ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH

HL Deb 07 November 1967 vol 286 cc281-380

3.39 p.m.

Debate resumed.

THE LORD PRIVY SEAL (THE EARL OF LONGFORD)

My Lords, we have listened to two agreeable and well-delivered speeches. The noble Lord, Lord Byers, seemed to be rather more constructive than the noble Lord, Lord Erroll of Hale. But I am not sure whether he was, because, if I may say so, some of his suggestions were very superficial, but delivered so effectively that for a moment one might think there was something in them. There is always a certain value in the obvious. The noble Lord called on us to have a fresh look at the whole tax system. But, of course, noble Lords opposite who have been Ministers will be well aware that Governments of different complexions have been doing this for many years.

The noble Lord made a number of other suggestions which were quite unexceptionable, but I am afraid they would not be of any positive value. When he told us that we seemed actually to like to keep the tax as heavy as possible, I felt he could not mean that. That was clearly a farcical statement, which obviously he did not mean to be taken literally.

LORD BYERS

My Lords, I may perhaps have said something which led to a misunderstanding. What I was saying was that the weight of direct taxation was far too heavy at the moment. My plea was that we should reduce the weight of direct taxation and change to indirect taxation. When the noble Lord says that all Governments have looked at the tax system, I would still say, "Have a fresh look at it".

THE EARL OF LONGFORD

I never undervalue the platitude—one cannot employ it too often—and I assure the noble Lord that we will live up to the spirit of his remarks in that respect, at least. But I would agree with something that the noble Lord, Lord Erroll of Hale, said, when at the end of his speech he said that he might have seemed to be gloomy. He had seemed up to that point very gloomy; defeatist in fact. But in the last few minutes he said that the spirit of Britain was all right after all, and no doubt we should pull through. But it was, in my opinion, far too pessimistic a speech.

Perhaps I could take up one general point made fairly often by the noble Lord and by Lord Byers. There was a lot of talk of loss of confidence, and Lord Erroll of Hale, in a milder way, used rattier stronger language on this subject than Lord Byers. He talked of suspicion and distrust and exasperation. I do not know whether he read yesterday's Financial Times (hardly a Socialist paper) on the front page of which we read the encouraging headline," Industry more optimistic". I am quoting from yesterday's Financial Times. We did not hear much about this aspect of things. We are told: A marked recovery in industrialists' optimism about the general business situation emerges from the latest monthly Financial Times sounding of business opinions. Most companies now foresee rising output rates. Export prospects have revived. There is increasing evidence of improved efficiency through better manpower utilisation and tighter cost control. Let me be fair and say that the noble Lord, Lord Byers, at least recognised that improvement. The leading article is again full of hope and cheer under the heading, "Industry's change of mood". So if the noble Lord was trying to earn some reputation on our Benches for a dispassionate approach, I think he should have glanced at the fact that there is a great improvement of confidence at the present time. So I throw back in his teeth all that was said by Lord Erroll of Hale and the noble Lord, Lord Byers, about suspicions and distrust and total loss of confidence. I say that to put that part of the record right.

The noble Lord, Lord Erroll of Hale, has kindly given me notice of a number of questions, and therefore I am equipped to answer them as time goes on. We are all—or at any rate, some of us veterans in these debates—fairly well aware that it is considered to be the business of the Opposition to raise all the difficulties, and for the Government spokesman to set out the general picture in a reasonably sanguine spirit. So, if the House will allow me, I will give some account, as dispassionate as I can make it, of the general economic situation, to help us with the later stages of the debate.

I will take first of all demand and activity. The House will recall that at the time of the Budget in April the Chancellor of the Exchequer hoped for a rate of growth close to 3 per cent. between the end of 1966 and the end of 1967; and it is worth asking how far the Chancellor's expectations have been borne out. As the House is aware, or as many experts present are aware, after advancing in the first quarter of this year, activity was hesitant in the second quarter, and it now looks as if the 3 per cent. growth rate will not be quite achieved in the period from the end of 1966 to the end of 1967. But there are increasing indications, which again all the experts recognise, that the expansion in the domestic economy has been resumed in the third quarter, and that growth really will proceed at a rate of 3 per cent. from now on.

The House may be interested to have some details of the indicators that testify to the renewal of expansion in the economy along the lines I have referred to, and I would submit that the quotations that I have just give from the Financial Times are clearly based, not just on moonshine but on the same indicators which I am now going to lay before the House. To begin with, the course of the retail sales figures over the last few months suggests that the volume of such sales has again been moving upwards, and according to the Financial Times this morning, the volume of retail sales has now reached a record. That must be put on the side of optimism and expansion. There has, of course, been some increase in wages and salaries at the end of the incomes standstill; some increased grants from public authorities, and the earnings related unemployment and sickness benefits have also contributed. I could mention the increased receipts of dividends, as payments have recovered to a more normal level.

I despair of trying to persuade the noble Lords, Lord Byers and Lord Erroll of Hale—but I think that Lord Byers is the hardest to convince—that the Government really do value profit as an important element in a mixed economy. If I could think of any argument to convince him, if any words would help him, it would perhaps be this. The newly-appointed President of the Board of Trade, Mr. Crosland, wrote a learned book some years ago about the future of Socialism, in which he made these very points, that there must be a strong profit element in a successful mixed economy. I do not think, if the noble Lord looks back to Mr. Crosland's book, a "Bible" of many Labour people over these last years, that he would have much to quarrel with.

LORD BYERS

My Lords, would it be possible to give free copies to the rest of the Parties?

THE EARL OF LONGFORD

My Lords, I think the noble Lord will find it in the Library, and if there is an ugly rush after this debate I will lend him my copy. It has appeared in a paperback, so I hope all Parties will find it easy to get hold of.

It is clear that car sales have been climbing quite strongly; hire-purchase agreements for new cars from June to September were nearly 50 per cent. higher on average than in the first five months of the year, although there may have been special factors at work. There has been another indicator of recovery in housing starts. In the public sector these starts have continued at a higher level than in 1966, while private housing starts are now well above the level of 1966.

Public fixed investment as a whole has continued to advance strongly. This public sector investment for the first half of this year was as much as 13 per cent. above the level of the first half of last year, and that has meant that fixed investment as a whole has been running at nearly 6 per cent. above that of a year ago. The signs of re-expansion have not been confined to the items I have just mentioned—consumers' expenditure, housing and public investment. The most recent survey of the investment intentions of private industry show that in each sector of private industry there has been a considerable improvement in plans and intentions since the early forecasts in May, for example, of this year. The latest forecasts made for investments for 1968—I am talking of private investments—are also encouraging. It seems that not only is investment likely to be higher in 1968 than in 1967, but within manufacturing the increase will be for the most part concentrated on capital assets most vital to competition; namely, plant and machinery. So I hope that this gloom which the noble Lord, Lord Erroll of Hale, brought to this debate, not exactly dispelled by Lord Byers, will be somewhat alleviated by the information I have just laid before the House.

Then we come to unemployment—and this, of course, is always bound to be a grave and grim subject. It is quite true that the steps we took in July last year to cope with the balance-of-payments problem led to a sharp slackening in demand for labour, which proceeded faster than past experience would have suggested. But a major reason—not the only reason but a major reason—for the shake-out of labour seems to have been the reappraisal by employers of their labour requirements. Again I acknowledge what the noble Lord, Lord Byers, said on this point. In other words, the employers have decided to retain fewer employees to produce the same amount of output. This means there has been a considerable increase in productivity in manufacturing industry. All that, therefore, is on the side of hopefulness. It could be that this increase is per- manent, and one must hope that it will be a permanent improvement. If so, of course, that will have a big effect on our competitive industrial relationship with other countries.

I do not think that at this time of day anyone will expect me to emphasise the Government's dislike of unemployment. I hope that no one in this House could welcome unemployment—of course he could not. From a human point of view, and from the point of view of economic waste, one must be strongly opposed to unemployment. But one has to admit that there have been some compensatory effects in the last year and a half of the unemployment in question. The Government certainly have done a good deal to improve the circumstances of unemployed workers, both through the expansion of training facilities and through the actual benefits provided. I asked to be given a comparison of what a typical unemployed man would get now compared with what he would have got before this Government came into power. It is just worth giving one illustration, though, of course, no illustration could cover the whole problem.

From October 26 of this year an unemployed man aged 40, who has a wife and two children and who had previously been earning £20 a week, would receive £9 8s. a week in unemployment benefit and £3 13s. in supplementary benefits, making a total of £13 1s. a week. If he had worked for the same firm for ten years at £20 a week he would, in addition, receive a redundancy payment of £200. But even leaving out the redundancy payments, which have come in during our time, one must compare the £13 1s. with the total benefits of £7 1s. which would have been payable under the previous Government. Even if we allow for some increase in the cost of living, there has obviously been an improvement in the unemployment benefits during our period. I consider it is only right and fair to mention these facts, and they should be put against the other facts which may be mentioned by noble Lords.

Measures have also been taken (and the noble Lord, Lord Beswick, will be dealing with this matter in greater detail) to ensure that the burden of unemployment is no longer concentrated so inequitably on the less prosperous regions. These measures have included higher investment grants, a step-up in the advanced building of factories and the recent introduction of the regional employment premium, and also the deferment of pit closures, to which I have already referred.

I am afraid that I could not follow the noble Lord, Lord Byers, in his remarks about pit closures. Obviously, he imagines that the measures recently introduced by the Government were taken without grave thought or in some casual spirit. If, in fact, that is what he thinks, he is making a great mistake. I suppose that no matter of this kind has exercised the Government more than the question of pit closures, and, if I may say this in a friendly way to the noble Lord, Lord Byers, we really do not need any instruction in the gravity of the human issues involved.

LORD BYERS

My Lords, the noble Lord is determined to misinterpret everything I said in my speech. The point I was making, which is most important, particularly in places such as Yorkshire, is that pit closures could be deferred until the Government can offer alternative employment in that area; and to do that it might be necessary to break the rule of confining the 45 per cent. grant only to the development areas; because Barnsley is not in a development area, and something ought to be done to attract industry there now and to keep the pits open until there is alternative employment.

THE EARL OF LONGFORD

My Lords, I am sorry if the noble Lord thinks I am misinterpreting him. He was delivering an onslaught on the Government—

LORD BYERS

Oh really!

THE EARL OF LONGFORD

Yes, he was—and, indeed, there is no reason why he should not. This is Parliament, and he is entitled to do so, but I am entitled to reply to an onslaught, and I say he attacked us apparently for our lack of seriousness in regard to this problem. I am only telling the noble Lord how I felt about his speech. He treated us as though we did not realise the gravity of the human issues involved. If the noble Lord is upset by our reaction to his speech I apologise for hurting him, but not for my remarks, because that is how his observations will appear to many noble Lords on this side of the House.

Our policy has had the objective of re-channelling expansion into those areas in which there is least danger of pressures which would cause the economy to overheat once more. Up till now we have always faced the difficulty that if we expand a little over the whole country we soon reach the point in some areas where the economy becomes overheated and the balance of payments is seriously affected. I think the noble Lord, Lord Beswick, will say more about the selective aspect.

The news about the labour situation in these last few months is mainly cheerful. The most recent figures show that the seasonally adjusted total of wholly unemployed persons, including school-leavers underwent a substantial decrease between September and October, after continuing to rise, though more moderately, in the third quarter. It is yet too early to be sure that the turning point has been reached, but the evidence now points to a downward tendency in the level of unemployment—a factor on the bull side of the argument.

With regard to wages and prices, since the beginning of the Government's prices and incomes policy the retail price index has risen only slightly; indeed, in the third quarter of this year it has shown a downward movement. Wage rates were stationary during the standstill, and increased only moderately during the period of severe restraint up to July of this year. There was a sharp increase in July, but the rise has since been moderate. In short, the prices and incomes policy, the importance of which is stressed by the gracious Speech, has so far succeeded in what it was designed to do. It was intended to prevent rising costs and prices from undermining the purchasing power of the pound and the competitiveness of British industry. So far it has succeeded. That does not mean that it will be easy to make a success of it in the future, but it has succeeded up to now.

We consider that this policy will succeed, but only if it obtains the continued general support of organisations and individuals, and, of course, particularly of the leading public men in this House and elsewhere. The Government believe that such support can best be obtained by creating a full understanding of the value of such a policy, both to the individual and to the community at large. But I want to stress to noble Lords opposite that this policy will stand or fall by the extent to which the general public, led by noble Lords and others, recognise that it is essentially a voluntary policy. I can only hope that noble Lords will bring home this point to the country and will not treat the policy as a minor feature which could be disposed of or not, as thought fit. I hope noble Lords opposite will realise that our whole economy depends upon its success.

Finally, in this section of my remarks, I come to the balance of payments. We all know about the balance of payments, or at any rate we are familiar with the concept. Who could fail to be? The overriding objective is the achievement of a strong economy, and this objective implies, first and foremost, the attainment and maintenance of a surplus on the balance of payments. This must be sufficient to sustain the strength of sterling and to permit the repayment of debt incurred with the International Monetary Fund. I have no wish to labour the deficit with which we were confronted when we came in, but the noble Lord, Lord Erroll of Hale, alluded to one or two painful records which, in his misguided view, we have achieved, and I should like to remind him that his Party left us with a record deficit. Here I can, of course, exonerate the noble Lord, Lord Byers, although if he had been in office he might well have surpassed that deficit. Perhaps it would be malicious to suggest that, and he has, of course, a clear conscience. But the noble Lord, Lord Byers, left us with the record deficit—

SEVERAL NOBLE LORDS

No.

THE EARL OF LONGFORD

Oh no; it was his temporary ally, the noble Lord, Lord Erroll of Hale, who left us with this record deficit, and, though I am sorry to have to repeat it to the House, the last three years has been to a certain extent an attempt to work off that deficit. That is what we have been faced with.

The noble Lord, Lord Erroll of Hale, casts his eyes up to Heaven. Indeed he might. Anyone who was involved in that has to offer many prayers before he will be forgiven. But I can assure the noble Lord that this has been with us, night and day, ever since. We have made some progress, at least. In 1964 the deficit was £780 million and last year we cut it down to £180 million. Indeed, in the 12 months leading up to June this year our overseas transactions would appear to have been in balance, or even showing a small surplus. Unfortunately, our export performance this year has been adversely affected by the general slackening of world trade. I need not go into details: they will be familiar to the noble Lord, Lord Erroll of Hale, and other Members of the House. This slackening of world trade has clearly impaired prospects for the last half of this year.

The closure of the Suez Canal, as the House is well aware, is extremely serious. I am now going to pay a compliment to the noble Lord, Lord Erroll of Hale. He was extremely fair; he was quite unreservedly fair in admitting that it was no fault of this Government that the Suez Canal has been closed. I do not think he was carrying generosity to the point of absurdity, but he did at least say that, and say it clearly, and I am grateful for it. The Prime Minister recently, answering a question from Mr. Heath, reckoned that the closure in recent months had been costing us something like £20 million a month, and though this figure was expected to fall shortly an intolerable burden would continue to fall on us until the Canal was opened. That is, then, a fact which we can discuss without attributing blame to anybody here.

Therefore, in view of these facts, there is still a considerable way to go towards our objective of a substantial continuing surplus. We keep on, like old Sisyphus, pushing the stone up the hill, then down it comes, as we have seen in these debates for the last 22 years. Some classical scholars might think Prometheus would be a happier example. He was attached to a rock and gnawed at by a vulture for 30,000 years. In the end he was rescued by Hercules. Therefore, we are hoping that Her Majesty's Government will be able to rescue us from this rock to which we are chained—and I do not think it will be in 30,000 years time. I hope that the noble Lord, Lord Erroll of Hale, will therefore cheer up and drop excessive gloom.

The present setbacks—these particular ones to which I have just referred—can fairly be regarded as temporary. There are prospects for expansion in our export markets next year. We may hear from the noble Viscount, Lord Watkinson, about this, because he has done so much for the nation in the field of exports. There is every reason to believe that next year we shall see a marked recovery in United States import. The same appears to be true of the European Economic Community; and we expect our exports to EFTA also to improve. All this adds up to the prospect of a re-acceleration of world trade in 1968 and accordingly a resumption in the upward trend of our exports to the immense benefit of our balance of payments. All human things of this kind are unpredictable, but we are entitled to believe, so far as anyone can predict anything, that next year will be much better for our exports than the year through which we are passing.

Before I close, my Lords—and I am about to do so—there are five questions of the noble Earl, Lord Erroll of Hale, which I feel it my duty to answer, albeit briefly. He asked me whether the Government approve, in the argument between A.E.I. and G.E.C., of what he says is being done in their name by the I.R.C. The discussions in which the I.R.C. have taken part follow the consultations which the Corporation undertook earlier this year with all firms in the heavy electrical engineering industry, including G.E.C. and A.E.I., about ways of securing the necessary reorganisation of the industry. This is the answer to the noble Lord's question. It is, of course, for the I.R.C. itself to decide which merger proposals to support, and the Government have full confidence in the Corporation's judgment. It is not, of course, for the Government, having appointed the I.R.C., to come down in a particular case and say whether the I.R.C. are saying the right thing or the wrong thing.

Then with regard to the Industrial Expansion Bill, the noble Lord wondered whether the Prime Minister's assurances will be written into the text of the Bill. The Bill is in the early stages of preparation, and I cannot say precisely what it will provide. But I should certainly expect it to provide for the Parliamentary control referred to by the Prime Minister, and I shall convey to those responsible for the Bill the noble Lord's suggestion that all intended safeguards should be incorporated in it. So I hope that, in the event, he will be satisfied.

The noble Lord, Lord Erroll of Hale, then asked me a rather harder question: could I provide a single substantial example of Government policy being modified as a result of consultation with industry? It is always difficult—and the noble Lord, with his immense experience, would agree—to say exactly when a Government policy is modified by industry. Obviously, if you are in touch with industry you may start along a certain line and then make suggestions and they make further suggestions and so on. So I do not think that that is an easy question to answer. But I will give two specific examples of advice by an economic development committee which has been of particular importance in influencing Government policy.

First, the Mechanical Engineering E.D.C. expressed a critical view about the scheme for remission of duty on imports of machinery, and this led to the suspension of the remission scheme in respect of machinery and certain other imports from September 30, 1966. Secondly, the Machine Tools E.D.C., and others, urged the need for more detailed information about imports to help British industry to identify the scope for competitive manufacture. This resulted in the Government's taking the new powers in Section 3 of this year's Finance Act to disclose certain information from Customs documents. I have given two specific examples, but there are many other cases, I have no doubt, where policy has been influenced.

The noble Lord also asked about S.E.T. I am sorry to reply to this point rather briefly. The official view is that since the tax has been in operation for only just over a year, and since the economic objectives are essentially long-term, it is too early at this stage to make any considered judgment.

Finally, there is the question he asked about devaluation. He asked whether I could give an assurance that we shall not devalue the pound. I can say quite definitely that the Chancellor's statement made in the economic debate in the House of Commons on July 24 still stands. He spoke at some length on the subject, and I will not try to paraphrase what he said. I suggest that noble Lords should re-read that statement. This much at least I should quote. "Devaluation", said the Chancellor in July, "is not the way out of Britain's difficulties. It would be inappropriate to the solutions of the problems we are tackling at home". And there was a good deal more to the same effect. That is what he said in the summer, and I have nothing further to add to it, on behalf of the Government, to-day. My Lords, the way is hard. We do not believe in a magic carpet or an easy way out, but this country has emerged in the past from many greater difficulties than these. We certainly, as a Government, do not claim any kind of infallibility or a monopoly of wisdom. We are most grateful for any constructive suggestions, but we are convinced that our feet are firmly set on the right road and that, in the famous words of Sir Winston Churchill: We have only got to persevere to conquer.

4.9 p.m.

THE EARL OF CROMER

My Lords, having listened attentively to the gracious Speech which we are debating here today, I feel it only right to draw attention to the fact that I rise to speak in this House solely by right of heredity. I do not intend to labour this point, for this is not the subject matter of our debate to-day. On the subject matter of our debate to-day I base my views and judgments on such practical experience and knowledge as I may have garnered, rather than on any claim to hereditary privilege.

