Speeches, etc.

Margaret Thatcher

House of Commons Statement [Attack on Inflation]

Document type: Speeches, interviews, etc.
Venue: House of Commons
Source: Hansard HC [892/901-28]
Editorial comments: 1104-1212. MT spoke at cc907-09.
Importance ranking: Major
Word count: 9935
Themes: Monetary policy, Privatized & state industries, Pay, Public spending & borrowing, Local government finance
[column 901]

Attack on Inflation

11.4 a.m.

The Prime Minister (Mr. Harold Wilson)

With your permission, Mr. Speaker, I should like to make a statement.

The House will recall that 10 days ago my right hon. Friend the Chancellor of the Exchequer made a statement on the attack on inflation, and announced the determination of the Government to bring down the rate of domestic inflation to 10 per cent. by the end of the coming pay round next autumn, and to single figures by the end of the year. He referred to the consultations with the TUC and the CBI which had been taking place directed towards achieving an agreed voluntary policy with, in particular, effective arrangements about pay consonant with that cost of living target. He undertook that by the end of this week the Government would make a statement about those consultations, setting out the Government's judgment as to whether a voluntary policy, which was both viable and effective had been reached.

The House will have seen the statement endorsed by the General Council of the TUC on Wednesday, and regardless of party the whole House will pay tribute to the extent of the TUC's achievement. Yesterday I described it as an achievement unexampled in peace or war by the free democratic trade union movement in this country.

The Government have decided to accept an overriding limit of £6 per week for pay settlements during the next pay round, a figure consistent with the aim of reducing the rate of inflation to 10 per cent. by the late summer of next year. Our policy is based on consent and willing co-operation within our democracy. We reject, for the reasons I have so fre[column 902]quently stated, the idea of statutory policies based on criminal sanctions against workers.

My right hon. Friend and I have been in close consultation with the CBI and the TUC during these 10 days and we have set out our policies for the attack on inflation in a White Paper, copies of which will be available in the Vote Office when I have sat down. In the White Paper we have set out the Government's proposals, directed to strengthening the fight against inflation right along the line, covering both the public and the private sectors.

The Government have decided that the cut-off for the increase of up to £6 shall be £8,500. We are also proposing some transitional arrangements to deal with inequities which would otherwise arise for certain groups which are expecting shortly to implement their annual agreements under the present TUC guidelines. It is, however, a requirement of the new proposals that no settlement can be approved within 12 months of the previous settlement.

I must make clear that while the Government accept the proposal for a flatrate limit of £6, this is not an entitlement—it is a maximum. It will have to be negotiated by established collective bargaining procedures, and it is not a requirement on employers who simply cannot afford to pay it.

The Government are concerned—as the TUC has shown that it is—that unions or groups of workers who make a settlement early in the pay round should legitimately be able to demand protection against the action of other groups which, on past experience, might prejudice their position by negotiating considerably bigger settlements later in the round.

We intend to ensure observance of the new pay policy by employing the full battery of weapons available to which my right hon. Friend referred 10 days ago. As employer, the Government will ensure that all settlements in respect of its employees in the Civil Service, the National Health Service and the Armed Forces comply with the pay limit. They will call on all other public sector employers to do the same. As paymaster and treasurer, on behalf of the taxpayer, for publicly-owned industries and services, the Government will use all their [column 903]powers to see that settlements are made within the pay limit. They will ensure that the money available is strictly controlled and that none is available for the payment of increases over the agreed limit.

This means that for the nationalised industries and services, no money will be made available for excess settlements, whether by subsidies, whether by permission to borrow or by loading excess cost on the public by increasing prices or charges. There will be a strict limit on expenditure. Those seeking to negotiate settlements above the agreed limits, by whatever means, must face the certain consequence that there will be an inescapable cut-back in the current expenditure of the board or corporation concerned, directly affecting employment in that industry.

There must be no less stringent control in respect of local authorities' spending. There will be urgent discussions with the new Joint Consultative Council and with the Convention of Scottish Local Authorities.

In this as in other areas, legislation will be necessary to supplement and strengthen the policy we have worked out with industry. The Bill will be introduced next week.

So far as local authorities are concerned, legislation will be brought before Parliament to enable the Government to restrict payment of rate support grant to individual local authorities so that no grant is forthcoming in respect of any part of a settlement made in breach of the pay limit—any part of the settlement, not just the excess. No rate support grant increase will be made in such cases. Moreover, unless there is a tighter restriction on the numbers of staff employed, the Government will further have to restrict the scale of provision of grants.

In addition, if this proves necessary, as a further sanction the Government will be prepared to use their powers to control local authority borrowing, including access to the capital market, to reduce the capital programmes to individual local authorities to offset any excess expenditure on pay settlements.

In the private sector the Government will use all their powers against any breach of the pay limit. The Bill will [column 904]relieve employers of any contractual obligations which would otherwise compel them to increase pay by more than the limit.

In the field of price control the Bill will ensure that where an employer breaks the pay limit, not only the excess but the whole pay increase will be disallowed for the approval of price increases. This sanction will also be applied to nationalised industry prices.

From now on, the Government will not give discretionary assistance under the Industry Act to companies which have broken the pay limit. Contracting Departments will also take account of a firm's record of observance of the pay limit in their general purchasing policy and in the awarding of contracts.

The Government believe that these measures are necessary to secure compliance by all employers with the policy I have stated, but if our faith in the agreed policy is disappointed, if there are any who seek to abuse a system based on consensus and consent, or to cheat by any means, the Government will not hesitate to apply legal powers of compulsion against the employers concerned, to ensure compliance. We must have these powers in reserve.

