HL Deb 26 November 1974 vol 354 cc1241-61

3.1 p.m.

VISCOUNT WATKINSON rose to call attention to the economic situation, with particular reference to the problems of business and industry; and to move for Papers. The noble Viscount said: My Lords, I beg to move the Motion that stands in my name on the Order Paper. I feel that I owe your Lordships something of an apology for bobbing up at the Dispatch Box, but I assure your Lordships that this very temporary elevation will not divert me from trying to do my Back-Benchers' job by simply setting out the facts as I see them, particularly those concerning industry. They are not very comfortable facts for any of us, whatever job we may do.

I believe that our nation at this time may well be committed to what one might describe as Operation Industrial Survival. If we fail in industry to keep costs down and exports up then everyone will suffer. If we are to succeed, I believe that not only industry but the whole nation must be given a clearer and more decisive lead. We need less doomwatch, particularly of the Hudson Report variety, and more incentive to fight back and win. However, it is difficult to fight back unless one knows what one is fighting for. That is why the genius of the British people for fighting back and winning the last decisive battle is, I believe, not being properly harnessed at this time. Too many people whose earnings are ahead of inflation still would say to-day, "If this is a crisis, then let it continue." Somehow the all-embracing requirement to contain the inflation that is ruining us all has to be spelt out in terms which are applicable to the ordinary citizen. He is simply confused by political dialectic or higher economic theory or, indeed, by the kind of doom-watch report of doom and gloom that we have too much of at this time. This task has to be performed not only in Parliament but on the floor of the shop as well.

May I mention one example of the kind of thing that should be hammered home: the fact, for example, that if inflation continues at its present rate of 20 per cent. the value of occupational pension schemes, in which over 13 million people, including most trade unionists, have invested their savings, will be almost totally destroyed. So in this way, as in so many other ways, we arc all in it together and we all sink or swim together. We may be divided in dogma in this House and elsewhere, but I hope that at least we all share a sense of self-preservation because we shall need it.

So I hope we will all play our part in trying to make the facts clear. I also hope that, with the help of the media, we could at least establish the priorities for industrial survival. We may well not agree on the solutions, but it would be a step forward at least to define the objectives which have to be achieved. The priorities which I want to suggest to your Lordships for national survival require success in the following areas: in maintaining employment; in increasing investment; in increasing exports, and in increasing output per head. It seems clear to me that if we could do what is necessary to secure these objectives we should in the process lay the right foundation for containing inflation and, in due course, for securing balanced growth again.

I should like to examine our economic situation in the light of these priorities. Perhaps there is now a wider acceptance than there was that they all require an adequate level of profits and an adequate level of confidence in industry, because prosperity without profitability and industrial confidence is impossible. Looking back, it is clear to-day that the March Budget misjudged the economic situation. Thus the November Budget was a much more difficult task than it need have been and for this reason I fear that it may not provide an adequate answer in terms of the requirements which I have outlined. We shall, after all, as all your Lordships know, start the New Year with an upward trend in unemployment, little or no growth in output, and a low ebb in industrial confidence due to the lack of cash-flow and profits. Therefore—and this is the most vital point—almost every company I know of is cutting back its investment programme as hard and as fast as it can. To put some figures to it, we could end this year with much nearer a million unemployed, with a balance-of-payments deficit of some £4,000 million, and the lowest ever trading profits in industry.

Since I shall be saying a good deal about profit I wonder whether we could at least agree that in practical terms it is neither a magic word nor a dirty one but just the way in which cash has to be generated in order to run a business. Certainly the trade unionists in my own company understand it that way. Perhaps we might also remember that the profits of free enterprise provide three out of four of all the jobs in Britain. For a moment, to look at cash rather than profit it is perhaps even more illustrative of the problems which we face. The net liquidity position of industrial and commercial companies—that is to say, liquid assets less bank advances—has declined from minus £2,000 million at the end of 1972 to minus £4,000 million at the end of 1973; in other words, the adverse cash position of industry has doubled in 12 months, and it is still becoming worse. So it is fair to say that the patient was fairly sick even when the Chancellor of the Exchequer put him on the operating table last March; one now has to examine the kind of blood transfusion that it is claimed he has been given in the November Budget.

