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3.30 pm

The Secretary of State for Defence (Mr. Malcolm Rifkind): With permission, Madam Speaker, I wish to make a statement about events in the former Yugoslavia over the weekend and earlier today. The House will be aware that following the recent attacks by Bosnian Muslim forces in capturing large areas of Bosnian Serb-held territory in the Bihac area of Bosnia, the Bosnian Serb army has been prosecuting a vigorous counter- attack in conjunction with Krajina Serb forces from over the border in Croatia. They have now recaptured most of the territory that they had lost.

In pursuing their attack, the Bosnian Serb army and the Krajina Serbs have launched a number of missile and artillery attacks against civilian population areas in the Bihac pocket, including attacks on Bihac town itself. Earlier last week there was an attack by aircraft launched from Krajina Serb territory. That increasingly serious threat to the Bihac safe area was exacerbated on Friday by a further air attack from Udbina air base in Krajina Serb territory, this time against the Bosnian Government's 5 Corps headquarters in Bihac using napalm and cluster bombs.

After consultation with our allies, the United Kingdom co-sponsored a Security Council resolution at an emergency meeting of the Security Council on Friday night, authorising the extension of the use of air power for the protection of the safe areas to the territory of Croatia. On Saturday, the Security Council passed two resolutions. The first, the United Kingdom- sponsored resolution 958, extends to Croatia the provisions of United Nations resolution 836, which allows the use of all necessary means to support UNPROFOR in and around the safe areas in Bosnia. The second resolution, 959, expresses the United Nations' concern about events in the Bihac pocket and condemns violations of international borders, particularly by Krajina Serb forces. It also calls on all parties to respect and co- operate with the United Nations protection force and show maximum restraint. On Saturday, Krajina Serb aircraft launched another attack, this time on the town of Cazin, to the north of Bihac. Bombs were dropped and one aircraft crashed into an apartment block causing civilian casualties. On Saturday night, following an approach from the United Nations Secretary- General to the NATO Secretary General, the North Atlantic Council met in emergency session. In accordance with Security Council resolution 958, the NAC authorised the conduct of air strikes in response to attacks launched from the United Nations- protected areas of Croatia threatening the United Nations safe areas in Bosnia. Such attacks would be conducted in accordance with existing procedures for co-ordination with UNPROFOR, and the NATO rules of engagement in force in Bosnia.

The House will wish to know that, following a request to NATO from UNPROFOR, at 12 o'clock today a force of 39 NATO aircraft launched an attack on Udbina airfield in Krajina territory. Two Royal Air Force Jaguar aircraft took part in pre-attack reconnaissance and two further aircraft attacked the runway. I understand that the mission was successfully completed. All NATO aircraft returned safely. The attack was conducted in accordance

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with the principles of proportionality, timeliness and the need to try to avoid collateral damage and civilian casualties.

I believe that the House will wish to support NATO's response at the request of the United Nations. Let me assure the House that that action by NATO does not herald any change in our view that the only lasting solution to this dreadful conflict is a negotiated settlement acceptable to all the parties.

Dr. David Clark (South Shields): I thank the Secretary of State for coming to the House to inform us that British airmen have been involved in an air attack in the former Yugoslavia. I speak for the whole House when I say that we are relieved that they have come back safely. Opposition Members recognise that the action is justified, in accordance with United Nations resolution 958. Clearly, the Krajinan Serbs felt that they had found a loophole in the United Nations armour and we are glad that it has been closed.

The action was necessary on two main counts: first, to stop the killing of innocent civilians in the United Nations safe area of Bihac. If safe areas mean anything, that is the least that could happen, especially in response to napalm bombing. Secondly, we believe that it was necessary to maintain the reputation of the United Nations and NATO, for the lesson is that threats should not be made unless they will be carried out.

What consultations have been undertaken with the Croatian Government as to that bombing and any other action? Does the Secretary of State feel that that action and any subsequent action might draw the Croats back into the fighting? Clearly, none of us would want that to happen.

