My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

My Lords, this would be a matter for the Commonwealth Secretariat if it were established by consensus of member-Governments that a meeting was desirable.

My Lords, while agreeing with the Minister, may I ask whether some pressure might be exerted on the Commonwealth Secretariat to take the initiative in this matter? Is he aware that many of us have felt for some time that the prestige of the Commonwealth Secretariat ought to be emphasised, and, in view of the fiasco at the Olympic Games, is not action desired to prevent it from being repeated at the Commonwealth Games?

My Lords, I agree entirely with my noble friend that we must do everything possible to avoid a repetition of the deplorable circumstances that attended, and nearly wrecked, the other Games. In regard to the Commonwealth Games, in parti cular, I think that we would all wish to do everything possible. We have very great confidence in the Commonwealth Secretary-General, Mr. Ramphal. That he is fully aware of this problem, I personally know; and I am sure that he will do what he thinks appropriate and what will prove helpful rather than counter-productive.

My Lords, while I am grateful for that reply and have every sympathy with the Question asked by the noble Lord, Lord Brockway, may I ask the Minister to take into account the playing of games with countries where authoritarian régimes suppress minorities, whether they be coloured or white?

Yes, my Lords. I think that our attitude is generally on the lines that the right reverend Prelate has described. We have made our attitude and policy crystal clear in every forum and to every country whatever its form of Government.

My Lords, in view of that part of the Minister's reply to my noble friend where he said that he had every confidence in the Commonwealth Secretary-General, may I ask whether he is aware that when these people were granted independence we were given to understand that they had within their territories people who would be able to take over the development of their own countries? Does not this matter of not only Commonwealth sport but international sport come within the operation of their running their own countries? Is my noble friend aware that it is of great interest to every one of us that Her Majesty's Government do not at this juncture try to exert the pressure asked for by my noble friend?

My Lords, I am sure that my noble friend Lord Slater would agree that our best form of pressure in a matter like this, in an association of 36 sovereign independent countries, is to give a good example, and that this is what this country is doing.

My Lords, may I ask whether the Minister is aware that some of those countries which refrained from going to the Olympic Games desire that there should be this consultation so that there should be full co-operation at the Commonwealth Games?

My Lords, I could not say what is the generality of view among the 36 members of the Commonwealth countries at this moment. All I know is that feelings and beliefs on this question vary widely and are deeply held. Therefore Her Majesty's Government, like any other individual member of an equal association like the Commonwealth, before they move in this matter must consider very carefully indeed whether their initiative would prove helpful or would be a further exacerbation of an already difficult and dangerous situation.

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

My Lords, at March 1976, the latest date for which published information is available, local authorities in England and Wales employed 2·58 million, including the police. This compares with 2·44 million at June 1974. Employment figures are not available for March 1974.

My Lords, while thanking the Minister for that reply, may I ask whether, in view of the Government's decision to cut back by 140,000 those in the Civil Service, the Minister could clarify two figures? First, Sir Douglas Allen estimated that this would mean 35,000 jobs cut back, whereas Mr. Charles Morris stated on 29th July that there would be a reduction of 26,000 jobs plus the addition, by April 1979, of 20,000 jobs as a result of defence cuts. Could we know which is the correct figure?

My Lords, I regret to say that I am not in a position to give the noble Lord the correct figure so far as local government is concerned. What I can say is that each local authority is of itself responsible for deciding how many employees it needs in order to meet its statutory duties and responsibilities. But in a special circular we have asked all local authorities to look at the position very carefully and to take measures such as the postponement of recruitment and encouraging early voluntary retirement. The fact that the figures have dropped is an indication that over the past 18 months local authorities have been exerting some restraints.

My Lords, could my noble friend say how much of this increase has been due to the disastrous reorganisation of local government that took place under the previous Government?

My Lords, I would guess that some of the increase is due to that, but I could not say how much.

My Lords, is the noble Baroness not able to give figures for Scotland? So far as I know, we are still part of the United Kingdom.

My Lords, there is a Joint Manpower Watch for England and Wales; the Joint Manpower Watch in respect of Scotland has only just been introduced. Their first quarterly return, which will show the number employed by local authorities in Scotland, was not published until the end of September, two or three days ago. Therefore we are not able to give any figures for Scotland at this time.

My Lords, could the noble Baroness explain why she said that the figures have dropped? If my arithmetic is right, it is 140,000 extra people at an extra cost of probably £280 million. Has she some evidence not given in her original reply which shows that the figures are dropping? Everything she said to the House indicated that they were going up.

My Lords, I am sorry if I misled the noble Lord. Local government manpower has been increasing over the years at a rate of 4 per cent. up to 1975. In the year 1975–76 that increase has dropped, according to the Joint Manpower Watch, to 1·6 per cent., which shows local authorities are exercising restraint in recruitment. We expect that trend to continue.

My Lords, the noble Baroness is always wonderfully persuasive and polite in reply to questions. But is it any good pretending that an increase is really a drop? Is not this the way that we get double accounting? Cuts in public expenditure are cuts on some figure which was in the original plan, but in fact they mean steady increases on the rates everyone has to pay in this country.

My Lords, it is a matter of interpretation. The rate was increasing at 4 per cent. a year, and is now increasing at the rate of 1·6 per cent. I should have thought that that showed a drop in the increase and, we hope, eventually a drop in the numbers of people employed.

My Lords, surely that means an all-time high over an all-time high over an all-time high!

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

My Lords: apart from normal Parliamentary procedures, expenditure by the Agency is shown annually in the published Supply Estimates and Appropriation Accounts and in the relevant Chapter of the White Paper on Public Expenditure. The results of the Agency's supplies operations from 1st April 1976 will be shown separately in published trading accounts. All the Agency's records are open to examination by the staff of the Comptroller and Auditor General and from time to time aspects of its work are examined by the Committee of Public Accounts and by the Expenditure Committee and commented upon in their published reports.

My Lords, would the noble Baroness not feel, now the Property Services Agency (which perhaps to many Members of your Lordships' House is better known as the Ministry of Works) has a turnover of £750 million in every year, that this would warrant an annual account publishing details of how this expenditure has occurred? Is it not a fact that nearly 3 million square feet—with apologies to the Metrication Board, but that is the published figure—are leased outside London each year by this Agency? Is not there room here for the open government which we were promised in the Manifesto of 1974 and a few more facts being known to the public?

My Lords, the facts are available, if noble Lords will look for them, in the publications to which I have referred. The net cost incurred by the Property Services Agency is in providing accommodation and associated services for the Armed Forces, for specialised civil programmes, like the courts and prisons, and for providing offices for the civil servants. The expenditure there, as the noble Lord said, is £778 million in the 1976–77 Estimates, and that estimate depends entirely upon the whole Government's need for accommodation. So far as the rent is concerned, the Property Services Agency has to rent large areas of space, particularly in London, because it is not able to finance the building of new offices on the scale which would meet the demand for accommodation from Government Departments. They do not pay more than the market price, and the reason why the PSA rent bill is rising fast—and it is expected to be about £97 million in 1976–77—is that we still possess many old leases of property at very low rents, and these are continually falling due for renewal at much higher current rents.

My Lords, how do Her Majesty's Government reconcile such a response when there is under construc tion, I am led to believe, no less than £54 million worth of office building in England and £7·3 million current rent and an occupation of 881,000 square feet of offices in London? Surely with such expenditure detailed accounts should be available for all to examine in the spirit of the open government that we have been promised?

My Lords, details are available in the Estimates and Appropriation Accounts, in the White Paper on Public Expenditure, and the Department is subject to examination by the staff of the Comptroller and Auditor General.

My Lords, is my noble friend aware that the work of the Comptroller and Auditor General and his staff is of the highest professional quality and compares very favourably with some standards of which recently the House has been made aware in the private sector? Is my noble friend also aware that the Public Accounts Committee in another place exercise very effective supervision over the activities of the Government Departments concerned?

Yes, my Lords: to both questions.

My Lords, might I put this supplementary question to the noble Baroness: Is not this title of "Property Services Agency" really rather absurd, because nobody knows what it means? I did not know myself when I heard the Question, and I think it would be helpful to the public in general, who are paying these enormous sums, if the Agency were given a more intelligible title. "Office of Works", for example, is much more understandable than "Property Services Agency".

I take the point made by the noble Baroness. I explained in answer to the first supplementary that most of the cost they have to meet arises from providing accommodation for the associated services and the Armed Forces, and for civil matters such as courts, prisons and so on. I will take note of what the noble Baroness has said about the name, and will draw her remarks to the attention of my right honourable friend.

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

My Lords, about 15 per cent. and 25 per cent. respectively.

My Lords, I am obliged to the noble Lord for that reply, which is more satisfactory than I had hoped. Would the noble Lord not agree that the standard of training provided by the Staff College at Camberley is second to none in the world and that the fees charged ought to reflect that?

Yes, my Lords; but it is not a one-way traffic. The training of the 46 members from overseas forces out of the 180 students brings to this country benefits which cannot be measured but which are very real.

My Lords, do I understand from the Answer given by my noble friend that 75 per cent. of the fees involved are paid by Her Majesty's Government?

My Lords, let me say that I am most anxious to get this right. One hundred per cent. of the fees are paid by Her Majesty's Government and are recouped by receiving 15 per cent. from the foreign Governments who send their students to the College.

My Lords, on behalf of my noble friend the Leader of the House, I beg to move the Motion standing in his name on the Order Paper.

My Lords, on behalf of the Chairman of Committees, I beg to move the Motion standing in his name on the Order Paper.

My Lords, I beg to move that this House takes note of the economic situation. When I made a Statement on Sterling on 29th September there emerged from Questions and Answers that there should be an economic debate. At column 408 of the Official Report on 29th September, the noble Lord, Lord Carrington, quite rightly stated:

"We really must not get into a situation when it appears that Parliament is the only forum which is denied the opportunity of discussing the economic situation".

In response to that plea I had consultations and I was pleased to announce on Friday a rearrangement of Business. I am glad to say that there are 27 speakers for this debate.

In the short Question period dealing with the pound sterling noble Lords quite rightly exercised their ingenuity in expressing their views on many matters other than the specific issue of the pound. The noble Lord, Lord Thorneycroft, quite rightly, stressed for all Members the gravity of the situation and the concern of all outside Parliament at the declining value of the pound. I now look forward, as I am sure the House does, to listening to contributions from all sides of the House dealing with the pound sterling situation and their constructive contributions for solving our economic difficulties.

I am sure we need to look at the state of the economy not in the heat of the moment, but with considered analysis and a steady resolve to distinguish between the short-lived symptom and the lasting malaise. That there is a malaise, a "British sickness", is clear. Some economists trace it back a quarter of a century, some fifty years, some a full century. I shall limit myself to the events of the past year, but I would ask your Lordships to keep in mind for the whole of this debate that our problems are not shallow or susceptible to any instant cure. A solution will not be easy or quick. What we are looking for is what in other countries has been called an economic miracle. I suspect that, as someone once said about genius, such "miracles" are 99 per cent. perspiration.

First, I should like to give a quick review of economic events of the past year. A year ago, in the autumn of 1975, the first signs of a revival in world trade and output were beginning to be confirmed. The world economy was beginning to move out of the trough of the worst recession since the 1930s. Although there were no such clear signs for the United Kingdom, we now know that the third quarter of 1975 marked the low point of British output. And it was low. Gross domestic product was below the levels of 1973, and industrial production below the levels of 1970. Since then our output has grown. Gross domestic product rose about 1 per cent. in the last quarter of 1975 and another 1½ per cent. in the first half of 1976. The engine of that growth was exports, rising 4 per cent. and 5 per cent. by volume in the corresponding periods. This was equivalent to an annual rate of growth of about 12 per cent. Of the other main components of total demand private and public consumption together scarcely changed, while investment was still falling.

Over the summer, both in the world at large and in Britain, there has been a hesitation in these healthy trends. Our index of production rose only 0·2 per cent. in the three months to July. Our volume of exports fell sharply in July although part of the loss was recouped in August. Some part of the slowing was due to the hot weather and holidays, but not all of it can be explained that way. Nevertheless, the prospect is—and on this all the computer-equipped soothsayers appear united—for resumed growth both in the world at large and in Britain's exports this autumn.

A year ago our national attack on inflation was just beginning. The first settlements under the £6 policy were coming into effect. By this July when that pay round ended, our rates of wage and price inflation had been halved. Now we have a new and tighter agreement that is coming into effect. Again our voluntary policy, agreed with the TUC, is being universally observed. Abroad, the scepticism of a year ago is being replaced by active interest in imitating policy. This is a policy that calls for vigilance, not complacency.

There is a great deal still to do. Although our inflation rate is no longer outstandingly bad by international standards, it is still twice that of the United States of America and Germany. Nevertheless, this is a success and I do not think that we as a nation—for the Government cannot claim all the credit for something that has been done voluntarily—should be shy of proclaiming the achievement.

On the other side of the picture, though, there is unemployment. In September, the total, including school leavers, was 300,000 above a year before. The rise has not been uninterrupted; there was a dip in March to May this year which was also reflected in the seasonally adjusted figures, excluding school leavers, for March. However, this was a false dawn, and the rise resumed until August. In September, the total figure began falling, and should go on falling for the rest of the year. The seasonally adjusted figure rose in September by 10,000. Nevertheless, vacancies are rising and we may now be seeing the peak in seasonally adjusted unemployment—a figure which may be of more importance to economists than to those people who are personally faced by the crude, unadjusted fact of unemployment.

There is, as noble Lords know only too well, an untold amount of human misery in unemployment figures of more than 1¼ million. There is little comfort, but a mighty lesson, in knowing that they are the legacy of the tremendous world recession and, in very great part, of our own past inflationery excesses; of our persistent and long continued attempts to pay ourselves more than we produced. There is more comfort, but still no great amount, in the success of our selective measures in preventing things getting even worse. These, too, like our voluntary pay policy, are attracting interest and study from other countries.

Our balance of payments deficit in 1975 was half that in 1974. At the beginning of 1976, there was a further substantial improvement. However, this was too good to last. As with the dip in unemployment at that time, it was a false dawn. Imports in that first quarter were surprisingly low. With rising activity, we would have expected imports to rise also. In April, they did with a sudden jump of 8 per cent. in volume to a level which they maintained until they fell 4 per cent. in August. The underlying trend is difficult to sort out in figures which move in this way. The figures were distorted by the fact that a great deal of North Sea Oil equipment had to be floated out during a short period—the "weather window" of June and July. These installations will be a source of strength, of course, to our balance of payments in the future.

There were two major events in the public expenditure field in the 12 months I am reviewing. Our Public Expenditure White Paper in February is a major statement of our strategy. We are setting out to hold public expenditure broadly flat through 1979–80; stopping the expansion of socially desirable, socially healthy and even essential public services in their tracks. This is not lightly done, least of all by this Government. We resolved to do it because we knew that our first priority has to be creating wealth; spending it must come later. Unless we put aside our spending plans for the years needed to restore the economy, it was, and is, clear that we would never see the achievement of the social goals we hold so dear. And when, in July, we realised that, because of the progress made with the economic recovery, even our reduced spending plans for 1977–78 were likely to become a threat to the sustained progress we need, the Government decided on a further reduction in planned spending for that year.

The second major event in this field was less obvious, but no less essential. The control of the Chancellor and of the Government as a whole over public expenditure has improved fundamentally. With cash limits, the close watch over the contingency reserve and the improved reporting of public expenditure, we have much better means to ensure that the targets we set are achieved. The process will not be trouble free; such things never are in a major organisation. But the automatic checks are checking, the warning systems are alerting and corrective action is being taken.

The result is that the figures of public expenditure and the borrowing requirement this year are running as they were planned to. We are reasonably confident that the outturn of the borrowing requirement this financial year will be on—or even a little below—the Chancellor's Budget estimate of £12 billion (equivalent to 9 per cent. of gross domestic product at current market prices), and that the means exist to be confident of the Chancellor's target of £9 billion (6 per cent. of gross domestic product) for 1977–78. These are still very large borrowing requirements, though if presented in terms of the internationally comparable general Government deficit of 6 per cent. of gross domestic product this financial year and 3 per cent. next, the figures are not out of line with those for other countries.

The problem in financing these borrowing requirements is at one and the same time to avoid over-expanding the money supply, and not to absorb that share of the available savings needed by industry. We must borrow long term—sell gilts—but not borrow too much. Over the last four available statistical quarters as a whole, we have been very successful at this. The broader measure of money supply grew 10½ per cent., well below the growth of the money value of output. I know that the noble Lord, Lord Thorneycroft, asked me about this the other day.

But in the 12 months to June there were two quarters of high growth, the first and last, and one, the second, of very low growth. The lesson is, I think, that the significance of the fairly high rate of growth we have seen in the last published monthly figures, for August, are likely to prove less significant than they seem to the instant commentator. The Chancellor's figure of 12 per cent., for this financial year—he very carefully did not call it a target, so I must not—and his expectation of lower figures for next year are better guides.

The Chancellor's July forecasts of the growth of the economy—and I am here dealing with the prospects ahead—over the 18 months from the end of June this year are also good guides to what is to be expected when one looks beyond the ups and downs that occur from month to month and from quarter to quarter. He looked for increases in gross domestic product at an annual rate of about 4½ per cent. and of manufacturing production at an annual rate of about 8½ per cent. Over this period, practically the whole of that increase has to be devoted to exports and to investment, including stock-building. There will be very little room indeed even with these rates of growth, which are high by the standards of our past experience, for any increase in public or private consumption.

This is vigorous and sustainable growth. If we can continue on that path not only for the 18 months the Chancellor mentioned, but for another two years after that, we will have succeeded. But that path will not bring unemployment down swiftly and immediately to the sort of levels that might be tolerable in the long term. There is no course which will do that and, at the same time, enable us to keep inflation down.

This was the dilemma that the Chancellor, and the whole Government, faced in July. If the economy grew too fast in 1977–78, there were risks both of some production bottlenecks developing and of renewed inflation, fuelled by excess expansion of the money supply. Either would have endangered the sustained progress that we needed to solve the main problem. Therefore, in order to make sure of lasting improvement, we decided on measures that left prospective unemployment 60,000 worse in early 1978 than it might have been.

These are hard choices. As the new pay agreement is expressed in settlements, the progress on the reduction of the domestic component in our inflation should resume. The rise in the labour cost component in our prices will be slowing both absolutely and in relation to the rise in other countries' costs. Our underlying competitive position will improve, but there are other components of inflation that we can do relatively little to influence. I should know, as a former Minister in this section. They are food prices and other import prices. These prices are rising.

As noble Lords know, although harvests have been good over most of the Northern hemisphere, many items have been affected by our European drought, specifically the drought in our own country. In addition, past rises in world commodity prices are still working through, and every 4 per cent. depreciaton of the pound puts about 1 per cent. on our retail prices index over the following year.

The rise in prices caused by these external factors means that the standard of living of all of us suffers. We cannot compensate ourselves for this fall. It is Britain as a whole that is poorer. On the contrary, it becomes all the more important to avoid giving each other meaningless confetti money increases. That way lies spiralling inflation and yet greater hardship.

I now come to sterling and here I shall make a short point about the latest state of affairs. May I say that sharper pressure developed on sterling early in September, partly because of the likelihood of a seamen's strike. As I told the House on 29th September, it is not appropriate or practicable to stand out in all circumstances against strong but temporary market pressure, and as noble Lords know the authorities allowed the rate to fall below 1·77. After falling to 1·7350 it recovered a little and then fluctuated around 1·74 for some time. In the last week of the month, however, renewed pressure developed and the rate fell to a new low of just over 1·63 on 28th September.

In my statement of 29th September, I was able to refer to the better atmosphere that day, following the announcement of the Government's intention to apply for a standby from the International Monetary Fund. I am pleased to be able to tell noble Lords that this improved atmosphere has continued ever since, with the rate normally fluctuating around 1·67. At 2 p.m. today it was 1·6767.

I announced to your Lordships' House last week the application we are making to the International Monetary Fund. As the Prime Minister and the Chancellor have made clear since, we are not going to the IMF to borrow to finance any sort of consumer boom. We are going to make use of our credit to finance our programme of investment and industrial regeneration.

What conditions the IMF attach to the loan will have to be discussed, and in the last analysis the terms on which they offer a credit are up to them. But we are going to them in the confidence of shared objectives—a shared wish to see Britain paying her way and prospering again, and we go knowing the view IMF officials have taken of our policies.

There have been persistent reports of puzzlement at the fluctuations of sterling, and I think there may be a good deal in what John Palmer wrote in the Guardian last Thursday:

"Underneath the veneer of knowing it all, most European bankers, financiers and Common Market bureaucrats are frankly perplexed at the behaviour of the sterling exchange rate. Asked for their private opinion even the most militantly anti-Labour Government currency dealer will say that present rates are 'lunatic' ".

Far be it from me to set up anti-Labour Government currency dealers as authorities, but I believe that rings a bell.

A perhaps more authoritative view came from Herr Poehl, State Secretary at the Bonn Finance Ministry. He was speaking in Manila. As Reuters put it, he

"told a briefing ahead of the IMF meeting in Manila that the recent steep decline in sterling's value had clearly been overdone. He said sterling had undergone erratic fluctuations which far exceeded what would be justified by actual economic indicators".

Herr Poehl said this while promising his Government's support for our application to the IMF. I am glad to say that President Ford has also promised American support. I hope noble Lords opposite realise this.

And, as reported in today's Financial Times, Mr. William Simon, the United States' Treasury Secretary, said at the IMF meeting in Manila that he regarded Britain's policies as courageous and a good start towards restoring stability.

Herr Poehl referred to the actual economic indicators. A fundamental factor governing exchange rates in anything but the short term is the relative rates of inflation. Ours, as I said before, is no longer the highest. On the latest available three month period, it is well below Italy or Ireland, and of the same order as the inflation rates of Japan and the Netherlands. One could not have inferred that from the recent behaviour of the exchange rates.

In the Government's economic strategy an inflation rate that will compare well with those of other industrialised countries is not an end in itself. There are strong arguments, as your Lordships will know, for a low rate of inflation for its many beneficial social side effects, but in the Government's strategy it figures as an essential means towards our main objectives—

My Lords, will the noble Lord give way for one second?

My Lords, perhaps the noble Lord will allow me to finish my sentence—the objectives of sustainable full employment and a vigorous economy that will be able to pay the high wages and provide the better social standards that we wish to see. I will now give way to the noble Lord.

My Lords, as the noble Lord seems to believe in the part of his speech which is relevant, will not he give us the state of the reserves? I understood that a Statement would be made today and the state of our reserves is relevant to the debate that we are having.

My Lords, there is an announcement today and I am glad to say that the position is strong. It will be circularised. If I may continue, a competitive inflation rate is a first necessary condition of reaching this high output, high wage, full employment economy, but the main instrument is the industrial strategy. Some of your Lordships will have encountered the working out of the industrial strategy at the National Economic Development Council meetings and in its sector working parties. Others may still be vague about it.

The basic aim is to make our manufacturing sector—the chief source of the exports with which we pay our way in the world—more efficient in its use of men and of machines and to make it larger. Only if it does both can it capture the share of world and home markets needed to balance our account with the rest of the world. And only if it does both can it provide the basis for economic growth at rates closer to those that the rest of Western Europe attains.

May I emphasise to noble Lords that the industrial strategy does not work by Government direction. It works through joint planning and agreement with both sides of industry on what needs to be done and what can be achieved. Nor is it a matter of a once for all monolithic plan. It works through continuous reconsideration and adaptation. The stage the industrial strategy has now reached is of assessing prospective market share for the different industries.

The overall target to aim for was agreed in August to be the higher of the two scenarios we presented to the NEDC. This is a very ambitious target. It calls for sustained rates of expansion of manufacturing output that we have never achieved in the last 30 years. It will be neither easy nor simple for industry to find ways of meeting them, but all parties are agreed that it is worth making the try. Many ingrained ways of thinking and working will have to be altered before we succeed. The material rewards of success will be very substantial, but the main reward is beyond price. It is a very large part—a part we are now in danger of losing—of our independence and self-respect.

North Sea oil will give some substantial help in meeting the bills as we carry our industrial regeneration through, but it is no substitute for it. Oil is a depletable, not a growing resource. And it is growing resources generated by our own efforts that we must have if we are to build the sort of society that our children and grandchildren will want to live in.

As I said to your Lordships earlier, the task of balancing the whole economy while this expansion and regeneration get under way is no easy one. It is necessary to improve the flow of funds in industry and the building of the necessary infrastructure of training, power stations and many other things. It is essential to keep watching the balance of payments; to stimulate, from my own interests, as I like to stress, the need to expand our own home agriculture, as we have laid down and as I have always tried to achieve as a Minister. At the same time we must maintain social services and minimise unemployment.

To achieve all of these essentials of course needs a balancing act. We can afford to sway, but not to fall off the wire. Underneath there lies unemployment at much higher levels still, cuts in living standards and no clear route to anything better. There is a real sense in which this is our last chance to get it right. To get it right the Government must work together with industry and the TUC. This is a joint balancing act. One party disrupting it can bring down the whole. We must accommodate to one another as well as to the needs of our joint situation. The Social Contract is important both for this reason and because it is right for its own sake for us to work with the unions rather than apart from or against them. It was not through this reasoning that we originated the Social Contract. It came into being because the TUC and Labour Party leaders felt it was needed. As so often happens, once one has done the right thing, one can see that it is beneficial and essential.

Valuable as a successful attack on inflation is, it cannot be the whole of the Social Contract. A low rate of inflation is a necessity if the economic strategy is to succeed, but so also is shared understanding of the fact that there is both a maximum speed at which one can safely operate an economy, and a maximum safe acceleration towards that speed. There is a need to share and test on one another our views about which factor can be most usefully balanced against which other. And these are needed not only to contain inflation. The tremendous improvement in the industrial climate, with the number of disputes at its lowest level for more than 20 years, has economic results in delivery dates kept and new orders signed that are none the less real for being hard to measure.

The progress we have made, and are making, is on the record. So is what remains to be done. Our inflation is halved. It no longer stands out like an international sore thumb. It is still twice the American and German rates but it is on its way down. We have a voluntary incomes policy to be proud of, and the Government are doing their duty in regard to controlling the money supply, so that it never again fuels inflation as it did before we came to office.

My Lords, in conclusion I would say just this. During our debate today I am sure that many noble Lords, particularly those on the Benches opposite, will call for radical and immediate changes in the Government's economic and industrial policies. As I have tried to make clear, we do not believe such changes to be necessary. But your Lordships need not just take my word for it. Consider, for example, the leading article in the latest edition of 1st October of that informed and neutral journal, the Investors Chronicle. The article speaks of the events of 1973 when money supply on the broader definition increased by almost 30 per cent., when inflation over the year was 12 per cent. and accelerating; when the Tory Government were shaping up to their confrontation with the miners. If I may quote:

"The way was being prepared for the wage explosion of 1974. In other words, not only was Britain pointing in the wrong direction in almost every aspect of its economic management. But the country seemed determined to move even faster down the wrong road."

The article then invites us to consider the facts today. The trade unions have voluntarily co-operated with the Government in two stages of a policy to limit the growth in wages. A real cut in living standards has been accepted. In the 12 months to mid-1976 the rate of increase in wages has been halved. The rate of inflation is roughly half its peak figure. Reductions in planned public expenditure have been made.

The conclusion is that, while most of the figures are still frightening, most of them are moving in the right direction, whereas three years ago they were moving in the wrong direction. Perhaps I may quote once more before I finish:

"The point to focus on is the largely unsung change in direction which has already taken place in Britain. So far it has taken place without revolution or even without the social collapse which was being widely predicted two or three years ago. The danger remains. But it was three years ago that the rest of the world should have been going short on Britain. Not now, when we are making progress—if slow—in dealing with the consequences of that period of collective insanity."

That, I believe is a very sensible article and I hope noble Lords will read it. Our economy is growing, and with the export-led growth that we need. Unemployment is still abominably high but we may be seeing the peak. Employment in manufacturing, which is where we want to see the extra jobs, has now begun to grow. Altogether our condition is somewhat better—and very substantially more hopeful—than it was a year ago. I believe the Government's broad strategy to be right. We must not panic and introduce short-term measures without considering the long-term effects. I look forward to hearing what your Lordships have to say. My Lords, I beg to move, That this House takes note of the economic situation.

My Lords, I think the first task which your Lordships would wish me to discharge is to thank the noble Lord the Lord Privy Seal for making it possible for us to have this debate today. I certainly agree with him that Parliament is the right place to debate a situation of this kind, and I believe that is illustrated by the number of distinguished speakers who wish to take part in the debate. There is no harm in having difficult matters discussed in places other than a Party conference—I speak with caution because I am going to one later. But there is some advantage in the calmer and more deliberative atmosphere of the House of Lords.

The noble Lord outlined, in a thoughtful speech, the events of the past year and referred to some false dawns and some disappointed hopes. I will not follow him in that. I will deal with the situation which follows that year: a situation in which we are living beyond our means—and known to be; borrowing more than we can easily manage and in some danger of running out of lenders. But, my Lords, I will, I hope, speak with responsibility.

All of us find ourselves from time to time in opposition—we never quite know how soon—and perhaps therefore we might try to set some examples to one another. Moreover, I have trodden this ground myself before. I know something of the pitfalls and I know something even of the courage that is required to face the realities of a country's economy and to make the decisions that are necessary. Therefore I start, if I may, with as respectable an authority as the Prime Minister's own speech about these matters. I want to make only two or three very short quotations from the report in The Times. He said that the wealth must be created before it was distributed. That was where he believed a misunderstanding, or something worse, had arisen between the Government and the Party on the question of public expenditure. The Prime Minister then continued:

"Over the last three years you know that while our domestic product has risen by 2 per cent. the increase in our public expenditures, including central and local government, has increased by 18 per cent."

The report continues:

"They had bridged the gap by higher taxation, borrowing from abroad and, worst of all, printing money."

The Prime Minister said:

"We have lived far too long on borrowed time, borrowed money and borrowed ideas."

Those remarks from the Prime Minister of this country have very great implications for future policy on profits, on the private sector, on public expenditure and on taxation. I want to say that in my judgment it was a brave speech to make, and I think the House should remember the atmosphere in which it had to be made. The audience had just expressed a hope to nationalise the banks and insurance companies; they had urged increases in public expenditure and had spoken in favour of a closed economy. The Prime Minister was speaking against a heavy tide.

My Lords, oddly enough, it is fairly easy to know what it is right to do; it is harder to say what it is right to do, and it is hardest of all to do it. I have been long enough in public life to learn at least those lessons. We have perhaps moved at this moment beyond the stage at which words are enough, and actions—and I agree with the noble Lord the Lord Privy Seal—not panic short-term actions, but long-term actions are required. The noble Lord the Lord Privy Seal is quite right; we will not find an economic miracle. But I think we are going to have to find a certain change in direction and emphasis in this country. We have got to find it somehow between ourselves, as a nation.

Most people know what is right. The Times newspaper produced a policy the other day with which I find myself in great agreement. Even the Conservative Party, if I may mention it in this Assembly, produced a policy yersterday similar to that in The Times, but I am sure there was no connivance whatever between the two. What is right to be done is spoken of and written about—I do not know whether it is always written about in the Investors' Chronicle; I do not know what the end of the article was, but it is spoken of and written about in the financial journals and by commentators, and so on. What is needed is a policy of realism, restraint and common sense in which a mixed economy can flourish. That is what is wanted. If I may say so, you do not have to be an ex-Chancellor of the Exchequer or an ex-Governor of the Bank of England, or a great economist to be able to find out the broad lines of what is needed.

What is needed is to try fairly quickly to live within our means. We are borrowing £35 million a day. There are many families in this country who cannot afford to live over their income of £3.50p a week. You do not have to explain to them that a country cannot live by borrowing £35 million a day; it is something which they all know and understand. However, I know in some quarters there is an illusion that a country cannot go "bust". They may go broke, but somehow countries can always find a way through; someone will bail them out. I want to say that one could reach a point, if one really took no adequate steps to safeguard currency (and God knows! we are not going to let it come to that) at which our difficulties in buying the food and raw materials that we want if we are to keep anything like an adequate standard of living or trading capacity in this country, would become intolerably difficult. At that moment, there would be rationing, there would be controls. It is not that there is a danger of dictatorship if we abandoned present policies, but there is a real danger of something like it if we keep them.

Therefore, what can we do? There is one thing I think that we cannot do. We cannot go on borrowing money. Only a few months ago we were asking for that 5,000 million dollars line of credit, and now we are back again. I saw that Mr. Norman Atkinson, the Treasurer of the Labour Party, said:

"We can never satisfy the insatiable demands of those who are trying to lend us money".

I do not know what he is like as the Treasurer of the Labour Party, but he seems to have some odd ideas on finance. There are not many importunate lenders round the Treasury at the present time. We have to realise, as did the Prime Minister, that we are going to run out of lenders. We shall also run out of the capacity to pay the interest on the debt.

The weight of servicing our national debt is going up and up, and it will place an enormous burden on the generations to come, to which the noble Lord the Lord Privy Seal referred at the end of his speech. Moreover, it is no good. We cannot just borrow, however respectable we make it sound, to maintain a standard of life that we have not earned. It is always possible to say that the bit we are borrowing will be applied for some very respectable end, but it is all part of the same State fund in the end—you borrow in one place, you do not spend it in the other; but you cannot really live on a standard you have not earned, nor can you borrow to buy your own currency indefinitely. There is simply no future as an activity by the Bank of England in trying to sustain a sterling rate which your own policies are depressing.

My Lords, I have very little doubt that new policies will be introduced. When the right honourable Gentlemen the Prime Minister and the Chancellor of the Exchequer say they will negotiate on the terms of existing policies, I rather doubt if that is true. To tell your Lordships the truth, I do not see how anybody would lend us money on the basis of existing policies. I do not think the Lord Privy Seal thought so afterwards. I noticed that part of his speech, and noticed the meticulous care with which he gave it. The noble Lord said it would be a matter for negotiation with the International Monetary Fund, and, of course, he is right. But there are millions in this country who would really prefer that we square our shoulders, determine our own policies, face the world and the lenders determined and confident that we have policies which stand up and which are not leading us to live permanently in "hock".

I do not believe we have no such ideas. I am confident—and I have known Governments before—that the sort of policies needed are now well advanced in discussions in Cabinet. I am generally right when I say these things to your Lordships' House. I remember a few months ago the Government were hotly denying they were going to cut public expenditure. I assured them that they were. They denied it; the Trades Union Congress was going on at the time. But give it three weeks, and they (lid exactly what I forecast they would do. They did it too little; they aimed at £2 billion. I forget whether I gave them the actual figure. In the Cabinet discussions they came out with £1 billion and met the balance with an unselective employment tax, and got into a good deal of trouble in the process. But they must have a package now. They know it; 1 know it, and I suspect the International Monetary Fund know it. Obviously, I do not ask the Lord Privy Seal to say what is in that package, but I think your Lordships might well spend a few moments thinking what sort of things could go into a package of that kind.

If you start with some of the roughest stuff, Professor Milton Friedman says a 10 per cent. cut all round on public spending. My estimate is that that would about halve the deficit. These things are not easy to calculate because part of public spending is on interest on the money already borrowed, and, alas, that is not open to be cut but is something which we have incurred. The longer we wait the harsher the measures are going to be all the time.

If you do not do that, then you can do selective cuts, or a combination of a flat rate with selective cuts. You have to consider what you are going to do with subsidies. No one is an enthusiastic cutter and many of us have lived through the agony of these discussions in Cabinets before. But, somehow, if you have to live within your means, you have to look at subsidies, you have to look at costly measures, you have to look at the Community Land Act. I take up a question I asked today. You really do have to look at nationalisation. It is no good dismissing these things as transfers of resources or moving from capital to current account. It costs a very great deal of money to run industry even when you have bought it. That is what private industry knows, and it is true of public industry as well. The amount of public borrowing that we have to do in the public sector today is enormous. Quite apart from dogma, there is a natural limit to the pace at which it can be extended, anyway. My Lords, I ask that these things be weighed and debated. But cut they will.

There are two proposals which are urged as a sort of alternative to this. Both of them have great dangers. One is to try to opt out by putting up direct taxation. Taxation is too high already in this country. The top rate on unearned income is 98 per cent. and on earned it is 83 per cent. In most of Europe those rates are 75 per cent. and 60 per cent. I really do not think there is much room left for manoeuvre. What is needed is to bring the taxes down. They ought to come down right across the board. They are affecting efficiency at the top, but they are affecting it right down the scale. We have got to a point where it really is beginning to pay people to stay in bed rather than to go out to work, and that is not a right situation. Moreover, we want somehow to get a change in attitudes in people in this country—not the attitude that, "Such little as I can have, let me go out and spend it as quickly as I can", but the attitude "If I can earn some more money, let me save it and invest it." My Lords, if we could tip the scale—and it does not require very much to tip the scale in these things—so that the men who were working really felt that they were not just spenders but savers and investors themselves, it would be a very great advance.

The second lot of siren voices are those who are pressing the Government to have a closed economy. "I would go for a siege economy, cutting ourselves off from the rest of the world"—Mr. Allan Fisher of the Public Employees' union. I think some of us have some sympathy with Mr. Fisher— "Stop the world and let me get off". It reads, in a way, rather attractively, and f see it. But, my Lords, it simply is not a practical possibility; it will not work. We will never borrow any money on that basis, anyway. This country is a great international, outward-looking, trading country, and it has got to remain so, whatever Government is in power in this country. So we have got to stand against that.

That brings me to the Social Contract, to which the noble Lord referred. I am not going to attack the Social Contract. It may have started badly; there was an enormous upsurge in wages at a time when the Chancellor, for some extraordinary reason, decided that all profit margins should be frozen, and the combination of of the two was fairly disastrous. But I do not want to enter into that. We have now halved the rate of inflation, but it is half of 26 per cent.; he never mentions that. An accumulative 13 per cent. on top of 26 per cent. is a really staggering situation to be living in. The Social Contract is a method of consultation between the Government and industry, trade unions, and that is always going to go on. I heard. David Basnett, one of the most distinguished of the trade union leaders, on the wireless this morning saying that this will go on with all Governments, it always will. The trade union movement is obviously always going to be negotiating and discussing with Governments.

There is no question here of anybody wanting to confront a trade union. But when I say I do not want to confront a man it does not mean that I will do anything he tells me. It does not mean that, if he tells me to jump off Westminster Bridge, it would be a confrontation if I hesitated. If you follow some of the things we have been led into, the rate of inflation, the debts we have piled up, the staggering level of unemployment, these are not only damaging to the country but, of course, enormously damaging to the workforce of this country. I do not believe it is impossible to discuss with trade union leaders whether some of these policies are really paying off any longer. Indeed, before long their abandonment will begin to be demanded by their own members.