I must say at once that there can be no question of the Government's giving a subsidy or a gift of money to industry in any of the matters which we are discussing. What we are discussing is allowing industry to keep a tolerable percentage of the cash that it earns. We are dealing with the remission of excessive industrial taxation, and nothing else. It is sad that the Chancellor, for reasons which are certainly not clear to me, opted for complicated rather than simple solutions. Action on the repayment of advance corporation tax, for example, would have been much easier and much more understandable; and some of the failure of industry to react in a positive way to the Budget flows from this misunderstanding.

For example, it would be helpful if the Government would make it plain that their stock adjustment proposals in the Budget are not only applicable to the financial year 1973–74 but could be taken account of now for the tax year 1975–76 in companies' forward planning. The Chancellor said, as I understand it, that the need would be greater this year, but I do not believe that there is at the moment a bankable assurance covering the next tax year. It would do much to help confidence in industry if that assurance could be given now and if some elucidation could be given of what the Chancellor said on that subject in his speech, at column 265 of Hansard. It would also be helpful if the Government would make plain what their future intentions are on this whole question of inflation accounting. For example, does their decision to accept the effect of inflation on stock appreciation mean that they now accept the principles of inflation accounting and will thus act swiftly on the proposals of the Sandilands Committee when they receive them, I hope fairly shortly? Again, this would help industry to obtain a clearer view, because it is vital to our future planning.

Regarding the various proposals which were set out in the White Paper Review of the Price Code, industry is faced with a Consultative Document, not a definitive Order at this stage. The Government, for reasons of their own, appear to have opted for the most complicated kind of solution. The simple action to have taken, for example, would have been to sweep away altogether the productivity deduction in the Code rather than to amend it. It is unfair and unreasonable in present conditions anyway. The proposals on capital investment deduction are also somewhat confusing and industry will be looking anxiously at how the rules for the definition of "price increases" justified by increases in investment will be interpreted when the Order is laid.

May I say right away that I can see great difficulties in any Government accepting the CBI's proposal to sweep away price control altogether at this time, and I think that is only fair. However, it is equally fair to try to simplify it as much as possible, bearing in mind the increasingly sharp discipline of the market which before long will make price control as such almost totally illusory. Therefore may we have an assurance that the Order, when laid before Parliament, will seek to meet the representations now being made by the CBI and the trade associations (I mean in this case the detailed representations) and that the Order will be made as simple and as flexible as possible?

There is one other area where the Government would do themselves a good turn; namely, if they cleared up the considerable confusion about what they mean when they appear to threaten a form of wages control by some kind of indirect action. For example, could we know what the Chancellor really meant in column 248 of his Statement when he said that if wages rise beyond the compact limit the Government will be compelled to take off-setting steps to curtail demand, thus leading to unemployment? And was this principle further developed by what the Secretary of State is reported to have said about the operation of the price code in relation to companies which are held to have broken the compact? I think we should know where we are here, and I daresay that the TUC would be as glad to know as the employers what is meant by this and whether there is some firm proposal behind it.

For these and other reasons it is difficult to quantify the real benefits of the Budget in terms of cash retention to industry. Initially it seems likely that they will he less than the Chancellor's forecast and one must look at the other side of the coin. What about the alarming cost increases that will arise from the encouragement to the nationalised industries to increase the direct cost to industry of gas, electricity, transport and coal? This will have the considerable effect of offsetting any Budget benefit, and though the cost can be passed on in increased prices, if the market can stand it, it does not seem to be worth while at this time. Certainly I would say that if, for political reasons, increases are loaded against industry to alleviate the burden on the consumers, this will seriously diminish confidence and will still, in the end, find its way through to the household budget. So why do it at this time at all? Those are some of the specific points which I should like to put to the noble Lord, and I hope that he can give us some assurance upon them.

