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Commons Chamber

Volume 14: debated on Tuesday 8 December 1981

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House Of Commons

Tuesday 8 December 1981

The House met at half-past Two o'clock

Prayers

[MR. SPEAKER in the Chair]

Private Business

Humberside Bill Lords

Order for Third Reading read.

To be read the Third time tomorrow.

Derbyshire Bill Lords

Considered; to be read the Third time.

Oral Answers To Questions

Defence

Budget

1.

asked the Secretary of State for Defence if he is satisfied that the defence budget is adequate to enable him to fulfil all the United Kingdom's present defence roles.

My right hon. Friend the Secretary of State wishes me to convey his apologies to the House for not being here today. He is attending a NATO ministerial meeting in Brussels.

The answer to my hon. Friend's question is "Yes".

Will my hon. Friend assure the House that the extra funds announced by my right hon. and learned Friend the Chancellor of the Exchequer last week are enough to carry forward the programme set out in Cmnd. 8288, or have we now reached the stage where our defence strategy has to be re-examined?

Our strategy remains as set out in Cmnd. 8288. There are pressures on the defence budget arising partly from the fact that industry is delivering its products earlier than we had expected and partly from the fact that the measures announced in Cmnd. 8288 take some time to work through.

Is it not obvious that we cannot afford an effective conventional defence and a credible nuclear weapons system—credible enough, at any rate, to get us an invitation to the conference at Geneva?

It has never been the intention that we should attend the conference at Geneva.

Before I go further, I congratulate the right hon. Gentleman on his translation to the post that he now holds. I hope that he will be able to make some sense of the Labour Party's policy.

The answer to his question is that we can maintain a strategic nuclear deterrent and a credible conventional defence policy.

I thank the Minister for his kind words. I am having great difficulty in trying to make sense of the Government's policy. I pursue my point a little further. I thought that one of the bases of our having the nuclear deterrent, as it was called, was that we should be invited to the top table in the conference chamber. What happened to the top table and to the conference chamber?

We are still closely consulted by the Americans as is the whole of NATO about the presentation of what is being put forward at Geneva. It has never been the intention that we should engage in those discussions. The intention has always been that the discussions should be between the Soviet Union and the United States.

Is not one of the roles of British defence strategy the immediate reinforcement of Northern Norway? Will my hon. Friend explain how Northern Norway can be reinforced at times of tension if the two landing platform docks—HMS "Fearless" and HMS "Intrepid"—are scrapped?

We shall still have some carriers, and we shall be able to use commercial shipping.

Is the Minister satisfied that the funds are adequate to train personnel with the new equipment that will be coming forward? Is he aware that one thing that exercises the minds of the Forces now is the cutting down of the available training facilities? Is there not a case for considering whether some decrease in the numbers and extra training of those remaining might be better than having the equipment without the people trained to use it?

The hon. Gentleman has put his finger on an important point. One of the objectives of the review that took place in the summer was to enable us to spend more time and resources on training instead of constantly bumping our head against a ceiling. We intended—and I believe that we have achieved it—to give ourselves a little more headroom to build up stocks and carry out more training.

Tornado

2.

asked the Secretary of State for Defence if he will make a statement on the future of the Tornado programme.

Following a proposal by the German Minister of Defence, the United Kingdom is currently considering with its partners in the Tornado programme the possibility of a change in delivery rates to relieve pressures on defence budgets. No decision has yet been made.

My hon. Friend will know better than I the inherent weaknesses of our air defences in Britain. Does he appreciate that his remarks will be regarded by Conservative Members as in many ways undermining what we said before and at the general election?

I do not believe that my hon. Friend is right. To start with, the Tornado programme has two constituent parts. At present we are talking primarily about rephasing the IDS version. The ADV version of Tornado, to which my hon. Friend alludes, comes later. It may be possible to pick up the rate of delivery by that stage.

Does my hon. Friend realise that my constituents and those of my hon. Friend the Minister of State for the Armed Forces will take it gravely amiss if the Tornado programme is cut back to that extent? Therefore, will he press even more strongly the German Government and others in the programme who may be creating difficulties about the sale of Tornado outside NATO?

I remind my hon. Friend that I have not referred to any particular delivery rates. I merely said that we were examining the possibility of a change in the rates. My hon. Friend's point about sales is well made. We are discussing the matter with the Government of the Federal Republic of Germany. I also remind my hon. Friend that 25 per cent. of the work done at the British Aerospace factory at Weybridge in my constituency is on the Tornado programme.

Trident

3.

asked the Secretary of State for Defence if he is now able to make a statement on the estimated cost of the Trident missile project.

13.

asked the Secretary of State for Defence if he will make a statement on the cost of Trident.

16.

asked the Secretary of State for Defence when he expects to be able to make a statement giving his decision whether the Trident programme will involve the purchase of the D5 system.

18.

asked the Secretary of State for Defence when he will be in a position to give an estimate of the cost of the Trident missile system.

As my right hon. Friend the Secretary of State for Defence made clear to the House on 10 November 1981, we are still studying the final configuration of the United Kingdom Trident force. Our decisions and their cost implications will be announced in due course.

Are not the latest reports that, with the running and maintenance costs, the force will cost not £5 billion but nearer £8 billion? On the day when we are to discuss taxing the sick and cutting grants for university students and social benefits for the unemployed, does the hon. Gentleman really believe that that expenditure is justified?

As we have already made clear, we estimate that the cost of introducing Trident will be about 3 per cent. of the defence budget spread over 15 years. The running costs are more likely to be about 1½ per cent. The hon. Gentleman referred to students and hospitals and other important matters. It would be good to be able to spend more money on many things, but that is no argument for reducing our defences to an inadequate level, which would increase the risk of war.

Order. I propose to call first those hon. Members whose questions are being answered.

Is it not scandalous that, while children are dying because of a shortage of funds for bone marrow transplants, the Government are contemplating spending an extra £1·4 billion to buy the D5 missile instead of the C4? Is it not hypocrisy to talk about reducing nuclear weaponry in Europe when the Government propose to spend huge amounts on weapons which will be between 15 and 30 times more powerful than the Polaris system which they are designed to replace? Will not the programme start a new escalation in the arms race?

One regrets the death of children in any circumstances, but we should remember that the number of children killed in a war would be vastly greater than in the circumstances to which the hon. Gentleman referred. I remind him that not long ago his right hon. Friend the Member for Leeds, East (Mr. Healey) said that if we have inadequate defences, we put at risk more than schools, houses and hospitals; we may have only a heap of cinders.

What will be the increased costs if the Government decide to go ahead, as appears to be inevitable, with the D5 system? Do we have dockyard facilities to take the submarines needed to carry the system? If not, would their construction not involve enormous additional expense?

I cannot quantify the costs, but we are considering them in order to make our decision. As my right hon. Friend said recently, it does not follow that the throughlife cost of Trident 2 would be greater than those of Trident 1. I have no reason to believe that our existing dockyards provided for the refitting of SSBNs will not be adequate.

Whichever Trident system is purchased, will it not significantly escalate the arms race? How can the Government press for non-proliferation of nuclear weapons when they insist on upping the stakes?

We believe that Trident is the most cost-effective system for us. Trident 2 is more powerful than we would need, but there are many reasons to go for Trident, including the fact that any other effective system that we have considered is more expensive. Whether we go for Trident 1 or 2, the relationship between our strategic nuclear deterrent force and the Russian strategic missile force will be about the same as when we introduced Polaris.

I recognise that the purchase of Trident is desirable and necessary—and the sooner the better—but will the House be able to participate in deciding on the type of Trident? If so, when will the Government be making a recommendation?

I cannot say when a decision will be made, but, when it has been made, it will be announced. It is for my right hon. Friend to decide what debates we shall then have.

At what stage do the Government envisage that Trident will be brought into multilateral disarmament negotiations?

We do not have plans to bring Trident into such negotiations at present, for a number of reasons. One is that if our strategic nuclear deterrent force were diminished in size it would cease to be credible.

Is my hon. Friend aware that even those who believe strongly in nuclear deterrence feel that there should be a clear cost limit on the programme.

As, by the American decision the Government are now forced to buy Trident 2, so will not be able to control the cost and will be forced to build larger submarines, will that not place an intolerable burden on our economy in developing the system over the next 10 years, which can only be at the cost of conventional forces?

Naval Vessels (Orders)

4.

asked the Secretary of State for Defence if he will make a statement on the anticipated orders of naval vessels by his Department.

I have nothing to add to the information contained in Cmnd. 8288. Future orders will be announced as they are placed.

Does not the delay in announcing the programme of naval orders bedevil the finances and planning of British Shipbuilders? Should we not now have a progressive system of ordering, particularly for conventional submarines and some surface ships?

I accept that the present uncertainty does not assist British Shipbuilders. I can only say that the decisions will be made as soon as we feel able to make them in the light of the prevailing economic situation.

Is my hon. Friend aware that there is uncertainty in the Royal Navy and that it is extremely important for its future morale and well-being to know that there will be a substantial ordering programme for new frigates? May we be assured that that point will be taken into account, as well as the interests of British Shipbuilders, worthy though they are?

I agree that the interests of the Royal Navy are at least as important as the other interests that have been mentioned. We hope to announce in the fairly near future the decision on the Type 23 frigate.

Will the Minister give more details about future orders? Does he realise that the present uncertainty makes it almost impossible for British Shipbuilders to undertake serious forward planning? He must have some idea of how many ships will be needed over how long a period.

As the hon. Gentleman knows, I recently had the privilege of visiting the Woolston yard in his constituency. I told the management and the unions then, and I told the hon. Gentleman subsequently, that that yard must concentrate its efforts on the export market, which offers some very good opportunities. That must be the first priority there.

When does my hon. Friend expect the new Type 23 frigate to pass the design stage and an order to be placed for it? Secondly, when does he expect us to have 17 operational SSN nuclear submarine hunter-killers?

First, this is still at the design study stage. It will be a few more months before we are in a position to finalise it.

Secondly, as it is largely an operational matter, I should like to have notice of that question and to write to my hon. Friend.

As Harland and Wolff shipyard workers are in grave danger of being thrown out of work, thus adding to the colossal and unprecedented number of people on the dole in Northern Ireland, will the Minister ensure that an order for a Royal Navy vessel is placed with the Belfast shipyards, or at least that a sufficient number of auxiliary fleet ships go there for refurbishment so that jobs there, and indeed the yard itself, may be saved?

I am aware of a recent case relating to fleet auxiliary refits for which Harland and Wolff was invited to tender but did not do so. Nevertheless, the Government are acutely aware of the needs of that yard.

"Ark Royal"

5.

asked the Secretary of State for Defence when he now expects Her Majesty's ship "Ark Royal" to enter service.

In the mid-1980s.

In the light of my hon. Friend's reply to a supplementary question by my hon. Friend the Member for Haltemprice (Sir P. Wall) to question No. 1, that carriers are available to reinforce the Northern front, is he aware that "Illustrious" is behind schedule and that we need at least two carriers? Will he therefore take this opportunity categorically to deny reports in the press that discussions have taken place between the British Government and the Government of Australia about the sale of "Invincible" to that country?

No, I cannot deny that. The problem is well understood and will certainly be taken into account in any timings.

What aircraft will be available to fly on "Ark Royal" when she comes into service? Has permission been given for the Royal Navy to order Sea Harriers and helicopters?

There will be Sea Harriers and Sea Kings, but there is as yet no clearance for additional aircraft.

Nuclear Missiles (Nato)

7.

asked the Secretary of State for Defence when he next proposes to meet other North Atlantic Treaty Organisation Defence Ministers; and if he will be discussing with them the disposition of nuclear missiles in Europe.

I expect that there will be discussion of nuclear weapons in Europe at today's meeting of NATO's Defence Planning Committee, which my right hon. Friend is attending. Progress in the Geneva talks on nuclear arms control will be discussed by Alliance Foreign Ministers at the North Atlantic Council at the end of this week, which will be attended by my right hon. and noble Friend the Foreign and Commonwealth Secretary.

Will the Minister assure the House that the recent speeches of Mr. Brezhnev, which seemed to hold out at least a partial olive branch with regard to the disposition of nuclear missiles, will be noted? Does he appreciate that throughout Europe and, indeed, spreading throughout the world, there are now demonstrations of such monumental proportions that the will of the people for peace is bound to have some effect upon the Governments of the world, and is certainly having some impact on the United States? Cannot the voice of our Government be raised to make it clear that our people are demonstrating, that we fear the disposition of these missiles, and that we believe that negotiations at the highest level at a summit with the Soviet Union, which has its hands full in many situations elsewhere, should take place with a view to reducing the number of nuclear weapons?

The Government have repeatedly made it clear that our objective is to secure verifiable and balanced multilateral disarmament. The hon. Gentleman may know that recent public opinion polls showed that a substantial majority of the British people wish us to retain our own independent strategic nuclear deterrent.

The trouble with Mr. Brezhnev's statements is that, so far as I know, he has never specified exactly what missiles he would be prepared to freeze or dismantle. He has never said that he would freeze or dismantle the SS20s, so he would still be free to build them up.

With regard to the Geneva negotiations, the zero option has been put forward by the Americans, with support from NATO, and we hope that it will be accepted.

If Mr. Brezhnev's so-called olive branch were accepted in full, and not just some but all of the SS20s now stationed in Europe were removed to the other side of the Urals, would they not still have a range capable of destroying the whole of Western Europe up to the coast of Ireland?

My hon. Friend is absolutely right. If the SS20s were stationed behind the Urals they could reach almost the whole of Western Europe. That is why it is important to specify that, if there is to be agreement, the SS20s must be dismantled and not simply moved out of Europe.

Is not a nuclear-free Europe the answer? Is not the real objection to Mr. Reagan's proposal that the Pershing 1 missiles will remain in Germany and seven submarines will remain in French waters, quite apart from the other nuclear weapons referred to by my hon. Friend the Member for Tottenham (Mr. Atkinson) in question No. 11?

The trouble about a nuclear-free Europe is that we would be exposed to the dangers that I have just described in answer to my hon. Friend the Member for Torbay (Sir F. Bennett). We hope that we may be able to reach agreement with the Soviet Union on the dismantling and non-introduction of certain land-based theatre nuclear missiles, which we regard as the most dangerous problem, and then move on to discuss disarmament in other fields.

Can my hon. Friend say a little more about the report-back procedure from the Geneva talks to NATO? Is it his understanding that Secretary of State Haig will be talking to NATO at the meeting to which my hon. Friend referred in an earlier answer? If there is any question of British or French nuclear weapons being included in theatre arms limitation talks, will he confirm that such discussions will not take place without representatives from this country and France being present?

It has already been made perfectly clear that neither the French strategic deterrents nor our own will be discussed in the talks. With regard to the system of reporting back, Ministers will report back—no doubt they will do so with regard to the current meetings in Brussels—but there is also a system for officials to report back more frequently.

As the Geneva talks have now begun and as it is clear that the discussions will extend beyond the weapons originally envisaged—the SS20, Pershing and cruise—what positive action will the Government take to try to make a success of the talks? Why do not they say that they are prepared to reduce the number of nuclear weapons based in Britain as a contribution to reducing the number of nuclear weapons based throughout Europe?

If the right hon. Gentleman means that we should say now that we are starting to reduce our own nuclear weapons, that would have precisely the opposite effect to what he would like. It would reduce the strength of the American hand and strengthen the Soviet position. We have been at one with all our NATO colleagues for the last two years—it is now exactly two years—in pressing for these talks. At last they have begun. Initially, as the right hon. Gentleman knows, the Soviet Union refused to take part in them.

Gibraltar

9.

asked the Secretary of State for Defence whether, pursuant to the Minister of State's announcement on 23 November, he will make a statement on the initial results so far of his discussions with the Gibraltar Government and others about the rundown of the naval dockyard and restrictions on the opening hours of the Royal Air Force airfield; and whether any early ministerial visit to Gibraltar is planned.