The noble Lord the Leader of the Opposition opened the resumed debate last Thursday, when I was unfortunately unable to attend because I was abroad, by saying that it was in some ways a pity that your Lordships' House should be debating foreign affairs before having had a debate on the economic situation. That this should have been the case has made it possible for me to be present to-day. But the noble Lord was, of course, right, for the independence and effectiveness of the foreign policy of any country depends upon its economic and financial strength. So strong was our financial state in years gone by that it was taken for granted that lack of financial resources could to all intents and purposes be disregarded in considering the formulation of the nation's foreign policy. This, of course, is sadly no longer the case, and policies that to-day ignore this change only weaken our situation further. The predominant aim of Her Majesty's Government in foreign policy to-day is expressed in the gracious Speech as looking forward to the early opening of negotiations to provide for Britain's entry into the European Communities. In the economic field it is stated in the gracious Speech that the principal aim of Her Majesty's Government is the achievement of a strong economy. I wholeheartedly support Her Majesty's Government in this declared aim, but in the rest of the gracious Speech I am sadly at a loss to find any proposals which seem to me likely to further the achievement of these aims which I support. Let us first take the economic aims, for unless these are achieved the country will neither be an acceptable candidate for membership of the European Communities nor will she will be strong enough to stand independently as a political, financial and commercial influence in the world. Our objectives in this field are the same whether we join the Community or whether we do not, although the means of attaining the achievements in detail could easily vary.

Soon after the Labour Government came into power in October, 1964, large international credits and loans were extrnded to this country in support of sterling and its existing parity. The international community in which we live recognised that there was neither call nor justification for devaluation of sterling and gave Her Majesty's Government all support necessary in a financial way to enable the" Government to fulfil their declared policy of maintaining the parity of sterling. There were no strings and no conditions attached, but there was then underlying belief and confidence that Her Majesty's Government would give due priority in their policies to the need for managing the British economy in such a way as would justify the maintenance of the existing sterling parity, to produce a balance of payments outcome consonant with this end, and to providing for the repayment of loans as they fell due. The noble Earl the Leader of the House has restated these aims this afternoon.

This clearly called for some reduction in overall demand, greater incentives to earning, and the reduction to a more appropriate level of Government expenditure at home and abroad. But did the Government get their priorities right? This is the question which we face to-day. Have the Government faced up to the realities of the situation? Was the level of overall demand reduced either sufficiently or appropriately? Free prescriptions, increases in unselective social benefits, recent encouragement to hire purchase spending, and now the proposed increases in family allowances, scarcely give credence to this belief. On top of this, the borrowing requirements of the Government in this current year are at an all-time high. What incentives, one may ask, have been introduced to encourage earnings? Government expenditure overseas has not decreased. In addition to the vast debts we assumed at that time we subsequently took on further debts which I think amounted to something like 330 million dollars to the United States for the purchase of military aircraft.

We attempted to put some of the burden of our problems on other countries by imposing tariff surcharges on trade and by resorting to Exchange Control restrictions more stringent than were known even at the worst period of the war, disrupting payments and investment alike to our present and future detriment. We have lived on the capital created by our more provident forebears to the extent that the Treasury Dollar Portfolio, consisting of foreign securities sequestrated from their proper owners during the last war, has been dissipated. Fortunately, the country continues to enjoy the foreign exchange income of privately-owned foreign securities, the sequestration of which in peace time is unthinkable for the effect it would have on confidence.

It is now nearly three years since the financial crisis of 1964 writ large the need to get our affairs in order. One would have expected that after this span of time not only would all the necessary measures to have brought this about have long been enacted, but indeed, had they been adequate and appropriate they would have now been showing results, amongst other things in a strong pound. One would have expected that emergency measures, such as Exchange Control for example, could confidently be discarded, and that we could once again take our proper place among the other industrial nations of the world, enjoying the same freedom that they enjoy and confident in our own economic strength. But, sadly, I fear that Her Majesty's Government are in no position to make such claims to-day.

The words of the noble Earl the Leader of the House struck me, if I am not being impolite, as rather complacent. Throughout the last three years, as the noble Lord, Lord Erroll of Hale, suggested, the business world has become progressively more confused and, I am sorry to say, more disillusioned. The corporation tax, the selective employment tax, the capital gains tax and the arbitrary powers taken by the abolition of investment allowances and the substitution of investment grants, just to cite some random examples, have probably been unsurpassed in our history in distracting people from their proper pursuits of increasing productivity or improving services. The time and energy spent on seeking ways to live with these imposts and burdens have all been at the cost of time and energy which could otherwise have been expended in seeking achievement of higher output, of more efficient service and of increased earnings.

None of these measures, nor others such as the nationalisation of steel, make any contribution towards achieving a more efficient or a more competitive Britain. Indeed, investment grants have created great uncertainty and distortion in investment patterns due to the arbitrary power given to the man in Whitehall, and it is possible to cite direct effects where they have adversely affected some of our exporters.

Then, in the gracious Speech we come to the euphemism of what is, I believe, called the Industrial Expansion Bill. No doubt there will be an occasion to discuss this Bill in your Lordships' House but, as I have said on other occasions, I do not believe that there is any lack of capital through normal market channels for the modernisation and technological advance of industry; and I fear that this new measure is likely to introduce yet further concern as to arbitrary governmental intervention in the workings of private enterprise, for Government intervention is not regarded as friendly assistance. Even the most efficient business wilts in an atmosphere of consistent uncertainty. We live in a world market economy in which the successful thrive without direct State intervention and without State subsidy. When we are struggling for our very existence in such a world it makes little sense to contemplate subsidising either the inefficient or the obsolescent.

While the gracious Speech offers little than I can see which is likely to lead to the economic strengthening of the country, similarly it contributes surprisingly little to our advance towards the European Economic Community. I have read with great attention the economic chapter of the preparatory study of the Commission of the European Economic Community regarding the opening of negotiations. This study remarks upon the unsatisfactory performance of the United Kingdom economy on a number of occasions since the war and suggests, among other things, that from the time negotiations start the United Kingdom authorities should consult with the Commission regarding such measures as the United Kingdom may intend to take to improve the economic state of affairs. This seems to me an eminently sensible suggestion.

Her Majesty's Government have made application to join the Community, but as yet have given no indication in their actions of readiness to act in accordance with the thinking of the Commission or of the other member countries. Obviously our present economic situation points to the need for further change in management of our monetary and fiscal affairs. I would suggest that as policy thinking evolves in this country, steady and continuing consultation with the Commission would be highly desirable so that, at the worst, we do not develop policies which diverge from those of the member countries of the Community, and at best are parallel, so that subsequently they may be merged with those policies of the Community members. I consider that moves in this direction could be helpful and indeed time-saving.

But, rightly or wrongly, there exists in a number of the Community countries doubts as to the sincerity of the Government's purpose, and such doubts are unquestionably encouraged by the sort of decision announced a week or so before the re-assembly of Parliament, a decision to which reference was made by the noble Lord, Lord Erroll of Hale, on the continuation for a further period of the exchange restrictions upon travel expenditure. These restrictions, for many obvious reasons, cause uncertainty and displeasure abroad. As these restrictions on travel expenditure are in complete conflict with the spirit of this country's obligations to the International Monetary Fund, the question inevitably arises whether this is an indication of Her Majesty's Government's attitude to the spirit of the obligations which would be assumed if we joined the European Economic Community.

I would mention in this connection that at a social gathering connected with the conference I attended in Europe last week, I happened to sit at dinner next to a leading international diplomat whom I have known well for some years. He told me that he was very shocked on leaving this country after an official visit this last summer, to find himself and all his fellow-passengers shepherded into a small room at London Airport, where they were interrogated as to the money they were carrying, and some of them had their wallets and pocket books and handbags searched. The diplomatic passport of this distinguished foreign visitor was not regarded as any ground for exonerating him from this somewhat degrading performance, and he was required to produce such money as he had on him. I need scarcely say that this experience did not encourage him in the belief that this country was ready to join the European Economic Community, and it is in this Community that he has much power and influence. I would add, too, that this performance is equally degrading to the private citizen.

SEVERAL NOBLE LORDS

Hear, hear!

THE EARL OF CROMER

My Lords, I have misgivings that the policies of Her Majesty's Government voiced in the gracious Speech are inadequate and largely irrelevant to the needs of the nation at this present time if we are to fulfil with integrity what the world expects of us and what the nation is certainly capable of achieving.

4.25 p.m.

LORD DOUGLASS OF CLEVELAND

My Lords, I hope that your Lordships will show me the tolerance which I believe is usual towards new Members when addressing this House. I have spoken in many places, but in no place where the level of debate has been higher than that which I have observed in this House. I hope at least to be able to match up to the ideas, if not the eloquence, of my predecessors in this House.

I listened with great interest to the noble Lord, Lord Erroll of Hale, because I have known him for many years; in fact, as a trade union representative I used to meet him and tell him what the Conservatives ought to do. They did not take very much notice, but, when they did, they were invariably successful. This afternoon the noble Lord eulogised profits. This I like to hear, since I have eulogised profits for many years. The first time I did so at the Trades Union Congress my own delegates would not speak to me when I came down from the rostrum, as this was against the ideologies of the Labour Movement at that time. Those ideologies were based on bitter experience, but my experience as a trade unionist had taught me that if I were going to negotiate successfully it almost inevitably would be with a firm which was making good profits; and that if I were to negotiate with a firm which was not making a good profit my efforts would be virtually nullified from the word "Go". Therefore, I had very practical reasons to eulogise profits.

I must confess that I was astonished when the Conservative Government under the Restrictive Practices Act decided to restrict profits. I think it could have been understood if a Labour Government had decided to qualify the need for good profits, but when a Conservative Government decided to qualify this need it made me sit up and take notice, because this situation was somewhat foreign to trade unionists. But, of course, they were right; there was a need on occasion to qualify the acceptance of the idea of good profits. Profit which arises from a monopoly, from a cornering of the market, or from the ill-use of those who work in the industry concerned is a profit wrongly made. I am not quite sure that the Restrictive Practices Act was the right tool to deal with that particular problem. My efforts to work with the employers in industry taught me that when the Restrictive Practices Act was introduced it was a considerable brake on our ability to get together for the purpose of achieving the exports which were so necessary in order to get the balance of payments right.

The noble Lord also said that he wanted some single instance of modification of policy after consultation. I think that we have modified our policies from time to time as a consequence of discussion between the Trades Union Congress and the Government on the problems of the day. The Government have never said, "We agree you are right; we will do exactly as you ask." The trade unions have never said to the Government, "You are right; we will drop all our ideas on this matter." There will have to be compromise in all aspects of economic discussion between the employers and the trade unions, as well as between Governments and employers and trade unionists. The Conservative Party, when in power, tried to find an instrument which would deal effectively with the problems which were arising, without causing the bitterness which too often arises in political discussion. While the ideal of the "Three Wise Men" was hardly successful, it failed only because the trade unions refused to talk to it. They did not even condemn it; they just ignored it, and it died. You cannot ignore the workers in any country, and they are making this evident at the present time.

But the Conservative Government then set up "Neddy", which I think is the most wonderful instrument ever to be set up in any country, and I pay full tribute to the Government who set it up. We were able in "Neddy" to discuss our problems without bitterness, without rancour, and—what I think is more important—without publicity, and if any of the three sides had some weakness it was able to admit it without losing face. "Neddy" is continuing and has done a good job. I have seen the former Chancellor of the Exchequer, Mr. Maudling, sitting in the chair. We had a long discussion with him about growth and about whether or not we could have too optimistic growth. I have seen George Brown sitting there as First Secretary of State, and the Prime Minister has thought that "Neddy" is so important a body that he himself now sits in the chair.

I have been instructed that a maiden speech must, so far as possible, be non-controversial, and to the best of my ability I am being that this afternoon. But I come from the North-East coast, and when we had the original planning in 1927 I was quite a young man. The planning forecast at that time was deadly accurate. I was told by my manager that I would not work for the next nine months, and I did not. I was then told that I would not work for the next three years—more than one-third of my apprenticeship time—and I did not. I do not want that sort of accurate planning. The planning which we are having to do is necessarily pragmatic, necessarily difficult, and necessarily needs a good deal of cohesion, which I think it can get through "Neddy".

What has been done in this wonderful body? First, nobody can develop his industry in a congested part of the country without getting a licence; that is, without getting permission from the Government—whichever Government it is. The investment grant system was then evolved, which gives increased investment to the development areas. The noble Lord, Lord Erroll of Hale, asked: why do we want to put our money from taxation into prosperous industries? I should have thought the answer was simple. We want to put Government money into prosperous industries to get a dividend from them, and if at the same time we develop an industry which gives more employment in an underdeveloped area, that is surely a good thing. For my part, supporting profits as I do, I would much rather put my money into a prosperous industry in a development area, which gives benefit to everybody, than into an industry which was not prosperous. The investment grants have been a grand thing.

To my mind, the Investment Reconstruction Corporation is modelled on what happened in the South of Italy, where a big steel works was built in the hope that other industry would be attracted around it. Government money was used for the purpose of putting that works where it would act as a magnet, and a very successful magnet it has been. I think that this Corporation is going to help us in the development areas in this country. We build factories, we leave them empty, and then say, "Here are three factories in this area, and employers can come in for the purpose of making profits and improving employment." That will take up the slack, which we are all asking should be done, when we close down the mines. But do not forget, when we are talking about closing down mines, that steel works were closed down and you never heard a thing. You never heard a thing, because the closing down of those steel works was synchronised with the coming into operation of bigger steel works. We were able to do it fairly successfully—otherwise you would have heard a lot more about it.

As regards transport, there will be an important discussion this week when we talk about subsidised railways. I would subsidise all transport if it was taking work into a development area. So we have transport being subsidised, and road and rail transport being reorganised for this purpose. In regard to apprentice training, I may say that we are now training apprentices who would never have been trained before because we compel all employers to pay for the training of all apprentices. We do not allow individual employers to steal apprentices from the firms who are publicly-minded and who train their own apprentices. Everybody must pay for this now.

We are retraining the unemployed. This is a most difficult task, because although a craftsman can be retrained for a more highly technical job it is difficult for the operative who is leaving the job he knows and going into a completely new sphere. But this is being done, a lot of money is being spent on it, and the scheme has been very effective. I need not speak for long about redundancy payments, but only yesterday I had a case where a man was made redundant and was refused his redundancy benefit. I was sitting on the appeal court which was dealing with that ma a and he was really "on his uppers", he had been out of work for weeks. He received a sum of £216 at that court yesterday and I saw his face light up. A new field had been opened to him because he now had enough money to pay off his debts, if necessary to move, and he had some idea of getting a job elsewhere which would, at least, give him hope for himself and his family for the future. That is the sort of thing which has come from this Government.

I shall not go into job-related unemployment benefits and sickness benefits, which have already been dealt with. Also I shall not go into general education, because although there may be a division of opinion about how to get general education, there is no division of opinion about the need for it and the money to be spent on it. But if we are going to spend money on general education, it must come out of taxes and nothing else.

Let me close on this note, because I am outrunning my time. I have studied social benefits pretty well all over the world, and I remember the time just following the war when I went into Europe and when social benefits were nil, or nearly nil, and were being built up. The Marshall Plan helped to build them up. I do not want to go into the history, but at that time Britain stood at a peak of social benefits for the working people of this country. To-day, however, she has the lowest social benefits in Europe. The benefits do not all come out of taxation in Europe; the workers pay a proportion of their earnings towards them and industry pays the rest. Instead of industry being taxed for the purpose of paying social benefits, industry itself pays for them and they are better social benefits than we have.

This Government have set out on a five-year plan, and I do not think you can have a plan for less than five years. The Soviet Union and the other Communist countries make a five-year plan and also a one-year plan, because they know the problems that will arise in achieving a five-year plan. We now learn that there is a prospect of a 3 per cent. growth in this country for the next two or three years, and this is the best news we have had yet. But you do not get growth, and you do not get success, without sacrifice. The trade unions have made a sacrifice for the incomes policy in a manner which nobody could have visualised two or three years ago. We have made that sacrifice in the trade union movement. We believe that this Government understand the sacrifice, because we discussed it with them, and we also believe that at the end of the five years we shall see the justification of that sacrifice. So we ask some other people in this country to accept a little restraint, for the purpose of seeing the successful achievement of the plan at the end of the five-year period. Given the will, and given the help of both sides of industry in this country, I am sure it will be achieved.

4.39 p.m.

VISCOUNT WATKINSON

My Lords, I wonder if your Lordships would allow me a moment of reminiscence. Listening to the noble Lord who has just made his maiden speech, my thoughts went back many years to the time when I served the late Lord Monckton of Brenchley in the Ministry of Labour, and the noble Lord was leading for the trade unions—either his own union or the T.U.C. I do not think we always agreed, but one thing on which I know Lord Monckton was as clear as I was was that there was no disagreement between us that the noble Lord, Lord Douglass of Cleveland, was as determined as we were to try to see our country prosperous and secure and filling its part in the world. If I may venture to say this, and to claim the noble Lord as a friend, we are very glad to see him with us. If his speech was an example of a non-controversial speech, we shall await the next one with the greatest interest. But may I say sincerely that he played a great part for the trade unions, he has recently played a very great part in the British National Exports Council, and he will obviously play a very considerable part in our debates. For myself, I very much welcome him here and congratulate him on what he said.

My Lords, we all seem to be being very polite to one another, and the noble Earl, Lord Longford, very kindly said something about me which touched me very much. But the tribute, as I think he would agree, is not to me but to the British National Export Council. This body—and I think the noble Lord who has just sat down would agree, too—has done a simply first-class job and has provided a common meeting ground between the trade unions, the employers and the Government which perhaps might be fruitfully used in other directions. But I must go on to say that the noble Earl, even if he is too polite to say so, will certainly in his mind say that the few remarks I intend to make are yet another glimpse of the obvious. What worries some of us now in industry is that the Government do not seem to be able to see some of the facts which, in our view, are plumb in front of their nose. I would say again that he accused my noble friend of being somewhat gloomy in his utterances, but I noticed that my noble friend seemed to have some pretty powerful support from the City in a recent contribution from another noble Lord.

But what I think we ought to start by agreeing, if I may say so, is that we all want the same thing. We want to see our country prosperous, fulfilling its obligations, able to stand up in the world and play its full part, because we know that it can make a contribution which no other country can. And it is to this that we seek to address our views. If other noble Lords do not always agree, perhaps that is a good thing. But we are not preaching gloom and despondency if we venture to point out to the Government that in our view, from our own practical experience, certain things are wrong and could be put right, to the betterment of the nation as a whole.

I must say that in the past three years a good many of us on this side of the House have tried to give objective advice to the Government on economic affairs from our own practical experience, in the same way as many businessmen—and I am included among them—have tried to serve the national interest by helping the Government in one way or another although they had little sympathy with the Government's political views. This is right, and this is our tradition. But it is equally right that I should say this afternoon (and in this I follow my noble friend and the noble Earl, Lord Cromer) that these initiatives seem to have had singularly little effect on Government policy.

I must add to what other noble Lords have said—and I merely report what I find; noble Lords opposite can disregard it if they like—and tell your Lordships that I find a growing sense of frustration and disenchantment in industry and in the City of London with current Government policy. Even if there are slight signs of reflation—and I read the Financial Times as well—I think it is fair to say that it was a rather more guarded pronouncement than the noble Earl, Lord Longford, seemed to imply. Because if he will read the figures (I am sure he has done so) he will see that all they really showed was that there was a very slight return of forward confidence among businessmen that things might be going to get a little better. Some of us might say that it is high time that that happened if we are to make any progress at all. Anyway, I merely have to report what I find in business circles; and, as I say, it is that business confidence remains at a pretty low ebb and that dissatisfaction with the Government's handling of economic policy grows steadily.

