STATE OF THE NATION
As I announced on Thursday, I have selected the remaining amendment in the name of the right hon. Gentleman the Leader of the Opposition.
Mrs. Margaret Thatcher (Finchley)
I beg to move, at the end of the Question, to add:
But humbly regret that the Gracious Speech in no way measures up to the perils facing the country, and that its doctrinaire proposals will divide rather than unite the nation.
The general impression of the Gracious Speech is that the Government think that the financial weather is that of a warm spring day instead of the bleak blizzards that we face both at home and in the prospects for world trade. Many of my hon. Friends in any critical amendment would put the handling of agriculture at the top of their list of criticisms, but they have deployed their case previously and we hope that their warnings will be heeded.
I have been concerned for five or six years with Departments that are big spenders, and, therefore, have occasion to know that the root cause of many of today's problems is inflation, and our first priority must be to tackle that. Yesterday Tony Bennthe Secretary of State for Industry spoke about job security. At present the threat to that security is coming from inflation and its effect upon [column 893]industry. I was delighted to see authority for this point of view from G. Richardsonthe Governor of the Bank of England, who the other evening said at the bankers' dinner:
“This leads me to suggest that the first question for employment prospects may now be, not as in most post-war years, should we or should we not stimulate consumer demands but how do we safeguard British industry and with it the jobs that it provides.”
Many of my hon. Friends throughout the debate have taken up that theme, but I am afraid that it receives scant attention in the Gracious Speech. The problems that industry is experiencing are due not to its own structure but, first, to the effects of inflation upon the traditional system of accounting, which were devised when the pounds of today and tomorrow were substantially the same as the pounds of yesterday.
We appointed the Sir Francis SandilandsSandilands Committe to consider inflation accounting. I am well aware from my tax days that profits for taxation purposes are computed on the basis of commercial accounts, but it is not wholly agreed among accountants what would be the proper method of inflation accounting. The matter is now urgent, and we hope that we shall soon receive the Sandilands Report and that it will be acted upon with all possible speed.
The second reason why industry is having problems is that at a time of rising wage and salary bills, rising raw material costs and rising overheads industry has not been allowed to recover its proper costs in prices, and just at that time Denis Healeythe Chancellor of the Exchequer chose to impose additional taxes on industry.
Whatever the argument between the Charles MerrettMerrett and Sykes school and the Wood and Godley school and the commentaries in the Sunday Press by Alan Day and Graham Sargeant about “When is a profit a profit?” , it is agreed that the cash flow forecasts for industry are extremely serious and that the last Budget was not the time to impose extra taxes on companies. We await the Budget next week, but we must make it clear that if Governments had not taken so much out of industry they would not now have to put so much back in.
I was delighted to see a good deal of support for this view from a Minister of State in a former Labour Government. Lord Bowden is reported in The [column 894]Guardian of 9th July 1974 as having said:
“Ministers blandly assert that they are subsidising industry, but our national wealth comes directly or indirectly from industry. All a Government can do is to redistribute it and give some of it back to the industry from which they took it. It is playing with words to describe such an operation as a subsidy. In fact the Government seem to be trying to force feed industry at the same time as they are bleeding it to death. One particular firm which had paid nearly £60 million in corporation tax was given £2 million back as a subsidy—and told that it had become dependent on Government aid. The fact that the Government was dependent on the firm was never mentioned by ministers.”
As Lord Bowden had a very happy facility for putting his case cogently, it is not surprising that he did not last long as a Minister.
I refer now to a problem not alluded to in the Gracious Speech, and that is the problem of rates. Few matters have suffered more from the effects of inflation than local authority expenditure. In local authority expenditure, of course, there is a higher rate of increase than average, because not only has it to make provision for ordinary price rises but because the services are labour-intensive and the relative price increases are higher than average.