Consultations were held from 24 to 26 November between United Kingdom officials and Gibraltar Ministers and officials led by the Chief Minister, Sir Joshua Hassan. A communiqué was issued at the end of the talks, and I am arranging for a copy to be placed in the Library of the House.

No ministerial visit to Gibraltar is planned for the moment, but the Chief Minister and the Governor are expected to visit the United Kingdom next week.

Is my hon. Friend aware that closing down the dockyard without alternative provision and restricting the use of the vital air strip is not an honourable way in which to treat some of Her Majesty's most devoted and loyal subjects? Will he go forthwith to Gibraltar, meet the local people there, and reassure them that this is not simply a Foreign Office ploy to force them once again into the arms of Spain?

There would not be any point in my going to Gibraltar when Sir Joshua Hassan is about to come here, although I would be prepared to go to Gibraltar at an appropriate time if that seemed likely to be useful. My hon. Friend has overstated what is intended. We have reiterated to the Chief Minister and to the people of Gibraltar the British Government's policy of supporting and sustaining Gibraltar, which originated when the border was closed by General Franco. With regard to the air strip, we have stated what we should like to see done. That would exclude few civilian flights. We are prepared to discuss with the Government of Gibraltar what should be done.

Is the Minister not aware that that reply is simply not good enough? Is it not his duty to go to Gibraltar? I am perfectly aware that Sir Joshua is coming to this country, but the talks should take place, as his hon. Friend said, in Gibraltar. Should he not have the courage to talk to the people who work in the docks because, apart from anything else, for 270 years the people of Gibraltar have been British and want to remain so?

I entirely endorse the tribute that the right hon. Gentleman paid, by implication, to the people of Gibraltar. I cannot say more than that I am happy to consider going to Gibraltar at the appropriate time. Now is not the appropriate time, because Sir Joshua Hassan has asked to come here.

When my hon. Friend has discussions with the Government of Gibraltar, will he make it clear that if there is a possibility of the refitting of frigates ceasing by 1983, the naval base facilities will continue? Is he aware that the information that was conveyed by the civil servants who went to Gibraltar created chaos and consternation among the people of Gibraltar about the number of jobs that will be lost and the possibility of the dockyard being closed? Is he further aware that the dockyard is the mainstay of the economy of Gibraltar? Without it Gibraltar would fail and those supporters in the House would not be prepared to tolerate that.

Consideration will be given to further naval work for the dockyard up to 1984. We are now examining the possibility of commercialisation of the dockyard, and the Gibraltar Government regard the prospects of a successful commercialisation as reasonable. The naval base will remain open and there will be an Army presence there, as there has been up to now.

Will the Minister tell the House what the Government are prepared to do to support and sustain people who are likely to lose their jobs in the Gibraltar dockyard and on the air strip? Will the Government say that, despite the cuts in defence appropriations, they will ensure that the people of Gibraltar, who are British citizens—even though it will cost them £50 to register—will be guaranteed jobs, and that jobs will be provided by the Government?

The Government have repeated that our "support and sustain" policy continues. We are examining with the Gibraltar Government the possibilities of commercialisation of the dockyard. The Gibraltar Government have asked my right hon. Friend the Minister for Overseas Development for help in various studies relating to tourism, the setting up of financial resources, and so on. I have no doubt that he will regard that request favourably. It is not possible for us to keep open the dockyard facilities for naval purposes in Gibraltar when we do not need them and at a time when, to our regret, we are having to close down Chatham and run down Portsmouth.

Royal Air Force

10.

asked the Secretary of State for Defence what criteria are being used to plan future aircraft for the Royal Air Force.

We shall take into account the usual wide range of criteria, including the threat, the nature of the role, the state of technological development, the cost, the capabilities of industry, the prospects for collaboration with allies and the potential for export.

I thank my hon. Friend for that detailed answer. If there is to be no Jaguar replacement, as we have learnt is to be the case—presumably in favour of Hawks, Tornados and Harriers—and my hon. Friend confirms his oft-expressed view that he does not want to buy foreign aircraft for use by the RAF, what effect does he believe that the current discussions on future criteria will have on the world-beating, first-rate design team based at British Aerospace, Warton?

As my hon. Friend knows from discussions that he and I have had and from the visits that I have made to the excellent factory at Warton, it will be necessary for British Aerospace to develop one of the projects that it has under consideration—possibly the P110. My hon. Friend also knows that ways are currently being considered whereby it may be possible to find some funding for that. It is not possible at present for us to find funds within the current defence plan.

I congratulate the Minister on the ingenuity, if not the accuracy, of his reply. Is it not a fact that the main constraint with regard to the future budget is financial? Is he aware that the budgetary constraints are forcing the Department to slow down the introduction of the Tornado programme? Is it not also a fact that the other main constraint is political, in that the recent decision to purchase the AV8 B will reduce the British aircraft industry in the future to the role of tin basher to the Americans?

That is an extraordinarily short-sighted view, particularly in relation to the decision on the AV8 B—a decision that will bring about £2,000 million worth of work to this country. I should have thought that the hon. Gentleman would welcome that.

Does my hon. Friend agree that, in looking at the future aircraft needs of the Royal Air Force, it is important to take into account the surveillance role of the United Kingdom defence satellite? Will he help to overcome the uncertainty about the placing of orders for that project?

My hon. Friend will be aware, when he reads what will have to be a written answer to a question by him that appears later on the Order Paper, that that order will be announced today.

Will the Minister add to his long list of criteria the demands that he and many of his hon. Friends made when they were in Opposition, that priority should be given to the air defence of this country? Will he start doing something about providing the aircraft, the ancillary equipment and the people to man those aircraft so that these islands can be secure against a conventional threat?

As the hon. Gentleman knows, air defence has always had a high priority with the Government. It would take too long to enumerate the many measures that have been taken to that end.

Disarmament

11.

asked the Secretary of State for Defence whether he has discussed the zero option nuclear proposals with his counterpart in the United States Government; and whether any consideration has been given in connection with the formulation of this strategy to the withdrawal of Polaris, Vulcan, Buccaneer, British-based F111s and other carrier-based nuclear weapons.

My right hon. Friend discussed the United States' negotiating position for the Geneva talks at the recent meeting of the NATO nuclear planning group. The Government fully support the zero option proposal, which would involve the elimination of all land-based long-range theatre nuclear missiles on each side. The emphasis on land-based missiles in the first stage of the negotiations is intended to make agreement easier to reach. Reductions in other land-based systems on both sides could be sought in a subsequent phase, but the negotiations are not intended to cover either sea-based or strategic nuclear forces.

Does not the Minister agree that the outcome of the zero option negotiations must inevitably mean overwhelming nuclear superiority for NATO forces? Will he therefore confirm to the House that President Reagan's initiative was a propaganda exercise, and will he now attach greater importance to the initiative put forward by President Brezhnev on 23 November, when he offered to dismantle all Soviet SS20s and all medium range theatre nuclear weapons? Is not that a real initiative for peace in Europe, and will the Minister reciprocate on behalf of Britain?

The United States proposal for the zero option was certainly not a propaganda move. The United States position had been discussed for a long time in NATO, and the position that it took during the negotiations was agreed by the NATO council before the negotiations began. In reply to what the hon. Gentleman said about balance, the present position is that when like systems are compared, Soviet superiority is of the order of 4:1 for long range theatre systems, and 6:1 if shorter range systems such as the F4 are included on both sides.

Does my hon. Friend agree that if all the extra weapons beyond theatre nuclear weapons are brought into the Geneva discussions, there is little likelihood of making any progress? Will he therefore continue to urge that a partial agreement about theatre nuclear weapons is better than no agreement at all?

I agree with my hon. Friend. The North Atlantic Treaty Organisation believes that we should start with the most dangerous systems, thus facilitating the prospects of agreement. If we can reach agreement on them, we should then move to other systems as well.

Is the Minister aware that we on the Labour Benches have welcomed the zero option as a basis for negotiation, as it is something for which Socialist parties in Europe have pressed? However, we recognise that it is impossible to confine the negotiations to those weapons. Why do not the Government agree to include the Trident escalation in the talks, when the SS20 escalation and the cruise escalation are included?

I have already dealt with our own strategic nuclear deterrent, and I have nothing to add to what I said.

Officers (Retirement Pensions)

12.

asked the Secretary of State for Defence what, in percentage terms, was the last increase in the retirement pensions of officers of general rank and their equivalents in other services.

Under the annual uprating arrangements for public sector pensions, increases of between 0·76 per cent. and 9·06 per cent. were paid from 23 November 1981 to all Armed Forces pensioners over the age of 55.

Why should the well-off brass hats get 9 per cent. when workers in defence industries are expected to take 4 per cent. next year? Why do Conservatives look after the generals so well and ignore the shop floor labourers?

That is a matter for my right hon. Friend the Secretary of State for Social Services.

Does my hon. Friend agree that there are problems over the pay and pensions of two-star generals and above, since they are not included in the determination of pay and pensions for the rest of the Services? That should be investigated.

Northern Ireland Ports

14.

asked the Secretary of State for Defence what vessels of the Royal Navy are normally based in Northern Ireland ports.

The Fleet tenders HMS "Alert" and HMS "Vigilant", and the Ulster RNR vessel HMS "Laleston".

Does my hon. Friend agree that successive Governments have continually ignored the strategic significance of Northern Ireland waters, not least in connection with NATO? Will my hon. Friend have another look at this matter, with a view to stepping up significantly the Royal Navy presence there?

I hope that my hon. Friend is not simply referring to basing, because the surveillance of the seas around Northern Ireland is the same as around all our other coasts.

Is my hon. Friend aware that while we regularly and properly pay tribute to the security forces in Northern Ireland, there is a tendency to forget the Royal Navy's surveillance work around our coasts? Will he say that we have not forgotten it?

I am sure that what my hon. Friend says will be welcomed by the sailors who, as he rightly says, do a first class-job in stopping illicit gun-running and other activities in that area.

Territorial Army

asked the Secretary of State for Defence if, in view of the current expansion proposed for the Territorial Army, he will take steps to repair Territorial Army drill halls, especially those which originated in Victorian times.

We plan to spend more money next year on a wide range of works services for the Territorial Army, including the repair and improvement of existing accommodation where necessary.

I remind my hon. Friend that in Victorian times people were still casting and using muzzle-loading cannons. Since then there has been a change in hardware. Will he ensure that our expanded Territorial Army will not have to work in muzzle-loading drill halls?

Our Victorian ancestors were good at building and selecting sites for drill halls. Where necessary the drill halls have been repaired and updated, and they are often in the right positions. Of course, buildings are adapted for modern weapons.

17.

asked the Secretary of State for Defence by what date he expects first to establish and then to recruit the additional 16,000 members of the Territorial Army in accordance with his most recent proposals.

We are continuing to develop our expansion plan, bearing in mind the operational requirement and the likely availability of resources. We envisage a controlled expansion in stages during the 1980s taking account of our ability to recruit and train the extra men. A high priority will be given initially to measures that improve the training and professional standards of the Territorial Army as a whole.

I thank my hon. Friend for that reply. May I ask him to look into the possibility of using the officers and senior ranks who recently completed their training with the Territorial Army and are on the unposted list, and who have skills that would be extremely useful in expanding the Territorial Army?

I understand what my hon. Friend is saying, but I must tell him that the unposted list is not for that purpose. However, I shall look at the general question and write to him.

Prime Minister

Engagements

Q1.

asked the Prime Minister if she will list her official engagements for 8 December.

This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today. This evening I hope to have an audience of Her Majesty the Queen.

In view of the very real success of the Government's loan guarantee scheme to small businesses, whereby 1,500 firms have received loans since June, will my right hon. Friend, in a characteristically busy day, consider arranging the loans limit, which at present is £150 million, on a three-year basis?

My hon. Friend is quite right in saying that the take-up of the loan guarantee scheme has been excellent during the early months of its existence. The financial allocation for the first year, in response to high demand, was increased from £50 million to £100 million. In view of that record, and bearing in mind that this is where new jobs will come from, I can assure my hon. Friend that if the demand goes up he can be optimistic that the resources will be there to meet it.

In view of the right hon. Lady's duties in the House today, can she confirm that by next month the average unemployed family man will be £13 per week worse off than he would have been if her Government had not cut his benefits?

I cannot confirm any such particular figure. However, I well remember that in 1976, when a question of increase in benefit arose under the Labour Government, the Labour Government changed the basis on which the retail price index was calculated, thereby depriving those in receipt of benefits of some £500 million that they otherwise would have received. That is equivalent to over £900 million this year.

Will the right hon. Lady refer to benefits in 1981 and 1982, for which she is responsible, and not take cover in what she alleges happened five or six years ago? Will she say whether the figure is correct, because she is directly responsible for it? Will she now tell us when the value of benefits for unemployed people will be restored to the value that it was when she came to office?

If the right hon. Gentleman wishes to ask a particular question, doubtless he will address it in writing to the relevant Minister. I try to compare what he says in Opposition with what he does when he is in power. He queries the facts that I gave. May I quote from what Barbara Castle said about them.

She said:
"It is clear that if we had this time"—
in 1976—
"adopted the historic method, an additional burden would have been put on the worker and wage earner of £500 million for this uprating, and it would have had inevitable consequences in due course on the contribution rate."—[Official Report, 7 April 1976; Vol. 909, c. 431.]
Under pressure, the then right hon. Member for Blackburn reduced benefits below the amount that would have been payable on the former inflation rate basis.

Will my right hon. Friend give an assurance that she will not seek to use her position as leader of the Conservative Party to purge Conservative candidates who may be selected?

The Prime Minister talks about hon. Members saying one thing in Opposition and another when they are in Government, but does she recall the Tory promise not to raise prescription charges? The Government have raised prescription charges fron 20p to £1 and today we shall debate a further increase, bringing prescription charges to £1·30.

Order. The Prime Minister must be allowed to give her answer. I hope that the Prime Minister will not fight to be heard. She is entitled to be heard.

I can vividly remember being asked that precise question at a press conference during the general election. I can remember the meaning of my answer, if not the precise words—[Hon. Members: "Ah!"]—and the meaning was quite clear. That meaning was that no responsible politician could give an undertaking that prescription charges would not be increased in the course of the following five years.

Q2.

asked the Prime Minister whether she will list her official engagements for 8 December.

I refer my hon. and learned Friend to the reply that I gave some moments ago.

Will my right hon. Friend take this opportunity to deplore the Soviet Government's callous treatment of Dr. Sakharov and to condemn the Soviet Government's ill treatment of a long line of prisoners of conscience, including Ida Nudel and Anatoly Shcharansky? Will she also deplore the Soviet Government's refusal to allow thousands of Soviet Jews to have exit visas to join their families elsewhere? Such actions are all in flagrant and contemptuous disregard of the Helsinki Final Act and fundamental human rights.

I confirm that the Government have frequently made representations about the Soviet Union's blatant disregard of its commitments under the Helsinki Final Act. We have also frequently raised individual cases with the Soviet Union, including those mentioned by my hon. and learned Friend. Yesterday, the Foreign Office issued a statement about Dr. Sakharov and today, Foreign Ministers in Brussels are considering that problem again. We deplore the circumstances that led Dr. and Mrs. Sakharov to go on hunger strike. We very much hope that the Soviet authorities will let the wife of Dr. Sakharov's step-son join her husband in the United States of America and that they will desist from further harassing Dr. and Mrs. Sakharov.

Is the Prime Minister aware that her Government's indecision about local government legislation—particularly the Local Government Finance Bill—is causing widespread comment and concern throughout the country? Is the right hon. Lady further aware that local authorities are on the point of preparing their budgets for the financial year and do not know what basis to use? What are the Government's intentions?