Legislation has therefore already been prepared, for introduction if need be, which, when applied to particular cases, would make it illegal for the employer to exceed the pay limit. If the pay limit is endangered, the Government will ask Parliament to approve this legislation forthwith.

The fact that pay increases are to be negotiated within a flat-rate limit will rightly give preference to the low-paid worker. But the House will see in the White Paper the extent to which the Government intend to act to restrain prices. In present circumstances a general price freeze is not realistic and would simply depress investment and aggravate the unemployment problem. But the Government's policy on prices, in addition to acting as a sanction against recalcitrant employers, is also designed to provide the necessary assurance to employees, required to justify the flatrate pay limit.

The Government will therefore continue the present strict prices control [column 905]enforced under the Price Code. We shall introduce legislation to extend the control powers beyond 31st March 1976, when they would expire. As the pay limit comes into full effect, the Government intend to ensure that the rate of price increase for a range of goods of special, strategic importance in the family expenditure will be held to about the 10 per cent. target. The CBI and the Retail Consortium, which we have consulted, are prepared to enter into immediate discussions with the Government to achieve this price limitation programme.

The Government have decided also to finance many more consumer advice centres to assist consumers who have complaints or queries. We shall encourage more work on local price comparisons and will accelerate the programme of price display and unit pricing.

To assist with the cost of living during this period, and particularly to protect the living standards of lower-income families and pensioners, the Government have also decided to delay the phasing out of food subsidies which was announced in the last Budget. This will involve an expenditure of an additional £70 million in the period 1976 to 1977. Local authority rents were frozen by the Government between March 1974 and March 1975 but increases are now in the pipeline because of pay increases and other inflationary influences. For the period 1976 to 1977 the Government propose to limit rent increases so that rents do not rise faster than prices generally. This will mean that on the average rent increases next spring will be of the order of 60p a week rather than £1 a week or more. For this purpose the Government will provide an extra £80 million.

The Government believe that this comprehensive programme—with any further action which we deem necessary—will bring about in a fair and equitable manner the desperately needed reduction in the rate of inflation.

We reject massive panic cuts in expenditure. Some which have been suggested would not only have acted directly to increase the cost of living and so aggravate the inflationary problem, but would have added to the numbers unemployed. The action we are proposing will improve employment by restoring confidence, promoting investment, and increasing the competitiveness of British industry, both [column 906]in export markets and in the saving of imports.

Unemployment has already reached an unacceptably high level in this country, and it is small comfort to record that in the deepest world recession since the 1930s unemployment has so far risen less in this country than elsewhere or that we have been more successful in maintaining the level of industrial production.

My right hon. Friend the Chancellor has already announced increased opportunities for training and retraining, as well as measures to help people to move to newer employment and a plan for a temporary employment subsidy to assist firms located in areas of high unemployment. The Government will introduce the temporary employment subsidy at the earliest possible moment. I must make it clear, however, that this subsidy will not be available to companies which exceed the pay limits. We shall also take, as the White Paper makes clear, special temporary measures to encourage the training and employment of school leavers and other young people in industry.

I said that we reject the panic measures in the field of essential expenditure, including the social services. The best guarantee against a reduction in social standards is to bring the rate of inflation down to the level we have indicated for next summer and beyond. But we certainly will continue our efforts to contain the demands on resources made by public expenditure programmes.

We have made clear our intention to apply cash limits, as opposed to limits based on resources measured at theoretical constant prices, as a means of ensuring financial discipline, in central Government, local government, and publicly-owned industries and services. Urgent work is in hand to ensure the extensive use of cash limits in the coming financial year.

Without trespassing unduly on the time of the House, it is not possible in this statement to set out the full range of Government controls and actions which we intend to use to fortify the agreed policy as set out in the White Paper.

But I must leave the House in no doubt about the Government's total will and determination to use to the full all the powers we hold, in both the public and the private sector. This is not all. [column 907]The legislation which we shall bring before the House next week will significantly extend the powers at the disposal of the Government to strengthen controls, to close loop-holes, to frustrate cheating, and generally to secure compliance with the new pay limits.

When hon. Members study the White Paper I hope that they will be ready to endorse its concluding words:

“The Government seek the support of the nation in breaking the inflation which threatens our economy. The measures the Government, the TUC and the CBI are taking are designed to last right through the next pay round until price inflation has been brought down to single figures and we have reached agreement on how to arrange our affairs so as to avoid a resurgence.

This is a plan to save our country. If we do not, over the next 12 months, achieve a drastic reduction in the present disastrous rate of inflation by the measures outlined in this document, the British people will be engulfed in a general economic catastrophe of incalculable proportions. If we do succeed, as we are resolved to do, we can turn with fresh energy and hope to tackle the fundamental problems which will still face us in constructing an economy in which high pay is earned by high output.”

Mrs. Thatcher

Is Harold Wilsonthe right hon. Gentleman aware that it is not possible to make a preliminary assessment of this long statement until we have seen the White Paper accompanying it? Is he aware that one thing is perfectly clear; namely, that one of the reasons why we are having to face these measures now lies in the disastrous policies of the Government over the past 16 months? The Prime Minister has frequently said that his main strategy was to fight inflation. In fact, his policy was to further it, first, by the social contract, which permitted increases which are now the subject of policy changes, and, second, by the other part of the social contract which encouraged enormous increases in public expenditure, themselves an engine for producing inflation.

Is the Prime Minister aware that we have no experience in the Western world of going from 25 per cent. inflation to 10 per cent. in a year? We do not know what strains and stresses that will cause. Is it not obvious that one of the problems the right hon. Gentleman will have to face is concerned not only with going into the policy but with coming out of it? Is he aware that we are concerned [column 908]that one of the problems he has given himself is that of coming out of the policy after a flat-rate increase? Does he appreciate that the tendency will be to restore differentials at all costs at the end of this period?