Therefore, my Lords, I await—we all await—the Statement which we know before long the Government are going to make. They are bound to say what package of measures they propose. I realise it is difficult. I would urge them not to wait too long. Do not let it appear that we are just being driven by the bailiffs into doing what is right. Let us look as though we are a nation capable of doing the right things not under pressure. I would simply conclude by saying this: we face a very grave situation, so grave that the other day some of your Lordships were urging, when the Lord Privy Seal made a speech, that we should find some national solution to these things. Coalitions, National Governments, are immensely difficult. When one looks at the history of this country, and the political history even of the Labour Party, it would seem to make these things extremely difficult. But I would accept that some degree of national understanding which goes beyond Party boundaries is needed in this country. The decisions which we take are not simply Party decisions; they are national decisions which have to be taken. They have got to have a measure of acquiesence by the whole nation; not by a section or class but by the whole nation. We are overborrowed, we are overspent. I accept that all of us in the years ahead are going to have less than we desire or think we deserve. But these decisions will be taken, and I hope, as we take them, we will try our level best to take them in a country which has got not too much bitterness, not too much division, but which is at least seeking the unity and greatness which once distinguished it.

My Lords, the House will be grateful to the noble Lord the Lord Privy Seal for affording us this opportunity to debate the economic situation and the value of the pound. I do not count myself as a prophet of doom but I think we shall be doing no one a service if we underrate the gravity of the crisis into which we have been flung. I should like to endorse the concluding words of the noble Lord, Lord Thorneycroft, when he said that this is a matter of the national interest and a matter which requires national decision and, in my view, national support.

Those who seek to ignore the crisis or to play it down only make the situation more serious. On the other hand, there is some justification, as the noble Lord the Leader of the House said, for saying that the view of Britain from abroad is far too pessimistic and that the pound sterling is, as a result, unfairly undervalued. That may be so, but the value of the pound is the reflection of what the foreign investors and foreign Governments judge to be our ability to extricate ourselves from this crisis on a long-term basis.

What the foreigner sees in Britain is very much the same as British management and the British investor sees. And what they both see results in uncertainty about the future, a lack of credibility in our policies, and the sheer irrelevance of what Parliament and Government are doing towards a long and medium-term remedy for our economic and political ailments. The picture they see is not one which inspires confidence, and confidence I believe is the key to success in the future. Our inflation, although it has been reduced, is nowhere near the figures of those countries with whom we have to compete. The balance of payments is horrifying, even though North Sea oil, we are told, will come to our rescue in a few years' time.

Our indebtedness to our creditors from whom we have borrowed £10 billion to £12 billion is a measure of the extent to which we are living on other people's money. And the determination of the Government, under the pressure of the militant Left, to press on with irrelevant Bills for further nationalisation, all of which have to be paid for, is further evidence that the Government have not got the measure of the gravity of this crisis. To be nationalising the aircraft, shipbuilding and ship repairing industries at this moment at a cost of £300 million in compensation alone, let alone providing the extra capital to which the noble Lord, Lord Thorneycroft, referred, which is going to be needed in order to run the new organisation, is proof that the Government have lost their perspective.

A first-class rationalisation scheme for the aerospace industry and for some sections of shipbuilding would, I believe, have produced the capital needed for a sensible reorganisation rather than saddling the taxpayer with this further dogmatic burden. In addition, to introduce a new scheme for dock labour which will add millions of pounds to the cost of our imports and exports is to my mind an indication that the Government are suffering from a death wish.

If you add to this the behaviour of the Labour Party last week at Blackpool, and for some weeks before that, I ask whether it is any wonder if foreigners and British management have lost confidence in our ability to make a national economic recovery. Let us recognise quite frankly some of the important factors which have contributed to the drastic fall in the pound. I think it started with the threatened seamen's strike, and particularly the rather dubious way in which it was settled over that critical two weeks. And then the open antagonism between some of the Cabinet and the National Executive of the Labour Party undermines the authority and the leadership of the Prime Minister at a time when it is essential that he should be seen, as he is trying to do, to put the national interest first. In my view this behaviour really has got to stop in the national interest. The increasing strengthening of the Left in the National Executive Committee merely emphasises the continuing frustration and humiliation which the Prime Minister and the Chancellor of the Exchequer are going to suffer from now onwards. In my view it is bad for Britain for that to be seen abroad.

The Motions for spending billions of extra pounds on every conceivable national activity and the rejection of any further spending cuts were almost the final dangerous stupidity perpetrated by the Labour Party in Conference. I know it is all very well to say, "Well, Conferences do this sort of thing". Indeed, in the Liberal Party we probably do worse things. But we are in the middle of an economic crisis in which the Government have a very serious responsibility to the whole of the nation. I say this is almost the final dangerous stupidity perpetrated at Blackpool. I say "almost", because believe that probably the most significant vote at Blackpool was the overwhelming decision to nationalise the leading banks and insurance companies. I believe this will be seen to be far more important than people have realised in the last few weeks. This showed a wilful determination to expand the public sector against the advice of the Prime Minister—a public sector which already handles over 60 per cent. of the nation's resources—and a determination to take a giant stride towards creating the full corporate Socialist state which some in the Labour Party really want to see, led by Mr. Wedgwood Benn, who has made no secret of this at all.

National Socialism.

National Socialism. It was an open snub to the Prime Minister. It was a deliberate and calculated blow to private enterprise, and it will do incalculable damage to the credibility of this section of private enterprise so long as the threat of nationalisation hangs over it. I think it must inevitably increase the lack of confidence abroad when this kind of thing is seen to be happening.

In my view, this Motion by the Labour Party was one of the most irresponsible actions, for which we, as a country, will pay very dearly indeed. I take the view that we now have far too much nationalisation; we have far too much of our resources in the public sector. Any more of it is going to kill the mixed economy. It is going to upset the balance of the public and the private sector to the point of no return. The private sector simply cannot carry a public sector comprising something like 70 per cent. of our total resources, and I believe that this resolution to nationalise the banks and insurance companies is the signal to all of us to bring the risk of further Socialist measures to an abrupt end.

If we do not take this warning to heart, these firms will be nationalised at some point in the next decade or two. It may be five years, it may be 15 years, but come about it will; and I do not believe there is any way of escaping it except one. We have to make it impossible for this to be achieved. This then is why I believe we must examine the relevance of our political system to the needs of the national interest, and why we must protect Britain from being at the continuous mercy of a small, vocal, militant minority bent on exercising monopoly power. This is why our present political system has to be re-examined with very great urgency.

Consider what will happen if we continue with the present "first past the post" system. The issue of the nationalisation of the major banks and insurance companies is the corner round which one approaches the full corporate Socialist State. Once these are in public ownership, there is no going back. It is inconceivable that with a Conference majority of six to one behind it it will not find its way into the next Labour Manifesto. If it does not get into this Labour Manifesto, it will certainly be in the one after that. Labour may well lose the next Election, but what is clear is that so long as a minority of voters can put a Left-Wing Government into power, as they can under the present system, it is only a matter of time before the banks and insurance companies will be nationalised and the corporate Socialist State then takes over. In other words, the Election of a non-Labour Government under the present system will only buy time. That is all it will do. It will just put off this nationalisation for a while.

If we want to buy safety and stability in our system, we have to change that system to ensure that the true wishes of the people are reflected in the seats of the House of Commons. Under the present system a mere handful of people in the constituencies can select a Left-Wing Member and, in a safe seat—there is no question about it—he will be elected. A relatively small group of these people, totally disproportionate to the electorate can then force the pace towards more nationalisation. They are assisted in this by a parallel movement on the National Executive supported by the card vote of the trade union movement. Given Labour's mania for their Manifesto, the situation is created whereby a mere 10 per cent. of the Members in the Commons are able to overturn our industrial system.

The lesson has to be learned very quickly; it is no longer a question of justice for a minority Party. That has gone by the board a long time ago. It is a question of cutting extremism down to size by making sure that it is represented only in proportion to its electoral vote.

That is what it is all about and in the interests of democratic safety I believe that that is what we must do. In the interests of the nation we urgently need to change the present political system to one which truly represents the views of the people in proportion to the way in which they vote at a General Election.

My Lords, after the outstandingly noteworthy speeches with which your Lordships have been blessed this afternoon, I, who have spent more of my life in the counting house than in the debating chamber, rise with even greater diffidence than usual. But the fact remains that last week the pound sterling fell abruptly to its lowest level in world estimation, and it is world estimation that makes the price. It was a substantial further fall below the level already reached after the calamitous months of depreciation, the full harvest of which has not yet been reaped in higher prices for imports, essential imports and food. The fall occurred notwithstanding a most statesmanlike speech, to which the noble Lord, Lord Thorneycroft, referred, by the Prime Minister, a speech of great political courage in the contemporary political scene, a speech which, I have little doubt, was welcomed by the vast majority of people in the country who are deeply concerned at the dwindling worth of our currency, and a speech showing that the Prime Minister at least had the measure of the situation.

But the world at large—disappointingly no doubt to the Government and indeed to everybody with the interests of the nation at heart—was not impressed. Sterling fell further. High rhetoric is today, I fear, as debased as sterling. In the growing gravity of the continuing decline in confidence in Britain and about Britain, action was anticipated to follow-up those words, however brave. Indeed, when I came to the House on Wednesday, the 29th, to listen to the noble Lord the Leader of the House I was expecting an announcement of action, of some measures and plans, and I am sure that many noble Lords who attended the House on that day came for the same reason. The Leader of the House made a Statement that I sensed he himself was not wholly confident met the occasion and this House made it very clear that it regarded it as inadequate to a degree almost insulting to Parliament. I use those words advisedly because I shall refer shortly to the power of Parliament as an essential key issue in the restoration of confidence.

Then we had the Chancellor of the Exchequer telling the nation in a television interview that he was applying to the International Monetary Fund for standby credit, as was reported by the Leader of the House, up to the last tranche or up to the last penny in the stronger currencies for which we can look to from the IMF, and this was not reported to the House—basing his application to the IMF on a continuation of the very policies which have led us to our existing deplorable state. Whether that expression of intent was a display of bravado, complacence or arrogance I do not know, but it was certainly most unwise. It cannot increase confidence in us as a nation or in sterling to proclaim to the world that we are so hell bent on the disaster course we are following that we need for survival every last penny we can raise by borrowing from those who have been following more prudent and provident policies to enable us to continue our imprudence and improvidence. It is like the last throw of the compulsive gambler waiting to see the ace turn up—or is it North Sea oil? Surely this is not a wise prospectus to tender to our prospective further creditors and not a wise thing to say to holders of sterling. Even when this claim has been withdrawn and modified, as I am sure it will be, it will leave behind it an inevitable residual mistrust at home and abroad.

In the weeks that lie ahead of organising rescue to us in our parlous financial state, I have no doubt that we shall hear noises from the uninformed, the prejudiced and, I am sorry to say, the subversives in our society. Indeed, there were some such noises in Blackpool last week, to which Lord Thorneycroft referred, about the insatiable demands of the moneylenders, the extortion of international bankers and similar claptrap. I want to bell this cat so that it can he recognised for what it is, for it is important that the discussion that goes on in the country in the coming weeks is informed.

It is to the International Monetary Fund and not to foreign bankers that we now need to look for the aid we need. The IMF does not consist of bankers; it is no cabal of foreign financiers. Its governors are, in the main, the Ministers of Finance of member countries; its directors and staff are, in the main, international or national civil servants and its resources are derived from the official reserves of member countries. The funds we need are the currencies of countries which have managed their monetary affairs with wisdom and prudence.

The IMF, of all the post-war international institutions, has probably done more to build up and sustain the high level of international trade which has diseminated the widespread prosperity of the world that we have seen in the postwar era up to the last recession, and indeed in this recession the IMF has made a very important contribution. Its latest efforts to curb the further resort to import controls will, I have no doubt, command wide support in the world from all who have the interests of increasing international trade as the right solution to the reduction of unemployment.

It is in the nature of its resources, which are part of the reserves of other nations, as well as in its Articles that the IMF must exercise responsibility in the use of its funds in requiring a Letter of Intent satisfying the Fund of the viability of the monetary and economic policies of the borrower, with progressive severity as the amount of the borrowing increases.

We have reached the ignominous position in that our level of borrowing calls for the severest surveillance of our monetary policies, having managed our affairs in such a way as to be dependent on those borrowings and, indeed, through our imprudence, even posing a threat to the stability of the whole international monetary system. The IMF has a heavy responsibility to all its members to eliminate that threat by ensuring that its assistance is used to this end and not squandered, as would appear to have been the case with the drawings that were made earlier in the summer under the central banking stand-by credit of 5·3 billion dollars. We have therefore to brace ourselves to the fact that while it is for us to put our house in order—which is what we must do if we are to survive, and if we are not to default on our obligations and debts, and continue to pay for our essential imports—our planning and performance will be under the scrutiny and surveillance of the IMF, in which is vested much knowledge and experience of those who have not thrown away their independence.

But the newspaper talk of difficult negotiations with the IMF introduces the idea that this is some sort of bazaar or bargain basement. It is not and it is unlikely that the Fund will ask us to do more than we should, in our own intersets, be doing in any event. I feel that it is important that the facts should be known for what they are and that it is essential to quieten any incipient, misplaced and perhaps politically stimulated emotionalism on this subject, of which are we bound to hear a great deal more.

As to the monetary measures that may be necessary, I shall not go into any detail. I think that that would be premature until we see what the Government have in mind. Clearly, however, the measures will include more effective management of the money supply, as the noble Lord said, a lower demand by the public sector on the resources of the nation and—as I have said since my very earliest days as Governor of the Bank of England—an attack on inflation. Inflation or depreciation of the currency poses, and, in my view, always has, the greatest single threat to employment. The failure of the Government to achieve their targets of reducing inflation this year—targets which anyhow were very inadequate in comparison with those of our chief industrial competitors abroad—bodes ill for employment in the year ahead. Nonetheless, I feel that, if an adequate and comprehensive stabilisation plan which releases our energies to productive effort instead of tottering from crisis to crisis—though this Government is not new in that respect—were to be evolved, and if the Government of the day could exercise the courage of their convictions in such a plan, recovery could be surprisingly rapid. But until that is achieved our decline and our difficulties will increase.

The present financial crisis—the worst of my lifetime—is of course part of a wider crisis of confidence. There is no more certain way of creating such a crisis than by debauching the currency. But the wider crisis of confidence in Britain and about Britain stems, I suggest, in addition to our financial plight, from increasing confusion as to where power and sovereignty ultimately lie in Britain. Do they lie in Parliament or not? Of course there have always been pressure groups both inside and outside Parliament, but, historically, such pressure groups have recognised themselves as protagonists of the self-interests of those whom they represented. While accepting that the Government of the day—which can of course by changed by the electorate—carry the ultimate responsibility of the wealth of the nation and the community and that, in the final analysis, Parliament makes the laws for the good of the land and that the laws are there to be obeyed, there are pressure groups today (and the trade unions, of course, come to mind) which give the impression that they expect the right to dictate to Parliament what the law should be. On occasions, they even give the impression of supporting those who set themselves beyond the law.

There is also the impression that some Ministers prefer to announce important Government policy outside Parliament on television or wherever it may be rather than in Parliament. I referred to that earlier in relation to the Chancellor of the Exchequer. I am not seeking to make a profound moral point but to point to the lack of national cohesiveness which this leads to and to the diminishing respect for Parliament and, indirectly, for the law. I shall not develop this theme any further, but I suggest that confidence in the authority of Parliament and in the integrity of the currency is essential to our society and essential if we expect the confidence of our friends abroad.

Let us be in no doubt as to the severity of this crisis. Even if our IMF drawings are approved—and that will he under some conditions—that will give us mighty little breathing space. Time is becoming painfully short to establish the balance essential to us. The time is past for bluff, bluster and wishful thinking—and what a lot of wishful thinking there has been over the years! What we need now is leadership in action to return to responsible monetary policies, and that can come only from Parliament. I have no doubt that whoever gives this leadership will command the overwhelming support of the country.

My Lords, in the clutter and the din of an immediate economic crisis, I believe that it is always a good thing to start by looking at the immediate causes of that crisis; to relate it secondly to the deeper struggle for economic viability which is going on in the country—and it is being waged by the Government; and, thirdly, to examine the alternatives proposed by the Opposition as the way out of these longer-term difficulties. I propose to try to do all three very briefly and I hope that I shall persuade at least some of your Lordships that what the Government are doing at the moment is on the right tracks in its broad terms, and that there is no politically possible alternative to the broad sweep of the present measures and the policies for the economy which they are pursuing.

I was interested to hear the noble Lord, Lord Thorneycroft, say that he felt himself very much in agreement with the package proposed in The Times some days ago. It was, he said, rather similar to the Tory Party package. I shall come to that package in a moment and I should like to consider how feasible that package is. Let me, however, start where I said I would, with the immediate cause of the crisis. We know why there was a run on the pound last week: we know what happened on the foreign exchanges. That is not to excuse it nor to blame anybody because we know what happened. For the last two or three years there has been a large amount of foreign deposits in this country, probably largely as a result of the world wide rise in oil prices. Something over £3,000 million was involved. In effect, this has been partly covering our balance of payments deficit in the last year or two. What happened in the last year was that some of that sum began to be run down rather more rapidly than was healthy for us. Half or one-third may have been taken away and put, for reasons that are self-evident to the people concerned, into safer currencies—currencies that are more stable for the moment.

What happened in early September was also known. We know that, speaking very broadly, confidence declined more rapidly. There was a fear that the money supply in Britain was increasing unnecessarily, that there might be a seamen's strike and that our anti-inflation plan was not running to target. On Friday, 24th September, before last Monday, some orders to sell sterling were placed and on Monday morning no one would take them under 1·70 dollars. The pound fell rapidly below that figure. That was the immediate cause. It was a movement of funds from London, funds which had been here up till now. The Sunday Times seemed to me to get it pretty right yesterday when it said that:

"Last Monday morning dealers found difficulty in finding buyers for that sale of sterling and the pound fell to 1·70 dollars. What followed was a traditional speculative panic".

I am not blaming speculators. All I am saying is that there was an element of this in it; but it was also symptomatic of the fact that people wanted to withdraw funds from this country, where they had had them on a fairly short term, and to put them for the time being into a safer currency.

I am not going to run away by saying therefore that all of this is a bit of speculation; not at all. We have to look at the deeper reasons as to why those gentlemen, whoever they are, in whatever part of the world, wanted to withdraw their money from sterling. Here we look at the great battle that is going on in this country, the deeper cause, the deeper struggle that is being fought, with great success in my view by Her Majesty's Government, to get us out of the causes that brought that lack of confidence.

The economy is extremely vulnerable. Why is this so? Why does the panic about the seamen's strike, or whatever else it was that week-end, suddenly push us below what we think is a tolerable and even a rational limit for sterling valuation? The battle over economic difficulties which is going on in this country at the moment is on five fronts. First, we are trying—and this is no fault of the Labour Government because it inherited the situation—to get right an enormous breakdown in our balance of payments systems, having been knocked sideways as we were by the rise in oil prices. Secondly, we are trying to cope with 1½ million unemployed, the result of a world recession which again is no making of the Labour Government. It was, I think, the noble Lord, Lord Thorneycroft, who said that we cannot have our economic cataclysm. But, without it, we are trying, thirdly, to get right the level of industrial investment in our economy and turn round the long economic decline which has been going on, following the 'fifties, indeed following the Second World War.

Fourthly, we are fighting the battle of inflation. Do not let the noble Lord run away from that point. I do not think he was being partisan; but he rather omitted to make the point, covered by my noble friend, that that situation was well stoked up by the expansion in monetary supply long before the Labour Government came into Office. Lastly the fifth battle, the fifth front on which we are fighting, is, as the Prime Minister said at Blackpool, to get the economy and the people willing to accept that we have had an expansion in social and local government spending by 20 per cent. while we have had an improvement in our gross domestic product of 2 per cent.; and rectification for that has to come. We cannot go on any longer in that way.

So we are fighting those five battles, and that is the fundamental problem that faces us. One cannot tackle just one of those in isolation until one examines the effect of that tackling on the other five. Here we now come to the noble Lord, Lord Thorneycroft, with his espousal of The Times solution. The Times solution is to tackle one of them, what it calls the excessive spending by the Government. It wants a £5,000 million cut in the borrowing requirement. It is a long time since I was an economist although I was one once. So I take a better economist than I am to give me the results of a cut of that kind which the noble Lord supports. That £5,000 million cut—and I take this from the letter in The Times by Mr. Wynne Godley, backed up by a letter from my noble friend Lord McCarthy, in a later edition of The Times —if made immediately would put retail prices up in this country by 10 per cent., would bring output down by 10 per cent., and would create another 1 million unemployed.

I simply relate those facts, as given by a prominent and respected economist, to ask this: what then would happen to the other five in the package? What would be the effect of those figures on the will to invest in this country and get our country on to the right road towards standing on its own feet? Of course there would be complete collapse of confidence if anything so drastic was suddenly done in the British economy. What would happen to unemployment and inflation? I do not believe for one minute that, faced with that kind of thing, the trades unions would honour the Social Contract any longer. I do not believe for one minute that we would have restraint after next June, or indeed until next June, in wage demands.

In other words the very delicately constructed policy of keeping movement towards these five objectives in balance would be destroyed by the mere fact of trying to solve one of them in isolation without studying what would be the effect on the others. I go so far as was hinted by my noble friend Lord McCarthy in The Times and by others, and I ask what would happen to political stability in this country if we ever did things like this? I conclude with a quotation from this week's Economist. It says:

"For the first time in our post-war history the country lacks an Opposition which could govern in the Government's place without provoking an extra-parliamentary lurch against it which would threaten Parliamentary government itself ".

That is a profound thing to say. It is saying what the medicine proposed by the Opposition, to the degree that it is proposed, would do in the parlous, difficult and delicate stagewe are in in these matters; what it might well do would be to provoke the collapse of our democratic system.

There is not in fact opposite us on those Benches a body of men, if I may say so to them in all humility, capable of carrying out the very proposals which the noble Lord, Lord Thorneycroft, was blessing this afternoon. It would be impossible for them to do what he proposed when one calculates the consequences in the way I have been doing.

My Lords, there is something much deeper than this at stake. I think we have to understand the nature of the revolution we are in in this country. We are a country where it is no longer possible to apply the harsh disciplines and the crude incentives of a purely capitalist society. We will not get results any more by going back to slashing in this way, by hoping that people will tolerate 2½ million unemployed, by hoping that they would not respond by asking for substantial, indeed atronomical, wage advances. These things are no longer possible in our society. Power is not concentrated in one place any more and people will act to protect themselves if disaster of that kind is threatened on them.

Moreover, we cannot go to the other extreme—and I do not want it—espoused by the neo-Marxists who want a closed economy, a siege economy with rationing and the closing of our borders. I join with the noble Lord, Lord Thorneycroft, in ridiculing all that. But I hope he will accept from me that we in Britain are in the middle of these two extremes. Harsh disciplines, rigid planning and all the other things cannot take place; direction cannot solve our problems by force. We have got to govern, and we have got to take the British people through this cure of our economic malaise, essentially by consent. Otherwise the danger to our political system might well be as extreme as the Economist points out.

I take some comfort from the fact that this is exactly the case in France today. M. Raymond Barre, the Prime Minister, we recall came into office in order to put an end to inflation. But after consulting the trade unions and all the other sectors of society he came forward with a package. The interesting point is that it is being attacked in exactly the same way as we get attacks from the Benches opposite: "not ruthless enough, let us go right back to slashing and unemployment". But M. Barre, having spied out the land as a new Prime Minister, and having met the trade unions in a way that no other Prime Minister in France in recent years has had to do, has come forward with a much more temperate package, saying that they all have to work together and by consent.

So, my Lords, I end by saying this. We are on the road to solving each one of those five factors in our economic weakness. It is, for example, the case that we have got the trade unions agreeing not just to hold wages but to accept a voluntary and drastic fall in the standard of living. How much further do noble Lords think they can push them than they are willing to accept at the moment? We have a Government who are cutting public expenditure and are determined to hold it level for coming years. Furthermore, they are not, as the noble Lord, Lord Thorneycroft, said, borrowing to keep up our standard of living: the Government are borrowing in order to get investment in this country so that in the years ahead we can get our gross national product increasing from that better industrial investment. We have got export led expansion. We have got industrial peace for the first time for many years. The amount of money going into industrial modernisation is a success story still to be told. All these things are a success.

The Government will be knocked sideways for a little while from time to time on the long road of balancing all those things that I have been talking about. It is for a short term only, we hope. In two years' time the major one of these should be solved or should be greatly helped by oil revenues. Our balance of payments should not be the disaster it is—the cornerstone of our present disaster. So it is a two-year slog that we have. I say—and I think I am carrying noble Lords on this side of the House with me—to the Government, "Keep your nerve; we have got to go through these things in a long haul of this kind. The policies are basically right; they will carry consent. The danger is the alternatives would never carry consent and the whole pack of cards will fall on our head if anything extreme is attempted."

I conclude with one suggestion for the Government. It may well be, following again the letter—the eminent letter, if I may say so—in The Times from my noble friend Lord McCarthy, that there is one further measure that we will have to contemplate in order to get through these next two years; and that is some restriction on imports. I would join with the Liberal Benches in being against wide sweeping restrictions but I would join with my noble friend, for the very good reason that he sets out, in suggesting that we should really be considering an import deposit scheme—on imports other than raw materials and food. I do not think it would be badly received if we did. I think we are trying to cut imports by—what?—5 per cent. at the most. We have not got to slash them to get some viability in our balance of payments.

If we would only use the good will we have in the EEC now that we are members, if we would only exploit (in the best sense of that word) the real sense of being in a tightly knit family that membership of the EEC carries, I believe that if we go to the other Governments of the Nine we would get sympathy for that sort of measure if limited for, say, the next two years until oil revenues come along. We may even get sympathy from France because they are going through it too; and President Giscard d'Estaing and M. Raymond Barre would fully appreciate the problems we are facing. So 1 say, if this is really on the cards let us see preparation for such a system; let it be worked out. Let us not hesitate for too long in bringing it into operation. It may be the one final bit of armoury needed to get us through the next couple of years.

I do not want to trespass any more on your Lordships' time. I conclude by repeating what I said to Her Majesty's Government: do not be afraid in the coming two years. This is the first time for many a long time that a Government have a consistent plan of attack on all the basic weaknesses of our economy and are steadily and quietly succeeding. Whether it is speculative movements or legitimate movements of funds, such things may knock us off course from time to time. But keep your nerve. I believe that the Labour Government are on the right lines and that to adopt the policies being advocated by noble Lords opposite might well mean the collapse not just of Government but of our form of democracy itself.

My Lords, one cannot but admire any man who defends his corner with the eloquence and the array of selective knowledge that the noble Lord, Lord Northfield, has just done. I wish I could feel that 50 per cent. of what he had said really reflected the situation, but I cannot; and in the very few remarks I will venture to address to your Lordships I propose to take up the concluding passages of the speech of my noble friend Lord Cromer. I want to begin by asking a question. Can your Lordships recollect, ever since Parliamentary Government first took root in this country, a time when so many people had persuaded themselves that the nation was more or less ungovernable? That is a very general view today.

How has it happened? The crucial event was the defeat of the Conservative Government by the National Union of Mineworkers. After that confrontation, important groups throughout the country came to believe that any big union could defeat any Government; and the assumption very naturally followed that a body or bodies outside Parliament must be allowed a veto on Ministers' policy. It is that assumption which has proved so disastrous for Parliamentary Government and, in consequence, for the sound management of sterling. We do not seem to realise—think the noble Lord, Lord Northfield, was a good example—how vivid to our friends abroad are the wounds which we have inflicted on ourselves. Any foreigner can see that the will to govern ourselves in the interests of the whole nation has been paralysed to an extent which puts our solvency and our currency at risk.

The moment Her Majesty's present Ministers came into office, they joyfully handed half their responsibility to a body, not elected by the British people, constitutionally sectional in its aims, and, worst of all, incapable of delivering their side of the Social Contract. The noble Lord, Lord Peart—and, as an old friend, I join with others in welcoming him as Leader of this House—said that the Social Contract was being universally observed. My Lords, that is not true. The noble Lord himself comes from the North of England. Let him go to the North-East coast and inquire whether the workers on the construction sites have ever paid the slightest attention to the Social Contract. He will find them—I know about them very well—and similar groups all over the country, totally contemptuous of the 4½ per cent. or the £6 limit. If any noble Lord doubts that, the official figures of earnings this year, accompanied, of course, by inflation running at 13 per cent. or more, prove that the Social Contract is being broken every day; and as domestic prices rise due to the fall in the pound, the defections will increase.

Now in this situation the general public are like the passengers in an aircraft which has been hijacked by the consent of the captain and the crew. A specific example of this collusion is the dock workers Bill now before your Lordships' House. But the basic evil, something we have never really grasped, has been the insistence of the TUC on policies the cost of which must produce an enormous deficit in the Budget. We shall not get back on course until the contract with a body outside Parliament, which cannot fulfil its side of the contract, is replaced by an understanding with the nation as a whole, which will command the assent of the great majority of the electorate. We have a duty in this House, the more urgent because the other place is not sitting, to give what advice we can on the nature of such a national understanding. The appeal has to be very different from the Chancellor's shameful remark that unless we borrow the last available dollar we shall have 3 million unemployed and riots on the streets. Foreign money will not do the trick. There is no cure except the cure that we work out for ourselves and put into practice because we care for our country.

I agree with my noble friend Lord Cromer that time is very short. The morale of the public is now as low as I remember it and their ears have been dulled by false information and busted forecasts. Long and sophisticated arguments will not now penetrate their hearts and minds. Fortunately, the whole range of objectives can be expressed as no more than two. First, a reduction in unemployment and, secondly, a medium-term prospect of an economy strong enough both to finance Government expenditure without a deficit and to balance our accounts with the rest of the world.

Those two objectives have to be pursued consistently, which they are not at present. Paying a subsidy to collect driftwood on the beach creates a job but it does not strengthen the economy. Very well, what are the immediate sacrifices required to create worthwhile jobs and to balance our accounts; and how could they be made acceptable? It is essential to recognise that although Government expenditure must be sharply reduced, there is not time to reduce it fast enough to deal with the borrowing requirement. Central and local government services could not now be cut or central and local government servants laid off in time to save the pound. Therefore, a more immediate remedy' has to be found. I think it could be the following.

Everyone who pays income tax could be asked to accept a sacrifice on the lines of the post-war credit scheme. For the next two years their assessments for tax would be increased by a flat percentage which they would have returned to them in a tax credit repayable on attaining pensionable age or earlier if financial circumstances permit it. That scheme worked well in the war; and, given good leadership and a well-constructed package of other measures, it would work now. But in return for the tax credit scheme, which would deflate every income tax payers' spending power, the Government would have to restore confidence in all quarters; and this I believe it could do by giving the following undertakings.

One, the forced savings would only be used for one of three purposes: to reduce the Budget deficit; to create jobs in enterprises which all of us and the foreigner could see would lead to a stronger economy; and to provide training for such jobs and for special skills in design and development. Two, further nationalisation and new expenditures which had no direct and high economic justification would be abandoned. Three, collective bargaining for wages would be restored. Four, legislation would be introduced to move rapidly towards a form of industrial democracy in which the decision-making process was shared meaningfully between those who worked in and those who financed the firms concerned. All the arrangements would he made inside the firm. Five, the self-employed would be assisted to resist pressures which threaten their chosen form of life. Finally, we ought to have an early General Election and the Party which wins should be ready to invite the other Parties to join the Government. Patriotism is not dead, but it has lost a great deal of weight, and it requires a drastic change of diet.

My Lords, I rise to take part in this debate as one who, together with others, has had the responsibility of negotiating with four different Governments about the British economy and the correctives that are thought necessary. It can be said in racing parlance that I have been round this course four times and, if I may say so, I find the course very much the same with the exception that the hurdles get stiffer every time. May I also say that I speak as one of those who prefer on all occasions co-operation and consultation as opposed to confrontation. I think it important for me to say that in view of what I want to say later. May I also say that I have always believed, as indeed the overwhelmingly responsible group of British trade unionists have believed, that in this day and age, in this changing sophisticated world, it is utterly impossible for the British trade union movement—and indeed the CBI and all that that represents—to attempt to live at arms length from any Government. It would be grasping the obvious to say that this is an important debate. However, it would not in my view be overreacting to the current economic and political climate to describe it as one of the most important debates, if not the most important, to have taken place in this House.

The present crisis, in my view, is partly due to external causes and partly of our own making. The British economy is affected as much by decisions taken overseas as by those of our own Government. As I sec it, the central issue of this debate and, indeed, the central issue of the Statement issued a couple of days ago by the Conservative Party, is not so much the record, although we are led to believe it is, of the management of the economy over the past three years, its successes and its failures, but the involvement of the trade union movement by the Government in national economic and social policies. To put it bluntly, that, in my opinion, is one of the principal motivations for the debate that is now taking place in other places and of which we shall hear a great deal no doubt in the immediate days ahead.

Despite what has been said and published recently in statements on the role of the trade union movement, recent events have demonstrated beyond doubt the tremendous value to the nation as a whole of the close working and understanding and mutual commitment between the Government and the TUC. The record is there for all to see. Both have demonstrated their capacity to accept the responsibility which lies at the heart of the Social Contract, and it is a great concern to me to read in the publication issued by the Conservative Party that they want to do with the Social Contract what they did when they came into power last time with the prices and incomes policy; what they did when they came to power with the Productivity Council—and oh! how we need productivity in this country at the moment. Recent events underline the great benefits to be reaped from a policy of co-operation rather than one of confrontation.

If there are those who question this—and there may be many in the trade union movement—I suggest that they look hack to 1973 and early 1974 and recall the mood of working men and women at that time: their resentment at the unfair way that the Government were trying to impose responsibility for controlling inflation on the trade union movement; the movement's disgust at the rampant speculation in land and in property; the attempts to emasculate the trade union movement by restrictive legislation. They sound hard words. They in fact constitute the facts at that time. What has been done since, and what we are doing now as a trade union movement in full consultation with Government, is based unreservedly upon our view that this will best save the interests of the nation. There is, as seen by the trade union movement, no other way.

Despite our present instability, we face the crisis with some advantages. We are major exporters of engineering goods which should be in strong demand overseas and we have of course, as we have heard previously, oil off our own shores. But we have a basic handicap: compared with other industrial countries, our competitors' productivity in most of our industries is low and the gap is widening. Failure over recent years to make progress in this direction is of course most worrying to many people. Rather, though, than concentrating on our handicaps, it is imperative that we examine the things that we have to do to overcome these handicaps. First, we have to improve our investment performance substantially, not only in quantity but in quality. We need more investment in high performance plant which makes big productivity gains possible. We need to scrap out-of-date plant and have faster production of modern technology with more specialisation. We need a substantial reduction in unemployment and to reduce the inflation rate to the level of our competitors. We need a better relationship between productivity and pay. None of these desirable objectives will be achieved individually or collectively and put to good use in society unless at the same time we make better use of our labour resources.

We need new attitudes to the job in the United Kingdom. We have to find more effective ways of using scarce skills so that we do not run into shortages every time activity arises. We need more effective procedures for resolving shop floor disputes and wider observance of them. We need a better relationship between our wage rate structure. I do not believe that these attitudes should be regarded as politically controversial, nor should they be in a highly industrialised community such as we have in Britain. They should be in principle a matter for agreement between management and unions.

"Why then", it may be asked, "have we found it so hard to get to grips with them?" The answer may be found in our failure to accept the need for big changes in attitude and practice. Experience shows—and as I said, I have had some experience of that myself—that there is a great resistance to change in too many places. That resistance is found in employers in their investment policies no less than in work-people whether engaged in industry, commerce or services. There is also a deep and widespread scepticism about our ability as a country to follow a consistent economic strategy for more than a few years. If there is any one reason against calling a General Election now or in the immediate future, it is this.

My Lords, we need a General Election now as much as we need a prolonged drought; both would be disastrous and against the nation's interest. I believe the present industrial strategy is central to the economic challenge facing this country, a strategy which I believe will succeed. Irrespective of what is forecast by crystal ball gazing, irrespective of the description given to the Social Contract by Sir Keith Joseph as a "fool's bargain", someone might suggest that the policy we read out a few days ago might well be described as the witch's brew. So I want to say that, whatever happens, those of us in the British trade union movement are as determined now as we were when we first entered on the course. We shall not lose our nerve; I am confident that the Government will not lose theirs.

My Lords, the excellent speeches we have listened to this afternoon have emphasised sufficiently the seriousness of the economic situation that we face. I will not therefore delay your Lordships further by emphasising that point. But there is clearly no further escape from reality. It is clear today that this sterling crisis has emphasised the fundamental danger which faces the future of all of us. The question which we have to examine is: What can be done to rectify this situation? I speak as an industrialist and the points which I shall make are supported by many of my fellow industrialists. I am encouraged by the fact that I find myself very much in agreement with many of the points made by the previous speaker the noble Lord, Lord Allen of Fallowfield.

Two facts have been obvious for a long time: we have been living beyond our means, both at home and abroad; that is to say, we have been consuming more goods and services or wealth than we have been creating. This has led to excessive debt, excessive debt servicing and loss of confidence. We have also continued now for far too long to pay ourselves more each year for doing the same thing, or very nearly the same thing. Wage increases and salary increases have not been matched by increased productivity. This has led to increased costs, inflation and devaluation. We have only to look at the cost of our rail fares and how they have increased each year to be well aware of this fact.

So far, the country has lacked the full political will and leadership to face up to these two facts. Let us hope that measures will now be firmly taken to rectify this situation. Let us hope that the Government and any other authority, including both sides of industry, recognise this position and make it clear that the situation cannot continue and that the nation must face realities. I agree with the noble Lord, Lord Northcliffe, who said there should be a voluntary and unified approach. I agree with the noble Lord, Lord Allen of Fallowfield, who said that it should be done by consultation and not by confrontation. My Lords, what does this mean? It means, to my mind, that the people must be clearly told that the country is no different from the individual person, the individual family, or the individual firm. It must pay its way; it cannot indefinitely spend more than it earns and it cannot have higher earnings than it produces in the form of goods and services. The day of reckoning comes to any family, firm or country which does not recognise these facts—and that day has come now.

