Manufacturing Industry and the Economy

HL Deb 21 February 1990 vol 516 cc283-352

3.18 p.m.

Lord Williams of Elvel rose to call attention to the role of manufacturing industry in creating a sustainable balance in the economy, and to the case for policies to achieve that end; and to move for Papers.

The noble Lord said: My Lords, perhaps I may first say that I look forward to the maiden speech of the noble Lord, Lord Crook, and that I do not propose to apologise to noble Lords for returning to the theme of the role of manufacturing industry in our economic future. Noble Lords may remember that two weeks ago today we debated a Motion in the name of the noble Lord, Lord Boardman, on the role of the free market economy. At that time in my winding up speech from the Dispatch Box I advised noble Lords that we would debate such matters further when we came to the Motion today. Today is our riposte.

This is part of a continuing argument which will no doubt become sharper as certain electoral events approach. That is no bad thing as, although there may be a measure of agreement among noble Lords about the diagnosis of our problem, there are fundamental divisions between us about the nature of the desired prescription. Noble Lords opposite believe, as they made perfectly clear two weeks ago, in the untrammelled operation of the free market. Our view is not only that that is in itself a false god but that the practical application of that belief has had destructive effects over the past decade which, with a more sensible economic philosophy, we could have avoided.

I am not concerned today to argue philosophically. We return to the theme of manufacturing industry for the simple reason that in our view it is absolutely fundamental to any strategy designed to secure the future economic success of this country. I cannot say that too strongly. I recognise that this is not a particularly original thought. It has been argued repeatedly over the past few years by many, including a long list of noble Lords from all sides of this House. But that does not make it the less valid. After all, the Sermon on the Mount, to quote an instance, was delivered some 2,000 years ago and has been repeated many times since. I am not aware that its message has suffered as a result of repetition or indeed that it is less relevant today than when it was delivered by its author.

I suppose that the most striking statement of the argument in favour of a resurgence of manufacturing industry came in the report of your Lordships' Select Committee on Overseas Trade chaired by the noble Lord, Lord Aldington. Like that Select Committee, in my Motion I am concerned not just with the immediate action that is needed to clear up whatever mess we may be in, bad as that may be. The debate today is not about short-term palliatives to correct the imbalances that we observe in the present economic situation. The Motion specifically and deliberately uses the word "sustainable".

This afternoon I propose to argue three points. First, I shall try to show that the economy is badly out of balance both in the short term and the long term and that we should do well to recognise that reality. Secondly, a sustainable balance in the long term will be achieved only with a thriving manufacturing base which is sufficiently broad and deep to be the real engine room of the economy. Thirdly, there are great opportunities open to our manufacturers but there are also great difficulties confronting them and therefore the Government —indeed any government —should even now be taking measures to maximise the chances of seizing the opportunities and minimise the chances of being tripped up by the difficulties.

I imagine that no noble Lord would seriously deny that the economy is out of balance in the short term. Indeed the Chancellor has admitted as much and even the Prime Minister accepted that part of the fault certainly lies with the Government. Inflation is stubbornly pushing up towards 8 per cent, and with a number of price increases in the pipeline it could go well above that. The private sector savings ratio is derisory. Growth has virtually ceased and in some sectors is indeed negative. Productivity improvements are becoming progressively harder to achieve yet earnings continue to rise. Unemployment is still too high on any method of counting and may well turn up again during the year. The balance of payments is still badly in the red and, although exports have shown a welcome strength in the past few months, it is on the back of a sterling devaluation since this time last year of some 10 per cent, against other currencies on a trade-weighted basis and over 13 per cent, against the deutschemark and also healthy growth in the economy of many of our trading partners.

That is a combination which, frankly, we cannot expect to continue indefinitely. Nevertheless it is still possible to imagine those short-term balances being corrected. By inflicting further doses of pain, which is the Chancellor's own prescription, the Government could ensure that domestic demand is reduced to the point at which inflation is brought down and the growth in imports brought to a halt. Equally, they could engineer further devaluations to allow exports to continue to take advantage of other countries' growth. It could happen and it might easily have to happen, since the policy options in the short term are rapidly narrowing. So I should expect a Budget that will add an extra twist to an already painful thumbscrew, with all the consequences for unemployment and the misery that that will bring.

I may appear to be cynical but I think that we have learned now how these things work. The timing of pain and its relief is dictated by one factor only: the electoral cycle. At least it worked that way in 1986. A successful devaluation, then tax cuts, credit expansion, and reduction in unemployment—and hey presto! we are told that we have an economic miracle, which even now has just been revealed to our admiring eyes.

Quite clearly the Chancellor's appointed task is to try to repeat the same trick to restore his party's electoral fortunes. We now know that there was no economic miracle. During the 1986–88 boom imports grew at over two and a half times the rate of growth in domestic demand, which is very significantly higher than in any previous boom. On the other hand, exports were deeply disappointing. No wonder it all ended in tears. In fact, the great supply side revolution that was alleged to have taken place simply did not happen. It was all a puff of smoke and we now have to grapple with the consequences.

We have had and still have a continuing and serious structural problem. It is the recognition of that fact that must be the starting point for a serious attempt to formulate a strategy for the future. But I am afraid that it is recognition of that fact which at the moment is so patently missing. I doubt whether we shall hear anything today from the Minister to indicate that the Government have woken up to what is happening in the real world.

Let me give your Lordships an example. We are constantly being told that the fastest growing category of imports has been capital goods and that British industry has been re-equipping. Leaving aside the question of what in fact is a capital good, the real question is: why is Britain importing goods that she previously made herself? Until 1980 we had a surplus on trade in capital goods. Why do we now have to import goods that appear to be in general demand? Sadly the answer is that that industry too has been wiped out over the past decade. We just do not make the right products. A free market made a short-term decision with long-term consequences.

Let me give your Lordships another example. For all that the Minister most certainly has in store for us today about investment in manufacturing industry, the truth is that net fixed capital formation in real terms in manufacturing was negative from 1981 to 1986, bar the special circumstances of 1985; and, although it was positive from 1987 to 1989, the decline that was inherent in 1981 to 1986 has not been made up. Therefore our real investment in manufacturing industry is lower now than it was in 1979. That is the truth. That has been the story of the past decade.

The real lesson is that it is easier to destroy than to create. Destruction is a matter of weeks or months; creation is a matter of years. We must recognise that reality now, starting today.

While that whole destructive process has led to an imbalance in our international accounts, wiping out several industries has led directly to a growing regional imbalance. In the South the growth in services has taken up the slack. That is very welcome. However, in many parts of the North, Scotland, Wales and the Midlands that has not happened. Nobody has created a financial services industry in Llandrindod Wells and there is no reason why they should do so. The result has been a widening of the income gap between North and South and differential in unemployment rates of quite unjustifiable severity.

If the regional imbalance is a matter of serious concern—because if there is a recession you can bet for sure that it is the regions that will suffer first—there is a further, and in the long term even most serious, imbalance to which I wish to draw your Lordships' attention. We do not appear to be doing well in precisely those sectors where we need desperately to do well. We seem to be falling behind in the area of high technology. The nature of the problem is illustrated by a simple look at the world's largest industrial companies.

If we take the top 800 or so companies, classify them by country of parent and principal industrial activity, and then by the proportion of turnover devoted to research and development, some depressing results emerge. For instance, the high research intensity group, which spends upwards of 2–8 per cent, of turnover on R&D, has been the fastest growing internationally over the past 20 years. The return on capital has been the highest. But the United Kingdom is worse off than any of our major competitors precisely in that group. In the low research intensity group, we are better represented —if that is the proper expression —than any of our major competitors.

Our conclusion therefore is that all the imbalances that have characterised the British economy have not in any way disappeared. Far from it—they have intensified in the past decade but have been masked by North Sea oil. We enter the 1990s with very serious structural problems which need addressing, and for which the policies so far pursued by government have been wholly inadequate.

Let me now turn to the essential role of manufacturing industry. I can best illustrate this by returning to the prevailing balance of payments problem. I can do no more that assert to your Lordships as a matter of absolutely straight arithmetic—as I and my noble friend have asserted before—that the balance of payments problem will be solved only if there is a resurgence of the manufacturing sector of the economy.

At the risk of repeating myself to the point of boredom, I must say that this factor should now be quite obvious. Let me rehearse the figures yet again. In 1988, our balance of payments on current account, before the balancing item, showed inflows of £168 billion and outflows at £182 billion. Of these totals, visible trade accounted for roughly £81 billion in exports and £101 billion in imports. Of those totals, £65 billion on the export side and £80 billion on the import side were in manufactured or semi-manufactured goods. In other words, exports of manufactures account for nearly 40 per cent, for current balance of payments inflows, and manufactured imports for some 44 per cent, of outflows. I say again that there is quite simply no way that any remotely conceivable surplus on services or dividends or interest on foreign balances or on income from foreign tourists coming to this country can possibly make up the manufacuring deficit. The magnitudes are just too great.

I therefore simply do not see that any noble Lord opposite, or any noble Lord on any side of the House, can dispute our major proposition that Britain's economic prospects in the 1990s will depend heavily on manufacturing success. We go into the decade with an external deficit of around 4 per cent, of gross domestic product, and to have any chance of closing that deficit domestic supply will have to grow faster than domestic demand, with an increasing proportion of our production being devoted to exports and import substitution. To achieve this, we must make products that will sell internationally, and these products must be at the top end of the high research, high value added range. All that seems to me to be wholly obvious.

There is no doubt that the opportunities are there. The European Market is becoming more open, providing us with the opportunities both for development of the single market and with the breakdown of the command systems in Eastern Europe. The countries of the Pacific rim will continue to experience high growth rates. There will be some developing countries which will be important markets for high technology products by the end of the century.

However, equally there are difficulties. Growth in the world economy looks as though it may be slowing down. The United States will sooner or later have to grasp the nettle of its external deficit and our exports to the United States could suffer as a result. Newly industrialised countries will be very competitive, in particular in those products in which at the moment we are best placed. There will be fewer school leavers available. Manufacturing is already attracting too few graduates, and both our management and workforce are poorly trained—in some cases not trained at all.

So what is needed by way of action, my Lords? First and foremost, manufacturers must be encouraged to invest in skills, in innovation as well as in plant and machinery. It is the worst possible policy in present circumstances to choke off investment by a policy of high interest rates. But that is exactly what is happening today and looks like continuing right through the Budget, well into the autumn and possibly to the end of the year. Secondly, we must recreate the notion of partnership between industry and government. Markets cannot do everything on their own. They cannot ensure the continuing system of high quality training that we need. They do not allocate adequate resources to long term research and development or to major infrastructure projects or to patient export promotion. Those are all areas of market failure and government must step in to help.

Lastly, we must recognise that the future of our manufacturing effort is in the hands of our major companies. We must remember that the largest 100 companies are responsible for half of our manufacturing exports and are the leaders of our research effort. Small businesses should not be overlooked, but it is the heavyweights that carry the punch. We can no longer allow ourselves the luxury of seeing these companies "put into play", as the current City expression puts it. In other words, whatever the merits of the company and its management, some clever market operator can make it look as though the company is a takeover target, so making himself the odd million or so, and throwing the management into a prolonged defensive campaign. That really is no way to create an atmosphere conducive to long term industrial prosperity.

We need a new set of policies to achieve the right substainable balance. We cannot go on dithering around as we are at present. I should like to think that this Government could make the policy change, but I fear the task is not within their power. Imagine this, my Lords. Their latest policy novelty is to give the Department of Trade and Industry a strong shot, not of adrenalin but of anaesthetic. It is to be put to sleep. The Department for Enterprise is to become the Department for Euthanasia. That is no way to go. We must change. We must start with a change of government; and the sooner the better. My Lords, I beg to move for Papers.

3.39 p.m.

Lord Joseph

My Lords, at six o'clock I have a long standing meeting arranged in this Palace with a very busy Minister. I hope that your Lordships will excuse me if I absent myself briefly from the debate at that time.

Your Lordships may be slightly surprised to hear me start my speech on this subject by saying that in one dimension I think the noble Lord, Lord Williams, has understated the problem. I do not agree with his particular solutions but we agree that there is a problem. The decline of our business in this country and in particular of our manufacturing business, is not just a matter of decades; it goes back a century or more. In sector after sector, and subsector after subsector, we have found ourselves driven out of markets, our home market as well as overseas. If noble Lords want a vivid demonstration of how that affected our desperate plight during the Second World War, my counsel is to read, if they have not done so, Corelli Barnett's Audit of War.

The £20 billion deficit is not the result of a sudden deterioration of a long-standing decline. It represents a failure to restrain the boom at the right time in the mid-1980s. The only people entitled to criticise that failure are those who bellowed at the time. I did not. Nor did the representatives of Her Majesty's Loyal Opposition. In fact they wanted a more relaxed monetary framework still.

So who is to blame for a century-old decline? I believe that noble Lords must accept that the blame has to be shared between governments, managements, owners of business and unions. We cannot put the decline of a century right in a decade. The problem is a serious one. There was no golden past for British business once international competition began, though individual British sectors and subsectors have been and are world leaders.

I believe that the Select Committee was quite right to focus on this problem. My quarrel with its report is about its failure, in my view, to analyse the problem adequately or to follow through its analysis. The recommendations of the Select Committee were mainly exhortatory, with some assorted suggestions for extra government spending and fantasies, if I may say so, about stable exchange and interest rates. As for its emphasis on education and training, we certainly all want better education for the millions of children who have done without it in this country. But we want it for their own sakes, though incidentally, of course, they will no doubt be able to be more prosperous themselves and to contribute more effectively to national prosperity.

The report of the Select Committee indulges in what the noble Lord, Lord Harris of High Cross, calls the national vice of looking primarily to the Government for solutions. Indeed the speakers in all the debates on the Select Committee report seem to have ignored powerful criticisms of it by the noble Lords, Lord Hanson, Lord Marsh, Lord Bauer, Lord Harris of High Cross and Lord Bruce-Gardyne.

Let there be no doubt that on one factor there is no difference between the noble Lord, Lord Williams, and me. The Government certainly have a decisive role to play in providing the framework necessary for business. But that role is to provide a framework that encourages business to be internationally profitable because it is internationally competitive.

It is the Government's job —and no one else can do it —to provide the framework, which must include minimal inflation, sensible trade union law, the enforcement of competition, no penal taxation, safety nets—but safety nets that do not demotivate—no price/pay dividend or exchange controls and nationalisation only when really justified. By and large, though with a big blot at the moment on inflation and interest rates, most of those necessary components for the needed framework have been provided. A start has been made on improving schools and training and on increasing the availability of private rented housing. Most of these elements are taken for granted in other industrial countries. Governments will always have to update the framework, as noble Lords will know to their cost in regard to all the legislation coming before us on such matters as food safety and the environment. But, provided the framework is there—and I quote the words of the Select Committee— It is surely for industry itself to improve its own efficiency". I hope that noble Lords will not think me arrogant if I talk now about good and bad management. To be a good manager or a good entrepreneur is intensely hard. I could not do it, but I recognise its importance.

At the heart of our problem, as has been the case over the century, is good entrepreneurship and good management. We have both in substantial quantities. We need much more. That is the problem. The dynamics of motivating good entrepreneurs and good managers by creating conditions which lead them where they are most needed is what the Select Committee should have discussed. Instead it came forward with a few paragraphs about the desirability of good management, without discussing where it could come from.

I do not lightly take issue with the noble Lord, Lord Weinstock, whom I see in his place. He has a towering reputation in business for his transforming work in our economy. But I was concerned to see him approving the Select Committee report in his speech of 3rd December 1985. His arguments seemed to support not more government intervention—I do not believe he favours that in general—but precisely what I am arguing for: the importance of getting good managers and entrepreneurs into the right place. One of his principal examples was the fact that between certain years and under similar conditions the export of manufactured products was exceeded by a factor of four by the import of manufactured products. Where was our management that we lost our home market on such a large scale?

I suggest that entrepreneurs and good managers are magic wands. It seems that standards of management in this country have risen over the past decade, but there are probably companies both public and private which are not vigorously and effectively managed. Many of these ill-managed companies will go out of existence sooner or later, as so many overmanned and badly managed companies vanished in the early 1980s.

How can better management be achieved? In theory, competition should improve management throughout the economy, but there are snags. Some boards are shortsighted. They want their salaries, they want their perks and they want their pensions, but they do not ensure that the company is competitive. Their shareholders, because they are indifferent, ineffective or simply sell their shares, do not make the management do their job properly nor do they sack them. What happens then? Sooner or later the company goes bankrupt. Jobs are lost, our relative prosperity dwindles, resources for public and social services decline, hands are wrung and Select Committees are set up to ask what should be done and by whom.

Sometimes good managers will make a takeover bid for a badly managed company. Sometimes the bid is successful, the turn-round succeeds and an additional part of the economy is made internationally competitive and profitable.

But must the answer always be the takeover? Cannot the owners perceive and replace bad managers? Who are the owners these days? They are overwhelmingly the institutions; the insurance companies, the pension funds, the investment trusts and the unit trusts. They hold the savings of almost 100 per cent, of the population. Are not they in an ideal position to monitor performance and to secure a change of management where necessary?

If an investment underperforms as a result of bad management, the institutional shareholders can either sell the investment in the market place or attempt to reverse the underperformance by replacing the management. Given that the institutions are investors of other people's money and that their primary skill is one of investment judgment, it would be understandable if they chose the former course of action and sold. However, institutions with longer time horizons accept that changing the management is often a more effective alternative. Although it is not realistic to expect the individual shareholders or the institutional ones to possess the requisite industrial expertise to make operational appointments, they can influence company affairs for the better by ensuring that strong, independent non-executive directors are appointed with whom they can consult when difficulties arise concerning management.

I hope that more and more the institutions will, in their differing groups—insurance companies, pension funds, investment trusts and unit trusts—consider strengthening their capacity to monitor management and sometimes, perhaps a bit more often than now, to act rather than to sell.

I believe that there are hundreds of the less large public companies and medium-sized private companies which, for one reason or another, are not internationally competitive and whose managements are not carrying out the changes necessary to become so in future. Such companies are drifting. Sooner or later they will close and jobs and markets will be lost at home and abroad.

Mercifully, at the same time I believe that there are mature experienced entrepreneurs and managers eager to try to rescue such companies for their own profit and satisfaction. Who knows how many there are? However, my question is at the heart of the problem which I believe the Select Committee should have considered; namely, what is the existing machinery for getting those people into the right places?

I turn to another group of agencies which the Select Committee neglected; that is, the venture capital world, which seeks to finance potential entrepreneurs and managers and which ranges from the long established ICFC—now 3i's—to the new breed. We must not judge those sober agencies by the excesses of frenetic leverages and junk bonds across the Atlantic, with all their ill consequences. Here, firms like 3i's, Electra and Candover—and I only mention a few—serve and can serve just the purpose we all have.

However, we should understand the dynamics involved. Where are the good managers whom we should like to see rescuing uncompetitive companies? Many such good managers are in large, generally competitive companies and yet feel ready to set up on their own to reverse the decline in another company or to set up one of their own. The venture capital world and head hunters know many of them.

Such managers would take risks if they made a move. They would give up their salaries, company cars and pension rights and would no doubt have to take a salary cut. They would give up relative security and have to persuade their families to share the risks with them. Silver and golden chains tie them to their present employment and yet those people are the magic wands which could help us achieve what we all want.