Yet the things that we have sought to persuade the Government to do are not really ones that greatly excite the public imagination, so I do not think they are very voteworthy and I therefore do think that they are ones that the Government could consider without political embarrassment. So it seems to me that either the Government are much more a prisoner of their ideologies than they have often proclaimed or they frankly ought to be looking rather more carefully at some of the suggestions put forward, particularly those concerning overseas trade and Britain's position in the world of business and economic affairs. I therefore propose on]y to try to give some severely practical examples, and if the noble Lord who is going to wind up for the Government likes to try to answer some of them I shall listen with the greatest attention.

Let me start with perhaps the most important issue facing us all; that is, entry into Europe. Of course we should go in, if we can. But, meantime, many of us wonder why we do not copy American business and foster more vigorously investment now by British industry in the Europe of the Six. Very little incentive is offered to British businessmen to get on and move into the Europe of the Six, as American business has done, and is doing every day very successfully. We all seem to be waiting for the opening of the political gate—an event which, after all, may be long in coming. Surely it really would be better to operate on the principle that what businessmen can do to-day perhaps the Governments of the Six and Britain may be able to do to-morrow. There are enough examples to show that British business can flourish within the Europe of the Six—and I shall be happy to give the Government many examples if they want them—even in present circumstances. Therefore, if it were given more direct encouragement to do so, in my view this certainly might be a firm sign that we really meant to get into Europe by one means or another, and that we knew what to do when we got in.

Outside Europe, there is an even more important question, and that is the question of holding the markets that we already have in the rest of the world, even if we are not prepared—which I suppose we must accept—to devote special attention to them at this period when our eyes are fixed on Europe. I must take Australia as an example. Here is a growth market with possibilities of expansion far greater than in many European countries, and one must ask the Government what steps they are taking to maintain and improve our trading relations with Australia and New Zealand and to correct the extremely bad Press that we are getting in Australia at the moment, due to the current belief, not only that we are pulling out of our defence commitments but that we really do not care very much any more for them or for this part of the world. I think the Government must pay some attention to what the High Commissioner for Australia has been saying over here recently, and to what those of us who have Australian friends are reading almost daily in our correspondence, about the lamentable change in public opinion. It may be that the Parliamentary group which is out there now, according to what they are reported as having said, will agree with this, too, and I hope that the Government will take some steps to deal with it.

I turn now to the aircraft industry. The Government have had repeated warnings of the damage its current aircraft procurement policy would do to the British aerospace industry, and I have no doubt that a five-year look into its future at the moment would be pretty gloomy, particularly if you accept, as I believe most people do, that you cannot have a flourishing aero-engine industry if you have not got a flourishing airframe industry. However, those are arguments which we have put before, and I will not repeat them now. But I should like to say this. In these circumstances, the Government really must not lose their nerve over the Concord project. I hope they are in no danger of doing this. The fact is that if we opt out of this then we shall have opted out of the whole of this technological field altogether, and we shall never have a reasonable chance of recovering our position in this area. I know that it is an expensive project, and I know that there are many inherent risks; but the first prototype is, I believe, fairly near its target and fairly near its flying date. I hope that the Government will assure us to-night that they intend to push this project forward and to beat the Americans in this area, if we can.

Now the brain drain. Here, I should like to say that it is a very depressing experience for those of us who, like myself, have to interview young graduates and technologists, and particularly young businessmen whom I occasionally have to interview to see whether they would justify a Government grant to go to the Harvard Business School or elsewhere. I must just again report to your Lordships, if I may, that I believe the basic reason why these young men are looking for employment in America, Australia and elsewhere is because they sincerely believe that personal initiative and private enterprise risk-taking is no longer adequately rewarded in Britain. This is just a fact of the case, and neither committees nor anything else will alter it. That is what they believe.

Several of us asked in your Lordships' House last February that the Government should study the relationship between direct monetary incentives and future growth. I should like to know whether the Government are taking any steps in this direction, because unless some steps are taken which will convince these young men in industry and in the professions that they are going to keep more of what they earn, then the brain drain will accelerate—it certainly will not diminish—and our prospects of growth will be disappointingly slow.

Let me give a concrete example. There has been some discussion in the Press recently about the class of directors—not one to which I belong—who get £50,000 a year. There is nothing wrong in a young man to-day saying, "I am going to do that one day." But he must face the fact that, under present taxation, if he receives £50,000 a year he will be working for two months for himself and for ten months to pay the taxman. This really is not a very good incentive for an able young man who is going to devote not only his working time, but most of his spare time, to getting ahead.

My Lords, I now turn to relations with industry. It appears to many of us to-day (and this is another cause of the disquiet and malaise) that the Government, having decided to abandon nationalisation by Act of Parliament—and I do not blame them—are trying to come in through the back door by endeavouring to adopt, through Government agencies, a takeover technique for industry. The C.B.I. has made its position and misgivings perfectly plain (as I imagine) to the Government, and certainly to the public. I do not need to add to that. But I will say, because this is intended to be helpful advice, that if the Government want expansion and progress they must do something quickly to remove the suspicion of industry that this takeover course is the one it intends to follow so far as relations with private enterprise are concerned. The noble Earl, Lord Longford, was kind enough to answer a question from my noble friend in which he said that there would be very firm Parliamentary control. Well, we must wait and see. The Industrial Expansion Bill is not the only weapon the Government are suspected of using at the moment to impose control over industry through the back door.

Finally, my Lords, may I say a word about exports. The noble Earl the Leader of the House has said something kind about the British National Export Council, which was started by a Conservative Government and is strongly supported by the present Administration. I should like to say, as the noble Lord, Lord Douglass of Cleveland, has been until recently a member of it, that it is a successful joint effort between Government, industry and the trade unions. But as a Member of the Council of the B.N.E.C. I believe, as do many of my colleagues, that while immense effort is being put into direct exports at this moment, the long-term future of our country is being prejudiced because insufficient encouragement is being given to overseas investment and the development of our invisible exports.

I hope that the Government will study very carefully the able Report produced by Sir Thomas Bland and his colleagues on this subject. It is impartial and objective; and I think anybody who reads it must be led to believe that, as my noble friend has said, here is an area which has been singularly neglected, which has saved us often in the past and really must be looked after in the future. I hope that we shall be told to-night that the Government intend to re-examine this whole question of invisibles and overseas trading operations with a view to giving a greater backing to this type of export; for it is one on which, I believe, the future prosperity of our country depends. To use an agricultural simile, seedcorn, after all, is for planting and not for eating. We ought to plant more seedcorn for the future of our children, if not of ourselves. If we do not, then we are prejudicing the future purely for our own immediate gain; and this is something to which I believe this House should never agree.

My Lords, I know that what I am saying is what almost every speaker—including Lord Byers, but excepting the noble Earl the Leader of the House—so far has said. Even the noble Lord, Lord Douglass of Cleveland, expressed a belief in profits. What I am saying is that we have to look to private enterprise and to the profit motive if we are to see our country firmly on the up-grade again. What we are all recommending are lower taxes and better financial incentives as a better spur to increased effort through this means rather than through ever more centralised Government control. I accept that these may be difficult matters for the present Government to consider, but I suggest that they are much more relevant to Britain's success or failure than many proposals in the gracious Speech and the previous statements of policy produced by the Government in its three years in power. So I hope it is not improper for those on this side at least to ask the Government to give some serious consideration to these things. I hope that we shall not be told again by the noble Lord in winding up that this is a kind of gloomy exercise on our part, and that in some mysterious way we are behaving in an improper fashion.

My Lords, we all want to do the same thing—we want to see our country great again. There is nothing more depressing than to go abroad to-day to meet the anxious questioning—for we still have many friends in the world; more than we deserve—of many foreigners, "Can Britain get through without devaluation?", and, "What is happening in Britain? Can you possibly justify this that or the other?" It is a great sadness for those of us who have fought for and are proud of this country and who would like to see it great again. It is on this basis that we tender advice to Her Majesty's Government, and we hope it is on this basis that they will receive it.

4.55 p.m.

LORD CHAMPION

My Lords, I am the first to speak from this side of the House, following the excellent speech from my noble friend Lord Douglass of Cleveland. It was indeed a delight for me to listen to him. It certainly was one of the best consequences of the Life Peerage Act of 1958 that it made it easy to send people of his calibre here and for him, as an individual, to accept the Peerage which has brought him here. I must say that I agree with the noble Viscount, Lord Watkinson, when he said that the speech of my noble friend was not exactly a non-controversial and non-Party one. But my noble friend seemed to think it was. All I can say is that I am looking forward very much to the day when he makes a controversial Party speech in this House. We all look forward to hearing the noble Lord again on these subjects in which he is so very well versed.

My Lords, we have had this afternoon a number of hard-hitting speeches. The noble Viscount who preceded me seemed to despair of action following speeches. That is a thought we have all had from time to time; but I am bound to say that I am a firm believer in speeches changing climates of opinion. If I did not believe in that, then I should not believe in Parliament—I should not believe in coming here at all. I think that those noble Lords who spoke this afternoon and who made hard-hitting speeches were right to do so, and I think it is right that the Government should consider these speeches when they come to take the difficult decisions that all Governments have to take. The noble Lord, Lord Carrington, the noble Lord, Lord Erroll of Hale, the noble Lord, Lord Byers, the noble Earl, Lord Cromer, and certainly the noble Viscount, Lord Watkinson, spoke about the necessity for resuming capital exports as soon as possible. I make no secret of the fact—and this was my attitude, even when speaking from the Dispatch Box—that we must resume capital exports as soon as we possibly can. It might have been necessary to stop the export of capital in the very short term; but if we are looking at the long-term future of this country we must resume the export of capital at the earliest possible moment.

I certainly like the idea that the noble Lord floated: that we ought to be thinking in terms of capital investment within the Six at this time. But I prefer his second notion; that we ought to concentrate first on Australia and then, perhaps, come round to the Market or do something towards the Market that might help in this connection. As I see it, the economic measures and statements in the gracious Speech are a continuation of the Government policy which, if I understand it aright, means that they will continue to use the tools of economic policy bequeathed to them, and at the same time try to fashion tools which will be sharper, which it will be possible better to direct towards a solution of the problems that actually face us. The tools which this Government inherited, with certain minor limitations, certain minor exceptions, were the orthodox deflationary and inflationary measures now generally called, "Stop-Go". Up to now, those are the tools which the Government have had to use to correct the chronic imbalance of payments left to them. They have had to use those tools and, of course, there have been the disastrous election results which one would expect; although I must add that the use of those inadequate tools has resulted in something very much better in the post-war years than we experienced in the pre-war years. They are certainly tools which can be used and they have some validity. They have had validity since the end of the Second World War.

The fact is that in the pre-war years slumps were really major catastrophes, and the depths of unemployment were such as to make our present deflationary periods look like the booms of the interwar years, and this is a great advance. But it is not enough that Governments to-day should have only the tool of "Stop-Go". During the last three years the Government have endeavoured (it is outlined in the Queen's Speech as to be continued) to fashion tools which will vastly improve the control by Government over the economy. Some people might not like that, but I believe it to be absolutely essential that we should have such tools. There is a long list of them, and I shall not attempt to mention them to your Lordships' House, because if I did my speech would be much too long. However, I am bound to say that in my view the Government have up to now taken the correct action. They have not been afraid to face all the difficulties consequent on a prices and incomes policy, or to take deflationary steps when they knew full well that all their supporters hated the action being taken.

So far as the present situation is concerned, if the Government had not incurred the displeasure of the electorate at this stage I should think that they were doing quite the wrong things. But this is not sufficient for all time. As my noble friend Lord Douglass of Cleveland said, we have to use the remaining period up to 1971 to ensure that we have fashioned tools to enable us properly to control the economic system; to avoid "Stop-Go", and to create conditions in which we shall have the sort of expansion which we all want.

My Lords, I welcome the speech of my noble friend Lord Longford, who told us that the economy was moving upwards again. So far he seems to have been the only optimistic speaker in this debate, with the exception of my noble friend Lord Douglass of Cleveland. All I would say in this connection is that I hope this upward movement is not too soon. I hope that it is not based merely on consumer sales on hire purchase terms. I fear a little that what we see immediately before us, as reported in the financial columns of the newspapers and so on, results from an expansion which is not basic to the economy—at least that is what I feel about it.

I come now to one of the things which we did in the last Parliament, that is, the setting up of the Industrial Reorganisation Corporation. The Corporation is not working properly yet, but I hope that it and the Government will not be carried away by the thought that, of itself, mere size will bring about greater efficiency. Bigger groupings will be of no value unless the structural shape of an industry—if it has obsolete techniques, and is suffering from locational handicaps and a lack of integration of processes—is vastly changed. Merely to change the size is a bad thing unless these things flow from it. The Financial Times has called British Motor Holdings an alliance of small companies. If that is all it is, despite its apparent size, in all probability it is suffering from locational handicaps and the lack of integration of processes which I have just mentioned.

My Lords, takeovers are in the air just new, but they are not likely to help our economy very much if they represent merely a diversification of interests or a different financial structure rather than a reorganisation of the productive processes of a given industry. I hope that the I.R.C. is casting a critical eye on the takeover attempt which is filling the financial columns of the newspapers and much of their advertisement space to-day. I am, of course, talking of the G.E.C. bid for the A.E.I. I agree with some of the things said by the noble Lord, Lord Erroll of Hale, in this connection. I cannot pretend to know a great deal about the background of this projected takeover, but it seems to me that it ought to be strenuously opposed unless there is a reasonable guarantee of something more thin a financial transaction in which A.E.I. shares are boosted from 43s. to 71s. 3d. There ought to be some guarantee that such a merger as is contemplated will bring about a sweeping rationalisation in the electrical manufacturing industry. Just to make G.E.C. plus A.E.I. a vast organisation worth hundreds of millions of pounds will be of no intrinsic value to the nation. If such a merger brings about a structure capable of meeting and beating world competition, it is to be welcomed, but not otherwise. I hope that if this takes place that will be the effect, but that in the meantime there will be very careful thought given to this projected merger by those responsible.

May I make one point in conclusion. I support completely the determination of the Government to take a hard, cool look at our defence spending overseas, for too great a drain on the taxpayers' money is a crippling disincentive, as has been said by so many noble Lords to-day. We cannot behave as if we can continue to police the world. To talk in those terms is sheer nonsense. The Fax Britannica situation was possible only in a world in which the Navy, an arm so well suited to our peculiar situation, was able to hold a balance in the world. I see that in the last decade we spent £2,000 million on our military commitments overseas. Could we really afford it? I do not think that we could. I am not going to enter into any controversy about what my noble friend Lord Chalfont may or may not have said recently: I certainly have not discussed it with him. But if he said anything which made other countries aware that this is a burden which we cannot hope to continue to carry unless our economy is enabled to do it—partly, perhaps, by securing entry into the Common Market—then I am firmly behind him, and I will support any Government who will say so firmly and unequivocally.

5.10 p.m.

LORD JACKSON OF BURNLEY

My Lords, I regret that I was unable to be present during the earlier stages of the debate, because I was attending a committee which is concerned with the effectiveness with which we are utilising our qualified engineers, technologists and scientists. It may therefore be that what I have to say about the relationship between the strength of our economy and the strength of our science and technology may already, at least in part, have been covered, in which case I hope that your Lordships will forgive some repetition. What has prompted me to speak in this debate is the disturbing evidence that the situation is deteriorating at the roots, and I am one of those who fear the economic consequences.

The Second Report of the Council for Scientific Policy, which was published about a fortnight ago, anticipated a Report being prepared by a working party sponsored jointly by the Council and by the Committee on Manpower Resources for Science and Technology, this working party being under the Chairmanship of Dr. Dainton, Vice-Chancellor of the University of Nottingham. This Report is likely to be published in January, and it may be expected to confirm the view that in the next quinquennium the number of candidates coming forward from the schools for university places in science and technology will decrease—even decrease substantially. And your Lordships will already be aware that there are substantial numbers of vacant places in the university departments of science and technology, both at first and second year levels.

A report by a similarly sponsored working party under the chairmanship of Professor Michael Swann, Vice-Chancellor of the University of Edinburgh, also likely to be published in January, may be expected to confirm what it said in an interim report some time ago—that there is a considerable reluctance on the part of certainly the academically better of our graduate scientists to enter industry and to contribute directly in this way to the growth of our economy; and indeed also to enter the schools in order to help counter the trend away from science to which I have just referred.

Moreover, the recently published report of a third working party, under the chairmanship of Dr. F. E. Jones, to which the noble Viscount, Lord Watkinson, referred, revealed a disturbing, even an alarming, increase in the emigration from this country of qualified engineers, technologists and scientists to the United States, amounting last year to a net loss in numbers—and the numbers do not adequately represent the loss in quality—corresponding to almost 20 per cent. of the annual new output of graduate technologists and engineers and to almost 10 per cent. of the corresponding output of graduate scientists. The indications are quite clearly that the situation in a year's time will be worse in this respect. I was told yesterday, and by an American, that the Americans are planning what he referred to as "a massive attack" on next year's graduate output from our departments of science and technology. We are therefore running into a situation of a decreasing output of scientists, technologists and engineers and of increasing loss, partly from the new supply and partly, of course, from the existing stock.

Your Lordships will not wish me to reproduce from the report the reasons which the Committee considered to lie behind this drain from the country of men whom I believe to be essential to the safeguarding and to the growth of our economy. I would only say that whereas many of them no doubt are leaving for purely financial reasons, there is lots of evidence that more are leaving because they are not satisfied with the way and the extent to which their talents are being utilised and the prospects which they see to lie ahead of them. My purpose in referring to these three inter-related reports is to ask your Lordships to consider the possibility and desirability of devoting a day in the new year to the discussion of these three reports, because I believe that collectively they touch critically and crucially on issues fundamental to our economic situation.

I trust your Lordships will feel that the next point I want to make is no less relevant to the same question. Your Lordships will understand readily enough that I feel strongly about the importance—indeed, the growing importance—of our qualified engineers, technologists and scientists, but I hope that your Lordships will believe me when I say that I do not see these people as the only important members of our highly qualified community. What worries me about these others is that the vast majority of them—and if I may be forgiven, I suspect that this includes a large number of the Members of your Lordships' House and of another place—lost contact with science and also with mathematics as subjects of study and of interest at the age of fifteen or sixteen. I have the feeling that this educational deficiency lies at the root of a good deal of the weaknesses of management in this country, where these weaknesses exist, relative to the best of our management and to much of the management in the countries with which we are in intensive competition.

THE EARL OF LONGFORD

My Lords, would the noble Lord allow me to ask, not just in a debating spirit, but seriously: does he not think that it is also true that most scientists lost contact with the arts, at any rate in a professional sense, at about the same age?

LORD JACKSON OF BURNLEY

My Lords, I thank the noble Earl; I will come to that. I feel also that this educational deficiency may lie at the root of much of the frustration which the Jones Report reveals as existing among many engineers, technologists and scientists. My reason for mentioning this is not to be critical of your Lordships or even of our generation generally. My concern is that the state of affairs to which I refer is a continuing one and that it applies certainly to the majority of schoolboys and schoolgirls in our sixth forms who have decided not to concentrate on science. There is little evidence that the universities are doing much, if anything, to correct this deficiency. Certainly, there is little evidence of an interest within the undergraduate courses in the arts in a corrective study of science. I think that in due course many of these young people will come to occupy posts, and increasingly so, in which they will be involved in, and often required to take, decisions in situations which arise directly from the progress of science and technology.

We have heard a good deal of the need, as the noble Earl, Lord Longford, said, of broadening the education of scientists and technologists. I am one of those who feel very strongly about this. I think that if he were to examine the position in the sixth forms on the science side he would find that most of these boys and girls are devoting 10 per cent, and more of their time to studying nonscientific subjects. There has been much leis said about the corresponding need to broaden the education of the so-called humanist. If he were to examine the sixth form curricula for non-scientists, he would find that in general it contains no science and very often no mathematics. So I would argue that the situation is not equivalent in the sixth forms of most of our schools.