I would agree with other noble Lords who have emphasised from several points of view that the feeling of the majority of people is that they want to see the situation grasped and they want to see a return to stability. They also want to see genuine prosperity restored to this country. So let the people be told firmly, repeatedly and clearly that increased earnings must be dependent upon individual or collective increased output. Let them be told firmly that expenditure must be limited to what can be earned and, if it is not in balance now, expenditure must be reduced to the level of earnings until those earnings are raised.

It is remarkable to me how often one reads and hears of new proposals for spending money on new things which are said to be desirable and should be undertaken—all of which I think most of us would agree with. But they have to be paid for, and the thing which worries me is how seldom one hears any proposals as to how they are to be paid for, how the level of creation of wealth in goods and services is to be raised to make these things possible. Of course, I welcome the reference made by the noble Lord, Lord Peart, in his opening speech when he referred to industrial regeneration. Let us hope that this is the start for just that; let us create the wealth before we start to spend it.

I think it is important that we should all think clearly on these matters and on how we can put them right. One or two things spring to mind in this connection. I think that in this country we have far too many of what we in industry would call "non-productive workers". I should like to see a major shift from the non-productive to the productive side of the economy. I should like to see new plants brought into operation without the delays we hear about and the disputes that take place on how the new plants should be manned. Surely there is a better way of doing that. I should like to see disputes solved without loss of production. Surely, there is a way of doing that, too. That is not to say that great progress has not been made. I think the figures for time lost over disputes during this year, for example, are extremely encouraging, but they are still not good enough when one considers the circumstances of this country today. We have only recently had an example of lost production in what seems to have been an avoidable dispute involving one of our major car firms in the last few days.

I should like to see more effective manning of plants, with more overtime and shift working where necessary. I should like to see purpose and enthusiasm put back into our production industries. If we can see these steps being taken, two very desirable objectives will be met, but I believe that they come after the results of the actions I have been discussing. I believe this will enable the very undesirable high unemployment figures to be reduced by drawing people back into productive industry and so lead to a further improvement in the situation which we all seek. I also believe that this is the way we shall see attracted into industry the desirable investment which was referred to by the noble Lord, Lord Allen of Fallowfield, and I am of the opinion that it will be there when the time comes.

The noble Lord, Lord Northfield, referred to the harsh disciplines of the capitalist system. I am not quite sure what disciplines he was referring to, but perhaps we have not had quite enough disciplines in past years. But what we really want to see are more incentives directed towards the objectives we have in mind—for example, tax incentives. The managers on whom we rely to direct our plants and to increase productivity are much too highly taxed in this country—they are discouraged and in an inferior position in relation to their colleagues in other countries. That position should be rectified. It seems to me that the attractions of productive industry are insufficient and do not compare favourably with those of non-productive industry. It is a nonsense, my Lords, when we have the situation in this country where we read in the papers and we hear elsewhere that our bright young men are not being attracted into our productive industries because the conditions of service are by no means I sufficiently attractive when compared with those in the non-productive areas of our economy. These are matters to which attention should be directed; and we should set our hearts on achieving increased production and increased productivity.

Let us also see that the disincentives are removed. One hears so often of cases where the social security services, excellent though they are, in fact, proving to be a disincentive. We find people saying that it does not pay them to go to work because they can do so well by staying at home. My noble friend Lord Thorneycroft has referred to this, and I sincerely believe that this area should be examined. I should like to see the public as a whole recognising that those who do not work or apply themselves to the objectives of ensuring that our productivity is maintained at the highest possible level are not working in the interests of the community.

This crisis, my Lords, should bring home to every household in the land the seriousness of the situation in which we are placed and the need for positive action, together with the fact that we have no further time. Many are already aware of that, particularly pensioners and those on fixed incomes; but too many people are still unaware of it and far too many are cushioned at present from the true effects of our financial situation. All who are in a position of leadership, not only politicians but those on both sides of industry and elsewhere, should take active steps to make known these simple facts. We cannot pay ourselves more than we produce and avoid inflation. We cannot maintain expenditure levels which arc higher than our earning levels. We cannot buy from overseas more than we sell. If we are to maintain our standards of living and if we are to achieve our ambitions, whatever they may be, all our efforts must be directed to creating the necessary wealth by which those standards of living have to be paid for.

In my opinion, action not directed to these objectives must be ruthlessly put aside, however desirable it may be at the present time; whether or not it is in an Election Manifesto. I would agree with the point made by the noble Lord, Lord Byers, in his comments on the need to drop the aerospace and shipbuilding nationalisation measures. Our credit is drawing to an end and the burden of debt is now intolerable. The solution of this problem should clearly lie in our own hands. I am of the opinion that if the proper steps are taken, the problem can be solved, and I hope that in considering the measures which they must take the Government will recognise these points. If this is done, then this crisis could be a turning point for this country.

My Lords, in view of the number of speakers in this debate I shall endeavour to be as brief as possible. I must begin with a flashback to the past, because the plight that we are now in has been built up over 40 years and I have always maintained that for this the primary responsibility lies upon the Treasury, of which I have had considerable experience. In 1968, I ventured to say to your Lordships:

"Those who have most consistently opposed the Treasury policies during the past 45 years have been the most consistently right; and I am nearly at the top of the list."

Nicholas Davenport, the brilliant economic commentator in the Spectator wrote of this: "It was no idle boast."

I have had a pretty long experience of this. I was Parliamentary Private Secretary to the Chancellor of the Exchequer from 1926 to 1929. When I went to the Treasury, we had returned to the gold standard in 1925 at the pre-war parity of exchange. We arc living with the results today. They were a General Strike, a prolonged coal stoppage and massive unemployment for 10 years. Churchill was instinctively opposed to this. He was hopelessly beaten in the Treasury by Sir Otto Niemyer and Sir Richard Hopkins, and in the Bank of England by the Governor, Mr. Montagu Norman. once asked P. J. Grigg, who was Churchill's Principal Private Secretary, how he accounted for his impotence in the Treasury, despite his great gifts and administrative capacity, and Grigg replied: "I will give you a piece of advice, which as a young politician will stand you in good stead. There is only one man who has ever made the Treasury do what it did not want to do and that was Lloyd George, and there will never be another."

After the war, the American loan started the rot from which we are suffering today and which has never stopped. I moved its rejection and I got nearly 100 Members of the House of Commons to support me, with some Labour Members who included Mr. Michael Foot. It was fatal. We could not carry out the terms. I said in a speech in another place:

"We are now financing the world dollar deficit. The convertibility of sterling is imposing upon us an unbearable burden which we are simply not capable of carrying. All these arrangements will be very short-lived. They will all fall to the ground, and have to be abandoned. It is sheer, stark insanity in our present position to embark upon this ludicrous course."

What was the result? We could not carry out the convertibility clause of the American loan agreement. The American loan was washed away, and today the Bretton Woods agreement is in ashes. We have no viable international monetary system. I think the main cause of the trouble today is our lack of liquid international reserves. Keynes tried to stop this at Bretton Woods by inventing a new international currency which he called Bancor. A simpler way of doing it at that time would have been simply to double the price of gold. Neither was adopted, and the free world is today suffering from a lamentable lack of liquid reserves to finance increasing production and increasing trade.

The most brilliant man I ever encountered in the Treasury was Sir Ralph Hawtrey. They thought he was mad. They have their own way of dealing with recalcitrant members of the Treasury establishment. They locked him in a room at the top of the building, they threw all his memoranda into the wastepaper basket, they made him a Knight and that was then end of him. The last time I saw him I said, "We have no viable international monetary system. Do you think we will ever have one?" And he replied, "Not before the end of the century." The nearest we came to it were the general currency resolutions at the Genoa Conference, which crashed with Lloyd George. Now I see no hope for many years to come.

Then we introduced to the Treasury the noble Lords, Lord Kaldor and Lord Balogh. As they contemplate the stricken scene, they cannot be very proud today. But they are good friends of mine, and I have an affectionate regard for them both and take the charitable view, which I believe to be true, that they, like everyone else, were defeated by the Treasury establishment.

I now have to make a confession before I sit down. I have had only one political ambition in my life, and that was to be Chancellor of the Exchequer. I now regret that it was never fulfilled, because I could not possibly have been worse than those we have had. My noble friend Lord Thorneycroft, whom I must congratulate today on the most brilliant speech of his life, saw the red light and got out in the nick of time. Mr. Roy Jenkins at least did his sums right, but they got rid of him pretty quickly and he is now retired to the shades of Brussels.

My Lords, after such a number of really fine speeches this afternoon I am diffident about following them. Before I give my interpretation of the economic situation, I should like to say how splendidly the noble Lord, Lord Peart, has fitted into the House of Lords—I nearly say to the manner born but shall I say to the manner that we expect of him. Some of us perhaps expected a little too much: that he would echo what the Prime Minister said at Blackpool hut perhaps that was not possible for him this afternoon knowing, as he does, that we have not finished with the difficult and stringent measures that face us.

Since we came to power in 1945 after years of experience, in the hard time before the war, we can reflect on what was done by the first Labour Government and Governments since then towards increasing the happiness and prosperity of the people of this country. To list a few, homes: 50 per cent. owned by people who live in them, whereas 20 years ago the figure was 25 per cent. Hours: a shorter working week, now down to 37½ hour shifts for 45 hours' pay. Holidays: three days a week on pay; 6,750,000 people spent their holidays abroad last year. Cars: 30 per cent. of the families in this country own two cars. We have cleaner air, cleaner rivers. Our life expectancy is up and infant mortality is down. The figures for road deaths are the best in Europe, and so we could go on. That we are living beyond our income there is no doubt and despite the measures that have been taken there is still plenty of money about.

Anyone can discover the facts about this by going to any food shop—Tesco or Spar or whatever it may be—and watching the customers coming past the check-out point; dining out, and a thousand and one ways of spending money. Those with two salaries or two or more wages coming in the home do not care very much about inflation. Those with one salary or one wage coming in are just beginning to be affected. But the people with the least in their baskets as they come past the teller in a food shop are those on fixed incomes. Anyone can take this to heart by spending two or three hours on a Saturday afternoon watching people shop. I believe that we shall not get a national demand for action until measures have been introduced which really "bite"; until then this euphoria will continue.

I have spent part of this last week-end talking to some of my old colleagues in the wool trade. If the pound goes down the price of imports goes up, and import prices go up quicker than one can ever recover by increased export prices. This is the wool trade talking; it is not me talking. So as a country we have to export more by volume in order to stand still or—note this—quote prices in a third currency in order to make a profit if the pound goes down, and there is a great deal of this going on.

I should like to tell your Lordships what this has meant to small to medium sized woollen manufacturers during the last 18 months. Eighteen months ago the pound stood in terms of dollars at 2·4. At that time the wool man could take into stock dyed yarns at 60 pence per pound. The same dyed yarns are now 140 pence per pound and this week he cannot get anybody to quote. Nobody will quote the wool manufacturer a price. And yet we have to keep our export trade going and sell our goods, so we deplete our stocks and lose our capital in the process. Wool dealers will give quotations to the Japanese or the Germans or the Hong Kong manufacturers but not to us. The advantage in Japan at the moment of exporting to America when they can buy their wool at 22 pence per pound less at the end of last week than they did at the beginning of the week is an immense advantage that we cannot possibly compete with.

We once had a Prime Minister who said that deflation would not make any difference to the pound in our pockets. We have learned a lot since then and that is not such a long time ago. In the London stores at the present moment there are foreigners with fistfuls of £10 notes all clamouring to buy and we cannot replace those stocks at the prices now in the pipeline. Therefore we are giving away our capital with every purchase.

On the subject of unemployment I yield to nobody in my understanding of its effects. There was one occasion when my father and I were out of work before the First World War—and your Lordships can reckon up how old I am—and we walked from our village and called at every single mill between our village and Huddersfield. My father and I were on Huddersfield station platform and the tears were running down his cheeks and he said, "Nobody seems to want us, lad". Now we have one and a quarter million unemployed and we are going to have more. We shall have higher unemployment as a regular part of the British economic scene, as will many countries in the world who are operating under the same system. If we are going to reduce the public sector (as we must) and get unemployment down as the Chancellor said, to 700,000 by 1979 we shall have to create a million new jobs. How are we going to do it?

The other clay I came across a little note by the Cambridge group of economists. It was something that I had never heard of and never understood before, and it was to the effect that between 1965 and 1975, for a variety of reasons, our labour supply was actually declining. I have checked it and it is so. In this period there was a big rise in the number of full-time students. In addition the school-leaving age was raised and there was a fall in the birth rate. Unfortunately, that trend is now reversed and increases in the labour force can be expected until 1980, for those reasons alone. Our task is bigger than ever it was as a result.

In addition, a consumer-based economy can never have full employment because, to put it at its crudest from my point of view, when crossbred wools are popular, Merinos are down, and the same thing can be said in reverse. There are only two places where full employment can be guaranteed, the Soviet Union and China. The Soviet Union has one of the strongest disciplines in the world on the factory floor. You can have full employment if you have a very rigid discipline on the employees. The Government of the Soviet Union is able to control the reward its workers get. The surplus goes into armaments in the Indian Ocean and elsewhere as we know too well.

Russia works on the basis of employing the highest technology. But China says, "We will only admit technology at our own speed", so you have a bulldozer in one field, and in the next you have people running about with little baskets with little bits of dirt in them, so no one is unemployed. We must face the fact that if we want to have absolutely full employment we have to go Communist. But I know what the people of this country would say about that.

Secondly, I come to investments. We have heard such a lot of humbug about investments. Blame has been levied on manufacturers for dragging their feet. All this is a kind of shibboleth. If we are really going to tackle long-term unemployment, we must understand what we are doing when we invest. My understanding of investment is that, first of all, we should invest for efficiency. Efficiency in investment means that we are putting in better machines on less floor space with less labour to do a better job.

My Lords, if the noble Lord, Lord Rhodes, will allow me to interrupt him, may I say one thing to him? Does the noble Lord not realise that investment depends on the expectation of profit? At the present time, profits arc not allowed.

My Lords, my next item deals with profit, and if the noble Lord, Lord Boothby, will listen and contain himself, I will deal with it in a minute. Until we have efficiency right, what is the use of expanding capacity? How many large, medium-sized or small-sized companies today are ticking over on a 70 per cent. to 80 per cent. efficiency basis? There are many companies in the country who are not fully using their existing capacity. To invest you need the means to do it and that means a profit.

My Lords, my right honourable friend the Prime Minister skated over this very nicely at Blackpool the other day when he said, "I am using a euphemism; I am calling it surplus, but really it is profit". When you have invested for efficiency, then you can go on to capacity. That is where, in a modern society, you begin to mop up the unemployed. I think this needs to be understood by everybody in the country. It is not just a matter of pumping money into a concern to keep it going because you then encourage the idea that the Government has all the money in the world.

I am taking up too much time with my speech, so I will now move on to the subject of profits. Most people realise that one must make a profit and must have enough profit if one is to renew. On the basis on which we have been working, and on the basis of our attitude towards profit, no wonder we are in the state in which we find ourselves. The chemical industry needs 25 per cent. on capital employed to renew, because of the need for renewal. In the wool trade, the figure is 17 per cent., but the wool trade has been on no more than 9 per cent. for years. The chemical trade was on no more than 10 per cent. for many years. In Russia Konni Zilliacus and I discovered that the Russians were on profit. It happened at the twenty-second Iron and Steel Corporation meeting headed by a man called Grouzder. We went out in 1963 and discovered they were required to make 22½ per cent. on capital employed.

The workers came into it by way of a bonus incentive on top of that. Suffice it to say there is not a principal industry in the Soviet Union which is not on a profit schedule; its management has to make a profit or make way for somebody else who can. But making profits and investment cannot be unless there is growth in the economy. This is where we have allowed the situation to go too far for so long without growth in the economy. Many conferences have been attended by the Chancellor of the Exchequer. The last big one, when he went to impress public opinion abroad, was in Puerto Rico. The Chancellor came back from Puerto Rico saying that the growth rate we needed was 5½ per cent., and he has reduced it 4½ to per cent. during these last few weeks.

Manufacturing industry has come in for a lot of attention. Anybody who has listened to what I have had to say in this House over the years knows that I have often used as my main theme the question of investment in manufacturing industry. We must have growth, we must have profit. We have to have planning. Here may I issue a warning to the Party opposite, whose supporters in the country think they can lead us back to the time when the Stock Exchange was in its ascendancy. I do not believe capitalist society could ever get back to where it was. Once Government planning intervenes too far there is no return.

Last week there was a question with regard to entrance into industry. In many ways, we are hack to what I believe in the pre-war years were sentiments such as, "Get on the council: it is safe. Get into a nationalised industry: they do not sack you if work is short". That is why it takes three men to do one job in the steel industry. "If you are going to train for a job, go into the public sector", where there are whole departments in our universities and polytechnics which would have to close down if it were not for foreign students keeping open the courses in science and manufacturing subjects generally.

I finish on this note. Time was years ago when I had the privilege of being in the company of Field Marshal Smuts. One of the things he said to me was, "Never lose your faith in the true destiny of man". I have thought about that over the years in the ups and downs of politics in this country and the difficulties that we have had to face. If ever there was a time when we need faith in the true destiny of man, it is the present time.

My Lords, I am going to resist the temptation of following my old friend Lord Rhodes into an interesting discussion. When he and I get into a discussion we more often than not find ourselves in agreement, but I think he will agree that our discussions are apt to take rather a long time. I am also going to resist the temptation to follow my old friend Lord Boothby. He and I were at school together over 60 years ago. I seem to remember that at that time he was worried about the insufficiency of international liquidity. Certainly he and I were worried about the liquidity in our pockets at that time, though at that time the pound did buy a good deal.

Lord Boothby then went on to say that the finest man he had ever known in the Treasury—and then he paused, and of course my noble friend Lord Thorneycroft and I hitched up our ties and got ready to give a little bow and smirk, but it did not come. It was worse again later when he said that he would think it a good thing if he had been Chancellor of the Exchequer because he could not in any circumstances have been any worse than those who were. I should like to say to Lord Boothby that the great thing about him is his admirable consistency, because I remember him saying exactly the same thing 16 or 18 years ago.

My Lords, may I just say one word. I make an exception of the noble Viscount.

My Lords, I do not remember the noble Lord making an exception 16 or 18 years ago. With our long list of speakers 1 suspect that wide-ranging speeches from Back-Bench Peers will be rightly greeted with a degree of protest. I propose therefore to confine my observations under two headings. May I say, to start with, what a pleasure it is to join in the welcome to my old friend Lord Peart as our Leader in this House.

The first thing I want to say is how strongly I agreed with everything my noble friend Lord Thorneycroft said in his fine speech this afternoon, and also, turning round, I would like to say that I welcome the broad lines of the statement of aims just published by my Party and in particular its insistence on the urgent need of less government. I was also very interested in the interesting ideas put forward by my noble friend Lord Eccles, as he always does.

What must be our immediate priorities in the precarious situation we are now in? I know that sounds ominously like a wide-ranging speech, but it is not going to be one. It is rather like the man who was asked to chip in with a few remarks at a big conference and began by saying, "The subject of my intervention is going to be God, man and the universe". But I can set noble Lords' fears at rest by saying that I propose to set out these priorities in a few sentences, and only do so because they must dominate and restrict, to some extent, our actual policies. These priorities I believe to be, first of all—this is strictly in the economic field—strict control of the money supply. That is certainly not a complete policy in itself. As Sir Keith Joseph, regarded as a monetarist, said in one of his lectures, "Monetarism is not enough".

Secondly, a strong and continuing reduction in the deficit and the public borrowing from the current terrifying levels of £11,000 to £12,000 million. I thought my noble friend Lord Thorneycroft put that in a rather dramatic way when he said it was borrowing £35 million a day, which certainly will bring it home to a lot of people, in a simple way. As he rightly pointed out, we must remember that the cost of servicing that debt, which never worried Chancellors of the Exchequer 10 or 15 years ago, is now becoming a very serious thing in itself. Unfortunately, this must involve a considerably larger reduction in aggregate public spending than anything that has been yet announced by the Government, and the longer action is postponed, the harsher the measures will be. I do so agree with what I think my noble friend Lord Thorneycroft reminded us of; that is, that reductions in Government expenditure are extremely difficult things to bring about overnight and, therefore, you have to take action in good time.

Next, continuing wage and salary restraint. Then, I think if any further taxation should become necessary—and the present level is deplorably high—to reduce the total of public borrowing, any increase must not involve any raising of the levels of direct taxation on incomes and earnings because that level is again alarmingly high and such a disincentive. Next, I think no further increase whatever in the ratio of the public sector to the private sector. The private sector, the wealth producing sector of the economy has been shrinking, shrinking, shrinking in relation to the public sector, and it is encouraging that the present leaders of the present Government seem to have recognised that.

Why, my Lords, have I not included reduction of unemployment, which everyone must long to see, among these priorities? The Prime Minister has given the answer there. We cannot spend our way into lower unemployment in our existing circumstances. That will come about only if we get our economic policies right and then confidence will most certainly bring rising employment in its train. Those, my Lords, in brief summary, are surely the right economic priorities. I believe they are the ones which harsh events will anyhow force us to adopt. I do so hope that we shall adopt them willingly and not under compulsion.

My second heading is just a few observations on how far the current Government policies seem to relate to these priorities. Here I think we come at once to the difficulty of reconciling the kind of things, brave things I agree, that the Prime Minister and the Chancellor of the Exchequer have been saying in the past few weeks, with the range of policies that are still officially advocated by the Labour Party and still being carried out by the present Government. How can the recent utterances of the Prime Minister and Mr. Healey about the stern economic necessities we face be reconciled with the mass of legislation they are still forcing through Parliament, all of it involving more Government expenditure and all of it at best irrelevant and at worst highly counter-productive?

How can these recent statements be reconciled with the crass and blind stupidity of the utterances of other influential members of their Party in calling, for instance, for a siege Socialist economy protected by statutory barriers from the harsh and unsympathetic world outside? What could be a more effective recipe for a drastic and irrevocable fall in our national standard of living than that? My noble friend Lord Thorneycroft, I think, called our attention to what I regard as the saying of the week by the treasurer of the Labour Party. I am going to say it again because I think it is really worth saying twice:

"We can never satisfy the insatiable demands of those who are trying to lend us money."

I apologise for saying that again, but r do so because I believe that my noble friend Lord Carrington is going to do so in any event. But what a picture this presents! Mr. Healey with his back to the wall, overwhelmed by a horde of implacable lenders, gallantly fending them off and thrusting them away.

How can the Prime Minister's insistence on concentrating on urgent essentials be reconciled with—according to the Press —the postponement of what was called a very urgent discussion with the TUC fixed for today for a week in order to permit Mr. Jones to spend a week in Moscow? Is not the basic trouble that the current Government policies, all of them, simply do not fit together or add up to a credible whole? "Why," Ministers complain, "when so much is being done, does no one seem to want to hold our currency?" That question sometimes is the signal for an outbreak of that almost childish talk of foreign speculators. "Why," Ministers ask, "is sterling going down when objectively it is clearly so undervalued?" I suppose the answer is really twofold. First, the day-to-day value of sterling is fixed very subjectively according to the views of those who have acquired sterling or are holding it as a repository for their funds and have to decide whether to go on holding it or to pass it on as quickly as possible. That means thousands of individual judgments.

One of the things that worry these people when they are pondering about the effective management of sterling at home here is that they see the present Government Party deeply and bitterly divided on economic policy. They cannot feel altogether comforted, I fear, by the discordant voices at the Party conference last week. That is what worries them as it does, I think, the majority of people here at home in this country. If only the Government would make the priorities they rightly talk about their real and exclusive priorities to which all other policies would be subservient, how much brighter our prospects would be! It is actions and not words that count, and are going to count.

I have said many times in this House that we shall not emerge from our economic difficulties until we have a few simple economic priorities which will attract the positive acceptance of the overwhelming majority of the people of this country. Why do the present Government, while saying so often that that is what they want, do so many counter-productive things which make that unity so difficult to achieve? The majority of people in all walks of life now recognise the precariousness of our national situation. They are yearning for common-sense remedies. If the Government, on whom the responsibility lies, would concentrate on those real economic priorities which moderate opinion in all Parties could support, and lay aside for the time being all other aims and aspirations, they would be surprised at what the national response would be.

The nation at large is far ahead of the Government as a whole and the Party which supports it in recognising our true position, and being ready for the sacrifices called for to stop us having to go on living on borrowed money. But it does expect the Government with a single voice to spell out the true facts, and not go on pretending that by manipulation we can go on spending more than we are earning. I want here to say once again that I am excluding from that criticism the recent statements of the Prime Minister and the Chancellor of the Exchequer. The public expects the Government's actions to be in accordance with their pronouncements, and it expects the Government to concentrate their actions solely and exclusively on a few essential priorities, those on which our national recover depends.

My Lords, I would ask leave of the House to add one word of congratulation to the noble Lord, Lord Peart, on his arrival at the Front Bench, and to congratulate and thank the departing Leader of the House, the noble Lord, Lord Shepherd, for the kindness and courtesy that he has always shown to us on this side of the House. I have listened to the debate with great interest for more than three hours. It has been a fascinating debate, and quite rightly its emphasis has been laid on the basic causes of the malaise, the sickness, affecting the economy. It would be a poor doctor who treated the symptoms, and the speeches that have been furthest from the truth this afternoon have been those that have talked of symptoms and not talked of causal effect.

In fact, I am going to quote, as the noble Lord, Lord Northfield, did, an article in the Economist on 2nd October 1976. That article saw two virtues in applying for funding from the International Monetary Fund. One of those virtues was that Britain would give up its last pretensions to be a fringe reserve banker to the world. This would, in the Economist's opinion, be better than having a run-out of balances every time the right wing financial adviser of a Left Wing cocoa republic had been scared by a speech advocating bank nationalisation, because such runs can drive sterling into possible accumulative undervaluation. The truth of the situation this afternoon is not in the flippancy of the first part of that paragraph but in the cumulative under valuation of currency which has been a feature of life in this country for 40 years, as the noble Lord, Lord Boothby, so rightly said.

The second virtue that the Economist detected was that if the IMF were to lay down stern conditions it would be a salutary effect on the Government of this country because, the writer of this piece went on to say:

"The IMF should give Britain better Government than successive teams of Labour and Tory politicians have done ".

So here is a challenge, then, to both sides of this House, and not to one side of it, to understand the nature of the critique that is being mounted against Government in this country in relation to its economy in the last 40 years.

Despite the careful description of the noble Earl, Lord Cromer, of the IMF, despite the Economist's admiration for it, and despite this British Government's quite proper and correct application for funding from it, the Government are not about to hand over to an extra-territorial agency the control of the affairs of this nation. When I apply to my local bank manager at Lloyds for assistance in a temporary crisis, he does not tell me that I have to change my religion, although he might ask me to modify my style of life temporarily. So let us get clear what is happening in this situation and understand that even Her Majesty's Opposition will have to wait for a long time yet before that much cherished hope of a national Election is forthcoming. May I say, too, that it is a welcome thing that we have this afternoon frankly broken through some of the smuggery, some of the hypocrisy, which has interlarded our debates and have had, from both sides of the House, a frank political discussion of a frankly political economic strategy.

The international speculation against sterling at the present time is not by a Left-Wing cocoa republic but in fact by the oil exporting countries and, in particular, by those States that have switched funds from London. In eighteen months—and the noble Earl, Lord Cromer, will be able to uphold this, although he ignored the fact—the sterling balances held by the central banks and the oil States have been run down by £2,300 million: more than the total balance of the payment deficit throughout the whole period. It is important to make that point clear.

Tributes have been paid—I will not be grudging in them either—to the speech of the noble Lord, Lord Thorneycroft, a former Conservative Chancellor of the Exchequer. He once produced a Government document labelled "Top Secret" which found its way into an official inquiry into the way the City conducted its affairs. I hasten to add that the inquiry found that there was no substance in the charge laid at the time. However, the top secret document produced by the noble Lord contained nine points. I remind noble Lords that this was 19 years ago, not three weeks ago when we were almost "blown off course"—a phrase which keeps repeating itself—by the National Union of Seamen's attempt to secure their position at the expense of other people's.

Nineteen years ago these were the points made by Lord Thorneycroft, who today spoke very well within his Party's position and limits of his own philosophy. The Government were determined to maintain the internal and external value of the pound. There was no remedy for inflation other than a control of the money supply. We cannot live better than our resources allow; therefore there must be a limit to current civil and defence expenditure. There must be a cut in the money supply—it should be cut and investment held down in the public sector. Government Departments in particular should cut there spending policies; local government and nationalised industries must bear the brunt of it and the private sector would be restricted by the limitation of bank loans. Banks would co-operate by restricting credit.

There were two further important points. One was this:

"In addition to the need for dealing with this internal problem, we"—

that is, the Conservative Government—

"have to consider the pressures which have recently developed upon the external value of our money."

That was 19 years ago, not three weeks ago. It went on:

"The change in the exchange rate of the French franc generated large-scale speculation among the world's leading currencies, in which sterling is most necessarily involved because it is so widely held."

Nobody has said this afternoon that much of the speculation against the pound in the last three weeks has been caused by the anticipation of a revaluation of the German mark and the profit which it is expected will be made by the holders of sterling when they move into that currency from ours. The top secret document which found its way into everyone's house contained this further point:

"The Bank of England with my approval have announced the raising of the bank rate from 5 per cent. to 7 per cent."

That was a rise of 2 per cent., and there was relief in the City last Thursday afternoon when the indicator went off and came on at the same fraction at which it had gone off. It continued:

"This exceptional rise is made necessary because of heavy speculative pressure against sterling, but an increase was required in any event to give support to the measures already referred to during the period in which they are developing their full effect."

That brings me to the question of timing. No Government, no Chancellor of the Exchequer in the past 40 years, has had sufficient time within the life span of one Parliament, one mandate from the people of this country, to implement the policies he has gone into office to implement, and the real difficulty facing any Chancellor, whatever his philosophy, is that time runs out and the mandate with it. No matter how well the Government have worked to the mandate of their Manifesto, they can never do it to the satisfiction of their own supporters, much less to the general satisfaction of those who voted for them or did not bother to vote at all, and hold themselves in office for a further period. There have been times when Chancellors, knowing the odds, have accepted them. There was one notable period which needs to be brought clearly into today's debate.

This country was last in external balance in 1972. The nation responded to stringent measures taken by a Labour Chancellor of the Exchequer, accepted by a Labour Government, albeit with a great deal of protest, carried through with the co-operation of the trade unions and people throughout the country. Many of those who suffered the most squealed the least. That policy was carried through and at the end of it the economy came back to health. The rise which occurred in 1972 has been completely negated by the rise in the prices of oil and other commodities and by interventing policies for which there was no excuse, only timeserving and pleasing the electorate.

The worldwide recession has made it impossible to recover ground by raising our production. Real personal incomes after tax, however, are still about 6 per cent. above the level of mid-1972. It is quite apparent that this gap between movements in what we pay ourselves and what we earn as a country has to be closed. Real personal income for most of us, for me anyway, means take-home pay; we are concerned with what it will buy. The relationship between the two must be brought down to more realistic levels and under the voluntary incomes policy a start has been made on a critical and difficult operation. It is not tinkering around the edges, not proposing some minute adjustment here and there to advantage a few. It is not questioning whether it is fair that the Government should hold office when they have been elected within the Constitution. It is a basic and painful realignment. I do not believe that any other Government or policy could have held the confidence and acceptance of the country better than has been the case under the present Government. I say that, frankly, as a supporter of the Government but with challenging things to say from time to time about specific aspects of their policy.

One feature of the mechanics of this return of real personal incomes to more realistic levels has been the protection built into it of the poor, the lower paid, the handicapped and the unemployed, people among whom all of us live. For many years our society was accustomed to annual increases in its national income. The application of similar percentage increases at various income levels tended to widen the differences in income between various groups. Whether or not we consider this desirable or inevitable, it is plain that, when faced with a fall in income, it would have been intolerable to increase or even maintain the differences. Not enough credit is, in my view, given to the Government for their efforts to ensure social justice at a time of a fall in national income, and many people have chosen to ignore that.

One consequence of this policy was a more rapid fall in average take-home pay in the past 18 months than in all incomes, including those of the pensioners and unemployed. We do not hear much about that. In previous severe recessions citizens with low buying power had to bear much more than their fair share of the burden of adjustment. This is the point which my deeply respected noble friend Lord Rhodes, for whom I have the greatest affection, was making and who I think will recognise with me that this, in the recent stages of the Administration, has been something we would both underline with pleasure and respect. Pay in excess of what the country can afford applies also to some aspects of the social wage. The Government have taken measures to cut back public expenditure entirely because these will bite as the recession recedes. There has been a good deal of criticism of these cuts in the Labour Party and I have in this House criticised cuts in the education services, and I will continue to do so.

These cuts come as a shock to people like me whose public lives have been devoted to the ideal of better public services, but they can only be criticised in principle if we are determined to ignore the fall in our real incomes. The remedy for our situation will only be found if we shed some of our illusions and accept the real position. We must devote our energies and efforts to putting matters right and to fighting on for those things that we wish to see. Cutting personal incomes is by no means the only way to put things right. The positive way is to earn more.

In this context, the policies of the Government are so realistic as to be painful for some of us. I do not know what more some people would expect. It is a long time since I heard such frank speaking by any Minister on the emotive question of the necessity for profits if industry is to expand. The Prime Minister referred to it at Blackpool and there have been a great many what I might call "crocodile smiles." There has been a great deal of patting on the back of the Prime Minister. He has received support in places where he has never found it before. This afternoon, he has been congratulated on making a brave speech. We have heard him make brave speeches on this subject before: the interesting thing is that some people take an interest only when they believe that they can score points off the individual who is making that brave speech, rather than backing him in making it.

The Prime Minister referred to this matter at Blackpool. As my noble friend has already quoted:

"the willingness of industry to invest in new plant … requires that industry is left with sufficient funds and sufficient confidence to make the new investment.… they must make a profit".

This realism is expressed also in the rejection of the soft option of trying to spend our way out of trouble by paying more in wages and withdrawing behind a tariff wall. That rejection has been honest and refreshing in this debate. I remember saying that I thought this House was at its best when it really sought the truth. Not least welcome has been the straightforward language in which these policies have been expressed. Your Lordships may he prepared to believe Professor Galbraith when he says that:

"there are few, if any, useful ideas in economics that cannot be expressed in clear English".

I have tried to do as much.

The priority which is at last being given to industrial regeneration; the recognition that, in the last analysis, full employment and a high standard of living are dependant on high productivity and the new co-operative approach of management and labour to the problems of individual industries and companies; all open up the prospect for economic success. I am sure that noble Lords in this House will not allow the somewhat irrational decisions of a few overseas investors to blind them to the evidence that the country is now—perhaps belatedly—on the right road towards the solution of its economic problems.

My Lords, last week in this House the noble Lord the Leader of the House told us that he was a believer in a mixed economy and I believe that there is now a need for a consensus among as many as possible of those who are determined to defend our mixed economy. Clearly, there are some points of view which would have to be left outside the consensus. For example we should have to leave outside the views of those on the extreme Left who believe that we are passing through the final crisis of capitalism, who regard the mixed economy as merely a step on the road towards the Socialist State in which private profit will be virtually eliminated, and who want import restriction and the siege economy. We should also have to leave outside the consensus the protectionists—notably the Cambridge economists who want five years of protection coupled with deflationary policies.

Of course, there are those who seek selective import controls. I acknowledge that that is quite a different proposition. We already have a number of such controls, for example in the case of textiles, but the great danger is that if one sets about increasing the selective controls they may very soon become general and, in any event, they are likely to provoke retaliation. Lastly, there is the proposition to establish a scheme of import deposits. I believe that that would be the least objectionable of the various protectionist ideas which are mooted, but, even so, I should be reluctant to support any new barriers to trade as a means of getting out of our present difficulties.

We should also have to leave outside our consensus the extreme monetarists those who rely almost entirely on strict control of the money supply, coupled with severe cuts in public expenditure. I am somewhat alarmed at the extent to which the official Opposition are moving in that direction. It seems to me that we must continue with an incomes policy, not only through this year but after next August as well. It may be an incomes policy which enters a new phase. No doubt it will be different from the incomes policy which we have at the moment, but I have no doubt that the incomes policy has been instrumental in bringing down the rate of inflation and I wish there were clearer support for such a policy in both the Labour and the Conservative Parties. Naturally, some of the unions are itching to get back to free collective bargaining, though that often means that the strongest get away with the swag.

The Conservatives are chasing after Sir Keith Joseph and away from incomes policy if the most recent policy document is any guide in that respect. Yet I believe that an incomes policy must be at the centre of any consensus. Because of that, I think it necessary to preserve the Social Contract and I would be very cautious about further expenditure cuts. I do not say that there should not be any nor that we shall not have to face up to more such cuts, but I do say that it is not something to be lightly advocated and that to talk in terms of £5,000 million or £6,000 million-worth of cuts seems to me to be extravagant and dangerous.

The reaction of the unions is understandable when unemployment is at its present level and we must not underrate the value of union support and the importance, if we are thinking of consensus, of having it supported as far as possible by Messrs. Jones, Basnett and Scanlon. Again, if we run down our public services too far, we shall do damage which will take a long time to repair. However, I believe that the unions, for their part, must accept that they do not represent the whole of the working community and that the voice of those who are not represented by the CBI and the TUC, such as the self-employed, must be heard as well. We on these Benches have long felt that employee participation would play an important part in economic recovery and in that respect we await the report of the Bullock Committee, but the unions could make what I believe would be a decisive contribution to consensus if they agreed that in any form of industrial democracy which may be devised following the report of that Committee there would be equal rights for all workers, union members and non-union members alike.

Monetary policy must of course be used as one of the instruments in our array of weapons to deal with the situation and I was encouraged to a certain extent to learn from the noble Lord, Lord Peart, earlier today that the Government consider themselves to be on target in that respect. But the Government themselves have a contribution to make to the consensus: they have to continue to repudiate the wilder talk which was heard at Blackpool last week and to continue to repudiate the resolution calling on councils to resist the cuts in expenditure which have been imposed. They have to continue to repudiate the resolution calling for the nationalisation of the clearing banks and certain insurance companies; and in that connection I must confess to a momentary qualm when I see the headline in the newspapers, "Banks to be nationalised".

The Government must, too, curtail their own legislative programme, as was suggested by my noble friend Lord Byers in his speech earlier this afternoon, for, as he and others have pointed out, much of it is irrelevant to these problems with which we are trying to cope. If I were responsible for drawing up the heads of this consensus I would want to include a plan to get rid of the sterling balances. I think that the disadvantages now outweigh any advantages there may be, and we must seek an international funding arrangement to achieve this, perhaps through the International Monetary Fund.