What plans has UNPROFOR to protect the Bangladeshi contingent in Bihac? We understand that the Bangladeshi forces are very lightly armed and are unable to defend themselves. Are the reports correct that they have only one rifle between four soldiers? Although we recognise that no British troops are in the immediate vicinity, are there any plans to move any of our troops from, say, Bugojna or Travnik over to Bihac? Will the Secretary of State always bear it in mind that whenever such action is taken, however justified, it threatens the lives of UNPROFOR soldiers on the ground?

We agree with the Secretary of State's final statement that, at the end of the day, the only way in which the problem can be sorted out is around the negotiating table.

Mr. Rifkind: I thank the hon. Gentleman for his support on this matter. I shall respond to the two specific questions that he raised. First, with regard to the attitude of the Croatian Government, although the Croatian Government would not have been familiar with the precise details surrounding today's attack, I understand that they gave general support to the United Nations resolution allowing the use of air power in such circumstances.

Secondly, the hon. Gentleman rightly drew attention to the problem facing the United Nations Bangladeshi forces in Bihac. There are no British troops there, although there are 10 British military observers in Bihac, but primarily it is a Bangladeshi presence. Not only are they lightly armed, but their rations have not been resupplied for some time and they have been living on emergency rations for quite a long period. That is a serious matter. United

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Nations force commanders are urgently considering the necessary resupply of United Nations forces in Bihac to ensure that they have proper food, equipment and protection. The United Nations has never hesitated to call for close air support if there is a direct threat to United Nations troops. I am sure that that matter will be at the forefront of the consideration of the United Nations commanders.

Sir Nicholas Bonsor (Upminster): I am grateful to my right hon. and learned Friend for coming to the House and giving us that information. Is he able to reassure the House on two matters that I believe are of great concern? The first is that the Americans might take further action that would appear to be partisan on the part of the Muslim Bosnians and therefore jeopardise the safety of UNPROFOR forces. Secondly, if that occurred, will my right hon. and learned Friend ensure that adequate forces are available to make sure that we can get our people out safely if we are targeted by any or all of the warring factions?

Mr. Rifkind: I can assure my hon. Friend that any use of air power or any other action by NATO can be carried out only under the dual key arrangements. That requires the authorisation of Mr. Akashi, the special United Nations representative, and the United Nations commanders on the ground. My hon. Friend is correct to emphasise the importance of the safety of our troops. That, too, is the primary responsibility of the UN commanders. There is therefore no possibility of any action being taken by an individual country. NATO can operate only when requested to do so under the arrangements that it agrees and accepts as necessary.

Mr. Menzies Campbell (Fife, North-East): I offer my unequivocal support to Her Majesty's Government for the actions that they have taken at the United Nations and in the former Yugoslavia, not least because of the anxiety that many of us feel about the introduction of napalm and cluster bombs to the conflict.

Can the Secretary of State confirm that the operations that he has described were directed at denying the use of runways; and that, if necessary, the Government will support more operations specifically against aircraft or installations?

Mr. Rifkind: The details of the result of the attack are still coming through, but the information that we have at this stage is that much of the attack was concentrated on the airport and runway facilities. The runway appears to have been severely damaged in five places. Clearly, that will have profound consequences for denying the use of the airfield in future to Krajina Serb aircraft. Breaching the no-fly zone was an important part of the justification for today's attack.

Mr. John Wilkinson (Ruislip-Northwood): Clearly, Her Majesty's Government and the Governments of our NATO allies were entirely justified in taking the air action that they saw as necessary, because the Serb air force deployed in Serb-occupied Krajina was crossing an international frontier in prosecution of its offensive air operations, which is quite intolerable under the terms of Security Council resolution 959. Can the Government

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ensure that the Serbs realise that if there is any repeat of offensive operations of that kind, other bases, if used again, will be taken out, too?

Mr. Rifkind: Of course, that will be a matter for the United Nations and NATO to determine, but I think that the crossing of the international frontier, as my hon. Friend rightly says, provided an additional dimension of a sort that made the necessary response entirely justified. I am sure that any future incursions of that kind would invite a similar response.