The Government's intentions will soon become apparent to the hon. Gentleman, but I take it that he, too, is concerned about the very high rates and supplementary rates that his constituents are being charged.

Will my right hon. Friend take time today to reflect on the fact that some of us understand—although we do not altogether welcome—the American Government's sympathetic interest in the problems of Northern Ireland? Will she make it clear to the American Administration that the Province's present and future are entirely a matter for the sovereign Government of this kingdom?

I gladly confirm what my hon. Friend has said. The future of Northern Ireland is a matter both for the people of Northern Ireland and for the United Kingdom Parliament. I should also make it perfectly clear that in his letter President Reagan said that he equally understood that the matter could not be solved in any way by the United State of America but only by those concerned.

Has the Prime Minister had an opportunity to read the reports, which appeared over the weekend, about the widespread use of drugs by American naval personnel in Scotland and about the incident involving a Poseidon missile, in which an explosion was narrowly averted? Given the widespread alarm in Scotland that has been caused by a combination of those two reports, what action do the Government propose to take?

I do not believe that any danger was involved in the incident reported. Of course, I shall draw the comments about drugs to the notice of my right hon. Friends the Secretary of State for Scotland and the Home Secretary.

Will my right hon. Friend reassure President Reagan that she will not support the return of Texas to Mexico against the wishes of the majority of the inhabitants of Texas?

Q3.

asked the Prime Minister if she will list her official engagements for Tuesday 8 December.

I refer the hon. Gentleman to the reply that I gave some moments ago.

Will the Prime Minister take time off today to tell us when she expects to achieve the three main objectives contained in the Conservative Party's last manifesto? Those objectives were to reduce unemployment, income tax and inflation. Under her stewardship unemployment has doubled, income tax has increased for everyone except those in the top income bracket and inflation is now higher then when she took office.

Perhaps I should remind the hon. Gentleman that unemployment also doubled under the Labour Government.[Interruption.] Labour Members do not wish to be reminded of the fact that it increased by 1 million under the Labour Government. Doubtless the hon. Gentleman was as distressed about that then as I am about today's position. The reduction in unemployment lags behind the increase in production. As the hon. Gentleman will know, increases in production are now taking place. When the hon. Gentleman's Government left office inflation was rising fast and several price increases had been deliberately held back for the general election. Inflation is now falling and although there will be a difficulty for a month or two—caused by the differences in the exchange rate—we expect the reduction to continue next year.

As regards taxation, I shall be delighted when Labour Members recognise that expenditure has to be substantially covered by taxation. Perhaps they would run such a dishonest policy that they would run up debt as far as they did in 1976, when the country's—[Interruption.] I hope that hon. Members will allow me to answer the question. In 1976 the country's reserves were down to $4 billion and the Labour Government's debts were as high as $19 billion. Under the Labour Government, the country was dead broke.

Has my right hon. Friend had time to read the recent press reports, which say that Britain will join the European monetary system in the spring? Is it not clear that the mutual support available within the EMS would have at least prevented some of the recent wide fluctuations in the exchange rate? Would it not help British industry if we stopped agonising and joined the EMS now?

The question of the EMS will come up at the next European Council. I do not necessarily accept that our joining would have prevented the wide fluctuations. As a petro-currency, our currency tends to go up at a time when the currencies of other countries tend to decrease. It has not stopped devaluations and revaluations within the EMS. The matter will be considered again, although I would not necessarily accept what my hon. Friend says.

Will the Prime Minister be discussing today with her right hon. Friend the Secretary of State for Employment his plans to open further unemployment benefit offices? Will she also be discussing with him the plans and proposals put forward by Sir Derek Rayner, whom she appointed, to pay for some of these new offices by reducing public waiting areas in them so that the public have to wait outside dole payment offices in the cold and rain for their benefit?

I cannot discuss the matter today. My right hon. Friend is presiding over a meeting in Brussels of Labour Ministers of the Community. The Rayner proposals were made because those who are unemployed at the moment have to go to three places—the jobcentre, the unemployment benefit office and also, sometimes, the social security office. It was thought right to try to reduce the burden imposed upon them in having to go to those three places. I am sure that it is a wise move to try to make. It will take time, because it means the construction of different offices.

Statutory Instruments, &C

Ordered,

That the draft Hill Livestock (Compensatory Allowances) (Amendment) Regulations 1981, be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Boscawen.]

Welsh Affairs

Ordered,

That the matter of Housing in Wales, being a matter relating exclusively to Wales, be referred to the Welsh Grand Committee for their consideration.—[Mr. Boscawen.]

Orders Of The Day

Public Expenditure Proposals 1982–83

I have selected the amendment in the name of the right hon. Gentleman the Leader of the official Opposition.

3.32 pm

I beg to move,

That this House approves the Statement made by the Chancellor of the Exchequer on 2nd December; welcomes the Industry Act forecast for 1982 of lower inflation and rising output; approves the provision of extra resources for employment and training measures, particularly for the young; supports the Government's decision to maintain the real value of retirement pensions and to continue the Christmas bonus for pensioners; and endorses the decision to allocate extra money for capital investment by nationalised industries and for the defence programme.
Five years ago next week, on 15 December 1976, the House was told by the right hon. Member for Leeds, East (Mr. Healey) of the previous Government's decision to abandon their economic policy and to place the management of this country's finances in the hands of the International Monetary Fund. In their case, it was no doubt a prudent decision. We certainly do not intend, nor do we need, to follow their example.

It is worth remembering why the decision was necessary in the case of the previous Administration. It was because they had forgotten or were determined to disregard a fundamental truth—that the size of public sector which can be afforded depends upon the health of the private sector, and not the other way round. Between 1973 and 1975, public spending as a proportion of GDP rose from 39 per cent. to 46½ per cent. In those circumstances, the prescription which the International Monetary Fund had to offer was not more public spending, but less.

That is the background against which to consider the proposals which I announced last week. In that announcement, I was concerned, of course, not only to describe the Government's broad plans for public spending next year but also to explain the pattern of benefits and how we proposed to adjust the arrangements for financing them through the national insurance system. They are announcements that are always made at this time of the year. They are not a mini-Budget.

I cannot emphasise too strongly that this is not the moment to decide the overall balance between spending, on the one hand, and taxation and borrowing, on the other. That must wait until near the time of next year's Budget. Only then will we have a clearer view about the revenue prospects for next year and be better able to judge the appropriate size for the gap between expenditure and revenue. We shall have to bear firmly in mind the danger of making too great a demand upon the nation's savings and thus saddling the private sector with an excessive level of interest rates. At this stage I am neither threatening an increase nor promising a relaxation in the burden of taxation.

All that, at this stage, I do assert is that those who profess now to be able to say that the effect of the measures I announced is, in their terms, deflationary or reflationary, are deluding themselves, and perhaps others. Unless theirs is a truly blinkered vision, having seen only one side of the account, they cannot possibly know.

What we must do—the motion before the House does this—is to consider the proposals for public expenditure plans on their merits. I commend them to the House for two reasons: first, because I believe that the new planned total for public spending—I shall have more to say about that in a moment—is correctly judged; and, secondly, because it represents a sensible balance between the elements that make it up.

It must be evident to all, save those who will not see, that we have responded in a realistic way to changed circumstances. From the outset, we were not looking this year for a cut but for an increase in the total. Our discussions in Cabinet were about how much that increase should be. We concluded that it would be right to raise total planned public expenditure next year by nearly £5 billion in cash. Some of that increase represents a considered response to what must be considered undesirable developments. I think, particularly, of overspending by local authorities, which continues to play such a large and damaging part in limiting our ability to ease the burden of public spending on the private sector. I have in mind, too, the growing Soviet threat to the North Atlantic Alliance. Heavy though the cost may be, we on this side of the House believe that the United Kingdom must continue to play a full and responsible part in the Alliance, and we shall do so.

A substantial part of the increase in planned public spending next year reflects a conscious and deliberate response to changed circumstances. Nowhere is that truer than in our proposals to increase spending on employment measures. It is right that those in work should be asked to contribute to giving the young jobless a better chance.

My right hon. Friend the Secretary of State for Employment will shortly be announcing radical changes in the employment programmes, with the emphasis on training for the young. The total cost of those programmes next year will be almost £3 billion, £800 million more than was originally planned. Frankly, although Oppositon Members have attempted the feat, it is hard indeed to present these as the decisions of an inflexible Government.

The windy rhetoric, the instant and unthinking denunciation, to which the right hon. Member for Stepney and Poplar (Mr. Shore) resorted in his reaction to my statement last Wednesday may, in his view, help to divert attention from the battle of Bermondsey, but it does him little credit, and it helps the unemployed, and the country at large, not at all.

Will the Chancellor take note that any suggestion in the employment measures for the young unemployed of an allowance as low as £15 and any suggestion of compulsion will defeat completely the whole objective of relaunching the youth opportunities programme? It will be rejected by the young people and also by all those concerned in the service.

I must ask the hon. Gentleman to await the announcement of my right hon. Friend. It is the concern of the Government, as it must be the concern of the whole House, to secure the most effective use of the large resources being made available in imposing the training and employment opportunities of the young unemployed.

Another area in which we have increased provision is that of the nationalised industries, whose external financing limits are being set some £1·3 billion higher than we previously planned. We expect them to redouble their efforts to hold down their current costs. Every 2 per cent. on their pay bill is worth £250 million, which could itself go to enhance investment. We have announced a continuing programme of surveillance by the Monopolies and Mergers Commission. The spending plans that I have announced should enable the nationalised industries to finance capital investment next year at a level that is about 15 per cent. greater in real terms than it was last year. I remind the House that this year and next we can expect investment by those industries to be at a higher level than in any year since 1976. So I invite the House to dismiss criticism from the Benches opposite and to reject out of hand the repeated myth that we have been starving the nationalised industries of investment resources.

On the issue of British Leyland, can we take it that the Treasury will give every help to the Comptroller and Auditor General in his investigation into the question of public money following privatisation and especially the sale of British Leyland assets from the tractor line at Bathgate?

I know that the hon. Gentleman expressed extended concern about that matter in the debate last week. We shall be paying attention to the points that he raised and to all the points raised in the debate.

I shall not go further in answer to the hon. Gentleman's point now.

There has understandably been some particular concern about proposals on social security benefits, but it is important in such matters not to lose a sense of perspective, because the sheer size of social security spending—nearly £30 billion next year, nearly double the cash expenditure in 1978–79—is something of which we must take account.

As a proportion of GNP, public spending on social security has risen from 8·4 per cent. in 1970 to 10·7 per cent. in 1979. As a percentage of public expenditure, the rise over those same 10 years is even more dramatic. It has risen from 14 per cent. to 25 per cent. of total public expenditure.

The main cause of the increase in total social security expenditure has been the need to pay for pensions. Of the £2·5 billion planned increase in social security spending between 1981–82 and 1982–83, much the larger part goes for retirement pensions.

I am in somewhat of a dilemma, because by Government action in two years' time about 7,000 people will be out of work in Chatham dockyard. I resist anything that would cut down their benefits when they lose their jobs through no fault of their own.

I understand my hon. Friend's concern about Chatham dockyard and the concern of other hon. Members who have interests in the programme. That is why one of the other increases in expenditure that I announced on Wednesday is an increased provision for the defence programme. I shall deal with that matter in a moment.

Benefits have, broadly speaking, kept pace with inflation during the years since 1948. We intend to increase all benefits by what we expect to be the increase in the RPI by November 1982. The final figure will not be determined until the spring of next year. The present estimate is 10 per cent., but as the House knows we do not propose to make good the shortfall on short-term benefits against inflation in the year ended November 1981. The effect will be to save about £65 million in the first year, which is £180 million in a full year. On all the matters, especially the amounts of the 1982 uprating, final decisions will be taken as usual, as I have explained, next spring. We shall of course listen carefully to the views that hon. Members, including of my hon. Friend, may have on the matters.

As I have explained, the most costly and most important commitment in the whole social security programme is the undertaking to maintain the real value of retirement pensions. That is a commitment that we have been determined to fulfil. It is because of the high priority that we give to it that we have to look for savings elsewhere.

Retirement pensions have been fully price protected. They will be higher in real terms in November 1982 than they were in November 1978. That is in sharp contrast to the way in which pensioners were treated by the Labour Party. The House will remember, as the pensioners certainly do, though hon. Members opposite may wish to forget, how the previous Administration withheld £500 million from the pensioners—over £900 million in today's prices—by changing the basis of the uprating in 1976. Again, unlike the Labour Party—which cancelled them in 1975 and 1976—we have continued to pay the Christmas bonus introduced by the previous Conservative Government, under the leadership of my right hon. Friend the Member for Sidcup (Mr. Heath). So let us hear no more talk of a Scrooge-like Chancellor, especially from the wraith-like figures opposite, the ghosts of Christmas past.

Is it therefore the Chancellor's intention to revert to the previous method of assessing the uprating?

That is a question which no doubt the right hon. Gentleman asked himself and answered in the negative, thereby taking advantage of the £500 million to which I have referred.

The other element of the announcements about national insurance was, of course, the increase in contributions. We were determined to see that the increased burden of those contributions was sensibly shared.

Between 1977 and 1980, real personal disposable incomes rose by 17 per cent. Over the same period, company real income fell by about a third. That trend is being reversed, as it must be if output is to rise. The measures that we have announced will continue that necessary process of adjustment.

The amount which employers will pay will not rise by virtue of any increase in the contribution rate but only because of the increase in the level of wages that they pay, and because of the modest increase in the upper earnings limit, which takes account of that. The real burden on employers, when compared with the expected movement of prices or earnings, will in fact fall.

Again, that is in marked contrast to the performance of the Labour Party. When they were in Government they introduced and then increased the national insurance surcharge to its present rate of 3½ per cent. and they increased the employers' rate of national insurance contributions by 1½ per cent. Of the present total rate of employer's contribution of 13·7 per cent. a full 5 per cent. was added by the previous Government. Under this Government, I repeat, the real burden on employers is expected to fall during the two years from April 1981.

When my right hon. and learned Friend comes next spring to the uprating of unemployment benefit, can he assure the House that that benefit comes out of the national insurance fund and not out of the Consolidated Fund and therefore does not affect the PSBR? As the fund now stands at £5,000 million, which is a large increase from when we came to power, there does not seem to be any reason why unemployment benefit cannot be uprated by the 2 per cent. short fall.

That is no doubt an argument that my hon. Friend will develop during the debate, along with others. The changes that I have announced and which the Government have been carrying through in the distribution of the burden of contributions to employers and employees is a clear recognition of the theme with which I started my speech—that a large public sector is in no sense an engine of faster growth. On the contrary, it adds to the burden of rates, taxes and interest charges that falls upon the private sector. That is why the House in this as in every other debate on public spending must be mindful of the fact that, during the past three years, public expenditure has risen, as a proportion of GDP, from 41 per cent. to about 45 per cent.

The plans that I announced on Wednesday would set public expenditure for next year at about the same level in real terms as in the current year. However, with the renewal of growth in the economy, there is a real prospect that, as a percentage of GDP, public expenditure will once again begin to fall. That should be welcomed, even by those who have not always expressed total support for our policies.

I have in mind, for example, Mr. Roy Jenkins, the still-exiled Ayatollah of the Social Democrats, who, in a famous phrase, remarked that excessive public spending—not effectively above the present level—would endanger the "values of a plural society". We should take that warning very much to heart.

I think, too, of my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) who, in expressing his strong support for the 1980 Budget, remarked:
"Our top priority is to beat inflation, and that has involved tough decisions to reduce Government spending. Without the cuts in spending, we cannot get down Government borrowing, and that would mean no prospect of a fall in interest rates."
I find it a little strange that someone who was then so anxious to get public spending and borrowing down is now apparently dismayed by our reluctance to let them go up by as much as he would wish.