Perhaps now one should mention the proposal to provide medium-term cash for industry through the new plans to be operated by finance for industry. This, I think, is a better scheme—namely, the Lever Bank—but one that may find new medium-term borrowers at a going rate of 14 or 15 per cent., and it is proof of industry's very tight margin position at this time that many firms cannot borrow at this rate and still show a profit. However, it is only fair to say that if these measures, taken as a whole, mean a genuine change of heart on the part of the Government towards the necessity for cash liquidity and profits in industry, then they are to be sincerely welcomed even if at present they do not go far enough, as they clearly do not do. The CBI put in a very reasoned case for, in round figures, an additional £3,000 million worth of cash retention—not extra profit and not a subsidy; merely the right to keep this extra amount of cash to hold the present position in industry and avoid a further deterioration. The Chancellor has provided only about half that figure, and it is only half if you make the most generous interpretation of the various proposals.

To those who may claim in your Lordships' House and elsewhere that industry still earns large profits, may I say that it is past and not future profits that are now being reported; and if you allow for inflation and we shall see this in the Sandilands Report—one should deduct at least 25 to 30 per cent. from any profit figures at this time. I do not think that anybody wants to stay in this broken back position, yet the indicators show at the moment only too plainly that the Government's economic policy has not convinced industry that it can invest again in the belief that it can look forward to adequate profits and cash flow. It is in this area of investment that we are seeing the most dangerous and damaging signs for the future of our country. More has to be done if we are to secure, therefore, the priorities of employment, investment, output and exports, and this, I am afraid, means an even greater change of heart on the part of Government. But and I would say this, if I may, to myself as well as to noble Lords opposite—would any doctrinaire price be too high to pay which would allow our nation to fight back through the recession that certainly lies ahead to those broad, sunlit uplands which Winston Churchill used to talk about that could lie on the far side of the morass?

To win through we must do more to harness the drive and enthusiasm of all our people, and this means that the Government must be willing to amend its view that it can run the country on a kind of Labour Party/TUC axis. Does nobody else matter? What about the managers'? What about the middle-class? Have they no part to play in trying to bring our country through? Is it really helpful for Ministers to praise industry in the City and then to denigrate it by their acts in Parliament? If the Government could adopt a less doctrinaire approach for the sake of success as a whole, then there are policies which could get us through, and they are not. I believe, very difficult policies, either, if they carry the support of the whole country.

First, the Chancellor must make it plain that this shift in policy, allowing industry to keep more of its own cash, is a real and positive one and will be continued. 'Then the Government must realise, as any Government, I believe, must realise to-day, that it can best secure employment and investment by backing free enterprise and the profit motive. There are some useful guidelines here in a short booklet called Industry and Government which has been produced by the CBI and which is backed by most of Britain's leading industrialists.

I specially wish to draw attention to that part of it which talks about the better way and sets out the policies that the CBI and industrialists generally would like to see adopted as the basis for conducting relationships between industry and Government and between employers and employees within industry. Nothing is more important, my Lords, than the recommendation that a modern hoard of directors must to-day give its attention and top priority to forging close relationships with all its employees towards a common purpose. It will do this by working harmoniously and effectively with trade unionists and shop stewards, thus creating practical participation in the decision-making by which a company is run on a day-to-day basis. Companies that do this do not have major industrial disputes. This must not in any way (as I well understand and as I think many other noble Lords will understand) cut across the long-standing historic arrangements for collective bargaining with the appropriate trade unions. In fact, what I am proposing is a useful supplement to it and works well with it.

I should like to say to your Lordships' House that it is some relief to the gloom which so many of us feel to-day to realise how many stimulating ideas are now being discussed in industry in this whole area of working better together. I should like to say at once that I think the TUC, through its Green Paper on industrial democracy, has made a very interesting and helpful contribution to this discussion. I do not necessarily agree with it, but it is an interesting part of the debate. It is high time that both sides of industry (I say "both sides" because that is the state we have now got into) got on with the job of discussing together the best way of institutionalising the revolution which is already taking place at the grass roots in many progressive companies. We must stimulate this further development at shop floor level if we are to succeed in policies at national level, and the Government should seek to encourage this by showing that they believe in both sides of industry working together in a united and not a divided nation. That, I think, is basic to getting industry on the road to recovery again.

