The Prime Minister (Mrs. Margaret Thatcher)
I have listened carefully to what the right hon. Member for Cardiff, South-East (Mr. Callaghan) said. At least, no one could deny his claim to be an expert in the failures of Governments. He gave some carefully selected figures of the record of his own Government. Let me give a few more.
Unemployment more than doubled under the right hon. Gentleman's Government, from 600,000 to 1.2 million. Output per person rose by less than 3 per cent. over the five years between 1973 and 1978. Real disposable income per head fell in 1975, 1976 and 1977. Under the Labour Government, inflation reached a peak of 27 per cent. per annum. The party that he leads presided over the five most catastrophic years in Britain's post-war history.
The right hon. Gentleman is not the person to give lectures on Cabinet disarray and disloyalty. He should read what one of his former Cabinet colleagues said about him on 4 December 1968.—[Interruption.] Barbara Castle said:
“I think Jim Callaghan is the most disloyal and damaging member of the whole Government.”[column 1594]
The following year she said:
“We have taken care not to circulate any papers beforehand, knowing our Jim.”
—[Interruption.]
Mr. Speaker
Order. That is quite enough. [Interruption.] Order. There are two sides to this debate. The Leader of the Opposition had a reasonably fair hearing and the Prime Minister is entitled to the same.
The Prime Minister
After barely two years in office the right hon. Gentleman's party had brought Britain to the brink of total economic collapse. The country was saved not by his or his party's efforts but by Tory policies of monetary control and reduced public spending, humiliatingly imposed by the International Monetary Fund, and fully supported by my right hon. Friends and me.
As the monetary medicine began to work, the right hon. Gentleman tried to assign the credit to his incomes policy which promptly collapsed about his ears as his own lifelong allies, the trade unions, rejected both it and him. Having dithered over calling an election in 1978, he tried to buy off the industrial disruption of last winter and finally succumbed.
Today the right hon. Gentleman's party, increasingly infiltrated by people who wish to destroy the mixed economy—[Interruption.]—advocates a return to the policies of excessive spending and excessive borrowing which would lead inevitably to another collapse. When I hear the right hon. Gentleman doing his best to explain to us the nature of Britain's difficulties and the remedies he proposes, it is plain that he and his policies are part of our problem and they can never be part of the solution.
The right hon. Gentleman referred to trade union matters, steel, monetary policy, the minimum lending rate, earnings, and so on, and I shall try to deal with those points during the course of my remarks. But may I first set the magnitude of the problem that we face in its context.
There is general agreement that Britain's problem is basically one of fast inflation since the early 1970s and a rate of economic growth which, for the last third of a century at least, has been slow [column 1595]in comparison with that of our competitors. While we were living fairly comfortably in the 1950s, our industries were failing to modernise themselves: not so in other industrial countries. Faced by the destruction of the war, they were creating an industrial base to suit the needs of the second half of the century. Their industries were building for the future, but too many of ours were still living off their capital and former reputation.
During that time in the 1950s and 1960s we missed out on the rapid economic expansion which characterised the early years of the EEC. There was a continual failure to recognise how far and at how fast a rate Britain was slipping. Governments planned over-optimistically for increases in public spending which could be justified only on assumptions about economic growth which were seldom realised.
Between 1963 and 1979 public spending, as a percentage of GDP, grew from 34 per cent. to 42 per cent. The Civil Service expanded from 660,000 to 730,000. The numbers employed by local government leapt from 1.2 million to over 2 million. Thus resources were drained away from wealth-creating industry and commerce to the wealth-consuming public sector. Perhaps most significantly of all, the balance of power within our economy shifted as trade unions increasingly used their strength in key industries.
The Labour Party responded to these problems by increasing public expenditure by 9 per cent. over a period when GDP actually fell. Unemployment more than doubled during their stewardship. The Opposition legislated to put trade unions above the law. They gave them unprecedented new powers as part of the price for their temporary co-operation.