I fully appreciate the difficulties, because scientists and technologists, both in schools and universities, can readily be helped to draw on the vast accumulation of literature in the arts, in social sciences and in sociology, whereas there is a lack of literature in science and technology which can serve the alternate purpose. I think this opens up a field of research to which I should like some of our best scientists to devote their efforts.

What I am trying to say is that it will net suffice merely for us to produce a larger number of engineers, technologists and scientists, much as we need them, even if we succeed in doing so. What we also need is a greater number of highly qualified people in other disciplines who have a sufficient understanding of science and technology and a sufficient sense and understanding of the processes of mathematics, and who, can, therefore, appreciate more than I believe many do to-day the essential origins and requirements of scientific and technological progress and its relevance to the economy. I would extend this need to the public at large, because, to my mind, there is no doubt that many, if not the vast majority, of the general public are not really understanding sufficiently the origins from which some highly disturbing social situations are developing.

May I, therefore, beg your Lordships to help where and when you can to ensure that this situation within schools and universities is changed. I should like your Lordships to apply all the pressure you can to broaden the education of scientists and technologists. But what I am saying is that there may be a still greater need to ensure that the education of the so-called humanist is broadened by ensuring that he understands more effectively something of the nature, the aims and the requirements of science and technology.

5.22 p.m.

LORD BALFOUR OF INCHRYE

My Lords, I should like to be allowed to join in the congratulations that have been given to the noble Lord, Lord Douglass of Cleveland, on his most effective maiden speech. I am sure that your Lordships hope to hear him on many occasions in the future.

At the commencement of what I hope will be my brief remarks, I should like to refer to the speech of the noble Earl the Leader of the House, who took the first two speakers, my noble friend Lord Erroll of Hale and the noble Lord, Lord Byers, to task, accusing them of defeatism. Then the noble Earl the Leader of the House treated us, with great skill and charm, to the same speech that I have heard for many years from Front Bench speakers in times of depression. Speakers from all Governments, and not of any particular complexion, have said: "Recovery is just round the corner." To-day's speech had two variations. It had the variation that the Socialist leader was able to take great strength and sup- port in his arguments from the capitalist Financial Times, which is, no doubt, most grateful. And I am sure it gave great pleasure to noble Lords on this side of the House to know that the Leader of the House is so impressed with the capitalist point of view.

The second comment I should like to make is that it seemed to me that the noble Earl the Leader of the House put forward quite a novel reason for unemployment. If I understood him aright, he said that the reason for unemployment is that industrialists are producing more with fewer men. That is a delightful theory, and if prolonged to an absurdity it would mean that you would have one man turning out a tremendous amount of consumer and capital goods and the rest of the people unemployed. It is an economic theory that I have never heard put forward before: that greater industrial production must inevitably cause unemployment.

The gracious Speech says: The principal aim of My Government's policy is the achievement of a strong economy. But after three years even the Government's best friend cannot deny certain facts. I will give your Lordships five. Mr. Brown's National Plan is dead; unemployment is around 500,000; exports are admitted to be too low; imports are acknowledged to be too high; and we are likely to have a deficit of some £200 million this year on our balance of payments, instead of the hoped-for break-even. Of course I admit the point which my noble friend Lord Erroll of Hale made, and which was acknowledged by the Leader of the House, that some of this is due to circumstances outside the control of Her Majesty's Government. But, even so, it seems to me that we have come a long, sad way from the proud boasts of speeches that many of us remember in 1964. "The new Jerusalem! Brothers we are on the way!"

My Lords, the Government have not built the new city of Jerusalem. They have achieved, I feel, a new Babel, in that they speak with so many different voices, and usually on the same subject. We have Mr. Crossman claiming that his policy speech was misrepresented; the effervescent Mr. Brown having to deny his alleged words on the eve of the visit to Berlin; and now the unfortunate Lord Chalfont incident, with the attending confusion. I am very sorry for the noble Lord, Lord Chalfont, and would say no more to him than this: I believe that in future, while in the Government, he would be wise to remember a combination of Sir James Barrie and our nursery training: "Little Ministers had better be seen and not heard."

But with this sick economy, either from ideological fervour or, as we on this side of the House feel, from a refusal to face reality, the Government go on loading heavier burdens on public expenditure, part of it misplaced, and some of it, I believe, extravagant: 220,000 more Civil Servants since 1963; 30 per cent. more Ministers; 6 million square feet more Government offices; considerable criticism from the Estimates Committee and the Public Accounts Committee on extravagance, when the position called for some reduction in public expenditure.

We are often challenged by the question: "Where would you cut?" That is a perfectly fair question to put to anyone who advocates a reduction in Government expenditure, and I will in a few moments indicate where I believe this could be achieved. I would ask: How long can we afford to go on pouring out millions of pounds in social benefits, regardless of need, instead of distributing our resources where need most exists? How long must the Exchequer and local authorities continue to subsidise housing for high-income tenants who can well afford to pay economic rents, instead of the general taxpayers and ratepayers having to subsidise their houses and their one and, indeed, sometimes two car garages?

I admit that the principle of selectivity involves some proof of need. I think the words "means test" carry with them memories of the 'twenties and 'thirties. It is an unfortunate combination of words. But when the taxpayer goes through a most rigorous means test when the Government are demanding money from him, is it really unreasonable that there should be proof of need from those who are recipients of Government money? My Lords, I believe there could be economies in the Health Services. Was it £40 million extra on the Bill for free prescriptions? I believe that the Government have admitted the principle of selectivity. They just opened the door a small chink with the scheme, from which some one million ratepayers are benefiting, at a cost of some £15 million, for a reduction in de burden of rates on the poorest ratepayers. So I believe that the former principle has been breached, and that in due course we shall have to open the door still further to the principle of selectivity and extend this to housing and health. Naturally, I am not saying anything about benefits which are convenanted by insurance policies.

One result, I believe, of this contradiction of economic sickness of our economy and the public spending spree is that people are getting disillusioned with political Parties and political persons. We have just seen it in two by-elections, which I will not comment upon, except to say that undoubtedly the Hamilton result was an expression of revolt and disgust at the orthodox political Parties as we know them. I believe that the authority of Parliament can be undermined by continued erosion of respect of Parliament in the m lids of people. Up to now, some men have felt that their hopes could be justified and fulfilled through the Party of noble Lords opposite; others have felt they could achieve that through the Tory Party; some—fewer—have felt that they could achieve it through the Liberal Party. But, my Lords, when they begin to doubt, then new political attractions have their opportunity, and if they start doubting that political Parties can fulfil their reasonable needs, then, I repeat, I think it is beginning to be a danger to Parliament.

I believe that one of the causes of the present wave of industrial unrest and unofficial stoppages is this growing feeling of dislike of political life and political figures. Mr. Gunter has said that there is some Communist plot which is largely the cause of unofficial strikes. My Lords, I do not believe this. I do not believe that there are any Communists "under the bed", and to say it is an insult to good men. These men are easily led, and wrongly led, by their exasperation of the built-in processes which govern our industrial relations. I know of an incident in the Corporation with which I was connected—a small, shop floor incident—which occurred early in 1966, which has become a national issue between union headquarters and employers' organisations, and remains unsettled at the end of 1967. No wonder the patience of these men is exhausted, because human relations depend on communications, and these communications are far too slow and far too remote in industry.

I believe that we must take ourselves to bits, as it were, industrially and that each set of management and unions should see where the weakness lies in human relations. For example, we have what I call the old vertical structure in great industries. There is an argument on the shop floor. It is referred to the local panel; the local panel refers it to the district, and the district to the area; and finally it comes right up to the marble-columned headquarters of employers and the marble-columned headquarters of unions. That argument should have been settled on the shop floor. I believe that one of the needs is to increase the number of points of decision industrially, and to decentralise from this centralised power so as to give men on the shop floor, the employer, and trade union representative, a greater measure of authority than they at present enjoy.

When we take ourselves to bits industrially I do not believe we shall need strong repressive legislation on trade unions, although, of course, some alteration of laws affecting unofficial industrial disputes may well be needed. But I believe that for industrial success many changes are needed. I am not going to enlarge upon them, for my noble friend, Lord Erroll of Hale, and others have already talked about them—incentives, tax reform on earnings, from the bottom right up to the top, and overtime; recognition that material success is something to be sought, and is praiseworthy and not anti-social. But the first and foremost need is a kindling of trust and confidence, first between Government and industry—which certainly does not exist to-day; secondly, between the unions and Government; and, thirdly, between management and labour. I believe that it is no exaggeration to say that on our human relationships of this trinity Britain's future industrial prosperity depends.

5.37 p.m.

LORD ARWYN

My Lords, I must apologise for being away from the Chamber when my noble friend Lord Douglass of Cleveland was speaking, but I look forward to reading his speech to-morrow. Included in Her Majesty's gracious Speech is a notice of the Government's intention to introduce a Bill during this Session to establish a Countryside Commission, and to provide for greater opportunities for leisure and recreation in the countryside. I am one of many who will welcome this step.

On May 18 of last year the noble Viscount, Lord Colville of Culross, initiated a debate on the problems of the countryside. One of my own contributions in this wide-ranging debate was to suggest that before we were very much older we should need a Minister for Recreation with full Cabinet status, if we are to preserve the interest and virility of the youth of this country. During that debate last year I also drew attention to the change we can expect in the pattern of life among the highly skilled and technically sophisticated worker. The Russians are already aware of the new needs which are emerging among their higher-skilled workers, and are taking steps to encourage a wider development of the cultural arts and a variety of physical games and contests. The speech I am making now was intended for to-morrow, but after listening to so many able speeches on the same subject I realised that what I intended saying had already been said, and that the subject I had chosen for to-morrow could be brought forward to to-day, because it has considerable bearing on our economic future, since it is concerned with incentives and providing facilities which already exist in other countries.

My Lords, the younger generation today are far more sophisticated than most of us were at their age. For instance, they comment on the fact that the old aggressions in Europe are disappearing, and even if political union between the Six is still to be achieved, the ties of the Common Market are sufficient to make war between the old antagonists a thing of the past. Battles on the grand scale, on land, sea and in the air, have become historical events. The balance of power is reckoned in the numbers and lethal power of atomic bombs. They ask, therefore, why cannot we stop this waste of manpower and technical skill on armaments and concentrate on making this country a real Welfare State? We ceased to be a major military Power after the 1914–18 War—fifty years ago.

It is not easy to answer the seemingly logical questions from the youth of today; but one thing is clear. While the danger of dying in an atomic war may recede, the danger of dying from the neck up from utter boredom and lethargy is on the increase. In our overcrowded and drab industrial centres, there is a compelling and justified urge to escape. The problem is how and where. There is not sufficient training or experience to guide one's choice.

In recent weeks there was a series of competitions called, if I remember rightly, "Jeux sans frontières". These were televised from the various towns on the Continent and in this country. They were an eye-opener into the exciting possibilities of the endless variations in tests of physical fitness and mental alertness. There was ample outlet for all types of men and women. Brute strength and stamina were catered for, as well as the agile mind. This is one form of combating lethargy and tensions induced by the mental strain of modern life. Properly organised, this type of sporting event, with its endless variations, could encourage every little village, here and in Europe, to train teams to enter national and international contests. But it requires intelligent organisation, with Government encouragement and financial support. If the attack is to be successful in the war against utter boredom, and its cumulative effects on morale, productivity and our technical efficiency are all vital national assets which we dare not allow to deteriorate.

The people of Canada and Australia think nothing of driving 300 miles for a long weekend's strenuous outdoor activity. In the time they take to drive, say, 300 miles we could fly a party across the Atlantic to meet them. This is the pattern of things to come, unless we resign ourselves to the mass emigration of our younger generation. As the efficiency of automation in industry will decrease our hours of work we shall be faced with two problems: how to organise leisure to combat lethargy and boredom and their consequences; and also how to make incentives sufficiently attractive by way of rewards other than taxable increment. In the answer to both problems the Government can help for a start through the provisions in this Bill. We are in as much need of a Ministry of Defence against the frustrations and anxieties of modern life as we are against war. We have a wonderful opportunity to lead the world away from its complexity of fears to fun and a better life.

We have in our country a scope for de-developing recreational areas in the Highlands of Scotland, Wales, Cornwall and Devon. I wonder whether it is not possible to harness the burning zeal of the Celtic fringe who live in those parts, the most beautiful in our country. It might be an idea for consideration by the county councils in those areas to put forward suggestions if the Government provide the incentives. There is also an opportunity for large industrial organisations to develop incentive schemes whereby rewards for increases in productivity can be widened beyond monetary reward. It could be tax-free.

My own way of releasing tension is to sail a boat. There is next to my moorings a very well equipped fishing boat. The owners are business executives who live in the Midlands. They think it worth while to drive to Falmouth after business on Friday in order to be afloat early on Saturday morning and to spend two days at sea, then returning to the Midlands on Monday morning, a total journey of some 550 miles. Top executives, if they are to hold down big jobs, have to make sure that they have means of relaxation. While executive directors have the means of ensuring outlets for the release of tensions, the junior executives and shop-floor staff have much less opportunity, and least of all our highly skilled technical craftsmen. But if they go to America, Canada or Australia they have far greater opportunities. Greater cash rewards are not considered sufficient. There is an inbuilt objection to handing over higher proportions of one's income to the Inland Revenue, as we have heard from noble Lords opposite.

If we are to develop our own ideas in the West and in the Highlands, the Ministry of Transport must have another factor to consider when they prepare their statistics. Anyone should be able to travel by road or rail to spend a long week-end in the recreational areas. By the end of this century we might even have a three-day week. It will be a four-day week for certain. How are those three, or even four, days of leisure to be spent, and yet for us to keep up our efficiency? Instead of the serious depopulation of the western and Highland areas we could have a thriving industry. We are already in the state when the answer, "We cannot afford it", has to give place to the answer that we cannot afford not to do so.

I have not made any attempt to dwell on the values of the cultural arts, such as the theatre, painting and sculpture as a means of combating tensions. The foundations for the development of these outlets are already being established under the able care of my right honourable friend Miss Jennie Lee, the Minister of State with responsibility for the arts. I am trying to draw attention to the needs of the many who need strenuous physical exercise to release tension. There is also a scope, and a profitable one, to develop the crafts, and this includes design. While some may excel as amateur actors in youth and middle age, there are those who prefer to work with their hands and who are inhibited in one way or another from relieving their tensions in physical games. I would suggest that the amalgamation or fusion of the Crafts Council of Great Britain and the Rural Industries Association would be beneficial. Properly organised, the sales from their products could lead to substantial returns. Both organisations already receive Government grants, but a wider sphere is possible.

In conclusion, may I refer to the fact that we were the progenitors of the Welfare State. We resolved that the need to have freedom from want was the prerequisite to human happiness. We are now faced with other needs which have been produced by the speeding up of the mechanical age in which we live. Tensions are the cause of drug-taking, alcoholism and a whole list of emotionally induced diseases. As these tensions and the speed of living increase, so will the danger to our moral fibre by the complexity of fears which are induced if we are without means of release. Those of us holding responsible positions in industry are becoming increasingly conscious of the strains which were once carried only by top executives and which are now spreading much further down the line. Some remedy has to be found, and in time. The countries which can solve these problems will have no fear of brawn or brain drain. I hope we shall be among the first.

5.50 p.m.

LORD HANKEY

My Lords, I should like to join those who have already congratulated the noble Lord, Lord Douglass of Cleveland, on his maiden speech. We hope to hear him many times again in this House.

The economic measures announced in the gracious Speech are very welcome, but in spite of what has been said in this debate I still wonder how they will be carried out. It seems clear that after a more or less prolonged period of stagnation our economy is very slowly rounding the corner and we can now look forward to an eventual recovery of production. But home consumption is the leading factor, and this will mean more imports. I want to ask the Government how, in applying their policy, they are going to guard against the dangers which have undermined and killed every recovery for many years past. As the noble Earl, Lord Cromer, has pointed out, this is not apparent from the gracious Speech. Perhaps I could explain what I mean by a very brief analysis of our experience in recent years, based largely on my experience as British delegate at O.E.C.D. I hope my remarks may be regarded as totally non-partisan. As I see the position, none of us have had any success; we are just back where we were. We must all learn to do better. This is a common interest of everyone in this country.

Our economic policies have been through a number of phases. In 1961, we were saying, "Look after the balance of payments and the economy will look after itself". After that crisis and the deflation which followed we had a terrible mounting toll of unemployment. The worst period was in the winter of 1962–63, some twenty months, be it noted, after the actual 1961 crisis. We probably cannot expect a much quicker recovery this time. Twenty months from July, 1966, takes us to next February. And so in 1962, as the cure was so slow in coming, we began to reflate our economy, cautiously at first, then more actively, since it appeared to be highly resistant to encouragement. It was difficult to estimate the time period within which each measure of encouragement would take effect. Many measures were slow, and some were cumulative.

The doctrine in 1963 was that the growth of our economy would result in many extra and new exports. If those exports were a bit slow in materialising, the foreign exchange reserves, the I.M.F. and other institutional arrangements would enable us to turn the corner. The crisis of 1964 after the General Election was perhaps made worse by various semi-political confidence factors which came into play. But I think it is clear that the principle of letting, our inadequate foreign exchange reserves take the blow had not worked out as had been hoped. We must not do that again. Our reserves are not even as well off now as they were then.

Looking back with the advantages of hindsight, I think we were much too optimistic. We had no adequate detailed idea or plans how the extra exports we hoped for were going to be obtained, though various general measures of encouragement were taken, and the Board of Trade was very active in a general way. Your Lordships will remember that in 1964 the Labour Government introduced a permanent but very small rebate on indirect taxes on exports and a temporary surcharge on imports. By dealing separately with the trade factors in this way, they tried gallantly not to go in for any general deflation, though the measures they took were supposed to reduce demand by some £600 million that winter. But the credit institutions more than took up the slack, and in spite of the high bank rate a large increase of bank advances completely undid anything the Government had done to reduce demand. This led to a number of measures, including a call for special deposits by the Bank of England and to an active policy on prices and incomes. But the attempt to avoid a severe general reduction of internal demand failed, and the necessary measures had to be taken in July, 1966, precipitated in part, I recall, by the seamen's strike.

It is clear from the gracious Speech that the Government intend to promote an effective policy for productivity, prices and incomes. This restraint on demand must in the long run prove very unpopular, but some policy of the sort is clearly essential if in the absence of greater production, especially for export, consumer demand is not to rise and cause another inrush of imports. We must guard against that danger. I think experience shows that incomes policies are only effective in a sort of grey twilight area between prosperity and depression when demand is being kept pretty well under control. If demand or the pressure of employment are allowed to increase beyond a certain moderate level, the system busts, as the experience of the Netherlands showed in September, 1963. That, I believe, is another lesson which we really have to bear in mind.

But, my Lords, even if we do this, I want to know how, in the absence of strong demand, the Government hope to promote sufficient expansion and investment by our industry, more especially in the development areas, on which we clearly have to rely for some part of industrial recovery. Is local development being pressed forward there adequately, or, as I suspect, is it still being frustrated by objectors and the ubiquitous "abominable no-man"? How, if at all, is this local development drive being linked to our essential need for more exports? I urge that this link with new or larger exporting capacity be established at once, before our recovery gets going, both in the development areas and in the very welcome new super-development areas now announced for some coalfields, and indeed throughout our economy. I should like to support the suggestion of the noble Lord, Lord Byers, that investment grants be related to our need for more exports and more import saving. I think we ought to have another national plan or programme, and a much more practical one than last time, now that we are beginning another recovery period. Almost all European countries have economic plans or programmes. But there is no mention of this in the gracious Speech. Are we, in this age of computers, again hoping to muddle through? I hope not, at least not as to exports, as we did in our last National Plan.

The point I am anxious to drive home is that it is essential that this time we should have a clear idea and a plan as to exactly how and where we are to produce more exports, and where we are to sell them. The Board of Trade and the Foreign Office have worked hard at this general problem, with some success; but their work has not saved our economy. When our economy expands imports always lead, and this is bound to happen again soon. This tendency must be faced, I urge, and corrected or balanced by more exports if our recovery is to continue. The Germans do this somehow. When the German economy expands, it is always exports that lead, and I should like to know why that is. I think it would be worth while sending a small mission of experts to Germany to try to find this out. We must do the same. But in general I am sure that this is a question of the detailed focus of our economic policy.