In any case it was agreed as one of the conditions of our membership of the EEC that the sterling balances should be phased out. It is in EEC co-operation that I see the long-term—and I say long-term—solution to these currency problems, because as the noble Lord, Lord Parry, pointed out, the pound is not the only European currency which has been in difficulties in recent days and weeks. The franc has been in difficulty and the lira has been in difficulty. Again, as the noble Lord, Lord Parry, pointed out, the mark has been going from strength to strength.

If the strong are to help the weak so far as the currencies are concerned in Europe, it will be ultimately through some form of monetary union. If that is to come about, it will involve a degree of supra-national political control in that particular field, which goes well beyond what we have at present, and we must be ready to accept that when the opportunity occurs.

I have been putting forward some headings for a consensus in defence of the mixed economy. If we had a different electoral system it would make it easier for those who accepted such a consensus to work together. Under our present electoral system we have a Government who are a coalition of irreconcilables with minority support in the country. People who are bitterly opposed arc yoked together and people who have similar aims are kept apart by a devotion to the sacred concept of Party loyalty. But even under our present electoral system in face of the serious financial and economic situation of our country we should make an effort to create as wide a consensus as possible of the measures needed to defend our mixed economy and our free way of life which in my view is closely linked with it.

My Lords, we have heard some brilliant speeches this afternoon, but my observations will be brief, because I am no financier and I am no economist, but I do know some of the results of the incompetent financing by the Government of this country today. I want to draw your Lordships' attention to the hardship which is suffered by one section of our country, that is our senior citizens. Their financial problems are a direct result of inflation. A single person's pension now stands at £13.30. It is going up to £15.30 in November. The pension of a married couple is £21.20 and is going up to £23.20 in November. The retail price index, we are told—and we know—continues to rise, but this index takes into account everything from cars to television sets, from washing machines to drinks, and from clothing to food, as well as fuels and many other items. But the increased costs of food and fuel are the only items in that index that are of any interest to the pensioner as they are the fundamental necessities under a roof for existence.

Recently, over 500 grocery items went up and only 14 came down. In June, 1974, a loaf of bread averaged 13·8p, now it is 18·2p. In that same period cheap meat, that was real cheap meat, was 54·9p a pound, now it is 76·7p per pound. Beef sausages were 26½p a pound, now they are 36½p a pound. A quarter of tea was 8·9p, now it is 11·9p. No wonder that more elderly people are before the courts accused of shoplifting. Of course, I hardly dare mention the "pinta" at the pub, but it is often essential and is the difference between despair and existing, but fewer can afford it now.

The rise in costs of all fuels is a major item in a pensioner's budget. As national chairman of the Gas Consumers' Council I am deeply concerned about the essential warmth of the elderly and I am constantly worried about the possibilities of death from hypothermia, all directly due to inflation. A third problem which the pensioners have, which is due to escalating costs, is that of communication. Telegrams, letters, telephone calls, travel by any means other than bicycle or shanks's pony, are now almost beyond the purse of the ordinary pensioner.

In my book a nation has three major priorities. The first is to look after the young people and see that they have a good upbringing and education according to their ability and aptitude. The second is to look after those who have contributed so much to the country during their working lives and to see that they do not want. The third is to defend the country against all foes. The plight of the elderly today is now far worse than many of us realise, but it is entirely the fault of the Government. We are told that we have now a standard of life that we have not earned, but the senior citizens have earned a reasonable standard, and I think it is up to the country to see that the value of the pound in their pocket does not vanish completely.

My Lords, it is clear that there is much support on all sides of the House for the words used and the objectives set out by the Prime Minister and the Chancellor of the Exchequer last week. All of us who have carried responsibilities in these fields are, however, painfully aware that the achievement of such objectives faces twin difficulties: first, the choice of the best and least unacceptable measures; secondly, even more daunting, the day-to-day task of pressing forward with the chosen measures and making them stick for long enough when every kind of argument and pressure will be used to try to moderate them.

I do not wish to weary the House by repeating words used by the noble Earl, Lord Cromer, but I should like to associate myself in particular with two points which he made in his speech. The first is that the International Monetary Fund is not a rather suspect group of foreign bankers, but is an inter-governmental institution using national reserves, and I think it important that that fact be made much more widely known in this country. The second is a theme song of both the noble Earl and myself; that is, that the greatest social and economic threat to a country lies in the debauching of its currency.

Obviously, on a basis of purchasing power parities, sterling is undervalued at present rates as compared with most major currencies. But the value of sterling in international markets depends on whether people want to buy it or sell it, and this will depend on our success in carrying out proper policies. I do not think that it makes much sense to cry disaster when the rate moves down a point or two, even less to cry triumph when it moves up a point or two.

Speaking in your Lordships' House on 9th June, I said that there were signs of a gradual, but too gradual, public understanding of the realities of our position. In a democratic country this is the crux of the matter. No effort should be spared to spread understanding and to get rid of the mentality of "I'm all right, Jack", or "Oh, we've heard all that before—it'll be all right in the end." The Secretary of State for Education set an excellent example on this subject last week. On that occasion I went on to suggest that in the action which was obviously necessary the right policy was a combination of control of Government expenditure, incomes policy, fiscal policy and monetary policy.

My Lords, I have been a practitioner in some of these matters, without any particular bias towards monetarist or anti monetarist theories. In the 1950s I had frequent occasion to complain that too much was being expected of monetary policy with insufficient support in the other sections. Since June of this year something has been done about direct control of Government expenditure, though most people would have plenty of suggestions about other items which could be pruned without undue hardship—and the pressure must surely be kept on and intensified. Incomes policy has had a considerable success this year, which we can only pray will be maintained for several years ahead. On fiscal policy, it looks probable that further increases in direct taxation could be unproductive and damaging, though there may be room for manoeuvre in indirect taxation. A number of steps have also been taken in the monetary field. The reality, as always, is that a combination of policies is necessary. In present circumstances it seems to me in particular more necessary than ever to maintain a strict control over the money supply, though I well recognise the authorities' difficulties when public expenditure and Government borrowing requirements are running at such high levels.

Without a severe financial discipline the admirable aims set out at Blackpool may not, over a period, withstand continuous pressures for exceeding limits, overspending budgets, et cetera.It has been suggested in some quarters that an independent commission should be set up to oversee the money supply. This is surely unnecessary, and likely both to be impractical and to blur responsibilities. The operational side can be carried out by the Bank of England, but a limitation of the money supply must carry full governmental approval and the assurance of full governmental support when it begins to hurt, whether in the public or in the private sector. We are on a long haul, and we shall do better to face up to realities early than to do too little and risk further gradual deterioration.

Finally, my Lords, digressing for a moment from the economic to the more general field, it must be astonishing to any impartial observer, particularly to foreigners who do not understand our curious customs, that in conditions like the present so much time and energy should be devoted to argument about political dogma and to controversial legislation, much of which would involve heavy expenditure. Their astonishment could be excused.

My Lords, it is a pleasure to follow the noble Lord who has just spoken because none of us, whatever we think politically, would think that the noble Lord did not speak with anything but the maximum of integrity. Consequently, I was delighted to hear the noble Lord, who has had such practical experience in dealing with our financial institutions, speaking, as he went along, in words that pleased me very much indeed. I can be brief because nearly everything I had intended to say has been said, but I would point out to the noble Baroness that she got her figures wrong. She should have looked up the second document, The Attack on Inflation.We there said that we are bringing up the allowance for a married couple to £24·50 a week and for a single person to £15·30. But I am delighted that she is asking for more; and I consequently hope that questions will not be asked on the other side about what cuts are going to be made, because evidently we have somebody on our side. I hope she will tell the Leader of her Party, who is making dynamic spartan speeches of a military nature from the tropics to the sub-tropics, and to moderate climes, about the need to re-arm, that it is time Britain stopped playing God.

I will quote, too. When we are asked what we are going to do, is it not a pity that the Press of today is so busy and has so much to report, because of the instantaneous nature of news, that some of the fundamental political things never get across, and our people never know? I do not blame them because both the Press and broadcasting and television are becoming more and more trivialised. But the key element is on page 10 of the Government's long-term programme for British industry. It goes on:

"The essential conditions for success are control of inflation, which destroys markets and jobs and undermines the confidence needed for investment;"—

that is axiomatic—

"and the provision of sufficient resources, real and financial, to get industry moving. On the one hand, public demands on resources have for the present to be kept within tight limits "—

that is in accordance with the thinking of all of us—

"on the other, industry has to be permitted (within the framework of the price control) to achieve "—

and here comes the 64,000 dollar pleasing phrase to my noble friend Lord Rhodes and the noble Lord, Lord Boothby—

"sufficient "—

I emphasise that word—

"profitability to generate the funds for investment…".

There is no disagreement about that. What do we want a General Election for? To "bust" that statement? Because that is all it will do. You will have street speeches which will be made by back-street Tories and others running through the failures of all kinds of Labour Governments since Keir Hardie's days.

There is a greater reality, but has that reality reached to the mass of our people? When we are asking our people, including the seamen, not to ask for "perks", it does not sound very well when you read in the Sunday Observer, The Times or last Friday's Evening News that, to the tune of £50 a week, a way of sneaking round the pay claim for our executives in industry was to have fringe benefits by way of low interest rates, mortgages and overseas directorships with fees up to a maximum of £2,500 a year. That is Mr. Heath's unacceptable face of capitalism. They are pirates in the economic system when England is in this situation, and they are as unpatriotic as anybody could be when we have had the Radcliffe Report about investment overseas pointing out occasions when it was good for business but not so good, perhaps, for England. Let us face the position as we therefore see it today.

Now when we are talking about Government cuts, the Government have already said—they said it on 29th July—that 46,000 civil servants are to be removed in the next three years, 20,000 on defence. When questions are asked by noble Lords opposite about increasing expenditure on defence, we want to know exactly where they stand. Do they support that 20,000 cut in defence? Are we going to keep up the guarantee given by the noble Earl, Lord Avon, to keep troops in Germany to the end of the century? For what purposes? Do they expect a war with Russia in the next 10 years? Is there, in the nucleonic age, any hope of getting a steadying influence in Germany unless we look to our defence problems in relation to our economic ones? All this talk is neglecting the main factors that have upset our balance of payments till we joined the Common Market—and that has upset our balance of payments to the tune of £2,500 million a year. That is what that has done. These are Government figures. I am asking Members on both sides of the House who do not like it to face the figures of the Government.

All I am saying is that if you are facing, reality, in the name of God face it whether you like it or lump it! One of them is on defence and another concerns our being so much in the red with the Common Market. The next—and here we are again in common agreement with the Liberal Party—is that it is time we no longer pretended to be the banker of the world. Let us get rid of the problem of sterling balances. Unless we face those three issues of finding a new formula about the sterling balances and about defence and investment now—and I will deal with that as my last little point—there is no solution to the problems with which we are dealing.

I take the key issues and I remember hearing the speech of the Secretary of State for Trade and Industry at the Conservative Conference of 1973. I want to put it on the record:

"I have announced proposals for the most massive reform of company law. Individual abuses, such as insider dealing, will be ended and become a criminal offence. Of far more importance, as a result of this legislation we will create the most open free enterprise system in the world. We will provide for a system where free enterprise discloses to the nation not just the standard accounting information, but also facts that will allow the employees, the public and the shareholders to judge how companies are carrying on their wider responsibilities to society."

In parentheses, I may say that there are firms which have not yet given in last year's balance sheets or the balance sheets of the year before last. The speaker goes on:

"Corporations are in themselves a substantial proportion of our modern society. As such, they must bear their proportion of responsibility, their responsibilities for the safety and health of their employees; their responsibilities towards the environment of the communities in which they are situated; their responsibilities to the consumer."

So said Mr. Peter Walker, founder member with Mr. Slater of the ill-fated Slater Walker Securities.

Let us come off it! It is time that we were honest with ourselves, both Labour and Conservatives. I think that we are a nation strong enough to face the world if we want to. Looking at these key issues: the weakening of British production the dwindling numbers (the subject of a Question in this House) in manufacturing industry and the increasing numbers in administration services, there must be an investigation into this. Investment is not being made to counter the dwindling numbers in production and if we want to get that investment it is obvious that we have to give the profitability.

But what is happening to us? There is a feature which was not present in 1931—and I remember the 1931 crisis—for today we are dealing with the multinationals who are more powerful than governments. The great British multinationals, 30-odd of them, exported £3,471 million last year. Their overseas production was £16,284 million—which makes our loan look like chicken feed. Increased investment abroad is much faster than investment at home by the multinationals. They move capital, they move over frontiers—and, while I would not use the ugly phrase, "they cook the books"; for the books are not cooked—they deal with different economic accounting systems.

The 1976 position is that our imports and exports provide half our gross national product and we have to find a method of somehow increasing our exports and, I think, using new sources of energy. Nobody has said much, there is always talk of reactors and the Flowers Report. I do not want to go into the depths of nuclear radioactivity; but we have one of our greatest assets left. There are hundreds of years of coal supply here. Some 250,000 colliers—that is all—are cutting coal and the entire fabric of the National Coal Board is balanced (and the pyramid is upside down) on 250,000 men working in and around the pits to keep up this massive edifice. If we want cheap energy, if we want energy, let us use the energy that God has put into the earth—and we can do it for the next hundred years or so. We should be training miners and giving them opportunities; and investment should not be cut in British coal, it should be increased in the mining industry in this transitional period. We should forget the economic wastage which has already gone into nuclear activity and nuclear energy production.

Then, my Lords, there is the pollution of the environment. It is one of those things that is an ugliness. The joy of living is being ruined by the intensification of the growth of production. The general fabric of the English countryside is being ruined by the clamorous cries for more materialistic production. It may do us good for a few years to steady up and cut our garment according to the cloth that is now available to us.

On the point of raising some money. The youngsters and yobboes who are costing us millions of pounds of vandalism in Britain at the present time should be made to contribute to our economic recovery. I would see that they were made to give (like the local rate payers) a contribution—particularly the 18 year olds now legally in manhood—to the local authorities each year at something like £5 or £10 per head to help to solve the problem, say, of making good the damage to the telephone system in Britain which upsets not only industry but some of the life in our homes when there is emergency or illness. Finally, I believe that a General Election would not serve any purpose at the present moment. It would be to the sporting instinct of the British Conservative Party if in this transition time they did not start yammering about how wonderfully they would do if in power but how much they can do to make a success of the efforts which the Labour Government will put before the people.

My Lords, I must start with two apologies: first to the noble Lord, Lord Davies of Leek, for not being able to follow him or, indeed, his platform. I hope he will take the opportunity in 1978 offered to him to air his views in Europe, which I know he holds in such esteem as a sounding box. My second apology is to the noble Lord the Lord Privy Seal and the House for my unasked question. I had not realised that in using this device which I have found less distracting than interrupting a speaker, that of choosing the end of the noble Lord's speech, I was rushing in where noble Lords have previously feared to tread and that it takes greater skills than mine to interpose a question at that particular point in the business of the House.

The question I intended to ask the noble Lord the Lord Privy Seal—and although he is not here perhaps the Minister will hear it for him—was whether, if translated into absolute terms the figures for economic growth over the next 18 months and for additional borrowing would amount to (as I calculated it quickly in my own mind) about £4,000 million for increase of the gross national product and about £15,000 million for additional borrowing. If so, if those figures are in any way accurate, it does not seem to me that they bear out the last part of the noble Lord's speech in which he suggested that an improvement was on the way.

I am also very glad that in point of time I am following so many speakers who fully and adequately covered the technicalities of this debate. I am more than ever conscious in speaking to this Motion of the way that the economic cart is inexorably attached to the political horse, though which goes first is probably anybody's guess. If the noble Lord, Lord Davies of Leek, is proved wrong and a General Election is forced on the Prime Minister, then the cart and the horse will together have two alternative roads to follows: The Right Approach, and what Mr. Callaghan called the "long march". Incidentally, I hope that our foreign creditors will not pick up the Communist antecedents of that analogy. As for The Right Approach, what I have seen of it so far presents a most attractive perspective. It has one or two dark corners which require lighting up. But, on the whole, it seems to be well laid out.

My reason for speaking today—and, frankly, I am glad that I have taken it because it seems to me that I shall be, as yet, a lone voice in the wilderness—is to urge upon your Lordships another path: the path of coalition. Although I have always set my face against this idea on the basis that it was unrealistic, after considerable thought I feel that today it is the course that is in the best short-term and long-term interests of Britain and the British economy. I shall try to explain why. I think that the authors of the document The Right Approach, may well have a point when they say that social democracy in Britain is dying. If democratic Socialism, as the Prime Minister prefers to call it, is another label for the standard of living of the British people after two and a half years of Labour Government then the theory that it is in decline is pretty plausible. It may well be dying. As a political philosophy, it has received more transfusions of cash than any other over the past 20 years, and more fortification from post-dated cheques and promissory notes than any other political philosophy I have seen. Yet it may well be dying. If that is true, noble Lords on this side of the House, with all due deference, should be very careful about putting in the knife, because if we do so the Left may well be all that is left.

Remember the fate of Danton, sent by the French to the guillotine. I cannot think that Mrs. Thatcher has in mind to play Madame Defarge to Mr. Wedgwood Benn's St. Just, or Mikardo's Marat, or Mr. Michael Foot's Robespierre. I believe that it is a much better course for Britain's prosperity and the British economy if we can sustain social democracy by a coalition, at least for a time, at least on a temporary basis and until other arrangements can be made such as the finding of new allies.

There is a major obstacle to a coalition: the Social Contract. It is the lynchpin of Mr. Callaghan's policy and Mrs. Thatcher is determined to remove it. I fear that this barrier will remain between them. History will judge it as absurd as the wall between Pyramus and Thisbe, and an historic opportunity for Britain will have been lost. On his own, Mr. Callaghan has to have the Social Contract; it is the honey which sticks together Mr. Tom Bradley's great coalition. On her own, Mrs. Thatcher has to scrap it if we are going to go into the next Election without a wages policy round our necks. But in the circumstances of a coalition it would not make a ha'porth of difference to either of them or to the British economy whether the Social Contract stayed or went. Noble Lords opposite look dubious. I should like to remind them that the Social Contract would be an overriding contract between two political Parties and other contracts would inevitably diminish or disappear under it.

A Coalition must be the better option for a rapid recovery of confidence at home and abroad. There must be renewed difficulties if Labour soldiers on alone with or without an Election. There must be some doubts if a Tory Government are returned to office. If Labour and Tories reject a coalition, then may I ask the House to consider a suggestion? The need is for an economic strategy which commands general respect in the country and abroad. Could the Prime Minister, the Chancellor and the Shadow Prime Minister hold discussions with a view to the Shadow Chancellor and perhaps another appropriate Minister being invited—and even their opposite number in the Liberal Party—to serve on the NEDC, which I believe is more of a forum than a decision-making body. This could be on an interim basis and during the period of crisis could lead to a bipartisan approach to some areas of economic policy. I have no idea whether my noble friends would accept an offer, but I hope they would see the benefits outweighing the risks.

An all-Party "Neddy" could be charged with identifying distortions in the economy which inhibited growth. The economic criteria for inflation are not general throughout the economy, although I agree with Lord Rhodes's general picture of an inflated economy as such. For instance, my own business in the hard-pressed construction industry fell victim last year to lack of sales. I felt some sympathy with the speaker at Blackpool—I cannot remember his name, but it was an excellent speech—who referred to the anomaly of cuts in public expenditure when industrial and public service resources were underemployed. Inflation, once described as a condition of too much money chasing too few goods, should be redefined as a condition of too much money chasing the wrong type of goods.

This brings me to my second point, which is that no Government can go on trying to protect jobs in the short term by pouring borrowed money into industries which have no long-term future, thereby compounding long-term unemployment. Britain must undergo the painful process of redeployment of our resources, including labour resources, if we are to survive, and that is why I welcome the proposals in The Right Approach for increasing skilled training in future areas of labour demand. In this respect, I must follow other speakers and say that I consider the Aircraft and Shipbuilding Industries Bill to be nothing less than a national tragedy. Firms will be taken over with public money and kept alive which must eventually disappear in Government ownership. These are the problems which an all-Party "Neddy" could well review before they reach the Statute Book as controversial legislation. There would at least be a better understanding of Minister's motives if they insist that they do.

My last brief point is this. I hope that Britain will remain a free enterprise society, a mixed economy, preferably under democratic conservatism, in which labour, management and entrepreneurs negotiate freely for better rewards. I say this with all due deference to the noble Lord, Lord Davies of Leek; an entrepreneur must take risks. There will be, as I know to my cost, failures as well as successes in the capitalist economy. Illegalities should be punished: I do not condone them at all. But the economy is mixed and not divisive and it should be no part of the mixture for a successful capitalist to be pilloried as a profiteer and a loser as a swindler, even if he has been unfortunate enough to lose other people's money as well as his own. Shareholders are given a reasonable degree of protection under our company law at the expense of creditors, who are more vulnerable. No Party has a monopoly of dishonest men, and if politicians and Press are going to cry "Wolf" and shed crocodile tears every time a major public company goes under, then we might as well put up the shutters and send Mr. Benn to see Her Majesty. I hope it will not come to that.

My Lords, in following the noble Earl, I should like to say that much of what he said would find considerable support on this side of the House, and indeed throughout the House. Wisdom about the economy is not the prerogative of any particular Party. Before we decide on a Coalition Government, we need to come to a common diagnosis of our economic ills and some agreement about the steps that must be taken to put them right. I am prepared to give a hostage to fortune and say that the most successful period of economic growth this country has experienced during this century was between the years 1932 to 1937 under the Premiership of Lord Baldwin. I do not believe that his policies are necessarily peculiar to a particular Party. They were technical policies, which, if adopted in time, might well be equally effective now. Similarly, many of the policies adopted by Her Majesty's Government—I refer particularly to the Social Contract and agreement reached between the Government and the TUC on wages policy—seem to me to be basic to the formulation of an economic policy in a mixed economy, which was referred to by the noble Earl just now. If we get agreement on certan basic facts and policies and on certain basic trends, let us face it, the country could be saved in a matter of weeks. Today's debate has shown that there are wide areas of agreement in your Lordships' House, reflecting wide agreement throughout the economy. Having said that, it is extremely important to take seriously some of the arguments which have been advanced from the Left.

Quite frankly, the Left Wing of the Labour Party has come in for a great deal of stick in your Lordships' House and in the Press. People on the Left of the Labour Party were blamed for the run on the pound, which actually started before the Labour Party Conference assembled. I do not happen to hold their particular political or economic views, but it is important to remember that the reason the great majority of them hold those views is because they have made a particular diagnosis of the economic ills which afflict our nation. Moreover, in my considered judgment, their diagnosis is largely correct. We have tried a variety of economic policies since the war. Some have been reasonably successful, others have been catastrophic. We have had dashes for growth which have then led to inflation; have had periods of damping down levels of demand which have led to unemployment and low growth. I acknowledge that I was one of those who were in favour of allowing the pound to float, but that latest gimmick has not worked. It has floated in the wrong direction. It has put up the costs of our import bill and put an intolerable strain on our cost of living and therefore also on the agreements about wages.

My friends on the Left are perhaps not quite as silly as some of your Lordships may think. They can understand perfectly what is happening in our society and they make much the same diagnosis but have hit upon a different remedy. In considering that remedy, we may well get a good idea of the kinds of remedy which the Government are adopting and which, to be fair, the Opposition are also coming to see as the right economic policy to take during the late 1970s and the 1980s.

Why do the Left want a siege economy? They say it is because we are running into chronic overseas debt. Whenever output goes up imports are sucked in, and consequently we have to slim down on the total domestic economy to get the balance of payment right. They are saying that we have reached the situation because, relative to other nations, we were the first to industrialise and we have suffered from that earlier nationalisation. Other nations have seemingly adopted a more progressive industrial policy and as a consequence we have lost in the world markets. This is a cumulative process which has been going for 80 or 90 years. They say "All right, let us deal with it drastically: put up the barriers and go for a kind of East German solution; let us go for import cuts, four-page newspapers and rationing. O.K., we had it before during the war and it worked. At the same time, we must try to build up industrial investment so that the total level of output in the economy will eventually rise".

As I understand it, that is the argument. Underlying this is a further group of problems, about which we would all, to some degree, agree. We have to ask ourselves why are we the only major country in Western Europe which still goes through this rigmarole of the class war. It seems to me extraordinary that should be so. Any policies which ignore the fact that the rhetoric of the class war still carries a great deal of weight seem to me ultimately to be policies that cannot succeed. That is why I cannot support the strong monetarist solution which has been advanced by Mr. Brittan in the Financial Times. Secondly, trade union leaders like Mr. Scanlon say that capitalists have gone on strike. That is a piece of rhetoric, of course, but it is also a fact. Our motor car industry is a case in point.

As all the reports have shown, our motor car industry is one where the average person on the production line is working with less than half as much capital as his opposite numbers in Germany and France. That is a fundamental fact. The country is deeply under-capitalised.

In addition, the noble Lord, Lord Thorneycroft, in what I thought was a most admirable and patriotic speech and about which I heartily congratulate him, said that we are living beyond our means. I venture to disagree with the noble Lord about that. We are living well within our potential means. If we have 1,500,000 unemployed, there is no reason why our output should not rise at a very substantial rate over the next few years. It is all very well to say "You have to punish yourself and cut everything down". That is the instinctive puritanical reaction we have all had since Cromwell, but it is not necessarily the wisest course of action. The Left say that provided you deal with the problem of investment and imports, you can, within a siege economy, reconstruct the economy. I think that is a serious case. Furthermore, as the noble Earl has just said, if the present policies do not succeed that is the only alternative. In other words, we must take the East German line.

It is at this point that I ask myself—this is why I referred to Stanley Baldwin at the beginning of my speech—whether there is some other weapon in the armoury that we are denying ourselves. I wish to pay close attention to the speech made by my very old friend, the noble Lord, Lord Northfield, which was one of the most important speeches made in this very valuable debate; and I hope that the report of this debate will be read as much in Manila as the reports of the Labour Party Conference or indeed of the Conference now going on in Brighton. The question which arises is whether the adoption of general import controls, or an import deposit scheme as a step to general import controls, is a feasible course of action. I am putting this case because nobody else has done so in your Lordships' debate, and I believe that it is a case which deserves to be heard. It is a policy which has been advanced by very many respected economists, and it is the policy which pulled us out of the slump of 1931 much more rapidly than Mr. Roosevelt's New Deal pulled the United States out of the corresponding American slump.

The position is that devaluation and the floating pound have not worked. Since 1970, our exports have gone up by 40 per cent., although our real national income has gone up by only 2 or 3 per cent., but at the same time our imports have gone up by 37 or 38 per cent. My noble friend Lord Kaldor will correct me if I am wrong, but I believe I am right. But, in 1930, our exports of manufactured goods exceeded our imports of them by 30 per cent. We are in a downward spiral. We have devalued the pound again and again, and under the present floating system we shall go on devaluing it, which puts a bomb under the incomes policy and causes roaring inflation again.

The first and obvious answer to a proposal for import controls is retaliation I do not honestly think that that is as powerful an argument as it might at first sight seem, because the two retaliatory powers would be the United States and Japan, and, in these circumstances, I do not think they would find it easy to retaliate if we adopted a general system of import restrictions. They would be much more likely to retaliate if there was a policy of selective import controls.

Secondly, there is the argument that we should break international agreements, and here I rely very heavily upon the arguments advanced by my noble friend Lord Northfield. I believe that as Members of the European Economic Community it is up to our Government to go to our colleagues in the European family and say to them, "This country has been in a great mess economically for very many years. We are making a determined effort to turn the tide"—King Canute springs to mind, if your Lordships will bear with that hastily thought up metaphor—"and to get our national output up". The whole point about the European Community—and I think that the noble Lord, Lord Gladwyn, will agree with this—is that we are in trouble now, but who is to know whether it will be Italy, France or Germany next month and it is their duty to bale us out, because of the Treaty. It is also in their interest to bale us out, because, eventually, they will want us to bale them out. After all, it is only 30 years since Germany lay in ruins and we helped to reconstruct that country.

The problems of Britain are looked at in far too short and insular a perspective. I believe that we should go to the European Community and say, "We wish to adopt a coherent policy of massive investment to get our industry into shape, and in order to do this we have to do something to control this flood of manufactured imports". But we cannot cut real wages any further. All the evidence shows that if we cut real wages the immediate effect is incredible pressure for rising money wages. We are in a cleft stick. We cannot devalue any further, because that pushes up prices and then pushes up wages. We cannot cut real wages, because that, also, will push up the demand for money wages which starts inflation again. We have to get out of this position somehow. My only fear is that by the decision to apply first to the IMF rather than to Brussels, the Chancellor may accidentally have closed the door on a policy which deserves serious discussion and which might be one which we could follow.

My Lords, does the noble Lord agree that if we are to ask Brussels effectively to bale us out, we ought to assure them that we are good Europeans, and will eventually take a European view as regards such things as fisheries and North Sea oil?

I agree, my Lords. In for a penny, in for a pound. What I am saying is that the Left will of course say, "Let us not have anything to do with Brussels in this regard". A great many of them are extremely anti-European, and that is why they want a siege economy. I am asking whether we can get the benefits of a siege economy by cashing in our European coupons at this time. In other words, I am of the opinion not that it is a mistake that we are borrowing this large sum of money, but that we are not borrowing enough and we are borrowing it from the wrong people.

We cannot keep going back to the IMF for a few quid here and a few quid there, while we say that we are going to cut old age pensions and things like that. That is not a serious policy for the reconstruction of the British economy. This is a long-term perennial problem which it is incredibly difficult for us to solve. It has fallen to this generation of people who were brought up in politics, like many Members of this House, or, like myself, who have been unsuspectingly precipitated into the middle of it, to try to settle the economic future of our country, because if we do not settle it now there will be serious problems. Germany and America are powerful industrial countries, because they have followed the advice of the great economist Alfred Marshall and the other great economists, and they have protected their infant industries. There is a great deal to be said for protecting geriatric industries.

My Lords, I should like to start by congratulating the noble Lord, Lord Peart, on the start he has made in your Lordships' House. He said the other day that he felt he was being thrown in at the deep end. I think he has shown himself to be a powerful swimmer.

I believe that, even now, people do not appreciate the full extent of the dangers facing this country. The noble Lord, Lord Vaizey, has very clearly explained some of them, but I should like to drive it home that every fall in the value of the pound increases the cost of imports on which we depend for food and raw materials, and any rapid increase in these prices is a major threat to the Social Contract and can lead to its being broken open. Therefore, it follows that we absolutely must stabilise the exchange rate and we cannot stabilise it without the earliest possible reduction of our internal borrowing requirement, which is very inflationary. Without reducing inflation we cannot reduce our external borrowing and that, also, is inflationary. Therefore, I believe that the Government are right to go to the IMF.

I do not really agree with the noble Lord, Lord Vaizey, that there is any great future in our going back to the other countries which are at present rich, notably the countries in the EEC. After all, did we not go to those countries at the beginning of this year and get a loan of approximately 5,300 million dollars, and the point has come at which that cannot be renewed and, clearly, it is not enough.

I do not think that there is any alternative but to go to the International Monetary Fund, but—

My Lords, I think that the noble Lord has misunderstood my noble friend. My noble friend did not say that we should go to the EEC for another massive loan. He made the suggestion that we should go to the EEC and persuade them to accept that we must restrict imports for a time. That is a different point.

My Lords, I understand; but I do not think that we shall receive great sympathy in the EEC if we try to restrict the import of motor cars at a time when our own motor car industry is so inefficient that it cannot supply the home market. The remedies lie at home in the hands of our Government and I believe that those remedies should be used at the present time.

I repeat that I think that the Government are right to go to the IMF but, like the noble Earl, Lord Cromer, I am quite sure from past experience that they will make fairly hard conditions. The Government must absolutely regain control of the money supply. I believe that the Government deserve commendation for the measures they have recently taken, but they have a hard road before them because their disastrous record of borrowing makes this now very much harder.

The wild talk at the Labour Party Conference about nationalising banks does not encourage a sensible, scientific approach to these problems. I cannot think of a stupider way, or a more ill-chosen moment, to frighten off the holders of funds both in Britain and abroad, upon whose friendly restraint we now depend. We cannot any longer run a Budget deficit on the present scale and I do not believe that the Government's proposals go nearly far enough. But we have to recognise—and I say this after much experience in OECD—that the measures necessary to correct our inflation very quickly would just not be acceptable in our democracy. We must correct the ship's course but we must do so sufficiently slowly not to damage the ship. However, the rocks ahead are much closer than most of our countrymen believe. It is indeed hard to spell this out without being accused of knocking the pound, but the blind complacency we saw in many quarters at Blackpool seems to me inexcusable, especially as it prevented the Chancellor of the Exchequer from representing our vital needs at the IMF Conference in Manila.

On this background, proposals for great extra expenditure on measures which are not economically indispensable ought to be rejected. I am thinking of the nationalisation of shipbuilding, ship repairing and aircraft construction, for example—and, for that matter, the abolition of pay beds. Here are hundreds of millions of pounds being added to our budget, to be met by yet more borrowing. Some Labour Party economists will assure us that this does not matter because these are only transfer payments. I warn your Lordships against economists who divide the economic aggregates into neat sections and then feed us with this argument, which is sheer bilge. The Government have already borrowed so much that they have had to push up the rates of interest to levels which make it very expensive, if not impossible, for our industries to borrow in order to invest and expand. These purely ideological and decidedly Marxist measures add to our borrowing problems and must complicate our investment process. It is really quite inexcusable.

I think that it is your Lordships' duty to do something about that Bill in the course of the Committee stage and I want to make the suggestion—and I do so in a fully responsible manner—that we should add a clause at the end of it saying: "This Act will come into force after approval in a national referendum. "There is not a hope that our countrymen would approve that Bill, and I do not believe that it would look very democratic if anybody in either this House or the other place were to reject such a clause. I recognise, of course, that this proposal is not very favourable to Parliament, but if Parliament works as badly as it is working now in this kind of sphere, then the sooner we correct what is going on, the better. I believe that it is the duty of your Lordships' House to do something about it.

Having been rather destructive, I want now to make some constructive suggestions. We have heard many in this remarkable debate. What I have to say fits in neatly with much that has been said on both sides of the House, but I shall be more specific. I am encouraged by the most courageous speeches of the Prime Minister and the Chancellor of the Exchequer at Blackpool to press the suggestion I outlined to your Lordships last Wednesday. The IMF are sure to call for a Letter of Intent on agreed lines about the Government's proposals and policies for remedying our present grave shortcomings. Let this be the basis for our drawing up in more detail a proper National Stabilisation Programme.

This Programme should show clearly the stages, however painful, by which we shall have to attain budgetary stability; the measures we shall take to make industry profitable and attractive to investment; where the investment is to come from and the resources which will be freed for that purpose; the consequences for employment—and I hope we shall no longer have to say unemployment. Let there be some kind of corresponding programme for manpower training, based on sensible, forward-looking labour market policies such as they have in Scandinavia. Let our educational system be geared to match it so that, instead of turning out masses of young people frustrated because they are not trained to take their place in the economy, we shall produce young people with the prospect of jobs which we know that the economy will require. In all this we could get very much help from the OECD.

We all have a huge common interest in seeing such a Stabilisation Programme succeed. It cannot succeed if half our Statesmen and politicians are at the throats of the other half, nor can it succeed if either the TUC or the CBI are determined to wreck it. Surely we must now develop a system of government which takes account of this enormous common interest that we all have and which uses it to ensure the success that we absolutely must achieve.

The solution that I would earnestly advocate is a National Government. There is all the essential measure of agreement among moderate and sensible men on all sides, as I think our debate today has shown. But if this is beyond the bounds of possibility, which I do not believe, then I think that the Party leaders should negotiate a consensus arrangement on our National Stabilisation Programme —such as we have in many areas of foreign policy and, incidentally, over Northern Ireland, although I do not know that that is much of an advertisement. We must, however, have Government by consensus to achieve success in this economic and financial and industrial sphere. In any case, the TUC and the CBI absolutely must be drawn in and helped to carry their members with them. For this purpose I urge the Government to use the National Economic Development Council, as I think the noble Earl, Lord Dudley, proposed, and let the Conservative and Liberal leaders also attend all meetings because it is going to be a matter of common agreement.

The time has now come when we must have firm and consistent leadership. I think that the Prime Minister, whom I have long known and admired, is showing himself very capable of this, but the Labour Party, and other Parties, absolutely must now keep their extremists in proper order. Surely that is the terrible lesson of Blackpool. The National Government, or the consensus leaders of all Parties, which I should like to see, absolutely must state, restate, justify, propound and explain to our countrymen the way our country now has to go, otherwise we shall all end in a terrible shipwreck. I saw in Germany after the First World War how absolutely awful that would be.

Some time ago I attended an international educational conference and over lunch I said something about the desirability of leadership. One of my colleagues said to me, with the agreement of other people there—and they were of many nationalities—" That was a very dangerous word to use". I said, "I did not say Führerschaft; and how many of you really believe in salvation through the dynamic properties of a flock of sheep?" That shut the argument up; there was nothing more to say. My Lords, let our leaders now lead, and let them lead together.

My Lords, I find the point of view expressed by the noble Lord, Lord Hankey, one which ought to gain acceptance on all sides of the House, and indeed outside, and I hope it will be read with some desire to find a formula for putting into operation. I am sorry that the noble Lord, Lord Vaizey, is not in his place because he used the phrase which justified the advice given by the noble Lord, Lord Hankey, to beware of economists. He said, "You ought not to live up to your income; you ought to live up to your potential". If that is the economist's outlook as to how we ought to run any sort of business it makes me worried. Who is to decide what one's potential is? If a person has any guts at all he thinks he can be in the Rolls-Royce and caviare class as a potential. If people have not that sort of self-confidence then they ought not to have any sort of position; they lack ambition. I know that the noble Lord, Lord Vaizey, will forgive me if, as a consequence of that remark coming from him as an economist, I make a mistake in the future and refer to him as the noble Lord, Lord Micawber, because that was precisely the message, thanks to Charles Dickens, which during the last century kept many people who otherwise would have been prodigal, on the rails.