May I now put some questions about the statement. First, what is the date of commencement of the wage restraint? Second, what is the date of commencement of the new price changes? Third, may I ask what the Prime Minister means by “£6 per person” ? There is a certain ambiguity in the statement itself and between Denis Healeythe Chancellor's statement and the Prime Minister's statement. From this statement it looks to me as if the limit is not upon the individual but upon the global amount of the group. If the right hon. Gentleman looks carefully at some of what he has said he will see that it seems as if it is the pay settlement as a whole and not the limit on the individual.

There is an ambiguity in what the right hon. Gentleman says about the pay limits in the nationalised industries. Is he aware that the Chancellor said last week that there would be a cash limit for wage bills in the public sector, whereas what the right hon. Gentleman has said today is that if the cash limit for wage bills goes above the amount, current expenditure will be cut in that industry. [Interruption.] It is as well that we know what a £6 limit means—whether it is on the individual or whether it is on the group—and how it will work in the nationalised industries.

Will there be any special cases allowed in either the public or the private sector? Can the right hon. Gentleman tell us what is his assessment of public expenditure changes? Is he aware that it looks to me as if in the statement he has some increases in public expenditure as a result of increasing subsidies?

May I deal briefly with rates? It looks from a quick glance at the statement—there was not time to read it completely before the right hon. Gentleman made it—as if he can cut down the rate support grant but does not have power to hold down rates. As they are a sensitive subject, it seems as if, under the arrangements, increases in local authority expenditure could be borne by the ratepayer. [column 909]

Does the right hon. Gentleman propose to make any policy changes with regard to increasing nationalisation?

What happens if an employer holds out against a strike for an amount more than the permitted figure? What will the Government do to help? It is obvious that in a state of 25 per cent. inflation we may all have to accept policies which we would otherwise find unpalatable. May I make it clear that from the Opposition's viewpoint our main strategy is to reduce inflation. We welcome the Government's conversion to that aim.

The Prime Minister

The right hon. Lady will understand if I deal with the more serious parts of what she said——

Mr. Mates


The Prime Minister

The right hon. Lady made some very serious points. She also put some pertinent questions which I shall try to answer. I understand, as she said, that the House will require a great deal more time, particularly time to study the White Paper, which is now, I understand, available. She said that this was all due to the present Government. She must be aware that many of the problems this country is facing—the most serious ones, such as the balance of payments, inflation and unemployment—were all endemic before the change of Government in March 1964.

Mr. Nicholas Winterton

Eight and a half per cent.!

The Prime Minister

No policies were adopted for dealing with those issues except in some cases to make them worse.

The right hon. Lady referred, perfectly fairly, to its being the policy of her party to seek, first, in dealing with the problems of inflation, to slash public expenditure. She made that point fully, and from her point of view effectively, in the recent economic debate before the Easter Recess, although she failed then to say what reductions in expenditure——

Hon. Members


The Prime Minister

I am as entitled as was the right hon. Lady to make these points. I do not intend to reply to all her questions.

[column 910]

Mr. Gorst

Just the easy ones?

The Prime Minister

Those solutions which the right hon. Lady did specify in that debate would have meant a chronic increase in the rate of inflation and would have imposed sacrifices on the vast majority of families in the country.

The right hon. Lady said that to get the rate of inflation down from its present year-on-year rate to the target that I have announced will cause some strain and stresses in industry and the community. With that I have to agree fully. This is inevitable. It must be the duty of all of us in this House to try to minimize those strains and stresses and help those whose burdens are greatest as a result of things that have already happened and as a result of what happens in the next year.

The right hon. Lady was also right when she stressed the difficulty in any such policy of coming out of it—the “re-entry” problem at the end of a period. The Government had to go through the agonies of the re-entry problem following the statutory policy of the previous Government and that caused far more strains and stresses than anything else the country has seen.

With regard to the question about the date for commencement of wage restraint, the answer is that it will be from 1st August. The right hon. Lady will see what is said in the White Paper in relation to the 12-month rule, particularly in relation to the settlements that have already been made. The answer to her question relating to the price changes is that those will start right away. As she knows, action has already been taken to restrain dividend increases by the order announced by my right hon. Friend.

The right hon. Lady asked whether the limit would be on the individual or the group as a whole. This is a complicated question which is dealt with in the White Paper. The answer I would like to give now is that it will be measured as to the individual, but the special and complicated problems of increments already agreed which must count against the £6 limit and cease within that figure will have to be negotiated with the group as a whole. I think that is fair.

The right hon. Lady also referred to cash limits and welcomed what the [column 911]Chancellor had said and what I have said. The introduction of cash limits will clearly put a big strain on all sectors, particularly the nationalised industries, local authorities and so on. She asked about special cases. The answer is that there will be no special cases. The right hon. Lady wanted estimates of expenditure. I am not sure whether she referred to the public sector borrowing requirement. My right hon. Friend the Chancellor will deal with that in the debate that is being planned.

As for rates I have referred to the necessary cut-back in expenditure and the steps we are taking to ensure that that occurs. We shall take very serious sanctions against local authorities both interfering with their borrowing and in other ways, through disallowance of the increase, and so on. This will help to cut down their expenditure. If local authorities were to continue spending more than they can afford, this would be bound to affect the rates, which are rate-rebated, and the increase in rates depends upon that. However, the right hon. Lady will be the first to agree, from what she has said previously—and I entirely agree with her—that the biggest problem affecting the rates today is that of inflation which has caused the rates in cash terms to soar as they have done over the past two or three years. It is inflation with which we are dealing in these proposals and this will, therefore, benefit the ratepayers as much as the general community.