That was the position when Britain voted for a new start and a new Government. The people wanted a Government prepared to face the basic problems realistically, a Government who regarded Parliament as paramount and who were not subservient to any other group, however powerful. People knew that the necessary changes would take time, but they wanted us to make a start right away. Now they expect us to do what we were elected to do and not to be deflected by the fears or the indignant cries of the Labour politicians they sacked last May. [column 1596]
Our objective is clear: it is to return to steady economic growth, earned by people's own efforts in a free and responsible society Our first priority is to restore sound money and conquer inflation. We do not pretend that that alone will be sufficient to revive our economy, but we know that it is the essential precondition. We know, too, that freedom and social justice will be in peril unless we can get inflation out of the economic system.
The right hon. Gentleman and other Opposition Members challenge us because the retail price index has risen since the election. Let me remind the House of what the right hon. Member for Leeds, East (Mr. Healey) said in January 1979:
“Let us assume, for example … that the increase in the nation's earnings in the current pay round is as high as 15 per cent. … The most obvious and inevitable consequence of this assumption coming true would be that … the rate of inflation … would probably reach about 13 per cent. by the end of the year.” —[Official Report, 25 January 1979; Vol. 961, c. 754.]
That was the right hon. Gentleman's prediction if wage increases reached 15 per cent.
The reality is that earnings over the last pay round rose not by 15 per cent. but by 16 per cent. to 17 per cent. So, on the right hon. Gentleman's own arithmetic the rate of inflation would have been over 13 per cent. by the end of the year. And that before anything he would have done, if he had continued as Chancellor, on indirect taxes, and before the doubling of oil prices, which has added, and will continue to add, to the index. The charge that we have been responsible for all, or even most, of the price increases since the election is thus blatantly false.
The right hon. Gentleman rightly said that we did increase prices in the Budget—as a result of the increase in value added tax and other Customs and Excise duties. The purpose of those increases, as the House knows, was to switch from direct to indirect taxes, thereby reducing tax on the pay packet—a cause that the right hon. Member for Leeds, East occasionally espoused when he was Chancellor of the Exchequer but not frequently enough.
Most of the other increases that the right hon. Gentleman attributes to us are hardly our fault. Nationalised industry finances were rapidly moving out of [column 1597]control when we took office because of high settlements in the last pay round. Higher prices were the inevitable consequence.
Mr. James Callaghan
Gas and electricity?
The Prime Minister
The right hon. Gentleman calls out “Gas and electricity” . He knows that those matters were referred to his Price Commission. His Price Commission recommended far higher price increases for gas than the increases that have been implemented.
Milk prices to the farmer and distributor had to go up because the Labour Party delayed them before the election. The mortgage rate had to go up in spite of our efforts to get Government borrowing down. The spendthrift policies advocated by the Opposition would have pushed it up even further.
Yes, school meal charges have gone up from 25p in two stages to 35p.
Mr. Andrew Faulds (Warley, East)
If the right hon. Lady would look behind her, she would discover the best reason for not allowing television cameras into the Chamber.
The Prime Minister
I see that when I look at the hon. Gentleman.
Yes, school meal charges have gone up from 25p in two stages to 35p. But the former Shirley WilliamsSecretary of State for Education and Science put them up from 15p to 25p in one go, and she announced the increase from 25p to 30p well before the election.
Experience shows that the only sure way of attacking inflation is to keep the money supply closely related to the output of goods and services. Whenever Governments have not followed this simple rule—when money is in greater supply than goods—inflation has resulted.
It does not require A-level economics, or artificial labels like monetarism, to understand this. Even the Leader of the Opposition seemed to grasp it on 16 January 1979 when he said in the House:
“I make it clear that we do not intend, as a Government, to finance inflation … We intend to adhere to monetary targets, with inevitable effects both on the level of activity in the economy and on the level of unemployment.”
That is what the right hon. Gentleman said then. [column 1598]
So we are determined to bring the growth of the money supply down. There are only two ways of doing this—first, by reducing the burden of Government borrowing and, secondly, by ensuring that borrowing by the private sector does not grow too fast. If one or the other is too high, and if we are to achieve our monetary targets, interest rates inevitably have to rise. That is the situation we have been faced with.
I deal with Government borrowing first. The Government are borrowing too much because public spending is too high. The right hon. Gentleman has scarcely been helping to get that down. The plans we took over from Labour were totally unrealistic—over 2 per cent. growth per year and no allowance for Clegg and the explosion in public service pay. The Clegg comparability awards which the right hon. Gentleman left us to honour and pick up will cost an extra £2,000 million next year, and last year's settlements for civil servants and local government staffs will cost another £1,000 million.