As I said at the outset, now is not the time to set the scale of public borrowing for the next financial year. It must, however, be modest enough to offer the prospect of lower interest rates and it must do that within a framework of monetary policy which takes proper account of the exchange rate and of the need to maintain a steady but not excessive downward pressure on the growth of the monetary variables. I shall bear all those factors in mind when the time comes to shape the next Budget.

I want to deal today with the challenge that is repeatedly thrown at us by the official Opposition—as the House is still obliged to call them—and the Social Democrats. That is that the level of interest rates can somehow be disconnected from the amount we need to borrow. We are urged to borrow more and at the same time to cut interest rates. Precisely how that feat is to be performed is never explained; certainly it is contrary to the experience of every other Government.

Is it to be achieved by direction of savings—ordering the institutions to reserve a certain portion of their cash flow for investment in gilts? That might appeal to the right hon. Member for Bristol, South-East (Mr. Benn) and his friends. But is that the suggestion of the Social Democrats? Do they believe in the direction of savings? I hope that they will tell us this afternoon if they do. But even that would not get them very far.

I understand the right hon. and learned Gentleman's problem in ensuring that money is available for the purchase of gilts that he puts on the market. Would it not have helped a little if exchange control had been retained, and the billions of pounds that have gone overseas had been used for the regeneration of British industry?

One matter that has concerned the right hon. Gentleman so much at various times during the past two years has been the high level of the exchange rate. The one certainty of retaining exchange control would have been to have kept the exchange rate high. The extension of controls is a classic way to drive international money away from Britain. At the very least we are entitled to hear from those who argue for more expenditure and lower interest rates a coherent explanation of how they think that combination can be achieved.

I do not want to exaggerate the differences between different parts of the House. We agree as to the end, for we all want to see continued, sustainable expansion and growth in order to secure a fall in unemployment. While our Industry Act forecast does suggest that the rapid increases in unemployment of the recent past will not be repeated next year, no one in any part of the political spectrum offers any prospect of an early return to what we used to call full employment.

The National Institute for Economic and Social Research, for example, which proposes a representative reflationary package of £5 billion—which seems to place it some way between Devonport and Ebbw Vale—predicts that on the most optimistic assumptions that would lead to a reduction of only 150,000 to 300,000 in the number of registered unemployed, and that over a five-year period. I beg the House to take note of that modest figure, for it is a measure of the limited extent to which the old-fashioned cure—the quick-fix reflation—would match up what is required now, in a world that is very different from the one in which the veterans on the Opposition Benches learned their economics.

The unemployment that we are witnessing today reflects in large measure the policies of earlier years. Before too long now, we should be moving into conditions where the prospect for jobs should begin to improve.

[HON. MEMBERS: "When?"] Indeed, we can see some of the early signs. Short-time working is down to a quarter of what it was at the start of the year. Overtime has correspondingly increased, and vacancies are also up. Instead of trying to achieve quick results with a high risk strategy—the policy that has been tried so often before—we have set about creating a framework for soundly-based recovery.

My right hon. and learned Friend must be aware that his own projections show unemployment increasing substantially during the next 12 months. He commented on the NIESR proposal. Will he say something about the plan announced yesterday by three economists to produce a substantial decrease in unemployment?

The plan announced yesterday goes far beyond the calculations of more responsible and restrained suggestions. We must remember that the principal author of the plan was the chief economic adviser to the Labour Government from 1974 to 1977. In 1976, similar policies had to be restricted as a result of reverting to the International Monetary Fund. The track record of that group of advisers does not command a great deal of confidence.

We have told the Government Actuary to assume that average unemployment, excluding school leavers, for next year will be 2·9 million compared with 2·6 million this year. However, that does not mean that unemployment this time next year will be 300,000 higher than it is at the moment. The figures are the averages for the two years, and we are already two-thirds of the way through the first of them. Those averages are, in fact, consistent with a substantial reduction, or even a complete flattening out, in the rate of increase in unemployment during the next 12 months.

I repeat, we are setting about the creation of a framework for soundly based recovery. Instead of trying to generate higher domestic demand, through higher public spending, we have recognised that the need has been to reverse the decline in the international competitiveness of our industry. That is the only real way to higher volume of output and to more jobs that will last. Markets are opening up in this country and overseas which, through innovation and low unit labour costs, can be ours, and we are already beginning to win them.

Our critics at the time of the Budget were more than a little sceptical of that approach. The right hon. Member for Stepney and Poplar—never prone to understatement—was most explicit in his denunciation. He said that the Budget offered the prospect of stagnation, and, more probably, a renewal of decline. He could not have been more wrong. He surpassed even his own record for lugubrious false prophecy. What has happened since has been very different. It has indeed been very similar to the predictions made by the Government at the time of the Budget.

In fact, the fall in industrial production soon came to an end. It is now on an upward, not a downward trend. So, too, is manufacturing output. So, too, is GDP. It is that prospect of continuing improvement during the next year which the Industry Act forecast portrays. GDP at constant prices is expected to rise by about 1 per cent. in 1982, and manufacturing output much more steeply than that. Inflation is expected to come down to 10 per cent. and still to be falling at this time next year. If we can continue the progress of the past 12 months towards more moderate settlements, at a time when world commodity prices appear to be moving in our favour——

The right hon. and learned Gentleman's optimism is denied by all the sample surveys in industry. This week the CBI reaffirmed that it envisaged no growth in industry above 1 per cent. during the coming year. It said that information shows that not only will industry stagnate, it will decline. The engineering industry has predicted that 90,000 workers will be unemployed by next June. How does the right hon. and learned Gentleman reconcile that with the figures that he has presented to the House.

I invite the hon. Gentleman to consider the figures that he has quoted. If he is anxious to see nothing but gloom and decline, it is easy for him to translate even optimistic figures into pessimism. He quoted the figure given by the CBI of a 1 per cent. growth next year, and turned that into a prospect of stagnation. Of course, we want to see faster growth than that, but we are living in a world where growth throughout the OECD countries is not taking place at a faster rate than that. In some of those countries there is a decline in output. The prospect of an increase in output should be commended rather than condemned.

Beyond the prospect of a growth in output generally, we envisage manufacturing output increasing much more steeply. If we can keep up the progress towards more moderate pay settlements, at a time when world commodity prices look like moving in our favour, there is no reason why the recovery in the profitability of private industry—which is the precondition for investment and secure employment—should not go hand in hand with a significantly lower level of inflation by the end of 1982.

Medium-term forecasts, after all, are essentially based on the projection of past trends, but there is no reason why we should not do better than that, and there are clear signs that we are beginning to do so, for as one looks at the real economy, the signals of recovery are beginning to multiply.

In the public sector, for example, we have the case of British Steel. At Llanwern and Port Talbot BSC management and workers are making their works some of the most competitive in the whole of Europe. At Llanwern they are breaking previous production records week after week. British Steel has the chance of halving its deficit in the present year and of breaking even in the year after that. There is similar progress to report from British Shipbuilders, which has secured more than £700 million worth of new business in the current year.

There are clear signs of improvement in the private sector as well. Pay increases in the last round were about half a high as in the year before. There are encouraging signs of further moderation in the present round. It is crucial that those should be maintained. Productivity is up. Output per head in manufacturing industry in the second quarter of 1981 was 5 per cent. higher than six months before. The CBI, quoted by the hon. Member for Tottenham (Mr. Atkinson), expects a rise of 10 per cent. by the end of the year.

As a result, British industry is becoming more competitive. So far this year we have regained at least 10 per cent. We are beginning to price ourselves back into business around the world.

Does the Chancellor agree that the country and the House might be more convinced of the message he is seeking to give us if he could prove that the aggregate level of demand arising from the measures he announced last week would be increased? Can he do that?

I explained to the House earlier that judgments of that kind, based if the hon. Gentleman so wishes on the measures of last week, can be made when the Budget is announced and not before. We shall be looking at both sides of the equation. In the meantime, I invite the hon. Gentleman to look at the results of the changes to which I have referred, which are now beginning to come through in increased orders, higher output and ultimately, in employment as well. Small businesses, in which the House takes a close interest, are playing an important part. Under our new loan guarantee scheme, still less than six months old, more than 1,500 businesses have already been helped.

Exports appear to have been holding up well this year in difficult world trading conditions, and for the future the export prospects look good for chemicals, electronics, coal and petroleum products. Engineering export orders in the last quarter are 14 per cent. up. Orders and output at home are picking up as well.

Home engineering orders are up. Private sector housing starts are up by over 40 per cent. in the year to the third quarter of 1981. Construction industry orders, as a whole, are up 10 per cent. on the second half of last year. Total construction industry output, which rose 2 per cent. in the third quarter of this year, shows the first rise since the third quarter of 1979. Between the second and third quarters of this year total industrial output rose by ¾ per cent. while manufacturing output increased twice as fast as that.

Therefore, if one looks objectively at these indicators, one finds that the picture is one of progress in the right direction. These improvements are not the hothouse product of any short-sighted switch of policy. They result from real and sustainable changes in our economy, changes that we all know to have been long overdue. The way to continue this process of improvement is not through some necessarily short-lived spending spree. The way ahead is to build on the achievements of which the signs are now beginning to appear. Even in today's hostile world, the prospect of completing the reversal of Britain's humiliating economic decline is now before us. The Government's plans are designed to further that process. That is why I ask the House to endorse them today.

4.4 pm

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

"rejects the statement made by the Chancellor of the Exchequer on 2nd December; deplores the failure to make good the 2 per cent. shortfall on unemployment benefit and other allowances; expresses its grave concern that the measures outlined by the Chancellor of the Exchequer will further increase unemployment, raise the level of prices and industrial costs and place still heavier burdens on local authorities; and calls upon the Government to abandon its totally discredited Medium Term Financial Strategy and to initiate new policies designed to increase output and reduce unemployment".
I have read out that long amendment in full because it comprehensively summarises what the Opposition are saying and what we are objecting to in the Chancellor's statement and policies.

When the Chancellor introduced his Budget in March of this year, I congratulated him on uniting the nation, for the first time in two years, in nearly universal condemnation of both his proposals and his strategy. Reading the reactions to his mini-Budget last Wednesday—reactions sustained and intensified as the impact of his measures has sunk in during the past few days—I must tell him that he has done it again. Certainly he has said nothing this afternoon, in amplification and justification of his measures, which will cause anyone to revise the condemnatory judgment that he had already formed.

If, perhaps, we had not heard at regular intervals since this time last year the careful raiding of statistics in order to bring together just a sufficient collection of optimistic items to confuse the House, if this were the first time that we had heard it, we might give it some credence at present. But I only remind the House that we heard exactly a year ago that the economy had bottomed out. Then we had what I call "operation optimism" from the Prime Minister—her Christmas message and New Year message to the nation. Then we had it, again and again, with every single debate. We have had it, almost predictably, in full measure this afternoon.

I know that there are many unhappy Conservative right hon. and hon. Members, as well as those right hon. and hon. Members on the Opposition Benches who are furious but they are far too sophisticated, surely, to be taken in by the sort of nonsense that has been paraded before them yet again this afternoon.

The Chancellor should not be distracted by what the Press Gallery and the commentators say about himself and his performances, for that might lead him wrongly to believe that if only he were less mulish in his response or more entertaining or agile in his presentation he could yet regain the enthusiastic support, the waving of Order Papers, that greeted his first Budget in May 1979, or even the tolerant but increasingly tight-lipped understanding with which his subsequent Budgets have been received.

No, it is not the manner; it is the content. If the Chancellor could speak with the tongues of angels, nothing could now gloss or conceal the immense damage that he has done and is continuing to do to the people of this country and to their future hopes.

Looking back over the past two and a half years, the conduct of economic policy by the Prime Minister and her right hon. and learned Friend the Chancellor has been in a class of its own—qualitatively different, qualitatively worse than that of any Government in the 36 years since the end of the Second World War; and marginally worse than that of their far less well equipped predecessors facing the catastrophe of the great slump in the pre-war years.

I cannot help marvelling at their achievement. To have succeeded in actually reducing our annual wealth creation, our gross domestic product, by 7½ per cent. in less than three years; to have slashed our industrial output by no less than 16 per cent. ; to have increased unemployment by 1,700,000; to have done all this during a time when Britain, in an energy-starved world, has become self-sufficient in North Sea oil, which has itself provided the Government with additional revenues of some £5 billion a year and a balance of payments contribution of £7 billion a year, and which has contributed, on its own, no less than 2 per cent. to GDP—to have done all this is an achievement of such astonishing magnitude that whatever else may befall the Prime Minister and the Chancellor in their political lives they have marked for themselves a place in our national history which time will never erase and which our long-suffering people will neither forgive nor forget when the next election is called.

But the Chancellor has not yet grown weary of ill-doing. Last Wednesday, trapped in his own spiral of economic decline, he ensured that, within the limits of Government action, little or no economic recovery will now take place. There will be growth of 1 per cent. against a background of the decline of our economy in the past two and a half years. That is the right hon. and learned Gentleman's prospect.

The £5,000 million increase in public expenditure in 1982–83 seemed to be a ray of light that would pierce the intellectual gloom of the Cabinet room, but, as our exchanges last Wednesday made plain—the Chancellor did not resile from his position this afternoon—the £5 billion is a monetary and not a real increase. If the right hon. and learned Gentleman's optimistic inflation assumptions prove correct, public expenditure will be the same in 1982–83 as it was in 1981–82. There is no reflation there.

Defence spending apart, main programmes are to be cut yet again. Apart from any new curbs that are introduced this year, the cut in the percentage grant to local authorities from 59 per cent. to 56 per cent. will inevitably bring a further fall in local Government expenditure.

The programme of local authority housing, which has virtually collapsed, is to continue at the lowest level of which we have record or memory. To assist in the further curtailment of domestic expenditure, rates are bound to rise by 8 per cent. to 10 per cent. as a direct consequence of what the right hon. and learned Gentleman has announced. If the £2·50 a week average council house rent increase takes place, there will be yet another reduction in spending power. That will be the consequence also of the further increase in Health Service charges.

Last Wednesday I said that the further rent increase will mean that within three years council rents will have increased by over 100 per cent.—to be precise, the increase will be 125 per cent. When the Chancellor replied he made the astonishing statement that rents would be only 7 per cent. of average earnings. I think that that was to mislead the House. The only possible way in which the Chancellor could reach such a figure would be to include—I am not aware that this has ever been done before in these calculations—rebated rents along with the rents that ordinary council tenants pay. Unrebated rents will rise from 6·4 per cent. to 8·8 per cent. of average earnings, to a level higher than that reached at any time within the past decade.

Such increases as there are in public expenditure will be shown to be not real increases over this year's public expenditure but as the Chancellor's temporary abandonment of still further cuts, originally programmed in 1982–83, as they affect nationalised industries and local government spending. As the right hon. and learned Gentleman's targets in both these areas were unrealistic in the first place, there is little comfort to be drawn from such increases in public expenditure.

That apart, there are bound to be increases in unemployment pay. That is because the number of those who are unemployed will continue to grow. Having listened to the Chancellor this afternoon, one would think that growth in the social security budget was a reflection of his generosity and virtue, and not of the penalties and the pain that he has inflicted on so many of his fellow countrymen.

The Government Actuary has underestimated every year the effect of the Government's measures on unemployment. However, the new estimate is 2·9 million unemployed on average. It shows that the trend is still upwards and it takes no account of the many school leavers, students and others who will swell the totals during 1982.

Of course, the Chancellor is increasing expenditure on youth opportunities programmes and training schemes but these measures reduce what would be a still higher bill for the many who would otherwise be on the unemployment register.