Mr. Thorpe

Is the Prime Minister aware that although all hon. Members will want time to study these proposals the country will at least welcome the fact that the Government have recognised that we cannot continue as we have done and that new policies are required which have a statutory back-up? Secondly, the Prime Minister has said that employers will not have to make the £6 payment if they simply cannot afford it. To whom do they make application to prove their case, and, if they have proved their case, what assistance do they get from the Government if faced with a strike?

Thirdly, what is the compulsion that the right hon. Gentleman has in mind for employers? Does it include criminal sanctions, which he has rightly ruled out [column 912]in the case of employees but has left somewhat vague in the case of employers? Will he reactivate Part IV of the 1966 Prices and Incomes Act for that purpose?

Finally, is not the position that the Government, through the social contract, have relied upon the TUC to implement their pay policies and that they are now shifting the burden to the employers? Can the Prime Minister say why he believes that one group would be more effective than another in discharging what is essentially a job of Government?

The Prime Minister

The right hon. Gentleman is quite wrong on the last point. I am sorry that he did not pay tribute to the tremendous advance by the TUC in what it will be doing with its own unions. [Interruption.] This is not a laughing matter. The former Prime Minister, the right hon. Member for Sidcup (Mr. Heath), worked very hard on this for very many more weeks than we have been meeting the trade unions on this matter.

Mr. Cormack

Perhaps the Prime Minister should pay tribute to him.

The Prime Minister

At the time I paid tribute to his patience in trying to secure this. The reason why he did not secure it was that the then Government were not prepared to take the other actions that were necessary.

I thank the Leader of the Liberal Party for his welcome of these measures. I should like to answer his question about employers. He raised the case of employers who simply are unable—because of conditions of trade, because of their liquidity position and their earnings and profits—to pay the full £6. He asked whether they have to make a case and whether they can ask the Government to arbitrate, conciliate or help in any way. The answer is “No” . This is left for negotiation between them and the trade union. The right hon. Gentleman will know that in some industries which have suffered from acute depression in recent months the unions have been taking very small increases—less than £6 a week—because they recognise the dangers facing the industry.

In the legislation that we shall introduce this week there are no criminal sanctions against employers. The sanc[column 913]tions relate to a wide range of the measures I have announced today, including price controls and the rest. In my statement I referred to powers in reserve, which would be brought before the House for enactment only if the pay limit policy were endangered for any reason. Then we would have to introduce legislation which is already prepared. We would have to ask the House to pass legislation of a different character relating to employers who pay above the limit.

Mr. Arthur Bottomley

Is my right hon. Friend aware that some of us, as in the past, believe that what he has proposed today will not go far enough to solve our economic problems? This applies to both Conservative and Labour Members. Does he not agree that we should concentrate our investment on essential industries such as energy, steel, computers and chemicals? Further, will he cause an urgent investigation into how we can save imports and produce more food from the land? Does he not agree that these are fundamental requirements that should be tackled now?

The Prime Minister

My right hon. Friend will be aware that the statement today dealt specifically with the inflation problem and the action needed for the year ahead. The whole House would agree with what he said about the need to concentrate investment on essential industries. This is what we are doing in the area of energy. For example, we have embarked on the largest ever programme for the coal industry, there is the new decision to go ahead with the British system in nuclear policy after years in which no decision has been taken, and we have North Sea oil and gas.

My right hon. Friend will be aware of the massive funds being provided through the National Enterprise Board for assisting investment in private industry where it has lagged behind for so many years under successive Governments. He will also know of the scheme announced by my right hon. Friend the Chancellor of the Exchequer in his Budget Statement for the regeneration of particular industries which have fallen behind. There is the help we are giving, for example, to machine tools, foundries and the rest. This is exactly what my right hon. Friend says he wants us to do, and this is what we are doing.

[column 914]

Mr. George Gardiner

Is the Prime Minister aware that his measures will be judged by the public in the long term according to whether they are fair? Will he tell us what is fair about penalising employers who yield to strikes while having no sanctions whatever against those who organise strikes? Will he say what is fair about giving preferential treatment to council house tenants regardless of their income and what is fair about fixing a cut-off limit which will hit many middle-income earners, particularly in the South-East, where living costs, rail fares and so on are high? What will he say to those people when they feel that they are being made the fall guys for his policies yet again?

The Prime Minister

The hon. Gentleman is certainly right in saying that these measures will be judged in the country by what is fair. First, he referred to possible sanctions on employers. I have referred to the Price Code and to the powers in reserve which is not before the House and which will not come before the House unless action takes place that requires them. The hon. Gentleman should have realised by this time that criminal sanctions against workers do not work in this country or, as I have been able to discover, in any other democratic country. They might work once, for a short time—the Americans found this to be the case and we have found it.

If the hon. Gentleman is advocating that policy—and the leader of his party has made it very clear that it is not the policy of his party—he should realise that there was a turning point in our history when the five dockers were imprisoned after which no one with any common sense could even propose this policy. That would have brought—[Interruption.] We can remember that the Official Solicitor helped right hon. Gentlemen opposite to defend them. Whether they still defend that policy I do not know, but they must realise that it would have brought all the dockers out. The same would happen if we tried to proceed by measures which have been tried by successive Governments in this and other countries and which have totally failed.

Conservative Members must agree that we have done more for the owner-occupier than the previous Conservative Government would have done if they had [column 915]stayed in office. Interest rates were increasing to 13 per cent. and a Conservative Government could not have stopped it. They would not have known how to do so.

