have to pay an exorbitant sum. It is a difficult world that we live in.

There are many thousands of people who this year will receive over £1,000 million of taxpayers' and ratepayers' money to subsidise inflation-proof pensions. They will receive that because at one time a Government thought that that was sensible. That £1,000 million, which will give double the increase at least of what anyone who is earning will receive, could, if it were used productively, create about 100,000 jobs, which would create further prosperity. In other words, we must tell the banks what we expect of them. We must tell the Government that if they can leave in private industry's hands £1 million, it will become more than £5 million in its hands.

We should say to those who are lucky enough to work for the public sector that they are lucky to receive a genuine increase and to have a good and steady job, and they should be willing to accept what is offered to them. We will not be blackmailed. We should say to those who are on secure pensions that this is the time for a sacrifice from all. This is not the time when we say that a bargain that was struck in the past when 3 per cent. seemed sensible must be kept for ever. There is no Eldorado. However, we face problems.

Interest rates are one problem. I hope that the Government will see the sense in the view that interest rates affect inflation and confidence. In the end, as on any journey, we must have the confidence to set out. If we are willing to set interest rates free, money would be cheaper and business would be stronger.

9.25 pm

I wish to thank the hon. Member for Truro (Mr. Penhaligon) and my hon. Friend the Financial Secretary for allowing me time to speak.

I agree with my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) and the hon. Member for Colne Valley (Mr. Wainwright) that high interest rates hurt industry badly. Although the wages bill of a company may be larger than its interest rate bill, the interest rate bill is at the margin. That, as has been said, can be the difference between profit and loss.

Unlike any other time in our economic history, when most of the debt of corporations was at fixed rates, today most corporation debt is at floating rates. When rates rise, they hit the company viciously at all its debt maturity dates, whereas before they may have hurt only the overdraft. That is an important point, which I hope will be noted by the Financial Secretary.

Secondly, we must realise that we live in an international world in relation to both interest rates and currency parities. Where people used to focus on the balance of payments, then on the money supply figures and then on relative inflation rates discounted by interest rates, now, increasingly, the world's money markets focus merely on interest rates, especially with the growth of privately held petrodollars.

Therefore we must consider closely our interest rate policy if we wish to have a sound currency. We must also consider the major influences, the most important being the United States. I am sad to say that it looks as if American interest rates will again rise. The public deficit stands at $63 billion. But if we add to that the off-balance sheet items, the total is over $100 billion, so massive funding must be carried out. The American Administration have lifted the usury laws and moved to a monetary-based system, which increases the volatility of interest rates. Just as trading in stocks or bonds in volatile times widens the prices, so volatile interest rates tend to increase the rate. There is probably a 1 per cent. or 2 per cent. premium due to volatility in American interest rates at the moment. Therefore, because American Government expenditure effectively is almost 40 per cent. index-linked, the outlook is that American interest rates will rise during the next few months.

How can we mitigate the effects of that? The first thing that we must do is to reduce inflation. To do that, we require much stronger privatisation and we must break the grip of the monopoly employment cartels. We are spending £6,000 million this year on the nationalised industries, and that must have a major impact on interest rates. We must also eradicate indexation.

My third point—here I slightly disagree with my hon. Friend—is that the quality of Government spending is vital. In any bond issue, the use of proceeds is of critical importance. the amount of Government spending is secondary to the quality. We must roll back current expenditure and return it to long term capital investment. That is the key to investor confidence and expectations about future interest rates, which both dictate today's market interest rates.

We must also dramatically increase profitability through a technological revolution. For it is that alone in the long term will allow us to achieve the standard of living of a developed nation.

9.30 pm

This has been an unusual occasion—a Liberal Supply Day. We welcome the opportunity to have this debate, although in the odd second our minds may have been elsewhere. I have been through moments of elation and of depression. It appears that the entire parliamentary Labour Party is out canvassing. We shall reflect on that tomorrow when the result of the Crosby by-election is announced, when we shall see whether my optimism was justified.

One point stuck in my mind during the speech of my hon. Friend the Member for Colne Valley (Mr. Wainwright). Manufacturing investment has fallen by 12½ per cent. this year. We may forget, certainly in my part of the country, that our economic success, which gives us the ability to provide people with hospitals, universities and better education generally, has more to do with our manufacturing base than with any other single part of our economy. In my constituency the manufacturing component is not large, but we are a manufacturing country, and I know of no alternative to building up our manufacturing base that would provide us with a reasonable economic future. The Government's economic policy has reduced investment in the basis of our economy and our survival—our lifeline. That is why we appreciate the opportunity of having this debate.

The Minister spoke interestingly, although I enjoyed the products of his speech writer more when he spoke from the Opposition Benches. We may not agree with all that he says, but we enjoy the way in which he says it. However, today it appeared that he was redundant. What is happening has nothing to do with him or with the Treasury. It is due to American interest rates—but they have come down while ours have not, so I do not understand the connection

I suspect that the hon. Gentleman was right to criticise the Treasury computer. I am a technologist and know enough about computers to be careful about the faith that I have in them.