Next may I advise the Government to draw a deep breath and back-pedal hard on the National Enterprise Board and further grandiose plans for nationalisation. So far as the National Enterprise Board is concerned, Ministers already derive adequate powers from existing legislation and if they want to encourage growth of confidence in industry they should put this kind of industrial Star Chamber at the hack of the queue. Rightly or wrongly, that is what industry thinks about it. To try to be as helpful and constructive as one can, in certain circumstances planning agreements should be a different matter if they are devised in a practical way and related to an industry's own sponsoring Department. For myself, I certainly accept that an initiative to encourage companies to provide more financial information to their employees, to sit down more regularly with shop stewards to discuss the future of the business and to discuss longer-term plans with their sponsoring Departments, as in fact many of us are already doing, might be a useful spur to industry at this time. Could one hope that these measures, planning agreements and the powers which the Secretary of State already holds, would satisfy his ambitions at least for the moment. I must say to your Lordships that if he pursues the more extreme policies with which he is taxed by the Press (rightly or wrongly I would not know) then he is not playing any part in seeking to increase confidence in industry.

Thirdly, at a time when cash is desperately short and therefore capital investment is inevitably restricted, at least in the short term, this country needs an increase in output per head now. This should have been the progressive side of the compact which is too regressive in the long term. Could we not, my Lords, go back to the basis of successful industry. Increased earnings which are justified by increased production arc not inflationary, and I would hope that we could all, including the coal miners, march under this banner, to the country's immediate advantage. We also need an increase in direct exports and in overseas trade, where the capital investment can be financed outside this country but profits still return to it.

My Lords, here are subjects, perhaps not very glamorous and exciting but vital to our continued existence as a nation, which ought to be discussed much more freely and frankly together right across industry. There is only one neutral forum which I believe exists for this purpose, namely, the National Economic Development Council. This is the only body where representatives of trade unionists, employers, the City and the nationalised industries, can sit down with the Government and senior civil servants and discuss the immense problems that face our nation. It is hallowed by reasonably long practice, it has always worked well and we arc not going to get things right in a few months or perhaps even in a few years. It is a long haul to growth and rising prosperity, and we shall need to encourage the maximum degree of entrepreneurial skill in a free society if we are going to win through. This is not to hark back to some capitalist past. The new entrepreneur can be a shop steward just as well as he can be a manager, and unless they both work well together they will be extremely disappointed in the results and so will the nation.

Moreover, any Government to-day must realise that time scales at the interface between industry and government arc almost irreconcilable. Parliaments last for three or four years or perhaps six months; industry, as those of us who are concerned know, must plan on a time scale, particularly in the higher technologies, of seven to ten years. We must find some way of reconciling these different time scales if industry is to go into massive investment. Discussions, I believe, in "Neddy" could and should bridge this gap. We must remember again that whatever we think of the market economy at home—and I am one of those who believe that it has not been very well explained in the last few years—we are, whether we like it or not, subject to world market trends and world competition and we do not exist in a tight little island that can just live by itself.

Again, my Lords, these pressures will demand greater co-operation as between organised labour, employers and the Government. Whether or not we really want to do it, we must face this unless we are prepared to let the house of capitalism collapse. I know that some people wish to see this happen. I believe that they are in a tiny minority which can easily be contained by the vast majority of us, if we are only told more clearly what we are fighting for and what we have to do. Again, I believe that this essential task can be better done in NEDC, or "Neddy", as neutral ground than anywhere else.