We believe that, with the 5 million families living in council houses and in new town houses, to have followed the policy of the previous Conservative Government would have been wrong. That was why we had the freeze for as long as we did. We believe that over a period these rents should rise in accordance with prices generally. It is right to inject further subsidies to stop rents going to the level they would go to in order to catch up, which would have been the policy but for the need to hold down the cost of living. Every policy put forward from the Conservative benches means a higher cost of living which would make any policy unworkable.

Mr. John Mendelson

Will the Prime Minister accept that there will be widespread recognition, in spite of all the pressures upon the Government to come to a wholly one-sided solution directed against wage earners, that the Government, and particularly the Ministers directly concerned, have commendably kept in close contact with the representatives of wage earners and working people and deserve the support at least of Labour Members for having done so? Will he at the same time also realise that the solution proposed will still bear hardest upon the lower income groups and those who depend on wages?

Will my right hon. Friend therefore consider the following two proposals? There must be an attempt to have a price freeze on some—not all—selected prices, as has recently been done on 10 essential goods and products in France, and is being done quite successfully. There is no reason why it should not be attempted by the British Government. Secondly, if we are making such serious inroads into the right of free collective bargaining, why do not the Government take immediate powers to direct investment to national needs and national purposes?

The Prime Minister

I thank my hon. Friend for what he said. We have tried to proceed by consensus and consent. That explains the time it has taken to produce this White Paper. We have [column 916]been very much chivvied and criticised by right hon. Members of the Opposition about the time, but I hope they would agree that the time was well spent to get agreement—as my predecessor tried to do—with the unions and to get it over a very wide range from the CBI.

My hon. Friend referred to the fact that the lower paid will be bound to be prejudiced by this, but I think he would agree that the flat-rate limit that is suggested will help them as compared with people who are in fact better off. Of course, it will cause great problems about differentials and the rest, but it is designed to help the lowest paid first, and what we are doing on prices will help them as well as people who are in receipt of various social services benefits.

My hon. Friend asks for a price freeze on a selected list, but he will have noticed in my statement—and he will see them spelt out much more fully in the White Paper—the plans which my right hon. Friend the Secretary of State for Prices and Consumer Protection is working out, to get a list of goods of paramount importance to the average family and the types of family who are hard up against it, and to try to help on those prices. My hon. Friend will be glad to know that the Retail Consortium and the CBI will co-operate fully with my right hon. Friend in that.

Mr. Hordern

Will the Prime Minister recognise that public expenditure is rising by some 42 per cent. over the corresponding period of last year? As in his statement today he announced further increases in public expenditure for this year, and as the cash limits on public expenditure apparently will not apply until next year, will he now give an estimate of what public expenditure will be during the course of this year, and what the borrowing requirement will be at the same time?

The Prime Minister

The hon. Gentleman's last question was the question put by the right hon. Lady the Leader of the Opposition, and I said that my right hon. Friend will be dealing with all these questions—[Hon. Members: “Answer.” ]—in the forthcoming debate. The hon. Gentleman referred to the increase in public expenditure. The figure he quoted was, of course, in cash terms. This is, of course, partly due—obviously, both [column 917]centrally and locally and in the public industries—to inflation to a considerable extent, to pay increases and the rest.

But I have not heard from the hon. Gentleman or anyone else on the Opposition side of the House what they would cut in public expenditure, except those things such as subsidies which are restraining the increases in prices. Obviously, their policies would make the whole thing unworkable by forcing up the cost of living.

Mr. Jay

Does my right hon. Friend agree that though these measures are fully justified in present circumstances they will not succeed for long unless this breathing space is used to introduce more fully-thought-out long-term measures to restrain pay and price increases before the £6-a-week dam bursts next year?

The Prime Minister

I entirely agree with my right hon. Friend. He will see that we refer to that particular problem in the White Paper. As I have said, successive Governments have found this. It is the problem of coming out, as the right hon. Lady said, of a policy of this kind which creates even greater strains and stresses than the period of the policy itself. We found that, and I think it has been generally the experience.

Certainly this time must be used by all of us, and by the whole House, to work out not merely the best means of dealing with our re-entry problem, but a more lasting formula for dealing with this problem. The initiative by the TUC if of great value, as is, equally, the co-operation of the CBI directly with the TUC and with the Government. I am sure that Opposition Members—those of them who are talking about inequity between employer and worker in these matters—would like to know that the CBI itself rejects sanctions against workers and says that this should be done through pressure on the employers. That is the CBI view.

Mr. Maurice Macmillan

Will the Prime Minister accept that if he makes price control a great deal stricter this is liable to put smaller businesses in a particularly difficult position in financing their stock and work in progress and in increasing turnover, which no doubt he would wish to see them be able to do? This applies especially to the smaller [column 918]retailer if the policy is to bear hard on prices, which are particularly important on the retail side to the family budget.

Secondly, the right hon. Gentleman referred to relieving employers of contractual obligations. If employers are put in the position of having to make people redundant, in the way which the right hon. Gentleman indicated he would be encouraging in the public sector, will he tell the House firmly now that they will be protected from action in tribunals and other courts for constructive dismissal and other measures which are contained in the Employment Protection Bill?

Thirdly, despite the phrasing of the last words in his statement, when he referred to “measures that are being taken by the Government, by the CBI and by the TUC” will the Prime Minister accept that responsibility lies in his hands and in those of his Government, as responsible to this House, and not, despite any need for consensus, with the CBI or the TUC?

The Prime Minister

Yes, Sir, I fully accept what the right hon. Gentleman said at the end of his question. The responsibility is fully in the hands of the Government as responsible to the House. We have sought to work through a consensus and agreement with the TUC and the CBI. I believe we were right to do that. I believe that the whole House welcomes the fact that we have been trying to do that. I do not in any way disagree with the right hon. Gentleman. I endorse what he has said. The responsibility falls fairly and squarely on the Government, in this policy as in others.