By the time we took office, we were largely saddled with the Opposition's plans for the present financial year. We cut them back as far as we could—£1½ billion on programmes and another £1 billion through our policy on cash limits. Without that, Government borrowing for this year would have been higher and so, too, would interest rates.
Our revised plans for 1980–81 and later years will be published in a few weeks' time, and they will show substantial cuts on Labour's plans. The Opposition will no doubt mount a chorus of complaint in spite of the fact that they were able to cut them by 6 per cent. in one year under the aegis of the IMF. But what are the alternative policies? Are the Opposition suggesting that we increase income tax?
[Several Hon. Members: “Yes.” ] They did that in 1974 and 1975. More and more people were brought into tax. and as a result incentive and enterprise were destroyed.
Are the Opposition suggesting that we borrow even more and allow interest rates to rise still further? The right hon. Gentleman seemed to know the answer a year ago. In that same speech he said:
“What would be the result of a small increase … in the quantity of money financing [column 1599]very large wage settlements of 20 per cent. or 30 per cent? There could only be one result—the weakest firms would go to the wall and there would be more unemployment. In addition, instead of easing interest rates, the country would be faced with further tightening” .—Official Report, 16 January 1979; Vol. 960, c. 1554.]
The same holds true today. But for reasons of his own, the right hon. Gentleman chooses to ignore his own warnings.
The Opposition accuse us of being uncaring when we cut back certain spending programmes. Of course there are many things we would like to do in the social field, but they cannot all be done until we have a stronger economy. Yet we did provide for the pensioners' Christmas bonus last year. Moreover, we have introduced legislation to ensure that it is paid annually. In 1975 and 1976 there was no Christmas bonus for pensioners under Labour. Unlike the Labour Government, we did abolish tax on war widows' pensions.
Spending on the Health Service is not declining. And accusations that it is come ill from the party which between 1974 and 1979 decided to close over 250 hospitals. Education spending per pupil will continue to rise.
All these matters are part of Government spending and borrowing. I referred earlier to private sector borrowing and its effect on the supply of money and inflation.
In recent months, companies have been borrowing to finance not only high stocks but pay settlements that they simply cannot afford. If they go on doing so, interest rates will stay high, there will be less money available for new business and new jobs and companies will fail.
If that lesson is learned, the path to lower inflation will be shorter and less painful. But too many trade unions still seem determined to make demands which ultimately will inflict damage on themselves, on their fellow trade unionists, and on the rest of the community.
That is why—this brings me to the second main point that the right hon. Gentleman mentioned—we are determined to redress the balance of power in our society, away from the trade unions and in favour of the individual—whether he be a member of a union, a consumer, producer or taxpayer. [column 1600]
After the events of last winter, under the right hon. Gentleman, when this country suffered the deepest indignities and insults at the hands of militant trade unionists, the standing of trade unions had seldom been lower in public esteem.
For years trade unions had campaigned for greater legal powers for themselves in industrial relations and employment. The previous Government increased those powers still further until it seemed that, whatever harm trade unions inflicted on others, neither individuals nor industry had any legal redress.
But as well as a right to strike, there is a right to work. As well as the justice of a demand, there is the injustice that industrial action may inflict on others. As well as a loyalty to the union, there is a loyalty to family and to company. As well as a right to a decent wage, there is a duty to society to provide essential services.
It had become abundantly clear that, just as the unions had at one time sought redress from the arbitrary actions of employers, so today individuals, businesses and citizens were seeking protection from the power and might of trade unions.
There is in this country a widespread view, which we on this side endorse, that a person who is not a party to a trade dispute should be entitled to freedom to carry on his business and go to work unhindered. People feel that these rights should be protected by the law of the land.
These feelings were the origins of the Government's Employment Bill now going through the House. It will no doubt be vigorously opposed by some trade union leaders, by the militants and by the Labour Party, but not by the rank and file trade unionists, and not by the overwhelming majority of the British people.
The militants will oppose the provision for secret ballots. They do not wish the silent majority to be heard, even on matters which vitally affect their members' future. But the rank and file want it even if the TUC General Council does not.