Mr. Tony Benn (Chesterfield): Will the Secretary of State share with the House NATO's assessment of the American decision not to enforce the embargo, particularly in the light of his statement that that matter can be resolved only within the former Yugoslavia? What representations have been made to the American Government on the subject? As the United States is a member of NATO, what was the American response to those representations?

Mr. Rifkind: After the United States made its announcement, the Military Committee of NATO met to consider its implications. The committee concluded that the practical consequences were minimal and did not interfere with NATO's ability to carry out its task--although it would have to do that without the involvement of the two American ships. But the committee's overall judgment was that the announcement, while regrettable, had no practical consequences for NATO's ability to carry out its task in the Adriatic.

Mr. Cyril D. Townsend (Bexleyheath): Does my right hon. and learned Friend agree that the Serbs were given every conceivable warning over several days, even to the extent of putting at risk UN forces in the area? Secondly, will he strongly condemn the use of napalm in such circumstances- -a horrendous weapon at the best of times? Finally, has he seen the disturbing reports to the effect that the Bangladeshi battalion is grossly ill equipped, with, apparently, only one weapon for every four soldiers? Surely that gives the wrong signal; and should not the Security Council be doing something to re-equip them in due course?

Mr. Rifkind: I unreservedly agree with my hon. Friend about the use of napalm on this occasion. It appears beyond doubt that it was used in one of the air attacks in the Bihac area. That will invite universal revulsion, for the reasons that my hon. Friend has rightly given.

As for the UN and NATO response, there were three separate uses of air power by the Krajina Serbs. Because there was no legal basis for an attack on Croatian territory, the response had to await a Security Council resolution, which came about as a result of the United Kingdom initiative over the weekend.

I repeat that we share my hon. Friend's concern about the Bangladeshis. I know that the UN commanders regard it as an important priority to ensure that the Bangladeshis under UN authority are provided with all that they require to carry out their task.

Mr. David Winnick (Walsall, North): Is not the crux of the matter simply that if the action, which was fully authorised by the United Nations Security Council, had not been taken, it would have encouraged the Serbian warlords to carry out further air attacks? We hope that

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they will have learnt their lesson. Is not it part of the role of the international community to protect safe areas in the former Yugoslavia? Therefore, this action was totally justified. I am pleased that it has been taken and that the Secretary of State is accordingly reporting to the House.

Mr. Rifkind: I thank the hon. Gentleman. Of course, the United Nations always has a difficult task in that it seeks to be non-partisan in this awful conflict. The imposition of the no-fly zone has been an important achievement by the UN over the past two years, and such a flagrant violation of that zone justified today's response.

Sir Peter Emery (Honiton): Will my right hon. and learned Friend reinforce, not just in the House but through whatever international means of communication he has with the Serbs, that any sort of retaliation against the UNPROFOR force will be dealt will absolutely and immediately? We must protect men who are sitting in white armoured vehicles around the borders of that country and make certain that their lives are safeguarded.

Mr. Rifkind: I entirely agree with my right hon. Friend. The Government have emphasised from the beginning of this operation that close air support or any other military means that may be necessary to protect UN forces, including British forces, will have our full support. I believe that that is also the view of other countries with forces on the ground in Bosnia. Close air support has been used in the past, and I have no doubt that it will be requested again if the circumstances, in the view of the UN commanders, require it to protect the men under their command.

Mr. John Hutton (Barrow and Furness): While I fully support the use of force in these circumstances, may I ask the Secretary of State to say what consideration has been given to the designation around Bihac and the other UN protected areas of a heavy weapons total exclusion zone?

Mr. Rifkind: Under the terms of the existing authorities, it is for the UN commanders on the ground to determine whether they believe that the designation of any exclusion zone should now be extended to the Bihac area. One of the factors that they have taken into account over the past week or so is that one should designate such an area only if it can be effectively enforced on the ground as well as in the air. Clearly, the number of forces in Bihac give rise to some question as to whether that would be a feasible proposition. It is not a matter to be determined by anyone other than the United Nations commanders on the ground, who have the power so to designate if they are satisfied that that would have the proper consequence.