We need to consider, and in my view the Select Committee should have considered, whether we unwittingly put obstacles in the way of such people; for example, details of tax and pension. We need to understand the human dynamics which lie behind the problem of getting the magic wands into failing companies and into the empty economic sectors which our past failures have left.

I do not wish to be misunderstood. I am saying that good boards insisting on good management can transform companies, even in difficult sectors, even in those with adverse conditions across the world. That is especially true in the last decade when the framework which has encouraged good management has been coming into place. However, circumstances for such companies can be very difficult indeed. Our Government and the Commission sometimes quell some of the unfair practices. However, in nearly every sector of complaint some managements have succeeded, and I believe that with proper management more could do so.

We do not need to make everything in this country. As the noble Lord, Lord Williams, said, gaps mean opportunities. Already some are being filled and, given the right framework, I believe that more and more can be filled. I for one strongly welcome the incoming Japanese companies, which will not only fill some of the gaps but will insist upon nil defects from their British suppliers. I hope that improved practices will spread throughout the country.

Of one thing I am sure: the Government will not fill those gaps. Good entrepreneurs and good managers may. I wish that the Select Committee had considered those subjects.

3.54 p.m.

Lord Ezra

My Lords, I believe that our important debate today has got off to a very good start with the speech made by the noble Lord, Lord Williams, in introducing the debate and the speech which we have just heard by the noble Lord, Lord Joseph. Although they approached these problems from different points of view, I believe that there is common ground on two aspects of the matter which we are discussing. First, both noble Lords agree that there is a serious problem in regard to manufacturing industry; secondly, they both agree that the Government's role is to provide the right framework. Therefore, the debate is all about the nature of the problem and the sort of framework. I believe that that gives us a good basis for continuing the debate.

The noble Lord, Lord Joseph, referred extensively to the report of the Select Committee under the chairmanship of the noble Lord, Lord Aldington, in which I had the honour to participate. He expressed some doubts about some of the conclusions reached. Of course, I concurred with them because I was involved in the preparation of those conclusions.

However, I imagine that the noble Lord would not criticise the report in any way for its analysis of the problem and for drawing attention to it. The report was about alerting us to the fact that there has been a major change in regard to our manufacturing industry. For the first time since the Industrial Revolution we have moved into a deficit on the balance of payments and that is likely to grow unless certain remedies are taken.

Particular concern was expressed about what would happen when oil revenues diminished. I remember the major argument which we had with the then Chancellor of the Exchequer and the Treasury who consistently and vigorously took the view that when oil revenues diminished, there would be an automatic adjustment. Their view was that that would happen through the exchange rates, that there would then be greater opportunity for manufacturing industry which would rise in consequence, would earn more and, hey presto! the balance of payments problem would be resolved.

I believe that if the Aldington Report has achieved one thing, it has completely knocked on the head that theory of automatic adjustment. Far from an automatic adjustment taking place, the actual results of our balance of payments until the end of the past decade have turned out to be even worse than the figures intimated in the report, which were greatly decried at the time.

I continue on the question of oil. When we look ahead to the end of the current decade, on all the forecasts which I have examined we are likely to be more or less in balance as between the amount of oil produced in the North Sea and the oil which we need for our own consumption. As we move into the next century, we could start getting out of balance, and have to import again.

In that situation with the oil revenues on overseas account diminishing, what will take their place? Will it be invisible earnings? That was substantially contended at the time of our inquiries. However, we heard from the chairman of the Invisible Trade Committee that he did not consider that invisible earnings could continue to rise and progressively take the place either of diminished oil earnings or of diminished manufacturing earnings. Indeed he emphasised the point which we considered to be totally valid that, generally speaking, services go hand in hand with manufacturing and that if your manufacturing side does not thrive, your services also diminish.

Perhaps we can look at the figures for invisible earnings in 1986. We earned £6.6 billion net on our invisible account. In 1988 that had fallen to £4–2 billion and the preliminary figures for 1989, which we had only the other day, show £2–7 billion. It may be that the final figures for 1989 will turn out to be somewhat better because they usually do, but the trend is there. The fact is that invisibles will not fill that gap and therefore we are inevitably back to the question of manufacturing.

Manufacturing industry will play an increasingly crucial part in our affairs during the 1990s, as the noble Lord, Lord Williams, so effectively emphasised. There is no alternative to that. It is appropriate therefore to look at what has happened to our manufacturing industry over the years. There is no doubt that there has been a progressive decline in the share of manufacturing industry in the total activity of the economy. In 1970, for example—not to go back any further—manufacturing industry represented 29 per cent, of GDP whereas in 1987 it fell to 24 per cent. It is perfectly true that there were similar falls in other countries. What, however, disturbed the Select Committee and is disturbing to us now, with even more knowledge of what has happened, is that the build-up of our manufacturing base has been slower than others.

Since the recession of 1979–81 when our manufacturing activities were cut back (as was the case with other countries) we have built up much more slowly. We did not reach the 1979 level again until 1987. Our manufacturing output is now some 10 to 12 per cent, above that for 1979, but in Germany and France it is over 30 per cent. more. In other words, we have fallen behind in expanding our manufacturing base from that very seriously declining situation in 1979–81.

It will be said that in the meantime there has been a quite remarkable improvement in productivity. Indeed there has. That is a great success story. Much tribute is due to British industry and what it has done in the period since 1981 to improve productivity. However, the question is: were those productivity increases in that period on a sustainable basis? All the indications are that they arose because of a massive shakeout of labour and very substantial closures of inefficient plants. I do not say those things should not all have happened—maybe they should; maybe they should not—but that is why productivity improved. We cannot go on doing that. We can only have this shakeout once and for all. Inefficient plants can only be closed once. The fact remains that if we want to maintain anything like the level of productivity we had in the latter part of the last decade, we will need to source it in a different way. It will inevitably have to come from much greater investment. That is the only way it can be done.

Let us look therefore at investment. Investment in manufacturing industry is best measured as a proportion of total output in order to make comparisons with other countries. In the last five years our investment has been around 10 per cent, of the total value of the output in manufacturing. That compares with 15 per cent, in 1970; but what is worse is that with that 10 per cent, level we were bottom of the OECD league. In other words, over the past five years all other major manufacturing countries in the OECD area have been investing in manufacturing industry at a higher relative rate than we have.

Lord Joseph

My Lords, will the noble Lord agree that it is not only the quantity of investment which matters, but it is the use to which it is put? In this country, thanks largely to union problems, we have the lowest output per unit of investment of any of our competitors. That has been improving in the past 10 years, but it has been a great clog on our economy.

Lord Ezra

My Lords, I entirely agree. Many excellent things have been done in the past decade, but we are concerned with the springboard for the next decade. I am merely suggesting that our level of investment has been too low so far. What is worse is that if we depend on that level of investment in order to maintain and sustain productivity, we will be woefully behind. That is a conclusion one inevitably comes to.

How then do we tackle this? Is it something that we can leave entirely to market forces? That comes back to the debate introduced recently by the noble Lord, Lord Boardman. Can this be put right entirely by market forces? Market forces of course have a very important role to play, but generally speaking market forces operate most effectively in the short term. Market forces are effective in establishing a price relationship between goods which are actually produced at any given time and the demand for those goods. However, where market forces tend to fail is in the long term allocation of resources. Our market forces in Britain are very much dominated by the analysts' reports, Mr. Lawson's "teenage scribblers". I do not know how many of your Lordships are familiar with these reports, but they are excessively short term in their view. The fund managers—all the worthy funds like the National Coal Board fund, of which I am a beneficiary, so good luck to it—compete on a quarterly basis for their success. From the market point of view there is no long-term approach in the way we are organised in Britain. Therefore one of the essential elements of this framework about which we are talking is to provide the basis for a long-term investment approach. That seems to me to come inevitably out of the present situation.

I should like to suggest ways in which we might tackle that and essentially the question of investment. Not only should we be working out a long-term investment strategy but, in the short term, with the much reduced investment intentions of the CBI and others, I believe the opportunity should be seized in the next Budget to do something fiscally to counteract the declining trend in short-term investment to act as a springboard for longer-term investment. I think something like investment allowances and depreciation allowances should be looked at to put that right.

I conclude by saying that here is a crucial problem. Inevitably manufacturing will play a more important role in our future developments. What we have to do is catch up at double the rate that we were previously doing in order to solve the problem.

4.8 p.m.

Lord Crook

My Lords, I first thank noble Lords for the welcome they have given to me on my arrival at this House. I trust that your Lordships will not think that I am being controversial if I seek to extend the term "manufacturing" from the factory and out into the open air.

I believe manufacturing industry ought to be taken to embrace civil engineering and construction industries, of which I have been a part. For most of my working life I have been a member of a firm of consulting engineers. Our industry is responsible for the manufacture and repair of the infrastructure—drainage, reservoirs, water supply tunnels, roads and ports; all mundane, unglamorous objects which we very much take for granted. However, by its activities at home and on account of the exports that it makes, I believe that our industry may certainly claim to help create a balance in the economy, even though we may have to use a predominance of foreign plant and equipment so to do.

The design of major projects requires insight into the lives of those who will be directly affected by them. I realise that objection is so often raised about the mess and inconvenience which is caused when, for example, a motorway has to be driven across the countryside with loss of property and dislocation of rural activity. We do not take pleasure in inflicting that upset, and in designing works we try to do our best to minimise public inconvenience.

Each project is special to itself. It requires innovation and the application of wide-ranging techniques by a multi-disciplinary team that should be directed by engineers having considerable breadth of experience and management skills. Putting together such a group represents a significant capital investment and it follows that the economy must stem from having some degree of continuity of employment between one job and another for these various design teams; a stability that can be helped by having a stable home market and the willing acceptance by that market of novel solutions to old problems.

The export markets expect that innovation will have been proved in the home market before being employed on their jobs. They do not wish to be guinea pigs for our experiments. The clients in export markets insist on seeing for themselves before buying. So again it is the home market which must encourage new ideas for the construction industry for the benefit of home economics and for exports.

As regards policies, central government control road building, and road building proposals are now emerging. It will be interesting to learn a little more of what is proposed. Equally, the newly-privatised water companies will have to spend copiously to bring sewerage and water supply up to modern standards. It is hoped that before long there will be some indication of the nature of these works. Each of these two sectors of activities has the potential to be the shop window for what the construction industry can achieve.

This afternoon we have had the Second Reading of two Bills for the Greater Manchester (Light Rapid Transit System). Elsewhere in the world even quite modest cities are finding it worthwhile to avoid the growing cost of providing highways and parking spaces by building such schemes both above and below ground, so that people can travel more conveniently from outside to their places of work or for their shopping.

Such systems of transportation must surely be appropriate to our smaller cities too. It would be far too controversial if I were to make suggestions as to how such schemes might be initiated, financed and operated. But come they will, and many sectors of industry will have a part to play in seeing that these schemes are brought to fruition. It is to be hoped that British firms will play a major role. However, the fear must be that Continental firms, hungry for further work and having evident competence, will take over our market, unless the home industry has had the opportunity to demonstrate that it has skills in these matters.

4.13 p.m.

Lord Dormand of Easington

My Lords, I know that all of your Lordships will wish me to congratulate the noble Lord, Lord Crook, on an excellent maiden speech. I can assure him that many of us in this House do not regard the building of tunnels, roads and similar projects as mundane affairs, which is what he said. Indeed, many of us would welcome more of such construction in our own areas. Making one's first speech in this House usually presents certain problems but the noble Lord has overcome them without the slightest difficulty. His speech was informative and presented in a most persuasive manner. There is no doubt that the noble Lord will be a most valuable Member of your Lordships' House, and we look forward greatly to further contributions from him.

Whenever we on this side of the House ask for evidence concerning what the Government persist in calling the economic miracle, we are given statistics which are almost always at odds with those provided by the recognised independent authorities in these matters. Nowhere has this been more evident than in dealing with the theme of this debate today; namely, the manufacturing base of this country and its progress, or lack of progress, during the nearly 11 years of unbridled power of this Government.

Therefore, it was with very great interest that I read the answer given in December last in another place to a question asked by a Tory Member about the rise in manufacturing output in the leading European economies between 1973 and 1988. The figures given show the following: there were increases of 33–5 per cent, for Italy; 17–5 per cent, for West Germany; 13–26 per cent, for France and for the United Kingdom there was an increase of 3–26 per cent. So much for the economic miracle from the Government's own figures.

In talking about the supply side of our economy, it is not just that the savage early deflationary years of Thatcherite monetarism, already referred to by previous speakers, wiped out huge sections of manufacturing industry which were so widespread that the economy has barely recovered from it, but equally disastrous were the Lawsonite policies which have exacerbated the position. The Lawson horse bolted, completely out of control, down the same old reflationary cul-de-sac. Now, at the far end of that cul-de-sac, we come up against the high wall of a 15 per cent, interest rate and an adverse balance of trade of about £20 billion.

Ministers keep whistling in the dark to bolster their spirits, and they whistle even louder when they are confronted with the figure of 3–26 per cent, which I have just given. But there is never any mention of the loss of nearly 2 million manufacturing jobs during this decade —indeed, it is more than a decade now —of Tory government in which no fewer than 141,000 jobs were lost in the northern region, my own area. I shall say more about that later.

When the Minister comes to wind up the debate I challenge him to deny that it is only in recent months that manufacturing output has exceeded the level of 1979, almost 11 years ago, when Labour left office. All of this—we shall keep repeating it from these Benches; my noble friend Lord Williams said it when opening this debate—against the massive economic cushion of North Sea oil.

I believe that what the Government have done in the past decade was aptly summed up in a recent comment by a professor of applied economics who said: This is like jumping off a cliff and then congratulating yourself on having climbed back to the top". If our manufacturing base is to achieve the level it should, and that includes being able to compete with the rest of the world and in particular with our fellow members of the EC, it will be necessary for vast improvements to be made in two respects: in training and in research and development. I have raised both these matters on many occasions in your Lordships' House and today I shall not repeat the details. What I do say is that the Government are tackling training in the wrong way by making it the entire responsibility of the private sector. We shall pay a high price for that mistake, quite apart from the fact that spending on training programmes this year is £190 million less than the Government originally planned, and by 1992 that figure will have fallen even further. That really is eating the seedcorn.

I hope that no one will deny that research and development are essential to satisfactory economic progress, yet Government spending on civil research and development has been reduced in real terms by 2 per cent, since 1985. From my reading of the recent White Paper it appears that it will be cut by a further 8 per cent, between 1992–93. In a recent debate and in reponse to my request, the Minister promised to issue the findings of the Government's investigations into research and development carried out by the industry itself. As the Minister knows, and I am sure your Lordships know, that is an exercise which is carried out every four or five years. I shall be grateful if the Minister will not only confirm that promise but also give some indication as to when the report will be made available.

On Teesside, where I have the pleasure to be deputy chairman of the urban development corporation, I am glad to say that when I proposed a research and development centre for our own area I found that I was pushing against an open door. We consulted the different types of industries there, largely manufacturing, and the project has made an excellent start.

In opening the debate, my noble friend Lord Williams of Elvel referred to the importance of the regions. I turn now to the effect of these and related policies on the regions, and in particular to the northern region, although much of what I have to say will no doubt apply to other regions.

When I raise the problems of the North in this House, I am regaled with a string of statistics purporting to show how much things have improved in the five northern counties which constitute the northern region. It would be wrong to deny that matters have improved, but they have done so with only minimal help from the Government. Surely it is a basic truth of economics that in an industrial economy the standard of living improves anyway because of innovation and invention.

We on this side believe that in areas like the North of England government help and intervention are essential because of the acute imbalance between different parts of the country. It may well be that the kind of thing I am talking about is what the noble Lord, Lord Joseph, referred to when he spoke of setting the framework, although he would probably agree there might be a difference of opinion on what constitutes the framework.

Surely the most important criterion is unemployment. The national figure in December 1989 was 6–4 per cent. The figure for the northern region was almost exactly 50 per cent, higher, at 98 per cent. Even that figure is somewhat misleading because it includes areas of the highest unemployment in the country. For example, when a pit closes there is simply no other work available and it is not unusual for a local community to have 50 per cent, unemployment. When I first became a Member of another place there were 14 pits in my constituency. When I left four only remained. Whole communities were devastated. That is still happening.

Regional aid for the North and the Midlands in 1986 was £350 million. That sum has been reduced every year since then, and in 1992 it will be £190 million. Perhaps the most devastating statistic, particuarly in the context of this debate, is that manufacturing investment in the northern region fell by no less than 43 per cent, during the period 1979 to 1987. That fall caused a 12 per cent, increase in unemployment. (Perhaps I may say to the Minister that those are government figures taken from the recent issue of Social Trends.) That figure is quite astonishing, and there will have been a number of causes for it, but its sheer size demonstrates the indifference of the Government to what has long been the hardest hit region in the country.

In the autumn Statement the Secretary of State said that regional aid would be cut further. He also said that aid to English Industrial Estates would be further reduced. One of the worst industrial bottlenecks in the North is created by the lack of advance factories, and English Estates have for some time been the main provider of those factories. They are a great incentive to potential investors in the region and it is lunacy to reduce the number being built.

Perhaps I may give a few more figures. In 1987–88, 71 advance factories were built in the region. In 1988–89, 10 were built, and in the current year, 1989–90, 37 will be built. I say to the Government that a return to the 1987–88 figure is of the utmost importance.

There is great scope for improvement in the infrastructure. Here again I confirm what the noble Lord has just said in his excellent maiden speech. I need not tell your Lordships that this is one of the most important kinds of investment because of the multiplier effect. When I asked a Question a few weeks ago on aid to the northern region a Member from the Government Benches said the following in referring to the North: The Government can legitimately play a useful part in the restoration of areas in which employment is rendered difficult by the reason of the closures of various industries, namely, infrastructure. There are communications, airfields and ports, there are fields of higher and further education, and there is housing. There are many areas which can properly be made the subject of a survey and can be used as a source of further employment". That was said by the noble and learned Lord, Lord Hailsham. I assume that he still has some influence with the Government and I hope the Minister will today take note of those remarks, particularly because, as the Minister will recall, Lord Hailsham was for some time the Minister for the North. It also happens that his son, Douglas Hogg, MP, has recently been given responsibility for the North, so I hope that he will listen to that fatherly advice.

On another aspect of regional aid, can the Government honestly say that the abolition of regional development grants has been a success? The main case in favour of RD grants was their certainty and the stability which they gave to companies. When the Government contemplate changes of this magnitude, I wonder whom they consult and talk to. I always found in talking to industrialists that RD grants rated as one of the major incentives when considering a move to the North.

The North is sometimes accused of holding out the begging bowl. Perhaps I may say to the Minister that we help ourselves. I call in aid the statements the Government have made. They have heaped praise on the formation and progress of the Northern Development Company. I would remind the Minister and your Lordships that that company was set up by local business, local government and local trade unions. The Government were rather hesitant at first about helping and gave what is now looked upon as a token grant. I hope that the Minister will recognise the splendid work which has been done and that this is something which will continue to be supported.

The regional problem has become one of the most spectacular blemishes on the Government's already devastatingly weak manufacturing record. The regions have felt and still bear the burden of government policies, not least those allowing the branch plant economy to develop during their long period of office. The branch plants are the first to close, and that will continue over the next two or three years.