The right hon. Gentleman referred to the difficulties of some hard-hit firms in being able to maintain employment. I had those in mind when I said that the £6 was not an entitlement. He will know what my right hon. Friend the Secretary of State for Prices and Consumer Protection has done by way of easement, because of the very difficult liquidity position, in relation to price control and in other ways. What I was stressing today, and what she is concerned with, is that people in that situation or a more prosperous situation, must face tighter price control as a sanction if they pay more than the norm. In the cases referred to by the right hon. Gentleman, they are unlikely to do so. [column 919]

As to the contractual problems, the right hon. Gentleman will find these and related questions—some he mentioned—very fully dealt with in the White Paper.

Mr. Bidwell

Will my right hon. Friend agree that no matter how this is dressed up, it turns away from the declaration of our party at the last General Election, and that the Government are now embarked upon a dangerous, perilous course? If the inability to hold or reduce the prices of essentials for working people continues and results in a reduction of the standard of living of our people, there will be an explosion in our population which will reverberate throughout our entire movement.

The key, therefore—because this is only a very short-term course, which I am sure my right hon. Friend would agree is the case, as he has referred to this—is when we get a situation, hinging on the fact of the continuing rise in the cost of living, in which the employers say to workers “We cannot pay increases to compensate for the rise in the cost of living because your Government will not allow us to do so.”

The Prime Minister

I do not agree with my hon. Friend. Referring, as he did, to the question of profits, he must be aware of the sharp fall in profit margins over the past year, partly through outside causes and partly because of the strict controls introduced by the previous Government, continued and intensified by the present one. I totally disagree when my hon. Friend says that this is contrary to what we put before the country. In the manifesto, which I know very well, as he does, we said:

“But as it is proved that the Government is ready to act—against high prices, rents and other impositions falling most heavily on the low paid and on pensioners—so we believe that the trade unions voluntarily (which is the only way it can be done for any period in a free society) will co-operate to make the whole policy successful.” That is what the TUC has done this week and which we endorse.

Some of the criticisms made by my hon. Friend about interference with free collective bargaining are not so much of the Government as of the TUC. I should have liked to have heard him, [column 920]with his distinguished record in these matters, give full backing to the TUC, because that is the essence of the matter.

Mr. Powell

After so many similar experiments and their invariable failure, why have Ministers not yet learned that the attempt to deal with inflation by direct limitation of prices and wages leads only to further and still further controls which in the end collapse, leaving the nation as helpless as before in the face of inflation?

The Prime Minister

The right hon. Gentleman knows that we have debated this matter many times—in his case going right back to the 1950s. I do not accept his analysis and, still less, what I would regard as the dangerous consequence of adopting such a policy.

Mr. Thompson

While appreciating the seriousness of the situation, may I ask whether the Prime Minister realises that the economy of Scotland is now in better shape than that of England? Does he further realise that many Scots workers have lower wages than their counterparts in England? Will he therefore recognise that these measures will freeze Scots workers' wages at a comparatively lower level than those of their English counterpart? Finally, will he in all candour admit that he is asking Scots workers to make comparatively greater sacrifices for the common good of the United Kingdom as a whole?

The Prime Minister

I thank the hon. Gentleman for the tribute he paid to the improvement of the economic position of Scotland during the last 16 months. I discussed these matters with the Scotish Labour Party in Edinburgh early this week. Whilst still far too high it is a fact that unemployment in Scotland, compared with unemployment in the United Kingdom as a whole, is the lowest that it has ever been since figures were first recorded, and it is falling rapidly.

The hon. Gentleman may not be aware that on comparative wages Scotland has come up to about 99.5 per cent. of the earnings rate for the United Kingdom as a whole. It is our intention to see that all these measures, including now the Scottish Development Agency, continue to help that improvement.

[column 921]

Mr. Horam

Is my right hon. Friend aware that there is a good chance of these proposals being regarded as both fair and tough and that the essential basis of consent will be preserved as it has been in the negotiations with the TUC? Does my right hon. Friend agree that, to the extent that the norm is adhered to, not only will inflation be reduced but employment, investment and the position of the poorest in our community will be preserved?

The Prime Minister

I thank my hon. Friend for what he said. I entirely agree about the relationship between inflation, unemployment and the standard of living. This is what I tried to tell the National Union of Mineworkers earlier this week. I said that if they went for higher pay it would only be at the expense of employment particularly in the hard-hit coalfields and that what is true of the coal industry is true of the nation generally. I think that my hon. Friend put his finger on the problem.

Mr. Emery

Does the Prime Minister realise that his statement will be welcomed in many parts of the House as the sign of a complete U-turn of Socialist policies? Will he therefore categorically state that what he said means that no more than £6 a week can be obtained in the next 12 months by the coal miners? I ask this question because if the NUM accepts this policy there is a considerable chance that many more people will also accept it. Lastly, will the Prime Minister say that it would appear to be wrong to pay social security benefits to strikers who are striking against the £6 limit which is what the Government are trying to bring about?

The Prime Minister

Apart from the hon. Gentleman's last few words, with which I totally disagree, I should like to thank him for the welcome that he gave to the statement, and particularly for stressing the great importance of what we have seen in previous pay rounds—namely, a repercussion of one industrial settlement early in the pay round on others. Many unions and their members are very worried that, if they settle early in the pay round for a reasonable settlement on a voluntary policy, somebody else will get the advantage of bigger settlements later in the pay round. The hon. Gentleman was right to stress the [column 922]position of the mineworkers here. In answer to the Leader of the Opposition I said that we were not legislating or providing in the White Paper for any special cases.