The Minister said that interest rates do not play a large part in manufacturing costs. However, in the high technology enterprises, which we must encourage if we are to get out of the ludicrous spiral that we have been in over the past 15 years, an investment of about £50,000 or £60,000 is required for each job. The current interest rate on borrowing money is about 18 per cent. as opposed to the advertised rate in the Financial Times, and on those figures the interest would amount to £9,000 a year for each job. Even in high technology, many would be pleased to earn that sum. It is a substantial part of giving a man the opportunity to produce things that we all wish him to produce. In some cases the interest could be as much as 50 per cent. of the cost.

The Minister challenged us to say how we would handle the situation. He said that we would allow the exchange rate of the pound to slide. That factor is important, although we do not believe that it is as important as the hon. Gentleman makes out. We do not deny that it would happen if we pursued a strategy of lower interest rates.

It is difficult to say. I have already expressed my view about the computer in the Library and I am not sure that we know the exact relationship between interest rates and the value of the pound. I do not deny that a strategy for lower interest rates would lead to a reduction in the value of the pound, I would welcome that, because one reason why we have lost so many manufacturing jobs in the past two years is that in investment and technology our manufacturing industry has been forced to compete on terms that the present value of the pound puts beyond its reach. I have no fear about some reduction in the value of the pound.

The follow-on is that such a strategy would bring some inflation into the economy. I do not deny that a freer economy may lead to a wage explosion, but that is where the alliance can make a contribution to British politics that no one else has been in a position to make for as long as I can remember. Because the alliance is free from vested interests in the economy and is not paid for by any sectional interest, it could get a pay policy to work.

I tell the Financial Secretary honestly and truthfully that the bases of the alliance's economic opinions are likely to revolve around the development of a more humane and satisfactory method of resolving the question of pay in the economy. We believe that we can achieve that. We shall have to be honest and tell the people at a general election that that is our intention. No one has ever had the courage to defend a pay policy while seeking office, but we believe that if such a policy is publicly endorsed and the alliance is the success that we expect it to be we shall get a pay policy that will work. The Government could certainly not do that. They were elected on a policy 180 degrees to our aim. I do not pretend anything but that our policy has some coherence only if we accept an incomes policy as part of the general strategy.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) spoke of a spiral of deflation. I like that expression, because it explains the situation well—cuts lead to unemployment, which leads to more cuts. It is a spiral of disaster and, if we are not careful, it will become a spiral of bankruptcy.

Many Members have spoken about the reduction in investment in plant and machinery. The hon. Member for Skipton (Mr. Watson) referred to that in his maiden speech on the subject. The hon. Gentleman has already had more congratulations than I got for my maiden speech. The hon. Gentleman's speech was probably better than mine.

If we had the present PSBR and no inflation, our debt in real terms would be increasing substantially, but as long as inflation is higher than the percentage increase in the level of GNP represented by the PSBR the total debt burden is reducing in real terms. I should not like to use that as an excuse for generating inflation, but it is a fact.

Is the hon. Gentleman spelling out Liberal economic policy? It sounds very like it to me.

It is an economic fact. It is not one on which to base an entire policy and I dread to think how far the point could be stretched, but it is nonsense not to recognise the economic fact. If the Government are trying to run the country with no PSBR when we have 3 million—or probably 4 million—unemployed, what do they think would be the level of the PSBR if everyone were employed? One of the criteria is that we allow the PSBR to rise a little in order to try to combat massive unemployment at its present level.

My hon. Friend the Member for Inverness (Mr. Johnston) told us about the Highlands. As one of his most distant colleagues, I cannot comment much on his remarks except to say that the Highlands and Islands Development Board would be more effective if Cornwall also had such a board. Perhaps I can coax the alliance into that view at a suitable opportunity.

The hon. Member for Ilford, South (Mr. Thorne) spoke about index-linked pensions. I do not accept his argument. I accept that there is a case for ending index-linked pensions although I do not agree with it. The trouble with the argument is that, from the day that people retire to the day that the good Lord takes them away, all that they have to look forward to is a steadily decreasing living standard in their declining years. The scandal of index-linked pensions is that people retire and they can only look forward to a steady and dramatic decline in their standard of living. The Government should examine that point. If we cannot control inflation better than we are, we should ask ourselves whether we are protecting people as well as we should. I believe that we have fundamentally failed to do so. My hon. Friend the Member for Wrexham (Mr. Ellis) talked about the complexity of the issue, and eventually he agreed that an incomes policy is necessary. The alliance will not duck that issue.

The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) spoke about the amount of interest paid by industry—£8 billion a year. He said that some companies are not making a profit because of the amount of interest that they have to pay. Indeed, many have gone bankrupt because they have been unable to pay the interest demanded.

There is an alternative economic strategy that reduces interest rates. We give it high priority, because if we do not we shall produce and develop a ludicrous economy for our industrial base. If a person wants to start as a secondhand car salesman he can borrow £100,000 and it will cost him no more than £60 a day. That capital could be earning money for him within hours.

If a person invests money in the deep capital areas—I think of mines in my area—at the current levels of interest he would hope to be able to make a profit of one sixth of the value of his investment within 12 months. But whether it is mining or long-term investment in engineering plant, we all know that that cannot be done. The potential investor then makes one of two decisions. Either he does not make the investment, which happens only too often, or he is forced to borrow money in order to cover the money that he borrowed the previous year. Although it may be said that in the long term his asset is increasing—Mark Twain once said that in the long run we are all dead—many are not prepared to take that risk. We need a lower interest strategy that enables people to put more money into long-term investment and high technology. I do not believe that there is a great deal of hope of that in our great country.