Lady Olga Maitland (Sutton and Cheam): Despite the heightened tension in Bosnia, will my right hon. and learned Friend confirm that he has no plans to withdraw British troops from that area, bearing in mind the fact that they are doing valuable work in protecting our aid programme, which is rebuilding hearts and minds in an important area?

Mr. Rifkind: That is indeed the case. British and all other United Nations forces are making an invaluable contribution, which has already saved hundreds of thousands of lives. The need for the UN presence in

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Bosnia will continue over the winter months. However, their presence there must be subject to the two criteria that we have emphasised from the beginning of the operation, which are: can they carry out their mandate; and can they do so without unacceptable risk to themselves? As long as both criteria are met, we agree that their presence is appropriate.

Mr. D. N. Campbell-Savours (Workington): The Secretary of State will know that UNPROFOR officials on the ground and western journalists with access to Sarajevo are alleging that United States personnel have been training Muslim militiamen and providing them with equipment. Will the Secretary of State deny that that is happening?

Mr. Rifkind: All I can say is that I have absolutely no reason to believe that those reports are true. I have seen the allegations in the newspapers. The United States Government have denied them and I have no reason whatever to believe that there is any truth in them.

Mrs. Jacqui Lait (Hastings and Rye): Does my right hon. and learned Friend agree that to the outside observer there appears to be little desire by the combatants for a negotiated settlement? Will he give us a military assessment of whether the combatants have a desire for peace? Does he have any estimate of how much of the UN supplies are being given to the combatants rather than to their wives and children?

Mr. Rifkind: On the first part of my hon. Friend's question, I can tell her that there has been substantial progress at the political level, given the willingness of the various parties, apart from the Bosnian Serbs, to accept the Contact group proposals. The failure of the Bosnian Serbs to accept those proposals has halted that process at present.

My hon. Friend asks about the military situation. The events of the past few days have shown how improbable is a military solution to this conflict. The Bosnian Muslim forces broke out of the Bihac area some weeks ago and captured some 200 sq km of territory, and that was seen as a major advance. Of course, the Bosnian Serbs have now responded and are recapturing the territory that they lost a short time ago. It is a process of gaining a few square miles or losing a few square miles of territory, but without any strategic change in the overall position. No one can be certain whether that will remain the case, but all the evidence suggests that none of the factions involved in the war is capable of achieving all its objectives by military means.

Mr. Peter Hardy (Wentworth): Does the Secretary of State agree that as runways can be repaired, it would be a good idea to ensure that they continue to be denied to forces that drop weapons such as napalm and put the UNPROFOR forces at risk? Until he gets an absolute guarantee that such weapons will not be used, will he ensure that JP233 is applied to the runways to deny their use for further outrageous conduct?

Mr. Rifkind: We trust that the Krajina Serbs will today have learnt the appropriate lesson that the breach of a no-fly zone and the use of aircraft to attack sites in Bosnia

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invites a strong and effective NATO response. We should like to believe that they will therefore desist from that activity. If they do not, they will invite further such action.

Mr. David Lidington (Aylesbury): Will my right hon. and learned Friend assure my constituents, especially those stationed at RAF Strike Command and RAF Halton, that the Government will not send British airmen into action in the Balkans except where their objectives are both precisely defined and militarily attainable?

Mr. Rifkind: Those are important criteria, so my hon. Friend is right to emphasise that, when the use of air power or any other military power is advocated in Bosnia-Herzegovina, we must be satisfied that it makes military sense as well as achieving political objectives. We have some fine men serving in the RAF and the other services and we owe it to them to ensure that only operations that make military sense are contemplated. That has been an important consideration for both General Rose and General de la Presle in their role as United Nations commanders on the ground.