Turning again to the so-called compact, which again I agree is fundamental to our industrial survival, I am one who has always expressed the hope that the practical wage restraints side of the compact would succeed. It remains a bargain solely between the TUC and the Labour Party. Employers were not, and are not, party to it, nor were they consulted about it; nor can they be held to support some of the political aims which are now claimed to be part of the compact. This device, I fear, is in for a bumpy ride because it has been so narrowly conceived. Yet if it does not achieve wage restraint—now the major inflationary factor—we cannot survive as an industrial nation. I certainly accept that when Ministers of the present Government repeat the appeals for national unity which were a major clement in the Conservative Party policy in the last Election, they are advocating the right policies for our nation at this time—even if they may have copied them from their opponents. Therefore we should broaden our approach and try to discuss the future of voluntary wage restraint in the common ground of "Neddy", where all interests will be involved, rather than just those represented by the TUC and the Government. So I hope that NEDC will meet more often and be given more power by the Treasury. I hope the Prime Minister will see that this happens. He and his colleagues have a few fences to mend with industry, and if they want to get the right results (as I certainly believe they do) that is how they will get them. There is no other way.

Coming to exports, here I would say that I wish somebody would quickly reinvent the British National Export Council. While it existed it was one of the best examples that I have known of leading industrialists, trade unionists, civil servants and heads of nationalised industries working closely together for a common national cause. It had a spirit and a drive which was wholly admirable, and which indeed was greatly enjoyed by those who worked for it. It had firm and enthusiastic support from the present Prime Minister. It has the same enthusiasm from the present Leader of the Opposition. So why do we not reinvent it? We are going to need it. In a world in recession exports are going to fail away unless we do much more about the matter. The days of easy exporting are gone and will not return.

Finally, my Lords, to return to people. I believe that our failure to get inflation under control derives, at least in part, from the fact that we look for its causation too often in economic policy rather than in social change. Constantly rising standards of expectation expressed in immediate demands for entitlement across our society are not only a part of the inflationary factor, they inspire the jealousies that are dividing our society and preventing a common approach to our problems. I would say—and I apologise for saying this again and again—that the cure has to be in a greater understanding of the facts at the grassroots of our society. We are now breeding a nation of people who will accept orders or instructions from the top only if they understand at their level what they are all about. I sincerely commend to all employers, large or small, and to all trade unionists, the experiments which are taking place in many progressive companies which will lead to a much greater degree of genuine participation by all employees in the decision-making processes by which businesses of any size are run. These experiments are not totally incompatible with what Mr. Len Murray or Mr. Jack Jones and others are saying about worker participation in industry.

Here again is another area where, if we are going to fight back for survival, we had better sit round a table together and work out common agreements. It might be very difficult, but if we do not succeed I do not think we really have a future. This has to be done not only at national level but at plant level, and, as I said before, at the shop floor level of our society. If one does not obtain agreement there, I believe one will be very disappointed with the results at the top. Our country is in a situation more dangerous than any it has ever been in. As we all know—although some of us are cushioned against it—it is reeling under the hammer blows of a rate of inflation never before known in any industrial society; one that will destroy our way of life, perhaps before some of us realise it. So if we can do something determined, if we can regard the situation in which we find ourselves as a challenge, if perhaps we can recover some part of the unity and comradeship with which our nation has faced difficulties in the past, then personally I have no shadow of doubt that we shall not only survive but that we shall thrive and prosper once again. But the lessson is that it must be done together and it must grow from the bottom. It must grow from the grassroots; it does not have to be imposed from the top.

That, my Lords, is the real economic challenge, not only to the present Government but to us all. If the Government will seek to fulfil it—although I feel that they and all of us may have some little local difficulties on the Left from time to time—that will be as nothing to the great good which they could do for our nation as a whole at this time. My Lords, I beg to move for Papers.

3.32 p.m.

LORD BESWICK

My Lords, there could not have been a more appropriate Motion nor—given the fact that the noble Viscount sits on that side of the House—could it have been moved in a more useful manner. Much of what he said I agree with, and especially what he had to say about worker participation and the fact that the difficulties before us will mean a long haul.

I find the tone of the speech all the more attractive because it contrasts so strikingly with that of some of the spokesmen of Her Majesty's Opposition. Take, for example, a recent speech by Mr. Walker. On November 20 the Financial Times headlined a report of what he said with the words, "Threat of investment collapse". The Daily Telegraph in larger type quoted him as saying "Deceitful Budget" and expanded it in the text with Mr. Walker's words, "One of the most deceitful Budgets for years". Conceivably, although I doubt it, one may unearth an equally wild quotation from someone with affiliations to the Labour Party, but if so I condemn it.