I hope that the Minister will pay particular attention in his reply to a point that I raised in an intervention. The Government are paranoid about the PSBR and believe that the maintenance of a particular figure for it is important beyond all else. In another guise I am Liberal spokesman on energy and therefore I attend energy debates. As I mentioned in a question, there is a Bill currently before the House—I am not keen on it, but I leave that aside for the moment—under which a Government guarantee is to be given to British Nuclear Fuels Ltd. to raise £3½ billion. Beside such a sum the Government's sponsorship of small businesses is mere confetti. Yet apparently, because it is a Government guarantee rather than the Government actually producing the money, that £31½ billion is not part of the PSBR. Had a different decision been taken—as it is for virtually every other nationalised industry except perhaps Rolls-Royce, which came into Government hands in a rather different way—I presume that the £300 million per year that BNFL is to invest would be included in the PSBR and expenditure cuts would be required to cover that.

If it is all right to produce money for BNFL in that way, why cannot this be done on a much broader front for a number of other nationalised industries when the investment in question is likely to be profitable in itself and to make a reasonable return on capital? If the Minister can answer even that one question, the debate will have been worth while.

What enraged me and my colleagues most was the Government amendment. We have always enjoyed the Minister's sense of humour. He is a man of enormous humour and great dedication to the sport hinted at in the amendment. He was clearly determined to demonstrate it to the House once again by asking hon. Members to agree that
"this House expresses confidence that the Government's economic strategy is the best course for restoring this country to prosperity".
We are all aware that there is no majority in the House for that proposition. We shall divide the House tonight, but the real division will come in another part of the country in 13 minutes' time. That is where the real voting has taken place today, and the result will be the thumbs down sign for the Government's economic policy.

9.48 pm

With the leave of the House, I shall try to reply to some of the many points raised in this interesting and affable debate. I do not know what leads the Liberal Members to be in such good spirits, tossing out economic promises and idealistic hopes for the future. Indeed, they have widened the debate into all manner of areas, from the Highlands and Islands to investment of every kind.

The question of public investment was dealt with by many hon. Members, including the hon. Member for Come Valley (Mr. Wainwright) and the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) as well as by my hon. Friend the Member for Winchester (Mr. Browne). Hon. Members have stressed the importance of public capital investment. On that I think that there is no difference between us. I merely point out that whenever the proposition has been put to the House that public investment might be increased if revenue could be reduced in any particular public programme, it has run into the stiffest opposition. I say that with some feeling, having had the unenviable task of persuading the House to accept a small cut in the revenues of the BBC's external services in order to make a major investment in its capital equipment. It was not an easy transformation to put to the House. Therefore, there is that difficulty.

I disagree with Liberal Members because they seem to suggest that it is somehow cheaper and easier for the Government to borrow if the object of that borrowing is a particular industrial investment. That is not true. If one issued a gilt edged stock, marked "Government investment in high technology", or "Investment in the future of the coal industry" one would be asked only what the coupon and the date was. The stocks would be classified alongside all the other Government stocks. Therefore, by having a worthy objective in mind, the Government cannot borrow more cheaply. If private industry seeks to borrow for an investment that the market considers attractive and good, it can borrow more cheaply than if it seeks to borrow for a purpose that is clearly not well thought out. That is not the case as far as the Government are concerned.

Is the hon. Gentleman asking the House to accept that when the financial markets consider the rate of return they want on a Government security they pay no attention to the Government's policy, to the drift of their economic policy or to the quality of the purpose for which they are trying to raise the loan? Does that count for nothing?

I should not have given way to the hon. Gentleman, because that is not what I said. I should love to take up his remarks, but I must answer more of the points raised during the debate.

It is asked whether large Government borrowing crowds out private sector investment. The answer to that question is different at different times. The proposition is not a constant one to which it is possible to say "Yes" or "No". However, I should tell the right hon. Member for Roxburgh, Selkirk and Peebles that in the next breath one cannot complain about the outflow of funds for profitable investment overseas. If the right hon. Gentleman believes that there is no such thing as crowding out by Government borrowing so much that they leave very little for the private sector, he must believe that there is an infinite source of funds, which, if they go overseas, in no way diminish the funds available for investment. I did not express an opinion about that argument, but the right hon. Gentleman cannot have it both ways.

In addition, the right hon. Gentleman cannot get away with a proposition that many Liberal Members advanced. They said that investment in Britain was falling. That is not true. I accept that manufacturing investment fell from £761 million in the second quarter of 1979 to £600 million in the third quarter of 1981, but those figures do not include leasing, which accounted for £6 billion this year. If the leasing figures are added to those for direct borrowing, the figure increases by about 10 per cent. between the second quarter of 1979 and the second quarter of 1981. Indeed, investment in manufacturing industry is rising, because the interest rate is lower through investment. That proves only how valuable such investment is by sections of British industry.