Last year, as we know, there were many problems, and the last Government, in the last Budget, gave some rating relief, but not enough. Some ratepayers still have very large increases; nevertheless the money is coming in even though they find themselves in considerable difficulty. The smaller businesses are in particular difficulty. Now we have reports of even larger prospective increases on the present basis of the rate support grant. Indeed, the rate of increases in 1975–76 will hit the pockets of ratepayers already reeling from the sharpness of this year's increases.
Already council treasurers and leaders are warning the Government of rises next year of fantastic sums. In Greater London, in Greenwich and Croydon increases are expected of 70 per cent.; in Merton 75 per cent.; and in Bromley 100 per cent. Haringey council is forecasting a 60 per cent. rate rise, which could mean that householders there will have to pay a rate of a pound in the pound. The ILEA has recently warned that its precept could rise by about 50 [column 895]per cent. This would cost ratepayers in inner London about £100 million extra next year. In the South-East, Kent County Council expects an increase in rates of 58 per cent.; Bedfordshire 60 per cent. Suffolk 42 per cent.; Cornwall 45 per cent.; and Hereford and Worcester 53 per cent.
These figures are, of course, without provision for the Houghton Report on increases for teachers, which is widely expected to award an increase of about 30 per cent.
It is not surprising, in the face of these enormous rate increases, that the local authorities should come to the Government and ask for more. Indeed, it is rumoured that they have already asked Anthony Croslandthe Secretary of State for the Environment for an extra £1,500 million. I note with some concealed amusement that they have never said to the Minister, “Minister, to ask for more from the Government would restrict the freedom of local authorities.” That was the argument used against me during the General Election. They have, in fact, said to the Minister “We have got large increases; you must face them.” The question is: How much of them is the Minister going to face? The domestic and commercial rating system is breaking down in the face of increases of this order. We know this full well, in talking about the increases of the next order. [Interruption.] The hon. Gentleman must remember that he was in the last Government. It is not as if he had just come in.
Governments cannot continue putting extra duties on local authorities in these circumstances. We shall not be able to wait for the report of the Layfield Committee; some interim action will be required, as well as better mechanisms for public expenditure control, as I am the first to agree that the Exchequer has no final control over the extent of local government expenditure, which can sometimes put the Exchequer into difficulty. That is one matter, with which I have been closely concerned, which has suffered very much from the effects of inflation, and which makes it imperative that the foremost strategy of the Government should be to continue to fight inflation.
Another matter which has suffered severely is that of housing prospects. [column 896]In the Gracious Speech there is a proposed Housing Finance Bill which may put a bigger burden on ratepayers. This proposes to abolish the fair rent for a council house. I wonder whether the Minister's proposal is really fair to tenants, because the rent that a tenant will pay will bear little relation to the house in which he lives but will be decided by the local authority in the area where he resides. What the local authority decides and what the house is like may well be very different. One could have a house in one local authority area where the rent is comparatively low because the housing stock of that authority is comparatively old, and a similar house in another authority area, in a similar urban area, where the rent is much higher, merely because that housing authority had a lot of new housing stock and distributed the rents among all the houses.
My experience in these matters is that many tenants would much prefer to pay the rate warranted by the house in which they live. They are fully prepared to pay the increases which would arise from the facilities which they have. I doubt whether they will welcome these proposals to alter the whole basis of housing subsidies. It is not easy to explain to them the difference between a reasonable rent and a fair rent, especially when the reasonable rent may well, in some cases, be well above the fair rent which they are paying.
Inflation has also had a particularly difficult impact on house building. It is part of the Government's doctrine substantially to increase the number of public sector houses. Our worry is that the costs are enormous. I will give some examples. The Westminster Council is now building 202 houses in its area. The fair rent of those houses is £10 or £11 a week. The cost rent, most of which has to be met by ratepayers and taxpayers, is £55 a week. In fact, if one chooses to increase the amount of council housing, there will be a very substantial burden on ratepayers and taxpayers, and there will be a problem of financing the new houses.