The militants will oppose the provisions which restrict picketing to the place of work of the picket. But those who have been at the receiving end of secondary picketing at Sheerness and Hadfields will welcome them. [column 1601]
The militants will fight fiercely the provisions on closed shops which give the individual redress against the employer or the union or, in some cases, both. But the ordinary members believe that the remedy is long overdue.
Some trade union leaders will object to the clauses in the Employment Bill which prevent a repetition of the injustices practised by the SLADE union, injustices which were the subject of an inquiry, an inquiry to which the union refused even to give evidence. But those who work in the industry have been pleading for just this protection.
The Employment Bill begins to redress the balance of power in favour of individuals and those not involved in a trade dispute.
Some trade union leaders will acknowledge that what we are doing has to be done. Most trade union members know it beyond all doubt. The more quickly and smoothly we can make these changes, the more justice will be seen to be done, the sooner trade unions will return to public favour, and the quicker our economy will recover.
The right hon. Gentleman said a number of things about industrial policy. Of course, there are many other changes which are necessary to improve the operation of our mixed economy. The Government's job is to create the economic climate which will result in new jobs and present investment being used more effectively.
First, we want to increase the incentives and rewards for extra effort, unlike the Opposition. My right hon. and learned Friend Sir Geoffrey Howethe Chancellor made a start last year. We want a bigger gap between income in work and income out of work.
Secondly, in contrast to the Opposition, we believe that goods are produced more efficiently through competition in the private sector than under the monopoly protection of the public sector. Hence our programme on which we have started of denationalisation wherever this is possible.
Thirdly, there is much evidence that large firms, large plants, large organisations, are more prone to industrial discontent than smaller units. It is particularly to small firms that we have to look for many of the jobs of the future. [column 1602]That is where tax incentives and the reduction of controls are so important. Further, we are studying how best we can achieve the move towards smaller units in both nationalised and private industry.
Fourthly, Britain's industrial problems are not only those of low productivity, but in too many areas defects of quality, design, and delivery. This Government have restored to management the freedom and the responsibility to manage. We expect them to use it to improve their industry's performance.
The Government, however, can and will help to influence these matters by policy on public sector purchasing, and on research and development.
Fifthly, we must adapt to today's markets.
We recognise fully the problems of Britain's declining industries and those who work in them—industries which have similar problems in most of the older industrialised countries. These adjustments cannot take place overnight—whether in steel, shipbuilding or railways. [Interruption.]
Mr. Speaker
Order. I think that it is very unfair of hon. Members continually to interrupt the Prime Minister. No one should have to fight for a hearing in this place.
The Prime Minister
But they have to be made. The longer they are delayed, the more they tie up resources that could be deployed in new ventures. We must not flinch from the realities. It is easy for politicians to win applause by postponing the day of reckoning. That is only self-indulgence and deceit. It is what the Opposition practised in relation to these industries in the past.
The right hon. Gentleman referred to the present dispute in British Steel. It shows just what happens when people refuse to face the facts.
The previous Government poured tax-payers' money into BSC to cover its losses—well over £1,000 million over the five years that they were in office. This year, even before the strike, BSC was heading for a loss of over £300 million; and that the Government were prepared to finance. But we are not prepared to go on funding losses in 1980–81.
In May 1978, the right hon. Member for Chesterfield (Mr. Varley) endorsed [column 1603]BSC's aim of break-even by 1979–80, this financial year. But his right hon. Friend now wants us to go on providing for losses not just this year, but next year as well. And no doubt the year after that. BSC has offered a minimum of 14.4 per cent. in return for agreements on productivity. It says that there is scope for considerably more for those who want to earn it. The fact is that the dispute could end tomorrow on the basis of a substantial pay settlement for the steel workers.
The right hon. Gentleman put forward some proposals about what ACAS could do. The truth is that ACAS already has powers to appoint a conciliator, a mediator or an arbitrator with the consent of both parties. It does not need those powers. It already has them, and it could use them. The BSC has said that it would have either a mediator or an arbitrator, but the trade unions have refused. That is the position. All the powers are already there. They could be used, but it is the trade unions which will not use them, even though the members of the ISTC went out on strike without a ballot and without strike pay. They have now been out for about nine weeks and have been without good pay packets for that time. They could have had increased pay packets for that time.