In my view, the noble Lord, Lord Carrington, was absolutely right to insist on having this debate today. I did not think we were going to get it; I think it was only his insistence that there should be a debate in this House that has enabled us to examine this question, and so I should like to congratulate him on his tenacity and on his judgment of what was the right method for the House to follow. One realises that the debate was very necessary indeed when one reads—and it was shocking to hear—the paucity of the statement made by the noble Lord the Lord Privy Seal when he made his debut. I do not blame him at all, but I feel that his colleagues, in letting him have that sort of debut, were not giving him a fair chance. It is only because he has the character and the sense of responsibility that those of us who have worked with the Lord Privy Seal over the last quarter of a century know that he will be enabled to overcome the very bad beginnings that his colleagues gave him the other day in the form of that irrelevant Statement.

Now we have had this debate and I think your Lordships will recognise that it is really a continuation of the debate we had on 27th July, when the last lot of economies were announced by the Chancellor. That was only a few weeks ago and your Lordships will remember that when that package was announced it was going to be the answer to the problems for quite a long time to come, with all the confidence and all the complacency that were embedded in it. I did not accept it at the time and I am now rather proud of the words I used in that debate. I said that two years ago those measures might have established world confidence in the question of our solvency and our general economic health. If those measures had been announced 12 months before they might have rescued the pound sterling from its disastrous slide in value. Then I continued:

"…but I believe that this type of medicine, even at double strength, will not alone do the trick today. The lack of world confidence now encompasses much more than the mere overspending or over-borrowing or fiscal ineptitude".—[Official Report, 27/7/76; col. 1217.]

I recognise that the economies of 27th July and all that has happened in the few weeks that have since elapsed have confirmed how right one was to be a little circumspect in accepting the Government's assessment as to the effectiveness of the economies they were bringing in, and I hope that the Government themselves have learned that lesson. The Prime Minister's speech and the Chancellor's broadcast give the impression that they have learnt it, and they have had a great deal of praise heaped upon them today in this debate. The noble Lord, Lord Boothby, said how much he admired the courage, while other noble Lords have said what a brilliant speech it was and how it sets the pace that we all ought to follow, and all will be well.

My Lords, they are words, and until those words are translated into action so that we can really do something about the problems facing this country I withhold my congratulations. But if they do put action to those words then I shall congratulate and follow them with all the strength I have as a Member of this House. As a trailer those speeches were good, but they were no more than a trailer. It is the actions that will count. To use the term used by the noble Lord, Lord Davies of Leek, the 64,000 dollar question is whether the Prime Minister can take the necessary action. Will he be allowed to take the necessary action? If the speech of the noble Lord, Lord Northfield, is anything to go by—a speech of self-congratulation and complacency; a rose-tinted version of the condition of this country—I doubt it, because according to that speech everything is good and there is nothing wrong. He implied that possibly there is a bit of a quirk but it is only a passing quirk and all is well.

So we want action and the question to which we want a very quick answer is whether the Prime Minister and the Chancellor will be allowed to take the actions their speeches foreshadow. My noble friend Lord Thorneycroft summed up the whole position as I see it when he said, "They are trying to sustain the value of money while at the same time the Government are implementing policies which will depreciate the value of our money ". You cannot have both; you cannot say that you want to sustain the value of money because of the economic consequences to this country and then push through policies which have precisely the effect of under-valuing the currency. The two do not go together. So are we going to sustain the value of our money or are we going to continue, for Party reasons or philosophical reasons, to pursue policies which are already in the pipeline and which can only add to the falling off in world confidence so far as the economic strength of this country is concerned? Before I start uttering my congratulations I want to see that these contradictory postures can be separated.

It is all very well to want to be the constructive, helpful (although you are on the opposite Benches to the Government) participant in a debate like this, but I think it is right that we should face up to the fact that there does not seem to be any sign at all that the contradictory postures can be separated. There has never been in existence a more divided Cabinet than the one we have today. It is not only a matter of the Left Wing of the Party, as the noble Lord, Lord Vaizey, referred to it, differing from the Ministers who are responsible for the day-to-day running of affairs of State; there are members of the Cabinet who overtly, in a loud voice, make it quite clear that they are out of sympathy with the very recommendations upon which noble Lords have been congratulating the Prime Minister and which were contained in his speech.

Mr. Benn asked why we do not get all for which we ask from everybody because of the certainty of an oil bonanza. Also the noble Lord, Lord Northfield, having made his rosy-tinted speech, at the end said that we have only to hang on for two years when the oil will be there and all our problems will have gone; if we tighten our belts for two years the oil will get us out of all our troubles. I refer to the noble Lord, Lord Northfield, in this House, and Mr. Benn at the Blackpool Conference and on television. Why do we not get all we want from everybody because of the oil bonanza which is just round the corner? The noble Lord the Lord Privy Seal partly dealt with that in his speech today. He said that, "…oil is a depletable asset, and not a growing one."

So I believe that these members of the Cabinet and the noble Lord, Lord Northfield, before they stake all our claims on what is to come from the oil, should take into account what the Lord Privy Seal has said. So far as Mr. Benn is concerned, the oil is still at the bottom of the North Sea for the most part. I hope it is there; on the best advice we can get we are told it is there. But it is still at the bottom of the North Sea. So if they are proceeding with their threats of nationalisation and with their threats of extra levies on the people who have to bring the oil from the bottom of the North Sea, it may never come into the pipelines where it could be of use to someone; they must alter their policies. For Mr. Benn to hang on to the existence of the oil which will flow to solve all of his problems, and then to pursue policies which will make it almost impossible for the oil to be available at the time when it could be there, is a contradiction which undermines my faith in this particular Cabinet as at present constituted being able to give the country the sort of lead it must have if they are going to implement the promise in the speech of the Prime Minister.

My Lords, one of the most stupid things was to insist on a 51 per cent. ownership of North Sea oil, and, having insisted on that, to undertake to he responsible for 51 per cent. of the research and exploration expense that goes with it. We all know the enormous research expense involved in getting oil into the pipelines; to commit ourselves to that sort of expense when we need not have done, when we could have had our proper share of any profits and value that come from the oil by the application of the tax principle, and without taking on all that risk. These arc the things which undermine world confidence in ourselves when we ask for loans; the question as to whether we can pay them back again.

Both Mr. Benn and Mr. Foot make it clear that they do not accept the need for economies and restrictions on Government and local government spending. How can the Cabinet implement the promise that noble Lords in this House have applauded the Prime Minister for making. The first two points upon which the much-praised speech of the Prime Minister depends are: can he get the co-operation and the permission to implement the promise he made?

" Why does not industry rush to invest in new plant and equipment? ", ask all his Cabinet colleagues, plus the redoubtable Mr. Jones, who is saying the same thing. The first answer they ought to accept is that in any business, whether owned by a Government or an individual, before one goes to a great deal of expense to invest in new equipment, one makes certain of full returns from the equipment already existing. At the moment, we arc getting less than 80 per cent. return from the capital and equipment already existing in our industries, and until we get nearer 100 per cent. return from the equipment we have aleady bought and installed we will get no one enthusiastic about adding to it as regards meeting any of the future investments. If we are going to ask people to invest in new equipment when existing equipment is not fully occupied, and if we are going to ask them to invest at a time when they have to pay 15 per cent. for the money they borrow in order to invest, whether it is a Government or an individual, this is madhouse control, and the policies that arc being pursued by the Cabinet are the policies which have brought about a 15 per cent. interest rate for the borrowed money necessary in order to equip.

If we are going to ask individuals to invest in the future when they are not getting 100 per cent. from capital they have already invested, and we will not allow them to make profits because we put on a taxation level which makes it impossible for them to have profits, this is not a breakdown of capitalism but madhouse politics of the Government of the day which allows that sort of condition to exist.

Having said that, they then say, "If the private individuals will not invest, let us nationalise the banks and the insurance companies so that we can obtain compulsory investment." In the clearing banks of this country, 30 per cent. of the deposits, £8,400 million, three times our own foreign currency reserves, belong to foreigners. Can you wonder that, over the last three-month return, we have seen something like £900 million switched from sterling into Deutchmarks and Swiss francs? Are people going to leave their money here if there is a risk of it being nationalised? Would any one of these foreign investors, who make up this £8,400 million-worth of foreign investment on deposit in our banks, allow that money to remain here to be able to give vent to the ideological aspirations of any Party or Government, whoever it is?

So at a time when we want to encourage people to leave their investments here, the Party which is the Government Party passed, with overwhelming majority at Blackpool supported by their demeanour, if not by their voice, by members of the Cabinet, a suggestion that the nationalisation of the banks will go on. It was the noble Lord, Lord Northfield, the other economist, who, in his speech, passed it off as a mere nothing. He said,

" We all know what the problem is, why the money has left; it is because the OPEC countries decided to remove their deposits from this country to a safer country; that is all that has happened."

The noble Lord said to a "safer country" very quickly, just like that. Anybody will remove their deposits which are their savings and possessions to where they think it is safest, and for the noble Lord to have to admit that people are removing their deposits from our banks because they do not think it is as safe as some of our competitor countries may well be undermining one of the things we need more than anything else: that is, our invisible income from the City, the banks, the insurance companies and so on.

Only seven times in the last 185 years have our physical exports been balanced by imports. We have always bought more than we have sold as regards physical commodities. We have been given a credit balance in most of those years because of the earnings, the invisible earnings, from the banks and insurance companies which go to make them up. If at a time when we need that invisible income more than ever we are going to allow a Party that is the Government, with nods of acquiescence from members of the cabinet of that Government, to give credence to the suggestion that this can take place, how can we expect the nations of the world either to leave their deposits and savings here, or be prepared to think that we are a good security in terms of asking them for loans?

I agree with the noble Earl, Lord Cromer, when he says that the political atmosphere is very important. The economists can talk all their jargon, and we can give all our bright ideas as to how to deal with this or that fiscal problem. But the political atmosphere in our sort of society is very important indeed. On that, I want to ask a question. Considering all the problems we have had to face over the last twelve months, considering all the disasters which are now accepted on all sides—the Prime Minister's speech recognised it in full measure—taking all that into account, why has nobody resigned? Why have we not had, in order to sustain the high level of public life we need in this country, any resignation? I do not want anybody's head on a charger just for the joy of seeing the blood; I do not need that. But why have not people resigned when the policies they have been responsible for have failed? Why have they not maintained the high standard of Government which I believe is an integral part of what we call the political atmosphere?

I listened to my noble friend Lord Thorneycroft. He resigned when he could not persuade the Cabinet to do something which he thought was the right thing in the nation's interests. He did not just switch and carry on; he resigned. So did the noble Lord, Lord Rhyl, so did Mr. Enoch Powell. When Sir Samuel Hoare failed with Daladier in the foreign affairs field, he resigned. It is nothing against them as individuals. The policies they were pursuing on behalf of their Cabinets had failed. We have heard a lot of criticism of people in the City. When they have failed they have resigned their Chairmanships, their managing directorships. Why have not we had any resignations? I read a book by Mr. Malcolm Muggeridge the other day. He was describing a very similar situation when he was a Left-Winger. Now he is a reformed character. He quoted somebody who had done this about-turn, and he said it was just as though he had fallen off the bus, dusted himself down and got on another bus going in the opposite direction. That is what Mr. Healey has done.

I believe it would have strengthened the standing of this country in the world if we had resignations on the recognition of the failure. When the Prime Minister was Chancellor of the Exchequer and the policies he adopted resulted in devaluaion, he did the honourable thing, he resigned. It did not mean he had to leave public life. He is now the boss man. He went into another office just as important. I believe this downgrading of the general procedure is not good, and I am wondering when we are going to see it brought back to the previous level. I respect Eric Heifer. He did not agree with the Government, and he resigned. I do not agree with what he says, but he is not saying it within the Government, like these members of the Cabinet. I believe that we cannot ask for much today. I think the noble Lord, Lord Thorneycroft, was right.

It is right that we should put on record our views. We should add to the general feeling as to how we think things are going, but we have really to wait until the Government produce their blueprint. We have to see whether indeed the Prime Minister does produce the actions which will be in keeping with the words that noble Lords have praised so much today. I would like to add my voice in a last sentence. I am convinced that if we do eventually have an Election—and I would have thought it will not go beyond the spring—and the Conservative Party win, I think it would help this country in regard to its standing in the world. But I think it would be even better, rather than have the hurly-burly of an Election, even in the spring, with the damage that would do to the pound, if we could come to some form of consensus.

People have criticised 1931, but it worked; the first two years of the National Government in 1931 produced vital results which allowed things to happen which may not have happened if we had kept to the Party dogfights. I would like to feel that we have in this country, as leaders of the various Parties, people who for a limited period could work in a Government of national recovery, as my noble friend Lord Balfour described it. Why not try it. I believe that time is running out, and unless we do something as traumatic as that, quickly, I do not believe that the world confidence we need, if we are to get the financial aid from the Fund, will be forthcoming. It is in the hope that, even at the last minute, something of the sort will happen, that I urge my noble friends to do all they can to encourage our own leaders to look with sympathy upon this possibility.

My Lords, I have some very good news; I am going to be extremely brief. Perhaps it was necessary for the economy of this country to sink so low before the realisation of impending disaster dawned in the minds of the responsible members of the Government. Now there are unmistakable signs that a large majority of the Cabinet are aware that the rake's progress must be halted, and very sharply reversed. But in the light of events at Blackpool last week, one is entitled to wonder how this is to be achieved. Extreme divergence of views between the Government and the Labour Left Wing are plain for all to see. This lack of unity in the Party is a recipe for muddle and compromise and is a major factor in the lack of confidence abroad in the pound. Even with the IMF watching every move of the Government and vetoing those moves of which they disapprove, the Left Wing will be impatiently waiting to inflict their policies on their countrymen.

It is high time that we stopped playing with fire and stopped playing Party politics. It is scarcely credible that this country, of which we have so much cause to be proud, can have disintegrated so greatly in so short a time. It is no good putting the blame on management, on the multinational companies, the banks and insurance companies. Does a Field Marshall blame one of his army commanders for a battle lost? No, my Lords. This country has been wrecked by the ideological conflict between the two main Parties. I believe that in this desperate situation there are many noble Lords who would welcome a coalition Government; and we have heard this mentioned several times today.

I see no other solution. Such a Government would carry out consensus policies while the country got on its feet. It would need to re-examine our whole electoral system, which not only the Liberal Party knows to be unfair, to study with infinite care the whole subject of devolution, immigration, and many other vital matters which neither Party trusts the other to do properly, and which many people trust neither Party to do with the good of the country rather than Party in mind. Let us have a breathing space in which to recover our strength.

Although I sit on these Benches, and although I have a strong preference for it, I do not have a starry-eyed view of the Conservative Party, any more than I believe some noble Lords opposite have of the Socialist Party. I am well aware that the doubling of the money supply in three and a half years by the last Administration was an appalling error, just as it is an appalling error to borrow astronomical sums of money abroad to pay for reckless expenditure. The plain fact is that this country in its present weakened state cannot afford to have so much absolute power in the hands of one Party and Government; it is just too dangerous. If we could have a period of, say, five years of coalition Government, perhaps the strife of Party passions would subside; perhaps we could recover our dignity and the integrity for which we were well known. Perhaps we could devise a system where the good and honest people are encouraged, where abuses arc properly punished and layabouts are ostracised, where waste is eliminated and where emigration of the able is halted. Perhaps this would bring us altogether to show that we were worthy successors of our ancestors.

It is often said that coalition Governments are unable to govern owing to the divergent views of their members, but this is hardly borne out by the much more satisfactory performance of many other countries with coalition Governments in the EEC. In fact, we have a coalition Government here today, but so sharp is the divergence of views that there is no confidence that the Government will be able to hold to their declared course.

It is my opinion that there is far greater disagreement between the policies of the Government and the Labour Left than between the policies of the Government and the Conservative Party. I therefore believe that by far the best chance of repairing the ravages of the post-war years would be a five-year period of a coalition Government, and I hope that the leaders of the major Parties will display the patriotism to coalesce, and the sooner the better. In conclusion, although the suggestion may not appeal to politicians, I am confident that there are very many people up and down the country who would welcome it with open arms.

My Lords, I wonder whether the House will bear with me if I discuss a topic which I think is important but which perhaps has not been mentioned so far this evening. Last week I spent a day in the machine tool exhibition in Birmingham. It is the great five-yearly exhibition of the products of one of the most important of our British industries, the trade whose products will be used to equip and re-equip British industry, if ever we get round to it. I was greatly impressed by the machines I saw, and particularly by the fact that many of the very best of them were designed and built in this country. There is no question that we are inferior in any way in the design of our tools and great machines to the industries of Germany, or Switzerland, or anywhere else.

I spent some considerable time talking to the managers and the salesmen of the firms represented, one of whom, for example, had just come back after selling £1 million worth of machine tools in Peking. I talked to all of them, because although the trade was enthusiastically selling and displaying its achievements of the last five years it is still extremely worried, and the reason is that although every production manager in the country to whom they showed their products is enthusiastically in support of them and would very much like to have new tools, they find that when they put in their requests for new investment the project is nearly always turned down by the main board. We discussed what has happened to this machine tool trade since I myself first encountered it 25 years ago.

About 12 years ago I had a large meeting of the firms in the machine tool trade in the Manchester area and I discussed their problems with them. I asked them what they were paying on their common stock, and the answer was: "Oh! 8 per cent. or 10 per cent." I went round the room again and said, "Supposing you were doing your accounts in such a way that you allowed for the maintenance of your own factory in proper order and you replaced your old tools as they wore out, what sort of profits would you declare?" The answer in every single case was, "Nil". I said, "Where, therefore, do your apparent profits come from?". The answer, of course, is that they were using up their own capital. Of course they all knew very well that for any director of a company knowingly to distribute his capital assets in the form of dividends, profits or taxes, is an indictable offence under the Companies Acts, but they also knew that if they did not do this they would undoubtedly be gaoled by the Department of Inland Revenue.

That was 12 years ago, and in the meantime every single firm in the group which was in my office has gone out of business. When I did this survey there were about 15,000 people in the trade. I checked last week; there are 700 today. This is the most dramatic collapse of any industry in my experience. We discussed the causes for this decline and they all said, "Fundamentally it is because the Government have not allowed us to keep our factories up to date."

The truth is that the machine tool trade was caught in a cross-fire. It could not maintain its own productive plant properly and the companies to whom they would have expected to sell their machines could not afford to buy them for the very same reason. I quoted to several of the men I saw a paragraph which I should like to quote to your Lordships from a book written in 1919 by Maynard Keynes. He said:

" Lenin once said that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation Governments can confiscate secretly and unobserved an important part of the wealth of their citizens. By this method they not only confiscate but they confiscate arbitrarily. The process engages all the hidden forces of economics on the side of destruction, and it does it in a way that not one man in a million is able to diagnose. Governments are rendering impossible a continuation of the social and economic order, but they have no plan for replacing it."

We have seen an awful verification of the statement which Maynard Keynes made in the machine tool trade, and I fear in almost all the other industries of this country.

Perhaps I can give a very simple example of what I mean. I know a man who has a small fleet of half-a-dozen buses which he uses to organise tours, and so on. They cost him, he said, £7,000 each when he bought them four years ago, and at the present moment he says that he is told by his accountants that he is making an enormous profit. But he says that in three or four years' time, when the buses wear out they will cost £17,000 each to replace. He said: "I shall therefore have two alternatives; either to halve my fleet and run three buses instead of six or I shall have to go out of business." This is the problem which confronts the whole of British industry. It is the problem of bad, misleading, and totally erroneous accounting which has done so much to destroy the whole of our trade, the whole of our industry, for a period of at least 35 years since Mr. Attlee's Government started complaining about rising prices.

I have spoken on this topic in this House before, and the more I have studied it the more persuaded I am that the primary cause of what we call the English disease is the success of chartered accountants who have so accurately and so honestly interpreted the totally wrong and totally inappropriate Treasury rules which govern the way in which company accounts are done, and which in times of inflation, as Keynes has said, are simply a method by which the capital of the country is taken into the hands of the Government who use it all the time as if it were a current expenditure.

For something like 30 years we have had an effective and vicious capital levy, the very existence of which has never been made known to Parliament, and which has, as I have said, come upon us like a thief in the night and destroyed the wealth and capital of manufacturing industry. We ask why people do not invest in industry. The answer is quite simple: they know that if they do they will lose money they put in, and the reason is that they are not allowed by the fiscal system of this country to retain sufficient money in their books to replace their tools as they wear out.

A couple of months ago I was talking about this very problem in a small town in the Lake District which has a little enclave devoted to the boot and shoe trade. There are about a dozen or so factories each employing about 100 people. I went around the room and said: "Can anybody here afford to maintain his productive plant in working order?" They said: "Of course not, because you know we have to carry our equipment in our books at historic costs, and when it wears out we cannot afford to replace it because the equipment we need has increased in price." One man said: "My situation is even worse. I have a single piece of apparatus in my factory that was built in 1937 and is still carried in the books as an historic cost. When it breaks, as sooner or later it must, I shall have no alternative but go into liquidation." The Government, in the form of corporation tax, profits tax and so on have taken the whole of this wretched man's capital and he has been unable to retain it through no fault of his own but because of the adamant rules which the Treasury has imposed and has forced companies to use and thereby has taken from them the whole of their working capital.

My Lords, how does my noble friend reconcile what he has said with the fact that when manufacturing industry replaces its assets it is allowed the inflated cost of the new assets 100 per cent.?

My Lords, only since last August has the 1.4 Rule come into effect. The fundamental point is that a firm is allowed to write it off in the first year but not to accumulate it from the past. If a firm makes a substantial profit, it can thereby write off the investment that it has just made, but it has no appropriate item in its budget to allow it to buy a new machine tool when the old one has worn out. I could amplify this, but I do not want to delay your Lordships. I will give one example. About 10 years ago a local firm bought a machine tool costing £100,000 and one of my staff did a detailed analysis of its effect on the profits of the company in so far as it could be isolated. They claimed to be making £25,000 profit a year from it and then it wore out after 10 years. A new machine tool was twice as expensive as the old one, which meant that the company had to find the balance between the amount carried in the books, which was the original historic cost, and the new cost out of taxed income; it could then write it off the following year from profits but it had not yet made those profits. The writing off was a help but by no means a proper substitute for what should be done, which is to allow companies to carry the appropriately indexed and inflated cost of the original machine in its accounts. This inflation of assets is not allowed except in certain types of industry, most notable not in the bus industry, to which I referred.

Let me take the situation further, because I am simply suggesting that the inflation to which we are now aspiring, which is 12 per cent. to 13 per cent., which is much less than we have had, is a significant number; it means that every 10 years prices rise about three to one; in 20 years prices rise tenfold, so that we pay £1 then for what now costs 10p; in 40 years prices rise 100 to one; and in 100 years prices rise 100,000 times. Noble Lords may regard this as a somewhat frivolous operation in elementary mathematics, but it so happens that it is almost precisely the rate of inflation which destroyed the Roman Empire in the third century of our era; the price of wheat increased 100,000 times in about 100 years at a steady rate of about 13 per cent., which is what we aspire to get if we can. I therefore beg noble Lords to believe that the rate of inflation now is sufficient to destroy the economy unless we can devise some mechanism to enable us to live with it.

Of course by much the best thing is to cure inflation, but we do not know how. It is therefore extremely important to devise a mechanism in the interim to enable us to live with it, and the remarkable thing is that such a mechanism has been devised; in fact it was devised a long time ago and has been rediscovered several times since then. It was first enunciated in the deserts of Arabia about 1,500 years ago and it is described in some detail in the Koran. It is prescribed therein that if a debt is incurred it shall not be repaid in money but in equivalent purchasing power. A man must repay a debt—gold for gold, camels for camels, tents for tents, corn for corn and so on: everything in its own way. This means that the purchasing power of a debt is retained. From that date to this the Muslims have indexed such things as blood money, the price of women and all debts that have been incurred, thereby showing a degree of honesty which I only wish was understood and appreciated by our own Government and Treasury, which compelled a man in the 'fifties if he was a trustee to invest money in "gilt edged" stock; if he bought 2½ per cent. Consuls in 1952 they are worth 16 per cent. today, so that the Government have commandeered about 95 per cent. of the purchasing power that was entrusted to them by a gullible citizen all those years ago. In other countries, notably those which follow the path of the Muslims, this is illegal and is held to be dishonest and I cannot but think that they have a point.

This idea that a debt shall retain its value shows itself in all sorts of other ways. For example, King Edward I, as he afterwards became, spent some time in the Levant as a Crusader and when he returned he introduced a fully indexed system of pensions for the benefit of his civil servants. That was in about 1260 and the system was consolidated into an Act in 1285. It was re-invented by Mr. Edward Heath in 1972 and when I told him that he had been beaten to the punch by about 700 years he expressed astonishment and delight. I am making the point that the idea that debts should retain their purchasing power as distinct from their monetary value is ancient and is at the same time modern. In America today many things are indexed; for example, the pensions of nearly all public employees and ex-military men, the wages of 10 million ordinary working men who have labour contracts and many bank loans and mortgages. In America there is no longer as we have here in the building societies, a complex mechanism for transferring purchasing power from the hands of people who lend money into the hands of those who borrow it. Can we run a system of building societies which has this effect for much longer? Indexed mortgages are now available in America along with indexed bank loans and most contracts for civil works are automatically indexed, as a great many of them are here.

I believe that we have to learn to live with inflation until we learn to cure it and that the only way to do this is to derive a proper system of values which is independent of money and is concerned with purchasing power rather than with the numerical value of money. The system has been introduced in America, Brazil and Canada and although the conventional wisdom in this country suggests that to introduce it would make inflation worse, those countries which have tried it have found exactly the opposite effect; as indexation has been introduced, inflation has been reduced, in Brazil by a factor of five and in America by a factor of two. I would not suggest that inflation can be cured by indexation, but I suggest that the belief that indexation necessarily makes matters worse, is a theory which cannot be sustained in the light of the available evidence.

Although the idea seems eminently sensible, it has been bitterly opposed by a curious alliance; on the one hand, the Treasury hate it because they fear the thought of perhaps having to repay the full purchasing power of the money they have borrowed from people in saving certificates or savings bonds. They fear, furthermore, that what every Chancellor of the Exchequer calls the "buoyancy of his revenue" will be destroyed. By this they mean that, as inflation occurs and wages and salaries go up and the threshold at which income tax is levelled does not go up, so the Chancellor takes a greater proportion of the wages and salaries of every person in the country. So the Treasury dislike it. I have discussed the matter with Treasury officials who say, "But suppose we were to introduce these reforms. The Government would be in the intolerable position that when they wanted more revenue they would have to raise more taxes." The thought that this should be intolerable to the Treasury fills me with horror because, after all, what is the function of the House of Commons but to act as a watchdog over the public purse? This function has now been totally lost because the Treasury constantly gets a greater and greater proportion of the revenue of the citizens, just as Maynard Keynes observed in Austria and Germany just after the war in 1919.

This reform is therefore unpopular with the Treasury. It is unpopular with accountants because accountants believe that what one can best call the traditions and procedures of accountancy were inscribed on tablets of stone round about the time of Moses. They will not concede that there is any other alternative possibility apart from the convention in which they have been brought up. Thirdly, indexation is violently opposed by those extreme Left-wingers who hope that if we leave things as they are Lenin's prophecy will be fulfilled and the capitalist system will be destroyed by debauching the currency as we are doing today. So we have these three extraordinarily unlikely allies or, to put it another way, we have the most extraordinary hotbed of cold feet the world has ever seen.

I believe that the diagnosis of much of our ailment is simple. We have never understood the full implications of inflation nor the way in which, as Maynard Keynes observed with horror in Europe 50 years ago, it takes from industry the capital on which it depends, it takes from the citizens the wealth they have accumulated and it learns to spend it as if it were recurrent income, as successive Governments of this country have done ever since the war. We cannot cure inflation. Let us, however, do our best to learn how we can live with it in such a way that it does not destroy us as Lenin so confidently forecast that it would.

My Lords, those of your Lordships who had the pleasure of being in the House during the speeeh of the noble Lord, Lord Bowden, have indeed had an intellectual treat which we all enjoyed enormously. We are very grateful to him. I am not sure that I understood all the significance of what he was advocating, hut it seemed to me to contain a great deal of good sense so far as our problems are concerned. I agree with the noble Lord, Lord Allen of Fallowfield, that this is an extremely important debate and I am only sad that I was unable because of another inescapable engagement to hear the speeches of my noble friend Lord Thorneycroft, and the noble Lord, Lord Peart.

I am sure that it was right of the noble Lord, Lord Carrington, to insist on having this debate in this House at this time, but I should like to suggest to your Lordships that it is constitutionally totally wrong that, simply because pressure of Government legislation has forced us to return to Westminster when the House of Commons remains in Recess, we should be debating the current financial crisis without the Government being represented in this House by a single senior Minister from any Department of State principally concerned. This debate should have taken place in the House of Commons where the responsibility for national finance and economic policy properly lies, but if the gross mismanagement of Parliamentary business by the other place gives your Lordships the opportunity of endeavouring to speak for the nation it is perhaps as churlish to complain as it would be craven to neglect to seize that opportunity. We do not have much power in this House, but neither are we vulnerable to sectional pressures and the spectator in the stands sometimes sees more clearly the drift of the game than the man in the rough of the scrum.

My theme tonight is one which I have on many previous occasions presented to your Lordships. One sometimes suspects in one's darker moments that advancing years diminish one's ability to think out new ideas. That may very well be true so far as I am concerned, but it is my strong conviction that circumstances are now approaching which would enable my theme to achieve reality, that they are getting nearer and that they may be imminent.

Let me at this point make one comment. In practically every speech I have heard today, all of which have underlined the seriousness of the present situation, one factor has been missing. We all agree that Britain is technically bankrupt. What seems to be missing in our debate is not so much what should be done but how any Government is to obtain the authority to give effect to a series of measures which will have a serious though perhaps temporary effect on the present way of life, the standard of living and the expectations of the nation as a whole.

The noble Lord, Lord Hankey, in his speech seemed to me to shy away from this particular problem. My theme is therefore this. It is useless for a Party in Government or one aspiring to form a Government to propound a set of solutions to our problems unless they can exercise the power, the political muscle, which will enable them to carry those solutions into effect. The noble Earl, Lord Cromer, spoke earlier on about having the right political atmosphere and that is really what I mean. But it is not only atmosphere; it is the will power of the Government and their capacity to take action to remedy the situation.

If those solutions represent a series of disagreeable measures, they can only be made effective by the exercise of authority derived either from the use of coercion or by consent. On an analogy with the recent history of one great Commonwealth democracy—India—coercion would involve the declaration of a state of emergency, the abrogation of many personal freedoms and the exercise of government by the executive outside the traditional authority of our political institutions. There was at Blackpool a good deal of talk about a siege economy. This presupposes that the Government would, in an economic emergency, have to act as Governments do in time of war. It means that the normal process of Parliamentary Government would be abrogated—and let nobody forget that this could be done by a Government either of the Right or of the Left. It would mean not only import controls but the rationing of raw materials and consumer goods, the direction of labour and all the apparatus of the authoritarian State.

The noble Lord, Lord Vaizey, in his extremely interesting speech, admitted that what those who advocated this were aiming at was the creation in this country of something equivalent to the régime at present in existence in the German Democratic Republic—a Communist régime, a Marxist régime, an authoritarian régime of great extremes and one closely allied to the Soviet Union. Let us be quite clear about this. If the financial conditions in this country were allowed to deteriorate, not necessarily in a 100 years, as the noble Lord, Lord Bowden, referred to in relation to the Roman Empire, but over the next five or 10 years, if they were allowed to deteriorate into real bankruptcy, as opposed to technical bankruptcy, this kind of solution, whether it came from the Right or from the Left, would be one that would be put into practice.

The case I put to you, my Lords—and it is a case put by a number of my noble friends on this side of the House and on the Cross-Benches, is that this need not happen. There is an alternative to that, which is that the action required could be taken within the ambit of our present democratic and constitutional system by a Government who have the support—the wholehearted support—of a great majority of the British people. As I have said on previous occasions, I do not believe that any Party Government, certainly not a Government elected by a minority of electors and sustained only by the fragmentation of the Opposition Parties in the House of Commons—my noble friend Lord Cullen of Ashbourne made the same point—and whether that Government be Labour or Conservative, have the slightest chance of taking the action which is necessary and which leaders in all Parties, or at any rate most of them, know to be required.

There is the clearest evidence from last week in Blackpool that the Labour Party is split. I do not know what will happen at Brighton this week, but I can only say this, speaking personally: if Sir Keith Joseph's Press conference last Friday represents the thinking of our present leadership, then the Conservatice Party is just as divided as the Labour Party.

My conclusion is therefore this: Britain will continue to stagger from one crisis to another, with its economy becoming increasingly weakened, its indebtedness more onerous; its currency further depreciated; its material standards and its national security eroded; and its moral strength undermined under the present political dispensation. whether it be under a Government of either Labour or Conservative. And this is what in fact may very easily happen, and is what is happening now.

As a result, as I have said, there could be a recourse to an authoritarian régime, operating under the cloak of constitutional validity, as has happened in India; and that régime could, as I have said, come either from the Right or from the Left, and to me it would be equally disagreeable. Or, my Lords, we could opt for the expedient which has been mentioned so often in this debate before, which has served us so well in the past—a political realignment which would throw up a Government of national unity, capable of mobilising support, within the compass of our Parliamentary institutions, of a majority of the British people; a majority sufficient to provide a consensus capable of enabling the Government to carry out the policies of retrenchment and reform which are necessary to restore this country to solvency and stability and security in a desperately dangerous world.

My Lords, we have listened over these last months to a babel of voices giving us advice on the basis of some economic theory or other—the monetarists, the free enterprisers, the nationalisers, the mercantilists, and God knows who besides. But all the while confidence in Britain's future has declined, both here and abroad. Yet we know, those of us who live here, that this country is today, with the human and material resources available, just as capable of holding its own in the world as it has been at any time during our lifetime, or for that matter at any time in the past.

Confidence—that is the solvent of our problems; confidence in our integrity and the effectiveness of our performance; confidence in the way in which we order our affairs and in our capacity to pay our debts, and our intention to do so; confidence in ourselves and in our institutions, which the genius of the British people has evolved for our good government and to safeguard our freedoms.

I have said before, my Lords, and I say it again, that I do not believe that this can be done within the present Party system. It cannot be done by the expedient of sonic temporary coalition. It can be done only by a Government who represent the broad spectrum of political tradition, comprehending the Social Democrats of the Labour Party, the Tory Democrats of the Conservative Party, and the Democratic Liberals; and a Government who are committeed to a policy of national solvency, social justice and constitutional reform. It must be a Government supported by a Party which accepts the reality and desirability of a mixed economy and that, in the management of that economy, the trade union movement has an essential role to play.

In this House we speak as individuals, representative of no one but ourselves, under the command which the Sovereign gives us in the Writ which summons us at the beginning of each Parliament. By tradition we are divided, Labour on one side, Conservatives here where I sit. Liberals near the Throne opposite the Bench of Bishops, and those of no Party on the Benches between us. Let me therefore say this. If tomorrow, or next month, or next year, the Prime Minister or some other leader were to seek the support of members of the Conservative Party for a Government of national unity which would appeal beyond the limits of Party allegiance, but which would be pledged to serve the nation by undertaking policies of retrenchment and reform, which in my view a clear majority of the nation, of all Parties, know to be necessary, I would be among the first in my Party to pledge to him all I could give, which I realise is very little: my right to vote in your Lordships' House in his support.

But this I do know. I would be one of a goodly company of those whose judgment and integrity I respect in both Houses and in all walks of life throughout the United Kingdom. I think that the Prime Minister might be surprised at the volume of support that he would obtain, and I think that this country of ours, and the world beyond, would be astonished at the transformation in our fortunes which would result. After all, my Lords, we may have been born little Conservatives, or little Liberals, or little Socialists, but what matters today is that we are all citizens of a country which needs the loyalty which transcends faction and which in surmounting its own difficulties by its own endeavours, can give an example of political and economic success to many other countries in the Commonwealth and outside it who face the same problems as we do in this very troubled world.

My Lords, the noble Lord, Lord Alport, will forgive me if I do not follow him in that realm of speculation about the possibilities of a realignment of Parties. I think that there is always a possibility of it; there has been a possibility of it almost as long as I can remember. It might happen one day, but I do not see any sign of it happening. I can see certain signs of break down. I do not see any signs of things building up in the way that he would like.

We are indebted today for the brave, serious way in which my noble friend the Lord Privy Seal and the noble Lord, Lord Thorneycroft, opened the debate. The result has been that most speakers have followed their tone and there has been for once in an economic debate here an absence of breast beating, and fewer moral homilies than we are used to and far fewer apocalyptic prophecies and warnings.

I was going to apologise for bringing a political note into the debate, but the noble Lord, Lord Harmar-Nicholls, has really given me an opportunity to open up in this direction. I was very touched when he thought that there was not complete unity in the Labour Cabinet, though I was a little worried because he seemed to imply that this was the first time in British constitutional history that such a thing had happened. I was going to interrupt him, but I must have telepathed him for he suddenly remembered that the noble Lord who opened this debate, Lord Thorneycroft, and Mr. Powell, and Mr. Birch had themselves had to leave a Government. The difference between the dissidents then was that they were leaving because they thought that they had an inflationary Prime Minister, whereas the dissidents in our Party are worried because they do not think that our present Prime Minister, Mr. Callaghan, is inflationary enough. My Lords, if we are going on to the subject of Cabinet unity, I can hardly think that Mr. Heath, Mrs. Thatcher, Sir Keith Joseph and Mr. Peter Walker were exactly in ideological and spiritual harmony in the last Cabinet.

My Lords, the Party opposite finds itself in a very curious situation today. Two Governments in Europe—two of the Governments which have coped most successfully with the world economic crisis in which they have been caught, as we have been caught—have recently gone to the polls. One of them, the Swedish Government, have been defeated and had to resign, and the other, the German Coalition Government, has had its majority significantly reduced and may find itself in difficulties in carrying through its programme. At this very time, the British Labour Government are facing a new sterling crisis, while their Party activists are in open revolt against their policies and the National Executive of the Party is torn between loyalty and dissent.

So now the Conservative newspapers, and no doubt the Conservative Party, too, see the possibility of an early Election, and even the hope of an Election victory. Yet their hopes are dimmed by two sets of facts. The first is that the Labour Government have the solid support of the trade union movement, and they have a policy—a policy so powerfully expressed by the Prime Minister at Blackpool—which has already produced some good results and is generally admitted to be on the right lines. The doubts about the policy are not about its being right in principle but about the ability of this Government, or indeed any Government, to carry it through.

My Lords, may I interrupt for one moment, please? Would the noble Lord opposite tell me on what grounds he says that the Labour Government have the solid support of the trade union movement?