When the Government talk about the economy being overheated, it is because certain regions are overheated. The northern region and other regions have never in my lifetime been overheated, and the basic requirement is a regional strategy which will encourage manufacturing industry to move to the underheated areas. This Government with their blinkered market forces orientations have signally failed to recognise the fundamental needs of a strategy which has to be seen as part of a comprehensive whole. In benefiting those areas which are hardest hit, the North and others to which I referred, it will contribute to the success and prosperity of the whole nation.

4.28 p.m.

Lord Jenkin of Roding

My Lords, I should like to add my words of congratulation to the noble Lord, Lord Crook, for a very interesting and, if one may say so, relevant maiden speech. He need make no apology for talking about the construction industry in a debate on manufacturing. We listened with great respect to what he said and he will discover, as no doubt he already has, that people who come with a long experience of an outside industry—and the noble Lord is a member of the Institute of Civil Engineers—will always be listened to with respect in this House.

I make the point about manufacturing industry simply in order to raise one matter. I am sorry that the noble Lord, Lord Williams of Elvel, is not here because in the demonology of the Labour Party the construction industry is part of services; it is not part of manufacturing. It was charged with SET and had various other impositions put upon it until those discriminatory taxes were removed.

The construction industry is an important part of manufacturing industry. It contributes enormously to our capital investment and it is a major foreign exchange earner. Many of our leading construction companies are among the world leaders in their fields. It well behoves any government to look carefully to the health of the construction industry. The noble Lord, Lord Crook, made a number of valid points on the industry.

The noble Lord referred to the outdoor industry. I shall turn to the indoor industry. There is a great deal of common ground in the House on that subject. There is rather more common ground than some of the more partisan speeches may have indicated. It is no help towards trying to analyse the problems —there undoubtedly are problems —if we try to pretend that all evil started in 1979. It is now widely recognised that the decline, as my noble friend Lord Joseph said, of this country's manufacturing industry goes back a long time and owes at least something to some deep-seated cultural characteristics of our society, which in some respects seems to have taken a wrong turning—it has been well chronicled in a number of important books—somewhere about the middle of the last century. It is proving extraordinarily difficult to try to reverse those cultural obstacles to the recognition of the importance of manufacturing industry.

I hope that I can stand before your Lordships as an acknowledged convert. There may be some in your Lordships' House who may remember speeches that I made to the CBI, the Chemical Industries Association and the annual dinners when I was Secretary of State for Industry. I quoted figures to scotch the idea that this country could hope to survive solely as a service economy. At that time we had something like 10 per cent, of the world's trade in services—a big percentage—but if we were to seek to do without manufacturing industry we would have had to increase that figure to 50 per cent, of the world's trade in services, which one has to say is totally ludicrous. It is beyond the realms of possibility.

The noble Lords, Lord Williams of Elvel and Lord Ezra, and my noble friend Lord Joseph were right when they said that we must of course have a strong, thriving and growing manufacturing base. They were right when they said that it has declined dramatically, not just over the past 10 years —on the contrary, as I hope to show, the decline has been reversed —but for a long period. Being in a weakened state towards the end of the 1970s, when the world downturn hit British industry in the first two years of this decade, it suffered badly. Many businesses were not able to weather the storm. Those which did often did so only by some drastic and painful surgery.

It is important to recognise that there has been a reversal of that trend. Anyone who seeks to deny that fact is establishing a false base upon which to examine what are the continuing serious problems, because no one will stand here, least of all I, and try to say, "It is all right. We have done enough. We do not need to worry". On the contrary, much more needs to be done. I saw some interesting figures the other day which were based on OECD statistics, which are sometimes called the "Dutch disease", and which related the proportion of the GDP represented by manufacturing to the economy's overall growth rate. There is a remarkable correlation. The chart took the period 1979 to 1986, and the two fastest growing economies are, as we recognise, Japan and Germany. Germany has 32 per cent, of its GDP in manufacturing and Japan has just over 30 per cent. At the other end of the scale, the country with the lowest growth was the Netherlands, with only 18 per cent, in manufacturing. The United States and the United Kingdom were (dose together with a faster growth rate than the Netherlands and France. We have about 22 per cent.; but 22 per cent, of GDP for a country that depends as much as we do on trade is not enough. It has to be increased.

I attended a gathering the other day of industrialists and financiers. We agreed that we should perhaps aim at raising the proportion of our GDP represented by manufacturing industry to something approaching 30 per cent, by the end of the century.

It would be in no sense returning to prescriptive planning and the kind of interference which did such damage to industry if the Government were to set out as part of their economic objectives the objective of raising the proportion of our GDP represented by manufacturing to something approaching 30 per cent. It would be of enormous encouragement to manufacturing industry. It would give the lie, as it were, to the people who still go around saying that it does not matter: "The service industries are all absolutely splendid. Look at all the marvellous leisure parks we are building in disused quarries". They may be of value to tourism —I am the last to decry tourism—and they may be a valuable reclamation of waste land, but they will not earn this country the balance of payments surplus that we would want to see over a period. That will come from manufacturing industry.

I shall not dream of quoting it at any length, but there was an important book written recently by the distinguished Japanese industrialist, Mr Akio Morita, the head of Sony, in which he hammers home the importance of a modern industrial economy being based on manufacturing.

Many of the services which are part of the service sector depend on manufacturing. Shipping, insurance, finance and the myriad of supporting services depend upon a healthy manufacturing base. Part of the problem with statistics is that many manufacturing companies have been contracting out an increasing amount of their service activities. Most companies do not now provide their own catering. They have specialist caterers. Does that reduce the proportion of GDP in manufacturing and increase it in services? Some of the figures need to be looked at carefully. There is the provision of protective clothing and a whole range of matters, including planned maintenance, which are put out to service companies but which are nevertheless dependent upon manufacturing. The distinction between manufacturing and services is sometimes gravely overdone.

I take issue with the main thrust of the speech of the noble Lord, Lord Williams of Elvel. I wrote down his words. He said that the fault lay with the Government. If one looks at the record of the past few years and compares it with the previous 10, 20 or 30 years, the contrast is stark and encouraging. I am not for one moment saying that we have gone far enough but we have now succeeded in stabilising our share of the world trade in manufactures after a long period of decline. We have now stabilised our proportion of manufacturing output after a long period of decline. Manufacturing industry has recovered sharply.

I shall turn to the words of someone who speaks on behalf of a large sector of manufacturing industry, the president of the CBI Sir Trevor Holdsworth, who wrote in The Times last month: The 1980s have been the best decade I have known —after 40 years in industry—for managing business. The two previous decades were dominated by policies more akin to the Eastern bloc … so the 1980s have been very refreshing. We had been a nation that had gone downhill but that has been reversed —something which has not occurred before, except for the effect of wars. Anyone who knows about British industry knows —and, the noble Lord, Lord Ezra, made this point most effectively—that productivity in manufacturing industry has risen sharply. Indeed, according to figures I saw recently the average employee in British manufacturing industry now produces 50 per cent, more than he did in 1980. That is a better record of productivity growth than in any other major industrialised country. Moreover, it is certainly better than all our European competitors. Of course it is not good enough, but it is no help to the cause of trying to decide what more needs to be done if one seeks to deny those basic facts.

I have just two further points to make regarding where I think we can look for help. The first is already happening and happening very successfully. I refer to the fact that we are welcoming foreign investment into this country. Indeed, not only are we welcoming it but we are also recognising that the decision of one major international company after another to come and locate major manufacturing plants in Britain is in itself a recognition that this country is regarded as a hospitable climate, a good place to do business and a place where companies can expect to operate successfully.

However, it is more than that recognition; it brings with it all the improvements in technology and —this point was mentioned by another noble Lord—the demand for higher quality. That is the great contribution which the Japanese companies have made to this country. They have demanded new products and higher quality from their suppliers. That in turn has a knock-on effect and improves the whole quality of British industry.

I had the privilege of reading a speech made the other day by Sir Ronald Halstead. He is deputy chairman of British Steel. He made the point about the very positive impact of the introduction of the Japanese automotive industry to this country. He mentioned the quality of steel which the company had to produce for making those cars. He quoted Nissan's demands on British Steel for special coatings on steel for car bodies. He went on to say that success in meeting Nissan's demands led to similar requirements from Ford and so on, raising the whole quality of car body manufacture in the UK. He also said that technology-sharing with Nippon Steel led to the development of new steel alloy car wheels and a grant to Dunlop to put in an automated line. He continued thereafter to say that some of the company's main plant providers were now able to export steel plant to Korea.

We very much welcome that development. It is encouraging to see that almost every week a major new company is establishing manufacturing in this country. It is important for employment and for different regions. Indeed, the noble Lord, Lord Dormand of Easington, made this point. However, it is equally important for technology and quality and for the other things we need to do.

The only other point I wish to take up is one made by the noble Lord, Lord Ezra. I do not think that the short-term analysts are "teenage scribblers"; I think that they represent a serious problem. I can see this aspect from both sides. I am chairman of a major life insurance company with a very large portfolio of investments. I am also the chairman of a medium-sized electronics company. My experiences as chairman of the latter company in going around and talking to fund managers who hold shares in my company was a very salutary and rather dispiriting performance. The first question I was asked was, "Why are you here? Are you going to be taken over? Do you want to make a rights issue?" I answered, "No. We are here because the City and the CBI have said that British industry must get closer to its institutional investors". They said, "That is interesting, but what are you going to tell us?" I then proceeded to tell them. I must say that some of the young people who come along to carry out this work really do not begin to have an inkling of what it is that industrialists are trying to talk about. However, some of them are very good.

Looking at the matter from the other point of view, what does a big institution actually want when it talks to the major industrial companies in which it holds shares? It wants to see senior people—whether it is the chairman, the managing director, the director of a particular sector or whoever it may be—on a one-to-one basis and hold a detailed discussion. It is only then that we shall have long-term shareholding. That will help the situation. In my view that is a real problem. The City and industry really need to sort out that relationship because it is not yet right.

4.44 p.m.

Lord Parry

My Lords, I should like to express my thanks to my noble friend Lord Williams of Elvel for launching the debate and for the quality of his contribution. I should also like to thank the House for the standard of the debate up to this point, to which the maiden speaker contributed as substantially as anyone. I wish immediately to take up a point which was made at some length by the previous speaker, the noble Lord, Lord Jenkin of Roding. It should be noted in this House, even in the context of this excellent debate, that the only occasions in our history over the past hundred years when we have enjoyed a balance of payments surplus have always been when the service sector of the economy has been riding high and making up the gap which has been left by the manufacturing sector of the economy. It is a tradition of our adversarial politics that we re-write history every time we rise to our feet. But that is a fact, it is traceable and it should be understood. I see that the noble Lord, Lord Joseph, wishes to intervene and accordingly I give way.

Lord Joseph

My Lords, I am most grateful to the noble Lord. I must point out to him that he is wrong. One of the achievements of the Labour Government from 1945 onwards was to build up a manufacturing surplus to replace a then invisible deficit.

Lord Parry

Yes, my Lords; the noble Lord is quite right on that point. Indeed, I am delighted that he is paying tribute to the work of the Labour Government over that period. In fact, he is absolutely right because on the few occasions when this happened I said that the service sector of the economy was riding high. I shall not be put down on that point because it is a fact.

May I also draw the attention of the House to those very matters about which we are talking today. We are not talking about the past 10 years. Indeed, life in British manufacturing and in British politics did not begin 10 years ago; it began a long time earlier. We are really talking about recognition of the realities of what has happened to Great Britain since the decline of its empire and since it had to re-align practically every strategy it had for earning its living.

Therefore, let us begin at that point. I do not wish to be in any way contradictory in what I have to say. However, I wish to draw the attention of the House to the fact that when, in 1945, the Labour Government, to which the noble Lord, Lord Joseph, made reference, found themselves facing the situation which is closely akin to the situation now being faced in Eastern Europe by those countries which are coming out of difficulty into the challenge of this period of government, they produced a manifesto for Britain called Let us Face the Future. In facing that future they took unpalatable decisions which perhaps took them out of office much earlier than might have been the case. However, they took decisions which set a new base and a new attitude to the reviving of the British economy in the post-imperial period.

I have in my hand a book which I drew from the Library a short time ago. Incidentally, I really rose to speak —despite what happened at Twickenham on Saturday between 2 and 5 o'clock—with confidence about Wales and what has been happening there since I have lived in the Principality. In July 1967 a White Paper was published entitled, Wales: The Way Ahead. It was in fact a crystallisation of facing the future and represented the experience of the governments between 1945 and 1967. It was an attempt to draw up a strategy for the redevelopment and the rebalancing of the economy in Wales in which a diminishing manufacturing base, rapidly declining, would be replaced by a reviving and encouraged service sector of the economy, while retaining and strengthening manufacture and development. I have never seen conflict in this respect.

While I served on the Welsh Development Agency as a charter member and while I was chairman of the Wales Tourist Board I was doing exactly the same job. We were trying to earn our living in the 20th century by balancing the economy. As for manufacturing industry, what we had to do was to recognise the realities of a declining manufacturing industry and say to the service sector, "We will help you make a greater contribution to the general economy".

On that very point the White Paper analysed the prospective employment situation in Wales; it described the great natural attractions of Wales to new industry and the ways in which the Government could increase those attractions. I have a point to make in this respect and I honestly believe that I am making it in an apolitical sense. The fact that the Japanese manufacturers are attracted to Wales today is because an attractive investment and a social environment were created due to the three main thrusts of the redevelopment policy. I see that the noble Lord, Lord Jay, is present. He directed British Nylon Spinners to Mamhilad as the beginning of the basis of a manufacturing base in the light industrial sector when heavy manufacturing industry was declining. That was not a bad initiative.

The report, Wales: The Way Ahead, was the last effective strategy and plan for the re-aligning of the Welsh economy. As well as being the First, it was the last. I make the point that today might be the time when we should have another strategy, not simply for Wales but for the regions of England. It should be an effective analysis of what needs to be done. Instead of wasting time exchanging trivialities across the Floor of the House, we should contribute to the general change in the climate of opinion in order to make it possible to redevelop more quickly.

The report is signed "Cledwyn Hughes". My noble friend the Leader of the Opposition produced this document. It is literate in Welsh and English and I have great pride in drawing attention to it. The reason that I do so is because it was the basis from which grew the Welsh Development Agency, the Wales Tourist Board and the Development Board for Rural Wales. Should there be any doubt in the minds of the purists in private industry that government have a role, let this debate today kill the idea that it is possible for governments in the 20th century to leave everything to the good will of private enterprise. It is not possible. We know that.

However, it is possible that if we assess all that we have to do through these various organisations, we can build a strategy and make it national. The Development Board for Rural Wales, created in 1977, intended to promote economic and social development in mid-Wales. That comprises the district of Ceredigion in Dyfed, Merionnydd and Gwynedd and the districts of Brecknock, Montgomery, Radnor and Powys. I say that so that my noble friend on the Front Bench will have the pleasure as a Welshman of repeating those words if he wishes.

The purpose of that board was to encourage the growth of jobs in a wide range of manufacturing industries. It has been very successful. The Development Board for Rural Wales covers only a section of Wales: mid-Wales and district, Llandrindod Wells, etc. But there are areas of rural Wales that could well do with the support that the middle of Wales receives from the Development Board for Rural Wales. The Welsh Development Agency would rightly claim that it is doing a great deal, through its own policies, to make up for the deficiences in that organisation. I have here the latest report of the Welsh Development Agency.

If we are tempted into partisanship for a moment, let us look at the situation. It is interesting that when the new Government were elected 10 years ago, they carried out an assessment of the so-called quangos. That examined how they were working, and today the Welsh Development Agency, the Wales Tourist Board and the Development Board for Rural Wales are strongly supported by the Government because they recognise that these boards are integral to the policies that they themselves will have to follow.

It is interesting that when we examine the history we find that our rewritten history is not so valid as the actual history concerning how matters developed. I have here the report of the Wales Tourist Board. When I was chairman of that board I used to be jealous of the systems that were available to the manufacturing sector of the economy. One of the most successful tools that I had at my disposal as chairman of the board was Section 4 of the Act setting up the Wales Tourist Board. That section gave us the ability to pin-point the area that most needed development. Up to a good limit of £200,000 we were able to intervene when our people had examined the situation in association with the entrepreneurs who were basic to the development of tourism. When our people had done that we were able to provide the money.

Because we could do that, we were able to attract a multiplier. For the period of my service with the Wales Tourist Board I can show you this, and my colleague and chairman, Prince Edward, could show you from his period the same fact. It is that for every pound of public money invested under Section 4 in the development of tourism to the point where it made a major contribution to the economy of Wales —out of all proportion to what its detractors might think—we were able to attract a multiplier of as much as 11 or sometimes 12 times the investment from the private sector of the economy. I read to my amazement that Section 4 has been taken out of the Act so far as it applies to some regions. I hope that the Government have no intention of suggesting that in relation to the continuing problems of Wales.

Despite the difficulties and the fact that the decline started from a long way back, it was not recognised early enough that the heavy industrial sector had disappeared. My noble friend Lord Dormand has pointed to the declining coal mines in his area. There has been an even more startling decline in the number of coal mines in Wales. We purchased some for the Wales Tourist Board and we keep them open now. I believe that there are now only two or three coal mines left in the whole of Wales. That is historical.

Re-fighting those battles is no part of our mandate here, but what is vital is that the good efforts, the good work and the good achievements should not be thrown out of gear and out of kilter because some new man moving into office has accepted a brief which does not understand the entire history. This man may be motivated by saving money at this point —in itself a valuable and satisfactory attribute for a Minister —rather than the overall strategy that has for 60 years been making some difference to our capacity to earn our living in a difficult world.

We have an opportunity this afternoon to say that the manufacturing sector of Great Britain is vital. It should be redeveloped in every way. However, the redevelopment of the service sector, particularly of tourism, creates an environment into which come entrepreneurs from other nations with capacities, skills and investment money that we ourselves cannot give. Why do we think that the Japanese have the largest concentration of factories and companies in the whole of Europe situated in Wales? Not because we have a rugby team that was beaten by England. It is because we have some of the best golf courses in Europe, some of the best schools and a good cultural environment. It is because the record of work of the Welsh workers who came from heavy industry is as good as any that the Japanese have discovered anywhere. I make the point seriously.

Sometimes we malign our own workers while the people whom we describe as reviving our economy go round the world saying how good they are. In this debate we are all on the same side: to create a full capacity for Britain, for people to earn their living in a world which owes us nothing.

4.58 p.m.

Lord Donoughue

My Lords, I wish to join previous speakers in praising the maiden speech of the noble Lord, Lord Crook. I particularly look forward to his contributions in the area of roads and tunnels, where delays and disasters are bound to face us.

As others have said, this debate is a familiar course and we have run round it before. We know that. However, it does not mean that the debate lacks interest. It is worth going over the ground again and again because, sadly, the Government have never given a satisfactory response either verbally to the House or to the country in policy terms. Basically the Government do not have a policy for industry and deep down they do not believe in industrial policy. Every month the economic and industrial statistics reflect that failure. Every month the doubts and the concerns that have been expressed in this House on previous occasions are confirmed. The basic and depressing situation in manufacturing industry has already been outlined. I begin by agreeing completely, as is so often the case, with the noble Lord, Lord Joseph, that this is indeed a 100-year problem. There are no particular guilty men or guilty parties. However, I assert that the past decade has made a special contribution to the decline. I say to the noble Lord, Lord Jenkin, that if we criticise excessively it is because the Government have too often trumpeted excessively. We also criticise because it is necessary to counter with stark figures the hype of the alleged economic miracle.