A number of years ago I went to a prominent British Minister closely concerned with our economy and asked him how the Government were expecting our exports to make the grade, which industries would do the trick, and what the Foreign Service could do to help. He appeared to be surprised, even nonplussed. He rang the bell for his private secretary. "Ask your question again", the Minister said, "I want him to hear it". "Oh, sir," said the private secretary, "That is not a question for the Government. We leave that to industry." My Lords, that generally optimistic but vague policy has not worked. We have given much general support and encouragement to exporters, and even a small tax rebate on exports, but that has not been enough either. I am, in effect, asking the Government the same question as I asked that Minister many years ago. Which industries are going to make the grade in exports? Where will they sell them? It is essential that Government and industry should get down to this together.

I believe it is necessary to make exporting pay. There is no future in devaluation. I agree entirely with what has been said to-day. Devaluation may be one possible method of lowering export prices by comparison with import prices, but it would be just a palliative to put off the day when we must face our real economic problems, and I think it is better to face these problems now.

How else can we make exporting pay? I suggest that one course might be to introduce a tax on value added during manufacture, as part of a further tax reform. We shall anyhow have to do this as part of a general tax harmonisation policy when we enter Europe. Why not "jump the gun" and do it now? The value-added tax, which is refunded to exporters, is used by some of our most successful Continental competitors, such as France and Germany. It is being adopted by the whole Common Market. The level of the tax and the degree of refund can be altered to suit the economic situation. It is a flexible and powerful instrument. The refund would not be contrary to GATT or to EFTA as would any straight export subsidy.

Various British committees have reported coolly on this idea in the past. Some good economists have said that there is no essential difference between a value-added tax and our purchase tax, because the purchase tax is not levied on exports. I do not agree with that argument. The purchase tax is paid by the consumer. It makes no difference to the British manufacturer, therefore, whether his product is sold at home or abroad, though it may be cheaper to the foreign buyer than to the British buyer. But a value-added tax would be paid by the British manufacturer, and he would get the money back if the product were exported. This is all the difference between chalk and cheese. Our German competitors work it quite effectively and do not appear to suffer the administrative inconveniences which seem to be feared in London.

I beg the Government to think about this seriously once more as part of a tax reform. It would do no harm to readjust taxation from direct towards indirect taxation. We have heard many arguments in favour of that to-day. I can think of several taxes that we should really do better to abolish, and a value-added tax would in any case replace purchase tax.

But in general, as I have said, I do not think we can rely exclusively any longer on purely general measures of export promotion. I urge the Government to develop further, and in much more detail, the system of export councils, and especially to focus the "Little Neddies" on exports. Let us find out exactly in which sector of our economy there is a growth potential for exports. The "Little Neddies" can mobilise both sides of industry, employers and trade unions, and include representatives of the Government. They ought really to be in a good position to do that. Then we should help each such sector to develop really actively.

I will give two examples to show the sort of thing that I am thinking of. For instance, do the motor vehicle or engineering industries need more storage room or parking space at the ports and docks, or better approach or customs facilities? One occasionally hears that export loads have to be turned away owing to congestion. It would be far better to take the opportunity to clear some areas round the docks now, or to make better approach roads now, rather than to go on losing our share of vehicle and engineering markets or to face another 1966. Or, for instance, could a Tyne or Clyde shipyard adopt more modern methods and build and export more and better ships if some old railway behind the yard were moved to make more room? It would be far better to move the railway or clear a slum area now than to go on losing our shipbuilding markets. Why should such obstacles to our efficient modernisation be regarded as insuperable? Could not the "Little Neddies" be asked to examine the possibilities in detail and report urgently? Then we could have a real detailed policy to help the specific export industries and firms on whose success our future standard of living and full employment depend.

I am in fact advocating something rather revolutionary. The Civil Service are mistrusted by many people in industry because they have to operate by imposing irksome restrictions. I am sure this is one reason why a Scottish Nationalist has reached Westminster; it is a protest against irksome restrictions imposed from London. I am now proposing that the Civil Service be given a positive role and positive tools to use instead of negative ones.

Frankly, this is not easy. Our civil servants must be extremely careful never to be accused of favouring one firm against another. But I urge that we have now to modify that principle. It is really out of date. It is hampering our recovery. The civil servant in London, the local government official elsewhere and both sides of industry should henceforth act in partnership in this question. The exporting firm ought to receive really active backing and assistance. And this duty should apply to the Ministry of Labour and the T.U.C. also. If a firm complains that it has not received the same facilities and help as a rival, then it should from now on be a sufficient answer to say, "Yes, but if you export, you too will get extra help". I wonder whether anything of this sort will be found in the Industrial Expansion Bill, and whether that Bill will be aimed in any way at getting more exports?

Mr. Heath showed what a great leader of men he is when, in 1962, he got our Civil Service to work out practical plans for Britain to join Europe. It was an amazing ideological revolution. I have no doubt that Mr. Wilson, now that he has taken charge of our economy, could lead our Civil Service into a new attitude of co-operation with both sides of specific firms in industry, which is so necessary if our export drive is to be promoted in real detail and be made truly effective. And all hell should be let loose if exports are held up or not produced in time!

Carrying the export question further, I would say that it is obvious that we now have to find an immediate solution to the dock situation, and indeed for the unofficial strike situation generally. I greatly welcome the paragraph on industrial relations in the gracious Speech, and also the reference to this in the remarkable and courageous speech by the noble Lord, Lord Cooper of Stockton Heath, in moving the Address.

I earnestly hope that Lord Donovan's Royal Commission will report soon. We really cannot afford the chaos in our economy which results from our great trade unions being largely powerless in the present state of the law. We have, I firmly believe, some of the best trade union leaders in the world, but we leave them in a state of legal impotence. These often stupid unofficial strikes are made worse by the misplaced loyalty and solidarity of our workers with unofficial leaders. Can this fundamentally good quality of the British worker really not be turned to better account by the Labour Party and the T.U.C.? These unofficial strikes do immense damage to our ports, to our export trade, to our balance of payments, and to our working population generally. We buy our imports anyway. But selling our exports is another matter.

These dock and rail strikes have an effect on our exports out of all proportion to their intrinsic importance. Many of our overseas customers are utterly fed up at the delays and uncertainty in our delivery dates, and at the slow turn-round in our ports. They do not have to buy British, or even ship their own goods to British ports direct. It will be a sad day when more and more of our trade has to be transhipped at Rotterdam, as is already beginning to be done. That would also be a sad burden on our prices. If the people of this country want to preserve anything like their present standard of living, the Government have to deal effectively with these issues. The gracious Speech says only that the problem will be considered. I realise that the Government cannot say more to-day. But do not let us be under any illusion. This problem really must be not only considered but dealt with soon, and well before the next Election.

I should like to see the Presidents of the Confederation of British Industry and the T.U.C. made ex-officio Members of your Lordships' House, like the Bishops, so that their advice may be available to Parliament when this and kindred matters are considered.

Returning to our balance of payments, we have a healthy surplus in most years from invisibles, principally services like shipping, insurance and tourism. I think we should equally see in detail what we can do for particular services sectors to help them earn an export surplus. Perhaps for a start we could relieve them of the selective employment tax. It seems to me to make little sense in present circumstances to burden our invisible exports in this way. It must make it easier for their competitors. I doubt whether S.E.T. helps manufacturing industry, and it has no bearing, so far as I can see, on exports. At any rate this seems to me to be a corner of our economic policy that would benefit by very serious reconsideration.

Then there are capital movements to be considered. I earnestly hope that the Government will not relax their attention in this field as we begin to turn the corner. The unco-ordinated outflow of long-term capital on a vast scale was one of the straws that broke the sterling camel's back, both in 1961 and in 1964. I do not think it is by chance that the two countries with the biggest balance of-payments problems, the United States and the United Kingdom, both have reserve currencies and both have very large and efficient capital markets. Add a decree of convertibility and it seems to me that almost anything can happen.

The amount of long-term capital we export on balance, net, ought ideally to be related in some way to the amount of our current surplus in the previous year. I realise that this is a horrible heresy in a convertible world, but our present system does not seem to me to work reliably or safely. Let us especially be careful about periods when our apparent reserves are swollen by an influx of short-term funds. A fat reserve of that sort does not necessarily justify more lavish generosity over long-term capital lending, or even development aid. I am sure that we—and this means both the Government and the banks and City, in their overseas dealings—should be careful in future about borrowing short and lending long; and this goes for aid also.

My Lords, we cannot have an effective foreign policy or defence policy unless we really put our economy in order. We certainly have to do that before we enter Europe. We cannot go on appealing to the "Gnomes" of Zurich and all the international institutions every four years with both trouser pockets hanging out. I am afraid we now have to recognise that this is a major task, calling for the abandonment of many comfortable, traditional practices. The time has come for an unprejudiced, unbiased and very hard look at the solutions needed for our troubles. It is unfair to ourselves and our children to continue almost bottom of the O.E.C.D. league in economic growth and external financial stability.

I am impelled to speak strongly and at undue length because the United Kingdom, according to the statistics of O.E.C.D., has now fallen to tenth place among the 21 member countries in gross national product per head of the population. Apart from the United States and Canada, Sweden, Switzerland, Iceland, Norway, Denmark, France and Germany are all now ahead of us. France and Germany have overtaken us in the last year. It is incredible that this should have happened in the last fifteen or sixteen years. In the amount invested in fixed asset formation per head of population we come thirteenth in O.E.C.D. and as regards the proportion of gross national product invested we come seventeenth, with just under 18 per cent. Our consumption figures are correspondingly high.

It has been said that statistics are like a bikini: in many ways they are revealing, but what they conceal is vital. You may say, therefore, that these are rather theoretical figures I have given, but what do they mean in real terms? In real terms we are sixth down the list in motor cars per thousand inhabitants, equal ninth in telephones, fourth in television sets, eleventh in housing units completed per annum (a figure which I find disturbing and rather disgraceful), eighth in net consumption of electricity per head and per year. Where is this going to end if we handle the economic expansion which is about to begin as we have handled previous expansions?

My Lords, I refuse to end this speech on a gloomy note. No Prime Minister has ever had a greater opportunity than Mr. Wilson now has. Everyone is fed up with the situation. Now is the moment to modernise and to deal with the "abominable no-men" and futile objectors who have a difficulty for every solution and who obstruct change and progress at every level. This really has become a national matter. Let us keep the narrower type of Party controversy and conflict and personal unpleasantness out of this new and more hopeful phase in our affairs.

We need all hands to the pumps to get more production, especially for export; better sales drives, especially abroad; more import saving by better productivity; much more co-operation between Government, Civil Service, employers, trade unions and scientists; and especially a new and really unprejudiced approach to industrial relations and to innovation. In no other way can we hope to improve the living standards and educational and social opportunities of our people. We have to call forth genius and endeavour, and we have to reward it. If, as I believe, we have to change many of our cherished traditions and practices in order to survive in the world we now live in, let us do it soon while there is yet time. And let us do it by design in a well-thought-out way and in cooperation with each other. We have all the necessary genius; now we must get on with the job.

6.18 p.m.

LORD REDMAYNE

My Lords, it is almost an impertinence for me to join in the congratulations to the noble Lord, Lord Douglass of Cleveland, since I myself was so recently in the same position as he is in to-day. But I should like to say, if I may do so without doing him any permanent harm on the Government Benches, that it was very refreshing to find that in his mouth our present Labour paradise owes something to the purgatory that preceded it. I thought that it was generous of him to couch his speech in those terms, and I certainly look forward to hearing him again.

It is not surprising that reference has already been made by my noble friend on the Front Bench, as well as by my noble friend Lord Watkinson, to the work of the Committee on Invisible Exports, the Bland Committee; and perhaps at the same time one should mention the work in that connection of Mr. William Clarke, who was Director of Study and has done a noble job, if I may use that expression in this connection in your Lordships' House. I would join with the noble Viscount, Lord Watkinson, in hoping that the noble Lord who is to reply from the Government Front Bench will give us a definite statement of the Government's attitude to that Committee, and I hope they will accept the major part, if not the whole, of their recommendations. There is no question at all that the Committee have done a great service by putting into black and white a factor in our balance of payments which for too long has been regarded as a fortuitous windfall to set against the apparently inevitable deficit of our visible trade.

Indeed, I would go further than that. I would say that if the facts about our invisibles were more clearly presented as being a permanently beneficial factor in our trading position, then the constantly recurring doubts about sterling would fade into the background. Because the one thing this Report has done is to make absolutely clear that as a nation we are solvent; that we do not depend on the monthly publication of the figures of our visible trade.

Many words have been uttered—and not least by the noble Lord, Lord Hankey, who preceded me—about the need to stimulate visible exports, but too little attention has been paid to the need to stimulate invisibles and to reinforce their undoubted success over a very long period of years. Indeed, I would say to the noble Earl the Leader of the House, if he were in his place, that whereas he referred to the danger of overheating the economy by stimulus to visible trade, stimulus to invisible trade can in no way lead to overheating. Therefore, there is all the more reason that we should pursue it.

What the Report says—and this to me, for a reason which will be clear, is significant—is that Britain is, and has been for well over a century-and-a-half, as much a commercial and financial nation as a manufacturing nation. Here I would chide my noble friend Lord Erroll of Hale for having used the phrase "industry and commerce". If I may say so to him, with the greatest respect, commerce deserves a place in the economy in its own right, without being endlessly coupled with industry. But the quotation which I have made from the Report underlines a basic truth which has been too long neglected: that, in fact, we are a commercial and financial nation as much as a manufacturing nation.

But the present Government, if I may say so in the spirit in which these things are said in this House, have done more than neglect the truth; they have denied it. I had written "abused it", but I crossed that out. I say that they have denied it, because it has been the conscious policy of the Government to weight the balance of taxation against commerce and finance and in favour of manufacturing industry. The anomalies that arise from this policy are clear in every chapter of the Report and, to quote only one case, the earnings of foreign exchange of the export houses—the merchant, the factor, the buying agent, the export finance house and the rest—by the services they provide, amount to no less than £44 million. Those activities are of just as much value to the trade balance as those of any manufacturer, and of course in many cases, as merchants in their own right, in addition to their invisible earnings—the £44 million—they add a major sum to the visible balance as dealers in visible exports.

Yet, whereas the exporting manufacturer receives repayment of S.E.T. and a premium on it, and qualifies for export rebate and for the less substantial, if valued, benefit of the Queen's Award, an export house pays S.E.T. in full and neither qualifies nor receives any benefit or Award. The same anomaly shows itself in respect of every one of the activities which have been reviewed in so much detail in this Report and which contributed so solidly to our earnings of foreign exchange. The Report recommends that these enterprises should be treated for S.E.T. on the same basis as manufactured exports, and that they also should qualify for export rebate and for exemption from S.E.T.

This is a sensible recommendation, and I have only one quarrel with it; that is, that it takes no account—largely, as is stated in the Report, through lack of accurate information—of the export sales of the distributive trades; and, as I shall make clear, a very large part of these sales rank as invisibles, although they are derived from the sale of visible goods. Unfortunately, they cannot be accurately assessed. A small part of them are covered by what is called the personal export scheme—the PT.40 scheme—under which purchase tax is deducted, provided the goods are sent direct to the airport or to the shipping port.

But the value of those exports is not recorded, and, indeed, the use of that scheme, for reasons which I shall not go into in detail now, has become less and less every year. The fact is that it causes a great deal of trouble both to the buyer and to the seller, and since purchase tax rates have fallen the advantage of using the scheme is not very great. From information available to me I estimate that the total value of exports under that scheme (as I say, their value is not recorded) probably did not amount in 1965, which is the figure on which I am working, to very much more than £2 million, which is a trifling sum. But that is not the end of the export story so far as the distributive trades are concerned.

It is my good fortune to have a connection with a major departmental store, and from our own figures of identifiable exports—that is, those which are dealt with under the personal export scheme or through the ordinary export channels—there are certain conclusions which we can draw. I shall not bore your Lordships with the figures on which I base these conclusions, but I believe that the total identifiable exports of the retail trade are probably not more than £10 million or £12 million. That, again, is not a very considerable figure in the trade balance; but that, also, is not the end of the story. Those £10 million or £12 million are, of course, visible exports, and they appear in the trade returns. Therefore, we need not at this stage take any special account of them.

Against that figure the British Tourist Association estimates, by inquiry from foreign visitors, that some £40 million was spent by tourists in British shops in 1966, which was a year in which the turnover of the personal export scheme was falling. I think that £40 million is an underestimate, just as I think that the figure of £10 million or £12 million is probably an overestimate. I am confirmed in the view that the £40 million total is an underestimate, by a very rough survey which I had made in my own store. I may say that there the flow of foreign visitors is so large that one is sometimes at a loss to hear an English voice, but I hope that that will not be held to reflect against that great organisation.

The buyers of a number of departments were asked to estimate the proportion of their total trade in each department which was done by foreigners of all types spending foreign currency or the equivalent converted. In one department the percentage of total trade done was as high as 45 per cent., which was quite incredible, and in some other departments it ranged between 20 per cent. and 35 per cent. The average of 31 departments was 15 per cent. I think that those figures are quite remarkable—not remarkable in respect of this particular organisation, but remarkable as being indicative of what can be done. Those figures meant that, whereas we had thought that our total export trade over the counter was somewhere around £1 million or £1,500,000, we have now doubled that figure and believe that in that place we are exporting goods to the value of some £3 million a year.

We also believe—and this is based on certain facts with which again I shall not bore your Lordships—that we do about 10 per cent. of the identifiable trade; that is, the trade which goes out through the ordinary channels. But, of course, we cannot conceivably do as much as 10 per cent. of all trade that is done with foreigners over the counters of British shops and stores throughout the country. Therefore, I would multiply my £3 million not by 10 but perhaps by 15 or 20. I believe, therefore, that the figure of retail exports is probably much nearer £60 million than the £40 million estimated by the British Travel Association.

It is clear, therefore—and this, my Lords, is the important point—that the difference between £60 million and £10 million which are identifiable means that somewhere along the line there is spent in foreign currency over the counters of British shops and stores something well over £30 million (perhaps £40 million, or perhaps nearer £50 million) which is not, of course, accounted for at all in the trade returns. If I may say so, it is no small figure. Looked at as a proportion of the average deficit on visible trade for the last 15 years, it improves that figure for the average deficit by no less than 15 per cent. per annum. So it is a fair contribution. Nor, indeed, is it a small figure in comparison with the earnings on invisibles of insurance, merchanting and so forth, shown in the Bland Report.

As I say, although it represents visible goods sold, it is in fact the most invisible of all invisibles in that, in the words of the Report, it is not a visible because it is not seen, touched and weighed as it passes through the ports, both sea and air"— a graphic description of a visible export which appealed to me very much indeed. This large sum goes out, in fact, unaccounted for, unrecorded, unhonoured and unsung on the backs, in the luggage, in the pockets and in the handbags of our visitors. It must therefore be true that, if there is a case for exempting invisible exports from S.E.T., so equally there must be a case for exempting the retail trade, in proportion at least to its export performance, which is of the size I have tried to describe.

Of course, the difficulty is that these figures are not recorded. I should like, if I may, to discuss a solution, although I would say that if in fact the Government—any Government—were to adopt the value-added tax, as advocated by the noble Lord, Lord Hankey, the solution would be very much easier. The solution is simply this. To a considerable degree the London stores and many specialised shops in London and throughout the country are part of the magnet of tourism, and we ought to realise that. I believe strongly that we should increase the power of that magnet by offering a special incentive to the tourist. We are already accepting the principle of special incentive, because that is exactly what the personal export scheme is designed to do; and yet, as I say, that scheme has become ineffective. We must therefore seek another scheme, and we must include in it not only the smaller sum of identifiable exports but all this great mass of over-the-counter trade for which foreign currency is actually brought into this country with the idea of its being spent in British shops, where the quality of shop-keeping and the quality of goods is as high as anywhere in the world.