Mr. Heffer

Does my right hon. Friend agree that it is not entirely true to say that the TUC agreed by consent in a free way to what has happened? This has been negotiation under duress with the threat that, if the TUC did not agree to such a statement, legislation of a strict kind would be brought in. Therefore, it is not true to say that the TUC arrived at this position with complete consent.

Is it not also true that 13 members of the General Council of the TUC—not counting four others who were not present but would have voted in a similar way—voted against this decision?

Irrespective of the way that this matter is dressed up, does not this proposal come down to some form of incomes legislation similar, despite the fact that the emphasis is on the employers, to what we have had in the past?

Is my right hon. Friend aware that many hon. Members on this side of the House consider this proposal to be a real U-turn, a move away from our manifesto commitments, and that we shall look at the Bill very closely indeed? Frankly, if it is a complete move away from our policies, we will not support the Government on this matter.

The Prime Minister

There was consent by the TUC. The negotiations were conducted entirely freely, not under duress or the threat of legislation. The duress under which the Government, the TUC, the CBI and the whole country are working and under which the negotiations were conducted was the fear of unemployment and inflation. It was that duress which led the TUC to take an initiative, and we discussed this matter with it. I am not sure from what my hon. Friend said whether he agrees with the TUC policies. It would be helpful if those who criticised what the Government have announced following negotiations with the TUC said whether they agreed with the TUC or rejected what it is doing.

Mr. Graham Page

Having regard to what the Prime Minister said about restricting borrowing by local government, [column 923]is he now going to withdraw that piece of legislation which will involve over £500 million a year borrowing by local government—the Community Land Bill?

The Prime Minister

The answer to that question is “No, Sir.” With regard to what I said about borrowing, the right hon. Gentleman will see that more clearly stated in the White Paper. It will be a sanction against any local authority which feels tempted to pay more than the pay limit.

Mrs. Jeger

Will the Prime Minister tell us how the limitation will affect our equal pay policy? In cases where the male rate is increased by the £6 maximum there will be women doing equivalent work who will need a higher rate of increase if the legislation is to be implemented. Will he assure the House that there will be no erosion of our policy on this matter?

The Prime Minister

When I said that there would be no special cases I was referring to particular industries, unions, and so on. The only exception to the whole policy is the implementation of the equal pay legislation. That is reaching its final stages over a five-year programme from legislation introduced by my right hon. Friend the present Secretary of State for Social Services. That will go on. In the legislation that we introduce there will be no remission, repeal or change in the equal pay legislation.

Mr. Gorst

Can the Prime Minister say how his measures will affect the self-employed? He will be aware that many millions of people, including the professions and people running one-man businesses, are self-employed. In particular, does he regard these people as workers who will not be subject to criminal sanctions or as employers who will?

The Prime Minister

The hon. Gentleman will find that this matter is dealt with in paragraph 24 of the White Paper. He will no doubt wish to study it and give the House his views on the matter when we debate it. Paragraph 24 reads:

“Last year self-employed people whose expenses amount to less than 10 per cent. of turnover were exempted from the Price Code. They will now be brought back under the Code. A number of self-employed groups [column 924]who are remunerated in part from public funds … will continue to be outside the Price Code, but in settling their remuneration the Government will take account of the pay limit.”

Mr. Ward

I accept the need to use the rate support grant mechanism to make local authorities play the game next year, but will my right hon. Friend undertake to examine with the Joint Consultative Council the local authorities the role of those authorities which for years have taken the rate support grant generously given by the Government and have notoriously under-spent and pocketed the difference? In the development of consumer advice centres—a step which I believe will be greatly welcomed throughout local government—will he undertake to ensure that provision is made in the rate support grant next year for very expensive, usually town centre, developments?

The Prime Minister

I am sure that my right hon. Friends the Secretaries of State for the Environment, Scotland and Wales, in their negotiations with the Joint Consultative Council and the Scottish Convention, will bear in mind all that my hon. Friend has said. No doubt my hon. Friend will want to monitor the results of the discussions in the light of the two problems which he has mentioned.

Mr. Anthony Grant

Can the Prime Minister confirm or deny reports that, as an example, the salaries of Cabinet Ministers will be cut?

The Prime Minister

There has been no discussion as yet of this problem. I cannot anticipate whether the suggestion will be made or what result would emerge from collective discussions on this matter.

Mr. Kinnock

Will my right hon. Friend accept that the last vestiges of voluntarism in this package and the intense loyalty of trade union leaders to the Labour Government make the package, in so far as it has been accepted, acceptable to the majority of the trade union leadership in the TUC General Council and will commend it to a large part of the Labour movement? However, does he recognise that this package presents the Government, and indeed the whole of the Labour movement, with a tragic dilemma in that if the reserve powers are used all hope of voluntarism [column 925]and co-operation will thereby be abandoned, and that if they are not used those powers and the influence which my right hon. Friend and the Government seek in order to sustain the value of the pound and many other considerations will not be effective and we may find ourselves within a short time faced with the same difficulties but with the most important shot of voluntarism gone from our locker?

The Prime Minister

I thank my hon. Friend for what he has said. I think he is right about some of the considerations in the minds of people in the trade union movement in making these remarkable proposals.

With regard to what my hon. Friend has called reserve powers, I repeat that we are not putting into legislation, as was in the final version of the 1966 legislation, a reserve power in the sense that legislative power is taken but not invoked until there is an opportunity for it to be debated in the House on an affirmative resolution. What we have got and have drafted is what I call powers in reserve so that if the pay limit is threatened by individual action or in any other way we should not hesitate to ask the House to put the legislation into immediate effect. So it is a power in reserve, but the House is not currently being asked to introduce legislation of the kind that I think my hon. Friend has in mind.