VISCOUNT WATKINSON

I did not do it, my Lords.

LORD BESWICK

My Lords, the truth is that we cannot afford to spend time slanging each other. That goes for both sides—indeed, since the noble Lord, Lord Byers, nods his head, may I say that it goes for all sides—and I hope we shall not hear again from the Liberal Benches to-day the accusation that Members of the Labour Government welcome the economic difficulties which face the country. Britain, I believe, is more in the mood than at any time since the Second World War to identify causes and agree solutions to our economic and social problems.

The exceptional interest that has been shown in the Hudson Report is not necessarily a tribute to its depth of research nor to the accuracy of its conclusions but rather to the fact that more and more we are becoming aware of a profound shift in the foundations of our society and we are searching for the correct reaction. Before I go on to say something about the deeper causes and solutions which I believe to be relevant, may I answer questions on the shorter-term issues of which the noble Viscount was considerate enough to give me notice. He asked about the Sandilands Committee and whether the proposed corporation tax relief to mitigate the accounting effects of stock appreciation is for the one year only, or—as I notice that Mr. Walker implied in that speech to industrialists to which I have already referred—only a deceitful deferment.

VISCOUNT WATKINSON

My Lords, I did not say that.

LORD BESWICK

My Lords, I would never expect it from the noble Viscount. I was quoting the speech of Mr. Walker. The position is that the relief proposed falls into three parts. First, for companies whose closing stock is at least £25,000, the profits on which their corporation tax liability in respect of accounting periods that ended in the year to March 31, 1974, is based are to be reduced by the increase in the book value of stocks less 10 per cent. of their trading profits in that period.

Standing on its own this would simply result in deferment of that part of the company's corporation tax liability for one year, the whole of the deferment being clawed back in the next year. Secondly, therefore, the Chancellor has made it clear that further, and presumably more sophisticated, provisions will be introduced for next year. The protection given to companies against the effects of inflation on the cost of their stocks is therefore likely in an inflationary situation to become a feature of corporation tax rather than purely a temporary measure. As the Chancellor stated, however, this aspect is only part of the wide subject of accounting for inflation. which is at present under review by the Sandilands Committee. Clearly the Chancellor will wish to have the benefit of that Committee's recommendations before reaching a firm decision on the form that such relief should take in the long term.

The third aspect which the Chancellor covered was in relation to companies with stock of less than £25,000 book value, partnerships, and individual traders, all of whom are excluded from this year's relief. The Chancellor indicated that the relief given next year will extend to these categories of taxpayer also, and thus the benefit of the relief given to them will take account of the fact that they have been excluded from the limited scope of this year's relief.

I hope that is satisfactory, but if further clarification is needed I should be glad to discuss it further with the noble Viscount. The noble Viscount also asked whether something could be done to simplify the Price Code on productivity allowances. It is a fair point, the need is recognised, and what he has said will be considered. These are narrow questions, but on the broader basic challenge presented by inflation, inadequate investment, and the external deficit, I accept the noble Viscount's assertion that there is an inescapable need for the factor we call confidence.

Something has been done along the lines the CBI has wanted. Profitability has been improved; if tax concessions are not exactly munificent, they are consistent with the critics' demand that public sector borrowing should be restrained. We have the relaxations in the productivity deduction and the new investment allowance within the Price Code. There is the provision of medium-term finance through the FFI of an amount up to £1,000 million over a two-year period. Exporters, of course, are already helped additionally by exemption from the Price Code, and a price advantage to them still remains. If a Shadow Minister wishes to help buttress confidence he should surely emphasise the usefulness of these measures and not dismiss them as deceitful.

LORD ORR-EWING

My Lords, before the noble Lord leaves the question of the FFI, I wonder whether he could give the House some indication as to when this new facility will come into existence, because there is an urgency, which the Government recognise, of cash flow, and it seems to be moving extremely slowly. I have heard that nothing will come into being until Christmas. If the noble Lord does not have the information readily available, perhaps we could be told in the winding-up speech when this will come about.