My hon. Friend the Member for Ilford, South (Mr. Thorne) fairly pointed out that for some companies, interest rates are more important than other costs. For some companies, labour, or the national insurance surcharge, represent heavy burdens that they would like to reduce. To other companies, interest rate charges are the most serious factor. I cannot say with any certainty that either policy will be universally popular with industry. Some businesses are capital intensive and care more about the reduction of interest rates than about the taxation of their work force. Therefore, the answer varies according to particular circumstances.

There is always a trade-off between the two. If we were to alter the fiscal balance on companies, that would also have an effect on the interest rate. This House must decide whether its priority is to reduce interest rates or to be looser fiscally, because the tighter we are fiscally, the lower interest rates will be.

I cannot quantify exactly the effect of the extra borrowing that has been called for, but I am certain of one thing. If there was extra borrowing it would almost certainly push up interest rates. There seemed to be a bland and hopeful feeling among Liberal Members that they did not believe it. Their view was that we could borrow £5 billion more and that it would have no effect on interest rates. When asked "Why?", they say, "Because we hope so and because we think it would be cosier and nicer".

I congratulate my hon. Friend the Member for Skipton (Mr. Watson) on his maiden economic speech. If there were another £4 billion or £5 billion of borrowing, it might be that in a couple of years some of that would come back in increased revenue and reduced expenditure, but there would be a definite time lag of perhaps a year or two. That would adversely affect the figures in the short term.

But whatever the time lag, it would make it more expensive to borrow, which would place an extra load, not only on the Government but on industry.

The Liberal party wants to find ways of reducing interest rates. That is also what the Government want.

Will the hon. Gentleman say something about windfall tax, because he was asked a question about it?

The right hon. Gentleman must read Hansard. He knows perfectly well that my right hon. and learned Friend answered that question. He can look up the reply in Hansard. Perhaps he will have the manners not to shout "windfall tax" like a parrot all the way through my speech.

The flaw in the Liberal party argument is that it has tried to make out that we can have extra spending and borrowing without any ill effects. Liberal Members say that the exchange rate might go down slightly. They would not mind that. If the exchange rate went down, import costs would go up. That would increase inflation, and in turn interest rates would go up, because interest rates are the rate of inflation plus or minus a small amount for real negative or positive return.

Liberal Members must realise that the effect of their idealistic but well-meaning ideas—adjectives that characterise the Liberal Party—would be to make the situation worse. I therefore hope that the House will accept my right hon. Friend's extremely sensible amendment.

Question, That the original words stand part of the Question, put and negatived.

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

The House divided: Ayes 125, Noes 31.

Division No. 12]

[9.59 pm

AYES

Alexander, RichardCadbury, Jocelyn
Alison, Rt Hon MichaelCarlisle, John (LutonWest)
Ancram, MichaelCarlisle, Rt Hon M. (R'c'n)
Arnold, TomClark, Hon A. (Plym'th, S'n)
Atkins, Rt Hon H. (S'thorne)Cope, John
Baker, Nicholas (N Dorset)Costain, Sir Albert
Beaumont-Dark, AnthonyDean, Paul (North Somerset)
Benyon, Thomas (A'don)Douglas-Hamilton, Lord J.
Berry, Hon AnthonyDover, Denshore
Best, KeithElliott, Sir William
Biggs-Davison, Sir JohnEmery, Peter
Blackburn, JohnFairbairn, Nicholas
Boscawen, Hon RobertFairgrieve, Sir Russell
Boyson, Dr RhodesFaith, Mrs Sheila
Bright, GrahamFenner, Mrs Peggy
Brinton, TimFinsberg, Geoffrey
Brotherton, MichaelFisher, Sir Nigel
Brown, Michael (Brigg & Sc'n)Fletcher-Cooke, Sir Charles
Browne, John (Winchester)Fookes, Miss Janet
Buck, AntonyForman, Nigel
Budgen, NickGarel-Jones, Tristan

Gow, IanPage, Richard (SW Herts)
Greenway, HarryParris, Matthew
Griffiths, PeterPortsm'th N)Patten, Christopher (Bath)
Gummer, John SelwynPercival, Sir Ian
Hamilton, Hon A.Pollock, Alexander
Heddle, JohnPrentice, Rt Hon Reg
Henderson, BarryProctor, K, Harvey
Hill, JamesRees-Davies, W. R.
Hogg, Hon Douglas (Gr'th'm)Rhodes James, Robert
Hunt, David (Wirral)Rhys Williams, Sir Brandon
Hunt, John (Ravonsbourne)Ridley, Hon Nicholas
Hunt, Hon DouglasSainsbury, Hon Timothy
Jopling, Rt Hon MichaelShaw, Giles (Pudsey)
Lang, IanShaw, Michael (Scarborough)
Lester, Jim (Beeston)Sims, Roger
Lloyd, Ian (Havant & W'loo)Speed, Keith
Lloyd, Peter (Fareham)Speller, Tony
Loveridge, JohnSpicer, Jim (West Dorset)
Lyell, NicholasSpicer, Michael (S Worcs)
McCrindle, RobertSproat, Iain
Macfarlane, NeilStainton, Keith
MacGregor, JohnStanbrook, Ivor
McNair-Wilson. M. (N'bury)Stradling Thomas, J.
Major, JohnTaylor, Teddy (S'end E)
Marland, PaulTebbit, Rt Hon Norman
Marlow, AntonyTemple-Morris, Peter
Marten, Rt Hon NeilThomas, Rt Hon Peter
Mates, MichaelThompson, Donald
Mather, CarolThorne, Neil (Ilford South)
Maxwell-Hyslop, RobinTrippier, David
Mellor, Davidvan Straubenzee, Sir W.
Miller, Hal (B'grove)Viggers, Peter
Mills, Iain (Meriden)Waddington, David
Mills, Peter (West Devon)Waller, Gary
Mitchell, David (Basingstoke)Warren, Kenneth
Moate, RogerWatson, John
Montgomery, FergusWells, Bowen
Morris, M. (N'hampton S)Wheeler, John
Murphy, ChristopherWickenden, Keith
Neale, GerrardWolfson, Mark
Needham, Richard
Neubert, MichaelTellers for the Ayes:
Newton, TonyMr. Peter Brooke and Mr. Alastair Goodlad.
Osborn, John
Page, John (Harrow, West)