Simply on the grounds, my Lords, that they have the solid support of the trade union movement as expressed in the pay policy—marching together in the closest unity that it is possible to have with a body outside Government. If the noble Lord does not know that, I do not think he has been following these events as closely as he might have done.

The second factor is that nobody is sure—not even the Conservative Party themselves—that a Conservative Government could produce such a policy without getting into conflict with the trade unions. I think it is bad for democracy, it is bad for Britain and it is bad for the pound if ever the belief grows that there is no credible alternative available to a Government of this country. The Tory Party know that they have to correct this impression, and the speech of the noble Lord, Lord Thorneycroft, was wise and moderate this afternoon in its search for some middle ground. It was helpful to the country, and it would be helpful to his Party if that spirit could be maintained at Brighton this week, but I very much doubt it.

But even the noble Lord, Lord Thorneycroft, as moderate as he sounds, is, as my noble friend Lord Northfield pointed out so clearly and vigorously in what I thought was a remarkable speech this afternoon, perhaps not quite so moderate as he sounds. He stands alongside The Times, and The Times stands apparently for a most substantial cut in public expenditure. So do we all, but the question is: over what length of time? And I noticed that when my noble friend Lord Northfield pressed Lord Thorneycroft as to whether he meant this immediately and then spelled out the dire consequences in prices and unemployment, the noble Lord did not correct him. He did not say that he did not mean an immediate cut. Perhaps if he meant a cut as an aspiration over time and not as an instant remedy, he will cause it to be known.

The noble Lord also mentioned the new policy document, The Right Approach. I have not yet had the treat of reading this; I have had to depend upon the extended extracts published in some of the newspapers. I found it a rather smooth and persuasive document. To me, looking at it, perhaps, with professional defamation, I regard it as a leader writer's job rather than a politician's job. Its well phrased pronouncements might well have come out of New Printing House Square or out of Peterborough Court—a kind of modified Mogg or a watered down Welch; a Colin Welch, I mean. But as a political document, it has some useful ambiguities. I cannot make out whether or not the Conservatives accept the Social Contract in spirit, or perhaps under another name. I cannot quite make out whether or not they would have a pay policy. I am still unreassured about the speed and extent of the cuts that they would make in public spending. I am still uncertain about the amount of unemployment which they would regard as tolerable. I am sorry; I thought the noble Lord opposite was going to give me the answer.

My Lords, I was just wondering what level of un- employment this Government regarded as tolerable.

Something a lot less than the present level, my Lords, which the Government are at present trying to escape from. I still do not know how much beneficial intervention in industry a new Conservative Government would undertake. The mood of benevolence, however, which is evident in the document, as it was in the speech of the noble Lord, Lord Thorneycroft, this afternoon, is welcome after the acidities and acerbities of the last two years. If there is ever to be, as the noble Lord, Lord Thorneycroft, put it, some kind of national acceptance of basic aims, then the tone of our political life would have to change; but I do not think it is possible. These acerbities are part of our traditional Parliamentary life, and the differences between us on many fundamental subjects are very wide. It would be very difficult for us to be in any kind of close harmony—we, as a Party which is dedicated in spirit to equality, and a Party which regards inequality as a desirable social end.

May I come back to the speech of the Prime Minister at Blackpool? I regard it as the strongest and the least equivocal of speeches I have ever heard from a Party Leader. As the noble Lord knows, I am rather a connoisseur of conferences. I thought it was powerful, and I think he has had a favourable reception among quite a lot of people who are not Labour's natural friends. I do not believe that the extremist activists whose voices were heard rather loudly on television and in the conference hall are going to take this Government one single inch off course. I believe the alliance with the unions will hold; and, as Mr. Callaghan put it, the long march has begun.

One final thing. I am far less optimistic than the noble Lord, Lord Vaizey, about the possibility of using import controls. suspect that the Government have already received many warnings from other Governments about not attempting a complete solution by this means. Selective controls are one thing, but using these to prop up the economy is another. I was rather surprised that my noble friend Lord Northfield gave Lord Vaizey encouragement when he suggested that the countries in the European Community would look benevolently upon such a thing. I myself, in my trips to Europe, have seen no such spirit; and, indeed, although we have a special problem, they have their problems. If Britain, why not Italy? If Italy, why not France? Can you really expect them to allow us to export our unemployment when they already have a serious unemployment problem themselves? It would be nice to think that there was a ready-made remedy. As the Prime Minister said, there is nothing socialist about import controls, there is nothing anti-socialist; they are not ideological, they are a device. But I am afraid that at the moment, my Lords, I do not think they are a practical device.

My Lords, at this late hour, and in a debate such as this, I will take only a few minutes of your Lordships' time. But as shortly we shall be hearing what are the Government's plans for future financial restrictions, there is something I should like to say on behalf of what is called, "the little man". When I was a partner in a firm of stockbrokers, after the war, the senior partner used to say to us all: "Always remember you are dealing with other people's money and always pay great attention even to the smallest clients as to them especially their capital is vital". Our national reputation has been built on the hard work and integrity of the little man, the butcher, the baker and the candlestick maker, and we were once the envy of the world. We were rather derisively called "a nation of shopkeepers"; but we were proud of this name for we kept our shop rather well.

But where are they now? I think most of us know. They are either being driven out of business by taxation or being swallowed up by ruthless and impersonal giants. It is easy to confiscate and squander other people's money in the hope of political popularity; it is not so easy to get people to work hard, to be self-reliant and to put something by for a rainy day. Yet, as one noble Lord has already said this afternoon, we seem determined to penalise those who want to work and to save and to make it rather easy for those who do not. My Lords, not so long ago an Englishman's home was his castle, an Englishman's word was his bond, and I expect many of your Lordships remember a hymn in the old days, one verse of which ran:

"All things bright and beautiful,

All creatures great and small,

All things wise and wonderful,

The Lord God made them all."

And I only quoted this verse because the important words to me, and, I think, to your Lordships, are: "made them all"—all creatures, not just one section of them. We, at any rate in this House, are responsible to them all and not to just one section of them.

However, sadly, after 30 years of the ideological hallucinations of successive Governments—not just this one, but over 30 years; because I am not Party political; I hate Party politics—I am not intending to be in the least bit funny but a bitterness has sadly entered certain sections of our society and today one could almost rewrite the next verse to read:**

"The poor man in his castle,

The rich man at his gate,

Where once was law and order,

There now is greed and hate."—

with the result that now there is sickness in our land and in some places that sickness has gone very deep.

Becoming alarmed, those responsible for our wellbeing have consulted the doctors and the doctors have given their advice, but, alas! some of the patients have become so sick that they imagine the doctors to be quacks. So in all sincerity I would say this to those responsible for our future: that unless—and I hope and pray and think that they will do so—they have the courage to take the doctor's advice and to make sure that the medicine prescribed is taken, the sickness might get beyond control and, then, as I stated, the independence of the little man may be gone for ever.

My Lords, we are having this debate because last week sterling once again nose-dived and we found ourselves in one of our all too frequent crises. I think the question that we have to ask is this. Why, in fact, do these crises come upon us and why do we find it so difficult to weather the storm when they arise? I believe the basic reason is that in spite of all that has been said, and said with tremendous ability and force on both sides of the House, there is really no confidence either overseas or at home that the strategies of this Government are, even given time—and that is the point that has been made. "Give us time and we shall get home"—in fact going to get us out of our difficulty.

If that were believed, if overseas people believed that it was just a matter of time and Government policies would get us back on to a stable and progressive economic path, then I do not believe that we should be faced with these crises; and, what is more, if that confidence existed in this country we should then be in a far better position to meet these attacks when they come. So the question that we have to deal with is not in my view how to cope with the immediate crisis, but what do we do about the underlying strategy? Therefore, I would go along with noble Lords opposite and from these Benches who have urged the Government not to be panicked into immediate and drastic cuts which indeed could have far more serious repercussions than they are likely to do good.

Of course, we want to see some cuts phased out over a period of time and we want to be sure that for the money that is spent in the public sector we get good value. I think the suggestion put forward in another place by Mr. John Pardoe that there should be a national efficiency audit looking at the return we get for our money in the public sector would be a good thing to have. This is the way in which I should like to see the Government approaching the problem of efficient expenditure in the public sector. But that leads us to the real underlying problem and why the Government strategy is inadequate. I believe that the Government strategy is inadequate for two reasons. Although it contains some elements that are undoubtedly sound and moving in the right direction, it is cluttered up with a whole variety of additional objectives which get in the way of getting out of our main problem.

Other speakers today—I am not going to take up time on this—have pointed out to the Government the irrelevance of so much of the Government's present legislation. I know that for political reasons—and obviously politics and economics are very closely intertwined in the real world—it is difficult for the Government to get rid of many of these commitments; but a gesture in getting rid of some of this irrelevant legislation would go a very long way towards helping the true problem. It would make those points in the Government strategy which are of value shine out far more clearly.

But I believe that there is a more profound criticism of the Government strategy than just the irrelevance of some elements in the programme which has been coming before us. I believe that it is based on an inadequate analysis of what our troubles really are. It is often said, for example, that we are suffering because we have too little investment. The fact is that the percentage of our GNP devoted to investment is not all that much less than is being devoted in some countries which are vastly more successful than we are. Again, it is often said that we are far too heavily taxed. I agree that the way in which the incidence of tax is levelled is undesirable at the present time. But the proportion of GNP taken by the Government is not all that much higher—in fact in some cases it is lower—than some countries which are a great deal more successful than we are.

Some people say that we are paying too much in wages. Of course in the past two years wages have rocketed. Do not let us forget that when we are patting ourselves on the back, although they have gone down to an increase of l3½ per cent., it was absolutely ridiculous that wage rises should ever have risen up to 26 per cent. If the TUC are really as able, as they have shown in the past year, to have some control over wages, what on earth were they doing in the previous year? We on the Opposition Benches are entitled to ask that question.

Having said that, we are a low wage country; we are not a high wage country. None of these three familiar attacks on our economy are adequate as an explanation as to why we are in the plight that we are in. Unless we have an adequate analysis, we cannot possibly have an adequate cure except by the greatest luck which we are very unlikely to have. My Lords, it is late and I do not want to go into a great deal of detail. I believe the basic wrong with this economy is our hopelessly low value added, our inability to make good use of the resources that we have, both the resources of money and men.

I will read one very telling paragraph from an article by Mr. T. D. Jones of the National Institute of Social and Economic Research. This came out last month:

"Not only did France and Germany have higher levels of value added per man hour in manufacturing than the United Kingdom by 1955 but Italy had also reached United Kingdom level by 1968. In all of these countries real value added per man hour in manufacturing grew considerably faster than in the United Kingdom".

This is the important sentence:

"The gap between the United Kingdom and the four countries with higher levels of value added per man hour in 1955 grew from between 8 per cent. and 18 per cent. higher than the United Kingdom in 1955 to between 54 per cent. and 93 per cent. in 1973."

That is where the real trouble lies. We are making extraordinarily bad use of our resources, although some of them are intrinsically in themselves very good resources indeed.

That is where we have to direct our attack: to see we get higher value added. That is what the strategy should be all about. There are elements in the strategy which deal with this but they are only incidental. They should be at the centre and everybody should see that this is what we are trying to do. The implications of getting higher value added are tough, and to follow through this policy would lead to changes of a disagreeable kind in many sections of society: in the manufacturing section, in the public sector and indeed in the labour among salaried levels and manual worker levels. The following through of this policy is very strong medicine indeed. I believe it to be the right medicine and we are capable of doing it. Of course we should need temporary help to get us on our way. I was interested in the proposition put forward by both the noble Lords, Lord Northfield and Lord Vaizey, that we should be seeking far more help from the European Community than we have done at present.

Here again the Government speak with an uncertain voice, do they not? It really is no good—and I am not making Party points this evening—going along with your hand out for money one month and going out with a harpoon in your hand the next month to catch all their fish. We really have to be prepared to say that if we are really going to work in the European Community we have to take the rough with the smooth. You cannot have it both ways. You cannot say, "We are a great independent nation" when you feel like it and then when you are hard up and need help with your overdraft say, "We have got to be brothers together and you will bale us out won't you?". If the Government would make up their mind that they will silence those anti-Europeans who are still so vocal in their ranks, we should at least have this area of assistance in getting us on the right way and in improving our value added. In addition to the help that we shall need—

My Lords, if I may say so, is not the noble Baroness being a little unfair in those last remarks? I admit it is true that the Government ought to speak more forcefully and openly about our membership, but has the noble Baroness not noticed that on the question of direct elections, for example, the Foreign Minister and the Prime Minister have made it absolutely clear that our pledge to carry through the full consequences of membership—

My Lords, I must say I think the noble Lord, Lord Northfield, ought to choose a better subject on which to attack a Liberal than that of Labour's loyalty to direct elections. Not only do we need in our overseas approach to aid a change of emphasis and perhaps a change of direction, but we also need to give more encouragement to people here at home. I have said that we are not over-heavily taxed in this country overall in comparison with other countries, but I think the incidence of direct taxation is now reaching a level where it is positively discouraging at all levels of employment—and, I repeat, at all levels. I am not talking only about high income earners or middle management, about whom so much has been said. It is also discouraging lower down the line, and I want to make just two suggestions. One could be adopted very quickly, but I recognise that the other must be a long-term policy though we could with advantage start exploring it now.

In the short term, as has been pointed out, it is becoming increasingly discouraging for people to work. I am not supporting the idea that at the lower levels there are a lot of scroungers on unemployment benefit. I do not believe that is true, but I think it is quite ridiculous to discourage people to the extent we now discourage them. It is a fact that in September there was both an increase in unemployment and an increase in the number of unfilled vacancies. I am not so simple as to think that those things can be easily put together, but it is ridiculous to have them both at the same time and, as I have said so often from these Benches, it is ridiculous that even with employment as it is we still have serious shortages of labour in many skills and in many parts of the country.

My immediate suggestion is that the Government should stand up to the Inland Revenue, because I believe that is where the trouble lies. Whoever was the person who thought it sensible that you should move, at the lowest levels of tax, from paying no tax at all to paying 35 per cent. plus a social security contribution, which now brings the marginal rate of tax for the lowest income tax payer up to 40 per cent? Surely it would be sensible to go back to a graduated income tax so that at the lowest levels people do not move from paying nothing at all to paying a marginal rate of 40 per cent. I do not believe that that is beyond the Inland Revenue, and I believe it could be done very quickly indeed.

On a much longer time scale—and I recognise that this would be a far more difficult thing to do—we shall have to look anew at the whole way in which we level personal taxation. Here, of course, I am merely drawing on the wisdom that came—but was ignored—from the Labour Benches in the form of Professor Kaldor nearly two decades ago. He suggested that there was a strong case for an expenditure tax to partially replace income tax. I will not go into the details of it now, but I believe that if you look at the idea of an expenditure tax it would meet many of the more serious criticisms of income tax as a great disincentive that can be made at the present time.

Other voices are being raised to have this considered, and may I at least ask the Government to look again and see whether there is some way in which to some extent, and in some areas, we could substitute a consumption tax, an expenditure tax, for income tax—I am not talking about all income tax, because I recognise that that is a drastic proposal to make—which would have very considerable advantages indeed, but details of which I will spare your Lordships at this time of night.

One other point on which I disagree very much with what was said in some of the most interesting speeches from the Labour Benches is the belief, which apparently they have, that the country will not stand such policies. We have all been reading the Economist. We all know that they have threatened disruption and the failure of Parliamentary institutions if really tough measures are taken. But I do not believe that at all. I believe that the rank and file of people in this country, who are not stupid, are waiting for a clear analysis and a clear lead and it does not matter if a policy is tough, if they can see where it is leading them. I think that noble Lords are too nervous in saying that we cannot tell people that there will be a fall in the standard of living.

My Lords, we have been saying, in fact, that the country is accepting this. A number of us have said that, at the moment, the trade union movement is accepting a voluntary and substantial cut in the standard of living.

My Lords, the noble Lord has missed my point. I believe that they will take something much tougher than they are getting at the moment. Noble Lords were saying that anything like a further reduction in the standard of living would not be tolerated. All right. If noble Lords agree with me so much the better, but I believe that the Government can afford to be very much tougher.

My Lords, may I—

My Lords, we are listening with great pleasure to the noble Baroness's speech, which is a powerful analysis, and are following it in great detail. But we are mystified to know who are the noble Lords who made the speeches which said that the Government are not capable of putting enough pressure on people at this time.

My Lords, I have had 17 minutes. I shall not answer that, because people want to get on. I want to make my major point. I am delighted that noble Lords opposite agree with me that a clear cut lead along very tough lines would be accepted. But in line with what is being said from the Front Benches here and elsewhere, I believe that this needs to be done with a wider backing of support than just that which comes from a single Party. I am not talking about coalitions. I am talking about an agreed policy for economic recovery. I am convinced that the country would welcome it. I am convinced that people would take very tough measures indeed, if that clear lead were given.

My Lords, when the noble and learned Lord on the Woolsack sits down we shall have five hours of the Race Relations Bill, and then the Second Reading of the Bill on motor bicycle helmets. I shall consequently be shorter than some and not much longer than others. The Government had some doubts as to whether it was wise to have a debate of this character when the stability of the pound was at risk. Their fears were groundless. This has been a responsible debate and all the speeches have been responsible, and most of us—I think, I exclude one or two—have acknowledged the seriousness of our position and spoken accordingly. Indeed, what has characterised this debate has been the awareness of the problems which face us.

I fear that I must contrast this with the impression left on me, and no doubt countless others in this country as well as in the rest of the world, who happened to look at the televised proceedings of the Labour Party Conference at Blackpool, or who read the reports of the speeches there. It seemed to me as if reality hardly ever intruded and any irresponsibility which your Lordships might have shown, but have not shown, could only pale into insignificance compared with some of the Conference speeches of last week. It is impossible for me to acquit the Government of the responsibility, in large measure, for the troubles which now face us. Their actions in the last 2½ years have significantly weakened our position and have been at the root of the loss of confidence abroad in our situation.

Having said that, let us look to the future, and it is the future of all of us that is at stake. The Labour Party are temporarily in control of our affairs, so on them lies the burden of making the decisions upon which may rest the future of this country for very many years to come—indeed, I think it would not be too dramatic to say our survival as a prosperous Western industrial country. They are the guardians for all the people of this country and they must act for all the people of this country—not for a section, not in a partisan way, not to buy time, or peace, or Party solidarity but for all the people in the best interests of all the people.

Let there be no misunderstanding about how we are regarded abroad. We are regarded with either pity by our friends or contempt by our enemies and the sooner that that is understood the better. None of your Lordships who has been abroad in these last few weeks will gainsay that. Some time ago, at the end of July, I introduced in this House a debate on the state of the nation and it seems to me that this is a continuation of it. We were not then talking primarily about economics, but the state of the nation is to an extent the cause of our economic problems.

As I have said—and I fear rather wearisomely over a great many years to your Lordships—one of the central problems which faces any Government is to persuade the electorate, which is becomingly increasingly disillusioned with politics and politicians but has yearly greater expectations and has never in 25 years actually seen come about the prediction of disaster which all politicians are proclaiming, that the time has really come when disaster is staring us in the face. Nobody but the Government, by their actions, can persuade the quite large section of our people who are now better off than they have ever been that they are better off because we are living on somebody else's money—in the words of the Prime Minister "on borrowed money and on borrowed time"—that we are creating a mountain of debt for our children and that we are now borrowing the last tranche of international money to which we can lay claim.

What happens then when that has gone? How then do we maintain a standard of life which we are not earning and which we do not deserve? One of the first priorities of the Government should be to bring home that message to every single person and—this is more contentious—to repudiate their own supporters who seem not to understand the economic facts of life. I would not dare, having been given a "trailer" by my noble friend Lord Amory, to quote again the treasurer of the Labour Party trying to lend us money. He will never do better than that, try though he may—and I expect that he will try very hard. However, it displays a total ignorance of the realities of life, as does the really astonishing remark of the usually very sensible Mr. Jackson who said, broadly speaking, "If we do not get what we want on the terms that we want it, then we will bring everything tumbling down around everybody's ears". How can we expect our international friends to think seriously that we are trying to put our affairs right? I am afraid that such statements and the internal situation in the Labour Party have caused a loss of confidence in the ability of the Government to do the right thing.

I happen to believe—and I hope the noble Lord opposite will not be too upset by this—that the Prime Minister is a patriot, and I happen to think that not only does he want to do the right thing but he knows what the right thing is, and I agree with those of your Lordships who have said that his speech was a brave speech. I think it was a brave speech but those abroad who read it and who saw it on television, did they not wait in vain to hear how he was proposing to implement what he said and could they not also have been noticing the reception of that speech? They cannot have failed to notice the attitude, for example, of Mr. Wedgwood Benn and others during the conference. I was not there but he was reliably reported in the Press to have clapped and cheered the extreme Left Wing speeches while sitting silent during the speeches of the Prime Minister and the Chancellor. My Lords, with such colleagues the Prime Minister needs no enemies.

Some of your Lordships—and I am surprised it has not been said already—may say that this is none of our business; that what happens inside the Labour Party is for the Labour Party to decide. But it is not. What is happening inside the Labour Party and inside the Government today is determining the future of the pound and our economic prospects. If the Prime Minister wishes—and I know he does and so do most of his Party and so do most of his Cabinet—to do the right thing, he must do the right thing regardless of the opposition even in his Party and by those who are in important places in his own Cabinet.

Of course one must be very careful—and I do not make a Party point—not to take at face value what any Chancellor says about what the Government are not or are going to do, because for reasons of timing they must obviously be very careful in what they say, but if it is really true—and I tend to agree with my noble friend Lord Thorneycroft that it is not—that the Chancellor really means that the Government are going to take no further measures to put the economy in balance, that he is just going to rely on a strategy that has failed, then there can be very little prospect of either restoring confidence or of putting things right.

The fact is that the Chancellor's strategy has failed because he has not been able to convince our foreign creditors of its viability. If he does nothing—if I may be a little frivolous, as a noble friend of mine behind me said—then the Government will earn the right to have that great Latin motto "Semper in hock; semper ad hoc!" I do not believe that the Chancellor will leave it at that.

On Sunday my Party published a document called The Right Approach and I am flattered to see it on the Table in front of the noble Lord. That will be very good for Party funds! In that document we said that it will be necessary drastically to reduce Government expenditure. I am not one of those who believes that Government expenditure is a bad thing. Indeed I really believe the reverse. Of course I do not want the Government to waste my money, or any of your Lordships' money, on foolish things. I do not want indiscriminate subsidies; I do not want them taking over industries which are better left alone. I do not want them to spend my money on nationalising the banks or the insurance companies and I do not believe anybody else does either; but there is a very great deal of Government expenditure which I do want. I want to see a better Health Service; I want to see better education. Goodness knows! there is room for improvement in both of these spheres. I want to see better social services. There is still unacceptable poverty in this country, as my noble friend Lady Macleod of Borve said in her speech. So do not let it be said my colleagues or I wish to cut public expenditure for the sake of cutting public expenditure. What we are saying, and have been saying over these last three years, is that you cannot go on spending vast sums of money which you have not got. You cannot go on improving you own standard of life on other people's money because, sooner or later, they will not lend you any more. What is true in our own personal lives is true in our national life.

It is not a bit of good getting angry with the local manager of Barclays Bank when he tells you that you are overdrawn and he is not going to lend you any more. It is no good saying that he is a wicked capitalist who does not have your interests at heart, any more than it is any good Mr. Mikardo and his friends wailing about the wickedness of international bankers. Whether we like it or not—and we do not—and the sooner the better, we are going to have to cut our public expenditure. Of course, it is not going to be nice. Of course, we are all going to be hurt by it, and of course, we shall all have to cut the things we would much rather not cut. Of course, we will dislike it very much. But what other alternatives are there?

My Lords, at a conference the other day, introducing the document to which I have just referred, a journalist asked my right honourable friend Mrs. Thatcher whether a Conservative Government could actually cut public expenditure. My right honourable friend said: "There is no other choice ", and I do not believe there is any other choice. The only choice before us is a choice of going "bust" or managing our affairs in a prudent and sensible way. We have to create wealth. We must make it possible for industry to invest. For a time, and hope for a short time, we have to pull in our belts and use any money we have, not for those things which all of us think make life agreeable and easier, but for those things which in the end will make it possible for us to have an increased standard of life, earned by ourselves, and not on someone else's money. We have spent far too much time these last years quarrelling about how to divide the ever-decreasing amount of national wealth we create, and precious little time creating more wealth, so we can all have more.

I was sorry to hear the right honourable gentleman the Prime Minister talking about the only alternative to his policy being a totalitarian Government. I was even more sorry, although not so very surprised, to hear the right honourable gentleman Mr. Healey talking about rioting in the streets. I do not believe that those are the alternatives that face us. I do not believe for one moment that the British people would not rise to the challenge if given leadership by a united Government, and the facts were stated to them bluntly and inescapably. Of course, there will be a handful who will seek to undermine such a lead, but it will be a handful of those who wish to see catastrophe for their own political ends. But their number will be small compared with the vast majority who in their bones know something is wrong and who will accept sacrifices, provided they are sacrifices which affect everyone and not just one section of the community.

Deep down, people understand that if we pursue sensible policies of restraint over a comparatively short space of time, we will be on the road to a greater prosperity than we have ever had before. I do not think that there is any underlying economic problem which cannot be solved if, as a country, we have the resolution. The British people like a challenge. They like it when they are told how bad things are, what they have to do, and what the prospects are for them if they do it. I think that the Government and the Prime Minister know what to do. They must have the courage to do it. If they do, they will have our support. There is not much time.

My Lords, this has been an important debate, coming as it has done, at this critical point of time. The responsible tone which has prevailed in the debate, though occasionally breezes seemed to blow from Brighton, even in the last observations of the noble Lord, Lord Carrington, in his and other speeches, was set in the first two speeches at the beginning of the debate. We have had distinguished contributions from experts in the fields of banking, finance, industry and government, whose advice the Government will, of course, very carefully consider. The underlying mood of the debate has been one of serious concern at the complex problems which now face us as a country. This I share, and, of course, the Government share. The Government believe that we are tackling the problems on the right lines, which were so ably identified by my noble friend Lord Northfield, and we were glad to receive the support of the noble Lord, Lord Boothby, and others across the Chamber for what we are seeking to do.

While we do not underestimate the seriousness of our problems, there is no reason why we should entomb ourselves in despair. I wholly reject, if I may say so, the suggestion that was made by the noble Lord, Lord Cullen of Ashbourne, that our country has disintegrated. I believe a visit to any community in any part of the country would dispel that gross pessimism. There is one thing I should like to say early in my remarks. Throughout the debate great praise has very properly been accorded to the speech of my right honourable friend the Prime Minister last Tuesday. It has been praised, rightly, as brave and realistic. I entirely agree. But, of course, the Prime Minister was speaking not only for himself; he was speaking for his Government. His speech was followed very shortly afterwards by speeches echoing his warnings, his policy, by the Chancellor of the Exchequer, and then a notable speech by my right honourable friend Mrs. Shirley Williams, Secretary of State for Education and Science. The Prime Minister's speech represented the policy of Her Majesty's Government, and it is that policy which the Government intend to carry through and carry out. I believe that the people of our country will rally to its support, bitter as much of the medicine that he so frankly prescribed was. I can assure the noble Lord, Lord Carrington, that the message the Prime Minister gave will be brought home to our people, and it is our intention to do so as soon as we reassemble.

My Lords, the debate has taken place against the background of currency problems which have adversely affected the position of sterling. This has been in the forefront of much of what has been discussed. My noble friend Lord Peart has described the events which have led up to the sterling situation, and I hope that I will be forgiven, in closing this debate, if I do not enter into further details in this sensitive field at this moment of time. But I would like to say this. As a country we are not alone in having anxieties and difficulties in the parity and currency field. This is not surprising in a world which, as the noble Lord, Lord Boothby, said in a characteristic speech, abandoned the old Bretton Woods system and has not yet achieved an acceptable alternative monetary system in its place. Moreover, the world community has been through, and indeed is still going through, a period of abnormal strains on the commodity front, aggravated by the vast increases in the price of commodities—above all in the fourfold, and now I think the fivefold, increase in the price of oil. Fortunately, the spirit of co-operation has to a saving degree so far prevailed among the nations, and indeed it must prevail if we are to preserve the remarkable post-war achievements of the Western world and to enhance them. I am sure that on the sterling problem the Chancellor of the Exchequer will take careful note of certain suggestions which have been made in the course of this debate.

I now turn to some of the central economic problems we have been discussing, and first unemployment. The vast extent of this of course weighs heavily upon us, and we are reasonably hopeful that now we are facing a downturn. It weighs heavily not only because of the economic waste it represents and the human misery and suffering it inflicts. Brought up as I was in a working family in industrial South Wales, I am deeply aware of the scars that were left by the experiences of the 1930s.

It is no comfort to remind ourselves that unemployment is by no means unique to the United Kingdom. In greater or lesser degree it exists in all the advanced countries of the Western world. Indeed, until recently we were better off than many others. It came into being and grew up in the unusual and unexpected recession of 1973 and 1974 when there appeared together the twin menaces of slump and inflation. Faced with price inflation and demand deflation the world faced problems which its traditional remedies were inadequate and unequipped to cope with. It was soon generally acknowledged—and certainly Her Majesty's Government have acknowledged it—that there was no way out of the recession until inflation was conquered. Not surprisingly, no Government, here or elsewhere, has had spectacular or swift success in coping with inflation.

I believe that basic to our tackling of inflation has been and is the Social Contract. It has been splendidly described in the debate by my noble friend Lord Allen of Fallowfield. It is a voluntary agreement between the trades unions representing about half the organised working people of our country and the Government to bring fair play and common sense to bear in coping with the inflation problem which is probably the most difficult and most central one facing all countries now and to which no country can yet claim to have found a permanent solution.

The Social Contract reached its peak of achievement in the recent wage deal which represents a determined attempt by the Government, with the full cooperation of the working people of our country, to end the inflationary paper chase in which quite understandably but damagingly each section of our population sought to better their position—particularly in 1975, and it was not only the trade unionists—without regard, alas! to the impact of this on the community at large. The Social Contract is in essence a partnership agreement. It is more than a mere method of consultation, as the noble Lord, Lord Thorneycroft, described it. The parties to it have bound themselves to use their joint endeavours for the common good. No longer are the Government and the unions confronting one another, not even expostulating and exhorting one another from a distance. Instead, we are arguing out together what needs doing, and each in our separate spheres. It is important to realise that the Government are not trying to take over the unions, nor the unions the Government. We are working to get the necessary things done.

I believe that the achievement of the Social Contract, and the continual and courageous adherence of the trade unions and their leaders to it, represents a vast hope that at last we are on the right road. It may be that we cannot hope for a swift or spectacular success and that patience and good will will be needed over a period of time. But already the grossly excessive inflation of 1975 has been halved. Further progress will be made, although this has inevitably been diminished by the recent devaluation of our currency.

We are now in the early stages of another pay round and of another agreement. The pay increase element of this agreement implies increases of 5 per cent. only—roughly half of the percentage that was implied by the £6 policy—subject to a minimum of £2·50 a week and a maximum of £4 a week. This agreement has been endorsed at special congress and at annual congress by the trade union movement in full session and trade union unity in this context in particular is not a thing to be lightly underrated. As is essential, it again has the solid support, I believe, of the people as a whole.

That a cut in living standards is entailed in fighting inflation is now I think fully understood and accepted by the people of our country. On a July-to-July comparison, average earnings finished slightly ahead of average prices over the £6 policy pay round, but the real average take-home pay over these 12 months was down on the year before. Even before the effect of tax was taken into account, over that 12 months, average earnings were lagging behind prices and it is clear to all concerned that average real take-home pay will have to fall again in this pay round. That is known and that is accepted. It is the Social Contract that has made these great advances towards realism and made hopeful indications of changes towards a better future. It is under the Social Contract that the Government and the union movement are discussing what needs to be done to ensure from next summer both that these gains are maintained, not lost to any creeping or swift pay explosion, and that the system can adapt to the need for change and adjustment in the economy.

Linked to the Social Contract is the Government's industrial strategy, which again my noble friend, Lord Allen, described. This is based on the wage and salary awards emanating from it. The Government have sought to harness management, workers and indeed the Government themselves in a tripartite effort to deal with the problem of expanding our capacity to create wealth—I agree with what the noble Lord, Lord Carrington, said about the fundamental importance of that—and improve our industrial competitiveness and efficiency to enable us to pay our way in the world and improve the standards and quality of the life of our people.

The Prime Minister spelt this out clearly last week and the noble Lord, Lord Thorneycroft, read his Statement approvingly. To achieve the purposes that he there explained and defined and that I have mentioned, I believe that the continuance and strengthening of the Social Contract is crucial, for it spreads to wide fields of economic policy. In particular, it has helped in devising and securing support for the complex of policies that we called the industrial strategy, which has as its aim to make Britain competitive. We engage successfully in a great volume of international trade and international services and in these—in finance, insurance, shipping, airlines, tourism and many more—we have held our place in the world and done well. But, on the other side of the account, that of visible trade in goods, we have not done so well in international markets and we have lost a significant share of our own home market. It is on increasing our ability to produce and sell these goods that our prospects of returning to lasting full employment and to raising standards of public and private provision that everything depends.

To do this, it is not enough to give priority to making resources available for the balance of payments. That is necessary but it is not sufficient. It has been a common theme in the debate that we must have more investment. All Parties are agreed on that, but it is not enough to make sure that resources are available to be called on and to offer investment allowances and incentives.

We believe that these things need to be tackled in a more detailed way in the partnership I have described between both sides of industry and the Government, for each side has the ability to block as well as to stimulate change and, since the action must be co-operative, so also must be the initial analysis of what is wrong and what needs to be done. The points which must be picked out and which we are now studying and examining in practical detail include poor choice of investment, as well as a low rate, inefficient use of capital and manpower—a point which my noble friend Lord Rhodes referred to—skilled labour shortages, improvement in productivity, design and reliability, the avoidance of sharp and frequent changes of Government policy making it difficult for companies to plan ahead and a declining rate of industrial profitability.

All these matters have been and are being examined in detail now by 39 tripartite sector Working Parties which are examining each of these matters that I have described. Their reports emphasise the need for more effective policy on labour training and retention. I regard the value of the work of these Working Parties as of very great importance and as really indicating the reality of what the Government are doing to harness the support of both sides of industry in the restructuring which is under way. The Government are committed to providing the detailed help and assistance that industry needs and the reports of these Working Parties which are now coming out will be a pointer to where the help is most required.

The process of regeneration and expansion is going ahead. There is news today of three surveys of industry, all three of them—that of the Department of Industry, that of the CBI and that of the Financial Times—confirming the coming rises in manufacturing investment The Department of Industry's official study does not touch on the employment outlook, but both the other two point to improvement. The Financial Times summarises its findings as follows:

"Job and investment outlook is improving."

The tripartite policy commits the Government to ensuring that active and vigorous firms can earn a return for their efforts. I should like to quote the Prime Minister on this and I am sure that his words will bring great comfort to the noble Lord, Lord Boothby, who may well think that they resulted from the famous message he communicated to the Prime Minister. The Prime Minister said:

"The willingness of industry to invest in new plant and machinery requires not only that we overcome inflation but that industry is left with sufficient funds and sufficient confidence to make the new investment. When I say they must have sufficient funds, I mean that they must be able to earn a surplus, which is a euphemism for saying they must make a profit. And whether you call it a surplus or profit it is necessary whether we live in a Socialist economy, a mixed economy or a capitalist economy. If the industry cannot generate sufficient funds to buy its new plant and machinery then you will not get investment and we shall continue to go downhill. These are elementary facts of life, well known to every trade unionist."

The message is clear. The commitment is clear, and that is Government policy.

What I think must also not be overlooked—and there are grounds for dispelling gloom—is the fact that the Social Contract has already marked a change in the industrial relations climate in Britain, and I will not spell out again how very greatly that situation has improved. The number of days lost through industrial disputes this year is the lowest for any comparable period since 1967; the number of stoppages is the lowest for 20 years. This is a matter to be proclaimed and spread abroad. In the light of all this and the part that the Social Contract has played in it, the fact that it now appears that the Conservative Party proposes to cast away the achievements of the Social Contract and to dismiss it as a fools' bargain, may seem to most people to be a supreme example of dangerous political driving under the influence of dogma. It would indeed be a classic example of throwing out the baby with the bathwater.

Of course it is true that this blue book The Right Approach—the emphasis, your Lordships, will see is on the capital R on the word "Right"; it is only adjectival in a Right Wing political sense—is cloaked in a certain amount of ambiguity. I have noticed that there has been a slight evasiveness about whether the baby is to be thrown out with the bathwater, because I think that the people of this country would be amazed and appalled at that piece of political bigotry if it were done. The curious thing I have found in travelling abroad in the past two years, with your Lordships' permission, is that foreign Governments, especially in the Commonwealth, have spoken with envy of our achievement of voluntary co-operation between free trade unions and a democratic Government. The Prime Minister of Canada and other Prime Ministers have told me that. They indeed see it as one of our nation's principal assets in facing the difficulties that lie ahead.

Now, apparently, the Conservative Party wishes to cast it away and substitute it, again so far as one can understand the blue book, with a vague and imprecise notion attributed to the Germans who have of course been operating in very different conditions. If it is as effective as is now claimed, it is indeed very odd that it was not made use of in the years between 1971 and 1974. However, I must not be tempted by some of the aspects of the speech of the noble Lord, Lord Carrington, into being merely polemical.

For our part, I can say that, far from discarding the co-operation we have received from the TUC, we shall strengthen it. Already we have taken hard and difficult decisions to reduce public sector borrowing. Every Department has been called upon to make sacrifices—mine like that of every other Minister. We are also seeking out evidence of waste of manpower and resources in the public services, national and local. All these matters are being meticulously studied and already, as my noble friend Lord Peart said at the beginning of the debate, substantial savings in manpower and money have been announced at both national and local level.

As I understand it, the Conservative strategy concentrates on immediate and drastic cuts in public expenditure. That I understand is the policy of the Conservative Party. The dangers of that have just been identified by the noble Baroness, Lady Seear. But what cuts are to be made in the dawn of Conservative Government we are not told. Hospitals, schools, social security, pensions? We know that taxation is to be brought down, so some savings will be found somewhere to make up for that. We are promised an increase in defence expenditure, so some money will have to be found for that. We really must be told quickly by the Opposition what is the reality of what they propose. It cannot any longer be cloaked in generality.