Two benefits will arise from this. First of all, the trade will undoubtedly increase—and nobody will deny that—if there is an incentive; and, secondly, the value of it would become known and it could be both properly recorded and properly rewarded. The scheme is perfectly simple. All it means is this: that any customer, on production of a foreign passport and on being duly identified as the holder of that passport by photo and by signature, would be entitled to a rebate of the purchase tax on the goods at the flat rates as we work them in the retail trade of 1s. 3d. in the pound for 11½ per cent. and 2s. 9d. in the pound for the other rate, whatever it is. If we wanted to be over-cautious and it was thought to be necessary to have an added safeguard, the payment by the customer could be made in foreign currency or foreign travellers' cheques. That adds very much to the complication of it, but it is not insuperable. Purchases made would be entered on a form attached to the passport, or in the passport itself, and could in fact be subject to a spot check at the ports. Claims for tax rebated by the shopkeeper would be supported by the invoice, the sales bill, bearing the customer's name and passport number, and, as an added safeguard, retailers operating this scheme could be licensed and could be subject to the withdrawal of their licence or a considerable fine if they did not exercise reasonable care in the operation of the scheme.

My Lords, I know very well what is going to be said. I can almost put the words into the mouth of the noble Lord. He will say, first of all: What is the need for such a scheme if we can do the trade without it? We are, as I have explained, doing a very considerable trade, but I believe we could do very much more if the incentive existed. That is purely a matter of opinion and argument. I know, equally, that he will say that the scheme would be subject to fraud—and indeed this was the Treasury answer to a previous proposition of this sort. I know that the French scheme, which gave a discount of 20 per cent. against foreign travellers' cheques, has been amended on this account; and yet I know, too—and I think probably a great number of your Lordships know—that this scheme was very popular and induced a lot of spending by us in France.

With reasonable precautions, such as I have described, in a country such as ours, which has no great tradition of tax evasion. I believe that the risks are very small. Indeed, what are the risks? They are that some foreign visitors, using their passports and foreign travellers' cheques, will make purchases for their British friends, who will pay for them in sterling to save purchase tax, knowing that the regulations, which would have to be imposed, would make that an offence—and it could be an offence punishable by a reasonably stiff fine. I do not think that the risk is very great, and I am not prepared to accept the possibility of that risk as an answer. We have, if I may say so with respect to everyone concerned, a genius for seeing bogies where none exists, and from my personal experience I know that much of that genius resides in the Treasury.

My Lords, I have argued this on the need for an incentive to tourists. The retail trader needs the same incentive; and, if I have made a case that he has a great share in our export trade, largely invisible, then, like the other invisibles in the Bland Committee Report, he should have the same advantages of exemption from S.E.T. in respect of his export trade and he should qualify for export rebate for the whole of the trade—that is, the identifiable and the unidentifiable. And why should he not also qualify for the Queen's Award, which he often so much deserves?

In conclusion I would only say that the trend of tourism over the next twenty years could mean that by 1990 or so we should be earning in foreign currency from tourists something like £1,000 million a year—that is, three times what we earn to-day. I want to see that go into the shops as well as into the pubs and the hotels. It may seem that, in a general economic debate, I have concentrated too much on this one subject, but in my defence I will repeat again the words of the Report, that: for a century and a half Britain has been as much a commercial and financial nation as a manufacturing nation. I believe that this Government, and indeed any Government, must give credit where credit is due; and I am very pleased to see that my right honourable friend Mr. Maudling has admitted in this month's issue of Director that he was at fault in not realising more clearly how much we owe to exporters of invisibles. It is only fair to say that if Mr. Maudling was at fault the Treasury also were at fault. It is a truism, a cliché, that we are a nation of shopkeepers. We should cash in on it and reinforce success.

6.40 p.m.

LORD CITRINE

My Lords, my first words must be of congratulation to my noble friend and colleague Lord Douglass of Cleveland on what I thought was one of the clearest addresses, compressed into such a short space of time, that I have heard in this House. Lord Douglass of Cleveland was emerging as a national leader during my later years at the Trades Union Congress and, as far as I can judge, his style to-day is the same as it was when I had the pleasure of hearing him in the debates at the T.U.C. He is both courageous in utterance and clear in thinking—and that is not altogether a very plentiful commodity in all quarters of the trade union movement. The people in that move- ment mainly have had nothing more than an elementary education; and I, with similar limitations, have many times envied the fluency and preciseness of the speeches which I have heard from some of my noble friends on the Front Bench and from noble Lords on the Opposition side. I am sure that we shall all be very happy to hear the contributions which Lord Douglass of Cleveland is sure to make in the months and years to come.

My Lords, we are reviewing the Government's economic policy, and it is fairly plain, from what has been said in this and in earlier debates, that, as far as they are concerned, the Opposition have little faith or belief in that policy. I am sorry that the noble Lord, Lord Carrington, is not in his place, for I should have liked him to hear what I want to say concerning him personally. I want to quote him in some measure in order to sustain my theme; though I do so with some diffidence because of the most unexpected but very welcome tribute that the noble Lord made to me in the course of his speech on November 2 on the Address.

In his speech on November 2 the noble Lord said: …there is not much sign in the gracious Speech of anything more than good intentions and platitudes in that direction."—[OFFICIAL REPORT, 2/11/67, col. 157.] Well, the noble Lord is a very experienced politician—and has become so more and more as the days have gone by during his presence in this House. I first met him when he was High Commissioner in Australia and I was then impressed by his clarity of speech, his quickness of mind and what seemed to me his complete honesty of purpose. I do not think he has lost any of those qualities since he took an active part in the proceedings of this House. But he made it quite plain in that speech that he had little confidence in the Government on whose behalf I am making these remarks this afternoon. He said, quite sincerely I believe: I must also say, and this is not an agree-able thing to say, that I do not recollect a time in my lifetime when British prestige abroad has been so low or this country has been held in such low a regard."—[Col. 157.] There was a previous occasion when not dissimilar statements were made in this House and when I tried, in the course of a contribution I made, to show how damaging it could be to the prestige of this country and to the efforts of the Government of this country (which, for better or worse, had the task of trying to restore our economy in the course of the next few years) to have people in high places saying—with conviction, no doubt, but, I think, with Party policy in mind—that they had no confidence in the Government, that the Government themselves were incompetent and that Government policy was (as described in another place) one of lunacy and incoherence. I have always thought that the principal factor in dealing with confidence abroad was to demonstrate that the Government had some kind of coherent policy and were aiming broadly in a direction to attain that policy and to bring it to fruition. I tried to point out on that occasion that although we in this country expect a certain amount of (shall I say?) the play of politics in our national life—when, in fact, there is not very deep disagreement on certain aspects of policy—we could not expect the foreigner to place quite the same valuation as we do upon sentences and adjectives such as I have quoted.

The noble Lord, Lord Carrington, speaking in that objective way of his, conveying an impression of fairness and sincerity to many on these Benches, quite apart from those on the Opposite side, said that the Government was lacking in judgment and competence; that moreover they had a lack of confidence to see their measures through. That statement really puzzled me. How—when everyone in the course of this speech was told that the Government themselves had no confidence in the measures they were putting forward—that statement could be expected to help the country to recover by restoring confidence in this country's efforts to attain economic stability, I do not know. It is difficult enough to create stability with a system of successive Governments. The four or five years of a Parliament's life are not really sufficient time in which to work out the basic problems of any country—particularly in the economic sphere, where so many individuals are engaged in industry and commerce and where the processes of change are very slow indeed. It can take a long time, even on simple matters, to get certain levels of industry fully to comprehend the importance of change.

So, my Lords, I wonder whether this policy of denigration of the present Government is really the kind of policy which a responsible Opposition ought to pursue. Constructive suggestions, yes—and I am not denying that those suggestions have been made. But the basic criticism, that the Government of the day are incompetent to administer the affairs of the country, is, I think, something rather shocking and, if I may say so without offence, rather arrogant. It is an assumption that a different policy espoused by the Opposition would be free from the handicaps and objections that are raised against the policy of their opponents when in Office. It simply is not true, for the reason that the Government, whatever their colour, have to deal with so many organisations and persons of different points of view that they cannot themselves, no matter how good their policy is, always carry that policy into operation.

Therefore I hope, late in the day as it is, that the objectivity of these debates, which are, of course, of a higher quality than those we are accustomed to hear elsewhere, will not be carried to a point where there is continual denigration of the Government. I say that in present circumstances it is the most difficult thing in the world for any Government to achieve stability and prosperity in this country. I well recall quoting in this House a statement from the Organisation for European Co-operation: and what was its advice? It was that this country would have to embark upon a series of measures which would not only be restrictive but very unpopular. It was estimated that it would take not one or two Sessions of Parliament, but many years before the goal could be attained. Yet I remember the Opposition criticising, the Government, after they had been in office for only ten months, for not carrying out their policy. I think that is below the standards of serious thought which one might expect in this House.

As individuals, my Lords, we seem to be able to agree on quite a lot of things. There are many noble Lords on the Benches opposite whom I regard as personal friends; but when they get together, somehow they seem to get coalesced in policies about which, as individuals, they would, occasionally at least, have doubts. In the economic sphere, and particularly with regard to prices and incomes, this Government tried to proceed by voluntary means. Their predecessors had also tried that, with a very limited measure of success. The Trades Union Congress should not be brushed aside as not counting for something, as it represents a preponderance of organised workpeople. But even though it was on the eve of a conference, the Leader of the Opposition in another place made a speech which he hoped would convince the Congress that voluntary means were workable, practicable and desirable. And this at a time when the General Council of the T.U.C. was having the utmost difficulty in trying to maintain some system or standard of co-operation in a period of voluntary restraint with regard to wages and salaries. I thought that was not quite playing the game.

You see, my Lords, the whole world does not revolve around the two Chambers of our Parliament. We think out our problems and talk about them, and we come to some broad conclusion which we hope will be acceptable to the public. But we have to think about that public and remember that sometimes things are said which increase opposition to worthy policies rather than diminish it; and I think that I have given one example of this. Can anybody doubt that when the Government embarked on their policy of restrictive legislation in the economic sphere they were not conscious of the fact that they would incur very great unpopularity? Did anyone think that curtailing advances in wages, and subsequently making them illegal, would rally for the Government the support of the workers in this country? The Government are not so unintelligent as to think that, and even if they did not know it already there are economic and political advisers who are capable of telling them. It would be a poor politician who did not have some idea about the reaction of the public to such measures. And so the Government get the best advice as to what may be the consequences in the economic and political sphere.

Yet I have never heard a word of congratulation from the noble Lords on the Benches opposite to the Government on their courage in following this policy, whether or not it was a policy of which the Opposition could approve. There are different qualities in human beings. Some people possess great wisdom. Some people possess physical courage, and they do not always possess moral courage, and vice versa. A Government who can embark on a series of measures which they know in advance will antagonise public opinion in many quarters, and particularly among their own supporters, are, to my mind, worthy of congratulation on their courage, if upon nothing else. So I say that, from my point of view, the Government are to be congratulated on having the courage to go forward.

Instead, my Lords, their policy was denounced as an invasion of the rights of individuals; an application of compulsion in peace time; something to be deprecated as being foreign to our theories of public life. I say that was a play on prejudice, for the simple reason that it had been demonstrated beyond a shadow of a doubt that it was impossible to get a continuing restraint on wages and salaries by voluntary means. After my long trade union life and the years that I have spent trying to keep the trade union movement in being as a voluntary organisation, not dependent upon the Government but as an indispensable and inseparable part of the broad community which we call government, does anyone believe that I should have supported a policy of that kind had I thought that there was any practical alternative? Supporting that policy was not likely to make me popular, in my late days, with trade unionists. But it was the only thing left after the failure of the voluntary method, or at least after the very modest amount of success which had been achieved by the voluntary method.

I am pleased to see, my Lords—and I wonder whether anybody else has said anything about this—that in the gracious Speech the Government announced that they would continue to work with management and unions to promote an effective policy for productivity, prices and incomes". Surely that is something which everyone can support. It does not mean to say that the Government are going forward with a fixed policy, irrespective of what advice they may get. I do not know whether any reference has been made to this by noble Lords opposite, but how can a Government, in four short paragraphs of a gracious Speech, describe precisely what they propose to do? It is merely an indication of the direction—and a direction which I do not think anyone on the Benches opposite would think a bad one.

My Lords, the Government tried to control prices. The Opposition opposed compulsion in that respect. The Government could not rely on purely voluntary means. Surely everyone must have recognised that. Large producers, and probably many of the small ones, might have been ready to respond to an appeal to their better national instincts, but there are many people in this community, among trade unionists as well as employers, and among people in commerce and business, who are always ready to take advantage of whatever opportunity occurs to further their material standards and their economic opportunities. So the Government established the Prices and Incomes Board and I am glad to testify to the measure of success which has attended the work of that Board. I admire its much criticised but capable and courageous chairman, Aubrey Jones. He is not a trade unionist, so far as I know, but I think he is a fair-minded man who is looking with the eye of a trained economist at the problems and trying to arrive at solutions.

I have said in this House that I always doubted the practicability, in a mixed economy such as ours, of controlling prices for any lengthy period. I would go so far as to say that it is utterly impossible to keep prices completely stable by legislation or by any other means visible to me. I saw attempts to do it in war time, when the nation was concentrating on the task of survival. It did not work. For a time it did, and then, bit by bit, there were permitted increases, and eventually the attempt failed. How can we, in a period of changing costs, compel employers to sell their commodities at prices which are irrespective of the cost of production? It seems to me nonsense. To achieve stability of prices for any length of period carries many more concomitants with it: costs have to be kept down; wages and salaries have to be kept down; dividends have to be kept down, and a whole series of interferences with the normal life of the community have to take place.

The Government tried to tackle inflation. I doubt whether any noble Lord would say that over the whole post-war period inflation has not been an evil which ought to be eradicated. The Government have made efforts, knowing the magnitude of the task they are tackling. They used purchase tax and other measures that I need not enumerate, all of which had the inevitable effect of slowing down the economy. How could anybody doubt that these measures would slow down the economy? Yet almost immediately there were complaints that the Government, instead of putting their efforts into expansion, were contracting the economy. Sometimes it makes me wonder. I do not suppose there is any single Chamber in which there is a greater concentration of experience, economic, sociological and whatever it may be, than in your Lordships House. I say that as one who, on the whole, is proud to be here, though I confess that from time to time I have felt a sense of futility at the consequences of any advice I may have given in what I have said in your Lordships' House. But on the Benches opposite there are noble Lords of experience who must look deeply into our problems in the course of their day-to-day work. Can they doubt that it was impossible to avoid the slowing down of the economy?

They talk about expansion, but there are all sorts of corollaries to expansion. Capital investment, as everybody knows, does not consist merely in putting some money into an enterprise. It means a material development—better plant, more effective management and a whole series of things that it takes years to bring about. It is true that the Government can stimulate, but the only idea the Opposition seem to have of stimulating is to reduce direct taxation. That may stimulate one part of the community but, by Jove! it would antagonise another and very important part of the community, and that is a fact we had better take into account.

The Government have tried to stimulate productivity. Probably they have done more in that direction than their predecessors. I will not go into the details, but I have heard of productivity, and of the Government's readiness to assist in promoting productivity, far more frequently than I did before this Government took office. The Government suggest investing in industry, and that is all right. But if the Government want a share of the voting power and of the control of industry, then that is all wrong, according to the spokesmen for the Opposition, not necessarily in this House but elsewhere.

The Government are trying to help the distressed areas and no one can doubt the desirability of doing that. They have tried to combat inflation with the incomes squeeze, by keeping increases in line with national production. In this House I described that as requiring a revolution in collective bargaining, but I do not suppose that anybody had a clue to what I meant. What I meant was a change in the thinking of the average trade unionist, from his conception of bargaining with his individual employer or employers' organisation and seeking as a consequence of pressure to raise wages, looking only at what his own firm was making, to a conception of bargaining with regard to the national prosperity and the increase in productivity. I think that it requires a revolution to do that. It will be years before we get working people to think clearly on this point. I will not pursue that, out of consideration for the time, but I am sure that I am right in the conclusion I reached on that matter.

A little progress has been made—indeed, to my mind quite a lot of progress, though it may appear small in its consequence. The T.U.C., as everyone knows, have taken a responsibility which in my days would have been impossible. They are actually vetting the wages claims of the individual unions, every one of which is an autonomous organisation, which can turn its back on the T.U.C. and get out of it, if it wishes to snatch a temporary advantage. I consider that that required a great deal of courage on the part of the General Council of the T.U.C. We all know of the struggle that took place at the last Congress in Brighton, over which my noble friend Lord Douglass of Cleveland presided. Congress was evenly balanced over this policy: the opposition was almost as great as those in favour. And we must remember that the devastating consequences of abandoning this policy were fully put forward and the consequent loss of support from the Labour Government was as fully portrayed.

I should like the Confederation of British Industry to show as much courage as the General Council of the T.U.C. have shown. I have a high regard for its General Director: I think that he is a man of courage and ability, and I have watched his development with admiration. I think that it would be a striking exhibition of the readiness of the Confederation's members to face their responsibilities if they were to set up machinery for vetting the distribution of profits. I do not say profits themselves—that is a different question. The average trade union official knows perfectly well that there is a difference between a freeze on wages and a freeze on profits. Profits can be put into reserve, and then the gentlemen who calculate take-overs and that sort of thing get busily to work and find out how far the balance sheets really represent the stability and prosperity of the companies concerned. So a freeze on profits is quite a different thing from a freeze on wages. Still, I should like to see the C.B.I. take this first step, as the T.U.C. have done, in vetting the distribution of the amount of dividends which it is proposed to distribute from the profits of individual companies. It would have quite a psychological influence on the thinking of trade unionists.

I do not often speak in your Lordships' House, and I beg the forgiveness of the House for speaking on this subject at such length, as it is one that lies so near to my heart as a measure of prosperity for this country. On the question of unemployment, have we ever asked ourselves what unemployment is? We blame the Government for this pool of unemployment, but is it possible to work the economy without a reserve of unemployment? I say unhesitatingly, No. I do not care whether the economy is completely a collective one, such as in Russia and the satellite States, or whether it is the mixed economy of our own country. I do not believe it can be done. Apparently, Sir Leslie O'Brien, the Governor of the Bank of England, was taken to task because he uttered sentiments of a similar character.

The real problem is how big the pool of unemployed should be; how many people are to be out of work. And remember, my Lords, that it is not always the same people. It is an in-and-out business; some people are only out for a few weeks, while others are out for a considerable time; and quite a number are unemployable. An American, Professor Galbraith (I am not sure whether he is a professor) has written a great deal about this. In an article I remember reading he said something to the effect that we could not have full employment without inflation. I wonder whether that can be challenged? If you have full employment—full in the sense of everybody having a job a position that I do not think is attainable—would it be possible to resist the pressure that would be brought upon employers to raise wages and salaries? I am not entirely convinced, but I think, to say the least, that Professor Galbraith's analysis has a ring of truth.

The real question is how big the pool of unemployment should be. The late Lord Beveridge estimated that 3 per cent. unemployment over the whole country would be, in effect, full employment. We have never reached that figure. In September we had 2.7 per cent. of the working population out of work, while in 1963 we had 2.2 per cent. A different Government were in power in those days, and they did not succeed in achieving the miracle of employing everybody and getting rid of that percentage. I think it is impossible to secure an exact balance between the demands of industry for labour and, on the other side, the availability of labour. I cannot imagine any statistical machine which could regulate that situation.

I know that I am saying many things which will be unpopular, certainly in the trade union movement, but I am saying what I believe. If the facts stated are approximately right, then attention should be turned to that kind of problem, instead of lamenting the fact that we have unemployment. Like a speaker on the Opposition Benches in the House of Commons, I believe it will take years to bring about even a better balance than we have to-day, and it will require a whole battery of measures of one kind or another rather than a single measure.