The fact is that our manufacturing industry has been savagely reduced in the past decade. Production took nine years to reach again the level attained under the previous Labour government at that much derided period of the late 1970s. It is now declining again and has little prospect of improvement in the coming year. The deficit on manufacturing trade which has been referred to is one of the unique but less publicised achievements of the past decade. It stood at £17 billion in 1989. Import penetration in manufactures has increased by nearly 50 per cent, in the past decade. UK manufacturing exports as a percentage of world manufacturing exports have declined from around 10 per cent, to around 8 per cent, over the past 10 years.

I shall make some observations about that manufacturing deficit. I should first make the basic point that it arises because, as many noble Lords predicted five years ago, our manufacturing base is now simply too small. Manufacturing may be more efficient now—I am sure it is—and it may be leaner and fitter and have better labour productivity and better profit margins. That is all to be welcomed, as we shall not have a successful manufacturing industry in the future without those factors. Manufacturing industry must have those factors. However, the rump of manufacturing which remains after the Darwinian massacres of the early 1980s is simply too small. The volume of its capacity for international trade is totally inadequate to the needs of Britain. Consequently we are and shall be vulnerable to huge trade and payments deficits unless and until we strengthen and expand our manufacturing base.

Without such expansion the only way to reduce those trade deficits, as we are now discovering—they will be reduced during the coming year —will be to dampen demand in the economy. The Government choose high interest rates as the instrument to do that. However, in fact that policy causes further damage to industry. It damages industry's technological competitiveness by reducing investment and it damages its price competitiveness by raising the exchange rate. So the manufacturing situation is not a happy one. Its plight affects us all, including those of us in cushy, protected services.

The reasons for the deficiencies in manufacturing are not hard to identify. They have often been analysed. They also point to the directions in which solutions and improvements may be found. At the top of the list, as has been stressed, must be investment. I ask the Government, and certainly the Minister who is to reply, to be precise in any figures they give about manufacturing investment and to bear in mind that it is not sufficient to talk of business investment, as we have heard before, which includes the massive investments in recent years in estate agents, hairdressers, building societies, leisure parks and clapped out stockbrokers and jobbers. I am not against those services. They add to the pleasure and the leisure of life and they employ some of my best friends. However, we are discussing manufacturing investment. Manufacturing investment fell in real terms in the 1980s. It accounted for 3–3 per cent, of GDP in that terrible year of 1979 and it now accounts for only 2–5 per cent. It will fall again in real terms in 1990, as the CBI has forecast. I hope that when the Minister replies he will give his figures in real terms.

Lord Jenkin of Roding

My Lords, I have been supplied with figures by the CBI, although the time restriction did not allow me to quote them. The figures show that between 1982 and 1989 manufacturing investment grew by 7.1 per cent, a year, reaching a new record level of 11 per cent, above its 1979 peak. It does not seem to me that those figures square with what the noble Lord is saying.

Lord Donoughue

No, my Lords, they do not square with what I have been saying. I, too, received that brief. I should like to check whether its figures are given in real terms. I know that the figures were given from 1982. A characteristic of the present Government is that all but the old would believe that the Government and the figures began in 1982 because we are never given the figures from 1979. If one considers the figures from 1979 one finds that they are as I have recounted them.

Manufacturing investment must be increased in quantity and improved in quality. That is not happening. Quite the reverse is happening. Noble Lords may have seen a fascinating article in the Financial Times of this Monday which reported on the research being carried out at Nuffield College into the direction of investment in this country. The report concludes, sadly, that investment is not going into those areas which trade internationally. It is basically going into the sheltered domestic services and sheltered industries which have recently fed on the credit boom and which do not compete and generate export earnings in the international markets. That is a serious and basic fact to which a department of industry interested in industrial policy would devote much attention.

What we need is more investment to support our exporting industries. The Chancellor might help by looking favourably at the CBI proposal to increase depreciation allowances on plant and machinery from 25 per cent, to 40 per cent, in the coming year when we are entering a recessionary period. That seems to me a sensible suggestion. Linked to the inadequacies of investment are, of course deficiencies in the provisions for industrial training and industrial research. My noble friend Lord Dormand rightly referred to that, having made a commendable crusade in that area. The extent to which we fall below our main competitors in these areas has been documented impeccably and depressingly in earlier debates. I shall not weary your Lordships by repeating those remarks. However, I shall point out that industrial research expenditure has been cut by 30 per cent, in real terms in the past decade and is scheduled to be cut again in 1990. Expenditure on industrial training is scheduled to be cut in real terms by over £100 million in 1990 and by £200 million in 1991 according to the recent autumn Statement.

It is clear that the support system for industry must be improved. That is the role of industrial policy. More research is needed, as are more training, export promotion and better transport. The infrastructure was referred to by the noble Lord, Lord Crook. That is crucial. We also need to create a climate in which industrial managers can take a longer term view to plan their investment and marketing strategies with a reasonable hope that they will have time to see them fructify. "Short-termism" has been mentioned. That is a horrible phrase but short-termism is an important factor. It has been imposed by the City, where I work. It is simply bad for industry. For that reason alone we need to look again at the rules governing takeovers.

I agreed very much with the noble Lord, Lord Joseph, in his central point concerning entrepreneurship and managership. This House has representatives from each of those fields. I should point out to the other side of the House that the Opposition contains representatives from both those fields. There is no monopoly of experience in that area. Some of the predators in the take-over game are not good managers and are not good entrepreneurs. They may simply be greedy pirates manipulating junk finance in order to strip valuable assets. Therefore we must look again seriously at the take-over rules and code.

I start from a basic proposition. That is that a high level of trade in manufactured goods is crucial to the economic future of this country. Sadly, I have to conclude that the Government do not have an industrial policy to achieve that objective. They have a free market instinct that high profit margins will solve everything. I state again that without high profit margins we shall not solve everything, but they are not enough. The Government then pursue a policy of high interest rates which damage profits and damage investments. That is not good enough. They have been neglectful of our old industrial base and shown no interest in modernising and refurbishing our manufacturing industry to enable it to expand in the new industrial age.

Having no industrial policy, the Government seem to have only a dogmatic hostility to offering any support to industry. That is as sterile and damaging as the other side of the extremist political coin which believes in total government interference.

I believe that there is a constructive middle way. It is very encouraging that this debate, as did the earlier debate on the free economy, begins to demonstrate that there is an emerging consensus for a middle way. That is reflected in this House. The noble Lords, Lord Jenkin and Lord Joseph, are within that consensus and make possible that middle way. I wonder whether the Secretary of State for Industry is within that consensus and whether the Prime Minister supports that middle way.

The middle way is based on a healthy market economy operating as a partnership between the state and industry in areas where such a co-ordinating role is appropriate. It provides, as many have said, the framework. It need not mean massive interference by rigid bureaucracies. There are successful examples elsewhere, including the world's most successful industrial nation, Japan. That is the basis on which we can still rescue and restore Britain's manufacturing industry.

5.12 p.m.

Lord Jay

My Lords, in congratulating the noble Lord, Lord Crook, on his most informative maiden speech, I would say only that the more people we have in this House who know what they are talking about the better it is for all of us.

The main single reason why manufacturing is important is surely that it is the British public's insatiable demand for manufactured goods, including cars, which is the cause of our huge import of manufactures. Indeed, our manufacturing trade deficit with the rest of the world is also the main cause of the payments deficit. Another reason why manufacturing is important is employment. Of course service employment will increase from now on, but you will never employ the whole population of the Rhondda Valley, or Tyneside or Merseyside in selling share certificates or junk bonds to one another.

In view of some of the exercises in the modern art of rewriting history which we have heard from the Benches opposite, even today, I shall revert for one moment to putting the record straight. In 1945, this country's main problem was to restore our balance of payments with the rest of the world after all the damage caused by the war. It is a sobering thought to reflect today that we achieved a surplus on our balance of payments in 1948 and in 1950. From 1950 until 1970 we achieved a surplus in two out of every three years. That was achieved partly by a trade policy of somewhat restraining our manufactured imports and buying our food and raw materials as cheaply as we could anywhere in the world. As late as 1969 and 1970 we achieved major current balance of payments surpluses.

In 1973 and afterwards we abandoned those trade policies. We removed restraints on manufactured imports from the continental EC. It was from that period that the balance in visible trade turned against us and, incidentally, that the rise in manufacturing output since 1945 began to slow down. Nevertheless, in the years from 1977 to 1979 we achieved the rather remarkable feat, which many people seem to have forgotten, of reducing unemployment and inflation (as it is now called) at the same time for two years together.

However, from 1979 to 1981 we suffered a violent bout of deflation. It is usually politely called "recession" in the press but it was a violent deflation enforced through interest rates, budget and exchange rate policies. As a result manufacturing production fell between 10 and 15 per cent, in two years, and up to 15 per cent, of manufacturing capacity, at a conservative estimate, was permanently lost. Unemployment rose 60 per cent, in 18 months and the rise in unemployment lasted for seven years, from 1979 to 1986. That was the first time that unemployment rose for seven consecutive years in this country since the 1870s. The fall in production in the two years from 1979 to 1981 was the largest this century, with the single exception of 1929 to 1932.

It is instructive to note that the recovery in production only occurred when two things happened. In 1985 the Government abandoned altogether its obsession —which some of us have now forgotten—with the money supply and the public sector borrowing requirement, which had previously been their totems. More important, the sterling exchange rate fell markedly in 1985 and 1986. That was a prime example of how important the exchange rate can be. However, after that long gloomy period the recovery lasted only two years. By 1988 we were sailing fast back into payments deficit, and by 1989 that had reached £20 billion, which we all know is much the largest payments deficit in our history.

Incidentally, the previous Chancellor, who invented the theory that manufacturing does not matter only when he had got us into a manufacturing deficit in the early 1980s, characteristically invented the theory that payments deficits do not matter only when he had produced the biggest deficit that we had ever seen. We are now reduced to the position of congratulating ourselves that our deficit is running at the rate of only £12 billion a year. The truth is that the basic growing visible trade deficit throughout the 1980s was hidden by the oil earnings. That is why it emerged in 1988 as our oil earnings dwindled.

As I see it, on the evidence, the deficit is not a temporary blip generated by a reckless give-away Budget in 1988. It is a long-term structural deficit caused largely, but not wholly, by the mistakes of the 1970s. Whether or not that is true, the deficit will not be conjured away be mere manipulation of interest rates and budget policies, although those could make it worse.

That the visible deficit was caused by the policies followed since 1972 can be seen—it is worth looking at the figures—from the fact that, of the £20 billion deficit in 1989, about £18 billion was accounted for by our visible trade deficit with the EC; in other words, virtually the whole of it. On the present evidence, the 1992 single market will simply intensify that trend into deficit.

However, that visible trade deficit has been made more serious by something which almost no one has mentioned today; namely, the collapse of the net invisible surplus in the last two years. The net invisible surplus only three years ago was running at £600 million a month. It fell last year to £200 million and is now, according to the official figures, running at only £100 million a month. That remarkable change in the situation appears to have two causes.

The first cause is the steady rise in our annual payment to the EC budget, approaching £2 billion in 1989, although the figures are never so easy to discover as those for our own Budget. The second more serious drain is the interest payments that we must make on our huge borrowings overseas in the last two years. Allowing for some fall in our reserves, last year we borrowed from overseas almost £20 billion, mainly in short-term bank deposits. Interestingly enough, in 1989 we borrowed in that form every two months as much as we borrowed from the IMF in the whole of 1976. Some people have not perhaps noticed that point.

Those short-term borrowings are the most risky form of borrowing from overseas because they can be withdrawn at 24 hours' notice. It is estimated that there are £35 billion of such funds in London at present. Unhappily, if one borrows £20 billion at 15 per cent., one increases one's future outpayments by about another £3 billion a year, if my arithmetic is correct. Those outpayments now extinguish our previous net invisible surplus. The high interest rates which that situation forces on us make the balance of payments prospect even worse by holding up the exchange rate above what its economic level would have been.

In the short term therefore we now have only one effective remedy left to avoid an even worse balance of payments situation; namely, to let the exchange rate fall before too long to the level at which the gap would begin to shrink. The moral of that is that we should avoid at present any proposal, whatever fancy name we give to it, for a system of fixed exchange rates with the sterling rate anything like the level at which it stands now.

However, with regard to the longer term, both looking back and looking forward —here I have in mind what the noble Lord, Lord Joseph, said—I have long felt that, whatever was true about all those issues, there has been another basic factor working economically against the UK for many years. There is no longer much serious doubt about what it is, in view of the overwhelming evidence which has been collected recently and to which some noble Lords have referred. It must be our failure to educate and train our working population in the technology and ideas of the modern world, as we debated in this House on 31 st January.

Perhaps I may give an example. It is apparently true that some 85 per cent, of 16 and 17 year-old students now remain in full-time education or high grade apprenticeships in the United States, Canada, Sweden, Japan, Germany and South Korea, while fewer than 50 per cent, do so in this country. Any country thus handicapped in the modern industrial world must surely be expected gradually to lose ground to its competitors in comparative industrial efficiency and innovation. That is exactly what has happened over a long period to the UK. The main task of the next government will therefore be a massive expansion of public investment in education and technological skills for the whole population.

5.25 p.m.

Lord Kagan

My Lords, I should like to apologise that, because of a previous engagement, I might have to leave before the debate finishes. I hope that noble Lords will accept my apologies.

It was heartening to hear so much consensus and agreement on all sides of the House and noble Lords expressed it exceedingly well. We need more of that. Outside the House there is far too little of it. When American and German politicians are at home they pursue party politics, but when they reach a frontier and go abroad they are national representatives and pursue national policies.

Our decline from being the fourth largest industrial power in the world in the late 1940s to our present position was predictable and not accidental. As the noble Lord, Lord Joseph, pointed out, British industry is largely financed by pension funds and unit trust investors. In order to attract investment in pension funds, spectacular and quick results must be achieved. Management is aware of that point. It cannot always afford to take decisions which will show long-term results. It certainly cannot afford to depress immediate profits by well justified expenditure on research which will take a long time.

That is not the situation in Germany. German industry is financed by the banks, which are not only willing to offer short-term finance for turnover capital, but are willing to accept, when offered, participation in the shares of the companies. Very often they appoint their directors and representatives to the boards. They share in decisions and, because, by the nature of things they have broad shoulders, they can make long-term decisions and judgments. In Japan, the banks not only finance but in many cases own businesses outright. That is why they are in a position to take long-term decisions with regard to research and development.

Our system takes a short-term approach, but, about all else, acquisition—buying and selling a business—can generate more profit than operating and developing it. If noble Lords will permit me, perhaps I may give an example. There is a story about two crofters who lamented their financial problems in a pub. The barman informed them that the pub made a 100 per cent, profit on every tot of whisky, so one crofter said to the other, "I've got the answer. Go to the local pawnshop, pledge our crofts, buy two crates of whisky and go home. I sell you one, you sell me one, and by the time we have drunk it, we have made a fortune." That is how a large part of British industry obtains capital.

In Germany management does not work harder but it works in greater harmony. By statute there are on the German boards directors representing the workforce. They call that Mitbestimmung; but with it they also have Mitverantwortlichkeit which means that they have co-determination and also co-accountability with their workforce.

Some time ago I was involved in a company which had very largely declined. In bringing it around I suggested that the unions should appoint a director to the board, because there were a lot of restrictive practices and so on. When the union negotiators questioned why that was wanted, I explained to them that if it were successful they would share the credit, but that if it were to collapse their signature would be on the balance sheet. That worked.

The German worker does not work harder, but he works more harmoniously. He is not cleverer, but he is better trained. He does not love the job any more than does his British counterpart, but he is better adjusted to it. Above all, he trusts the management because he is better informed. He identifies with his workplace. Frankly, I am mystified as to why British companies resist the approach of appointing a worker-director who has loyalty to his labour force rather than to union headquarters somewhere far away.

We are in a very self-congratulatory and euphoric mood about our democracy. We look with amazement at what has happened in the East and at the economic collapse of the despotic dictatorships. However, we risk falling into a state of dangerous complacency. We must bring home the message that economic defeat in a competitive world is socially and politically dangerous—almost as dangerous as a military defeat would be —because it leads to loss of independence.

Can that message be brought home? It cannot be brought home on a party political basis but it can be brought home on a national basis. Scoring points is not a substitute for finding solutions. If one can reach Sid to persuade him to buy shares, one should be able to reach Sid in order to alert him not only to the opportunities but also to the perils.

I may sound pessimistic, but in 1814 it was said by John Adams: "Democracy never lasts long. It can waste. It exhausts and murders itself. There never was a democracy yet that did not commit suicide". I think that we should take heed.

5.34 p.m.

Baroness Fisher of Rednal

My Lords, as previous speakers have said, for too long the Government have complacently underestimated the damaging consequences of their failure to adopt an effective policy for the revitalisation of the British manufacturing industry. The figures already given by noble Lords prove beyond doubt the large trade gap that has arisen as a result of government policies. If, once again, the country is to pay its way in the world and compete at all in Europe, we must adopt a coherent and effective industrial strategy for the 1990s.

I should like for a moment to speak quite briefly about the motor manufacturing industry in the Birmingham area. I knew it very well because when he was alive my husband was employed at the Austin factory (as it was then known) at Longbridge. I lived within a 20 minutes' walk of that very large factory. The Austin Motor Company was very special to Birmingham. The name of Herbert Austin links with the name of Henry Ford of America. Members on the Front Bench opposite may find that amusing and smile. However, the Austin Motor Company was the biggest industrial combine in the whole of the Birmingham area. It employed 15,000 workers and there were spin-offs with other component works such as GKN (Guest, Keen and Nettlefold) and companies which produced motor accessories. With the downfall of British Leyland and the Austin Motor Company, all that was lost unfortunately to the city of Birmingham. The huge factories of Lucas's and Guest, Keen and Nettlefold's have moved out of Birmingham. They are now manufacturing in Brazil, Spain and other countries. They send back to us components and parts when we want them.

The folly of the Austin Motor Company was placed on the backs of the workers who had nothing at all to do with it. When one reads the Longbridge newspapers, it is clear that the real culprits behind the failure of the Austin Motor Company were the various managers in the various places of motor production, whether they were building the shells or the engines. There was a fight for supremacy among the higher management there. So we found that Austin became British Leyland. That did not go down very well in the city of Birmingham. But that did not last very long. The Government put in to run it someone who was very eminent and who intended to put it back on its tracks very soon. But that did not last very long either. The company then moved over to Rover. Again that did not last long because the Government again put someone eminent in charge of Rover. Recently Rover has become part of British Aerospace, at a sell-off price which we all know is a national scandal. Not only did we lose all that, but also we lost the quality car production when the Government decided to sell Jaguar—the flagship of motor manufacture.

Employment in the West Midlands is concentrated in manufacturing. The majority of the people who work in the West Midlands are employed in manufacturing. It is the single most important activity in the region and accounts for around 30 per cent, of all jobs in the West Midlands, and 35 per cent, of the country's GDP compared with a national average of 25 per cent.