We believe that there are fundamental objections to the simple immediate wielding of the big axe. We already have too many unemployed—a point which I understand was made by the noble Lord, Lord Banks. These cuts would create possibly over a million more. The programme that was put forward in The Times a fortnight ago, which I detect is reflected in the Conservative Party statement, calls for a cut of £5 billion in the public sector deficit for the next financial year, most of it falling on public expenditure. Mr. Wynne Godley, the economist, suggests that, in addition to having other undesirable effects, it would perhaps add a million to unemployment in 1978. We already have over a million. Is that really what is seriously contemplated?

My Lords, I turn now to the emphasis that has been placed upon the need for strict control on the money supply. Some have put forward the proposition that little more than strict control on the money supply is needed to regulate our economy. Of course, the control of money supply is important. The noble Lord, Lord Cobbold, stressed the need for the control of money supply as a necessary financial discipline to make it possible for us to reach our objectives. We agree; and we made it clear that we will maintain such a control. At this point, it may be convenient for me to refer to the questions which were put by the noble Earl, Lord Dudley, when he asked whether it was true that the expected economic growth in the next 18 months was £4 billion, and borrowing over the same period £15 billion. The answer is that the forecast is that the gross domestic product, at current prices, will be increased by £7 billion, and not £4 billion. The increase in overseas debt will be less than that. Public sector borrowing requirement comes to very roughly £15 billion, but this is mostly the British Government borrowing British savings. I hope that that answers the noble Earl's questions, but, if not, perhaps he will let me know and I can take the matter further.

My Lords, I now turn to another alternative offered to the Government about which there has been some discussion; namely, the strategy of drastic import controls and a siege economy. The noble Lord, Lord Alport, described it and rejected it. I reject it and the Government reject it. The economic analysis of the case for it is in our view unacceptable. It involves the risk of retaliation. Other countries in which we sell our goods also have high levels of unemployment, and there are interests there, both management and union, which are pressing for protection, for the keeping out of imports from their markets. If we were to move to a siege economy, the chances of a general move to protectionism could be greatly increased. Protectionism of this kind could be the international "begger my neighbour" policies of the 1930s come back again. The Labour movement has never supported that; nor, indeed, has the Liberal Party. We know that as a country we can prosper only in a prosperous world. We in this country depend on our exports to earn our living. We are particularly vulnerable to a trade war of all against all. The provocation to sonic sort of retaliation would be a severe one; and we should, incidentially, be going back on our acceptance of the EEC, and on many other solemn and binding obligations.

Secondly, any massive resort to import controls would cut us off from the sources of international credit. We should have to right our balance of payments at once, with all the consequent stresses and strains and cuts in living standards which that would produce. There would be nothing painless about it. There is a third and long-term disadvantage. British industry would have a protected home market, which parts of industry would be hard put to it to supply. In that protected market, the pressure to compete in productivity, design, reliability and delivery, which are all important aspects of building our ability to pay for a better life in the future—the pressure to improve these would be in a very large part removed. However, it is the case that already various ways of controlling imports do exist in a number of fields. We shall continue to examine them case by case. General import controls have no place in our policies, but the Chancellor of the Exchequer recognises that selective import controls may be necessary to provide temporary protection to viable industries when faced with unfair foreign competition.

One thing we will not do is to return to the morality and economics of 1931 and the cruel rat race which resulted from them. The task ahead is not an easy one. I am no pessimist. I believe that we have got some of the fundamentals right at last. We will restore our economy to self-reliance, self-respect and a confident and equal standing with our trading partners. This, I believe, we must do for our cumulative economic malaise is threatening both our people's livelihood and our body politic. I agree that the room we have left for manoeuvre is limited. The room we have left for feuding among ourselves is gone.

I agree with what the noble Lord, Lord Carrington, said that there is no underlying problem which our people cannot solve. It is not the bounty of nature that has deserted us. On the contrary, it has come back to us in abundance. Our natural assets, especially in energy, are very substantial indeed. Nor is there any lack of good sense, resourcefulness and willingness to work among our own people. I have seen in my own part of the country, in Wales, how workers in the old industries have readily readapted themselves to new industries which have gone to the valleys. We have a tremendous store of skills and knowledge in our people. We still have massive industrial plants. The problem is to bring these assets into full and vigorous operation. I believe that this Government are capable of doing that and will do that.

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

moved Amendment No. 58:

Before we leave this clause I should like to raise rather a different point. For far the greater part of the first three days of our debate in this Committee we were working hard to improve the Bill in the four ways described by my noble and learned friend Lord Hailsham. He described it as removing the unintelligible, the unenforceable and the oppressive and making it conform better to the proper principles of the law of the land.

I should like to take this opportunity before we leave Part VII—which has been concerned with the proposed new Commission, the main administrative innovation in the Bill—to invite the Committee to turn their attention to one further sphere and, in doing so to follow the thoughts which we heard expressed last Thursday by the noble Lord, Lord Houghton of Sowerby. He warned us of the danger of allowing the Government's zeal for more and more legislation to get us into the position where the scope and demands of the law move too far ahead of the attitudes, understanding and wishes of the public at large. I think the Committee accepted the force of the argument. I would add that we must also be aware of letting the legislation get out of line with the overall strategy for dealing with urban and racial disadvantage, and also of getting beyond the capacity of our administrative arrangements and our resources for giving effect to policy.

I believe Part VII is the point where we should ask Her Majesty's Government how we stand on these matters. The Government are, of course, fully committed to developing a strategy, or what the noble Lord, Lord Wells-Pestell, described as the overall philosophy on racial disadvantage. The White Paper of September 1975—that is over a year ago now—is peppered with commitments in this direction. There is talk of a comprehensive strategy, longer-term policies (that is paragraph 26) which ought not to be delayed. Paragraph 22 refers to the need for a coherent and long-term strategy.

At paragraph 14 it is even more explicit. I will quote it. It is a short paragraph:

"The review of race relations undertaken in the past year"—

that is before September 1975—

"has convinced the Government that if urgent action is necessary, it is even more necessary to devise policies which are coherent rather than spectacular, to set targets which are relevant and realisable rather than dramatic. The gravity of the prospect demands action, but it places a premium on carefully considered action, consistently carried through. Nothing at this juncture could be worse than bold promises without the means of implementation".

A year later, with the Bill more than half way through Parliament, that seems to be still all we have achieved; just problems without any account of the strategy that constitutes the means of implementation. It is true, on the other hand, that we in this House have what the other place did not have, and that is the response of the Government to the Select Committee's report on the organisation of the administration of race relations. I shall want to raise a point on that in the next clause.

I think the Committee needs to ask what progress has there been in developing this comprehensive strategy of which the White Paper speaks. We do not know. I am not aware of any document which has been published or any guidelines that have been established. Without some response to these questions, we find ourselves being asked to approve the creation of a new agency (an agency of which many of us think is bad in itself) without any idea of the philosophy, the broad overall outlook, the strategy, within which the agency is to work. We do not know about the resources that it will have at its disposal. We do not know the lines it will pursue and the priorities by which it tackles its varied tasks. I hope that the Minister will be able to give us an answer of some substance to these points, preferably now. If not, there will be another opportunity to do so on Amendments Nos. 63 and 64, standing in the name of my noble friend Lord O'Hagan, or we might have an undertaking that the noble Lord will be able to do so at the next stage of the Bill.

Before the noble Lord the Minister replies, may I draw his attention to the fact that I have two Amendments, or sub-Amendments, incorporated in Amendment No. 82E, on which I think it might be more appropriate to discuss the future of Section 11 of the 1967 Local Government Act and of the Local Government Grants (Social Needs) Act 1969, both of which are extremely important subjects but are not within the remit of the Commission. I think we ought to have the kind of discussion to which the noble Lord, Lord Sandford, has referred, but I wonder whether this is the most appropriate stage of the Bill on which it should take place.

I was going to make much the same point as the noble Lord, Lord Avebury, has made. The Bill sets out what the Government wish to do and how they see the problem facing the country at the moment. The noble Lord, Lord Sandford, has made a point about the Government's broad strategy. I think I have to be quite honest and admit that I cannot answer because at this stage the Government are not clear about what the broad strategy will be, and are certainly not in a position to make any statement about it. What we are concerned about is what is in the Bill and what is acceptable to Parliament in the Bill. I know this is unsatisfactory from the point of view of the noble Lord, Lord Sandford, but at this stage I am bound to say that I am unable, on behalf of the Government, to say what the broad strategy is.

If I may say so, I think that is extremely unsatisfactory. I said in my original remarks that it would be acceptable, though not desirable, that we should not have a response immediately. Is the noble Lord now saying that in spite of a commitment in the White Paper and the recognition that there must be a strategy, he is not in a position to make a statement at any stage during the passage of this Bill through either House of Parliament?

No, I am not saying that. I am saying that at this stage I cannot give it, but in the light of what the noble Lord, Lord Sandford, has said, I will consult with my colleagues in the Government to see whether somebody can make a statement on it at Third Reading.

I suppose we must be grateful for small mercies, and as there is a long night ahead of us we must leave it there.

moved Amendment No. 60B:

In order to save time, I speak now rather than on the Question, that the Clause stand part. I share the concern of my noble friend about this clause although, knowing the views of my honourable friend Mr. David Lane, who I understand is to be the chief of the Commission for Racial Equality, I am, at least for the foreseeable future, comforted by the thought that with his restraining hand the fears that have been advanced may not prove to be fully realised. However, whoever may happen to be in charge of the Commission for Racial Equality at the moment, he will have successes in due course and it is our job to see at this stage exactly what the Government intend that this clause should do. I understand that in another place it was Mr. Lane who introduced the concept of equality during the Committee stage, and in order to reassure both me and my noble friend, as well as the other Members of the Committee, it might be helpful if the Government could give some idea of the kind of limits that would be set on projects to be financed under this clause.

I noticed that on Page 13 of the journal of the Community Relations Commission for July 1976, it was noted,

"… that this Amendment"—

and this was the Amendment which is now embodied in subsection (1) of Clause 44—

"effectively means that the only limit on assistance which may be given by the Commission is that of its available funds."

I am not sure whether it does mean that. As I read it, it does not. But in view of anxieties that have been expressed in this Committee and elsewhere, it would be helpful if the Government could say how they see this clause being used, and what kinds of controls they see on the money when it is expended.

This is an area where we ought to consider not just what are the limitations which have been suggested but what are the opportunities which are implicit in Clause 45, and I should like my noble friend to give me some reassurance.

It seems to me that this is one of the critical clauses of the Bill. One thing which is manifestly plain is that this is a Bill of deterrents; it is not trying to do what many of us feel, in a different sense, is its job: making a positive impact on the attitudes of mind of the people of this country. It was one of the National Front people who, paraphrasing to some extent Clem Attlee, said that wars occur in the minds of men and that the attitudes of mind towards immigrants exist in man himself.

Speaking as one of the first members of the Community Relations Commission, for years we have done an adequate job and, in some ways, a successful job in helping, through local authorities and otherwise, to teach immigrants how they ought to behave towards us. What is important in this clause in terms of research and education is what they can teach us in relation to our attitude towards them. This seems to me to be completely inadequate. For years—and I say this with some recrimination—some of us have been conducting a dialogue with the deaf and have been trying to persuade the Department of Education that this is critical to the nature of our education in order to produce a solid community in this country. We want there to be education in multiracial understanding. This does not just mean making immigrants conform, although I hope they have benefited from the fact that they have become part of our community, but making "us" realise what are our responsibilities, attitudes and final fulfilment in terms of "them". This seems to me to be absolutely fundamental.

I depart from previous speakers in asking how far the Commission themselves will have the facilities to endow or support the kind of research which is still desperately needed and the kind of education that we have to promote. Also I want to know whether the reference to the Secretary of State in Clause 44 is confined to the Secretary of State for Home Affairs or whether it will include the Secretary of State for Education. It is not merely a question of how much money we want to direct towards the propaganda for understanding; it is a question of getting it consistently into our educational system so that the new generation will understand that we are a multiracial society. I hate using the word "multiracial", although I am not apologising for using it. I am apologising, however, for having to accept the fact that we have to have racial concepts in order to assist us. We are a community, not a multiracial society.

I think that we deserve an assurance from my noble friend on the Front Bench regarding something which I insist might have averted over the years the kind of situation we still have, in which the National Front can continue to foment racial hatred. The oncoming generation should understand how completely we are culturally integrated with those who are coming into our midst and with those, not only in this country but in the world at large, we have to learn about and come to understand.

I wish to say one word on the question of the resources which are to be available through the new Commission for the purposes mentioned in Clause 44, and indeed those which the noble Lord has just mentioned in relation to Clause 45, which are of vital importance. We read in the evening papers that Mr. Powell has made yet another of his speeches in which he suggested that people should repeat over and over to themselves the simple sentence, "You have seen nothing yet". That may be true so far as members of the younger generation are concerned, but some of us are old enough to remember that it cost us six years and many millions of lives to defeat racism, and therefore any resources which we make available to the Commission for Racial Equality may be of vital importance in stopping Nazism and Fascism from taking over in this country.

Perhaps I may begin by dealing first with the Amendment which the noble Lord, Lord de Clifford, moved on behalf of the noble Lord, Lord Clifford of Chudleigh. I should like to—

I am not moving it on behalf of the noble Lord, Lord Clifford of Chudleigh; I am moving it on my own behalf.

As the Amendment stood in the name of the noble Lord, Lord Clifford of Chudleigh—

I think the noble Lord must be addressing himself to the wrong Amendment. As I understand it, we are dealing with Amendment No. 60B which stands in the name of the noble Lord, Lord de Clifford, and not in the name of Lord Clifford of Chudleigh.

I am so sorry; I became confused on that. It is perfectly clear in front of me and it says Lord de Clifford. If I may deal with that first, as I understand the situation, the noble Lord, Lord de Clifford, seeks in this Amendment to limit the assistance to an organisation which the Commission may give under Clause 44 to £100 per annum. The effect, as I am sure the noble Lord, Lord de Clifford, realises, would be to cut off support for many worthwhile organisations which are assisted by the Community Relations Commission under Section 25 of the 1968 Act and which the new Commission will be able to help under Clause 44.

The main organisations supported at present are the local community relations councils, and the grants made to them, as the noble Lord, Lord de Clifford, I am sure appreciates, are considerably more than the £100 which he suggests. The Government made it clear that they are convinced of the valuable role which the local councils play. In the Government's view there is no substitute for the constructive work at local level. How it should be organised is, I recognise, an important issue, but I think we have to face the fact that the Commission for Racial Equality can only function through local councils, of whom there are 85 at the present moment, employing in the region of 150 community relations organisers.

If the Commission is to meet with any measure of success it can do so only if it has effective and efficient local community relations councils. If they are going to carry out their responsibility under the Bill they must have the finance to do it. It is perfectly clear in Clauses 43, 44 and 45 what the responsibility of the Commission is and how it is going to discharge that responsibility and in which field it is going to develop the work. It is not only a law enforcement body but also a body which must concern itself with the social implications of the Bill.

In 1975–76 the salaries alone of the 150 community relations officers amounted to £566,000. It also provided £31,000 for supplementary grants and another £74,000 for special projects undertaken by the community relations councils. There were other bodies outside the community relations councils which undertook special projects for the various minority groups at a cost of something like £36,000, and there were other self-help projects undertaken by the minority groups themselves amounting to £174,000.

If we want the Bill to work, then obviously the Commission has a responsibility, but all the responsibility of the Commission cannot be undertaken without the help of what one might call a number of subsidiary bodies, and I am referring to the community relations councils. It is their job to provide what the minority groups want. It might be education, and it will be up to the councils to see that the local education authorities provide what is needed in the educational field. There are various other projects, self-help projects, which all cost money. We envisage that the Commission for Racial Equality will need an initial sum of around £3 million, not only to cover its own administrative expenses, whatever is paid by way of salaries for staff and other personnel; it will need a very substantial amount to enable the 85 community relations councils which will continue under its aegis and under its control to carry on the work. Take that away, and then very, very little in this Bill can be accomplished in fact.

I am not unmindful of the fact that there is criticism of some of the community relations councils, but we have to realise that in the main they are voluntary bodies. We all know from practical experience and past experience that many voluntary organisations offer a very efficient, competent and expert service, and others are not so good. That is part of the price we have paid, I was going to say since time immemorial, by having voluntary organisations doing a great deal of social work in our community.

I hope that the noble Lord, Lord de Clifford, will not persist in his Amendment because let me say quite frankly that it is an Amendment which, if passed, would wreck the Bill in a very substantial way. I am sure—at least, I hope I am right in saying—that this is not the intention of the noble Lord. We have no reason to believe that the money that has been spent under the Race Relations Act has been wasted to any marked degree. In the eight years, a tremendous amount of valuable work has been done, and we believe that the Commission for Racial Equality will be able to exercise a good deal more supervision and influence over the community relations councils in the future than perhaps has been possible under the Race Relations Act 1968.

In addition, there are the local authorities which are making a very substantial grant to community relations councils, almost matching what has been paid out at the present moment. Here you have got the local authorities supervising the work being done by community relations councils, and under this Bill there will be a Commission for Racial Equality which will also initiate work. It will initiate schemes and projects which it will finance. It is perfectly true that, under Clause 44(1), it can only finance these particular schemes with the approval of the Secretary of State, which in this case, I understand, is the Home Secretary, and also the Treasury.

This does not mean that in the future it may be necessary for every grant to be first of all approved by the Home Secretary or by the Treasury. In the early stages this will be essential, but one assumes that the Commission for Racial Equality will come to an arrangement with the Secretary of State for Home Affairs and the Treasury that certain types of projects and work can be financed. One has to bear in mind that all these community relations councils issue an annual report. The Commission is under an obligation to do so. I would have thought that all the safeguards one could possibly put in at this stage are in the Bill.

Before my noble friend decides what to do in the light of that, may I say that I think the Committee will have been fascinated with that very interesting, and it seemed to me extemporary, explanation of how matters are going to work out between this new Commission and the people working at local level. I congratulate my noble friend on having extracted this from the Government. It has not been set before us before. Only last month, September, we had a Statement which the Commons certainly did not have, about the organisation of race relations and there was nothing in it corresponding in detail and comprehensiveness to what we have just heard. There we were told that consultations would still be necessary, which is what we were told in the White Paper. It is extremely helpful to have this insight as to how things are going to work out locally. It would be helpful if before the end of the passage of the Bill through this House we were to have a formal statement on administration of race relations at local level. I shall read with great interest the day after tomorrow what the noble Lord has just said, but valuable as it was we may still want something a little more authoritative and not quite so much off the cuff.

Before my noble friend replies to that point, could I ask whether he intends to deal with the point raised by Lord Ritchie-Calder at this stage or on Clause 45?

If I can recall what my noble friend said, the Secretary of State in the Bill covers all sections, but it will for the most part be the Home Secretary. Where research and promotional work are concerned the Commission will work closely with the Departments, such as the Department of Education and Science. How the Commission divides its resources between its different functions must in the first instance be for the Commission to determine. No doubt it will want to undertake research on the lines suggested, but the noble Lord will appreciate that this still needs a certain amount of attention. I do not know whether he finds that a satisfactory answer?

I am afraid I do not. I do not think the noble Lord recognised my voice because it was coming from the Bishops' Benches, and I apologise as a chairman of the British Humanists. I was trying to make a very important point, which was the fact that this is much bigger than any definition you can put this kind of money value on because it does and must embrace the penetration of education at the national and at the local level, which has come up again under Clause 71. It is important because I happen to think that the new Race Relations Commission will understand what I am talking about even if my Front Bench has not quite grasped it, because this is something which is fundamental. We are trying to say that this is not just a question of how we educate—and I repeat—"them"; we are asking you to educate "us". This has to be done in all areas of education.

I must thank the noble Lord, Lord Wells-Pestell, for his most courteous and illuminating reply, which I think must cause a lot of us to think, and with my noble friend Lord Sandford, I shall be most interested to read it. It would have been helpful if we had Lord Brockway's Amendment already in the clause, because this is precisely what he has told us the intention of the clause is. It is not in any circumstances for me to discourage anything which the Commission can do to help the community councils because, as I think I have said already, it is only down on the community council level actually with the people where harmony will be produced. You can also get disharmony, but you are far more likely to get harmony produced at that level than anywhere else. I should like to read with interest what the noble Lord said, but meanwhile I will withdraw my Amendment.

moved Amendment No. 60A:

I hope that my noble friend Lord Brockway will not feel that his Amendment does not merit serious consideration if I deal with it briefly because I think that when I have said what the Government thinking is about this subject he will see why we are unable to accept it. We are at one with him on Clause 43, having already demonstrated our feelings about it in seeking to give the new Commission power to assist community relations bodies. Clause 44 follows the 1968 Act in principle in giving the Commission general powers of assistance. The only difference is the wording. Under Section 25 of the 1968 Act power is given to the Community Relations Commission to give assistance to community relations bodies. "Community relations" is denned for the purposes of that Act as:

"… relations within the community between people of different colour, race or ethnic or national origins."

Instead of using the words, "community relations" in this sense, Clause 44 follows the language of the Bill in empowering the new Commission to assist organisations

"concerned with the promotion of equality of opportunity and good relations between persons of different racial groups".

It thus covers community relations bodies as meant in the 1968 Act. I hope, therefore, that my noble friend will agree that his Amendment is not necessary. I think the provision is in the Bill, but it is worded rather differently from the 1968 Act.

I am a little astonished by the speech which the Minister has delivered. It has not at all faced up to the Amendment which I proposed. The Amendment that I proposed is not concerned with the activity of the Commission in relation to the local community councils but is related to the actual representation of those councils on the Commission, and the point that I was trying to make—

I may have misunderstood the noble Lord, but surely his Amendment amends Clause 44 and that clause deals only with assistance to organisations outside the Community Relations Commission, which is now to be re-entitled the Commission for Racial Equality. Surely it deals only with groups outside the Commission and not with the internal structure of the Commission itself, or have I misunderstood the clause?

I am very sorry indeed if I have made a technical mistake. My object was to include representation of the community councils on the Commission. If 1 have made a technical mistake in drafting the Amendment, I am sorry, but I ask the Minister whether he will face up to the point which I made in moving the Amendment—a point which he seemed to me, most unusually, to ignore in his reply.

I will convey what my noble friend has said to my right honourable friend, but we dealt the other day with the composition of the Commission for Racial Equality. The membership of the Commission is limited. If I remember rightly, it cannot be fewer than eight nor must it be more than 15. My noble friend was very anxious that there should be a substantial number—I think, though again I am trusting to memory, that he moved that half the members should represent ethnic groups—and he is now saying that the local community relations bodies should be represented on the Commission. I believe that we must realise that we want to get the best possible membership of the Commission bearing in mind the nature of the work it will do and the people for whom it will be doing that work. We must see as far as possible that all aspects are represented. I do not think I can take it beyond that.

In view of the fact that I appear to have made a technical mistake in the drafting of the Amendment, I shall withdraw it now, but I shall return to the subject at Report stage. I beg leave to withdraw the Amendment.

moved Amendment No. 62B:

May I very briefly return to the point made by my noble friend Lord Ritchie-Calder, to which my noble friend was not completely ready to reply? May we say to him that we are springing this on him without a good deal of notice, and if he should like to reserve his position and write to my noble friend after the debate about the point we are raising, of course we shall be very happy to accept that from him. But may we just make the point again, very briefly? The point is that my noble friend Lord Ritchie-Calder, my noble friend Lord Pitt and others are associated with a body which has been actively trying for some years to press local authorities to undertake a good deal more of what is called multiracial education. That is not educating immigrants but, as my noble friend put it, educating the rest of us to understand a good deal more about the multiracial nature of our society and to have a multiracial approach to things in general. One of the problems, as I understand it, has been that every time this has been pressed on the Government they have replied, "This is a curriculum matter in which we cannot interfere; we must leave local authorities and teachers to decide these things for themselves."

That may very well all be true, but what Clause 44 and now Clause 45—subject, perhaps, as the noble Baroness said, to Government supervision—are going to allow is for the Commission in fact to undertake any educational activities. What we are asking for an assurance about is whether, if the Commission believe, for example, that they should circularise local authorities and should do their best to press them to undertake this kind of multiracial education, that this time there is going to be Government blessing rather than, as has been the case up to now, not exactly hindrance—my noble friend says "discouragement"—but I would say absence of helpfulness.

We should like the undertaking that if the Commission decide to use their powers in this way to press local authorities and perhaps to circularise them, this will be accepted as a legitimate part of their function. In case my noble friend wants to answer it rather than to reserve his position and write to us, may I say he may want to look at Clause 71 where it says that in any case—

"it shall be the duty of every local authority"

to work towards the objects of the Act. If the Commission think that it is a good activity to undertake, it shall be, to some extent, under Clause 71, now also the duty of the local authorities in the wide sense to accept this obligation.

We have not had a great deal of encouragement in the past on this point, but we ask that if the Commission can now be persuaded to espouse this kind of work, there shall be no impediment put in their way by the Government and that, on the contrary, there will be encouragement in the future for this kind of work.

While I agree entirely with the necessity for accountability, I would hope that there is no intention of hamstringing the activities of the Council. Those of us who have had anything to do with this work in the past know that the fact that a great deal of the work has been subject to monitoring by a variety of different Government Departments has held up the work. What one wants is a proper ultimate accountability by the council but that where monies have been made available to the council they will get on and use it without interference by Government Departments, although there must be ultimate accountability. If those two things can be assured that is fine. Reference to the Secretary of State for the spending of public money seems to me to endorse the continuing interference by Government Departments which has hamstrung a great deal of good work.

I had already made up my mind to look at what Lord Ritchie-Calder had said earlier on and to write him on this matter. I will also look at what my noble friend Lord Northfield has said. I think that we must face the fact that if we are going to set up a Commission for racial equality and are going to lay down (as we have in this Bill) certain responsibilities for them to undertake which are clearly set out in Clauses 43, 44 and 45, then we must give them an opportunity, when they have been established and have met a number of times, to decide what they are going to do and how they are going to do it and how they are going to implement these things. I do not see at this stage, or at any other in the process of this Bill, that we can spell it out in clear and precise terms. It is for them surely to say, after examining the field, after assessing the needs, after looking closely at what is required, what their policy and what their plan is going to be. I see nothing wrong in accountability. I am sure the noble Baroness, Lady Seear, sees nothing wrong in accountability; but accountability must be an understanding between the Commission and the Secretary of State and the Treasury. There is no reason for there to be any difficulty over that at all.

If I may come to the Amendment of the noble Baroness, I had come prepared to deal with her Amendment, which is much narrower than the things which she herself said. The Amendment reads:

"where financial assistance is given under subsection (1) above it shall be on the same terms as those specified in Section 44(1)".

This Amendment seeks that assistance under Clause 45 for research and educational purposes shall be subject to the approval of the Secretary of State and the consent of the Treasury.

I was going to throw back at the noble Baroness the fact that in paragraphs (15) and (16) of Schedule 1 of the Bill the situation is clearly indicated. It clearly sets out that paragraph (15) makes the provision for all Exchequer money to the Commission subject to the consent of the Minister for the Civil Service and the Treasury, while praagraph (16) requires proper accounting procedures. The expenditure of Government grant is thus subject to the normal checks of estimating and accounting procedures. I think, too, we have to bear in mind—the noble Baroness raised this—that the Commission for Racial Equality has to produce an annual report. In that report there must obviously be not only a question of income and expenditure, but how the money has been spent. I would have thought that this would have to be set out very clearly so that there can be no doubt in anybody's mind where the money has gone.

I would go further and say that it would be reasonable to expect the Commission to require precisely the same from the community relations councils, which also will be in receipt of public money, not only from the Commission. Presumably many of them, if not all, will have substantial sums from the local authority. The same thing will apply there. Assistance under Clause 45 is very closely related to the work of the Commission. Indeed, the research or education must be necessary or expedient for the purposes of Clause 43(1), which outlines the Commission's duties. What is envisaged is research specifically commissioned by the Commission to assist in all its functions. It may be needed to identify the need in particular areas for action to promote equal opportunity or as part of a formal investigation.

The power to assist external research is to enable the Commission to farm out research which it is not possible for its own research staff to do. This, again, is very desirable. The intention to finance this research will have to be included in the Commission's annual estimates, along with other expenses when they are submitted as required by the procedure that I have referred to for the Secretary of State's approval.

I hope that it is not necessary for me to go any further than that; I think I have dealt with what the noble Baroness has raised. I think there is a danger in matters of this kind in trying to tie it up too tightly. I have to give the Commission an opportunity of going very carefully into what is needed in the whole field; to come forward with their plans and a concept of what needs to be done, bearing in mind that they have to get approval—certainly in the early stages—for the expenditure of money. The safeguard, so far as the public is concerned, is a point made by the noble Baroness with which I heartily agree. The public ought to know where the money is coming from, how it is being spent, and on what it is going to be spent. I should be very surprised if any Government, the Treasury or the Secretary of State would be satisfied with a report which does not clearly spell things out.

I am concerned about the amount of Parliamentary financial control of these monies which are being paid out, probably to most worthy causes. The noble Lord, Lord Wells-Pestell, referred to paragraphs 6, 7 and 8 of Schedule 1. That part is restricted to the salaries of the Commissioners and their staff, travelling expenses, and so on. It does not refer to the grants made to organisations.

I thought I talked about paragraphs 15 and 16 when I mentioned Schedule 1.

That is correct. I apologise to the noble Lord; I must have misheard. But I am concerned about this. I hope it is not merely a matter between the Commission, the Secretary of State and the Treasury. Parliament should come into it, and if one looks at the Schedule it will be seen that the accounts and annual report will go to the Comptroller and Auditor General. I should like to know whether the Public Accounts Committee of the House of Commons will have that within their purview. For them to go into it, they must have a detailed list of the organisations which are to benefit under this part of the Act. Before we reach the next stage, perhaps the Government will consider what form the annual report needs to take, and whether it will have a detailed list so that Parliament may satisfy itself that the bodies chosen are the correct ones.

We learned earlier that half a million pounds of tax-payers' money will be involved under Clause 44 of this Bill. That is a fairly considerable sum of money, much of which will be spent wisely by the Commission, but I think Parliament should have the last word about that.

I would not presume to know what are the powers of another place. My understanding is that the other place have the right to demand certain information. This is something I will look into and advise the noble Lord about in due course.

Before my noble friend responds, may I comment on what the noble Lord said about the process whereby the Commission, when established will build up its agenda. Surely much the best way in such a case is for the Secretary of State and the chairman of the Commission to work out together the guidelines to be published. The noble Lord mentioned this. I hope it is intended to do it in that way.

Once the chairman and members of the Commission have been appointed, it must be obvious that the chairman and the Secretary of State must get together, probably on several occasions, to consider the broad lines of policy and activity. I should have thought the publication would be after and not before some of these matters had been put into operation and that they had had an opportunity to get on with the job. I would not have thought it would be helpful to say what they intend to do. That could hold up their work considerably.

I have been asked whether I intend to reply. As it is late at night, all I shall say is that I am most grateful to the noble Lord for his answer. I do not find it entirely satisfactory, but it helps towards understanding the nature of this and the kind of accountability there will be. I beg leave to withdraw the Amendment.

moved Amendment No. 63:

Page 27, line 21, after ("include") insert ("a definition of the Commission's strategic functions and")

If the noble Lord will not mind my saying so, I do not think I want to deal at any great length with the wording of the two Amendments, Nos. 63 and 64. I have probably bored the Committee enough this evening about defining the work of the Commission, and laying down guidelines for local community relations councils, which the Government rightly believe must stem from the thinking of the Commission.

The noble Lord, Lord O'Hagan, raised a point about the strategic role. I admitted earlier to the noble Lord, Lord Sandford, that I do not at this stage feel competent to give anything like a comprehensive reply to him, because the Government themselves have not completed their thinking on the strategic role. However, I think that the noble Lord, Lord O'Hagan, is quite right in asking for something at this stage. The only thing I can say is that the Commission's strategic role, as we have tended to describe it, is very important.

As the noble Lord knows only too well, the term was used in the White Paper on Racial Discrimination to contrast the role of the new Commission with that of the Race Relations Board. The strategic role of the new Commission will be to tackle discriminatory practices in organisations through investigations which it initiates. This contrasts with the dependence of the Race Relations Board on individual instances of discrimination. I think that the word "strategic" aptly describes this wider role.

The new Commission's impact will be much wider than tackling overt discrimination. Through the enforcement of the law against discrimination and the promotion of equal opportunity policies it will be able to have an impact on the inequality which is caused by unconscious assumptions and stereotypes about people. The development, we feel, of this role is highly important, but it does not call for special provision in the Bill to define it annually, which implies that it might change from year to year.

It is, of course, important that the Commission should develop an overall policy. As I said, they will, without doubt, discuss this in their reports. In exercising their responsibilities for co-ordinating and supporting the work of local community relations councils, the new Commission will want, in consultation with the councils, to develop what the noble Lord, I think quite rightly, points out as "guidelines". I do not think I can take the matter any further than that.

I am most grateful for that explanation, although it has not explained to me anything which was not already obvious from previous stages of the Bill. However, I am thankful for having that explanation on the record and I beg leave to withdraw the Amendment.

moved Amendment No. 65A:

Page 29, line 12, at end insert ("and such terms of reference shall specify any allegedly unlawful discriminatory acts or contraventions of specific provisions of this Act which form the basis of the investigation.")

Let me begin by saying that once again we are in some difficulty, in that the Amendment tabled by the noble and learned Lord, which we shall be taking next, covers not precisely the ground set out by the noble Baroness in her Amendment, but the ground on which I would wish to deploy the Government's argument is very similar, and I do not know whether it would meet the convenience of the noble and learned Lord to take these two at the same time, in terms of the debate.

I am entirely in the hands of the Committee. I was a little surprised when my noble friend put Amendments Nos. 65A and 65B together. I should have thought that was a meal enough for the noble Lord, Lord Harris of Greenwich, for the time being.

I will respond appropriately to the noble and learned Lord, Lord Hailsham of Saint Marylebone, but I would wish to point out that I would reserve some of the argument on this particular issue to his later Amendment. I do not want to be unduly tedious by going over the ground on both occasions. Inevitably what I have to say on this particular Amendment covers a large area covered by Clauses 48, 49 and 50, the formal investigative provisions of the Bill.

These provisions have clearly to strike a difficult balance between, on the one hand, the need to respect the rights of those who may be involved in formal investigations, and on the other, the need to ensure that the Commission have fully adequate powers to carry out their duties. The Government have recognised the need to safeguard individual rights which are set out in a number of provisions in these clauses. We have also tried to ensure that the Commission can investigate what they choose to with the minimum of procedural restriction. We do not want to create a situation in which the Commission can undertake investigations only of the most vague and anodyne kind because more substantial investigations are objected to on one ground or other. I fear, however, that, quite unintentionally, these Amendments would increase the risk of problems of this kind

If I may deal first of all with Amendment No. 65A, I think the noble Baroness, Lady Elles, is asking us to ensure in the Bill that where an investigation has been mounted because of an allegation of unlawful discrimination, the allegation should be specified in the terms of reference. I am sure that the Commission would in general let a person investigated know if there is a specific allegation of unlawful discrimination, and if that specific allegation is to be the subject-matter of the investigation. I have no doubt about that at all.

I have so far mentioned the question of investigations into suspected acts of unlawful discrimination but, of course, there are also investigations into wider questions of equality of opportunity and good race relations. Some of these may well begin with allegations of unlawful discrimination. Some, indeed, may cover exactly that sort of area. Just taking one particular example, it is possible that an allegation of indirect discrimination may reveal that disproportionately few members of a particular racial group are in supervisory grades in a particular firm. While the Commission may accept that this situation is not the result of unlawful indirect discrimination, it may well think it worth while making an investigation into how far the employer in question is affording genuine equality of opportunity to all the groups in this particular workforce. In this situation, the Amendment of the noble Baroness would presumably require the terms of reference to specify the allegation which has been made, even though it is not really relevant to the investigation, and even though including the allegation in the terms of reference might get the investigation off to a thoroughly poor start.

Then there are the issues raised in Amendment No. 65B which in a sense is an extension of Amendment No. 65A. Where the Commission wishes to conduct an investigation confined to the question of alleged unlawful discrimination by a named person, it will have to give him notice of the holding of the investigation. By virtue of a rule to be made under Clause 49(2), prescribing the manner of giving that notice, the Commission will have to send the person concerned a copy of the terms of reference.

The Amendment would require the Commission in addition to give full details of the reasons why it believes the person concerned has acted or may have acted unlawfully. My reply to this is that of course the Commission will let the person concerned know the case against him. How else, indeed, can they conduct a proper investigation? However, I do not see why it has to spell out the case in the notice of the holding of the investigation. In fact I think the notice is a singularly inappropriate place for information of this sort, especially if the case is long and complicated.

I do not share the apparent fears of the noble Baroness that formal investigation will be oppressive, or her wish to impose procedural requirements to be satisfied before the Commission can begin an investigation, which could be the basis of pointless challenges of the validity of investigations and possibly of any non-discrimination notices resulting from them. I have outlined why the two Amendments are unacceptable, and we do not believe that we can substantially rewrite these particular powers. Nevertheless, I am certainly prepared before the next stage of the Bill to look at some of the procedural arrangements involved.

I do not find that altogether satisfactory, and the fact that the noble Lord has had to enter into such a long explanation (for which we are very grateful) of what is really a perfectly simple point, at any rate as regards Amendment No. 65B, indicates that he really must look at it again; I say that with great respect. No. 65A I leave on one side for the moment, but there are really two quite separate points here, and I am dealing with the first one under 65B. When a man is going to be made the subject of an adverse inquiry the requirements of natural justice are that he should be told before he comes before the inquiry what is alleged against him. That is true whether he appears before a criminal court, a civil court, charged with tort or breach of contract; it is true if he is up before the committee of his club, or before his trade union; it is true across the whole realm of adverse inquiry directed against a human being. That is what is called "natural justice" in this connection.

So seriously do the courts take a breach of natural justice that they would set aside an expulsion from a club or a trade union if that requirement is not met. I am not dealing with the technicalities or draftsmanship of Amendment No. 65B; I am talking about the perfectly simple substance of the matter. I am not concerned in what form the particulars of any charge or allegation are made; and I am not talking about whether or not they are contained in the terms of reference. These are purely technical considerations and they do not give me any trouble at all. What I want from the noble Lord before this Amendment is withdrawn is a categorical assurance that, where the circumstances specified in Clause 50(2)(b) arise, a man who is asked to come before the Commission shall know unequivocally, if there are allegations against him, what they are. If he will give me that assurance I will not ask my noble friend to divide on No. 65B. Unless we can have the assurance unequivocally stated in one form or another, then I am afraid we shall have to call the Committee to a Division.