So, for my part, I believe that the Government are on the right path. But it is not something that they can expect to achieve quickly. I believe that things are on the upturn. The noble Earl, Lord Longford, in his statement to-day has indicated that a turn appears to have been made in an upward direction, and that things are getting better. It should be the job of all of us to try to encourage the confidence which must accompany a sustained upward movement, rather than to denigrate the attempt, and the work of those who are making the attempt, to solve this problem.

7.15 p.m.

LORD BARNBY

My Lords, it has always given me great pleasure over the years when I have had to follow the noble Lord, Lord Citrine, because he always has much to say that is very interesting. It is now a long time ago since we first came into association on a Committee, with the best bi-partisan concord, in dealing with the industrial and economic position of the country. Three days ago I returned from a tour in North America. This always stimulates one to look at the position of one's own country in perhaps a different light from what one would look at it from close quarters. So it is that on reading the gracious Speech I found two sentences which particularly appeal to me. The first was: The principal aim of My Government's policy is the achievement of a strong economy. The second was: … the strength of sterling with a satisfactory growth of output and with full employment. So often on the other side of the Atlantic I was asked: What is the position and the future of sterling? It showed very clearly that the thoughts of others than ourselves (and the question of the future of sterling has been raised in the House to-day) are just as strong.

This debate was initiated from the Opposition Front Bench by my noble friend Lord Erroll of Hale with what I thought was an admirable speech, packed with information and attack, and containing little that was unnecessary to make his point. He was followed by the noble Lord, Lord Byers, who in a strong speech found, curiously enough, that he agreed with almost everything that my noble friend had said, although he enriched his speech with one or two additional suggestions. Then came the gracious smile and galloping insouciance of the noble Earl the Leader of the House, who disposed of everything as airy imagination, and brilliantly attempted to set the minds of those on this side of the House at rest. Alas! some of us were not convinced.

There are three points that I particularly want to raise, and I can assure your Lordships that at this stage of the debate it is not my intention to try the patience of the House. Of course, nothing one can think of now has not already been dealt with; I think that almost every worthwhile point was included in the speech of my noble friend Lord Erroll of Hale. First, I should like to refer to the inadequacy of the depreciation allowances, and the encouragement that an increase would give to the introduction of new equipment to increase our efficiency. Until last year we had the initial allowance and the investment allowances; and then we had the statutory depreciation on the installed equipment, which was on the whole value of the new equipment. Now we have only the investment grant, admittedly increased from 25 per cent. to 45 per cent. in the development areas. That is allowed only in the limited field of the development areas. The advantages of the former allowances have been taken away from all new equipment and concentrated on that in the development areas. Discrimination, it might be said—discouragement to those not in the development areas. And, of course, the whole of it does not attract statutory depreciation allowance until after the deduction of the previous allowance.

The other point I wanted to make was about the Industrial Expansion Bill. There are misgivings about that. First there was the suggestion of compulsion and then of trying to obtain agreement. Surely it is conceded that Ministers should not imagine that they can determine the businesses which should be attacked in the way of their shares being taken over, or—

THE EARL OF LONGFORD

My Lords, may I interrupt the noble Lord for one moment? What is all this about compulsion and an attack on the business? I think the noble Lord must have been misinformed about that.

LORD BARNBY

My Lords, I readily accept the correction of the noble Earl. I used a word very incorrectly in the context, but I was trying to say that it was originally suggested that it would be at the discretion of Ministers to decide which businesses were likely to be good, and which likely to be bad, and therefore with regard to which some action might be taken.

THE EARL OF LONGFORD

My Lords, I am sorry to interrupt, but there has not been any question, so far as I know, of action being taken against the wishes of the businesses concerned.

LORD BARNBY

In due course we shall see the Bill and how it is put. I thank the noble Earl for his assurance about that. In any event, the important thing is that there should be adequate consultation with the Government, between industry and the Government, because the belief now is that in the past consultation has not been as adequate as it should have been.

The main thing we want to seek is some national recovery. I am going to add an emphasis—because there is no time to do more than give headings; to give reasons must be forgone. But there should be further encouragement to export. That is why I listened with such admiration and satisfaction to the speech of the noble Lord, Lord Redmayne, who gave very good reasons and illustrations. I am going to suggest that it might be worth while to consider setting up an independent consultancy organisation to examine the efficiency of Government Departments, particularly the cost effectiveness of equipment and manpower. I would also suggest the initiation of a policy of the gradual reduction of subsidies, and the substitution therefor of direct grants where it can be proved that they are needed. Then I would say that greater effort should be given to find more incentives in all spheres to improve output per person, per machine, and in relation to sterling invested.

I emphasise the question of tax, as many other speakers have done. There was an important and impressive speech from the noble Earl, Lord Cromer, whom we naturally all listened to with the greatest respect. He also dealt with such matters as initial allowances, as well as the various considerations of the future of sterling. There have been many references to reform of the tax system. In these days, when slogans and thoughts are advanced by living people, I am going to close with two thoughts of Abraham Lincoln: You cannot build character and courage by taking away a man's initiative and independence". Again: You cannot help men permanently by doing for them what they could and should do for themselves".

7.26 p.m.

LORD FORBES

My Lords, I apologise for intervening for a moment. A great deal has been said this afternoon about unemployment. May I suggest one aspect about unemployment, and that is that we simply must devise some system of knowing the difference between the unemployable and those who could work but are out of work. Until we can devise that system the unemployment figures mean extremely little. I ask the Government to see whether there is any system that can be devised, so that the unemployment figures really mean something.

LORD RITCHIE-CALDER

My Lords, may I briefly intervene, first of all to compliment my noble friend Lord Douglass of Cleveland on his maiden speech, and also to make an urgent plea to the Leader of the House and the Chief Whip. It is that they should listen very carefully to what the noble Lord, Lord Jackson of Burnley, had to say to-day about our interest in having a really good, hard look at the three Reports which are coming forward: the Dainton Report, on what is not coming out of the schools; the Swan Report, on the loss of scientists; and the Jones Report, on the brain drain. I feel that the springs of our success are drying up and that it is time this House had a very hard look at the position.

7.28 p.m.

EARL JELLICOE

My Lords, we are all grateful to the noble Lord, Lord Erroll of Hale, for opening this debate, and we on these Benches are grateful to him for opening it so well. We have had a great many speakers and I have no intention of singling out all their names, but I would chance my arm by being a little choosy, and chance my arm in the first instance by saying that, like everybody else in your Lordship's House, I not only greatly enjoyed but was deeply impressed by the gracious speech of the noble Lord, Lord Douglass of Cleveland. I should like to single out also two weighty contributions from my noble friends Lord Watkinson and Lord Redmayne and, to show my perfect impartiality, I should like also to say how much I was impressed by speeches from the Cross Benches—three in particular: the speech of the noble Earl, Lord Cromer, from which the Government could not have derived great comfort; that from the noble Lord, Lord Jackson of Burnley, and the speech from the noble Lord, Lord Hankey.

I was a little surprised, if I may say so, by some of the remarks of the noble Lord, Lord Citrine, for whom I have a very great admiration. I assume, of course, that he had intimated to my noble Leader that he was going to pass a number of rather personal judgments on my noble friend's reasoned speech. I shall not comment on those remarks myself, because I think my noble Leader is rather well able to look after himself. All I would say is that I do not think my noble friend really stands in need of either Parliamentary or patriotic guidance from any noble Lord, not even from Lord Citrine.

LORD CITRINE

My Lords, would the noble Earl tell me in what respect I adversely criticised the noble Lord the Leader of the Opposition?

EARL JELLICOE

My Lords, I think the noble Lord will have only to read his speech in Hansard to-morrow morning in order to see for himself. Certainly within my recollection, unless he was proposing to criticise my noble friend I do not see why he was so worried about making these criticisms in his absence.

LORD CITRINE

My Lords, I cannot leave the matter there. I regard the noble Lord, the Leader of the Opposition, as a personal friend, and as a matter of fact my references to him were not made until about a quarter of an hour before I made my speech. I am not accustomed, like so many people, to sitting down and preparing a typed address. I make notes on the occasion of the debate, and when I came into the House and saw the noble Lord, Lord Carrington, sitting on the Front Bench I naturally thought he would be there when I made my remarks. I simply criticised him, as it were, for creating a feeling of no confidence in the Government, and I think that was a perfectly fair comment which could not be resented.

EARL JELLICOE

My Lords, I am not resenting it. I was only referring to the criticisms which the noble Lord made, and which he now admits to having made. But if my noble friend—or indeed any of us—thinks that the Government are wrong, surely it is not only our right but also our duty to say so, and I really cannot see that my noble friend stands in need of criticism for having done just that. However, I do not wish to detain your Lordships on that point.

Apart from that, I should just like to say that I was disappointed by the speech of the noble Earl the Leader of the House. It seemed to me to be extraordinarily complacent. I frankly think that we are in a bad way economically at present: so does most informed opinion, so does the rest of the world, but not, apparently, the noble Earl, Lord Longford.

LORD BESWICK

Or the Financial Times.

EARL JELLICOE

Or the Financial Times, if the noble Lord wishes to put that gloss upon the Financial Times's argument, but I think that can be allowed to speak for itself. In any event, my noble friend and those who have followed him have, I think, disclosed a fairly sombre picture. Just over three years ago the Labour Party produced their prospectus for the 1964 General Election. We are told that it owed a lot to the skilful pen of an able young economist, a Mr. Peter Shore. In it we read: We want full employment, a faster rate of industrial expansion, a sensible distribution of industry throughout the country … and a solution to our balance of payments problem. Of course we were told that not only did we want these things, but that under a Labour Government we should get them. I assume that the new Secretary of State for Economic Affairs would agree that these blessings, for one reason or another, are still mysteriously denied us, despite the intervention of a Socialist Providence. The blessing of full employment to which we had grown perhaps over-accustomed in the period from the mid-'40's to the mid-'60's somehow has been denied us. Indeed unemployment is higher than it has been for 27 years and in the winter, especially if the weather is unkind, we are told that to- day's army of 550,000 or so unemployed wall escalate all too easily to 750,000.

THE EARL OF LONGFORD

My Lords, I am sure the noble Earl does not want to go on record as saying something which is wrong. I think I know what he means, but in fact his actual remark was wrong. Unemployment has been higher than it is now. I think he was trying to say that it is higher now than it has been at this time of year for a long time.

EARL JELLICOE

My Lords, I am grateful to the noble Earl for his correction, but in any case we see these sad figures and these fairly foreboding forecasts, and we also see that the Government have been reduced to a number of rather pathetic palliatives, like keeping uneconomic pits open. Also, if I may say so, I thought the noble Earl the Leader of the House was rather unfair in his comments on what the noble Lord, Lord Byers, said. Indeed, I think the general tenor of what the noble Lord, Lord Byers, said was supported by the remarks of the noble Lord, Lord Douglass of Cleveland.

In any event, in his speech to the Anglo-Argentine Chamber of Commerce on October 5, the Governor of the Bank of England, Sir Leslie O'Brien, said—and we are familiar with his remarks— We are determined in principle to keep what we regard as a desirable margin of spare capacity. I think we are entitled to know whether this represents Government policy and what, broadly speaking, in terms of unemployment, the Government regard as a desirable margin of capacity.

Secondly, the blessing of expansion, too, has somehow mysteriously eluded us these last three years. Industrial production is, I think, only a point higher than it was in January, 1965. Investment in the private sector has fallen; it is relatively far lower in this country than in rather similar advanced industrial countries, like Japan or Western Germany. Moreover, even if things pick up and we achieve the Government's present rather unadventurous target of a 3 per cent. growth rate between now and 1970, we shall secure an overall increase in the six years between 1964 and 1970 of only just under 15 per cent. Contrast that with the 25 per cent. increase in gross national product foreseen in Mr. Brown's National Plan. Perhaps in the lingo of our present rulers we should now regard that estimate as "off the record and no longer attributable". Let us contrast it with the 25 per cent. growth rate in fact achieved, and very much on the record, in the last six years of the Conservative Administration. These figures sound flat and featureless, yet the shortfall in the growth of our national wealth between what the Government once hoped to achieve and what they now hope to achieve amounts to nearly £10,000 million, or the equivalent of five Defence budgets. That is the measure of the curtailment of our rising expectations—expectations which, under another Administration, would have been reasonable and legitimate.

What about the other blessings held out to us on the tip of young Mr. Shore's pen?—if it was his pen. A sensible distribution of industry. Of course we all want that, but it would hardly seem that with unemployment running now, I think, at a rate of around 3.7 per cent. in Scotland and Wales, and around 7.5 per cent. in Northern Ireland, compared with the overall national figure of some 2.7 per cent., we can say that this has yet been achieved. What, then of the final blessing—a solution to our balance of payments problem? Like most of the blessings which the present Government was to shower upon us, it is a blessing still unshowered.

I certainly do not wish to minimise what has been achieved in the last three years. I would readily grant that at a price—a high price in terms of broken pledges to our trading partners in the curtailment of what, in the long term, would be profitable investment abroad (and I have echoing in my mind what my noble friend Lord Watkinson said about investment in Australia) and above all in fierce deflation—a substantial improvement has been achieved. But I fear I cannot begin to concede that the Government have yet begun to find a lasting solution to our balance of payments problem. I wish they had, but many of the overt trends to-day are disquieting. We saw the disquieting trade returns for September, and we await with interest and concern those for October.

But the deeper trends are possibly more disquieting. Much of the improvement in our current account, some two- thirds, is due to luck, or rather the improved terms of international trade, which are none of our making. True, our exports are relatively buoyant at present, but they are flooding upwards on a rising tide of world trade and our exports are, significantly, not expanding at the pace of some of our greatest competitors and those closest to us in scale—competitors like Japan and Western Germany.

The noble Earl, Lord Cromer, referred to the recent report of the European Commission on the British application. I should only like in this context to single out two of the sentences from that Report, and they read as follows. They are probably familiar to some noble Lords: Thus a familiar and ominous pattern is being reproduced: payments difficulties due at least in part to inadequate expansion of productive capacity have again forced the authorities to pursue a policy, one effect of which has been to jeopardise expansion in the longer term and so to strengthen the propensity to import. Unless means of resolving the dilemma are found, this cause-and-effect sequence harbours in itself the seeds of future crises. I think those are words worth pondering.

Then there is the London and Cambridge Economic Bulletin for October, and that draws two rather pessimistic conclusions from its analysis of the balance of payments: the first that our competitive position is deteriorating in world markets at the very moment when some of us are patting ourselves on the back, I think with some reason, about increased productivity; and the second conclusion is that, despite hopes now twice deferred—I quote this— there will certainly In a deficit on current account in 1967, for the fourth year in succession". I would just put that gloss on what I felt was Lord Longford's undue complacency.

We are of course all too familiar with "Stop-Go". But there is one unique feature about the present Government's variant of the policy to which I think I must draw your Lordships' attention. In the past when we have run into balance-of-payments difficulties deflation, the holding back of internal demand, has relatively quickly caused an easement of the external position; it has led to a strengthening of the balance of payments and a strengthening of the pound. But now, after the most drastic dose of deflation any of us or most of us have ever experienced, our payments position is still under threat and the pound is still under pressure. This is the first time, almost I think within living memory, that all the economic signals, production, unemployment, the bank rate, the balance of payments and the pound, together have been either at amber or at red. I can almost hear the denunciations and the jeremiads which noble Lords opposite would have launched upon us had we allowed such a mess to develop. Such strictures would have been justified, as ours to-day are justified, because the failure of the Government to find a solution to our economic problems can undermine our confidence in ourselves and the confidence of others in us.

It means the deferment of many things we need—much of our industrial infrastructure needs modernising—and the many projects which will help to make our country a more pleasant and civilised place to live in. It means, or could mean, the sapping of our national self-confidence. There is one example of that which has been referred to, very rightly, in your Lordships' House a good deal to-day, and that is the brain drain. I would say here that I should like very strongly to lend my support to those noble Lords who have asked for an early debate on that and related problems. All I would say is that I am convinced that, apart from the technical reasons—the take-home pay and the rest of it, which may be one of the main factors behind the brain drain—I personally believe it is to some extent a reflection in the minds of many of our brighter younger people of lack of confidence in the prospects of our economy.

Above all, these doubts are undermining our position abroad. It makes me sick—and I use these words advisedly—to read of a Gaullist spokesman being able to describe this country as the "sick man of Europe". It makes me sick if only because there is somewhere there an unpleasant, albeit small, kernel of truth behind this malignant criticism. What worries me is the Government's reaction to their failures in economic policy. They present us with alibis—the mess they have inherited, the little time they have had to clear it up. I am sick and tired, and I believe the country is sick and tired, of these alibis, and I was sad that the noble Earl the Leader of the House stooped to using those alibis to-day.

THE EARL OF LONGFORD

My Lords, is one not to be allowed to mention the mess we were left with? Is that to be a forbidden subject in future?

EARL JELLICOE

My Lords, I do not think it was a mess. We can argue it again. But it comes up parrot-like on every occasion. They present us also with gimmicks. The latest is the Prime Minister's decision to take over the Department of Economic Affairs himself. Some years ago I remember reading these words, and I make no apology for using them again. They were quoted recently again in the House of Commons: As if the economic outlook were not black enough with all the figures I have given we have the Prime Minister descending from the misty stratosphere where he has been disporting himself with such singularily little effect and taking charge once again, as he did in 1956, of our economic affairs."—[OFFICIAL, REPORT (Commons), col. 329, 7/2/61.] Those words were spoken by Mr. Harold Wilson in 1961 of Mr. Macmillan. The cap fits. It is a perfect fit, by hatter Wilson, for Mr. Wilson in 1967.

However, the Government have not presented us with a coherent and rational national economic policy. I do not think that this is because noble Lords opposite or their colleagues in another place are doctrinaire Socialists, red in tooth and claw. I think I would accent the dictum of the same Professor Galbraith as the noble Lord, Lord Citrine, referred to, that Socialism has come to mean Government by Socialists who have learnt that Socialism, as anciently understood, is impracticable. I honestly believe that the Prime Minister and his fellow pragmatists genuinely accent the mixed economy. The trouble is that they have so little idea how to make it tick. I believe one thing that is absolutely essential in a mixed economy, if one is going to get it ticking, is sound and economical strategic planning, and this implies a clear-cut decision to limit the area of interference by the Government; and within that defined and demarcated area it then calls for clear-cut and far-sighted decisions, and firm ones too. What we need is planning without interference. What we tend to get from the present Government is interference without planning.

I had hoped that, faced with the present economic crunch and the possible economic crunch to come, the Government might have decided that enough was enough. I had looked—and here I am exposing myself, I know, to a shaft from the noble Lord, Lord Citrine—for some sign of change of attitude in the gracious Speech. But I have searched the Queen's Speech for such a change of attitude and I have found none. Most of what is proposed in the economic sphere seems to me pretty irrelevant to our present economic difficulties, and what is not irrelevant seems to me to be positively harmful. I can see virtually nothing that will lead to the restoration of the twin essentials, confidence at home and confidence abroad.

A number of questions of relative detail have been put to noble Lords opposite. I should like to add three, if I may, which arise directly from the gracious Speech. First, can the noble Lord tell us when the Government expect to receive the Report of the Royal Commission on the Trade Unions and Trade Associations? Secondly, can he tell us anything more about the purpose behind the proposal for a National Loans Fund? Thirdly, are references in the gracious Speech to the Council for Scientific Policy and to international scientific exchanges for Europe really meaningful, or have they been inserted just for effect?

Next, I should like to reinforce a number of specific pleas which have been voiced in your Lordships' House to-day. I hope that the noble Lord, when he replies, will be able to tell us rather more about the Government's plans for industrial training and re-training. In my belief, they are inadequate by any standard. Certainly they are inadequate by the yardstick of unused capacity which the Government are apparently now adopting. I think that by last month we had some 38 re-training centres in this country, with a capacity of some 12,000 trainees a year. We on these Benches hold that we need to set ourselves a minimum target of at least 100,000 places a year for re-training and redeployment. Can the noble Lord tell us that this often rather immodest Government intend to raise their rather modest targets in this most crucial area?