As a manufacturing base the West Midlands is important for the national economy of the country. In addition to the 30 per cent, of workers who are directly involved in manufacturing, there is another 30 per cent, in that region of employment which indirectly services the main industrial plants. As I said, it is clear from those figures that manufacturing is very important for the West Midlands and for the national economy. It will be tragic if the West Midlands, having just got off its knees, is again hit by a depression due to the damage of i:he monetarist policies of the Government between 1979 and 1981. At that time a depression went all over the West Midlands, the like of which was not apparent even in the years around 1929.

My noble friend Lord Williams made the point about the more recent slow down in the economy, which suggests that the jobless total is poised to rise within the next few months. On television this morning I heard the Prime Minister give some figures about unemployment rates. Obviously, she gave the national average. However, the figures supplied to me only this weekend show male unemployment in the West Midlands at 7 per cent. The worst figure in the West Midlands relates to Wolverhampton. It indicates 10 per cent. unemployment. As the noble Lord, Lord Dormand, said, when one has averages one has to look at the different regions to see the way in which unemployment is affecting them and not compare those figures with the South-East.

Birmingham earned the name "The workshop of the world" during the Industrial Revolution. I am proud that I was born in and grew up in that city. It was also surrounded by the Black Country which comprises Dudley, Wolverhampton, West Bromwich and Sandwell. It was called the Black Country not because of any racism at that time but because of the smoke and grime in the air. The air was polluted from the ironmaking, the steelworks and the manufacture of metals. Unfortunately during the period of this Government, with the closing of the steelworks the Black Country suffered complete devastation. I understand from the figures given to me that throughout the area, because of the closing of the steelworks and the domino effect on all the other metal manufacturing in the area, in a period of three months 13,000 jobs were lost. The Black Country was not so fortunate as Corby when Corby lost its steel production. Perhaps we have to say good luck to Corby.

The Government tried to do something. In the Black Country three years ago they set up the Black Country Development Corporation which was charged with the task of industrial regeneration. I know full well that local feeling is that its pace of development is very often slow and expectations of jobs in the near future are not high. When the Minister replies to the debate I shall be pleased to hear what progress has been made by the Black Country Development Corporation. How many industrial units have already been built on the sites? How many building projects are in the pipeline? How many jobs are already in operation? How many will be forthcoming within the next two years?

The East Midlands is also feeling the draft at the present moment. Textiles and hosiery firms are having to lay off hundreds of women workers. Although they are in highly mechanised modernised factories, the firms are putting it down to high interest rates and the failure to be able to compete.

We have to consider the important and far-reaching changes in East-West relations and the sudden cessation of the cold war. An arms industry conversion policy will have to be considered seriously. If one looks globally at the change in East-West relations, one can see that it will take place not only in this country but throughout the East and West. In this country the defence industry employs over a million people and has become Britain's largest manufacturing industry. They are our largest single manufacturing export. It behoves the Government to consider ways of transferring production, investment and skills from military use to civil use over the next few years. It is important for us to keep the scientific, research and development teams that operate in the arms industry so that they can move forward to a massive civil expansion.

If one considers investment generally, one has to follow the path of which my noble friend Lord Donoughue spoke. When one puts investment into manufacturing industry, it is important that the Government protect that investment instead of supporting the massive takeover bids that have been such a feature of the City of London in the past few months.

Other noble Lords have referred to training. I accept that managers, directors and such people in manufacturing industry need training too. They also need to be kept fully informed of changes in management styles. However, if we consider the training for workers, the Government abolished the 16 training boards in 1982. We are left only with the construction industry training board and the engineering construction part of the training board. The number of apprentices and related trainees fell from 266,000 to 55,000 between 1979 and 1989. Training is therefore not taking place.

What have the Government put in its place? They have had YTS, jobstart, job release, the enterprise allowance and community industry schemes. The latest is the training and enterprise councils. Those are a hotchpotch of propaganda schemes which have done nothing to enable further training for employment. If one were cynical one would say that they were simply massaged figures to keep the unemployment statistics down.

With regard to the Training and Enterprise Council, perhaps I may tell noble Lords a little story that I think is rather fun. Walsall in the West Midlands has a training and enterprise council. It has lovely posters all around—that is generally how the Government put their propaganda over—which say "What the heck is TEC?" Some very clever lad has written across the bottom, "I don't know, Why don't you ask Sid?" He must have remembered the Gas Board and government slogan.

Manufacturing industry is not simply about people with dirty hands. It is not about people like me with funny accents. It is not about people who tend to vote Labour. It is much more fundamental than that. I hope that the debate today will show that the Government need to look very seriously at rebuilding our manufacturing industry because it is the only sure way to future economic prosperity.

5.49 p.m.

Lord Monkswell

My Lords, I agree with much that speakers have said in the debate. However, there is general agreement and a recognition that problems in manufacturing industry are very significant. I should like to touch on three slightly different aspects that have been raised this afternoon.

I shall talk about three specific imbalances in our national life in relation to manufacturing industry. The first is the imbalance between the North and the South; the second is the imbalance between employers and employees and their unions; and the third is the imbalance between the civil and military sectors. As many noble Lords have said, the imbalance in manufacturing industry has been with us for some years. There is an argument over whether we are talking about the past 10 years or the past 100 years.

My feeling is that we cannot do much about what has happened over the past 100 years but that we should consider very seriously what has happened over the past 10 years. In that respect the economic policies implemented by the Tory Government between 1979 and 1982 did enormous damage to our manufacturing capacity. This hit the North of this country far harder than the South. The noble Baroness, Lady Fisher of Rednal, has just explained how those policies affected the Midlands and the West Midlands. I should like to explain from my own personal experience how those policies affected the North-West of England.

The company for which I worked for 20 years weathered the storms of the early 1970s, with the increase in the price of oil and the enormous dislocation which that caused to economic circumstances around the world. We weathered the terrific inflation of the mid-1970s. But we could not weather the storm of 1979. The net effect on our company was the closure of one factory out of two in the North-West and the making of one-third of the employees—550 people—redundant at a stroke. That created not only enormous human misery but also damage to our manufacturing capacity. We were told at the time that we were being made leaner and fitter. In fact the factory that was closed had been opened in 1970 by the Prime Minister of the time, Harold Wilson, now the noble Lord, Lord Wilson of Rievaulx. Within 10 years it had opened, grown successfully during the 1970s, and then closed precipitately because of the Government's economic policies.

I can remember suggesting to the managing director of the company that he should go to the Government and explain our situation. He said that he had been to the Government and had spoken to the Secretary of State for Trade and Industry. At that time the post was held by the noble Lord, Lord Joseph, who is not in his place at the moment. The managing director informed me that it was like talking to a brick wall. The Secretary of State just did not understand the problems faced by our company and by other manufacturing companies in the United Kingdom.

Again in 1989, as a result of government policies and the effect of high interest rates on the economy, the company had to make redundancies. I was one of 98 employees made redundant towards the end of last year. It does not stop there. Only on Thursday I learnt that the company had had to make another 34 people redundant. Those are the consequences of the Government's economic policies, with their continual attacks on our manufacturing capability.

I want now to touch on the aspect of national defence. Manufacturing industry provides the sinews of war that we need to defend ourselves in times of conflict. Our civil industry has been decimated. On the military side it is rather like a reflection of the short-termism that affects the British economy generally. British investors, the bankers and so on are so keen on short-term profits that they drive down the long-term future of our economy. So it is with the military. To defend ourselves against some precipitate attack that has been daily expected from across the Iron Curtain for the past 10, 20, 30 or 40 years, we have expended enormous sums of money on providing a miltiary war machine. But at the same time our ability to sustain that military effort over a longer period has been steadily eroded. That makes this country vulnerable. It is usually said that the war will be over by Christmas, but it is usually Christmas four of five years hence that is being referred to. We desperately need a strong manufacturing industry to ensure our national defence.

I should like to touch on the relationship between employers and employees and their unions. The noble Lord, Lord Kagan, mentioned the differences in experience between German manufacturing industry and manufacturing industry in this country. We have a great vulnerability. The Government and a good many employers seem to think of the working people of this country and their collective institutions, the trade unions, as the enemy. How can we survive as a nation if the people who govern us consider the people they are governing as the enemy? It is impossible to think of a sensible future on that basis. We have only to look at the record of achievement of the trade unions. I refer not only to individual trade unions but to the trade union movement generally. I should like to quote from a booklet produced jointly by my own union MSF and the Transport and General Workers' Union. It is entitled Making the Future—Manufacturing in the 1990s. I should like to quote one passage: We have always been progressive, looking for change by agreement and not dislocation by government or employer diktat. This pamphlet analyses the problems and indicates solutions. It is a contribution to the ongoing debate and stresses the importance of developing an industrial policy which meets the national interest". That comes from the foreword of the pamphlet signed by Ron Todd and Ken Gill. I shall place a copy in the Library so that noble Lords can read the contents.

I should also like to cite some of the things trade unions have done over the past few years. It was the trade unions within British Leyland which argued that for that company to succeed it had to aim for production of 1 million motor cars a year. That was effectively denied by the Government. We have seen over the past 10 years the fruits of that denial. What is left of British Leyland has been cut back, carved up and sold off. We have only a rump of a British-owned motor industry.

One of the success stories was the campaign waged by the trade unions within the British Aerospace combine to ensure the success of the HS146. The board of the company wanted to kill it off. The board thought that it was costing too much to develop and did not see a future for it. And yet that aircraft is now in successful commercial operation and only this week we have learned that it has achieved the ability to fly night flights out of Manchester Airport because it is so quiet. It is the only aircraft which has that capability. It was my union which fought long and hard to ensure the continuation of the European fighter aircraft. We are now seeing that being developed.

We campaigned unsuccessfully against the closure of the shipyards and the shipbuilding industry of this country. In the 1970s the Labour Government nationalised British shipyards around the country and built an organisation which could have developed to compete worldwide in the shipbuilding industry. Again, that industry has been cut back, cut up and virtually closed down.

Shipbuilding around the world is experiencing somewhat of a resurgence and I think that over the next 10 years there will be a demand for shipping. We as a maritime nation should have a strong fleet and the ability to build modern ships. We no longer have that capability because it has been virtually destroyed.

Trade unions have continued to press for new technology and better training. We have compaigned for investment in civil manufacturing industry. We need this Government and future governments over a long-term period to invest in research and development, in training and to support the procurement of machinery and plant and the introduction of information technology. That will form an essential bedrock for our national defence.

Let us build factories to make the ploughshares for the betterment of all our people, not just the British but people from around the world. Let us know that if necessary those ploughshare factories can be turned into sword factories. Let us make war on poverty, hunger, ignorance, disease and pestilence rather than making war on our own people.

6.2 p.m.

Lord Macaulay of Bragar

My Lords, in rising to make my contribution to this very interesting debate, I first add my congratulations to the noble Lord, Lord Crook on his very informative and interesting maiden speech. I am sure that we all look forward to his further contributions in your Lordships' House.

During the course of the debate my noble friend Lord Jay made an observation that one of the qualities of this House is the number of experts we have to speak on matters being debated. This is a debate on the economy and I am about to redress the balance of that observation because I do not present myself to your Lordships as an economist in any way whatever. That may become even clearer from my remarks. However, I come to your Lordships' House as an ordinary individual living in Scotland and affected by what is happening there.

Because of this debate I took an interest to see what was really happening in Scotland in manufacturing industry because, quite frankly, I did not know. I am not very pleased at what I found and, indeed, I am alarmed at what the future may hold for Scotland.

In Scotland manufacturing industries have always had a vital role to play. They form an integral part of the Scottish economy which requires to be expanded. It takes its place among the service and financial industries, the remaining heavy industries such as coal and shipbuilding, tourism and so on, and they are a balancing factor in the general overall economic picture.

The ever-changing face of the world political map, the advances in technology and the potential for new and lucrative markets in the new Europe, Asia, America, Japan and elsewhere mean that the manufacturing element in our economy must be ever vigilant and innovative to get into those markets as soon as possible. They must do that to take advantage of the demand for manufactured goods and, in particular, those involving high technology and engineering products in which Scotland has always enjoyed and still enjoys a worldwide reputation.

Engineering has always been at the forefront of Scottish industrial life and it continues to export its products. However, unfortunately, at present it also exports its skilled manpower in fairly large numbers out of Scotland south into England and Wales and, even more regrettably, outwith the United Kingdom to the rest of the world. Very few of those people make the return trip during the course of their useful working life as there is no meaningful employment for them in Scotland. Efforts must be made to create the industrial atmosphere to keep those skilled people in Scotland.

It is the quality of the product, whatever it may be, which determines the success or otherwise of manufacturing industries. We require all possible knowledge of an area where we have in general a badly trained workforce and not much enthusiasm on the part of many firms to undertake training initiatives to improve the quality, skill and knowledge of the workforce. I agree with my noble friend Lord Jay that there must be a massive investment in training, research and development and that that must be encouraged and rewarded.

In Scotland we have witnessed the gradual disappearance of our heavy industries such as shipbuilding. Basically at present there remains only one large yard and a smaller one. Also the coal industry now employs only 3,000 men. Accordingly, we have had to recast our economic map on the manufacturing basis with new targets to take account of that. Not without difficulty, we have managed to make considerable progress, but the overall picture—and that is what is important in looking to the future—is not particularly bright taking the economy as a whole and the manufacturing industry as part of that whole economy.

Much has been said in another place about a paper produced by the Scottish Development Agency. It is said to be a discussion paper. It is marked "for discussion". It is called The Scottish Economy: The Challenge of Opportunity. It basically deals with the position up until 1988 and makes some very pessimistic forecasts about the future of manufacturing industry. It has not been well received and I understand that someone has asked that it should be rewritten. To carry on the biblical analogy of my noble friend Lord Williams, it looked as if when the Government got the Old Testment they did not like it and sent someone away to write the New Testament in the hope that that might be more acceptable.

I use that document for what it is worth, not as an authoritative document in any way but as a document which at least gives us some considered information about what is happening in Scottish industry and where the economy as a whole is going. The paper indicates that Scotland is in relative decline in relation to the rest of the United Kingdom. The Scottish share of UK output at the time covered by the paper had declined from 9.1 per cent, in 1955 to 8.2 per cent, in 1988. Its share of employment had similarly declined.

The paper also suggests that had Scotland maintained its share of the United Kingdom employment, there would be another 200,000 jobs in Scotland. I am not sure whether that is a rather optimistic projection, but there it is for what it is worth. However, it is interesting to note from the paper that in the period covered manufacturing productivity had remained ahead of the UK average, but unfortunately that did not mean very much because it had not surpassed the 1973 peak figure.

In Scotland we have slightly different problems because we have the advantage of electronic and instrument engineering production which gives a fairly sound base for manufacturing exports. Those have risen dramatically but few other sectors have performed as well and the document concludes that the future for Scottish manufacturing industry is not too bright.

In an effort to bring the matter up to date I refer to the December letter from the Scottish Council Development and Industry which is an entirely neutral body. In that letter it states: The recovery in Scottish manufacturing industry continues to slow down. The index stood at June 1989 at 113–7 (1985=100), representing a 5–6% increase in the latest four quarters over the preceding four quarters, with a comparable increase for the UK of 6–6%". Therefore that indicates that Scottish manufacturing industry is trailing behind.

It will be suggested by the Minister in due course that these figures do not truly reflect the position and that the true figure for manufacturing industry is 4–5 per cent, as against the UK figure of 2–2 per cent. That may be one interpretation of one quarter's figure, but does it really represent what the future holds for the Scottish manufacturing industry?

It is right to say, as has been observed by other noble Lords, that these statistics are only there for what they are worth—I do not refer purely to the Scottish SDA paper—and do not have the stamp of infallibility; that interpretation of them can vary from quarter to quarter. They are interesting as being indicative of the place that manufacturing industry has in Scotland. It is fair to say that 1988 and 1989 have shown signs of progress. However, I make this plea to the Government: if there is a momentum towards continued recovery, will they please do something to encourage that momentum by becoming involved in the planning and training courses and, in addition, in an export-led sector in Scotland? Manufacturing industry represents 22 per cent, of employees in employment. For the continued improvement of the export figure much hard work will be required in difficult circumstances.

Quite apart from my earlier reference in relation to the population, Scotland is bedevilled by emigration. A recent study in 1989 suggested that the figure had increased in one year by 70 per cent, to a gross figure of 24,700 in 1988, being an increase of 10,000 over the previous year. That may have been a freak result, but in fact the average output from Scotland is in the region of 20,000 people per year. In that group there must be many members of the community, skilled and trained, who have to leave their native land to go elsewhere because there is no work available for them.

We also suffer from a drain of graduates, perhaps the cream of the potential management referred to by the noble Lord, Lord Jospeh. Indications are that Scotland's share of the graduate population dropped from 9.4 per cent, to 7 per cent, whereas elsewhere it was rising. In the year in question 33 per cent, of graduates from Glasgow University left Scotland to go elsewhere, including England and Wales, as against 16 per cent, in 1983. From Strathclyde University it is suggested that 40 per cent, of graduates left. Even taking account of students from outwith Scotland, that is a pretty horrendous figure. It is alarming when one is looking for the foundation of a strong, indigenous, innovative industry and, in particular, in manufacturing where innovation and development are the core of the existence and progress of the industry as market demands are met.

In addition to that—the farther north we go, the worse the problem gets—we have a chronic unemployment problem averaging 8.8 per cent., as against 3.7 per cent, in East Anglia. Scotland lies third in the league behind Northern Ireland at 14.2 per cent, and the north of England at 9 per cent. Whatever the reasons for that, those figures are horrendous on any view. Percentages do not matter to the individual who is unemployed because so far as he is concerned unemployment is 100 per cent, until someone can give him meaningful employment. It is quite scandalous that there is not the development within industry to take advantage of the workforce available; to use the skills and enthusiasm of the Scottish workers who, given the opportunity and backing, will provide a worthwhile human, industrial and social investment for the future.

Time is not on our side and that labour force will diminish and disappear unless the drain is stopped and jobs are created. We are entering an increasingly competitive market. It is an expanding one in which there may soon become available, in view of events in Europe, another pool of cheap labour on the Continent. Scotland may well lose some of the foreign investment so lauded by the noble Lord, Lord Jenkin. I do not agree with his praise of foreign investment. One of the problems in Scotland, as I discovered—I may be wrong—is that there is a complete overdependence on foreign investment. For example, 52 percent, of Scottish manufacturing firms are said to be American owned; only five of the top 50 companies in Scotland are controlled in Scotland.

The economic history of Scotland in recent years has been one of industrial smash and grab leading to takeovers, mergers and closures dictated by centralised decisions made outwith Scotland with no concern for the industrial welfare of the country or the future of the people. We have become dominated and controlled by outside agencies setting up factories in which the decision-making process is not a Scottish orientated one, but a corporate one taken in the overall and universal interests of the parent company.

I do not regard that as a healthy basis for the future expansion of manufacturing industry in Scotland. I should like to see a turn around in that and—following the suggestion made by the noble Lord, Lord Jay—that we have massive investment co-operation between industry and government to ensure that we have indigenous industry ready, willing and able to carry out the job for the future and to take advantage of the expanding markets that I mentioned earlier.

Scotland, and indeed Britain, must get control of their own economies. They must not have a "begging bowl" mentality and hold up their hands in wonder because a foreigner crosses the Border with an offer to build a car in some place where there is no employment anyway because government have failed to provide it. Let us set out on a new course in a new direction away from foreign investment. Let us have our own home-based industries as a secure base for the future, not only in Scotland but in the rest of the United Kingdom.