Failure to reach a settlement can mean only two things—continued loss of earnings for steelworkers and their families, and a worse prospect for the industry. The longer the strike continues, the harder it will be for the BSC to get its business back and to achieve profitability, and the risk of greater redundancies will grow.
But I stress that we cannot hand over more taxpayers' money to an industry where earnings are already well above the national average and which has already received so much. We recognise the special problems which closures and redundancies are going to cause, especially in Wales. That is why the BSC has allocated a substantial sum for redundancy payments out of the £450 million cash limit for next year.
That is why my right hon. Friend the Secretary of State for Wales announced on 4 February the allocation of an additional £48 million to be spent over the next two years in the areas affected by the rundowns at Llanwern and Port Talbot. At a time when we have to cut [column 1604]public spending, the allocation of these funds on top of what would otherwise have been available to the Welsh Office is a clear sign of our determination to take effective action.
I spoke earlier about the wish of the British people last May for a new start and for a Government prepared to tackle the country's problems. We have been in power for less than 10 months.—[Hon. Members: “Too long.” ]—But already we have had to take hard decisions which the right hon. Gentleman could not or would not face. We have had to take decisions to cut Labour's irresponsibly inflated spending plans, and to try to give the taxpayer and ratepayer value for money; to restore incentives by getting personal taxes down; to enable council house tenants to become home-owners and to give a charter of rights to remaining tenants; to reduce waste in the public service; to honour our defence obligations to our own people and to our allies; to provide the British people with better protection against violent crime at home and to restore confidence abroad, not only in our currency but in Britain as an influence in the world.
All these things we were pledged to do, and with all of them we have made a firm start and achieved a good measure of success. Despite the need to retrench, last year we made the biggest ever increase in pensions and social security benefits. We have taken special steps to help the disabled, one-parent families and war widows. We have made the biggest ever cuts in personal taxes, benefiting all taxpayers and increasing allowances to double what was needed to offset the previous year's inflation. And we are doing pretty well abroad. The pound is a strong currency, free of exchange controls for the first time in 40 years.
If, in 1975, after their first 10 months, the Labour Government could have pointed to a record of achievement even remotely comparable with that, they would have been boasting. But as it was they were still floundering amid policies already doomed to failure.
We are facing Britain's long-standing and deep-rooted problems with firmness and realism, which is exactly what the British people want. Attitudes are changing, as we have seen at Sheerness, Hadfields and in South Wales, and the mood of realism is spreading fast. Perhaps [column 1605]it will never spread to the Opposition, which is why the country finally rejected the policies of yesterday at the election. That is why I ask the House today decisively to reject their motion, thereby expressing confidence in Her Majesty's Government.
Mr. David Steel (Roxburgh, Selkirk and Peebles)
There is one obvious difference between this no-confidence debate and the last four or five no-confidence debates that have taken place in the House. It is that I doubt whether any hon. Member has been out ordering his election envelopes in advance of the day. Of course, at the end of the day, the result will be boringly predictable.
But for all that, this is a good opportunity to take a look at the Government's whole record in industrial and economic matters. I want to say straight away that with some of the Government's declared objectives, we Liberals find no quarrel. Of course we want to see an incentive society. Of course we want to see the Government bringing public expenditure under control and establishing monetary discipline. But our quarrel with the Government is two-fold. First, there is no sign that their policy is proving effective. And second, the reason why there is no sign of that is that the Government have no other economic policy. What they are doing is not part of their policy; it is the whole of their policy. Monetary policy is all that they have.
I should like to set out six areas of policy where I believe the Government ought to be taking some action. The fact is that at present, as we suggested in our amendment, the Government's policies have proved:
“economically disastrous and socially divisive” .
Indeed, the Prime Minister is often characterised as a person of great conviction. But it turns out that her conviction means “10 years' hard” for the country as a whole. All the indicators—inflation, output, unemployment and investment—look bad in the years ahead. The fact is that the Government's greatest failing is that they are not uniting the country. That is why we have used the phrase “socially divisive” . I believe that they are incapable of uniting the country.