Finally, there is the whole question of our invisible exports—a complex range of interconnected services on which we have just had the most valuable Report (to which the noble Viscount, Lord Watkinson, and my noble friend Lord Redmayne among others referred) from the Committee on invisible exports. I believe that that Report has broken a lot of new ground, and has proved to be most valuable. It truly states that this country is as much a commercial and a financial nation as a manufacturing nation. A glance at the figures shows this. It is quite remarkable that, last year, for example, our invisible receipts were not much under £3,000 million while our visible exports and our re-exports were just over £5,000 million. This is a most remarkable and significant figure, and I am certain that this is an area of really vital concern on which your Lordships' attention should be focused at an early date, and more fully focused than it has been to-day.

Meanwhile, I hope that the Government will at least bear in mind three things which the Committee had to say and which struck me particularly. I hope that they will note what the Committee have to say about the Government's "belated and marginal" help to our tourist industry. I hope that they will ponder on what the Committee had to say about S.E.T. It seemed to me that the Report effectively knocked the bottom out of the Government's case for this tax. I hope, too—and this is less controversial—that they will carefully consider the Committee's recommendation that some permanent organisation should be responsible for keeping continued watch on this whole field of invisibles. I believe this to be an important recommendation, and I hope that it will not get lost in the wash.

I shall be surprised if the noble Lord when he comes to reply can give me much satisfaction on this point, or, indeed, on other points. To do so would imply that this Government have a real long-term economic strategy. I personally, along with the noble Lord, Lord Byers, am inclined to doubt this. If they have, the strategy is certainly not evident from the gracious Speech.

But I do not for one moment delude myself that the Government do not possess a long-term electoral strategy. This strategy was revealed, quite unintentionally I assume, on television the other day, when that personable young Secretary of State, Mr. Shore, was explaining away, as only professional politicians can do, the latest series of by-election disasters—disasters so far as the Government are concerned.

He tried to brush it all off with the remark that things may be a little rough now but that "the test will come in the next two or three years." Exactly. Clearly the Government hope to be able to reinflate at the right psychological moment before the next General Election. Clearly, the Prime Minister, that nimble navigator, who has been blown so often off so many courses, hopes to be able to pick up a favourable trade wind at a favourable moment. The only trouble is that at present he has little idea where to look for that fair breeze.

But I should hope that, just for once, the Prime Minister could put aside electoral calculations. We are faced with a deep crisis of confidence both at home and abroad. I see no point in denying that fact. That crisis of confidence stems primarily from the Government's real failure to create the economic climate in which this country can really go forward. I do not minimise the difficulties, and I do not wish to place all the blame on the Government. We all know the difficulties, and we all know that a great many of them are of long standing. We are too well aware of them. But let us not be mesmerised by these difficulties. Let us not minimise the immense resources of human energy and skill which this country contains. Let us not minimise, either, the good will on which we can count abroad—yes, from those much abused "Gnomes", among others. I trust that the Government will be able, for once, to rise to the level of events and to the economic challenges that confront us all. But I must confess that I am not particularly optimistic.

7.57 p.m.

LORD BESWICK

My Lords, I must first add my congratulations to those so warmly and so well-deservedly offered to my noble friend Lord Douglass of Cleveland on his maiden speech. The noble Lord comes to this House with a record of courageous effort in industry. I think that his speech not only reflected his experience in the useful world and the practical world outside, but it gave us an indication of considerable pleasure in the future when he comes along here to make a really controversial speech.

The debate has gone along predictable lines. Britain is going through a critical phase in what is, we must all accept, a long process of readjustment to a changing world. There are opportunities for scoring Party political points in a critical phase of this kind. I must say that I thought the noble Lord, Lord Erroll of Hale, fell rather easily into that temptation. I am sorry, too, that the noble Earl, Lord Jellicoe, in winding up, also found it difficult to avoid some of those temptations. The remark he made about having a deficit in each of the last four years, and counting that as a criticism of the present Government, must surely rank as one of the most audacious statements that have been made in this or any other debate.

To the noble Viscount, Lord Watkinson, I would say this. There have been in this debate, apart from the Party criticisms, a number of good, practical, constructive suggestions, and I say on behalf of the Government that they will be considered in the spirit in which he and others offered them to us. As for the Conservative proposals which have been put to us for curing our present economic ills, I should have been much more impressed by the confident way in which they were put forward, particularly by the noble Lord, Lord Erroll of Hale, if I could have recalled that those same Conservative proposals had been conspicuously more successful in the thirteen years in which the Conservative Government had control of our economic affairs. I think that even the best of the Conservative Party must agree that in the thirteen years of office they did not quite succeed in solving our balance of payments problem. I get no satisfaction at all from that; nor from making excuses.

But, my Lords, I think two points can fairly be made about our efforts since 1964. First, there can be no short cut to the economy we all want—an economy which can permanently eliminate our balance of payments trouble. Secondly, though, there can be no short-term solutions, there have been a number of temporary causes. Although both the noble Lord, Lord Erroll of Hale, and the noble Earl, Lord Jellicoe, thought fit to refer to the fact that the terms of trade have been favourable to us in the last year or two, I should not have thought that even they could say that such matters as Rhodesia, the dock strikes, the Middle East upheaval, and the recession on the Continent and in North America were entirely the fault of the present Administration.

The truth is that when one looks at what British industry, and especially our export industries, have done in the last three or four years in the face of these obstacles, we have, in fact, very good and sound reasons for future confidence. When I say that, I exclude the efforts of the Government, blameworthy or creditworthy. I am saying that as a tribute to those in industry who have contrived to reach the export figures that we have seen over the last four years. I am glad in this respect to add my word of appreciation to those of the noble Viscount, Lord Watkinson, on the efforts of the British National Export Council.

The noble Lord, Lord Hankey, asked, in particular, what had been done by the present Government specifically to help exports. I do not propose to go in detail into any of these matters, but if I were to do so I should have to refer to the export rebate scheme, the improvements to the Export Credits Guarantee services, the work of the British National Export Council, the Trade Mission Scheme, the Collective Market Research Scheme, assistance for trade directories and buyers' guides, improvements in assistance given to industry at overseas trade fairs, British Weeks and store promotions, the publication of the Simpler Export Documents booklet, the British Overseas Engineering Services Bureau, the British Standards Institution's Technical Help to Exporters Scheme, the Queen's Award to Industry, the Export Marketing Partnerships, the Overseas Marketing Corporation and so on.

There have been a number of good, solid, practical exercises in assistance to exporters for which I should have thought some credit could be given. But I want to show primarily something of the Gov- ernment's long-term strategy as a selective way of meeting the longstanding need for re-structuring our industry. I want to give some indication and examples of what we are doing to expand production capacity, to encourage technological innovation and towards using existing capacity more fully and effectively. In all this I agree with my noble friend Lord Douglass of Cleveland and with the noble Viscount, Lord Watkinson, that we shall need the cooperation of both sides of industry together with the "Neddies" and the Regional Economic Planning Councils.

The noble Earl, Lord Cromer, and others, insisted that we have done nothing relevant to help industry to encourage technological advance. One example of what we have done has been in the development of the computer industry. Under the Advanced Computer Techniques Project, 27 development contracts have been negotiated with industry, at a total cost of £1½ million, of which the Government pay half. The National Research and Development Council is helping commercial firms to develop and try computer equipment. We have set up the National Computing Centre and the Computer Advisory Service. The machine tool industry affords another example of development assisted by the Government. The pre-production order scheme assures the maker of a market for advanced designs of machines and encourages the user to try them without undue risk. The funds available for this scheme have this year been increased from £1 million to £6 million. Assistance is being given in these two cases because significant benefits to the economy can be foreseen, even though the short-term returns to the companies concerned do not justify them in proceeding alone. The Government believe that further initiatives of this kind are needed, in partnership with industry, and it is for this purpose that we propose to introduce the Industrial Expansion Bill.

I was asked questions about the Bill. It will have two principal objects—and they will not include the two rather subversive objects which the noble Earl, Lord Cromer, and I think the noble Lord, Lord Erroll of Hale, had in mind. The first object will be to put British industry in the van of modern technological developments, because there the growth prospects are brightest. The second object is to encourage key sectors of the economy to invest at a higher rate than in the past, and thus to increase productivity, reduce unit costs and improve competitive ability. There is no question here of compulsion, and for the noble Lord, Lord Erroll of Hale, to talk about pouring money down unwilling or undeserving throats is really rather silly.

A specific example of what can be done is the decision to authorise Generating Boards in selected cases to make contracts on special terms for the supply of power to electricity-intensive industries. This will help the introduction or expansion of industries in cases where power costs are critical and where large demand can be foreseen at a particular plant for a long period. The first intended application of these arrangements is the establishment of a new aluminium smelting capacity. Those to whom these special terms are offered will be asked to provide finance to cover the capital costs of the power capacity and the cost of transmission, and to enter into a long-term contract for a fixed off-take of power. In return a block of modern generating capacity will be earmarked for them additional to normal system requirements.

It is to make possible prompt and flexible Government action of this kind that powers under the Industrial Expansion Bill are being sought. The legislation will not confer compulsory powers, and it would be contrary to the Government's proposals for partnership with private industry to attempt to compel firms to attempt to secure such powers.

I turn now to deal with the Industrial Reorganisation Corporation, which has been criticised with reference to the current activities of the electrical engineering industry. The I.R.C. has an important role in our strategy to strengthen the industrial structure of the country. Nothing was said, in the selective kind of debating we had from some noble Lords opposite, about the initiative which resulted in the merger between English Electric and Elliott Automation, which I.R.C. funds helped to promote. It would have been interesting to know whether or not Lord Erroll of Hale agreed with that initiative. There was also the I.R.C. investment, at the Government's request, of about £3 million in Rootes in order to maintain a British stake in that company. I should like to know from Lord Erroll of Hale, whether, in making his selective criticisms, he agreed with that initiative or not. The Corporation is working on several other projects, and the Government wish to see its facilities used to the full. There has also been action to merge industrial units and achieve economies of scale in aircraft and shipbuilding. In aircraft, the two aero-engine groups have come together through the acquisition of Bristol Siddeley by Rolls Royce. I doubt whether any British product stands higher in public and world esteem than aero engines. Negotiations are now proceeding on a merger of the two main airframe groups, as recommended by the Plowden Report.

I accept the point which the noble Viscount, Lord Watkinson, made about the next five years in the aircraft industry but, having with him some knowledge of this industry in the past, I think he would agree with me that the prophets of gloom there have not always been proven correct. As a matter of fact, when for twenty years to my certain knowledge the prophets have said that the industry was dying, last year, for the first time, the industry exported more than £200 million worth of its products.

The noble Viscount was asking me about the future of the Concord. I agree with him about the value of this to our general technological know-how, and I think I can do no better than quote to him what the Minister of State for Technology said in another place on October 24. He said then: There are many unavoidable uncertainties in an advanced project of this kind"— and, remembering as I do some of the things which the noble Viscount said about the comparatively small difficulties we had with the engines for the Britannia, he would agree about these uncertainties. The Minister went on to say: But far from abandoning the project everything possible is being done to make it a siccess."—[OFFICIAL RFPORT, (Commons) 24/10/67, col. 419.] In shipbuilding, too, there is an encouraging tale to tell. The Bill which we recently discussed in this House and passed brought together existing yards on the Tyne, the Upper Clyde and the Lower Clyde into three large new groups. This is the sort of thing we want. This is the sort of thing which I should have thought the noble Earl, Lord Cromer, ought to have in mind when he asked whether we are doing anything practical and useful to help the economic structure of this country. Exports from the shipyards should be at a record level this year, and I doubt whether, without recent reorganisation, the Tyne would now be looking forward to building the biggest tankers ever to be laid down in British yards. And, speaking of shipyards, I think one ought to pay tribute to the pioneering of new management and productivity techniques at Fairfields, now owned, as the House will know, by a financial partnership of Government, private enterprise and the trade unions. The noble Earl shakes his head, but I am not sure why. Does he not think that it is a good thing to get Government, trade unions and private industry to work together in a partnership of this kind?

On the question of labour relations, I hope that when readers come to look at Hansard they will compare particularly what the noble Lord, Lord Erroll of Hale, said on this subject with the remarks made by the noble Lord, Lord Citrine. The noble Lord, Lord Erroll of Hale, made the remark in passing: why is it that labour troubles are so much worse under a Labour Government? Nothing illustrated more the falseness of the whole of his criticism in the speech which he had to make. As a matter of fact, labour troubles in 1966 were less than in any of the last six years of which I have records before me. The number of strikes was lower than at any time in the whole of those six years, and yet he comes to this House, makes a remark of that kind and passes it off as an indication of the bad state to which we have sunk.

Several noble Lords have spoken of the need to increase the rate of investment throughout private industry. The Government agree with this. They support the work of the Economic Development Committees because they agree with this. The corporation tax is intended to encourage companies to plough back earnings. As the noble Lord, Lord Barnby, said, cash grants towards the cost of investment in plant and machinery in manufacturing and construction industry are being paid at the rate of 25 per cent. until the end of 1968, and at 20 per cent. after that. In development areas the rates are 45 per cent. and 40 per cent. after 1968. The fall in manufacturing investment, contrary to what has been said by some noble Lords, will in fact be much smaller than was feared, and all the evidence suggests that in 1968 it will be rising again.

I was asked by the noble Earl, Lord Jellicoe, about Government training and re-training schemes. I doubt whether sufficient is known about what has been done in this field. By the end of next year the annual output of skilled trainees in the Government training centres will be something like two and a half times the output of 1964, 17,000 men a year as against 7,000, and a further extension was announced last month. The Industrial Training Boards are rapidly expanding their activities. Their training levies are producing something like £120 million a year to be distributed in grants to firms; and the engineering industries alone had 300,000 men in training in October, 1965. I should have thought this was something to which the noble Earl might have paid tribute, if only in passing, in course of his speech.

I absolutely agree with what the noble Lord, Lord Hankey, said about the need for extra help for the development areas. This is one way of getting expansion without inflation. In this respect this Government have a record that is infinitely superior to that of their predecessors, and this Government are producing results. The investment grant at a 20 per cent. higher rate in development areas is only one way of helping. Others include building grants at 25 per cent. (exceptionally 35 per cent.); the programme of advance factories has now resulted in 103 new factories planned in the development areas; the bringing forward of £20 million worth of public works to relieve winter unemployment; and the Regional Employment Premium at 30s. a week for men will also have an effect in the development areas. The addition of this payment to existing measures roughly doubles special Government assistance to the development areas. It is now running at the rate of £200 million a year.

This massive programme of assistance is, as I have said, showing results. The development areas' share of all approvals of industrial development certificates is running at over one-third of the total issued in the country. In the whole of 1963, I.D.C.s were given for 12 million square feet in these areas. The figure for the first half of 1967 alone was over 15 million square feet, and the signs now multiply that these measures are making an impact on unemployment. After July, 1966, the proportionate increase in unemployment was much less in the development areas than in the rest of the country, and these areas are now sharing the general improvement in the economy to which my noble friend Lord Longford rightly referred.

Unemployment in Scotland is high enough in all conscience, but the rate to-day is 3.8 per cent., compared with 4.6 per cent. in February. 1963. Taking Scotland, Wales and the Northern Region together, the seasonally adjusted figures fell from 4.1 per cent. in August to 3.9 per cent. in October, and the disparity in the rates between the development areas and elsewhere is now being reduced. Throughout the present economic cycle unemployment in the development areas as a whole has remained well below the peak of 4.4 per cent. reached in February, 1963.

Noble Lords did not like my noble friend quoting the Financial Times, but because I have mentioned Scotland I think it is relevant to say what the noble Viscount, Lord Weir, who cannot be described as a Socialist, had to say in an article in Monday's Financial Times. He said: To begin with, Scotland's economy is not at all stagnant compared with Britain as a whole. On the contrary, industrial growth in Scotland has been remarkably rapid in recent years especially in the modern, science-based manufacturing industries, which are developing in profusion. The outlook there gives reason for the kind of confidence which my noble friend Lord Longford expressed. Naturally we want a further reduction in the disparity between these areas and the rest of the country, but at least it is encouraging to see that things are now moving in the right direction.

The noble Viscount, Lord Watkinson, spoke about investment overseas, and especially in Europe. My noble friend Lord Champion also spoke about the need to increase investment overseas. What was said about Europe by the noble Viscount, Lord Watkinson, was logical enough, but if we are going to invest a surplus overseas I should have thought that, as Mrs. Beeton might have said, we first have to get our surplus—and that, of course, at the moment, is something we have not got. But I can say, as the noble Viscount will know, that it is possible for companies who wish to develop overseas to do so on capital which they can raise overseas, and a number of them are already doing precisely that.

I was very glad that, after speaking about Europe, the noble Viscount went on to speak about the growth prospects of Australia. My own view—and I have followed this fairly closely for a period of time—is that many of the people in Australia tend to pay extra attention to the pessimistic remarks that are made in this country and too little to what is said by those who feel strongly about the need to retain the connection between Australia and this country. The fact of the matter, of course, is that last year our exports to Australia went up, as did their exports to us, and they have been going up over recent years. Nevertheless, the percentages do give us reason for concern, and I will certainly see that what was said by the noble Viscount is called to the attention of those immediately concerned.

The noble Lord, Lord Jackson of Burnley, made a persuasive case, and was supported by my noble friend Lord Ritchie-Calder, for a debate on the Dainton, Swan and Jones Reports. With my other hat on, I can give an undertaking that I will certainly consider very carefully what they said. The noble Lord, Lord Hankey, asked what we were doing to help exports, and I think I have given some indication of the practical assistance that has been given. The noble Lord, Lord Redmayne, and the noble Viscount, Lord Watkinson, spoke about the Bland Report, and I am very glad that they did. I agree with them, and the Government agree, that the facts of the buoyancy of our invisible earnings are not fully or properly appreciated. Our invisible credits in 1966 totalled £2,890 million, and the earnings on a net basis have averaged over £167 million a year over the past five years. All I can say at this stage is that the Government are giving the recommendations of the Bland Report the most careful consideration; and, again, I will certainly ensure that what has been said this evening is taken into account during that consideration.

The noble Lord, Lord Hankey, and the noble Earl, Lord Jellicoe, asked me about the Donovan Commission and when we are likely to see the results of their labours. I understand that the veil will be lifted in the spring of next year. The third of the noble Earl's particular questions was whether I could say that a passage in the gracious Speech was meaningful. I really cannot think that he would expect me to say, "No". The noble Earl, Lord Cromer—and I am very pleased to see that he has returned to hear me say what I am going to say—made one point on which I should like, in concluding, to comment. He regretted, as I understood him, that we had not restricted social services as part of our recovery plans—and this plea, or this suggestion, was in a debate in which so much has been spoken about the need for incentives.

My Lords, it is not only the top people who need incentives. I am glad that we have improved our social services. I am glad that if a man is thrown out of work his lot is not so difficult to bear as it used to be. I am glad that, for all our difficulties, we are this year spending £97 million on new hospitals and are building 600 new schools. I am glad that, for the first time, we now have 500,000 houses under construction. All this must be an incentive to all of us who want a decent and just society—and that, after all, must be the primary purpose of economic advance. I agree with those who have decried complacency; but I agree, too, with those who say that, together, all sections of our community have done much in the last few years of which we can be proud and which should give us some source of satisfaction when we regard the future.

LORD REDMAYNE

My Lords, before the noble Lord resumes his seat, may I ask him whether he is going to say anything about the export effort of the distributive trades—a point of which I gave him notice, at the request of somebody in his office, about four days ago?

LORD BESWICK

My Lords, I am sorry I am not able to do that, bat I will write to the noble Lord and let him have an answer to that particular question.

EARL JELLICOE

My Lords, on behalf of my noble friend Lord Brooke of Cumnor I beg to move that this debate be now adjourned until to-morrow.

Moved, That the debate be now adjourned until to-morrow.—(Earl Jellicoe.)

Moved accordingly, and, on Question, Motion agreed to.