6.16 p.m.

Lord Mottistone

My Lords, it is a new privilege to follow the noble Lord, Lord Macaulay. Though he had all sorts of grumbles towards the end of his speech I thought on the whole it was a cheerful one and that was nice to hear.

We all seem to be agreed that the long-term competitiveness of British business requires a strong manufacturing base. We have to trade manufactures in order to pay for those consumer goods which are better supplied from overseas. The question is, though we may agree about that, how can it best be achieved in this country? Here I detect, and have known for some time, a basic difference in philosophy between ourselves on this side of the House and noble Lords opposite. Generally speaking, on this side I think we support the idea that the less interference in industry by government the better, whereas I suspect that the other side tend to say that the wise men of government can positively help industry by interfering. That might be a slight exaggeration, but certainly the speeches I heard today from the other side seem to support that view.

By way of example, we heard from the noble Lord, Lord Parry, about the Welsh Development Agency which he so ably led at one stage. We heard from the noble Baroness, Lady Fisher, about the people in Wolverhampton where there is 10 per cent, unemployment. I come from the Isle of Wight, which does not have assisted area status like Wales, where our unemployment rate, in the winter at any rate, is higher than that of Wolverhampton and where the statisticians of Government put us together with the South-East.

It might be said therefore that I should welcome having assisted area status. Indeed, for many years I have been trying to persuade successive governments, including Labour Governments, that that would be a good thing. However, their officials do not want us to be different; it is inconvenient to treat us as an island. They would like to see us attached to the mainland somehow, if only on paper. We do not therefore get this great benefit. However, if we received it in the same proportion as the Welsh Development Agency in relation to population we should have £1 million a year for our development board in the Isle of Wight.

I have been looking into this and I am told that having all this money—I think what the noble Lord, Lord Macaulay, was saying about Scotland gave evidence of this—does not necessarily create successful companies. The people who are bribed to go from the Isle of Wight to South Wales, which has happened, go bust when they get there because they do not try. So it is questionable whether this interference is a good thing. I say to my noble friend on the Front Bench, and I shall also say it later in relation to another matter, that we want to have even treatment for the same kinds of people. We may have high unemployment and a low GDP in relation to the rest of the country, but we should receive the same treatment as the rest.

I believe that the best approach would be to do away with the assisted area status and then we would all be battling on the same level table. But so long as that status is there those of us in areas which are not so well provided for need to receive our share of the goodies. It comes down to the fact that industry works better when it is not interfered with by bureaucrats.

One may question what bureaucrats are. I have a definition. I would include under that heading all those who interfere with the efficient management of industrial companies without themselves being directly affected financially or otherwise by the results of their interference. I would include in that definition all Ministers, local councillors, officials of central and local government, all officials of centrally-organised trades unions; I would include all the members of single-minded pressure groups and I would also include all academics and journalists without practical experience of making books balance. I believe that my noble friend Lord Jenkin of Roding would add fund managers. It sounds cheerful, but it is deadly serious: bureaucrats ruin business. If we want to be successful with our manufacturing process the fewer of them telling people what to do in manufacturing industry the better.

I am seeking to rush along because, unlike other noble Lords, I am assuming that we should still stick to our 13 minutes. I shall refer to the document which my noble friend Lord Jenkin partially quoted from in response to the noble Lord, Lord Donoughue, to tell your Lordships what the CBI has been saying. It is that only in the past seven years has manufacturing industry turned from its decline, both in absolute terms and as a share of the total economy, which was so evident for most of the 1970s and early 1980s. By 1982—

Baroness Seear

My Lords, can the noble Lord say whether the CBI is on his little list of interferers which do not suffer?

Lord Mottistone

My Lords, I thank the noble Baroness. Perhaps I may continue with what I have to say and answer her in a moment or two. By 1982 manufacturing output was over 20 per cent, lower than at its peak in 1973. It accounted for less than a quarter of the total GDP. Between 1982 and 1989 manufacturing output grew by 4 per cent, a year, reaching a new record level 8 per cent, above the previous peak in 1973. In this period manufacturing exports grew by 6–2 per cent, per year. Manufacturing investment grew by 71 per cent., also reaching a new record level; namely, 11 per cent, above its 1979 peak. That was based on improved productivity of 5 per cent, per annum in the 1980s and more than twice that in the 1970s. This halted the decline of earlier years and started to make British exports of manufactured goods competitive in the world market.

In answer to the noble Baroness, Lady Seear, no, I would not include the CBI as bureaucrats because it does not seek to interfere. It listens to what industry has to tell it and it dares not—because it would not get subscriptions from industry if it did otherwise—tell industry what to do. All that the CBI does is repeat to people like myself and other noble Lords what industry collectively thinks. That is quite different from someone busily coming along and saying, "I am the man from the ministry (or the trade union or whatever) and I am going to tell you how to do your business".

I could go on like that but I am not going to because time is running out. I have another important point to raise and in this regard there are two comments to make: there is the decline to which those figures referred. As my noble friend Lord Joseph said, those figures were not new. I commend very much to your Lordships the book which my noble friend quoted called The Audit of War by Corelli Barnett. It shows exactly how much we were in decline in 1939, let alone in 1979.

This decline was as a result of a whole host of factors. I suspect that a good deal of it was due to the attitude of people in this country. That is reflected in other countries like the United States, Canada and Australia, where the only way in which businesses are successful is if the people who are part of them concentrate their efforts in making them successful. That involves the workforce just as much as the management. These people do not get sidetracked into industrial disputes in which they have no interest and that kind of thing.

It is a decline which began at the turn of the century and got steadily worse. We must not return to that kind of situation. I have one or two suggestions which the Government might consider in order to help. There are a vast number of different ways, of which the most important is doing everything possible to ensure that exporting manufacturers and international service providers like shipping companies have equal treatment with their major competitors. If rival countries subsidise, every effort must be made to have this stopped through Brussels or the GATT as appropriate. I am referring to the subsidising of shipping. If there are no results—and for shipping subsidies there have been few results over the past 30 years—we should jolly well match the subsidies ourselves until the competitor countries stop paying them.

Somehow we are much too pathetic. I address these remarks to the Foreign Office and to the department of my noble friend the Minister of State in particular. We are much too pathetic in that we wring our hands when other countries distort the marketplace. The French, the Japanese and the Americans get in and distort back, especially concerning agriculture. In any activity that one cares to choose the French do not pretend that they have not done something and everybody accepts their protestations. Perhaps they even stop what is objected to after it has taken effect. Our government, of whatever persuasion, needs to be much more robust in response to unfair trading practices by others.

Another important contribution by government would be to resist all legislation which unnecessarily hampers business; for example, many aspects of the social charter which we were discussing last Monday. There are many other detailed points that could be made but I hope that noble Lords have the thrust of my remarks. The role of manufacturing industry in creating a sustainable balance in the economy is vital. The Government of the past 10 years have reversed an apparently unchangeable decline. The best policy is minimum interference at home and a robust policy overseas.

6.30 p.m.

Lord Hatch of Lusby

My Lords, what is the fundamental challenge which faces mankind over the next quarter of a century? I wonder whether noble Lords would agree with me that it is how to help the developing peoples to attain a standard of life which will at least maintain life, without at the same time destroying the planet. I believe that every noble Lord in this House would agree that we cannot continue to live in a world in which about half the population is living in such poverty that it cannot maintain life, and where 17 million children die every year from starvation. Yet, at the same time, if those peoples are to develop a standard of life which will maintain life by the traditional methods, there is a great danger that the planet itself will be destroyed. In this context I should like to pick up a phrase used by my noble friend Lord Williams in his opening address, when he spoke of the opportunities available today for British manufacturing industry. He stressed in particular the opportunities in high technology. It is that theme which I intend to develop in my speech.

In support, I should like to quote no wild left-wing pamphlets but a serious booklet published by the Royal Institute of International Affairs called The Greenhouse Effect. I quote first from page 21 where the author, Michael Grubb, has the following to say? Such difficulties will be greatly compounded by the need to include developing countries, for most of whom the question is not how to reduce carbon emissions but how to limit their rate of growth while developing, and how to finance the programmes for such limitations". This is the kernel of the problem which faces not just the developing peoples but all humanity. The author goes on to point out, at pages 23 and 24, that the challenge was approached in the Montreal Protocol on CFCs in which the signatories pledged that: The Parties undertake to facilitate access to environmentally safe alternative substances and technology for Parties that are developing countries and assist them to make expeditious use of such alternatives. The Parties undertake to facilitate bilaterally or multilaterally the provision of subsidies, aid, credits, guarantees or insurance programmes to Parties that are developing countries for the use of alternative technology and for substitute products". That is the burden of what I have to say. Here is a basic need for the whole of humanity, for the survival of life on this planet. Here is the opportunity for the transfer and development of technology, for the channelling of manufacturing industry into those inventions and technologies which can raise the standards of living of half the world's population without endangering the planet in the way that we have in the development of the western world —indeed, of the whole industrial world —since the Industrial Revolution.

Britain and British technicians have produced new technologies which are environmentally benign. Take the case of wave power. Wave power was largely developed in this country. But what happened to it? In 1982 the research on wave power was virtually finished and cut off because the Department of Energy's advisory council on research and development had to reduce its budget by £3 million. In the same year £200 million was being devoted to nuclear research. In fact, it was the nuclear industry which destroyed wave power. It destroyed it by the use of figures which have now been seen to be dishonest. The totally dishonest costing of wave power has since been exposed.

To whom was the study of wave power entrusted, and who is entrusted with the small renaissance of research into wave power which the noble Baroness, Lady Hooper, announced last year? It is entrusted to the Energy Technology Support Unit which is to be found as part of the Atomic Energy Authority. In other words, it is being asked to develop a research which, if it is successful, will put its own organisation and its own lobby out of business.

What has happened to Salter's Duck, the invention of Professor Salter in Edinburgh? That was abandoned in 1982. Yet in Queen's University in Belfast, in East Kilbride, in Coventry Polytechnic and in Bristol there has been continuous research, which has constantly been suppressed for lack of funds, into wave power and the creation of power through the waves.

This was a British set of inventions. Where are they used today? The Norwegians are now using British technology to produce their electricity, technology which has been virtually suppressed in this country, in the country of its invention.

Wind power has been researched in this country. There have been certain experimental stations established here, although I am sorry to say that one has just been refused in Cornwall. We should look at the extent of the use, the research and development and the expansion of wind power in Denmark. Again, that was a British invention which was sent abroad and suppressed at home. In Denmark there are wind parks and over 2,000 wind machines, and they are expanding in number. There again is a British technology which is suppressed at home but which works abroad. I could go on.

I do not know as much about solar energy, but surely solar energy would be the ideal form of energy production for a great deal of the third world. There would be no danger of contamination or pollution. Then there is energy conservation. Again, many noble Lords know more about that subject than I do. We should go to Milton Keynes and see the extent of insulation there. Is it beyond the wit of man—of our inventors and technologists—to produce insulation, not against the cold but against the heat? Is that not a possible research objective for this country's technologists? It would use cooling insulation instead of the much more environmentally dangerous air conditioning.

There is the whole subject of refrigeration. Anyone who has lived in any of the tropical parts of the third world is aware that one cannot tell people in the third world that they cannot have refrigeration; but there are different kinds of refrigeration. It is the job of our technologists and scientists to develop a form of refrigeration which does not emit CFCs into the atmosphere and so destroy the ozone layer. By a strange coincidence only this afternoon a two-page letter was delivered to me from the Bird Group of Companies. It talked about its efforts to produce refrigeration which does not damage the environment. It is worth quoting the last two paragraphs of that letter which comes from the group's environmental controller, who says: I believe legislation is required, or at the very least very strong guidance, to ensure that society accepts the direct costs of protecting the global environment. Since Swedish and German authorities are taking positive action, there is a chance for the United Kingdom to take the lead to make an important impact to reduce a significant amount of CFC being released from the traditional disposal methods of refrigerators and freezers, not to forget building insulation and packaging materials". That is a British effort. But to what extent is it being facilitated by the Government? To what extent are the Government encouraging the development of such technology and its export?

Noble Lords have referred to the Aldington Report. I was privileged to be a member of that committee. If noble Lords will read those sections on exports they will see how exports from this country to the third world have been restricted, largely through lack of finance and support. I shall quote again from page 25 of the report of the Royal Institute of International Affairs, which says: There are in addition three economic arguments to suggest that major resource transfers to the developing world can be in the broad economic interests of the developed. The first is the common general argument that a healthy developing world is an increasingly important component of a healthy world economy, which is in the interests of all countries. The second" — I stress this point because your Lordships will also find it in the Aldington Report — is the specific corollary of this: some forms of resource transfer represent assured export markets, helping to ensure fuller employment in the West". It is enlightened self-interest, but it is enlightenment which is not just for Britain but for the whole of humanity.

My final quotation comes from the paragraph 209 of the Aldington Report: Although aid is important, per capita income level of a developing country is a far more significant determinant of the level of trade. Britain probably has more to gain by trying to expand the purchasing power of developing countries than by direct procurement under aid schemes. The Committee have heard in evidence that markets in the developing world are expanding much faster than those in the EEC. Smaller though the base for growth may be, the Committee think that every consideration should be given to expanding trade with these developing countries by seeking to expand their purchasing power. As Sir Geoffrey Howe said recently, 'Renewed economic growth in African countries is vita] to British industry'. That was what Sir Geoffrey Howe said, and I could not better it.

The central point that I want to convey to the House is that here are the constructive and imaginative opportunities for British manufacturing industry which will benefit not just this country, its workers and its economy but mankind as a whole. I recognise that the issue is a global one and that international action is essential. It is essential that in the next few years we bring together the scientists, who are working on environmental issues, and the decision makers. I hope to make a contribution to that. I hope that the House will recognise the magnitude of the problem and the great opportunities which are open to this country's manufacturing industry to make a constructive contribution to the saving of our planet.

6.47 p.m.

Lord Dean of Beswick

My Lords, Members of your Lordships' House will probably agree that the subject we are discussing is the most important issue that lies before us as a nation. It relates to our future wellbeing and the maintenance and improvement of our standard of living. I shall not go into detail in regard to the national figures because they have been well aired by other speakers not just today but at recent Question Times. One would not deny that there has been some improvement since the trough was hit a few years ago, but those improvements are nothing like enought to put us in the position to challenge our trade rivals within the EC. Goodness knows what will happen with a united Germany, but we must progress far quicker than we have so far.

It was interesting to listen to my noble friend Lord Hatch. I agreed with him when he said that we have the know-how, the ability and expertise to help the Third World. Unfortunately, because of what has happened over the past decade, we do not have the workforce. I speak as a former skilled engineer (a factory floor worker), and due to what has happened in the past decade we have lost a generation of skilled engineers. It is as though a generation of engineers had never existed.

In my opinion it would have been to the financial benefit of this country, and of its future well being, if we had kept some of those industries which were marginally perhaps not doing too well as training grounds for the future. I think that would have been a justifiable expenditure. Engineering has always been the single biggest contributor to our manufacturing wealth because of its size. However, it has been reduced dramatically and I believe the workforce is now perhaps between a half and two-thirds of what it once was. Moreover, as regards apprentices—that is, those who used to be trained in the factories; I was one of them and, ultimately, was responsible, as a skilled engineer, for showing the younger generation how to do the job—the devastation in the figures for new trainees is absolutely appalling. Although the Government's training programme is commendable, it is not sufficient in dimension to really take up the challenge on our behalf and put us back into the position where we belong.

A short time ago I visited the engineering museum in Kensington. An exhibition was being held there for one week which was opened by Sir John Harvey-Jones. Here I am trying to make a point as to whether we are actually training the right type of people to deal with our economy. His main theme was that we were not training enough qualified engineers to match the efforts of our competitors in Europe. I think, in total, that we were roughly achieving about two-thirds of what Germany is achieving and the figure was somewhat similar as regards France. However, he produced a figure which I thought was rather amazing. I do not know whether it is because people are categorised differently, but he said that in France —which is possibly the nearest equivalent to this country as regards national wealth and GDP—the people manage to oversee matters financially with a force of 6,000 accountants, or thereabouts. However, in this country we have 30,000 accountants doing that same job. I must say that I have never found an accountant who produces anything, they only state whether people have spent money wisely or unwisely. I think that it is an indication as to our priorities.

Previous speakers today, and others in similar debates quite recently, have mentioned the insufficiency of funding as regards research and development. That is absolutely correct. Indeed, some of the biggest culprits have been the employers of the past. I put recently to the noble Lord who is to reply to this debate a Question regarding the silicon chip. I still say that the Government were wrong to sell off INMOS to Thorn EMI, because the company then sold it to a foreign competitor. Therefore we lost our particular base in that industry, which is a sunrise industry.

I asked people at UMIST, which is a centre of technological excellence at Manchester University, why we were lagging so far behind. They said, "Well, there has never been enough money made available to compete with our competitors on the Continent". When I examined the figure, I found that some of the biggest culprits were our industrialists who refuse to invest money in this field. That has been one of the sad facts of life in industry in this country.

I spent my working life in the engineering factories in Manchester in Gorton and Openshaw which was known as probably the biggest workcentre in the UK. I have seen factory after factory close down —and, I should make quite clear the fact that that was not due to high wages or bad industrial relations—so that that particular area of Manchester which leads eastwards out of the city is almost a desert. Some of the finest engineering products in the country were made in that area; for example, Cravens, an internationally known machine tool company, has gone. Kendal and Gents was another internationally known machine tool company and that too has gone.

The slaughter continued until I had to move across Manchester into the "big house" as they called it; namely, Metro-Vickers, Trafford Park. When I was there, 24,000 people were employed. However, there are less than 8,000 employed there now and you can mirror that fact right along Trafford Park. The point I am trying to make is that, although there was a case for some change in the area, I believe that the market forces regime applied by this Government did absolutely appalling damage from which it will take us generations to recover.

I know that the Minister may tell me that the Government have set up an urban development corporation in Trafford Park. I am not opposed to that. However, when I questioned another Minister in this respect a few weeks ago and asked him whether the jobs that were going back into Trafford Park would be manufacturing jobs, he said that whether the development would mean just warehouses and no jobs really had nothing to do with the Government. This country cannot survive on being just a nation of warehousemen. Indeed, the Aldington Report made that quite clear. We must get back to our role as a manufacturing country, because we cannot survive on what the City of London and the service industries are doing.

I hope noble Lords will bear with me for a moment if I seem to be a little parochial. I should like to quote some figures regarding the North West. Only last evening I happened to be present at a dinner. I heard a speech made by the present Leader of the House in another place; namely, the former Chancellor of the Exchequer. He made various claims and I do not contradict them because they showed that some progress had been made.

However, if I look at the figures for the North West I have to say that that progress is not mirrored there. In December 1979 there were almost 1 million people employed in that area in the manufacturing industry sectors. However, in December last year the figure had fallen to 683,000. One may say, "Oh, but the figures are going up". I do not have the full figures for 1989, but when I looked at the comparable figures I saw that they had fallen again. Therefore, what are we really talking about when we mention this brilliant recovery we have made? I do not see many signs of it.