Then there is the meanness and the immorality of the Chancellor's treatment of the poorest sections of the community. It is adding insult to injury deliberately to deny the unemployed, who are unemployed as a direct consequence of the right hon. and learned Gentleman's policies, compensation for his under-estimation of inflation this year. Unemployment pay, as with the pay of others on short-term benefits, is to be cut by 2 per cent. against the rise in this year's cost of living. This follows, as I said on Wednesday, the earlier reduction of 5 per cent. in unemployment pay and the phasing out in a fortnight's time of earnings-related unemployment benefit.

I must mention the right hon. and learned Gentleman's treatment of about half a million young people at universities and institutions of full-time higher education who are to have their grants limited to an increase of 4 per cent. this year. Members on both sides of the House may have seen the letter from the master of St. Catherine's college, Cambridge that appeared inThe Times on 4 December. I thought that it was a good letter. The master contended that students as a group are unable to bargain with the Government. They have no employer with whom to bargain. They are to receive a grant award that will be less than half the rate of inflation.

No one argues that students should be kept in a state of luxury. But, with 3 million unemployed, their prospects of gaining part-time employment, which many of them have used in the past, are negligible. The real level of the student grant is the lowest that it has been for 20 years. They have, therefore, to rely upon their grants—no more and no less—and what, if anything, their parents can make available. Not all parents are able to assist.

Finally, there is the further deflation of demand and the further increase in costs that flows from the 1 per cent. increase in national insurance contributions. I do not know whether the Chancellor has done his arithmetic on the implications of his tax measures, but, taken together with the continued contraction of national output, he has, in spite of his election pledges, both increased public expenditure as a proportion of GNP and, at the same time, increased taxation to levels far higher than those that existed when he came to office.

Last Thursday—conveniently, a day after the right hon. and learned Gentleman's statement in the House—the Chief Secretary obligingly answered a written question tabled by my hon. Friend the Member for Blackburn (Mr. Straw). I advise the House to read carefully the tables that are attached to the answer.

Even before the right hon. and learned Gentleman's impost, the combined impact of successive Budgets and national insurance increases has been extraordinary. A married couple on average earnings with a typical family has seen its combined tax bill rise from 41·54 per cent. of gross income in 1978–79 to 46·26 per cent. in 1981–82. For those on one and a half times average earnings, the combined tax burden has risen from 43·2 per cent. to over 47 per cent.

But the most appalling and disgusting feature of these figures, which were extracted from the Chief Secretary, is the deep unfairness and immorality of the Government's policy, which has been to force the poor to pay for tax cuts for the rich. What sort of Government are they—what sort of people are they—who demand sacrifices from the nation and who then ensure that the sacrifices fall least on those who can bear most and most on those who can bear least? Yet that is the reality.

I shall give one illustration. The single man, with no family responsibilities, on twice average earnings—the man in the most affluent position in the examples provided in the Chief Secretary's answer—has seen his income tax bill reduced by the Government. That is the single man who is earning nearly £300 a week. But the poorest family in work, that is, on half average earnings with an income of slightly more than £74 a week, has seen its income tax bill almost doubled by the Government. It has been increased from 6·6 per cent. of gross income to 11·8 per cent. In cash terms its tax bill has jumped from £3·46 a week to just 7p short of £10 a week.

Where is the justice and equity in that? What does that sort of brutality to the incomes of the poor do to the social cohesion of the country and where exactly is that sort of action to be found in the Conservatives' 1979 election manifesto?

With the new increases in national insurance contributions, the levels for virtually everyone, except, of course, those on the very highest incomes, will be far in excess of the levels when the Government came to power.

So much for the Chancellor's statement last Wednesday and the major part of his speech today, but I am sure that the House wishes me to draw attention to some conspicuous absentees from last Wednesday's statement. There was not a word about the money supply in the four columns of Hansard or the 12 pages of script that I received.

The public sector borrowing requirement received the merest glancing reference and there was not a hint in the Chancellor's statement that the medium-term financial strategy was, like the pole star, the guiding light for the Government's economic navigation. The more that one reflects on it, the more astonishing the omission is. I listened carefully, and there was but one sentence from the Chancellor this afternoon about the framework of monetary policies. It is astonishing because the Government's whole economic doctrine, the new input of economic wisdom that the Prime Minister, the Chancellor and the Secretary of State for Education and Science brought to our affairs and the sovereign remedy that was to change the course of British economic history were precisely their conviction, belief and policy of controlling the money supply by fixing, over a four-year period, a quantitative limit for the growth of sterling M3 and, over the same period, the progressive reduction of public borrowing.

Therefore, it was hoped that the PSBR would shrink year by year from 6 per cent. to 2 per cent. of the GDP. It was through that strategy that inflation was to be defeated, the economy rejuvenated through a "Japanese-type miracle", as one incautious industry Minister recently described it—1 per cent. growth!—and the great prize of economic success attained.

From the first day of my present shadow post I have never wavered in my rejection of and contempt for those imported, half-baked economic theories. But not so the Chancellor—oh, no. That was the central theme of the 1980 Budget, the March Budget this year and 12 months ago when he presented the mini-Budget of November 1980. Half of the Chancellor's statement was taken up with the explanation of why it had not worked out that year and his resolute conviction that it would do so during the following 12 month.

Why did that theme not receive even a mention in last week's statement? Could it be that the weevil of doubt had penetrated the beleaguered intellectual fortress of Downing Street? Last week the distinguished monetarist, Dr. Alan Budd—the director of the Centre of Economic Forecasting at the London Business School and a co-director there with Professor Terry Burns, who was appointed by the Chancellor as the chief economic adviser at the Treasury—delivered his amazing recantation to an economic seminar in London. With great candour he admitted that a central part of his theory had been wrong. I quote from The Times of 2 December:
"he no longer believes that inflation could be brought down reasonably quickly by allowing the Sterling exchange rate to rise in value against other currencies. He now believes that the Government made a 'serious mistake' last year when it allowed the exchange value of the pound to surge forward."
As the implications of Dr. Budd's confession sank in, he made a hasty attempt to contain the damage. In a letter toThe Times on 4 December, the good doctor explained that his faith in monetarism was undimmed. However, his explanation only made matters worse. He said:
"The mistake arose from a failure to recognise the extent to which sterling M3—the Government's chosen monetary target—was a misleading short term indicator of monetary conditions".
The consequence of the mistake was that the impact of the high exchange rate fell on production rather than on prices. Dr. Budd had not finished. In a more extensive interview with theFinancial Times, published on Saturday 5 December, he said:
"The Government's initial view"—
they will not deny it—
"was that it should have a monetary target and that everything else should just follow in its train so that if the pursuit of the monetary target involved high interest rates and high exchange rates, so be it."
With the wisdom of hindsight, Dr. Budd said that it was clear that that approach led to a serious policy mistake in 1980 when industry was caught in a double bind between high interest rates and the rising exchange rate, while the Government were still alarmed that they had over-shot their monetary target.

Dr. Budd said that it is now evident that the policy of high interest rates, far from reducing the growth of sterling M3 as intended, was in the short run increasing it. People were moving funds into deposit accounts under the attraction of high rates, while industry was being forced by the recession to increase bank borrowing which, consequently, had to raise rates to attract deposits.

I quote again from Dr. Budd's statement:
"So rapidly did interest rates rise the demand for money rose very rapidly indeed and this reinforced the rise in the exchange rate which put further downward pressure on the economy …during this time the Government was holding up interest rates because it was worried about sterling M3. Now I think the irony is that had interest rates been lower, sterling M3 would not have risen so rapidly."
He continues, and I love his words:
"With the wisdom of hindsight, one realises that the Government was making life unnecessarily difficult for itself, the economy and the company sector by pursuing, albeit slightly half-heartedly, a target for the money supply which was misleading."
Let us for a moment consider the implications and the enormity of Dr. Budd's candid confession. In the period of his "serious mistake", between May 1979 and February 1981, when, as a result of doctrinaire monetarism, interest rates rose to 17 per cent. and the pound appreciated 13 per cent. against the basket of currencies, both through the rise in unit labour costs and the Government's own deliberate tax and price increases our domestic costs rose a further 23 per cent. In short, during the 18 months in which we suffered an unparalleled loss in competitiveness of 40 per cent., and when, as a consequence not of any change in the will to work of the British people or of a long-term accumulated failure in economic management, but of a "serious mistake" in the Government's think tank, one million jobs were lost in Britain. That happened when British industry as a whole sank to the lowest level of profitability ever recorded; when great and efficient enterprises—such as ICI's synthetic fibre division—were forced into irreversible closure. When the whole country cried out for change and redress, the Chancellor stubbornly stuck to his money supply targets, his high interest rate policies and committed, as Dr. Budd put it, a "serious mistake".

All those points raise serious questions. Does the Chancellor deny that this is a true account of the disaster, of the economic tragedy, of the past 18 months? Can he deny that the serious mistake of Dr. Budd was shared by his old colleague and the right hon. and learned Gentleman's chief economic adviser, Professor Burns? Most crucially, can he deny that the "serious mistake" was the central and guiding force in his own policies during that fateful period?

What does the Chancellor now have to say? Does not his economic help-mate, the First Lord of the Treasury—the Prime Minister—also share the blame? Is it not now clear that the nation has been subjected to unimaginable losses as a result of the sheer intellectual incompetence of the Government's own appointed economic advisers, against which the prejudices, naivity and sheer lack of experience of the Chancellor and the Prime Minister offered not the slightest defence?

The right hon. Gentleman has had a good deal of fun mincing up Dr. Budd's words. While he is entitled to indulge in the freedom accorded to the Opposition Front Bench—to forget their own record in the past and to ignore the world recession—I wonder whether before he exhausts his eloquence we can expect him to come to the point and explain the alternative policies of the Opposition and make it clear whether they are policies that have not been tried before and failed.

I shall say something, as the right hon. Member for Yeovil (Mr. Peyton) expects, about what should be done, but I shall do that later in my speech. Whatever reflections the right hon. Gentleman or any hon. Members may have on the past shortcomings and failures of successive Governments, I beg him to consider the order of magnitude of the setback that we have endured in the past two and a half years. It is utterly different from any previous experiences in our post-war history.

If the Government and Dr. Budd got it wrong in 1980 and in 1981, however, what about the prospect for next year? Where is the evidence of lessons learnt? Bank lending rates are 14½ per cent.—½ per cent. higher than in November last year when we were first told that the economy had bottomed out.

After a fall in our exchange rates, due to the extremely high United States interest rates earlier this year, the recent and rapid fall in American interest rates has deliberately not been followed in the United Kingdom. Consequently, sterling has risen again. Why have our interest rates not fallen? Is it because the Chancellor believes that, if they were to fall, this year's money supply targets would be exceeded even more generously than they will be exceeded anyway? Or is it his belief that a high exchange rate is positively beneficial to the economy?

Is it the same with the PSBR, about which the Chancellor was so coy on Wednesday and so uninformative today? Is he really, in spite of the depth of the recession, still determined to press ahead with a reduced PSBR in 1982–83, to maintain the target announced in March, which, given the public expenditure figures that have been presented to us, would inevitably mean an increase in taxation and further fiscal deflation, as we had in such rich measure in this year's Budget?

It is right for me to draw attention to those conspicuous absentees from the Chancellor's statement—absent because he found them too embarrassing to mention in the House on Wednesday. But they are still there in the accompanying document "The Economic Prospects for 1982". Unless the medium-term financial strategy has been abandoned, it is not only still the shaping influence on the package before us, but will form the framework for next year's Budget as well.

We are on the road to ruin—well along it. It is the case that, as the right hon. Member for Chesham and Amersham (Sir I. Gilmour) has said,
"either we say farewell to the medium-term financial strategy or we say goodbye to the British economy."
For the past two and a half years we have heard the strident assertion of the Prime Minister, as disaster has followed upon disaster, that "There Is No Alternative"—that we have no alternative but to go through the present vale of tears. How ludicrous that sounds today. TINA is dead.

Hardly a week goes by without the presentation of well-researched and documented alternative packages, presented by men of greater economic experience and repute than either sit on the Government Front Bench or advise Ministers and by industry itself, not to mention the offerings of ex-colleagues in the Chancellor's party.

Of course there are alternatives—all of them preferable to what we have today. The problem is to choose the most beneficial package and to judge, against the continuing deterioration of our affairs, the scale of reflation that will be required and the best mix of policies to achieve it.

Six months ago, during the Budget debate, I presented to the House my proposals for strong action both to reduce costs and to increase demand in our industry. In the former category I urged a cut in interest rates, a realistic and lower exchange rate, a slashing of the national insurance surcharge and direct assistance to reduce the costs of fuel, particularly for industries that are heavy energy consumers.

On the demand side, I urged a package of measures both to increase public sector investment and to increase selectively public sector current expenditure, particularly to assist local authorities that have major inner city problems.

Can anyone seriously doubt that railway electrification, the North Sea gas-gathering pipeline, an enlarged housing programme and prison building are in the public interest and would be much welcomed? After Brixton and Toxteth, does anyone doubt that inner city programmes should be given far higher priority in Government spending? In the Government's arrogance, those and similar proposals were rejected, as was the TUC's sober recommendation for an additional £5 billion in public expenditure.

It is interesting to see that virtually no one today speaks of sums lower than £5 billion. Only yesterday the former chief economic adviser to the Treasury, Sir Brian Hopkin, about whom the Chancellor was uncharacteristically ungenerous, proposed a £6 billion package to increase demand and to create ½ million new jobs. Those are sensible, indeed modest, proposals.

What we shall require is a programme that covers not just a stimulus for one or two years, but a sustained expansion over the lifetime of the next Parliament. We would back our proposals with the reintroduction of exchange controls to ensure that the funds accumulated by the great mass of our people at work are used to create jobs for their children in this country, and not for the industrial expansion of our competitors abroad.

We would, moreover, involve the Government and industry far more directly together in planning a long-term and sustained recovery, for there is no doubt that we need an active supply side policy for British industries. That is the clearest lesson of other more successful economies—Germany, France and Japan—and of the failure of free market economics, which have been so assiduously preached from the Government side and so consistently followed by the Government—one of the principal causes of our present predicament.

No. I am coming to my final sentence. We have reached a point in our affairs when it is no good talking any longer about flexibility or changing gear or even changing course. There is only one change that the country and the House need and that is a change of Government. I hope that we shall vote for that tonight.

Order. Before calling anyone to speak, I must tell the House that at least seven Privy Councillors hope to participate in the debate. Five sit on the Government Benches and I remind the House that I never call two Privy Councillors from the same party immediately after each other.

4.37 pm

My right hon. and learned Friend the Chancellor of the Exchequer began his speech by emphasising, rightly, that we are debating only one side of the account. He has put before us plans for Government expenditure, but it is not until the Budget in the spring that we shall know the other side of the account, which is Government income.

That places the House in a dilemma, as it places every Cabinet in a dilemma in the autumn. Cabinets are asked to make decisions on Government expenditure affecting almost every Department—sometimes to readjust the figures for Government expenditure and sometimes to look at a period of more than one year—without any detailed forecast of the likely income of the Treasury during that period. That puts anyone who wants to take a decision on an order of priorities in an almost impossible position and it is one of the difficulties that leads to considerable strains in every Cabinet during the autumn and sometimes in the spring as well.

The best that we can do today is to lay down some markers as to what we feel about the announcement made by my right hon. and learned Friend on Wednesday and anything that he may have in mind for the future in the spring. Before I do that, I should like to comment on an aspect that my right hon. and learned Friend emphasised—the division between the public and the private sector. I have long deplored that artificial division in our economy. I believe that it leads to false judgments and wrong decisions.