LORD BESWICK

My Lords, I will ask my noble friend to reply to that when he winds up this evening. However, I was going on to say that in addition to those measures we need something extra, something different, and I beg the noble Viscount and others opposite to look again in a constructive spirit at the past before they dismiss our proposals for the future. Of course there have been years when the GNP has increased by apparently satisfactory percentages; there have been days when output of consumer goods has soared, days of candyfloss and "never had it so good". But seldom in recent years has British investment been adequate, either in quantity or in quality. There may or may not have been confidence in the days of the most recent Conservative Administration, but certainly the people with money to invest did not put it into British industry. The more eloquent the appeal of the most recent Conservative Prime Minister for industrial investment, the poorer was the response.

While I agree, therefore, that confidence is needed, we must ask ourselves, confidence in what? Confidence that property bought this week can be sold next month at a profit was no help to Britain; confidence that money borrowed at one rate of interest can be lent at a percentage point higher was no recipe for national greatness. The confidence that we need is a threefold confidence. First, we need the right level of investment; secondly we must be confident that the right proportion will go into industry; and, thirdly, if it goes into industry it must yield the right return.

There is now much evidence that it is on this third count that hitherto we have most significantly failed. UN and OECD research and recent work by my Department all tend to show that there is no set relationship between the level of investment and the growth rate of major industrialised countries. West Germany's manufacturing growth has been two and a half times that of the United Kingdom with a similar investment ratio. For a given increment in capital the United Kingdom derives only half the increased output achieved by Japan and two-thirds of that achieved by France and Italy.

Let me put the same point another way. Between 1953 and 1971 manufacturing annual growth rates were 7.6 per cent. for West Germany, 3 per cent. for the USA, and 3.1 per cent. for the United Kingdom. But investment proportions were 11.5 per cent. for West Germany, 9.5 per cent. for the USA and 12 per cent. for the United Kingdom. On this analysis a bigger investment programme will not, or not necessarily, or not of itself, cure the disease. It would only pander to the symptom.

Confidence, I agree, is essential, but we are confronted with a problem as complex as serious. This is not a matter of an old-time confidence generated by brandy and big cigars nor of so-called moderate Labour Ministers speaking up, as Mr. Walker suggested. A long-term investment policy must concentrate as much on the utilisation as upon the level of investment. Efficient investment, fruitful investment is what is needed.

It is this requirement which is one justification for our proposals for planning agreements. We want between industry and Government to pool knowledge, share information, try between us to ensure continuity. This is where I agree so much with what the noble Lord said about time-scale. We want to do it within a pattern of individual voluntary agreements. We believe they can be more meaningful, more helpful than the broad, generalised national economic plans we have tried in the past. Broad Government policy will need in the future to take account of the total effect of these planning agreements. The individual agreements themselves will be concluded within the knowledge of Governmental intentions. The proposal is that these agreements will be concluded, voluntarily, with the biggest companies in the country. There will be other cases where direct intervention and investment capital from the FFI is not appropriate.

VISCOUNT WATKINSON

My Lords, I am sorry to interrupt the noble Lord. He knows a great deal about industry, and it would be encouraging if we could have an assurance—and I believe it is available—that planning agreements will strictly be done with the sponsoring Department and not always with the DTI. If your sponsoring Department is not the DTI, I believe it is possible to do your planning with your own Department and not necessarily with the DTI.

LORD BESWICK

My Lords, conceivably there will be cases when that will be more advantageous. That is the sort of matter on which we shall be having discussions; I cannot give an assurance, but certainly we have no dogma on it. As I was saying, there will be other cases for direct intervention where investment capital from the FFI will not be appropriate. Here the National Enterprise Board will have a constructive part to play. It will be responsible for investments already made by successive Governments in British companies, and it will assume the functions of the former Industrial Reorganisation Corporation. Yet again, to get the best return on investment in national economic terms, we propose that there should be, under statutory powers, public ownership of the aircraft industry and of shipbuilding, shiprepairing, and marine engineering. In these cases there has been a constant need of substantial sums of public money. To secure proper accountability, to facilitate the restructuring which can best ensure the most efficient use of national resources, we believe public ownership is justified.