Having been a Member of Parliament for Yorkshire, I also watched the wholesale slaughter of clothing factories which made good quality clothes. Once again, this was not caused by high wages, because no one was paid exorbitant wages and very few strikes ever occurred. However, they just went out of the window. It is part of the Government's policy that we should compete. I think that the noble Lord, Lord Mottistone, in his speech put his finger on the point. He said that many of our companies had gone out of business because of unfair competition from abroad. Of course, that is still going on.

I return to the question of Lancashire and the cotton trade. There is one particular parliamentary constituency just north of Manchester which only a few years ago had 12 cotton mills. Now it does not have even one left. There was a debate in another place on Friday 12th February on the multifibre agreement on textiles. The relevant figures were given by a Member, Mr. Jim Lamond, and they showed the devastation which is still taking place in those areas. Therefore, there is no point in the Government making out that the figures have suddenly started to rise. They have started to rise but not in the areas that I know. In fact, they have slackened off and, in some cases, they are starting to fall. If we do not at least take the final step that I am talking about and return to where we once were, we can forget about living as a manufacturing nation.

I have a cutting from the Manchester Evening News last week. Is this a so-called success story? Shirt firm crash hits 2,000 jobs". That was the area which was starting to be regenerated according to the Government. The article states: A Manchester-based textile company went into receivership today putting 2,000 jobs at risk. James Seddon (UK) Limited, with head offices in Egerton Street, Denton, announced that they had appointed Manchester accountants Grant Thornton as receivers". I have some bad news for my colleagues sitting below me. Many of these jobs are in Scotland as well as Manchester. The article further states: The bulk of James Seddon's employees are based in Scotland where the company employs 1,400 people at four factories. A further 600 workers are employed in Congleton, Cheshire, and North Wales; and 280 are employed at the head offices in Denton, Manchester". That is the latest tale from there. I would not know the details for the area, which is outside Manchester. This has just hit the press and the details have not been released yet, other than that the receiver is being brought in. I was trying to obtain more information from the Member of Parliament for the area, Mr. Andrew Bennett. However he was not able to get it in time.

I put it to the Minister that, if this situation is allowed to develop, it may happen in other places. It certainly runs contrary to the success story that we constantly hear about. I like to think that if the Government have notice of this type of thing happening, they will be prepared to act to help in any way they can. The areas that I am talking about have lost job after job in almost every section of manufacturing. Another blow like this and matters will be every bit as severe, or perhaps even more severe, in Scotland.

This is not news of a nation on the up and up, as the Government claim is the case. It is contrary to that expectation. However, today's debate will have been worthwhile if the Government start to listen to some of the proposals that may be necessary. There is no question but that the abnormally high bank rate has a seriously adverse affect on investment, particularly in new plant, new factories and the production that is so badly needed. We must grasp the nettle regarding funding from the Government. They may have to chuck out their political bible of total market forces and pump money into research and development and training. They will have to help some companies to remain in business where a case is made for that, or to start new businesses. They will have to stop being totally adamant that only market forces are relevant and should operate. Unless we begin to operate on the same basis as our competitors, we who in my opinion are possibly in the second or third division now in football terms may go out of existence.

I hope that the Government and the Minister in his reply will give us some expectation that the serious situation which I consider we are still in despite the successes that the Government claim will be remedied.

7.4 p.m.

Lord Stoddart of Swindon

My Lords, like other noble Lords I wish to thank my noble friend Lord Williams of Elvel for putting this item on the agenda today. I also wish to congratulate him on the excellent speech he made in introducing the debate.

One of the benefits of being the last speaker from the Back Benches is that one has heard all the speeches that have gone before and has therefore assimilated the accumulated wisdom of the speeches. However, every action has a reaction and every benefit a counter benefit. The detriment of speaking last from the Back Benches is that everybody has said everything that one wanted to say. However, I shall try my best.

I took the precaution this morning of looking again at the report of the Select Committee on Overseas Trade, under the chairmanship of the noble Lord, Lord Aldington. I had the honour to serve on that committee. I examined the report and its recommendations. It is worth reminding ourselves of some of them.

For example, the Select Committee said that there was no reason to expect an automatic resurgence of manufacturing and trade when the North Sea oil surplus declined. It went on to say that new industries grow out of long-established activities and require a long timescale for development. Lost manufacturing capacity would take a long time to restore. That is what the Select Committee said. Services, investment income and inward investment flows cannot by themselves compensate for the effect that loss of the oil surplus would have on the balance on current account.

The Select Committee predicted an adverse balance of payments of such proportions that severely deflationary measures would be needed. That is what the Select Committee said. It also said in its report and recommendations that all people must recognise that their future prosperity depended on the success of manufacturing and trade. Governments of whatever political persuasion should adopt macro-economic policies which favour manufacturing and trade and are applied consistently.

That was said five years ago. It is as relevant today as it was then. It is a great pity that the recommendations were not acted upon by the Government at that stage. Unfortunately the former Chancellor of the Exchequer, Mr. Lawson, pooh-poohed what the committee had to say. He sneered at the committee and its recommendations and said that the Aldington report was a mixture of special pleading dressed up as analysis and assertions masquerading as evidence which led the committee to its doom-laden conclusion. I reckon that the committee was much better at forecasting than the former Chancellor of the Exchequer.

Instead of listening to what the Select Committee had to say, he chose to abuse it and refused to apply reasoned argument to the recommendations made. He also ignored the fact that the report was based on evidence from a wide spectrum of society: from industry and commerce, from economists, from universities and trade unions. That is where the evidence came from. The conclusions were reached on the basis of that expert evidence. The failure to understand what the committee was saying and to act quickly on its recommendations have led us to our present position. We have a huge balance of payments deficit, as the committee predicted, and severe deflationary measures to deal with it, again as the committee predicted.

Having plunged the country into economic chaos and crisis through his policies, Mr. Lawson has ducked out of his responsibilities and left it to someone else to clear up the mess. His reward is apparently to be £100,000, or perhaps it is £200,000 per year with Barclays Bank. I see that the noble Lord, Lord Joseph, wishes to intervene but I have only 13 minutes.

Lord Joseph

My Lords, does not the noble Lord agree that the problem we have met recently has been that the Government have failed to restrain the boom? The party of the noble Lord was urging us to adopt an even more relaxed monetary policy than we had. That policy would have sucked in even more imports. That is the point that he must meet.

Lord Stoddart of Swindon

My Lords, with respect, we are not talking about the Labour Party at the present time. We are talking about a government who have been in power for the past 10 years. It is the results of their policies that we are dealing with. We are dealing with their failure to listen to good advice from a committee of this House.

As I was saying, Mr. Lawson now has a job with Barclays Bank. If he does for that bank what he has done for the country, God help Barclays' shareholders and its customers, of which I am one. I must think about changing my account, but no doubt inertia will prevail and I shall leave it where it is in spite of Mr. Lawson.

The measures taken to deal with the crisis are self-defeating in relation to the resurgence of manufacturing industry. High interest rates will damage investment in manufacturing industry, yet a huge increase in manufacturing industry, as we have already heard from so many speakers on both sides of the House, is our only hope for a prosperous future. Even if the price for North Sea oil recovers to 35 dollars a barrel in the mid-1990s, the reduced flow of oil from the North Sea will ensure that there is no new oil bonanza to get us out of trouble. The oil bonanza of the 1980s could have helped restore manufacturing industry to a pre-eminent position. It could have done so painlessly. However, as the Government have wasted the massive oil revenues on consumer booms, largely for electoral purposes, we now have to rebuild the manufacturing base the hard way.

Reliance solely on interest rates is the wrong way to go about curing our chronic problems of high inflation and a chronic shortage of manufacturing capacity. It is patently absurd to take measures to damp down consumer demand which will also reduce investment in manufacturing industry. Other measures to reduce consumer demand are available which would not at the same time damage manufacturing industry and investment therein. Furthermore, there are measures which could and ought to be taken to boost interest and investment in manufacturing industry.

What the Chancellor should not do at this stage is to heed the siren voices of the gutless Tory wonders slithering and whining on the Back-Benches in another place who are urging that the limit for mortgage tax relief should be raised beyond the present £30,000 ceiling. To accede to that demand would merely prolong the pain of high interest rates as it would fuel further consumer demand and worsen prospects for the balance of payments. Paradoxically, it would not help those most in need of housing, that is the first-time buyers, as they are helped most by stable or falling house prices.

What then are the alternatives? First of all, excess credit for consumer purchasing must be reduced if the flood of imports is to be reduced and export potential increased. There is no need for a great panoply of direct controls. No one wants that. The Government could reduce credit simply by requiring the lending institutions to deposit a proportion of their liquidity with the Bank of England. Alternatively, even if the Government did not want to do that, the Chancellor could warn the lending institutions that that would happen unless they put their house in order and reduced significantly lending for consumer expenditure. In spite of what has happened, we still receive through our letter boxes every day proposals from financial institutions to borrow more and more for further consumer expenditure. The Government should do something about that.

If lending for consumer expenditure were reduced, there would be two likely results. First, the demand for credit would drop, thus easing pressure on interest rates. Secondly, the lending institutions would need to find a new home for the surplus money. They could very well find that home in manufacturing industry. That brings me to my next point, which is the encouragement of savings towards manufacturing industries. It is at present much more beneficial, and certainly safer, to put one's money in a building society. One can obtain over 12 per cent, tax free. That is available to people with relatively small amounts of savings. Why then should people take the risks involved in investing in productive industry for, say, 4 per cent, or 5 per cent, before tax when they can receive so much more without any risk or effort?

Lord Joseph

That is not true.

Lord Stoddart of Swindon

I know that the noble Lord does not agree with me but I have only 13 minutes in which to speak. It is time that we ensured that the rewards went to those interested in making goods rather than to those who are simply interested in making money. The Chancellor in his budget, and indeed the whole ethos of government policy, ought to be directed towards redressing that balance. The Chancellor should also consider the extension and use of capital allowances to assist productive industry as recommended by the Select Committee and indeed by the CBI in its paper which was circulated to many of your Lordships in connection with this debate.

Finally, and in spite of their dislike and apparent distrust of the NEDC the Government really ought to use an organisation with a lot of expertise and industrial experience. There is, as we all know, a greater consensus than ever before in British industry about what is necessary to revitalise British manufacturing. Why do the Government not recognise and use this new consensus? Why indeed will they not under these encouraging conditions of co-operation between both sides of industry adopt the Select Committee's recommendation that within the NEDC a separate committee under the chairmanship of the Secretary of State for Trade and Industry —that is in spite of the fact that the Secretary of State is Mr. Ridley—should be established to promote manufacturing industry? Unless measures other than those adopted by the Government are instituted, they will head for sheer disaster. The economy is headed for disaster and the Tory Government are headed for defeat at the next election. However, that latter point is of course a good thing.

7.19 p.m.

Baroness Seear

My Lords, the late Lord Kaldor used to remind us frequently that the decline of manufacturing industry went back a long way. It goes back even further than the last quarter of the last century. I believe the noble Lord, Lord Joseph, referred to that. This is an old problem. However, although it is an old problem the time for recovery is short. We talk here as if there is almost unlimited scope in time ahead of us for getting things right. But that is not so. I do not wish to play the Cassandra but, as I see the prospects ahead, they are very grim.

By 1992 we shall be competing inside the Community, but it is not only the Community that we must look at. Competition is coming increasingly not only from Japan but also from the little dragons and, when the Eastern European countries begin to recover, they too will provide tough competition. As I listened to the debate this evening I did not sense that there was any urgency to deal with these issues. However, the extent to which, despite a number of differences about methods, there is agreement about the need for a resuscitation of manufacturing industry has been encouraging. There has also been an appreciation of its importance and its economic and social value to the country as a whole. That in itself is relatively new.

In the past the Conservative Party was not greatly aware of the importance of manufacturing industry. Nor did it encourage its sons and daughters to enter manufacturing industry in order to make it as successful as it could be. As for the Labour Party I was delighted to hear the noble Lord, Lord Williams speak so enthusiastically about the importance of manufacturing industry, I know that it is easy to criticise because we cannot be criticised for what we did not do when in power because we have not been in power for so long. However, the Labour Party has been in power on a number of occasions. It did nothing to remove the gross overmanning in manufacturing industry which made a considerable contribution to the poor position in which manufacturing industry found itself. The Labour Party did not do so because to a large extent it was in hock to the trade unions. If it has now recovered from that, so much the better.

The Labour Party did very little about training when it had the opportunity. While I do not greatly admire many of the measures which the Government have taken on training, they have done a great deal more than the Labour Party did when in power. In terms of money that is most emphatically true. What is perhaps most encouraging is the change in attitudes towards industry as a whole. It is now regarded as valuable. That is a significant change on the part of the Labour Party, which was very critical of wealth creation.

That attitude was not confined to the Labour Party. Until very recently the intellectual climate has been anti-wealth. I defy the noble Lord, Lord Peston, to deny that the intellectual climate that he and I shared was to a large extent anti-wealth creation. The best school-leavers and best students were not encouraged to go into industry. In my experience many of them were biased against it by the time they went to university. Perhaps that was not the noble Lord's experience, but it was certainly mine.

The change is very welcome and it is real. However, the urgency of the situation has not been taken on board. It is useless to think that we can get out of our difficulties by any kind of "fortress Britain" approach. I have been rather depressed by hearing from all sides of the House this evening indications of a growing protectionism as the easy way out. It is not an easy way out; it is not a way out at all. All we can do is face the growing competition and place ourselves in a position in which we can meet it. I do not deny that if we do the right things we are perfectly capable of meeting that competition. However, we have to do them, and we have to do them fast.

What are those things, on which to a considerable extent we are agreed? The noble Lord, Lord Jenkin, said that we needed to plan to raise the percentage of GNP from manufacturing industry. I entirely agree with him on that point. We need a strategy aimed at improving the position of manufacturing industry.

I think that we are also agreed —but I am not sure how widespread that agreement is—that we do not want the kind of plan which in effect gives civil servants the job of picking winners. If anybody believes that that is the way out they should study recent history. We should never again go along that road. However, that is no excuse for government not doing something and for not doing it quickly.

In particular there is the question of infrastructure. However, infrastructure will not be provided through short-term market forces. More money needs to be put into infrastructure. Let us take the case of the Channel Tunnel. I know that that will be dealt with in the next two or three years. However, we need the right railway system throughout the country so that manufacturers in the North West and North East can take advantage of the Channel Tunnel instead of wasting a great deal of time, almost certainly ineffectively, trying to take their goods through London. Without that infrastructure it will be impossible to take the opportunities to enable manufacturing industry in Liverpool or the North-East to sell their goods swiftly in Dusseldorf. That is what we need to do. It will not happen unless government money is available to support such a programme. That is just one example, of which there are many, of the need for public investment in the infrastructure of the country.

We also need to tackle our very high interest rates. As many noble Lords have said this evening, that places a very heavy burden on industry. It is not only a heavy burden on industry; unless we are careful it will place us in a very serious inflationary position. The greatest danger is that there will be big increases in wage demands. At present they are not out of hand but they could easily get out of hand. If once the expectation develops that there will be rising inflation, pay claims will be based on that expectation. Once pay claims are based on the anticipation of further inflation that further inflation is bound to result. The need to reduce inflation is of the very first order of importance.

One matter which has not been mentioned this evening, to my great surprise, is that one way of doing so is to enter the exchange rate mechanism and to do so quickly. That would give us some opportunity of controlling the level of inflation. Our exchange rate would not be so threatened and we should not need to put up interest rates in order to sustain the exchange rate.

That is coupled with entering more effectively into the Community and—I was going to say throwing our weight about—using our influence inside the Community effectively so that the right competitive conditions develop. We should then obtain the full advantages of membership of the Community instead of adopting our present attitude.

In addition, as many noble Lords who have spoken have mentioned, there should be much more encouragement for investment. Our only hope in the future is as a high productivity, high technology, high wage economy. That requires investment. The CBI is surely right to ask that in the next Budget there should be increased incentives to industry to invest. There are a number of ways in which that could be done. The CBI suggests that companies should be able to write off their investment against tax more quickly than at present. The encouragement of greater investment in industry is surely a very high priority.

Of even higher priority—and all noble Lords are in agreement on this but we do not see action—is education and training. Perhaps I may quote one figure which must bring home the relevance of our inadequate training to our inadequate performance. A 1989 EC business survey shows the proportion of firms indicating that a lack of skilled labour had limited production. In 1988 in the United Kingdom the percentage was 26–3; in West Germany it was 3; in Italy it was 2; in France it was 4. Need I say more?

We have to be in the high-tech area, and an economy which can change and adjust quickly requires highly trained and highly skilled people. We are not producing them. We have made some attempts in that direction but they are nowhere near the scale that is needed. We have great talent in this country but we are grossly undereducated and undertrained.

There are some elements in the new education programme which are good but it still does not meet the educational needs of the non-academic child. We have failed in that programme to meet the real opportunity to help a large proportion of young people who do not respond to the more academic type of education but who have the capacity to respond very well to a different kind. I do not wish to encroach on a debate which will go on very hotly next week, but surely we need greatly to expand the numbers of people who enter higher education of one form or another. That is perhaps even more so in the applied forms than in the traditional academic forms.

We shall discuss next week whether present government policies are likely to encourage such an expansion. It seems all too plain to many of us that they will do no such thing. Unless we do those things and do them quickly, all the rest of our beautiful schemes for building a better society will go for naught because we have to pay for them and our competitors are not there to help us. They are there to take advantage of the opportunities which are arising all around. Unless we change, they will take advantage of those opportunities and we shall drag sadly behind.

7.30 p.m.

Lord Peston

My Lords, I have learnt in life never to predict anything. I certainly did not prepare for this debate expecting the main onslaught on my views to come from the Social and Liberal Democrat Benches. Perhaps I may remind the noble Baroness that the Government whom she so vigorously attacked were supported by and kept in office by the so called Lib-Lab pact. Perhaps I may also remind her—I hope not ungenerously—that her present leader in this House was a distinguished member of my party and a distinguished holder of high office. I have no intention of having a great argument with the noble Baroness, but I am deeply disappointed by that aspect of her speech.

While I am in this mood, perhaps I may also say how disappointed I am at the intervention of the noble Lord, Lord Joseph, which was, once, a misrepresentation of matters connected with me personally. I certainly spoke on economic policy before the last election. I made it clear that the Chancellor of the Exchequer at that time was profligate in his tax cuts. I argued, as did many of my noble friends, that they would lead to the precise consumer boom and balance of payments deficit that we now have. Many of his friends—not he—played the usual tricks with me of saying, "Oh, the noble Lord believes in high taxes, doesn't he?" That was the kind of pre-electoral trick played by some of the noble Lord's friends. He should remember that.

I believe, perhaps cynically, that the present Chancellor of the Exchequer will at least be tempted by that trick again next year. He will produce another pre-electoral tax cut. I shall now tell the noble Lord, Lord Joseph, that I shall also attack that, even though I may be exposed yet again for political naivety as his party desperately tries to cling to power. However, I look forward to him supporting me and saying that such a profligate tax cut a year from now would be most inappropriate to the British economy. At least he would then be on the right side. I do not normally go in for acerbity in this kind of debate, but, for obvious reasons, one or two matters have put me into a slightly bad mood.

Lord Joseph

My Lords, I have no doubt that the noble Lord spoke as he said he did, but the impression given by the party to which he belongs was that monetarism was restraining spending when it should be expanded.

Lord Peston

My Lords, we may have another opportunity to return to that point, perhaps when many of us write our memoirs and deal with the history of the country's economy.