Will the noble and learned Lord help me to understand the argument he has put. If you say what are the allegations made against the person, namely in the notice, that means what act of discrimination is it alleged he has committed. But in the Amendment put down by the noble Baroness the wording is "with full particularity", which presumably means not just that the allegation itself shall be specified in the notice but all the evidence which is being presented to the Commission which leads it to suppose that the allegation may have some force. What I understand the Minister to say was that obviously the facts behind the allegation have to be presented at some stage, otherwise the respondent has no opportunity of refuting those allegations if he is able to do so.

All that the Minister said was that it was inappropriate for the full particulars to be contained in the notice. As I understood the noble and learned Lord, he is quite happy about this situation, and all he wants to be assured of is that at some stage the respondent will have an opportunity of knowing the full facts behind the allegation and he is not concerned with the form, whether or not it appears in the notice. So is there really anything between him and the Government, provided he has a reiteration of the assurance the Minister has already given; that is, that at some stage in the procedure the respondent will know fully the particulars of the allegation made against him.

Whether there is anything between me and the Government when the Minister has replied to my question at the moment I do not know. I have put an unequivocal question and I want an unequivocal answer. Before a person comes before the Commission in the course of an allegation in the circumstances specified in Amendment No. 52B, shall he have notice of what is said against him or not. I do not think there is anything at all in this question about particularity in evidence. The word "particularity" in my noble friend's Amendment has a definite technical legal meaning.

It means that the charge shall be specified with enough particularity to enable the person who receives it first to know what is said against him, and, secondly, to prepare any answer that he may require to make to protect his reputation and honour. This is a simple proposition. Is the ordinary rule of natural justice, as applied to clubs and trade unions in civil proceedings in the county court, to be applied in this case or not? It seems to me that the noble Lord can give me a firm answer, and then I will tell the noble Lord, Lord Avebury, whether there is anything between the Minister and me.

I agree with the noble and learned Lord that the rules of natural justice require that the accused, if I may use that term, should have notice of the substance of any particular allegation which may be made against him; clearly the Commission will comply with these rules, and in our view there is no need for an Amendment specifying it.

I still feel that the noble Lord ought to assure me that some form of requirement should be specified in the Bill before it becomes an Act. We must have it clearly laid down as a principle on which the Commission must act that it must not proceed against an individual unless the rules which I have specified are properly observed. It ought to be in the Act. I do not think it necessarily ought to be put in the form proposed by my noble friend. I think it can be put into the Bill at Report stage, and if the Minister will assure me on that I think we can move to the next Amendment.

I will gladly look at that point. The issue I addressed myself to was the question of the notice. That was the question raised specifically in the Amendment. The noble and learned Lord has asked for the matter to be looked at by Report, and that will be done.

I am grateful to the Minister for the way in which he has replied to this Amendment, and on his assurances I beg leave to withdraw the Amendment.

moved Amendment No. 66:

After Clause 49 insert the following new clause:

The respondent?

I am obliged to the noble Lord. "Respondent" is an altogether better term in this context. Lord Harris has already been reasonably forthcoming on that point, the stage at which a person is brought before the Commission, so I will not pursue it. It must be remembered, however, that when he gets there he must be entitled to defend himself and the proposed new clause is designed to specify his rights when he gets there. In other words, we have passed from his rights before he goes to his rights when he gets there, and the rights as specified in the new clause are to give evidence himself, whether orally or in writing, and to call a witness on his behalf and cross-examine other witnesses. That, I should have thought, was straight-forward natural justice which required no justification on my part. He is entitled, if he is brought as a respondent, to do the things which are necessary in order to present his case; to lead evidence and to challenge evidence. Then, we have proposed that he should be entitled to be represented by a counsel or by a solicitor or by some other person—I am not sure that the drafting is very elegant at that point—and that the provisions of the Legal Aid Act shall extend to him. Again, I am not wedded to draftsmanship here.

The more serious one regards these allegations the more one must be entitled to defend oneself against them and to bring out the truth. Paragraph (a) seems to me to be the minimum and (b) is also really essenial because, as I think the noble and learned Lord, Lord Denning, said in a quite recent case, in a great many cases the individuals charged are inarticulate and the provision of an advocate of some sort—a solicitor or counsel—is part of natural justice. We have gone a little further. We know that in cases of particular kinds trade union officials act as advocates, and very efficient they arc in that sort of case; most of us have had experience of appearing against them and we know how good they are at that kind of work. There are all sorts of other people who can act, as it were, as prisoner's friend, often with great skill. Not everybody is able to present his own case effectively. I am a little surprised that there should have been any difficulty in another place—because this is a reflection of something that was discussed there—about accepting such a new clause, at least in principle, and I will listen with interest to the Minister's reply tonight.

As the noble and learned Lord indicated, this Amendment was tabled in Committee in another place as well as on Report. It was unacceptable to the Government then and I fear that it is unacceptable now. As I said when we were discussing the last Amendment, the formal investigative provisions in these three clauses, Clauses 48, 49 and 50, have to do this difficult thing of balancing the public interest as represented by the Commission and the position of the respondent or the potential respondent, and, as the noble Lord, Lord Avebury suggested, "respondent" is a rather better description than the term "accused", which I used on the last Amendment.

As I indicated in the discussion on the previous Amendment, we have gone to fairly significant lengths—as is proper—to look after and protect the individual rights of a person who may find himself in difficulty with the Commission. First, Clause 49(2) requires there to be specific terms of reference in any formal investigation. Secondly, subsection (3) deals with notifying the holding of investigations to those concerned. Thirdly, Clause 50(2) limits the Commission's powers to require information. Fourthly, subsection (3) of that clause limits the information the Commission may require, but we have tried to ensure that the Commission can investigate what they choose with the minimum of procedural restrictions.

So far as the Commission's strategic role is concerned, the Bill does not even involve a full civil liability, for the only civil action the Commission can bring is one to stop, not one to penalise nor to obtain compensation for unlawful discrimination. The proposed new clause would build quite complicated procedural requirements into the holding of investigations confined to the activities of named individuals. It seeks to equate a formal investigation with full blown civil proceedings.

I think, with great respect to the noble and learned Lord, that this is unnecessary, first because some investigations—even those into the activities of named individuals—will be concerned with issues other than unlawful discrimination. That, after all is only one of the Commission's duties. For example, it will be able to conduct investigations into ways of improving poor relations between different racial groups. In such cases, civil proceedings are not even in sight. Secondly, even where an investigation was concerned with unlawful discrimination by a named individual, civil proceedings are only on the horizon. Before any question of civil proceedings would arise, six fences would have to be cleared: first, a finding of unlawful discrimination by the Commission; secondly, a warning that the Commission was minded to issue a non-discrimination notice; thirdly, a chance for the recipient to make representations, either orally or in writing, as he thought fit; fourthly, the issue of the non-discrimination notice; fifthly, possible appeal proceedings against the notice and, assuming that the notice was upheld, sixthly, a further contravention by the person concerned. All this, I repeat, before any proceedings can begin.

Of course, this would not be for damages or compensation. However, there is another objection and I think it a not unimportant one. It relates to paragraph (b) of the proposed new clause. It must be remembered that not all investigations will be related to unlawful discrimination. The Opposition's proposal would create a serious anomaly; it would create a situation whereby anyone the subject of a formal investigation by the Commission would be eligible for legal aid for hearings. He could get legal aid in a situation of that kind for the formal investigation by the Commission, but the same person would not be eligible for legal aid to contest exactly the same case before an industrial tribunal. I am sure that, on reflection, the noble and learned Lord will appreciate that this is a very substantial anomaly to write into an Act of Parliament and I find it hard to see how one could justify a decision to write a proviso of that kind into the Bill.

Quite apart from the argument I have deployed, I hope that the Committee will agree that the Bill already goes a very long way to meet the problem identified by paragraph (a) of the new clause. The subject of an investigation will have the right to make oral or written representations to the Commission if they have indicated to him that they are contemplating issuing a non-discrimination notice, and, moreover if for the purposes of making oral representations the person concerned wishes to be represented he can be. I very much hope that on reflection the noble and learned Lord will decide not to press the Amendment.

Let us see about this; I am not sure that I am entirely following all of it. To begin with, I do not agree that where natural justice is concerned that is a business of balancing the requirements or needs of the Commission against the rights of the individual. Where natural justice is concerned, the rights of the individual are paramount over the investigating tribunal.

Secondly, I am not at all sure how far what the noble Lord has now said is compatible with the European Convention on Human Rights, because that gives more or less, though in different language, rights which are enumerated in paragraph (a) to individuals whose position can be indemnified as a result of an investigation. A full and fair hearing involves that.

It is not good enough for the Government to say that they are just balancing things out, when they are under a solemn international obligation to give what I have asked to be written into the Bill. I am not clear why the noble Lord says that under (a) the person concerned is entitled already to do what I want written into the Bill. If he could persuade me of that—and I thought he was saying that at the end of his speech—I should find that that was a very much more substantial defence. Where is it in the Bill? I will give way in a moment. I understood the noble Lord to go on to say that he had gone a long way in another part of the Bill. to give me what is in paragraph (b). Again, if he is right on that it would make a very great deal of difference to my attitude on this Amendment. Perhaps the noble Lord will give me that information. If may be that we want to revise this clause in one respect or the other, but unless I have this information I am almost bound to divide the Committee on this.

I am quite willing to be talked out of it if there is something substantial of the kind I have missed, because one is only too conscious of one's limitations in this respect. But unless I can see something in that respect, I have either to divide the Committee or put down something substantially the same on Report and divide on that.

I should like to put a further point to the noble Lord. I am not entirely clear about the powers of the Commission to which he referred. I was trying to follow the noble Lord, but I am not absolutely certain that I have got the point. I think he said, in repetition of what the Minister told the Committee in another place, that the only power of action which the Commission would have, following an investigation against the respondent, would be to issue a non-discrimination notice. But one sees that in Clause 56 there are various actions that might be taken, including that involving an order requiring the respondent to pay compensation, and further measures can be taken against him, under paragraph (c) of subsection (1) of that clause.

If the non-discrimination notice was the only thing which could emerge from such an investigation I think the apparatus which is proposed to be erected by the noble and learned Lord in paragraph (b) would be rather excessive. I wonder whether there might not be an analogy here with the Health and Safety at Work Act, under which stop notices may be issued against an employer who is accused of contravening any of the provisions of the Act. One would not expect him to be represented by counsel in any inquiry which might be undertaken by the factory inspector.

On the other hand, if the financial penalties which are provided for under paragraph (b), which I think might go as high as £2,500, could result from such an inquiry, then one would expect a far greater degree of protection than on the mere issue of a stop notice, which in any case might be contested by the respondent. If the noble Lord could reply to that, it would certainly help us to make up our minds as to how we should react to the noble and learned Lord's Amendment.

Perhaps I may deal with one particular point that the noble Lord, Lord Avebury, has raised. As I endeavoured to point out when I was speaking initially on this Amendment, the only civil action which the Commission can bring is one to stop—and the analogy he gave was therefore an interesting one—an act or action so far as unlawful discrimination is concerned, not to penalise a person or to obtain compensation. That is what I was trying to point out to the noble and learned Lord—that here we are not even talking about what might be described as full-blown civil proceedings.

So far as the noble and learned Lord's appeal to me is concerned—and I always, particularly at this time of night, react favourably to appeals of that sort—I hope I shall be able to satisfy him, although I am not wholly sure that I shall be able to do so. I have endeavoured to point out that in any event there is this (in my view) considerable flaw on what I might describe as the legal aid point. The noble and learned Lord did not touch upon this, perfectly reasonably, when he came to speak; but I feel it very hard to justify a situation where legal aid is apparently to be given when the Commission are involved, but not in exactly the same case when the matter goes to the industrial tribunal. I do not see how we can justify that, and I suspect that the noble and learned Lord would find it very difficult to do so, as well.

On the particular questions which he asked me, it is perfectly true that the Bill does not provide explicitly for these things. What natural justice requires, the Commission will have to provide or they will of course themselves be in peril in the courts. The European Convention certainly does not require that rights of the kind which he specified should necessarily be spelled out and conferred explicitly in legislation. Clause 58(5) provides some slight answer to the questions which he asked, but not wholly. My answer to him, therefore, is that what I have said indicates that there is not an explicit answer to all the questions he asked me so far as this particular piece of legislation is concerned; but the Commission, like all other statutory bodies, have to behave in a proper way. They have to take account of the requirements of natural justice, and if they do not do so they will themselves be in difficulties in the courts.

I am not altogether happy about this because I think myself that natural justice and the rights of individuals have become such an important issue that when proceedings are laid down in an Act of Parliament one should provide for them in that Act; and I am afraid I am not satisfied with the noble Lord's explanation. Nor am I particularly impressed with the legal aid point. Whether and in what circumstances legal aid should be provided before an industrial tribunal is, of course, a matter of constant dispute, but it is not of very great importance in this connection because, as one knows, alas!, only too well, the legal aid regulations have been bumping along since 1949 at the public assistance level, and I do not expect that many persons who are going to be hauled up as respondents in these cases are bumping along at the public assistance level. So the question of legal aid, although at a certain point it might marginally be important, is, I think, really rather academic in this context.

There is, however, something which has gone wrong at least with the printing and, it may be, with my drafting of the first line, paragraph (b). This worries me more than it appeared to worry the noble Lord opposite. What I shall do is to ask leave to withdraw this Amendment; but the noble Lord must understand clearly that he has not got away. He is going to find when we come to Report stage that I have put down another and perhaps slightly better drafted Amendment which deals with the substance of this matter. Then he will face a Division unless he gives in.

I do not wish to prolong the proceedings at this hour, particularly when the noble and learned Lord is, as ever, being reasonable; but I would say that I do not think that it carries us very far to make drafting points in discussion of Amendments put down.

I feel a certain conscience about this. I ought to have seen that there was either a misprint or a mis-drafting. Equally, I pay enough attention to the legal aid point to contemplate removing it from my revised draft. As I do not want the Committee to vote for something that I could not intellectually justify, the best course is for me to do what I have said. On those distinct terms and in a rather nasty tone of voice, I ask leave to withdraw the Amendment.

moved Amendment No. 67:

I am very happy indeed to support the Amendment put forward by the noble Lord, Lord Monson, because in phrasing this clause I think that the Government have thought of the big firms, the Shells, ICIs, Sainsburys and Marks and Spencers, who have lawyers in their offices and staff that can deal with this situation. I beg of the Government to think of the 200,000 companies which do a very good job in this country and have under 200 employees. A vast number of those have 50 or 70 staff. It is monstrous to think that if the boss of a family business is away trying to get export orders, he has to return to give all his attention to this because he feels that a reflection on his company of this nature is something that only he can deal with. Probably his staff will hang on to it and hold it until he gets back because the boss will make the decision and deal with it.

We should think of the impact on the small companies Who do not have tame lawyers in their offices. They do not have lawyers at the end of a telephone who will provide a QC at a moment's notice to advise them. We have many companies which are the backbone of this country. I believe that we should give them reasonable time. If you can give somebody who has committed a motoring offence three weeks, then I believe that anybody who is resisting and possibly putting up a perfectly justifiable case against something which will smear his company for the enrolment of future employees, should be given reasonable time to deal with it. My plea is particularly for the smaller company which does not have a team of lawyers in their offices. I support the noble Lord.

I must, I fear, disappoint the noble Lord if he assumes, as I believe he did, that the Amendment would be greeted with universal applause. It may be in other parts of the Committee; but I am afraid it cannot be by the Government, I hope that one reason for this will convince him. I hope the thought processes by which we get to that particular conclusion will also, on reflection, commend themselves to him. The noble Lord is right, the issue was raised in another place. We said that we would look at it again. We have but, unhappily, we have not found that we are able to agree with the noble Lord's Amendment. One of the reasons why we are opposed to the whole idea of a time limit is that it would be far too rigid. In certain circumstances, the period chosen, 21 days—it was 28 days in another place—will be unnecessarily long while in another that will be far too short.

We must not overlook the point that the requirement to attend to give oral evidence may be accompanied by a requirement to—and I quote from Clause 50(1)(b):

"…produce all documents in his possession or control relating to any matter specified in the notice".

If we specify a period there will inevitably be a tendency, which I think would be undesirable, to regard that period as, ipso facto, reasonable. I think that the right approach is the one in the Bill. We must expect that the Commission will first try to agree a mutually convenient time. I do not think, if I may say so to the noble Baroness, that we must assume that the Commission will in all cases be wholly unreasonable to the interests of small exporters, and things of this sort.

I am sure the Commission, headed by Mr. Lane, will behave reasonably and will take account of any particular diflculties of this sort. They will try, I am sure, to fix a reasonable date and place for the people concerned. I do not think anybody has an interest to create a whole series of confrontations on the question of what day a particular person gave evidence. That is an unrealistic fear. Moreover, if the Commission issue an attendance notice, and the recipient thinks that he has been given unreasonably short notice, it will be open to him to attempt to get the Commission to change the date of his attendance. If he fails to persuade the Commission, he will be able to challenge the reasonableness of the notice by simply telling the Commission that he does not intend to comply with it. It will then be for the Commission, if they so decide, to seek a county or sheriff court order requiring compliance. The court will be able either to grant an order, as it were, "enforcing" the "attendance notice"; or to make an order requiring attendance in accordance with directions imposed by the court (in effect, amending the "attendance order"); or grant no order at all. In other words, the courts will have ample discretion to deal with unreasonably requirements by the Commission were the Commission minded to be wholly unreasonably. They are not the only people who would make a decision in this matter. If the person concerned thought he was being treated harshly or unreasonably by the Commission, the matter could be settled ultimately in the courts.

That is why, as a matter of principle, we cannot go along with the noble Lord's Amendment. Perhaps I may be able to persuade him that this Amendment is in any case unsatisfactory, in terms of what the noble Lord has in mind. The problem is that even if the idea of a time limit were acceptable, the one he has proposed in his Amendment would be of no practical use since it operates from the wrong point in the procedure. His Amendment would prevent a person from being required to attend to give information not sooner than 21 days after the issue of notice requiring attendance but sooner than 21 days after the announcement of the investigation in accordance with Clause 49(3). Thus to take an extreme but, I think, telling example, the Commission would in fact comply with the proviso in the Amendment if 20 days after the announcement of an investigation it issued a notice requiring a person to attend to give oral evidence a mere five days later: the person would have had a mere five days' notice, but 25 days would have elapsed after the anonuncement of the investigation and so the protection embodied in the noble Lord's Amendment would be to no avail. That is why the Amendment contains a major flaw.

I should like to make one point about this. It is probably true that for one reason or another the exact form of this Amendment would not be accept able. Nevertheless, there is a substantial point behind it; that is, that a person should be given reasonable notice before he is made to come. If I were drafting this myself, I should like to know more about Clause 50 (4), where a person fails to comply with the preliminary notice. The application is then to a county court in England and a sheriff's court in Wales for an attendance notice, which is backed by procedure for contempt.

Oddly enough, I was expecting to find somewhere about there a provision that the Lord Chancellor or the rules committee of the country court could make rules about this. Both the Lord Chancellor's Office and the rules committee of the county court are perfectly reputable bodies, which we all respect. Had I found there proper provision for service of a reasonable notice to be given at that stage, I should have felt a good deal happier about this part of the Bill. Before he continues any further, I wonder whether the noble Lord would inquire of the Lord Chancellor whether there is not need in the Bill for provision at that stage, when application is made for the power of rule-making to be given to the county court as to make this work to everyone's satisfaction.

I will gladly discuss the matter with my noble and learned friend.

I am very grateful for the support which has been given in principle for this Amendment and also to the noble Lord, Lord Harris of Greenwich, for his very full explanation. Of course, I appreciate that for technical reasons if the Amendment is not satisfactory there is no point in going ahead with it anyway. All I can say is that I only hope he is right when he says that the Commission will at all times be reasonable, because all the procedures which he has suggested can he adopted in the case of an unreasonable request and will still take up people's time and cause trouble if they have to deal with the court and so on. I beg leave to withdraw the Amendment.

I wonder whether I may put another question to the noble Lord, Lord Harris, on Clause 50. Subsection (3) provides that no person shall be required to attend at any place unless his travelling expenses are paid or tendered to him. Is any provision made—there does not appear to be—for paying his hotel expenses if he has to stay overnight, and, if not, why not?

As I understand the situation, his necessary expenses will, in fact, be met. I assume from that that any reasonable accommodation expenses would be covered. I assume that the answer is in the affirmative, but I should like to check.

moved Amendment No. 67A:

Page 32, line 45, leave out ("Part II"( and insert ("any provisions in this Act").

First I should state what the effect of these Amendments would be. The effect would be that employment cases would go to the new tribunal and other cases would go to the new tribunal or to the courts. This may not be what was intended, but in fact that is the effect of the Amendments. In 1968 careful consideration was given to the proposal in the Street Committee Report that there should be a special tribunal for race relations cases. The Government came to the conclusion that this was not necessary and they remain of that view. What was done in 1968 and what is now proposed is that we must work within the existing machinery of the law, though adapting it a little where that proves to be necessary. We do not believe that we should be justified in taking any other special steps.

We believe that there are two dangers in having special tribunals. First of all, there is the danger of giving the appearance of special treatment to minority groups. We do not believe that that would in the long run enhance the objective of harmonious race relations. Secondly, there is the danger of isolation. We believe it is important that the courts which deal with, for example, racial discrimination by a landlord against a tenant should be fully familiar with the ordinary landlord and tenant law as it is working from day to day in the courts. For similar reasons, in employment matters the argument for using the industrial tribunal system seems to us to be convincing. Tribunals are responsible for the largest area of labour law, and it is important that cases involving racial discrimination in employment should be heard by the tribunals which have a wide knowledge and experience of employment cases.

Finally, there is the question of cost. We are living in an era when public expenditure has to be rigidly controlled and when we have to get our priorities right. We have, in particular, to avoid duplication. We are of the opinion that the setting up of special tribunals would be a measure of duplication and that the cost would be substantial, and it is not a cost to which the Government could give high priority.

I agree with the noble Lord that it is unwise to set up special tribunals. I have myself had some doubt whether the county court should not be used to the exclusion of industrial tribunals in these cases. I think the multiplication of tribunals since the war has been a great evil, and certainly it is an evil to which the Council on Tribunals has drawn the attention of successive Lord Chancellors. But I think that the noble Lord, Lord Brockway, has got one point which needs to be considered. It may be that the Amendment standing in the name of the noble Baroness, Lady Seear, is a possible vehicle for its discussion.

I am not at all happy that the ordinary industrial tribunal—with which I was familiar in theory when I was the Lord Chancellor, but for various reasons I have never had the pleasure of appearing before one—is a very suitable vehicle for trying these cases. It is all very well to say they are concerned with labour law; they are mainly concerned—although not of course exclusively concerned—with unfair dismissal cases, which are a very different cup of tea from the kind of case that is contemplated here, and I rather wonder whether the constitution of the industrial tribunal is really suitable for the trying of this kind of case. The chairman is a lawyer as a rule and the other two characters are employers' representatives and I think workers' representatives who in practice are trade union affiliated.

I think the noble Lord, Lord Brockway, is right to say that some of his clients—if I may call them that—are not particularly well represented in a tribunal composed in that way. On the other hand, if you have a lawyer as the chairman and an ethnic minority member and a majority community member then you have destroyed the industrial tribunal altogether because you have not got an industrial tribunal; you have something else. This is something of a dilemma, but I think in the end I would not go for a special tribunal. I would try—although I have not tabled an Amendment to this effect—to bring this into the general ambit of the courts.

I am entirely unimpressed by the statement made by my noble friend Lord Jacques, but in order not to spend the time of the Committee I will not press this Amendment to a Division. I beg leave to withdraw the Amendment.

moved Amendment No. 68:

May I start by apologising for the length of my reply. This is an important matter on which I feel I should give a full and detailed answer. The question raised is one which was very closely examined in Committee in another place. There was a wide-ranging debate on Amendments to this clause which were designed to change the constitution of tribunals when hearing a case of alleged racial discrimination.

The Amendment of the noble Baroness is designed to have an effect similar to those Amendments. It would change the constitution of the industrial tribunals themselves so that a person with special knowledge and experience of race relations would be required to hear every case brought under the Bill. I must say straight away that I believe there are fundamental objections to such a proposal which was generally opposed by both sides of industry with whom we consulted after the debate in another place.

There are three members of a tribunal. The chairman is a solicitor or barrister of not less than seven years' standing who is appointed by the Lord Chancellor, and there are two lay members appointed by the Secretary of State for Employment after consultation with organisations representing employees and employers. In the words of the Statutory Instrument, they must be people,

"with knowledge or experience of employment in industry or commerce".

Industrial tribunals are part of the adversary system of law, and are not inquisitorial bodies. This means that, unlike for example the Conciliation Committees of the Race Relations Board, it is not the job of the tribunals to conduct an investigation to gather facts which are independent of those presented at the hearing. The tribunal's role is to apply the law to the facts of the particular case as they are presented by the parties, or those representing the parties, whether the case is about unfair dismissal, redundancy payments or sex or race dsicrimination. Obviously, to do this effectively tribunals have to be well-informed about employment questions. That can best be achieved by members knowing the day-to-day difficulties which face employers and workers, and this is ensured by the contribution of the lay members, who are people with knowledge or experience of employment in industry or commerce. It is clearly an advantage for members also to have special knowledge of race relations where possible. Some of the people who have served on Conciliation Committees of the Race Relations Board are already serving as tribunal members, and we hope that more of them will do so.

But it has always been a basic principle of the system that lay members should not be specialists but should handle all the types of employment cases that fall within the jurisdictions of the tribunals. This encourages the development of a broad and balanced view by the lay members: it enebles them to apply relevant experience in one jurisdiction to problems in another; and to appreciate readily the relationship between the two. This is crucial, not only because the problems in one field may have much in common with those in another, but also because jurisdictions may overlap so that a case brought under one set of statutory provisions may be determined under another or both. These arrangements, we believe, have helped the tribunals acquire a reputation for consistency, impartiality and fairness. We would be doubtful about changes which might put these advantages at risk.

Moreover, there would be serious practical and administrative problems involved if the Amendment were accepted. If, for example, the member with knowledge and experience of race relations is to be one of the three members of the tribunal, it will be necessary that he has the requisite "knowledge or experience of employment in industry or commerce", or the tribunal will be unable in law to reach a decision should the case in question turn not on racial discrimination but on unfair dismissal or sex discrimination. And a tribunal would not be able to hear other cases not involving racial discrimination if it were specially constituted. There would also be the very real difficulty of establishing in advance of the hearing those cases for which the tribunal had to be specially constituted. If, for example, racial discrimination arose as an issue during the hearing, it might be necessary to adjourn the hearing until the member with knowledge and experience of race relations was able to be present. This would lead to inconvenience and delay for both the applicant and respondent and for the members of the tribunal.

However, the Government recognise that although the proceedings at a tribunal are informal and straightforward, some members of minority groups may need special help—whether because they have difficulties with English or for some other reason—in presenting their case. With that in mind, the Bill makes provision for the Commission to use its discretion in giving such help to complainants as it thinks necessary. The extent of that help will, of course, be a matter for the Commission to decide. But I am sure that one of the best ways we can ensure that the individual is seen to get a fair hearing—in a way which wins the respect of all those concerned—is by the provisions we are making for the Commission to help him.

The Bill also provides for a questions procedure before the hearing by which an aggrieved person will be able to question the person he thinks may have discriminated against him. This procedure will help an individual to decide whether to institute proceedings by establishing as far as possible the facts of the case, and, if he does so, to formulate and present his case in the most effective manner by identifying in advance what is in dispute. It may be that in some cases of alleged racial discrimination it may be desirable to call an expert witness who can speak as to eg the religion or customs of a particular race. It is open to either of the parties to do this. In Committee in another place, the Government undertook to consult the two sides of industry, and other interested bodies, on the desirability of extending the existing statutory provisions so that the tribunal, and not just the parties, could take the initiative in calling expert witnesses when the tribunal thought it necessary. This suggestion was put to the bodies concerned, together with the further suggestion that tribunals might have a discretionary power to appoint assessors with special knowledge and experience in the field of race relations where this seemed desirable. It was pointed out that there was already a possible precedent for such a power in the Health and Safety at Work Act 1974.

The comments we have received show that there is not very much support for the introduction of powers to enable industrial tribunals to call expert witnesses. As to the appointment of assessors when hearing race relations cases there are divided views. The Chairmen of the Race Relations Board and the Community Relations Commission doubted whether anything would be gained if assessors were provided in tribunals. Although this view was shared by some of those bodies which were consulted about the appointment of lay members of industrial tribunals, others, including the CBI and the Council on Tribunals, suggested that assessors might have a helpful contribution to make. This is clearly a difficult matter but I can say that the Government are prepared to consider whether there might be some advantage in a provision under which assessors could be appointed at the request of a party with the agreement of the others, or at the suggestion of the tribunal provided both parties agreed. We should welcome the views of your Lordships on this proposal, and on the related issues we have raised, before the Report stage, so that the Government can decide whether or not to put down an Amendment.

I must add that I understand that the present Lord Chancellor is certainly not very keen on the appointment of assessors, and I should have thought that assessors were not the way to deal with the matter. Here I am giving a personal opinion. I believe that the way of dealing with this matter, for reasons which I have given, and partly for reasons which the noble Baroness gave, is to stick to the industrial tribunals. I believe that the industrial tribunals gather a wealth of experience in dealing with all kinds of employment cases and I think that it would be advisable to stick to the industrial tribunals, but I think there should be means found to insist that more of the members that are appointed have a special knowledge of industry and employment and also of race relations, and that we should have more members who have a combination of those experiences. I submit that that is the real solution of this problem.

May I ask the Minister whether he and the Government can think again on this? I was glad to hear his concluding sentences. My view is that, of course, it would be best if the tribunal had a member from a minority ethnic group on it, and I do not think that is as difficult as it sounds.

There are lots of lawyers who are members of minority ethnic groups. Therefore, in fact on some tribunals the chairman could be from a minority group. There are a lot of fellows from minority groups who are now shop stewards and officials in the trade union movement, and therefore the employees, the workers' representation, could be from a minority group.

Perhaps between now and Report the Government will consider not necessarily tabling an Amendment but giving a commitment that they will, in appointing tribunals, bear this fact in mind and, in effect agree that wherever possible, a tribunal hearing complaints about racial discrimination will have one member from a minority ethnic group. That would be a way to ensure that justice was done and was seen to be done.

I was at first extremely attracted to the thesis of the noble Baroness, Lady Seear, and she knows that. I was also rather won round by part of the argument of the noble Lord, Lord Jacques. However, I think the difficulties are practically insuperable, because the effect of the Amendment as drafted would be to deprive a particular panel of jurisdiction to hear a race relations case unless one member of it complied with the provisions of the Bill, and that could lead to confusion in the handling of the day to day lists of industrial tribunals. As I said, I am both doubtful about the suitability of the ordinary industrial tribunal as at present constituted to try these cases and I am very concerned about the rather limited range of people from whom the Secretary of State selects his workers' representatives of the ordinary industrial tribunal.

But when it comes to the proposition that one gives these cases to industrial tribunals to try without constituting a new-type tribunal, as the noble Lord, Lord Brockway, wants, and then says that the ordinary industrial tribunal cannot try it and does not have the jurisdiction to try it unless one of its members has a qualification different from that which the ordinary industrial tribunal has, then it seems that the danger of falling between two stools into irreparable confusion is sufficiently serious to make me doubtful about the practicability of the Amendment. Perhaps the Minister will think again about this between now and Report, but at the moment I am rather a sceptic.

In reply to my noble friend Lord Pitt of Hampstead, this is something about which I feel rather strongly. I think a case has been made out for the Government to make sure that, as racial discrimination will be a matter for industrial tribunals, people with special knowledge of that subject should be available, but I see the very great practical difficulties of having people with only that knowledge for only those cases. I feel that the key to this is to appoint more members, even if it means an Amendment to the Bill, who have a combination of knowledge, knowledge of employment and knowledge of race relations.

I therefore undertake to ask for a meeting with my right honourable friend at which I will put it to him as bluntly as I have put it to the Committee and fight all the way to get what I have explained. I know I will meet with some technical difficulties, but I am prepared to think of ways and means of overcoming them. I also undertake to do that as soon as possible, and I will write to the noble Baroness, Lady Seear, telling her of the outcome of that, leaving her adequate time to re-submit her Amendment on Report should that be necessary.

I should like to thank the noble Lord very much indeed for what he has just said. In fact, I believe there is very little between us. In putting down the Amendment, I had envisaged that what would be required was that the bodies which had the obligation to submit the names of people for industrial tribunals should be asked to find people who had the double qualification of knowing about industrial matters and of having special knowledge of race relations. I very much take the point made by the noble Lord, Lord Pitt, that there are now a very large number of people in industry who are very knowledgeable about industrial relations matters and at the same time are either themselves members of ethnic groups, have worked with conciliation committees or have experience with local community relations councils. These people have the double qualification.

I am sure that this is the right way to do it, either by the chairman or through the employee representative or, in some cases, through the employer representative. After all, our race issues are concentrated in a relatively small number of areas and I believe that, with a little trouble, we shall find people who have the double qualification.

May I just strengthen the noble Lord's hand in his argument with his right honourable friend by reminding him that there is a precedent for insisting on special knowledge in members of bodies of this kind? Under the 1919 Act setting up the industrial court, where a substantial number of women were concerned in a case which came before that court it was obligatory on the court to have a woman as a member. So there is a good precedent for seeing that there is specialist knowledge incorporated in the court where special needs exist. With the noble Lord's undertaking, I am very glad to beg leave to withdraw the Amendment.

In view of the very generous pledge given by the Minister, I shall not move Amendment No. 68A.

moved Amendment No. 69:

I concede that the whole question of damages is a controversial one. It was a very controversial matter during the passage through Parliament of the 1968 Act. I believe that at that time the noble and learned Lord had some feelings about it. But in the light of the controversial passage of the 1968 Act through Parliament, the whole question of damages has been looked at again, and the Government feel that these particular provisions in Clause 57 must remain.

First, I should explain that when we were preparing the Sex Discrimination Bill we came to the conclusion that there was some doubt whether the county or sheriff court or an industrial tribunal would feel able, as we felt it should be able, to award damages to a person for injury to feelings, especially where no other kind of damages were awarded. It was to dispel this doubt in the case of unlawful sex discrimination that a provision in exactly the same terms as Clause 57(4) was included in the Sex Discrimination Bill. The position following the passing of that Bill on to the Statute Book is that Parliament has decided first that there was some doubt about whether damages for injury to feeling could be awarded for unlawful sex discrimination without there being an award of damages under some other head, for example, for actual loss. Parliament has decided secondly that this doubt should be dispelled by the "avoidance of doubt" provision to which I have referred.

Clearly, unless Clause 57(4) is in the Bill there will be a doubt as respects damages for injury to feeling caused by unlawful racial discrimination. In fact the doubt would be the greater if Clause 57(4) were not in the Bill because comparisons might be made with the Sex Discrimination Act. I am sure that we should not leave the law in doubt on this matter and I would therefore hope that the noble Lord will not press his Amendment.

Perhaps I should say a little more about the question of injury to feeling, in case the noble Lord would like me to do so. The point of substance in the Amendment is that people should not be able to seek damages for injury to feelings arising from unlawful discrimination. The Government take the view as a matter of principle that a person who has suffered less favourable treatment on racial grounds should be able to obtain damages for any injury to his feelings resulting from the discrimination. We also believe that he should be able to seek such damages, irrespective of whether he has suffered any other form of damage. As I have said, we thought it necessary to put this beyond doubt in the Sex Discrimination Act and we consider that it is necessary to do so in this Bill. I do not want to take up the time of the Committee, but the noble Lord will probably know that in the Annual Report of the Race Relations Board for the year 1971–72 they drew attention to the fact that there was no provision for general damages and came to the conclusion that there should be. Taking that and what we did in the Sex Discrimination Act, it has been considered advisable to put the provision in this Bill.

I can only say that I regard this as a thoroughly retrograde provision. I have had a long experience of damages one way and another, and although of course it is perfectly true that both English and Scottish law, on somewhat different principles, allow damages for feelings in certain limited ranges of cases, I have come to the conclusion that they are almost always wrong and almost always lead to undesirable social consequences. They lead to blackmailing and speculative and "gold-digging" actions by the dozen, even in the fields where they are allowed. They are quite incapable of measurement, and therefore there are no means of telling whether in one case a man will get £10 or in another case he will get £1,000 for the same sort of injury. It depends on the particular tribunal. There is no yardstick whereby one can translate feelings into money.

In fact, you will find capricious decisions of one sort and another stretching right across the country, without there being any possibility of reconciling those different decisions. I suppose it is done in order to encourage complainants to bring their actions and so deter potential respondents. This was the old doctrine under which juries were allowed to assess damages in the fields where damages for feelings were allowed. I think it is a thoroughly retrograde and retrogressive way of looking at the subject.

I do not agree with the references by the noble Lord, Lord Monson, to damages in fatal accident cases because they expressly exclude damages for feelings of all kinds. Damages for loss of expectation of life for the widow and near relatives of a deceased person are almost always swallowed up in the fatal accident damages, and where they do exist are a purely notional cause of action which should not have existed at all. It was only a series of misguided judicial decisions which led to these anomalies, but to see them deliberately introduced into an Act of Parliament in 1976 seems to me to be about as sensible as to introduce any other part of the medieval law. I see that the Sex Discrimination Act sold this pass, like all the others. I only wish we had been more vigilant in deleting it from that Bill, but I suppose the pass has been sold, so I cannot keenly enthuse on the possibility of sending it back to the other place, whose proclivities for sentimentality and folly in the field of civil law are almost unlimited.

I am in a slight quandary here. I was very pleased to have the support of the noble and learned Lord based on his great experience. It was purely my instinctive feeling that the subsection was wrong. I personally feel that the right course would be to try to get this deleted now and then to have a go at amending the Sex Discrimination Act. An awful lot of things need to be knocked out of the Sex Distrimination Act, notably Section 13(2), which is the precise equivalent of the provision we have knocked out of Clause 12 of the present Bill. I do not suppose that that is likely to happen.

I wonder if the Government would look favourably on an Amendment at the next stage to limit the amount of damages provided for injuries to feelings to £50 or something of that order. At least, it would make it slightly better than it is now. I do not suppose the noble Lord, Lord Wells-Pestell, can give a reply, but in view of the late hour, I beg leave to withdraw the Amendment now and think about it between now and Report stage.