Ms Angela Eagle (Wallasey): Does the Secretary of State share my horror at the use of napalm in mainland Europe in 1994? Will he emphasise to the allies that the Serbs must be warned not only by the fully justified action today, but in no uncertain terms that they must not continue to use such barbaric weaponry to pursue any war? Does he have any idea where the Serbs obtained those weapons and whether they have any supplies of other unacceptable weaponry, such as chemical weapons, that they may use in the Balkans?

Mr. Rifkind: We believe that the use of napalm anywhere in the world is repulsive and must be condemned. I have no evidence that the Serbs in the Krajina area have access to chemical weapons, but we must constantly monitor the position.

Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury): Can my right hon. and learned Friend confirm that while the UN resolution on the arms embargo is still valid, all members of NATO and UNPROFOR forces will enforce it, irrespective of the attitudes of an individual country?

Mr. Rifkind: The resolution requires all countries to respect the arms embargo. The resolution itself does not require individual countries to enforce it. NATO has accepted that task at the request of the United Nations and its commanders believe that they have the means to continue with it.

Mr. Malcolm Wicks (Croydon, North-West): In supporting this display of resolution--even at this very late hour--in the era of Serb aggression, can the Secretary of State advise the House on where the orders to use napalm came from? If he feels, as he might, that they came from the headquarters in Pale, would not it be in order that, the next time napalm is used, strikes are made against the headquarters, not just against the base that carries out the orders?

Mr. Rifkind: At this stage, we do not have information on where authorisation for the use of napalm may have originated. In addition to the Bosnian Serb forces central command, there are other Serb military leaders. It is by no means certain that those in Krajina come under the control or authority of the Serb commanders in Pale. It is

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a confused and decentralised system, and at this stage one should not necessarily draw the same conclusions as the hon. Gentleman.

Dr. Norman A. Godman (Greenock and Port Glasgow): Is not it the case that the American decision concerning the Bosnian arms embargo poses a formidable threat to not only NATO but, worse, our soldiers on the ground? Is it likely that other Governments may follow America's decision concerning support for the Bosnian Government against the Serbs?

Mr. Rifkind: I do not believe that the American action by itself will have consequences for the safety of our forces. Obviously, there is concern whether at some future stage a proposal to lift the embargo might be pursued and implemented. Clearly, that would have profound consequences for the UN's ability to continue in Bosnia. At the moment, we have no reason to believe that any other countries are contemplating reducing their current action in helping to enforce the embargo.

Mr. Mike O'Brien (Warwickshire, North): Air strikes only take us so far--the advance on the ground continues. How serious is the UN about safe areas? Can the Secretary of State reassure the House that the UN will take whatever steps are necessary to ensure that safe areas remain so?

Mr. Rifkind: The UN has the authority to call for the use of air power or other military means in protecting safe areas. The judgment whether to do so is for Mr. Akashi and UN commanders on the ground, who will wish to take into account all the implications of any initiative that they might recommend. If a request is made, it must come from them.

Mr. Hugh Bayley (York): Two weeks ago, I visited the Tornado and Jaguar detachment at Gioia and the VC10 and AWACs detachment. I pay tribute to the morale and commitment of our armed forces there. Can the Secretary of State reassure the House that the Royal Air Force will be given whatever material resources it needs in terms of fuel, flying hours and spares to enable it to enforce UN resolutions, and that the RAF will not have to dig into resources earmarked for training to undertake that important work in support of the UN in Bosnia?

Mr. Rifkind: I thank the hon. Gentleman for the compliment and proper tribute that he paid to the Royal Air Force and to its work in Italy, where the Jaguars are based. He will recall that in July, when I announced the outcome of the "Front Line First" study, I said that we were able to fund a substantial increase in RAF training and in the facilities available to pilots and others required to perform tasks on our behalf. I can give the hon. Gentleman the assurance that he seeks.

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Points of Order

3.58 pm

Mr. Max Madden (Bradford, West): On a point of order, Madam Speaker. On the matter of order in the House, I draw your attention to today's issue of the Financial Times , which has a front-page article based on a memorandum written by John Maples, deputy chairman of the Conservative party. Referring to my right hon. Friend the Leader of the Opposition, Mr. Maples wrote:

"Maybe a few yobbos of our own to try to knock him about a bit." While I am the first to accept that today's Tory yobbos are not a patch on those of the past, that article raises important issues for you, Madam Speaker, and in respect of the conduct of the House. Will you deprecate anyone who advocates concerted and organised efforts to undermine the procedures and order of the House?