This story is repeated in many of the large urban centres. The average cost of a new council house is now about £10,000 to build. I was interested in a report called “Inflation and Housing” [column 897]published by the Housing Research Foundation, which pointed out that it is cheaper to help people to buy their homes than it is to add to the public sector stock by building them for rent.
I believe that some of the Government's policy stems not so much from inflation as from plain prejudice. I have often thought that local authorities, when they offer to house people who need houses, should not say “You can have a house for rent. Take it or leave it.” They should say “There is a house. You may either have it to rent, in which case the rent will be so much, or you may buy it, in which case the mortgage payment will be so much; or you may have an option to but it on the same basis as some of the new town corporation houses.”
I believe that to offer the choice would be more in accord with a person's human dignity than the Government's policy of saying “If we house you, you must have a house to rent.” Throughout the years Labour Members and Governments have opposed the idea of offering council houses for sale, and thus I believe that they are denying many people the opportunity of owning their own homes.
Mr. Bruce Douglas-Mann (Mitcham and Morden)
Will the right hon. Lady explain how, given the cost of housing as described by her, it would be of assistance for the existing stock of council houses to be sold at a discount, thus reducing the stock? There might be an argument for giving assistance to buy in the open market, but how can the right hon. Lady advocate a reduction in the existing stock of council houses when it costs so much to replace them to provide for those desperately in need of housing?
Over 75 per cent. of the council housing stock was built before 1964-65. To offer them for sale would still bring a substantial profit to local authorities which they could use to build special units for old people, for which there is a serious need. The hon. Gentleman has indicated one of the points that I want to make; namely, that the Labour Party has only one idea about housing people, and that is to put them in public sector council houses for rent, whereas the concept behind modern thinking on the subject is to help people to own their own homes. That idea has been [column 898]put forward in the reports of the Housing Research Foundation.
In respect of private housing, orders for new construction were 55 per cent. down in the June-August period this year compared with the same period last year. That is a harsh commentary on the Government's housing policies. Everything that they wish to do or have been able to do has not restored confidence to the private sector. People have, infact, lost confidence in the future because, due to inflation, they no longer have a firm basis on which to plan.
Tony BennThe Secretary of State for Industry spoke yesterday of the need for dignity in industrial relations. I agree with him. Why not give council tenants the dignity of becoming home owners? I believe that one of the most divisive factors in society is to build enormous council estates, often with a comprehensive school in the middle, which results in people living wholly in a separate kind of society. To do that denies many people opportunities which they would otherwise have had.
Mr. William Molloy (Ealing, North)
Would the right hon. Lady acknowledge that, even if what she has just said were partially true, many of those people who come into the new council house estates and whose children go to the new comprehensive school have often, if they have come from London, come from slummy areas with despicable schools? They are embarking on a brand new life that will give them a chance.
Why not offer them a chance to own their homes? We should then have a mixed society from the word “go” . I can tell the hon. Member for Ealing, North (Mr. Molloy) that some of the people who come from difficult areas into brand new council estates have wanted to go back to the communities that they knew. That is because some of the vast new council estates break up established communities.
Abolish the slums.
Of course we must abolish the slums. I understood that even Government policy was to recondition and modernise older houses. I understood—[Interruption.]
Order. If the hon. Member for Ealing, North (Mr. Molloy) [column 899]will not keep quiet I shall have to ask him to withdraw.
I understood that that is also GLC policy in some areas. It is one point of agreement, but most of us disagree with the hon. Gentleman, which is not surprising.
I now turn to the effect of inflation on education costs—another Department with which I have been connected. This is a good illustration of how inflation has robbed us of a stable basis for planning the future development of the service. The building of schools and colleges was at one time planned on the basis that we should need so many places in a certain year. The money was then allocated to build those places. The present rate of inflation has now finished that kind of planning and we must now plan instead not on the basis of building a certain number of schools or a certain number of places—although that is the only sensible basis because one knows roughly where the children are—but on the basis of allocating a certain lump sum to the local authorities and saying “Choose your own projects” . We can no longer have any cost limit.