The public and the private sectors in this country are inextricably interlocked and one cannot consider something as purely public sector or purely private sector. In particular, the health of the private sector, which is naturally of enormous concern to all of us on both sides of the House, is bound to be affected by what happens to the public sector. If the public sector is not given the means of investment, how can the private sector have the energy supplies or transport services that it requires to be efficient?

If the public sector is treated in a way that means that suddenly it has to cancel orders that are placed in the private sector, the private sector suffers horribly from the decisions of the public sector. Therefore, the constant emphasis on the public sector with the intimation that it is something undesirable while the health of the private sector must rightly be preserved, leads to wrong judgments that can be damaging to the economy as a whole. Let us therefore recognise that they are inextricably bound together.

I now turn to the markers that are in my mind. The first is that none of us can like the idea of cutting the benefits of the unemployed. I say frankly that I dislike that intensely. I would need a great deal of persuasion from the other side of the account that that is inescapable. The argument that because the rest of us have to suffer a reduction in standard of living the unemployed must also bear their share is completely fallacious and unacceptable. It has no philosophical backing. The fact that those who are better off must suffer and therefore those who are living on the margin must also suffer is not a justifiable reasoning process to put before the House or the unemployed.

What would my right hon. Friend say to my low—paid constituents who, to preserve their jobs, have had to accept wage increases of 5 per cent. or in some cases nothing when they see the unemployed, who are often little worse off than they are, receiving an increase of 10 per cent? Their take home pay is then reduced by increases in national insurance contributions.

Those people are still better off than the long-term unemployed. There is no question about that. Therefore, I would have no difficulty in putting my justification before my hon. Friend's constituents, as I must put it before my constituents. I hold that view strongly.

There is no doubt that there are more burdens on industry. This is one of the contradications in Goverment policy that industry and business men find difficult to understand. They have complained bitterly about the surcharge and have asked for it to be reduced. When they find that additional burdens are being placed on them they do not feel that their point of view has been recognised. That is the second marker.

My third marker concerns education. If my right hon. and learned Friend is considering what can only be damaging cuts to education in the Budget, many of us will object as strongly as possible to that for this reason. As Disraeli said,
"Upon the education of the people of this country the fate of this country depends."
When educational facilities are lost to children or students, they can never be regained. That is a loss to a generation and a loss for a lifetime. That is why education today ought to be among the highest priorities in the Government's expenditure. I wanted to put down those markers as I hoped that my right hon. and learned Friend would recognise that there was strong feeling among many Conservative Members as well as other hon. Members about those aspects.

The statement made by my right hon. and learned Friend on Wednesday, compared with the enormous problems that we face, is comparatively limited. Therefore, I turn to the major problems with which we are confronted. As the right hon. Member for Stepney and Poplar (Mr. Shore) has said at length, the medium term financial strategy of the Government has been undermined. Today I welcome the Chancellor of the Exchequer's emphasis that in future he would take into account the exchange rate. Hitherto we were told that the exchange rate was not something that anything could be done about. I am glad that he will now take account of the exchange rate.

My right hon. and learned Friend will also take into account interest rates. I am delighted about that. Hitherto we have been told that interest rates are purely the function of other economic processes, in particular the borrowing requirement. I genuinely welcome the fact that my right hon. and learned Friend has adopted a position in which he will deliberately take those factors into account, which means that he will also have to do something about them if he deems it necessary. That is a welcome development of thinking by the Chancellor of the Exchequer and Treasury Ministers.

There never was any intellectual justification for pure monetarism. There is no intellectual justification for it today. There never was a practical justification for it and there is not practical justification for it today.

What we have seen emerging over the past two and a half years on this side of the Atlantic are the contradictions that are brought about by the pursuit of what is termed a pure monetarist policy. I spoke about those contradictions more than a year ago in a short speech on the Queen's Speech, when I said that high interest rates could be immensely counter-productive. They lead to an increase in the money supply—M3. We saw that for ourselves. The Government woke up one morning and found that it was over 20 per cent. They lead to high unemployment, which requires greater Government borrowing and therefore, on any analysis by a true monetarist, still higher interest rates. Therefore, we are entering a vicious circle—higher interest rates, higher money supply, a higher borrowing requirement, higher unemployment, and round again.

That has been exposed. Therefore, I welcome the fact that the Chancellor of the Exchequer is thinking and talking in broader terms today. If he needs any justification, advisers not only here but on the other side of the Atlantic have beaten their breasts and said that they were wrong. I am not asking for a U-turn. I have never asked for that because I know that it could never be brought about. I am trying to be as helpful as I can. All that I want is a veer by the Government on the right curve. If they can do that, many of us will feel much happier.

I shall now make one or two general points to my right hon. and learned Friend. I was interested that in his statement and his speech today he made no mention of the United States economy. Is no one taking into account what is happening in the United States? The United States economy is now heading rapidly for the deepest depression that it has had since 1931. That is bound to affect our trade with the United States, the Community's trade with the United States, and, therefore, our trade with the Community. It is bound to affect the demand for raw materials and the price of raw materials from the developing world. That is bound to affect the ability of the developing world to import from us and from Europe. Therefore, we are in another vicious circle.

The impact of a rapidly depressing United States economy is bound to be felt here. That is why I must say to my right hon. and learned Friend that I regard with some scepticism the forecast about a growth of 1 per cent. next year. We know from past experience that it is difficult to finely tune it to one degree. When one is faced with a situation such as that in the United States, it is difficult to say that there will be 1 per cent. growth next year with the consequences that go with it. Therefore, I ask my right hon. and learned Friend seriously to take into account the position of the United States Government.

That factor also affects our interest position. Just over a year ago, after some of us suggested flexibility, the Chancellor of the Exchequer reduced interest rates by four points in all, despite the fact that the Government's borrowing requirement was going up. However, after a short period, interest rates went up again, because the Federal Reserve under the new Administration in Washington had pushed its interest rates up very high, so we had to follow. We are today still the slaves of international forces, which is a fact that I intensely dislike.

First, we do not know what the United States will do about its interest rates. If the Federal Reserve takes the view that President Reagan's inability to reduce his enormous budget deficit requires higher interest rates to get the borrowing requirement satisfied, we shall be dragged along behind, which will start the vicious circle once again of more unemployment and all that follows from it. That is why I have suggested that it is essential for the European Community to find a way to deal with interest rates inside the Community and not be dragged along behind whatever policy the Federal Reserve decides to follow.

The problem cannot even be dealt with politically, because under the American system the Federal Reserve almost always wins and not the politicians. Therefore, it is a very serious question of policy that should be taken up by the Government. How can the Community separate itself from the other forces pursuing the policies that they are pursuing?

As my right hon. Friend knows, the evolution of a common policy within the EEC must involve exchange controls, so how would he persuade West Germany to introduce them?

I should try the usual forms of persuasion. I believe that, when Chancellor Schmidt finds that his unemployment is also rapidly increasing, as it is, that his young people are becoming intensely disaffected, as they are, and that that is leading to a tendency to repudiate NATO and all that it stands for, as is happening, with a consequent movement from West Germany looking towards the East, he will realise it as quickly as anyone and will then recognise that economically he must take action inside Germany.

However, that does not alter the fact that the Bundesbank has a strong position inside the Federal Republic, as my hon. Friend knows, and the difficulties are there. But with all the difficulties we must still ask whether we are to continue with 3 million unemployed, and rising, in this country and with 10 million unemployed, and rising, in the Community. That is the situation that we are faced with and it should be sufficient prompting for us to deal with the difficulties that my hon. Friend rightly points out.

I also strongly urge that we join the European monetary system, which would help to stabilise sterling. If the Chancellor is serious about dealing with the sterling exchange rate, that is the way that it should be done. No doubt he will at once say that we must go in at the right rate, and, of course, I agree, but that is a matter of judgment. In the 1924 Government, Mr. Churchill, on the advice of Montagu Norman, went back to the gold standard at the wrong rate and brought about depression in this country in the 1920s before it happened in the rest of the world in the 1930s.

The Chancellor's advisers must use their judgment on the rate at which we should go in and then get sterling into that rate. That is perfectly feasible, and the Chancellor can do it by the use of his reserves. Nor should he be afraid of using the reserves for the purpose of reaching a position in sterling which is helpful to our exporters and which does not put too great a pressure on inflation within the country. If he is able to do that, and if we can separate ourselves and the Community from the high interest rates on the other side of the Atlantic, we can begin to make progress.

My right hon. Friend has stipulated an interesting hierarchy of courses, but he has not mentioned the fact that between $80 billion and $100 billion a year is being sucked out of the combined economies of North America and Western Europe, so how does he conceive that the economies of Western Europe can effectively be isolated from that of North America?

There is no problem about doing that on interest rates, but I have not yet mentioned the OPEC surpluses, because I am told that everyone is bored to death with my mentioning them. However, I have got the point down on my little piece of paper. I can now enlighten my hon. Friend and once again bore everyone to tears about the problem of the OPEC surpluses.

There are two aspects concerning Europe. The first is interest rates. Once we can deal with them, we can have interest rates which relate to each other inside the Community, and that will allow us to reduce them substantially, which will reduce unemployment and increase production. The calculation is that for every point that we can reduce interest rates we can increase the gross domestic product by ½ per cent. If we really brought down interest rates, that would put us in business. It would reduce unemployment, Government expenditure and the Government's borrowing requirement. That is why it is so essential that we should start on that path.

Next, I suggest that the Government should do their utmost not to increase prices or charges, except where that is absolutely inescapable. There are times when one can do this successfully and times when it is damaging. The art is to choose the moment when it will cause the least damage.

My next general point is that it is essential that the Government, now that they are—I was about to say changing course—veering round the curve, should remove any confusion by making absolutely plain the policies that they are following. That is particularly necessary with the exchange rate. We must know clearly that the Chancellor will follow a policy on the exchange rate and on interest rates, as well as on the money supply and the Government borrowing requirement. If he does that, not only will business men and financiers not have criticisms, but it will help my hon. Friends in the country in talking to our constituents and in putting our case.

Perhaps the Chancellor will also explain how the growth is to be brought about at the point at which he deems it right to do so. It is a lasting mystery to those of us who try to understand monetarists. When one finally reaches the point of X million unemployed, and one has a monetary supply which one says is under control at the right figure, how does one start recovery? That is what no one has had explained to them, so I should be grateful if my right hon. and learned Friend would take an early opportunity to explain how the recovery is to be brought about, bearing in mind the fact that he says that it must not be brought about by reflation.

On Wednesday, in answer to a question, the Chancellor said that the very word "reflation" meant inflation. Here I beg to differ. However, if he takes that view, it is even more important for him to explain how growth can be brought about; otherwise, no one can understand how it is to happen, and we should all like to understand.

The fact is that it can happen only by a process of reflation. If one goes back to the 1930s again—I am sorry to harp on this—the terrible depression then was slowly brought to an end only by massive rearmament, and when we went into the war we still had nearly 2 million unemployed.

Yes, but to a limited degree. Housing was massive reflation in 1951.

May I just make two points about growth when it comes? To an even greater extent than ever before, we shall face the problem of a shortage of skilled man and woman power. The country has never had a comprehensive training system, and we desperately need one today. The Government have abolished a considerable number of the training boards. If those training boards were not effective and they deemed it right to abolish them, well and good, but the Secretary of State for Employment is now considering a new training scheme. It must be comprehensive and effective. As the first industrial nation, we lived on the fact that large companies trained a lot of people whom they knew they would never need, so that the smaller companies could have them free of training charge. That is no longer so. Firms will not do it, for understandable reasons. Therefore, like Germany, France, the United States and other countries, we must carry out modernisation ourselves and have a comprehensive training system.

The second thing that we must ensure when expansion comes—and this will affect whichever party is in Government—is that methods of pay bargaining are adjusted to get away from the fact that since 1950 the increase in inflation through pay bargaining has been at a proportion of 1½ to 1 compared with other countries. The figures are there to prove it. At this time, there should surely be intensive discussion at least between employers and unions as to how to establish a system of pay bargaining that will enable us to expand without at the same time running a risk of inflation greater than in other countries.

In conclusion, I turn to the OPEC surpluses, which are, of course, crucial in the present world situation. If OPEC has a surplus this year of $150 billion while the developing world has a deficit of $100 billion and the North—the industrialised world—a deficit of $80 billion, of course there is an imbalance. The answer lies in putting the OPEC surpluses to good use. That demands international action. I therefore ask the Chancellor of the Exchequer why we are not pursuing international action. We should be driving ahead for all we are worth to bring it about. Yet we are not doing so.

As I have said before, the one thing that is required for the OPEC surpluses is too give to OPEC countries a greater say in the international monetary institutions—the IMF and the World Bank. Yet for the past two years the Chancellor has blocked that at the September meetings. Until it is unblocked by the British and the Americans, we shall never achieve the use of the OPEC surpluses for development and investment purposes. I see that the right hon. Member for Down, South (Mr. Powell) is becoming increasingly disturbed, so I shall take that point no further.

When the right hon. Gentleman refers to OPEC surpluses, I take it that he means surpluses on current account. It cannot have those surpluses on current account unless at the same time it has an equal deficit on capital account. In other words, the OPEC countries must already be exporting that quantity of capital which balances the current deficit. And the right hon. Gentleman may as well take the grin off his face.

The right hon. Gentleman may ask a great deal, but it is too much to ask me to do that.

Of course, they export the oil and in return they get the money. We want that money used for development purposes—instead of being on call, as at present, on short term and at short notice, placed in a bank wherever the highest interest rate can be obtained. That is now characteristic of a large part of Western society. We were accused in the past of being a materialist society. We were then accused of being a consumer goods society. I accepted neither of those accusations. Today we have a society that is concerned only about rates of interest, which puts its money wherever the highest rate—an extra 1/8 per cent. or 1/16 per cent.—can be obtained. I do not blame people for doing that. It is a fact of life. We heard this week of a great British company with a very good report which at present holds £600 million in cash where it attracts the highest interest. That money is not being invested for future development and growth. That situation will change only when we can bring interest rates down and people see that there is a better return in true industrial development. That is how we wish the OPEC surpluses to be used as well.

Finally, what is most worrying for this country at present is that it cannot see any better future at the end of the proceedings. It is therefore our responsibility to show people where it is.The Times said in a leader today that we are an inefficient nation. We are not. A great deal of this nation is extremely efficient. One can visit firms throughout the country, including my constituency, which are extremely efficient. That does not mean, however, that they can cope with a pound that roars up to $2·40 or $2·45 in a few months. Of course they cannot. Nobody can. Saying that we are an inefficient country merely reduces our morale still further.

What is required now is to show how we can take an initiative in world affairs to bring about the change that is needed and how we can deal with internal affairs so that we can start growth and expansion through a degree of reflation. The judgment must always rest with the Chancellor of the Exchequer and the Government as to how much can be carried through. Initially, it must be carried through primarily by means of capital investment, which will then turn itself into consumer power.

I must tell the Chancellor that, from experience, I find it very difficult to understand the figures that are now given to us about the consequences of reflation on the number of jobs provided. They bear absolutely no relationship to those previously given by any of the accepted Treasury pundits or by the groups of economists who work on these matters. Are they taking no account of the multiplier? I find that difficult to believe. Or is it true, as I am told, that they assume that if there is reflation and an increase in the money supply there is automatically an increase in inflation and therefore a reduction in jobs? If they are still working on that basis, the Chancellor must bring them up to date with his own thinking and let us have a new forecast as to how many jobs are produced by the investment of certain sums of money. We shall then have a better judgment as to how much reflation can be carried out.

Above all, I beg the Chancellor—now that he is moving so beautifully round the curve—to show the country why things are going to happen and how they will happen and then to show that he is determined to carry through this new approach.

5.7 pm

It is a great delight for me to return to the House of Commons as what I suppose might be described as a kind of "re-tread" maiden. It is also a particular delight to be elected the first Social Democrat Member of Parliament—but not, I hurriedly assure the House, the last.