I hope your Lordships will agree that all this adds up to policy relevant to the crisis we face. It is not wholly dissimilar from the Hudson Institute's solution of indicative planning and a national investment and development corporation. There is, however, one important difference. The Hudson Institute says the policy should be devised at the top by some new French-style élite. We say it should be devised, decided and, importantly, implemented with the fullest possible participation of all those workers, at all levels, who are affected.

This brings me to the questions asked about the social contract. I am asked what will happen if the contract is broken. I would rather look at it another way: how can we help to ensure that the contract is kept? I know that the noble Viscount feels as strongly as I do that a rigid statutory control of all incomes in all places of employment, large and small, is a recipe for trouble. But if we are to build up respect for a voluntary system, we must not refuse to consider additional support for that system if it seems necessary. I suppose that is what my right honourable friend Mrs. Williams had in mind when she ventilated the idea of a provision in the Price Code which would deal appropriately with incomes increases outside the guidelines. Similarly I could imagine a long-stop in the tax system which could catch settlements which went over the top, although clearly there are severe practical difficulties. I should be interested to hear what other noble Lords think of these ideas, or whether they have similar ideas to buttress the voluntary system.

The best way of ensuring that the contract is kept is to ensure that those involved want to keep it. A fully informed public opinion can be a very potent force. It has not yet been fully mobilized. There is much educating to be done, including, if I may suggest it to the noble Viscount, the CBI. The noble Viscount has a part to play there. He would do well if he could persuade his colleagues there that the National Enterprise Board is not by a long chalk a Star Chamber. They need to understand that tax concessions alone will not do the trick. That is the view of the noble Viscount, I know. He has work to do there on his side, and for my part I will endeavour to do mine.

The noble Viscount's suggestion about using the NEDC as a forum for discussing workers' participation is certainly worth considering. How much better if at that tripartite level we could get a consensus on the social contract. With that in view, I sincerely suggest to the noble Viscount that his task of conversion is at least as great as mine, and I hope we will both undertake to put our efforts in that direction.

Having said that I go on to emphasise, as he did, that understanding is vital at levels well below that of the NEDC. I wish it had been understood at Rolls-Royce that the Hillington wage settlement was not a great victory against wicked capitalists. It was not a fair reward for extra effort or extra profits earned. Their jobs were secured by subventions from the public purse. Their extra purchasing power is at the expense of others earning maybe half their wages. Unless others show more responsibility, what seems a short-term victory for the workers at Hillington could be a longer-term catastrophe for us all.

My Lords, I have indicated measures already taken which should give an immediate stimulus to industry. I have outlined the longer term proposals for ensuring a more adequate and more purposive and productive investment in British industry. But no plan, no machinery, no intervention from Government will give the extra resources we want unless there is the will to succeed at all levels. In all the discussions that I have heard in the last few days on the radio, and on television, and in what I have read in the newspapers, and I think in the noble Viscount's speech this afternoon, there has been an insistence upon such phrases as a "new stance", a "new management style" or a "new social psychology". I am not sure that this new social climate can be created simply by Government exhortation. We must all help, and I hope that this debate will make a significant contribution to that.

LORD SHINWELL

My Lords, before my noble friend sits down, may I ask him a question? Has he observed that neither in his speech nor in the speech of the noble Viscount opposite has a single reference been made to the inflationary effect of an increase in the price of oil—the effect on costs, on competition with other countries seeking to export their goods, on production costs. Obviously the cost of oil enters into production costs, but there has not been a single word said about it. Does my noble friend really believe that it is possible even to make an approach to a solution of the economic problem that confronts our country without being able to deal in some fashion with the cost of oil?

LORD BESWICK

My Lords, it so happens that winding up the debate today we have a Minister responsible for energy matters, and he will be dealing with the problem which the noble Lord has posed.