ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH

HL Deb 20 November 1975 vol 366 cc32-129

3.10 p.m.

Debate resumed on the Motion moved yesterday by Baroness Phillips—namely, That an humble Address be presented to Her Majesty as follows:

" Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."

Lord THORNEYCROFT

My Lords, it is a privilege to have the honour to continue the debate upon the gracious Speech. I speak from a rather unexpected place. I have not addressed the House from the Front Bench for some years so perhaps I may claim limited indulgence from your Lordships' House. I speak from here as chairman of the Conservative Party, but the truth is that I am more concerned about the problems that confront us all and the way in which we might find common ground between us than I am about the precise Party differences which divide us. I shall, of course, criticise a little. It would be a very dull speech if from time to time I did not say a few words or make a few observations in a slightly different atmosphere from that urged by noble Lords opposite.

As I understand it, the debate is about industry and economics. In some ways I am qualified to talk about these subjects. I am an industrialist and I have been Chancellor of the Exchequer. Therefore, perhaps I know just enough about these topics to speak with a certain humility about both. I know the enormous problems that are confronting industry today and in some degree at least I understand the complexities of the economic situation which confronts Her Majesty's Government.

Perhaps unexpectedly, I may begin with the Bench of Bishops. I have been reading, as have others, the speeches of the most reverend Primate. I agree with the two questions that he posed: that we ought to be talking about the kind of society that we want and the kind of people that we want to be. At any rate, these are the right questions to ask in an economic debate. I am not absolutely confident that I continue to agree with the most reverend Primate about these points. He had suggestions that for anyone with an income of £6,000 a year he might not be considered starry-eyed if he gave up 5 per cent. of it to other noble purposes. But there was someone else around before the Archbishop—the Chancellor of the Exchequer. At that level of income a married man with two children under 11 already subscribes 27 per cent. of his income to the State. The new contribution would bring it up to round about a third, and one of the troubles of the world today is that the inflation that has hit us, and the problems that confront the range of middle management of that kind are so great that charity, like other things, has come under considerable pressure.

I will at least start in economic terms with the kind of society in which we live. There are various societies which are regarded in different parts of the world as being perfectly valid for their own purposes. There is a communist society which in Russia is regarded as a valid society, in which the State controls everything and in which the judges, the courts, the law—all these things are part of the instrument of government. It is not a society which finds any favour here, but it is a valid and a possible method of running a great part of the world.

There is a free society—and we normally take the United States of America as an example, but one could take Germany as well in which the freedom does not consist simply of a freedom to elect people, but a freedom to buy the goods that one chooses. It is, in a sense, a wasteful society because to have choice we must have different people offering the same thing, and according to how the choice is made some meet with great success and others face bankruptcy. Nevertheless, this, too, is a valid society.

Alternatively, there is a mixed economy, and this country is the proud possessor of a number of great public enterprises—of coal, steel and the rest—which are not only great producers of goods but also great purchasers of goods, and they exist alongside a great range of private enterprise which sells not only in this country but in countries overseas. The Government's job is to hold the balance and to create the climate in which this mixed economy can live. There have been times in this country when we have known great prosperity and great contentment under a system of that kind. Certainly I would concede to the Bench of Bishops that it is perfectly possible, though sometimes difficult, for the Christian ethic to exist under all those systems.

But a system which is at war within itself cannot exist: a system in which it is believed that any large number of powerful men are determined to destroy either the public sector or the private sector, or determined to reduce the trade union movement to impotence; or even a country in which people believe that this kind of thing can happen. It is just that divided state of society in which this country lives today. In my view, the United Kingdom is today a house divided against itself and it seems to me to be the principal duty of all Parties in this country to devote themselves, not to creating further divisions but to trying to reduce the area of argument.

I am not arguing for a Coalition. I know that the history of Coalition is written deeply into the history not only of the Labour Party but of many other Parties in this country. I argue that there should be very frank and free discussion about the problems which are facing the world and a great desire and effort to find the maximum common ground between us. May I take as an example, because it is one that I know well—although I could take others—the industrialist today. Of course, the industrialist faces enormous problems: the problems of his cash-flow, the problems of his market the problems of how to quote for exports abroad when all the time inflation is changing the cost of what he produces and he has to produce the goods for a period ahead of five years. These are the enormous technical problems which confront the industrialist.

But, to tell the truth, the main problem confronting an industrialist today is that it is very hard to find anyone in either Westminster or Whitehall who really understands the nature of his business or the risks that he is running. It is a technical thing, but in a way it is a simple thing. The industrialist knows that he has to earn a profit; he knows that without it it is quite impossible for him either to make the necessary investment for the future or to distribute the profit to others who will lend him more money for this purpose. The industrialist does not want public money. Through his skill, through the quality of the goods he produces, he wants to be able to earn the necessary money, and to keep enough of that to be able to carry on his business into the future.