NOES

Atkinson, N.(H'gey,)Pavitt, Laurie
Booth, Rt Hon AlbertPenhaligon, David
Cocks, Rt Hon M. (B'stol S)Pitt, William Henry
Cryer, BobRichardson, Jo
Dean, Joseph (Leeds West)Roper, John
Dewar, DonaldRoss, Ernest (Dundee West)
Ellis, Tom (Wrexham)Sheldon, Rt Hon R.
Evans, John (Newton)Skinner, Dennis
Grimond, Rt Hon J.Steel, Rt Hon David
Hamilton, W. W. (C'tral Fife)Stoddart, David
Harrison, Rt Hon WalterWainwright, R.(Colne V)
Haynes, FrankWellbeloved, James
Johnston, Russell (Inverness)Wrigglesworth, Ian
McKay, Allen (Penistone)
McNamara, KevinTellers for the Noes:
Maynard, Miss JoanMr. A. J. Beith and Mr. Stephen Ross.
Miller, Dr M.S. (E Kilbride)
Owen, Rt Hon Dr David

MR. SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved,

That this House expresses confidence that the Government's economic strategy is the best course for restoring this country to prosperity.

Housing (Amendment) (Scotland) Bill

Order for Second Reading read.

Motion made, and Question put forthwith pursuant to Standing Order No. 67 (Public Bills relating exclusively to Scotland), That the Bill be committed to a Scottish Standing Committee.— [Mr. David Hunt.]

Question agreed to.

Housing (Amendment) (Scotland) Money

Queen's Recommendation having been signified

Resolved,

That, for the purposes of any Act of the present Session to amend subsection (1) of section 25 of the Housing (Financial Provisions) (Scotland) Act 1968 it is expedient to authorise—
  • (1) any increase not exceeding £250 million in the sums which may be issued out of the National Loans Fund by virtue of the said section 25 which is attributable to the provisions of the said Act of the present Session;
  • (2) the payment out of money provided by Parliament of any increase in the sums payable out of money so provided under Pan 1 of the Housing (Financial Provisions) (Scotland) Act 1972 or the Housing (Financial Provisions) (Scotland) Act 1978 which is so attributable; and
  • (3) the payment into the National Loans Fund of any increase in the sums received by the Secretary of State by virtue of the said section 25 which is so attributable.—[Mr. David Hunt.]
  • Employment (Work Experience Schemes)

    Motion made, and Question proposed, That this House do now adjourn.— [Mr. David Hunt.]

    10.12 pm

    I am grateful for the opportunity to bring the case of my constituent, Mr. Eric Donnelly, to the attention of the House, since I believe that his case is not only important to him and his future but has national implications.

    Mr. Donnelly wrote to me on 3 October saying that he had been employed by Milletts in Swindon from 8 October 1979 until 26 September 1981, when he was made redundant, just a few days before completion of two years' service and thereby disqualified from receiving redundancy pay. However, on the day that he received his notice of dismissal he learnt that a young person was being interviewed by the firm under the youth opportunities programme. He found that situation curious, to say the least.

    The reason given by Milletts for Mr. Donnelly's dismissal was that the company was experiencing adverse trading conditions. It is clear that Mr. Donnelly was a satisfactory employee, since the letter from Milletts informing him that he was redundant thanked him for his services and indicated that he would be considered for reemployment if trading conditions improved. Furthermore, Mr. Donnelly had gained a certificate from Milletts, following training in Reading, to show that he had completed the course satisfactorily.

    I was naturally concerned about his case, especially as fears have been expressed by individual trade unions, the TUC and young people in my constituency and elsewhere that the youth opportunities programme is being abused by some employers who are sacking full-time employees and replacing them with YOP trainees.

    I referred the case in the first instance to the Secretary of State, who passed it on to the Manpower Services Commission for investigation. The commission, to its great credit, carried out a thorough investigation. The chairman, Sir Richard O'Brien, wrote to me on 16 November to confirm that the work experience trainee who had been taken on by Milletts was displacing a permanent employee, contrary to the terms of the agreement between the commission and the scheme's sponsor.