I cite these cases so that we take into account the seriousness of tackling the fundamental problem of inflation, because, as the debate on the Gracious Speech continues, I begin to wonder whether that is still the Government's prime strategy.
I must make one or two other comments not necessarily connected with inflation but on problems concerning education. My right hon. and hon. Friends and I fought to keep some of the good grammar schools in existence and to retain them free for the benefit of children some of whom could go to them after they had been selected on a basis of ability. It was a difficult and long haul, but the previous Labour Government promptly put out a new circular during their recent lifetime. It was, therefore, a great pleasure for me when, the Thursday before the election, I saw that The Times Educational Supplement had made a survey of teacher opinion and produced a number of interesting facts. I quote from the 4th October edition which refers to the teacher poll:
“They are clearly opposed to two major elements of Labour policy. They want to [column 900]retain grammar schools, which Labour are committed to phasing out.”
The article went on to say that the teachers are in favour of a statutory incomes policy. It is interesting that the majority of teachers want to retain the grammar schools at the time when the Gracious Speech speaks of abolishing them.
There is reason to believe, judging by those who send their children to grammar schools, that members of the Government and Labour politicians may be divided on this—at any rate if their actions are any guide, compared with what they preach. To give a child a chance to rise fact is not divisive, unless ability itself is divisive. To keep a child down is wrong. To be satisfied with lower standards in education is wrong.
I now return to the general strategy on inflation as revealed by Denis Healeythe Chancellor of the Exchequer and in the Gracious Speech. Reliance is placed on the social contract as an essential element in the strategy for tackling four problems: inflation, the balance of payments deficit, industrial investment and maintaining employment.
There was some comment in Questions earlier today and previously in this debate on the social contract. I have tried to obtain such documents as have been waved about on previous occasions which are said to indicate what the social contract is all about. Having read every word of them. I find nothing whatsoever which could possibly be described as a contract. A contract is something which contains precise clauses the meaning of which is clear and which is accepted as binding by both parties.
Mr. E. Fernyhough (Jarrow)
The marriage contract?
The marriage contract is binding unless one goes to court to get out of it. Is the right hon. Gentleman suggesting that one should go to court to get out the social contract? This is a very apt analogy, and I must congratulate him.
All I am saying is that there are millions who undertake the contract. We do not of necessity dwell on those who do not observe it.
To judge from his previous comment the right hon. Gentleman [column 901]appears to be fully in favour of having a back-stop of legal sanctions. It would be a very different contract from what it is now. If I may say so, a number of marriages would break up if there were not the legal sanction behind them. Indeed, some marriages without the legal sanction behind them break up rather more quickly.
I am sorry that the Minister is looking a bit puzzled, but a red herring was drawn across the debate. I was dealing with the social contract. The social contract is not, in fact, a contract in any normally understood sense of the world. It is just not precise enough.
Mr. Russell Kerr (Feltham and Heston)
Then why mention it?
I deal with it because it is the central strategy in the Gracious Speech. We are debating the Government's policy as revealed in the Gracious Speech. Therefore, I turn to what are indicated in the several documents as the guidelines—and that is about all they are.
As I understand it, the social contract is to achieve a reduction in the growth of wages and prices on the basis of the guidelines that were agreed on 26th June and shown to wage negotiators. The Opposition contest the effectiveness of the Government's and the TUC's policies in two ways. First, how fully are the guidelines being respected, and how adequate are they? Second, is the present and probable future growth in wages compatible with the reduction of price inflation to about 10 per cent. by the end of 1976, of which the Chancellor of the Exchequer first spoke in his speech on 10th September?