Madam Speaker: That is an important matter for me. I certainly deprecate such behaviour in the House, and I say to right hon. and hon. Members in all parts of the House that while I or any of my deputies are in the Chair, we shall not put up with that sort of behaviour.

Mr. Tony Banks (Newham, North-West): On a point of order, Madam Speaker. Do you not find it interesting that the deputy chairman of the Conservative party at least acknowledges the fact that there are yobbos on the Conservative Benches? Do you have a list of potential yobbos? If not, will you accept one from me?

Madam Speaker: Let me tell the hon. Gentleman that I have not seen the article to which hon. Members are referring. It has been cut out and put on one side for me to read, in what are laughingly known as my "moments of leisure".

Perhaps we can now get on with the business of the House.

Statutory Instruments, &c.

Madam Speaker: With permission, I shall put together the motions relating to statutory instruments.

Motion made, and Question put forthwith pursuant to Standing Order No. 101(3) (Standing Committees on Statutory Instruments, &c.)


That the Broadcasting (Restrictive Trade Practices Act 1976) (Exemption for Networking Arrangements) Order 1994 (S.I., 1994, No. 2540) be referred to a Standing Committee on Statutory Instruments, &c.

Social Security

That the Housing Benefit (General) Amendment Regulations 1994 (S.I., 1994, No. 1003) be referred to a Standing Committee on Statutory Instruments, &c. -- [Mr. Wells.]

Question agreed to.

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Orders of the Day

Debate on the Address

[Fourth Day]

Order read for resuming adjourned debate on Question ,

That an humble Address be presented to Her Majesty, as follows:-- We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.--[ Mr. Dunn. ]

Question again proposed.

Industry and Education

Madam Speaker: Before calling the Secretary of State, I must tell the House that a number of hon. Members wish to take part in the debate. I have decided to limit speeches to 10 minutes between 7 pm and 9 pm. Outside those times, I ask hon. Members to limit the length of their speeches.

4 pm

The President of the Board of Trade and Secretary of State for Trade and Industry (Mr. Michael Heseltine): I welcome the right honMember for Copeland (Dr. Cunningham) to his new position and hope that he will be able to remain in it with distinction for a considerable time.

The first priority for a successful industrial and commercial policy is to establish the economic conditions within which enterprise and competitiveness can flourish. Last summer, the Government published a Command Paper outlining a comprehensive strategy to raise the competitiveness of the economy. The Gracious Speech includes a number of specific initiatives where legislative change is necessary to move that agenda forward, but before dealing with those and other specific matters it is appropriate to start with the overarching significance of the economy.

For decades, our companies have not enjoyed such favourable conditions as they do today. It is recognised internationally that the United Kingdom has led western Europe out of recession. Inflation is at levels not seen for nearly 30 years. National output is rising by more than 4 per cent. while manufacturing output is 5 per cent. up on a year ago. Industrial relations are as good as at any time in the past century.

The situation looks even better when one recognises that unit labour costs have shown the biggest monthly fall for nearly a quarter of a century. Wage levels increased by 4.5 per cent., but a rise in manufacturing productivity of over 6 per cent. has more than absorbed that. To improve the outlook further, I should say that the profitability of our companies is markedly higher than at any similar stage in past recoveries.

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The latest CBI surveys show that investment confidence is at its highest since April 1989, and the UK now attracts more than 40 per cent. of American and Japanese investment in the European Union. Export volumes to the European Union have risen by 17 per cent. in the past 12 months, although the market has grown only by 5 per cent. They have risen by 6 per cent. to the rest of the world and, increasingly, analysts speak of the elimination of the UK's balance of payments deficit within the foreseeable future.