    Sir Richard's letter is as follows:
    "Dear Mr. Stoddart,
    Thank you for your letter of 6 October to Norman Tebbit enclosing correspondence from your constituent, Mr. E. Donnelly of 37 Elmina Road, Swindon who had been made redundant from Milletts in Swindon. Mr. Donnelly believed he had been replaced by a young person on a work experience scheme under the youth opportunities programme. As you know, your letter has been passed to me for reply, since the Manpower Services Commission is responsible for the programme.
    I am sorry for the delay in answering your letter but in view of the seriousness of the allegation, I asked my staff to make a thorough investigation. As a result of this investigation it seems clear that the work experience trainee was"——
    and "was" is underlined—
    "displacing a permanent employee contrary to the terms of the agreement between the MSC and the scheme sponsor. As a result, we have had to give the sponsor a month's notice of closure of the scheme during which time another placement will be found for the young person at present on the scheme.
    I am grateful to you for writing to me on this matter. As a result of this enquiry we are looking carefully into the position of schemes operating in Millett shops in other areas. I realise that this does not help Mr. Donnelly but at least he will know that the MSC takes a very serious view of such substitution and will not allow schemes to continue where there is sufficient evidence that substitution is taking place. I hope it will not be long before he is able to find alternative employment."
    When I read that letter from Sir Richard I was appalled and angry to find that the youth opportunities programme, which I support absolutely, had been abused by an employer of some national repute to the serious detriment of my constituent.

    Naturally, I wrote to Mr. Donnelly informing him of the outcome of the investigation into his complaint. I advised him that he could be successful if he decided to proceed with a case against Milletts on the ground of unfair dismissal. That is a course of action that he has decided to consider together with his legal advisers. In the meantime he is still unemployed, in spite of the fact that he searches day by day for new employment and spends his evenings studying art and design.

    I am sure that all hon. Members will sympathise with Mr. Donnelly for the shabby and disgraceful way in which he has been treated by his former employer, who deprived him of his job and ensured that he should receive no compensation through redundancy payments.

    The case has even wider implications. In the debate on the young persons' scheme on 16 November my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) said:
    "it is believed that in too many places youngsters are being used in a productive capacity. I say 'believed' because the truth is hard to find."—[Official Report, 16 November 1981; Vol. 13, c. 126.]
    Due to the diligence of the commission, the truth has been found in Mr. Donnelly's case. It seems that Milletts was prepared to abuse the scheme for its own profit at the expense of a full-time worker and at significant cost to the taxpayer.

    Mr. Donnelly was paid a gross wage of £62 a week, on top of which is the employers' national insurance contribution. The saving to Milletts is £70 a week or £3,640 a year. The cost to the taxpayer, even at the present inadequate rate of £23·50 a week paid to YOP trainees, amounts to £1,222 a year. To provide the firm with an additional profit of £3,640 a year an adult worker has been sacrificed to the dole queue and the taxpayer is being milked of £1,222 a year.

    In addition to the debate to which my hon. Friend referred, there was another debate on the YOP scheme in which I participated. I named firms in the high street that were abusing the scheme. The Minister denied it. Since that debate, I have received letters of support from all over the country confirming what is going on. What are the Government planning to do about it? Will they stop the abuse or allow it to continue?

    I have heard of that useful debate. It brought abuses to light. I understand that my hon. Friend the Member for Ashfield (Mr. Haynes) received a letter from one of my constituents naming another firm in my constituency. Perhaps my hon. Friend will send me a copy of that letter. I shall ask the Minister what he intends to do about the case that I have described and other abuses of the scheme.

    I was referring to Milletts and the milking of the taxpayer. That milking can only be described as fraud. It is nothing less than fraud. If a claimant of supplementary benefit, unemployment benefit or any other State benefit cheated the taxpayer out of a similar amount, he or she would be clapped in gaol. I know of a case in my constituency where the amount involved was much less than £1,222 and the person concerned has been gaoled.

    The fraudulent conversion of taxpayers' money is bad enough, but it is only one aspect. If the youth opportunities programme is to succeed in its objectives, everybody must have confidence in it and be certain that it is not abused by unscrupulous employers. I am sure that the Minister will agree.

    There is a widespread feeling among young people that they are being used as cheap labour and that they might be doing their older brethren out of jobs. There is a growing suspicion among older workers who fear that their jobs are in peril. The honest and public-spirited employer must think that the abuse of the scheme by rogue employers will result in unfair competition. Unless the fears can be allayed by Government action, the work experience scheme is bound to run into trouble. We all wish to avoid that.

    I appreciate and accept that the huge majority of firms co-operating in the scheme are entirely honest and are participating solely to assist young unemployed people. I emphasise that and make it clear that that is my view. It is important to them that the black sheep in their ranks should be rooted out and dealt with.

    It is also necessary to deter firms that wish to take part in the scheme for their own profit in a similar manner to Milletts. I hope that the Minister will outline the additional measures that he intends to introduce to prevent such abuses in future.

    I realise that this is a voluntary scheme, but I hope that consideration will be given to the possibility of prosecuting firms that convert moneys allocated under the scheme to their own profit. That is one of my suggestions to the Minister.

    The Minister might also consider whether victims of abuses of the scheme might be awarded levels of compensation for unfair dismissal that would be penal for the employers. After all, the Secretary of State announced on Monday of this week that he would introduce substantially increased compensation in other areas of unfair dismissal. Therefore, that should be possible. I sincerely hope that the right hon. Gentleman will consider that aspect seriously.