May we examine first the precise—or imprecise—guidelines that are given in this document. I quote from the summary at paragraph 34 of “Collective Bargaining and the Social Contract” . It says that
“the scope for real increases in consumption at present is limited, and an essential negotiating objective in the coming period will therefore be to ensure that real incomes are maintained.”
May I ask Michael Footthe Secretary of State whether the stress on saying that real incomes are to be maintained is misleading? It suggests a minimum target rather than a maximum allowance. It could be understood if the TUC were talking of [column 902]maintaining real incomes in terms of pretax incomes but, in practice, many negotiations are designed to protect net takehome pay—that is, pay in terms of post-tax real incomes. The two concepts are very different in terms of their results. If it were the latter, to protect post-tax incomes, we should have much larger settlements than I think the guideline is intended to mean. Perhaps the right hon. Gentleman will tell us what it means.
The second and third guidelines state:
“This will entail claiming compensation for the rise in cost of living since the last settlement; taking into account that threshold agreements will already have given some compensation for some price increases.”
It would seem that fixed settlements are supposed to compensate for past increases in living costs. How clearly is this being understood or followed? During the General Election campaign I heard Ministers refer to some of the settlements and say: “Well, that is about the expected rise in the increase of the cost of living next year, so it is about right within the social contract” . These guidelines seem to relate to past—since the last settlement—cost-of-living increases.
The next guideline is the 12-month interval between major increases, and it says that this should continue to apply. It seems to be an absolutely fundamental provision in the guideline.
There seems to be considerable evidence that the 12-month rule is being broken. I have tried to argue the case on the basis of the evidence. I am well aware that cold, reasoned argument is not the right hon. Gentleman's typical style but, as we have the guidelines—it is called “the social contract” —he might apply himself to the case on the basis of the evidence and give us his views.
The 12-month rule is a fundamental provision. I am not surprised that hon. Members want us to get through it quickly, because they are afraid that this is not a contract of any kind. But, as Denis Healeythe Chancellor of the Exchequer in his speech at the bankers' dinner made this the cornerstone of the strategy, we are entitled to see how solid the cornerstone is. [Interruption.]
What has happened to the 12-month rule? The recent study in the Industrial Relations Review in The [column 903]Times of 29th October—my right hon. Friend referred to this earlier in the debate on the Gracious Speech—reported that 27 out of 39 major settlements had taken place less than 12 months since the last settlement. The more frequently the rule is broken, the more difficult it will be to prevent those who have obeyed the rules up till now from reopening negotiations. A 30 per cent. settlement every nine months gives a 40 per cent. annual rate of increase.
I notice that there have been comments about the 12-month rule from some very robust trade union members. It was reported on Friday 1st November that
“Mr. McLean, one of the six Communist members of the union executive” ——
the National Union of Mineworkers for those who are not familiar with all the names on that executive.—
“said they refused to accept that the terms of the social contract mean they could not get a rise until 1st March.”
The report went on to say:
“They have observed that Ford and other workers have had increases before the anniversary of their last increase. If Jack Jones is able to say that the Ford settlement, even if it is only seven months since their last increase, is within the social contract, then we are satisfied that should equally apply to us.”
It is obvious that if one group goes through the rules, another group will wish to do so. That is plain, ordinary human nature. It might also accord with trade union rules, but it is much more likely to be related to the natural tendency of people to do what other have done.
The next guideline says that
“Priority should also be given to attaining reasonable minimum standards, including the TUC's low-pay target of a £30 minimum basic rate” ——
it was £25 per week when the guidelines were agreed—
“with higher minimum earnings, for a normal week for those aged 18 and over.”
May I ask the Secretary of State about this, because a blanket commitment of a substantial increase in the minimum wage is obviously full of problems? We know that its effect will be to ripple up the wage structure as each group tries to restore its differential above those lower down, unless provision is made to require that the readjustment is understood and accepted. It seems to me that this is one [column 904]of those guidelines which need very careful monitoring.
The last guideline says:
“Full use should be made of the conciliation, arbitration and meditation services of the CAS to help towards a quick solution of disputes.”