We are enjoying high growth, low inflation, falling unemployment and a record recovery led by exports, which has coincided with rising investment. It is quite clear that the House, the national media and commentators outside should now recognise the dramatic improvement in our national economic statistics. The central determination of Government policy is to pursue that climate of opportunity. The central theme of the competitiveness White Paper was the comprehensive nature of the agenda for change that it encompassed. The Gracious Speech refers to two specific matters of direct concern to my Department: the liberalisation of the gas market and the privatisation of AEA Technology.

Mr. D. N. Campbell-Savours (Workington) rose --

Mr. David Winnick (Walsall, North) rose --

Mr. Heseltine: I give way to the hon. Member for Walsall, North (Mr. Winnick).

Mr. Winnick: The right hon. Gentleman has just mentioned the gas industry; earlier, he mentioned labour costs. How can he justify the 75 per cent. increase that will bring the salary of the gas industry's chief executive to about £500,000 a year, at a time when the Government are constantly telling people in both the private and the public sector that there is no justification for any pay increase above 2 per cent? Is not such an increase disgraceful, given that the gas industry is to raise its prices next year? It is an affront to millions of gas users.

Mr. Heseltine: The hon. Gentleman has heard my right hon. Friend the Prime Minister explain the Government's view on that many times. My right hon. Friend has said--and the Government believe--that it is necessary to exercise restraint. Restraint can be exercised by the market or by the shareholders, but the fact is that any increases in remuneration above inflation must be paid for by productivity and rising profitability. What the Labour party cannot face is the fact that British Gas has been turned into a world-class company, winning in the marketplaces of the world, has held down its prices consistently over the years and, since privatisation, has been transformed.

The Gracious Speech refers to two specific matters of direct concern to my Department. Before I deal with them, however, let me address the wider issue of privatisation itself. A decade or so ago, the commanding heights of the economy were owned by the state: that was the consequence of different post-war Labour Governments carrying through the doctrinal commitments of clause IV of their party's constitution.

Everyone knows that the organisations that those Governments created were monopolistic, producer-driven and subjected to the most intense Treasury control. By and large, they were denied access to the world

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marketplace and heavily subsidised; they became the plaything of politicians and trade unions. They also had the effect of concentrating power in London at the expense of the provinces, on a scale without precedent in our industrial history.

The 1980s saw a transformation in the relationship between those organisations and the national economy. Losses and subsidies were turned into profits and tax receipts; loss-making monopolies became world-class competitive companies; trade union power was replaced by consumer choice; and state ownership was converted into millions of individual and corporate shareholders. The essence of the policy, however, was the pursuit of competitiveness. In many cases productivity leapt, investment shot ahead, new markets were opened and new competitors emerged.

What the Labour party cannot understand is that there is a fundamental contradiction between a state monopoly and a genuinely competitive marketplace. Labour cannot realise that allowing Government-owned companies to raise money with the overt or implied guarantee of taxpayers' support undermines the essential disciplines within which private sector companies must trade and account. To add to Labour's problems, hardly a country in the world is now prepared to defend the discredited theories of nationalisation. It took the courage of this Conservative Government to confront those theories, and to reverse them by placing companies in the private sector, but every time we took a step in that direction it was resisted by the Labour party. Labour Members recognised that we were right only when they realised that they had been rejected so often by the electorate that they would have to abandon their own convictions to have a prospect of winning power.

Mr. Dennis Skinner (Bolsover): Will the President of the Board of Trade tell hon. Members whether he supports public ownership of the Post Office?

Mr. Heseltine: The hon. Gentleman is fully aware of my views about privatising the Post Office: I made my position clear to a Select Committee of the House. The intellectual arguments for introducing private capital into the Royal Mail are overwhelming; the only arguments the other way are social and political. I made it clear that the Government would have liked to proceed with privatisation, but that a small number of supporters on the Conservative Back Benches were not prepared to do so. In the end, democracy rules: I should have thought that right hon. and hon. Members might be able to understand that. The fact that it does so is the reason why Labour Members are kept bedded on the Opposition Benches.

Several hon. Members rose --

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