    I hope that the trade unions and individual employees will be given a greater say in the monitoring of schemes not only on a national or regional basis but on a local firm-by-firm basis. I expect, too, that local offices of the Manpower Services Commission will be asked to ensure, when agreeing to schemes with sponsors, that there is no possibility of a full-time employee being displaced by a YOP trainee. The right hon. Gentleman and his right hon. Friend the Secretary of State should ensure that adequate staff are available to the MSC for that task.

    I urge the right hon. Gentleman to bear in mind Mr. Donnelly's case when putting the new young workers' scheme into operation. I hope that he will heed the warning sounded by my hon. Friend the Member for Flint, East (Mr. Jones) in the debate on the scheme on 16 November when he drew attention to the possibility of similar abuses being perpetrated.

    I pay tribute to Sir Richard O'Brien and his staff at the MSC for the speed and depth of their investigation and for the directness with which the results were reported to me. It is important that the MSC should be seen to be open and even-handed in its operations. It has come up to my expectations in this case.

    I repeat, Mr. Donnelly's case has angered me considerably. One cannot help feeling uneasy at the thought that, but for the youth opportunities programme, he would still be in a full-time job. That should worry us all. Therefore, I sincerely trust that the Minister will join me tonight in forthright condemnation of Milletts for its duplicity and action in bringing into disrepute the YOP, which he and I and the whole House support. I also hope that he will do everything through his Department to find Mr. Donnelly other employment and to obtain redress for the shameful manner in which he has been treated.

    10.28 pm

    I am glad that the hon. Member for Swindon (Mr. Stoddart) has found an opportunity of raising this important matter this evening. The Government are well aware of the considerable concern that is being expressed by trade unionists and others about substitution in YOP, and I welcome the opportunity of discussing the matter and of hearing what the hon. Gentleman has had to say about this particularly unpleasant and regrettable case. In fact, I hope to show that the case confirms the correctness of the action that everyone has subsequently taken. The Government naturally have nothing to hide on this issue, but we all have something to learn from it.

    I want to, deal first with the general question of displacement, of which this case is an example and then move on to look at this particular case the hon. Member raises, the case of Mr. Donnelly.

    First, I shall define displacement. Displacement is one facet of a larger question, which can be described as the replacement of normal employees in a business by YOP trainees. That replacement can be one of two types. First, there is a factor that is sometimes called "deadweight". That is the extent to which an employer recruits YOP trainees instead of permanent recruits in the YOP age range of the under-18s. Secondly, there is the use of YOP trainees instead of permanent recruits aged 18 and over, which is termed substitution. Both facets of displacement can, of course, occur at the point of recruitment, without obvious or verifiable breach of YOP rules.

    There is also the form of substitution that occurs—of which Mr. Donnelly's case is an unhappy example—when a full-time employee is dismissed to make way for the subsequent recruitment of a YOP trainee.

    Those are the two components of a problem that can arise where YOP schemes are sponsored. The next job is to assess the extent of the problem. A survey of YOP work sponsors in 1980 showed that the level of deadweight was 24 per cent. and that the level of substitution of both kinds was 5 per cent. giving a total of 29 per cent. in that part of the programme. Those are the proportions in the work experience element of the YOP scheme.

    Displacement is not considered by the Manpower Services Commission to be a problem in other sectors of the programme, and we can see why. Community projects and training workshops are usually set up specifically in the YOP context and there are no pre-existing employees for whom they might be substituted. In view of the amount of work experience in the programme, we can say that displacement over the programme as a whole is about 20 per cent.

    That was in 1980. A more recent survey, held in May this year, has found that the levels of substitution had not changed significantly, although the programme has more than doubled in size.

    So we find that about 20 per cent. of YOP places may be displacing someone else from more permanent employment. But that does not necessarily imply that that is the proportion of jobs lost. Sponsors may be substituting, not by having a YOP trainee instead of one permanent employee, but by using the period on work experience as an induction period, with training paid by the Government, before offering suitable young people permanent jobs. In short, there is no simple way to define the problem of substitution, nor can we arrive at really accurate estimates of its level. It is as well to remember that YOP can also lead to the creation of new job openings for trainees and has real employment advantages for those taking part. In dealing with a negative aspect of the programme this evening, we must not lose sight of its positive advantages—which are considerable—and which were endorsed by the hon. Gentleman.

    However, we accept that substitution exists, and that it is a valid cause for concern. Indeed, I share that concern. The credibility of the programme as a whole is put at risk by employers who abuse it in that way, and I value the YOP too highly to see it being damaged.

    One reason why I am not anxious to pursue the course of action recommended by the hon. Gentleman to deal with the recalcitrant and unrepresentative minority—that of strong penal sanctions—is that it would deter the majority of bona fide and honest potential sponsors from running the risk and coming forward.

    Against that background, I turn to the practical steps that we are taking to combat substitution, about which the hon. Gentleman wished to have some advice. The first action that we take comes when a potential sponsor first approaches the MSC with an inquiry or application for sponsorship. The commission's staff draw to the employer's attention the rule that YOP trainees must be supernumerary—addition to normal staffing requirements. The sponsor is visited by MSC staff and the opportunity is taken to explain how the programme works and what its aims are. Inquiries are made at local jobcentres and careers offices to check the sponsor's normal pattern of vacancies and to see whether there has been a change in the recent past.