I have the honour to succeed a very dignified and well-known Member of the House, Sir Graham Page, who was for many years the Member of Parliament for the Crosby division of Merseyside. He was well known to the House as a person who conducted debates with great courtesy and consideration for Members on both sides. He also, I believe, added dignity to the House in the way in which he dealt with his constituents and with members of the public who visited the House. I am therefore proud indeed to succeed him, for all that we were from different parties.

As many hon. Members will know, the Crosby division represents in many ways a microcosm of the United Kingdom. It includes very prosperous towns such as Formby, Maghull and Crosby itself, as well as areas such as Seaforth and Waterloo which are being increasingly engulfed by unemployment, by the rising blight of vandalism and hooliganism and by great concern about the deterioration of housing stock and the quality of everyday life.

In the course of what was in many ways a dramatic and exciting election campaign, I found that the constituents of Crosby were becoming more and more deeply concerned about the level of unemployment. In the Crosby division alone, adult unemployment has risen from 2,400 to 4,410 in just over two years. As if that were not bad enough, the position of those under the age of 18 is even more grave. In October, in the Sefton district as a whole, no fewer than 2,342 young people were unemployed. As that figure shows, there is very little chance of those young people obtaining suitable or sustained employment.

It can be said, as my hon. Friend the Member for Liverpool, Kirkdale (Mr. Dunn) will confirm, that the fortunes of the Crosby division represent to a great extent what will happen in future to the great city of Liverpool. The Secretary of State for the Environment and my hon. Friends the Members for Kirkdale and Liverpool, Toxteth (Mr. Crawshaw) all know that the position of that great city is today sowing considerable despair in the hearts of those who live there and those who hope to find their futures in that city.

I congratulate the Government on what I can only describe as the boldness—one might even say the brassiness—of their motion. It congratulates the Government in rather florid terms on all that they have achieved in terms of output, investment and the future of this country. I find it amazing that the Government can congratulate themselves in those terms. The truth is that, in the mini-Budget that the Chancellor put before the House, it is difficult to understand how increased rates, rents and charges will do anything effective about the inflation that the Government claim to be their major and overriding target. It is equally difficult to discern how an increase in the national insurance contribution rate and in the rates that will fall upon industry next year will do anything to encourage employment in this country.

I shall sit down if the Chancellor wishes to challenge the figure in the leading article inThe Times today, which indicated that the overall public investment in the entire public sector, including local government, will decline by £500 million in the coming year. If the right hon. and learned Gentleman will deny that, I shall gladly give way, but I understand that the Treasury was in agreement with that figure. That suggests a further measure of deflation, not least in the area to which the right hon. Member for Sidcup (Mr. Heath) pointed—the area of capital investment in the public sector.

Indeed, it is difficult to see how the Chancellor can replace that level of deflation with any effective improvement in reflation in the next six months. Perhaps the right hon. and learned Gentleman has in mind the possibility of a reduction in income tax in his Budget next April. I point out to him that an increase in national insurance contributions, even if it were to be balanced by a decrease in income tax, would be a form of regressive movement in overall taxation that would move the burden away from the standard income tax payer towards many people who are not even within the standard income tax band.

The Chancellor must also have in mind that any reduction in the standard rate of income tax benefits those with a considerable propensity to import, whereas an increase in national insurance contributions affects those whose spending pattern is least likely to increase the level of imports compared with their overall consumption.

During the last two and a half years—the Government are at the mid-stage of their term of office—as the right hon. Member for Stepney and Poplar (Mr. Shore) said, manufacturing output has fallen by nearly one fifth. Investment in the private sector has fallen by nearly a quarter and the level of inflation, far from decreasing, has increased by 1·3 per cent. Against all that, the Chancellor of the Exchequer tells us that the position is now about to improve.

After £6 billion worth of de-stocking in the last year, the 1 per cent. rate of growth to which the Chancellor points will do nothing to make good the loss of output and does little to recover the de-stocking in industry over the last year. In addition, the Chancellor has seen fit to decide that he cannot maintain the real rate of increase against inflation of short-term allowances. On 3 December 1981 the Under-Secretary of State for Health and Social Security said:
"I shall go further and list the other benefits that are not pledged by my right hon. and learned Friend the Chancellor …"—
that is to say, not pledged to be uprated to the rate of price increases—
"unemployment benefits"—
to which the right hon. Member for Sidcup referred—
"sickness benefit, injury benefit, maternity allowance, child benefit—including one-parent benefit—family income supplement"—
so much for the low paid constituents of the hon. Member for Bridlington (Mr. Townend) who will not be able to improve their incomes from family income supplement on a real indexed rate of improvement—
"mobility allowance"—
which affects invalids and the disabled—and, not least,
"supplementary allowance."—[[Official Report, 3 December 1981; Vol. 14, c. 485.]
The saving of £65 million, the paltry sum that the Chancellor will save in order to lower the standard of living of the poorest people in our community, includes the old, who are among the least well off and who, if married, will be making an interest-free loan to the Government of £125 until the present pension level is uprated next November, and perhaps even more the single parent families—the largest single group of people in poverty in the community as a whole. The Government did not give any indication that that would happen.

On 26 March 1980, the Chancellor said in his Budget Statement:
"clearly, no action that we take should be at the expense of the really weak and needy. Accordingly, we propose that supplementary benefit rates … will be increased next November in line with the projected level of prices."—[Official Report, 26 March 1980; Vol. 981, c. 1459]
The following day, the present Secretary of State for Industry said:
"The Government are determined to maintain the safety net for the poorest people and accordingly the scale rates of short-term supplementary benefit will be fully price protected".—[Official Report, 27 March 1980; Vol. 981, c. 1659.]
So much for the determination of the Government. So much for their pledge. That lasted for one and a half years and is now evidently dead.

In the two and a half years that I have been out of the House, we have seen nothing but a deterioration in the prospects of the British economy. Today, the British people are being sacrificed on the altar of monetarism and the soothsayers of monetarism have declared that they are heretics. Perhaps the epitaph written on the coffin of the British economy will read "Rest in peace. You died for the cause of a lower public sector borrowing requirement".

All that might be acceptable if there were any evidence that the Government were building for the future but, sadly, there is none. As the right hon. Member for Sidcup and the right hon. Member for Stepney and Poplar pointed out, the Government are at present operating just as fierce an economic and financial constraint against investment and capital expenditure as against any other sort of expenditure. The raising of the totem pole of the public sector borrowing requirement against expenditure in areas such as telecommunications, microelectronics, training and biotechnology is absurd, and most other European countries have not followed us down that road.

In addition to the decline in investment by a quarter over the last two years, tragically, this year the number of young men and women who entered engineering apprenticeships—the most crucial industry of all for the future of the British economy—was the lowest since records were first kept. Further, the 16,000 engineering apprentices that were taken on in 1981 are estimated by the industry to be 4,000 fewer than the absolute minimum requirement to sustain the skill levels of the industry and its competitiveness.

The Government constantly argue that there is no alternative. I was a little disappointed in the motion of the official Opposition, as I believe that they are now properly described—that means no doubt that we should be the provisional Opposition, or conceivably the Opposition in waiting—because it devoted only half a sentence to any form of constructive alternative.

On the strength of the three sentences of alternatives expressed by the Social Democratic Party and Liberal Party in the House, we believe that there is a strong case, as has been urged in many quarters, for a reflation figure of approximately £5 billion to £6 billion a year. If that amount were used in a carefully chosen way to support the more labour-intensive sectors such as housing modernisation and basic economic infrastructure in, for example, railway electrification, modernisation of harbours and transport, and if, in addition, money were spent on the conservation of energy and the re-equipping of small and medium-sized businesses using energy-efficiency equipment without which they will not survive, that investment would pay for itself within four or five years.

I shall give two brief examples. The first is drawn from our own country. For the expenditure of between £150 and £600 for each house built on a basic council house local authority pattern, the saving in energy expenditure on that house is approximitely 50 per cent. a year. Within five years, the full additional cost, most of it on jobs and an improved standard of housing, is repaid, and in every subsequent year there is a net gain in terms of a saving to the householder and to the country in energy and energy bills.

My second example is drawn from the Federal Republic of Germany. The Chancellor of the Exchequer referred to the argument that an expenditure of £5 billion to £6 billion a year would be unlikely to produce an increase in employment of more than about 150,000 to 350,000 jobs a year. An investment scheme introduced by the Federal Republic of Germany in 1977, amounting to 4·35 billion deutschemarks—roughly £1,000 million—produced 70,000 additional jobs a year for five years, in employment connected with the replacement of essential equipment for small industries, energy conservation, and advanced new technologies in industry. It is a tragedy that in this country we are not spending more on creating the basic foundation on which to build a future for our children and grandchildren.

At present, the Federal Republic of Germany is also considering an interim Budget, but there is a major difference between that Budget, with a 5·8 per cent. inflation rate and 6 per cent. unemployment, and the one that the Chancellor presented to the House last week. In the Federal Republic of Germany 10 billion deutsche-marks is to be allocated to reflating the economy to provide additional jobs in environmental protection such as cleaning rivers and the air, new housing, and the modernisation of housing. I commend that alternative to the Chancellor of the Exchequer.

I want to make two further comments. The first has been often made by hon. Members and I endorse it. We still need to take more effective steps about small and medium sized businesses. The Chancellor's last proposals, good though they were in many ways, are being hampered by extremely tight administrative controls, and they are not as readily available as many of us would wish.

The official Opposition should bear in mind that, between 1969 and 1974, the most recent period for which figures are available, the increase in employment in the United States, in mature companies, in both the public and private sectors, was 0·6 per cent. a year. The increase in jobs in high technology small business was 47·1 per cent. a year. If members of the official Opposition say that they really care about jobs, they should consider the effective proposals that small businesses could put forward in creating and generating new permanent jobs.

I strongly support what the right hon. Member for Sidcup said about training. On 15 December, the Secretary of State for Employment will put to the House his proposals for the youth opportunities programme and the training of young people. I fear that, again, too much of the Government's money will go to cosmetic schemes seeking to take young people off the unemployment register, without providing any effective foundation of skill training, which will give them a permanent prospect for the future. I urge the Government to consider whether the time is now ripe to mobilise every last empty apprenticeship place in the Forces' training schools, every last place that can be got into the further education colleges, so that young people may have a one-year basic foundation of industrial training when they leave school. School leavers are being turned out into an economy that has nothing whatsoever for them at a time when there are still massive shortages of skill.

At present the most profound confusion exists in industry, the most profound despair exists in our great cities, and the most profound bitterness is felt by our young people, yet the Government are being urged by both sides of the House towards a reasonable, moderate and sensible policy of reflation and reinvestment. In the interests of the people of this country and in the interests of saving our economy from its present desperate condition, I beg the Government to think again.

5.27 pm

It is a great pleasure to follow in the debate the right hon. Member for Crosby (Mrs. Williams). I am sure that the House would like to congratulate her on her second maiden speech. It is also a pleasure to find out what the Social Democratic Party stands for. The right hon. Lady gave a Post Office stamp exposé of policy, saying that her party wants a £6 billion reflation, but of course no one has yet explained how that money is to be funded.

The second policy that the right hon. Lady expounded, with which I am sure we all agree, concerned small businesses. I am delighted that she, of all people, has suddenly realised that small businesses have a part to play in the economy. When she was formerly in the House, she did not believe that they had much part to play, and under the Labour Government of which she was a member small businesses were hit extremely hard. Therefore, I am delighted at her conversion.

I am sure that the right hon. Lady and her colleagues are delighted that my right hon. and learned Friend the Chancellor of the Exchequer has introduced not only enterprise zones but the business start-up scheme. The latter will naturally take time to get going, but there are signs that it is being taken up. It is the best fiscal incentive for small businesses in the Western world. My right hon. and learned Friend should take credit for that. Conservatives are rather modest about anything we do that is right. We are inclined to be better on the defensive. This is an occasion when the Conservatives should be on the attack.

I realise that this is old hat but I remind the House that when the Conservative Party came to office in 1979 one of our manifesto pledges was to introduce good housekeeping into our national finances. In 1979, we inherited rising inflation, falling output and colossal overmanning. Hon. Members on both sides of the House realise that that is true. The post-dated cheques left for the present Government—whether for Clegg or otherwise—had to be honoured, which meant that, irrespective of which party came into office, the economy would have declined.

The Government ought to be congratulated. It is true that inflation continued to rise after the election. However, although it is not possible to achieve unanimity on every facet of the Government's economic strategy, its overall effect has been to reduce inflation. Nobody can deny that inflation is on the decline. Many of us would like it to decline further, but we should ask ourselves one question, which many of my colleagues and members of the public have asked me. We should ask whether we have cut public expenditure enough. That is one of the questions that we should answer.

It would pay the Chancellor of the Exchequer to have a look at the accounting principles of our national finances. The mixing up of revenue expenditure with capital expenditure—not knowing what this is or that is—is quite wrong. That is no way to run a business. In the businesses with which I am connected, capital expenditure must be kept separate from revenue expenditure. I am sure that my hon. Friends will agree with that. I urge the Chancellor to do something about that. Whether revenue expenditure or capital expenditure is involved, the public sector borrowing requirement must be affected.

The public sector borrowing requirement will presumably be on target this year at £10½ billion. That adds up to an overspend of £21,000 a minute. We do not know whether it will be on target next year, because, as my right hon. Friend the Member for Sidcup (Mr. Heath) said, we have only half the balance sheet in front of us today. We have the expenditure side but we do not know the income side.

Like my right hon. Friend the Member for Sidcup, I wish to put down a marker to my right hon. and learned Friend the Chancellor. We shall fall into a terrible trap if we continue with index-linked bonds. They make Government borrowing easy. There may be a true rate of 2 per cent. after 10 years, but in the intervening period the Government will not have reserved sufficient money for the day of repayment. I say to my right hon. and learned Friend—this is a serious marker—that index-linked bonds should not be continued.

Hon. Members, particularly Opposition Members, draw attention to what happens in Germany, France or other countries. They ask why we cannot do the same. The fallacy is that the borrowing requirement, for example, in France is about $2 billion. The borrowing requirement in Britain is $19 billion. Therefore, that is not a comparison between two similar economic situations. It is easy to say "reflate". The right hon. Member for Crosby and the right hon. Member for Stepney and Poplar (Mr. Shore) both say reflate. Neither of them says where the money will come from. It is easy to say reflate, but who pays in the end? Only the taxpayer pays. We should continually remind ourselves that, whatever money any Government spend, it eventually comes out of the taxpayer's pocket because Governments do not have any money of their own.

My hon. Friend has mentioned the borrowing requirement in France. Is my hon. Friend aware that in the United Kingdom 5 million people are employed in the Civil Service, local government and the National Health Service whereas the French employ only 3 million in the equivalent areas?

I am most grateful to my hon. Friend. I was about to mention overmanning, but not necessarily in a comparison between Britain and France.

We are told that this year total public expenditure will amount to £110 billion and that next year it will be £115 billion. That represents an increase of £5 billion. This year, total public expenditure represents 45 per cent. of gross domestic product. That is an important figure. Having read the Chancellor of the Exchequer's statement and the articles written since my right hon. and learned Friend's announcement last week, I believe that the figure next year should be down to 44 per cent. That is a step in the right direction.

My right hon. Friend the Member for Sidcup took the House to task for getting the public and private sectors mixed up. He rightly maintained that they are integrated. Of course, that is true, but, with great respect, my right hon. Friend missed the point. The difference between the private and public sectors is that the private sector is not cosseted, whereas the public sector often is. Over the years the private sector has borne the brunt of the recession. It is interesting to note that the right hon. Member for Stepney and Poplar did not once say that to some extent our economic ills were the result of the world recession. If they are honest, Labour Members know that when Britain is compared with other countries, particularly those in the Western world, it has not done too badly, considering the world recession.