Several Hon. Members


Mr. Speaker

Order. This is a day for Private Members and I must preserve their rights. I can allow these exchanges to go on for only quite a short time.

Mr. Body

Does paragraph 46 of the White Paper, relating to monetary policy, mean that the Government accept the proposition that there can be no inflation without a surfeit of money? If that is so, if severe curbs are to be imposed on incomes, can the right hon. Gentleman say how he can prevent in the next 12 months the surfeit of money from going to those who have the good fortune to have assets to sell?

The Prime Minister

Paragraph 46 of White Paper, headed “Monetary Policy” —it is very short—is not an attempt to contribute to the vast amount of literature [column 926]on the theory of monetarism, Friedmanism, monetary controls or anything else. It is a short practical statement on how we propose to act. The hon. Gentleman will be aware that, under the present Government, the growth in money supply in the past year and a half has been very much reduced compared with the situation before we took office. At the same time the House will know tht one of the current problems has been the inadequate take-up of bank and other money available for long-term investment in industry. We want to encourage such investment. But the statement in the White Paper does not enter into theoretical controversy. It is a statement of policy.

Mr. Ogden

Is my right hon. Friend aware that, having taken some time to bring forward the White Paper, all that he and his Cabinet require is a little determination and a little courage and that we need some time to explain the purposes to our constituents and he will receive not only from his electors and mine on Merseyside but from every elector in the constituencies all the support that he requires? He has asked for a year for Britain. Now we should give it to him.

The Prime Minister

I am grateful to my hon. Friend for what he has said. I know that he will be saying in his constituency, which neighbours mine, what I shall be saying in my constituency this evening. I also welcome the fact that my hon. Friend, who has considerable experience of one of our great industries, the mining industry, speaks with great authority when he makes remarks such as those he has just made.

Mr. John Davies

The Prime Minister will realise that the formula which he has chosen to restrain the level of wages and incomes is bound to exacerbate the problem of differentials during what he calls the re-entry period. What provision is he making for continuing the pay relativity work carried out under the framework of the Pay Board which he so unwisely disestablished last year?

The Prime Minister

I said that we must not only make the policy effective but get a clear and viable policy for the later period. A great deal of work is being done on these questions, but the right hon. Gentleman will know from [column 927]his great experience as a Minister and when he was at the CBI and elsewhere that the problem is that if there is a percentage which is adequate for a lower-paid worker, if higher-paid workers say that they want the same percentage they will increase the cash differentials. This is one problem which has never been solved by all the pay research and relativity work which has been done.

Mr. Ashton

Will my right hon. Friend say what will be the situation for a group of workers who genuinely increase their productivity by 15 per cent.? Will they be restricted to a 10 per cent. rise or will they be able to get round the policy by becoming self-employed and going on the “lump” ?

The Prime Minister

They will be increasing their productivity in a way which will enable them to gain more than those who do not in the period following this year. In the past, while there have been genuine productivity agreements, particularly where there has been over-manning and so on, we have seen some “phoney” productivity agreements paid for and we have decided that we cannot stretch the policy to take account of that in the coming year. At the end of that year, those workers will be in a very good position to get the benefit of what they have done.

Mr. Jessel

Can the Prime Minister say what has happened to the social contract which he and the Chancellor of the Exchequer have repeatedly said was the only way of dealing with inflation? Or does he agree with Emerson that “consistency is the hobgoblin of little minds” ?

The Prime Minister

I am sorry that the hon. Gentleman approaches great national problems with silly little quotations like that. This is an extension of the social contract on the initiative of the very people who introduced the original contract. They know and the House knows that the Government have honoured their side of the social contract to the full. Some of the most statesman-like leaders in the trade union movement have taken the initiative in saying that we must fight inflation or the worst-off and poorest people will suffer, and investment and employment will suffer. That is why they have proposed this extension of the social contract, which I am sure [column 928]the hon. Gentleman, when he gives his mind to it, will greatly welcome.

Mr. Tomlinson

Will my right hon. Friend accept that while there may be theological differences on some aspects of the package, it will be welcomed by his hon. Friends in the House and by people outside? He said in his statement that there would be limitations under the Industry Act for firms which broke the social contract. Can he, therefore, make clear how this will apply to British Leyland, bearing in mind the amount of public money that the rescue operation there will entail?

The Prime Minister

I thank my hon. Friend for what he has said. The question of the Industry Act is a very difficult one, but I think that what we have said on the subject is right, although it sticks in the gullet a bit. If the Government, with the authority of the House, find £1 million to help maintain employment in a hard-hit area, they do not intend that half, or more than half, of that money should go to a pay claim in excess of what the country or the firm can afford. It is right for us to take this line. British Leyland will shortly be under a very much more direct and special relationship with the Government. I believe that it has already reached a settlement recently on the basis of the £6 limit. It will be the Government's duty to ensure that the capital investment in British Leyland on behalf of the nation is not frittered away by pay awards over the limit.

Mr. Crouch

While thanking the Prime Minister for still being here after more than an hour, may I congratulate him on having achieved a certain unity in his party? Is he now prepared to move on to the bigger task, in this very desperate time for our country, of achieving unity in Parliament and the country for the policies which are desperately necessary to save the country?

The Prime Minister

I thank the hon. Gentleman for his remarks. The way he put them was very much in line with what we have come to expect from him and is in accord with what he has been saying in public and on the radio recently. There may be disagreement in the House about the best way of securing unity, but the unity of the country is essential now in order to attack these common national problems.