    Finally, it is required that relevant trade unions should be consulted by the sponsor and their views taken into account before he proceeds with his application. In the case of establishments where there are no trade unions, the MSC is in the process of agreeing a procedure whereby scheme proposals are notified to its area boards, which can ask for more information if board members have any doubts about the application. In some sectors, for example, agriculture, special arrangements also exist whereby the relevant trade union and the employers' organisation are consulted locally about applications.

    So much for the launching of new schemes. The MSC also takes action to prevent abuse on existing schemes. They are monitored by MSC staff to ensure that the sponsor is operating them correctly. The hon. Gentleman may like to know that in October no fewer than 9,500 schemes had monitoring visits from MSC staff. That is the highest monthly total ever—it is substantial—and is strong evidence of our desire to prevent such abuse. Furthermore, our monitoring procedures were reviewed and amended as recently as September to concentrate on those schemes that seemed to be most at risk or most in need of advice.

    If it is established that abuse of a particular scheme is occurring, the commission will immediately withdraw the scheme in accordance with the terms of the legal agreement between the sponsor and the MSC. However, allegations of displacement are, alas, easier to make than prove, and a lot of work is involved in establishing misuse of the YOP. We are particularly grateful to those who draw doubtful schemes to the MSC's attention and to hon. members like the hon. Gentleman who bring matters to our attention.

    I have just mentioned some ways in which substitution can be controlled, but we have also felt the need for a thorough investigation of the MSC's operating procedures of the YOP to see whether we can identify new ways to tackle the problem and to intensify our present efforts. I am glad to say that such a review has recently been carried out and a report on it prepared. The report has now been submitted by the authors to the MSC, which is studying the recommendations; indeed I am advised that action on some recommendations is already being taken.

    Of course, this is a report on operational matters, and it is, therefore, of concern mostly to the MSC, but my colleagues and I expect to learn something of what it has to say shortly. However, I know that among the wide range of areas tackled, the problem of displacement and how to curtail it has received careful and specific attention. The key here, I am advised, is monitoring schemes once they have been set up, because it is when they are running that we can most clearly assess the use the sponsor is making of the trainee. I look forward to seeing the details of how the MSC propose to improve its efforts, but for the present I can assure the hon. Gentleman that that aspect has been thoroughly investigated.

    However, in the longer term there is another very most important way in which abuse of the YOP can be tackled, and here the efforts that the MSC is making to improve the training quality of the programme are particularly relevant. As the degree to training improves—as release to off-the-job training increases and as the progression from one element of the programme to another or from one small works experience scheme to another increases—the chances of an employer being able to abuse the programme by using a work experience trainee for full-time, substitutionary work will diminish, because he will be, in a sense, a bird of passage, moving from one part of the scheme to another.

    Hon. Members will know that in a statement to the House on 27 July the Prime Minister said that we were looking at an improved training programme that would eventually replace the existing YOP. In fact, I think that the YOP is already developing towards that programme and control of displacement—substitution is part of the present process of qualitative improvement. Our aim is a training programme, with the accent on training first and last, and my right hon. Friend the Secretary of State will be making an announcement about that shortly.

    I turn to the case raised by the hon. Gentleman on behalf of Mr. E. Donnelly of Swindon. Mr. Donnelly, as the hon. Member already told us, was employed by Milletts, the camping goods shop in Swindon. On 8 September he was told that he was to be made redundant, and he finished work on 26 September. On 29 September, a YOP trainee started on a work experience scheme at Milletts. The scheme had been approved earlier, on 12 August. Mr. Donnelly wrote to the hon. Gentleman who wrote to my right hon. Friend the Secretary of State.

    A full investigation was made by MSC staff of the Bristol area office, and it became clear that substitution of the worst sort had indeed occurred. Accordingly, the sponsor was given one month's notice of termination of the scheme, during which time efforts would be made to place the trainee on another scheme. I am pleased to say that the scheme at Milletts has closed and the trainee in question has moved to another.

    I do not think that it would be proper for me to say any more about Mr. Donnelly's position, as I understand he may be taking his case to an industrial tribunal.

    What lessons can we learn from what has happened? I think that there are several. First, there is a need for that continual monitoring and checking both of existing and proposed schemes which I have already referred to. I must emphasise that this is no easy task—there are about 160,000 schemes in existence and proper oversight of them calls for the very best use of inescapably scarce staff and resources. The recently completed review of the management of the YOP indicates the importance the MSC and the Government attach to the monitoring.

    Secondly, it is clear that when cases of suspected abuse are raised, the review procedure does work and the abuse in this instance has been identified and stopped.

    Thirdly, YOP is a collaborative venture. The Government provide the money, the MSC provides organisational support and operating guidelines, and the sponsors, the trainees and the community at large provide the programme. It is in all our best interests if the YOP is not discredited by misuse such as substitution and displacement, and, although the MSC is quick to respond, it is also the duty of all concerned with the programme to help it operate in the way intended.

    I have no doubt that the publicity attending the debate, and the hon. Gentleman's representations, will assist in achieving a wider awareness of the potential for abuse and the way it can be nipped in the bud—

    The Question having been proposed after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

    Adjourned at eighteen minutes to Eleven o'clock.