Can we be satisfied that the services of the CAS are being fully used; for example, in the Ford dispute? Even if they are being fully used, two problems remain, because there is another special paragraph in cases where the CAS conciliates. What assurance do we have that the basis of settlements reached by the CAS will be compatible with the mastery of inflation? We all know that it is usually possible to define some price for peace, but settlements at 40 per cent. plus—such as that of the Scottish lorry drivers, for which the CAS bears some responsibility—will not ensure a reduction of inflation, nor will they necessarily lead to any resolution of the underlying problems which disputes often reflect.
I note the Economist comment on the lorry drivers' settlement:
“They won a rise of between 39 and 44 per cent, less than a year after their previous one, precisely what they had demanded when the strike began. The new Conciliation and Arbitration Service smoothed the employers' path to surrender, after their attempts to talk about the social compact fell on totally deaf ears.”
At the end of that paragraph the TUC states that it will be keeping the developing situation under review, and I know that it is doing so. Presumably the Government are doing the same.
But, as this is the cornerstone of their strategy, what is the Government's objective? Do they accept as a target Denis Healeythe Chancellor of the Exchequer's figure of a growth in prices of around 10 per cent. by the end of next year? Will they give guidance to the TUC if the course of wages threatens the achievement of this target?
When this point was debated in their Lordships' House last week Lord Robbins urged the Government to say precisely what their guidelines would be as regards income settlements. He wanted the Government to quantify it so that the rest of us can openly judge whether or not the contract is being observed, in accordance with what the Government have in mind. So far as I am aware, no such quantification has been forth-coming. [column 905]
The Chancellor of the Exchequer has spoken on a number of occasions about the possible course of inflation. In his speech on 10th September he said:
“If the undertakings made on both sides in the social contract could be maintained, I believe that the rate of inflation in Britain can be brought down near to 10 per cent. by the end of 1975, and into single figures a year later.”
That is the only indication we have of the Government's target for mastering inflation. The crucial question is: what course of wages is compatible with such a reduction in the growth of prices? It is clearly necessary that the sum of the separate settlements under the TUC's guidelines, whatever their justification, should not exceed the ceiling implied by this price target. Will the Government tell the country what they have in mind?
Looking at the indicative figures in the Price Report published earlier this week, it would seem that if that target is to be obtained by the end of 1975 wages must not grow at more than 20 per cent. a year in 1974, by no more than 17 per cent. in 1975 and, to get down to single-digit price increases, 14 per cent. to 15 per cent. in 1976. It would be a great deal easier for us to judge whether the social contract is working against the Government's rules if we knew what those rules were. So far there has been great resistance to giving them. I hope that Michael Footthe Secretary of State, now that he is here, will make it quite clear.
The right hon. Gentleman's colleagues have made this the very foundation of their economic strategy. Therefore, the importance of its success, in the absence of anything and everything else, is not at issue but doubts about its success are widespread because of the evidence of past settlements.
There are other people in society who must not be forgotten, who should have social and economic justice as well—people, for example, who have put their savings with the Government and with industry to secure the investment that is so vital. That investment is vital if the Government's other strategy in the Gracious Speech is to be carried out. All the questions raised about the price of nationalisation and how it is to be paid for have been ducked, which is not surprising. This morning the figure for the percentage yield of some Government [column 906]stocks was greater than that for their market price. I cannot remember whether this has ever happened before. Two and a half per cent. Consols were priced at £14–75 with a yield of 17–2 per cent. Even dated stock is at an interest rate of 17–2 per cent., and gilt-edged is the very market upon which the Government would have to rely in order to carry out some of their policies. This is a good indication of lack of confidence in Government financial policies.
Instead of a programme to restore confidence, the Government have chosen some of the measures now before us. We believe that these measures do not match the gravity of the problems, and we shall express our disagreement in the Lobby tonight.