I am talking about an international comparison. The hon. Gentleman knows as well as I that unemployment and inflation are increasing all over the world and production is levelling out and, in some cases, falling.

Will the hon. Gentleman name just one country in which unemployment has doubled in the past two years?

I do not think that I can, but the hon. Gentleman should realise that unemployment was increasing when the Conservative Party came to office. Our unemployment rate has risen so fast because Britain was uncompetitive and there was great overmanning. My hon. Friend the Member for Norfolk, North (Mr. Howell) mentioned the number of civil servants in France, compared with the number in Britain.

The nationalised industries are a drain on the economy. It is a crying shame and a disgrace that the increase in prices in nationalised industries is twice—if not two and a half times—that in the private sector. If the nationalised industries were as efficient as private sector industries, inflation would fall. When the Government of the day say that the return on capital must be increased from 4 per cent. to 5 per cent., nationalised industries automatically reply—as happened with telephone charges—that if they must achieve 5 per cent. this year although they only achieved 4 per cent. last year they must increase their income. There are two ways of making money: to increase income or to reduce expenditure. One has the most control over a reduction in expenditure. One does not have as much control over increasing income unless one has a monopoly. As Labour Members know, the rental charges for telephones were merely increased and amount of time per unit was reduced.

My right hon. Friend the Member for Sidcup pointed out what should or should not happen and warned about the next Budget. However, the revenue from the next Budget must be higher. Over the past six or nine months the profitability of companies has dramatically increased. Obviously, the receipts from corporation tax will be higher as, no doubt, will be the receipts from PAYE.

I give my right hon. and learned Friend one word of caution. It is possible that the point of diminishing returns has been reached in relation to duties and tax on tobacco and spirits. A recent article by a leading firm of stockbrokers, experts in this field, purports to show that there may be a short fall on the Chancellor's estimate for this year, given in his Budget. I caution my right hon. and learned Friend to be careful over tobacco, beer and spirits.

I return to the point on which my hon. Friend the Member for Norfolk, North was kind enough to prompt me. The Government and departmental Ministers have to grasp the nettle of the overmanning that exists in the administrative services of local authorities and health authorities. I do not mean doctors, nurses or even dustbin men. I refer to the administrative services in local authorities, health authorities and education authorities up and down the country. The nettle must be grasped. There should be a moratorium on the recruitment of administrators. The Government can be criticised for not having grasped the nettle more firmly earlier in the life of this Parliament.

The Government have put forward guidelines on this, that and the other. All that the local administrator in health and local authorities has done is to cut services to the public. The same number of administrators are presumably still seated behind desks moving bits of paper backwards and forwards. Everyone agrees with cutting public expenditure until one comes down to the particular. It is only when one reaches the particular that argument arises over whether to cut education, roads or housing. It depends on which hobby horse one happens to be riding.

Everyone agrees in general with cuts in public expenditure. The policy urged upon the Government at the moment is to reflate. I shall not enter the argument that the funding of reflation means higher interest rates leading to higher inflation and higher unemployment. That is known. The call is for the Government to adopt policies, as successive Governments have done in the past, that have failed. One has only to look at the signs to be seen from the policy that the Government have been carrying out.[Interruption.] I hope that hon. Members representing the Social Democratic Party can contain themselves. Production is going up. Inflation is coming down. Unemployment is flattening out.[Interruption.] Hon. Members should get their facts right. The trend of inflation is coming down.

The Government have to be careful. It has always to be remembered that the Chancellor of the Exchequer is merely the trustee of the taxpayer's funds. He must spend his money wisely. It is, however, high time to stop the doom and gloom. This country has good prospects, and the economic signs are that we will win through.

5.43 pm

I hope that the hon. Member for Croydon, South (Sir W. Clark) will forgive me if I do not pursue his remarks. The hon. Gentleman can usually be relied upon to support the Government and he did not let us down. He is usually helpful. I prefer helpfulness of the kind provided by the right hon. Member for Sidcup (Mr. Heath). The right hon. Gentleman said he was trying to be helpful to the Government. My only disagreement with the right hon. Gentleman is his assumption that the Chancellor is pursuing a new, flexible course on interest rates and exchange rates. I only hope that this is true. Perhaps the right hon. and learned Gentleman the Chief Secretary to the Treasury will be able to confirm this later. I gather from the look on his face that he cannot do so. It would, however, be nice if the right hon. Member for Sidcup was right.

I agree with the Chancellor in one respect at least. There is no room, either through public expenditure or through taxation, for a general increase in living standards. The cash growth of incomes between 1977 and 1980 leaves no room for doubt—irrespective of whether the Treasury statistics of 17 per cent. growth are right or wrong—that incomes have grown much higher than the growth seen in the economy. That is an indisputable fact. There is therefore no room at present for further growth.

If there is to be no increase or, indeed, if there is to be, as the Chancellor plans, an actual cut in real living standards, two requirements are essential to make the situation socially acceptable. The first is that the distribution of the burden should be fair. The second is the need to increase public expenditure and to cut taxes in the spring, and also interest rates and exchange rates, so as to plan to reduce unemployment rather than positively plan to increase it. For the Chancellor to come to the House with plans that set out deliberately to increase an unemployment figure that already stands at 3 million is socially unacceptable.

On what might be called the distribution of misery, the Chancellor has been patently unfair. I doubt if any hon. Member disagrees with what I say. My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) spelt out the facts in some detail. All hon. Members are pretty clear how it has been done. There were substantial tax reductions for the higher paid in 1979. Ever since, there have been tax increases, finishing now with increases in national insurance contributions that only hurt those at the lowest end of the income scale. These measures hit hardest those in areas such as my constituency in the North which not only failed to see 17 per cent. real growth of incomes between 1977 and 1980, but also finds incomprehensible the fact that average industial earnings are £150 per week. In my area, that is found unbelievable.

The second issue that arises if people are to be persuaded to accept the need for no increase in real living standards relates to public expenditure. I regret to have to say to the Chancellor and the Chief Secretary that both, I believe, have been deliberately deceitful in the way that they have expounded their public expenditure plans to the House. The wets thought that they had won in the Cabinet, but the battles that they won were battles that should never have had to be fought in the first place. The Chancellor and the Chief Secretary should never have put forward such proposals.

The wets eventually lost because they were deceived in the Cabinet by the Chancellor, who is now attempting to do the same to hon. Members. The right hon. and learned Gentleman says that he is increasing his original plans—he puts the figure at £110 billion—by £5 billion. That is untrue. I doubt if the Chief Secretary can deny that a £5 billion increase in real terms is untrue. He has never said it is true. He will not deny it now as I can see from the look on his face. Even in cash terms, as I wish to show, the real position, to put it mildly, is somewhat obscure.

In saying that the Chancellor and the Chief Secretary have been deceitful, and deliberately so, I should like to refer to a speech by the Chief Secretary in Manchester last Friday. Referring to the increase, as he calls it, in public expenditure, the right hon. and learned Gentleman said:
"This decision was a conscious, deliberate, collective response by the Government to the realities of our present position."
The Government were deliberate in what they were doing. It was a deliberate increase, we are told, of £5 billion. It may have been deliberate by the Chancellor and the Chief Secretary. I doubt if the Cabinet really understood what they were about. Public expenditure figures are invariably confusing. I plead guilty to having done a bit of confusing in my time. Yet, according to the Chancellor and the Chief Secretary, now that the matter is being expressed in cash terms, it will be much simpler. It will be more readily understood, we are led to understand, by the average housewife. As it is, there is total confusion about whether we have a real increase or not. The reason is that there is more deliberate obfuscation in what the Chancellor and Chief Secretary have done on this occasion than has ever been the case in the past.

The best that can be said in the Chancellor's favour—from the way in which the Chief Secretary is shaking his head, I include him in my comment—is that they were not clear about what was going on. By the time that the exercise was over, I believe that the Chief Secretary and the Chancellor were as confused as the other members of the Cabinet about precisely what they were doing.

It is clear to me how it all began. They decided to go for a figure of less than £115 billion, but then saw that they could not get it and decided to settle for £115 billion. That was to be the figure, whatever the Cabinet decided, so they set about achieving it. On that occasion the Chief Secretary obtained his figure by even more juggling than usual. I know a little about that juggling, which is usually called "assumptions". The main element in arriving at the figure of £115 billion in the Chancellor's statement last week was that the relative price effect would be favourable—that prices in the public sector would be lower than in the private sector, and that pay increases in the public sector would be limited to 4 per cent. despite a clear commitment not to fix cash limits in advance of negotiations. That is the first set of assumptions.

We were then told that the Departments, in addition to what has been done already, must live within a further 2 per cent. cash limit squeeze. They may or may not be able to do that, but it is an assumption in arriving at the figure of £115 billion. Also, local authorities must live within a further 3 per cent. cut in the rate support grant. Of course, the matter works both ways, because if the local authorities do not stay within that limit it will leave the Chancellor room in which to cut taxes. That will go on the rates, for which he can blame local authorities. There are even more dubious assumptions, implicit in the figure of £115 billion, about gross domestic product growth, interest rates and unemployment.

Finally, there is the greatest fiddle of all—the balancing figures required to achieve the figure that the Chancellor first thought of. The balancing figure on this occasion is £3,300 million, which is described in a lovely phrase as "a single global allowance". That is made up of a contingency reserve of £2,850 million. There is a minus figure, from the special sale of assets, of £180 million and an underspend of £700 million. The plain fact is—the Chief Secretary must know it—that those three figures could have been any that he cared to think of. He chose that figure in order to reach £155 billion. The balancing figure is made up of all that, plus an increase in the national insurance contribution. That at least partially counts as a cut in public expenditure instead of a tax increase, which is what it really is.

When the Chancellor has done all that, the net result is that, abracadabra, one has the figure of £115 billion that the Chancellor and Chief Secretary decided they wanted in the first instance. When all the juggling is finished, we are told that there is an increase of £5 billion. The Chancellor boasted about it. The increase will allow what the Chancellor and the Prime Minister have told us is the new-found flexibility, but it misled their right hon. Friend the Member for Sidcup into believing that it really was flexible. The only flexibility in the proposal is that even if one takes the figure of £110 billion from which the Chancellor started—which as we see from tables 1 and 2 of his statement are dubious figures to start with—we are then told that it is based on old assumptions and that appropriate adjustments will be made later.

If we do all that, and make the late adjustments and the later assumptions, we shall reach £115 billion. However, when the juggling and fiddling stops there is no doubt that, taking like with like and allowing for the Chancellor's inflation assumptions, there will be a real cut in public expenditure between 1981–82 and 1982–83. I should be glad if, when the Chief Secretary replies to the debate, he can show us how it is the same figure. We can forget the £5 billion, which we know is a fiddled figure. Perhaps he can show us how, in real terms, the figure is the same. I shall be interested to hear his calculations.

For the future, my advice to Cabinets wets—who must now be in a majority—is that next time they should not believe the Chancellor and the Chief Secretary when they bounce the Cabinet with figures. They must ask for time to think over the proposals, because the Chancellor and Chief Secretary have certainly bounced the Cabinet on this occasion into believing that they have got what they wished. In practice, they got what should never have been asked for and got a cut in public expenditure instead of the increase that was needed.

Not only is the total public expenditure inadequate: the way in which the changes have been made is also inadequate. We are told that expenditure in nationalised industries will be increased by £1·3 billion, but we are entitled to ask—from what? It is from an utterly unrealistic plan in last year's White Paper. The net result will again be low capital investment in the nationalised industries, which is the area where there should be increases.

The Chief Secretary cannot fiddle with me. I have done more fiddling than he. We know very well what he is doing. He is cutting capital investment in the nationalised industries from what they really need, and he knows it.

We have the same position with local authorities. We are told that there will be an increase of £1,350 million. Then we were told last week by the Chancellor:
"They will still be required to make substantial economies."—[Official Report, 2 December 1981; Vol. 14, c. 240.]
At a time when, especially in the inner cities, we know the desperate plight of local authorities we are told now that they must make substantial economies.

Perhaps the greatest tragedy exposed by the Chancellor was in column 258 of the same volume of Hansard, when he spelt out that he was planning, as I said at the outset, positively to increase unemployment. We know that the Government Actuary does not make assumptions about unemployment by himself. They are given to him by the Chancellor. If we consider what has happened in the past about the outturn of unemployment against the assumptions given to the Actuary, we see that they have been either almost right or, as in the case of the last full year, 1980–81, the assumption was 1·6 million and the outturn was 1·8 million.

The level of unemployment is undeniable. The Chancellor is planning, on those assumptions, that there will he a positive and substantial increase in an already unacceptably high level of unemployment. It is essential to reverse that tragic trend in the interests of the millions of people, especially young people, who are demoralised and feel that they have no chance of getting a job. Not only is it wicked and intolerable positively to increase unemployment beyond 3 million, but if cuts in living standards have a chance of being accepted those in work must feel that they no longer fear for their jobs and those out of work must feel that there is at least a hope of a job. That must be much more important than a 1 per cent. or 2 per cent. increase in the rate of inflation, although I should prefer the sort of incomes policy that would prevent that from happening as well.

I do not pretend, and never have, that there is a long-term answer to unemployment in any easy magical way. Such a solution is not available to the Government and it will not be easy for any Government to achieve that position without major changes of attitude within the trade union movement. However, the Chancellor can and should take some short-term measures, which cannot be achieved through personal tax cuts in the Budget alone. That would not work quickly enough and would risk the problems of inflation about which the Chancellor is worried, but if unemployment is to be cut in the short term it must be largely through public expenditure, increased capital programmes in both local authorities and nationalised industries, and help for the inner cities.

I began my speech by stating two essential requirements that would make the likely economic prospects just about tolerable and socially acceptable, without an explosion much worse than anything we saw last summer. First, a fairer distribution of incomes can surely be achieved even by this Chancellor. I put down that marker, and hope and trust that the coming Budget will ensure a fairer distribution than we have yet seen. The second requirement is action through public expenditure to reverse the appalling unemployment trend.

I recognise that that does not mean that there will be room to increase public expenditure in all the areas in which my hon. Friends wish to see it increased, but even if the Chancellor still believes that his strategy is right—there cannot be many, other than the Chief Secretary, who believe that with him—he must recognise that it is no use being right if that results in industrial and social consequences of the sort that we are now seeing.

Socially, the community will not tolerate what is being done to it. Industrially, too many companies simply will not survive and the horrifying growth of bankruptcies will mean that a large section of industrial capacity will be lost for ever—to be replaced by yet more imports on the slightest upturn in the economy. Even with the Chancellor's forecast of only 1 per cent. growth, he is assuming that imports will rise substantially yet again.

The scenario that I have described, if anything, seriously understates the problem. In the national interest as well as in the interest of all our constituents, I urge the Chancellor to reconsider his policy before it is too late.

On a point of order, Mr. Deputy Speaker. On the pain of being told that I shall be expelled for raising a matter that is not a point of order, I ask the Chair to do something that has been done before—to draw attention to the customs and practices of the House. One custom has gone for all time, and Mr. Speaker has deprecated that fact. Since 3.30 pm, with the exception of one speaker, all speakers have been Privy Councillors who have made their speeches and then left. Not one of those who have participated in the debate is here now—with the exception of my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), who has not had time to leave. It is a disgrace that those right hon. Members should be given preference, take advantage of it and then are seen no more. Perhaps you, Mr. Deputy Speaker, would tell them that it is the custom of the House to remain in their places.

I am sure that the hon. Gentleman's remarks will be read by the right hon. Members to whom he referred. I understand his frustration.

6.3 pm

Mr. Edward du Cann
(Taunton)