I want to concentrate mostly on matters of principle and policy, but there are one or two factual matters which I should draw to noble Lords' attention and on which I should perhaps correct the record. The first point concerns manufacturing investment. My noble friend Lord Donoughue was right in his statement about manufacturing investment in real terms. The figure did not reach the 1979 figure until 1988. More to the point, the CBI document from which noble Lords have quoted states that, since 1988, investment intentions have weakened considerably. Manufacturers now expect plant and machinery investment to fall over the year ahead, which further confirms the point made by my noble friend. The position is worse still because, throughout the middle period of the 1980s, manufacturing investment was below the level that it had reached in the early 1970s. The record on manufacturing investment is therefore as my noble friend said and not the reverse.

Perhaps I may also comment on the balance of payments, which is the theme of the debate, and quote the Bank of England. It says that the substantial current account deficit of the last three years has largely reflected movements in trade in manufactured goods. In other words, we are entirely right to concentrate on the manufactured goods side of the problem.

Thirdly, the deterioration of the balance of payments is significant, but it is very much a phenomenon of the 1980s. It is often forgotten that, following the so called Barber boom of 1973, the Labour Government brought the balance of payments under control and, relative to national income, the balance of payments improved up to 1981.

I shall not deal with purely factual matters for much longer. The noble Lord, Lord Jenkin of Roding, referred to the Government stabilising the share of manufacturing exports in the last year or two. That is the figure often quoted. It is often forgotten that, during the period of the Labour Government of the 1970s, Britain's share of world manufacturing rose. It did not do so by much, but it rose nevertheless. The level at which it is currently stabilised, according to the Government's claim, is lower than the level at which we left it in 1979.I do not make many claims for our record. We do not have all that many dimensions of success, but one or two have been raised where our record is rather good. That is one that I shall not allow to be ignored.

On the question of general principles, my view of the role of government is not doctrinaire. I am neither for nor against government. I simply look at problems and ask what is our best way round them. Idelogically, I am not for or against markets. I simply ask: what will work? The noble Lord, Lord Mottistone, is not in his place, but that kind of doctrinaire approach of a blanket statement of the less government the better troubles me. I do not see that as a principle. The noble Lord talked about bureaucracy which I found amusing, but, in my experience, if one were to ask most relatively small business men who was the bureaucrat whom they found most threatening, it would not be someone who worked in the local authority or in central government; it would be the local bank manager. That is the kind of bureaucracy that is most threatening and most unsympathetic when it comes to small businesses. I do not care for bureaucracy, but, in my experience, one finds a fair amount of bureaucracy in private enterprise, most of all in the banks.

On the general principle of the mixed economy, perhaps I may revert to the subject which interests me most —the intervention of the noble Lord, Lord Joseph, in which he took broadly an Adam Smith line. I stand second to no one in my estimation of Adam Smith. I believe that there is an institute called the Adam Smith Institute and that one of the qualifications for joining is that one must guarantee that one has never read any of the works of Adam Smith.

Adam Smith had one interesting characteristic: he was tremendously interested in the facts. He was not like other economists who became more and more abstract. If one reads The Wealth of Nations, one finds a wealth of material in it. If Adam Smith were looking at the world today —this is purely speculative on my part—he would certainly ask the question, what is the proper role for government? However, he would not give the answer that he gave 200 years ago because it would not be in his nature to ignore what had happened. He would have looked at Japan, Germany and Sweden, all examples, in terms of wealth creation and affluence, of successful economies. He would have seen a greater role for government than he saw in Britain at the end of the 18th century. He would have seen —I emphasise that this is purely speculation —the kind of points that we have made on research and development and vocational training as a role for government. On the kind of points that have been made regarding infrastructure, he would have said, "Yes, that is a proper role for government". I do not doubt Adam Smith's other original view that providing a proper macro-environment was important, but he would have recognised—this is fundamental to my noble friends' contribution—the importance of infrastructure. The noble Lord, Lord Crook, made many important points in that connection.

For those noble Lords who want to take an extreme view of markets, I beg them not to do so. They should look at the comedy of errors surrounding the building of the Channel Tunnel which is a private enterprise activity. They should look at the tragedy of the failure to build the rail link properly which is a public enterprise. It is difficult to distinguish the incompetence on either side. Perhaps I differ strongly from most noble Lords in that I am one of those who think that central government might well have a useful role in that area, at the very least in persuading them to come to their senses, if in nothing else.

On the question of policy, a couple of weeks ago I had my chance to talk about vocational training and so on. I shall not go over that ground again, other than to say that I do not withdraw from anything I said then and I think that the noble Lords who spoke about that have been right.

With regard to manufacturing generally, what are the worries? Surely we are worried about how cautious we are in fields such as design and technology and that we are not thrusting forward as our predecessors did in the 19th century. That is where the entrepreneurship comes in. Now we seem to have "entrepreneurs"—and I use the word in inverted commas because I am always struck by their caution rather than their entrepreneurship. In particular, I am convinced that our failure lies in what is called knowledge-intensive industry. We are not pushing in that area to the degree that we should. Again that point is not unrelated to our observations on vocational training.

More generally, we must of course be more efficient; but the key is for us to get into the right product lines, which is exactly the point stressed by my noble friend Lord Williams of Elvel and other noble Lords. The danger is that we shall become a low wage economy and survive that way with continuous devaluations as our other way round. That will not do. The reason that manufacturing is so important—and this point was made by the committee chaired by the noble Lord, Lord Aldington—is that it is the source of innovation. As that committee pointed out—and the noble Lord, Lord Jenkin of Roding, made the point earlier this evening—the demand for services comes mainly from manufacturing. A view that feels somehow we must see these things as clashing is wrong. The two are complementary. I am not a modern-day mercantilist. I believe that whatever creates what people want is worth doing. I do not say that manufacturing intrinsically is somehow better; I simply say that producing the things that we need is what is good. Surely manufacturing is in all that.

There is a lot of time left to me, and I am particularly annoyed with two of my noble friends Lord Jay and Lord Stoddart because they took all the best points with which I wanted to deal and have left me with virtually nothing to say. However, I try to stick to the rule of not then saying, as noble Lords sometimes do, "Nonetheless I shall make those points again". I shall not say them again. However, there are a few additional remarks that I want to make.

I should like to say how glad I am that this debate has caused us to look again at the report of the Select Committee on Overseas Trade—the Aldington Report. I believe that most of your Lordships have said, and I certainly say, that it was right. But I should like particularly to echo the remarks of my noble friend Lord Stoddart. Over the weekend I looked again at the report and what shocked me was the complacency of the Treasury in its evidence to the committee. I also feel that the arrogance of the Government in their response was quite insulting to your Lordships' House. Five years have been needlessly wasted because we were warned.

If anything, the outcome has been worse than our worst fears. The current account deficit in 1989—I repeat the point until it is boring, but it is true—was the largest absolutely and relatively in our history. I understand that the mortgage rate of two weeks ago is also a British all-time record. More to the point, the outlook is grim. Interest rates will certainly fall. I find it hard to believe that these figures represent permanent interest rates for the British economy. I cannot find anybody, whether teenage scribblers or serious economists like myself, who can actually predict when interest rates will come back into single figures. I certainly do not care to speculate—and I am not offering free advice this afternoon to those noble Lords who are working forward markets —and I should not like to estimate when we shall see interest rates in single figures. It will probably not be for the foreseeable future.

The current account deficit on the most optimistic assumptions will clearly exceed £10 billion per annum for the next three or four years. I do not think that it has been sufficiently recognised that if we ignore revaluations of our net overseas assets due to the exchange rates, and they can be revaluations up or down depending on what happens to exchange rates, what really matters in terms of our net overseas assets is our current account. A deficit running at the rate of last year and continuing to run for three or more years at £ 10 billion per annum is worse than the noble Lord, Lord Jay, said. It wipes out our total net asset position. We shall not have a small invisible surplus. We shall not have any invisible surplus at all.

That is why I believe that we must reverse rapidly the manufacturing position. All I can hope is that in his reply the noble Lord will respond in the terms of the debate to which he has listened throughout the afternoon and evening. We are trying to say to him —leaving aside my bad temper and the fact that we got into one or two political disputes that perhaps we should not have begun —that all of us believe that there is a serious state of affairs that has to be examined.

On other occasions I have heard noble Lords in this Chamber express worries about leaving the nation defenceless. They do not wish to disarm prematurely. Because of my position, I am never allowed to join in those debates, but I am rather sensitive to what noble Lords have to say. My concern this evening is that the Government should not leave us industrially defenceless in the face of the economic battles that lie ahead.

7.45 p.m.

Lord Trefgarne

My Lords, the Motion in the name of the noble Lord, Lord Williams of Elvel, has provided the occasion for the latest in a series of debates in your Lordships' House on the prospects for manufacturing industry. These debates have been enlivened not only by the usual robust exchanges, but also by the contributions of individual noble Lords of all parties or none, with direct and relevant experience of manufacturing industry. I include in particular the maiden speech of the noble Lord, Lord Crook, to which we had the privilege of listening earlier this afternoon. It was a most meritorious contribution and, like other noble Lords, I look forward to hearing him again soon and often.

The Motion of the noble Lord, Lord Williams, links manufacturing to the idea of balance in the economy. He has argued that the present situation is one of imbalance. I should like to look at that notion of balance. In an economy the size of ours there will be important contributions both from manufacturing and services, and indeed from agriculture, construction and the energy industries. The balance between those contributions in a market economy will be determined primarily by the customer. In a command economy by contrast it is the Government that seek to determine what is the right balance. The present state of the economies of the Soviet Union and Eastern Europe are sufficient proof of the bankruptcy of that approach. I take it that the noble Lord would agree with that. I think that the difference between us concerns the extent to which in a market economy the Government should intervene at the margin to influence the balance a little this way or that.

The major industrial countries—the United Kingdom and our main competitors —have a similar pattern of economic activity. More than half of GDP is accounted for by service industries and between 20 per cent, and 30 per cent, by manufacturing. In most of the countries, the contribution of services has tended to rise in recent years, and that of manufacturing has tended to decline. Two main reasons for this trend have been identified: first, as people become better off, their demand for more services tends to rise faster than their demand for more goods. Secondly, the manufacture of goods offers more opportunity for productivity improvements than the provision of services, so that the price of goods tends to fall relative to the price of services. Since contributions to GDP are normally measured in value terms, this accentuates the increase in the relative weight of services.

It is true that in the United Kingdom the proportion of GDP accounted for by manufacturing is lower than that in most of our competitors. There are reasons for that.

The production of North Sea oil rose from zero in the mid-'70s to 6 per cent, of GDP in 1985 and now stands at about 4 per cent.; and the financial services industry has risen as a component of GDP from 10 per cent, in 1975 to 19 per cent. now. The output of both industries is internationally traded, and both make a substantial direct contribution to the balance of payments. The declining contribution of manufacturing to GDP is in large measure the reflection of the increased contribution from those two sectors.

For these reason, I do not see the size of the manufacturing sector, or the balance in the economy between manufacturing and other sectors, as a cause for concern. What matters far more is the all round effectiveness and competitiveness of our manufacturers. Here there are areas which require attention, primarily from firms themselves, but also from Government. I shall come to these in a moment. But, first, I make no apology for reminding your Lordships of the very real achievements of British manufacturers in the past 10 years. It is necessary for me to do this, not merely to defend the Government's record, but—more importantly—to ensure that due credit is given to the efforts of the manufacturers themselves.

The volume of manufacturing output in 1989 was at an all time record. It was 32 per cent, higher than in 1981, 13 per cent, higher than the last cyclical peak in 1979, and 8–5 per cent, higher than the previous record year, 1973. This rate of growth, sustained throughout the 1980s, represents a transformation from the halting performance of manufacturing output over the previous 20 years.

No less remarkable is the growth of more than 50 percent, in manufacturing productivity in the 1980s, which exceeded that in any other major industrial country. I accept that we have some way to go to match the productivity levels of the best of our competitors. There is still room for improvement. We cannot afford to relax. Our competitors themselves are not standing still. But it would be quite wrong to allow that to detract from the magnitude of our manufacturers' achievement.

Profitability in manufacturing has risen steadily throughout the 1980s, from a very low point, and returned to levels last seen in the 1960s. This has a twofold significance. Seventy-five per cent, of capital investment is financed from retained profits, so a healthy profit enables companies to sustain their investment programmes regardless of the vagaries of interest rates; and a run of better profits, and the prospect that it will continue, gives companies the confidence to invest. The investment figures bear this out. Manufacturing investment was also at an all time record in 1989. The average annual rate of growth since the low point in 1983 has been 8 per cent.

Much has been made of the deficit in the balance of trade in manufactured goods. This is sometimes seen as evidence of weakness in British manufacturing. I do not believe that the facts will bear that interpretation. The manufacturing trade deficit did indeed rise sharply between 1986 and 1989. But over that period output of manufactured goods rose by 19 per cent, and exports of manufactures by 28 per cent. Those are impressive figures. The deficit grew despite them because of the boom in investment and the unprecedented strength of consumer spending. The Government have taken firm action to control domestic demand. This will reduce import growth. The most recent trade statistics suggest that this is already happening. They confirm that the explanation for the rapid growth in the deficit in the past two years or so lies in the short term surge in demand, not in any long term industrial weakness.

Commentators have been right to identify the improvement of levels of skill and standards of training as one of the main challenges facing industry and Government. We believe that primary responsibility for training, and for overcoming skill shortages, should lie with employers who indeed already spend £18 billion a year on training. Government are no more qualified to tell industrialists what skills they need than to tell them what goods to produce. That is why we have decided to establish a network of employer-led training and enterprise councils, to run and develop the training and business support programmes previously run by the Department of Employment. Instead of being operated centrally by Government, they will be run by experienced businessmen, with an eye to particular local needs. The response to our initiative has exceeded all expectation. Development funding has been awarded to 55 groups in England and Wales. We hope that the first TECs will be fully operational by spring this year.

Noble Lords were also right to draw attention to the importance of innovation to industrial performance. We live in a world where the rate of industrial change is accelerating, and product life cycles are shortening. Innovation will be more vital in the future even than it is now if British firms are to maintain a competitive edge in world markets. But I think that your Lordships will agree with me that innovation, like training, is primarily the responsibility of firms themselves. The most important contribution that the Government can make is to maintain an economic climate within which innovation can flourish. I believe that this Government have done that; and I am encouraged to note that industry's own funding of R&D increased by 30 per cent, in real terms in the four years to 1987, the most recent year for which figures are available.

It is surely no accident that this increase marched in step with the increase in the profitability of manufacturing companies.

But the DTI does have a direct role in the promotion of innovation, and the department plans to maintain the level of its expenditure for this purpose over the next three years at more than £ 100 million a year. The objectives of this expenditure are to encourage industry to increase its own funding of R&D and to apply new technology more effectively; to promote technology transfer and the translation of inventive capability and best practice techniques into commercial application; to encourage industry to make most effective use of its own and academic resources through collaborative R&D both nationally and internationally; and to encourage innovation by small firms, particularly in advanced technologies and in the regions.

The thinking behind these objectives is that firms themselves are best able to assess their own markets and to balance the commercial risks and rewards of financing innovation. In the long term it would not be helpful to industry for Government to take on these responsibilities. But we recognise that to rely completely on the commercial decisions of individual firms may produce a lower level of innovation than would be in the overall interests of the economy.

That is why the DTI's innovation programmes focus on the pre-competitive research necessary before commercial applications can be developed; on collaborative research, where the benefits will be widespread; and on technology transfer. The particular programmes which the DTI supports—including LINK, Eureka, SMART, and the European Community programmes—will be familiar to many of your Lordships, and particularly to the Members of your Lordships' Select Committee on Science and Technology. They are designed to work with the grain of the market, and not to cloud the disciplines that rightly apply to decisions on innovation as to all other commercial decisions. But the continuing scale of DTI innovation programmes gives the lie to any suggestion that we are abdicating our responsibility.

In the light of these considerations we have decided to make some changes in the DTI's organisation. These will focus the industrial expertise of the department where it is most needed and most effective. I have already referred to key priorities spanning all industrial sectors, including collaborative research projects, technology transfer and standards and also other important matters such as the response of business to environmental issues. At present, these activities are covered for each sector by market divisions which also cover international trade issues, market information and the promotion of policies for which other DTI divisions are responsible such as 1992 and business/education links.

We have concluded that these activities will be better managed by separate divisions and branches each concentrating on a set of policies or programmes. Expertise will then be focused on information technology, on manufacturing technology, on the environment and business, and on market assessment. Divisions with policy responsibilities for matters such as international trade, the single market, business/education and deregulation will be responsible for communicating with business direct, rather than through the "market" divisions as at present. The focus of responsibility, and lines of communication, will both be clarified.

Where my department discharges continuing government responsibilities towards specific industrial sectors—aerospace, shipbuilding, vehicles, industrial materials and steel—these responsibilities will be handled, so long as they continue, by task forces which focus on the sectors in question. The task force approach will also provide a capability for responding flexibility to specific but temporary issues affecting industry and commerce. Perhaps I may add that DTI's regulatory role in sectors such as insurance, financial services, radiocommunications and telecommunications will continue to be discharged through divisions which concentrate on the regulation of these sectors.

I should perhaps remind your Lordships that the increased prosperity to which our policies have contributed has benefited all parts of the country. The unemployment rate in the development areas has been almost halved, from 20–2 per cent, in March 1986 to 11–4 per cent, in December 1989. This figure is still too high, but nonetheless represents a significant improvement.

One of the main successes of regional selective assistance has been in supplementing the natural attractions of the United Kingdom and the favourable business climate for inward investment. The latest in a long line of inward investment projects benefiting from regional selective assistance was the £50 million investment announced only yesterday by Kayo Seiko in a plant to manufacture ball bearings in South Yorkshire.

Perhaps I may now return to the noble Lord's Motion. The Government accept that manufacturing industry will continue to play a vital role in the British economy. But the balance between the various sectors of manufacturing, and between manufacturing and other economic activities, will be determined ultimately by the market, and increasingly that market will be the international one.

The past 10 years have seen a very substantial improvement in the performance of British manufacturing industry, for which most of the credit must go to the companies themselves. But the policies of this Government —the withdrawal from detailed intervention, the priority given to the right economic climate, the insistence that DTI programmes should work with the grain of the market —have made a significant contribution. The Government are not complacent, and nor, I hope, is industry. Competition will remain intense in international markets in the 1990s, and the challenges will in some ways be more complex than those of the 1980s. But I have no doubt that industry will be in a better position to meet those challenges if the policies of the present Government remain in place than if the clock is turned back to the interventionist and corporatist approach still favoured by the party opposite.

8.2 p.m.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for what I suppose is his reply to the debate. I am most grateful also to the noble Lords who have taken part in the debate. Until the ministerial intervention it had been an extremely interesting debate. There was a great deal of common ground between both sides of the House on the diagnosis, although there were political differences about the prescription for the cure.

I am afraid that the Government's response was predictable. It was obviously written well in advance of the debate. The impression that it gave —and it remains with me—is that there is no cause for concern. When I opened the debate I said that recognition of the fact that we have a structural problem is the start of the solution. It is perfectly clear that the Government have not recognised that there is a problem. So be it. That is their position. I beg leave to withdaw the Motion.

Motion for Papers, by leave, withdrawn.