Moreover, the industrialist knows—we all know—that there exist extremists who have penetrated in some numbers into many of the trade unions. He knows the influence of the trade union movement over the Labour Party. He knows that there are members—I do not suggest they are now sitting opposite to me—of Her Majesty's Government whose declared intention it has been to destroy the system under which he exists, and the world in which he carries on his business.

The LORD PRIVY SEAL (Lord Shepherd)

My Lords, if the noble Lord, Lord Thorneycroft, will permit me to interrupt, he referred to members of Her Majesty's Government who are dedicated to a particular task. Would the noble Lord please name them?

Lord THORNEYCROFT

Yes, my Lords; there is Mr. Wedgwood Benn. He is a member of the Government. I am not seeking to use language of unnecessary provocation. I would assure the noble Lord of that. I must inform him that there is today a majority of industrialists who believe that it is the declared purpose of Mr. Wedgwood Benn to change the whole system under which they carry on their business. It is this fear which determines, perhaps more than anything else, the hesitation to invest, or the choice, either by an inhabitant of this country or of another, as to where his investment is to be placed. whether here or abroad. It is this fear which, in other ways, is today affecting the attitude of the self-employed, and the actions of the Government. The fear of what is likely to happen to people is the main factor in politics at the present time.

My Lords, there is hardly a family in this country today which is not afflicted by deep anxiety; anxiety as to whether the breadwinner will hold a job in a month's time; anxiety as to whether the school-leaver will find a job to go to; anxiety not only in every family but in practically every business as to how it sees its future, or how it will be able to lay the plans which it ought to be laying today for four or five years' ahead. I have not talked about economic theory and I do not intend to do so. In my experience, most economic theory has worked hardly at all, or, at any rate, imperfectly.

What I would say about economic theories is that at least we should try to get them moving more or less in the same direction; whatever Her Majesty's Government do at this moment, they should do it very slowly. At this moment a sudden reduction in taxation could be almost as disastrous as a sudden increase. We are dealing with an economy which is incredibly weak. distressed and fearful, and which does not have at this time the resources or the strength to react very quickly in any direction that a Government would choose. Therefore, I prefer not to talk about economic theory. Instead, I prefer to compare what we need to do with the actions which we are, in fact, taking. I would start with the Bankers' dinner. I think many of your Lordships have attended a Bankers' dinner. It is no reflection on the Lord Mayor to say that it is an entertainment which requires remarkable stamina; almost everybody speaks at a Bankers' dinner, including the Chancellor of the Exchequer.

My Lords, at the Bankers' dinner a little time ago, the right honourable gentleman Mr. Healey announced that he intended to borrow another £1,000 million. I do not criticise Mr. Healey for borrowing another £1,000 million; he is not the first Chancellor of the Exchequer to have borrowed money from abroad. Countries borrow money just as businesses borrow money. What matters is the background against which the borrowing takes place. There, I think one is expected to do something to set one's house in order. The Bankers' dinner was followed almost immediately by a meeting at Chequers. I would pay the highest tribute to the men who met at Chequers. One had around the same table there the Government, members of the Trades Union Congress and members of the Confederation of British Industry.

I know that a number of things were written about that meeting, and it was said that one could add the words "or not", as the case may be, to every sentence; but that is true of many meetings of this character. In the main, I would say that a great deal of sense was talked at Chequers. I will not indulge in massive quotations, but after setting out a good deal of what was said, the following was added: For the immediate future this will mean giving priority to industrial development over consumption, or even our social objectives. There is no other way of developing the industrial base on which the Government's whole programme of economic or social reform depend. As I say, these sentiments were subscribed to not only by the right honourable gentlemen who have the duty and the responsibility of governing this country at the moment, but also by Ralph Bateman, the noble Viscount, Lord Watkins on, and other leaders in industry, and by such trade union leaders as Mr. Jack Jones.

May I say that although obviously I do not agree with everything that Mr. Jack Jones said, when he announced that he saw a close relationship between the increasing rate, as it then was, of inflation and the levels of unemployment, he was right. It was a courageous thing to say, and I should like to say that from our Conservative Benches. He put his full weight behind that statement. Here, men drawn from wholly different roles and places in life were at least trying to find some sort of common ground. It seems to me that the role of the trade unions is obviously not to govern this country, but to participate at every level, from the Cabinet to the factory floor, as friends and partners in trying to shape the solutions to the national problems which confront us all.

So from Chequers I saw a gleam of hope. There was no mention there of nationalisation as making any contribution to our interests. There was a recognition that profit has an essential part to play in the generation of investment. There was a unity of purpose of some kind, or at least the beginning of one, in a deeply divided world. For a moment it looked as though we were no longer trying to superimpose a social revolution on to a major economic crisis, and I am bound to say that to me that was a great relief.

It is against that background that I think we have to judge the proposals in the gracious Speech. I am bound to say I simply cannot reconcile the statements at Chequers of the joint representatives of Government, the trade unions and industry with the proposals that are contained in the gracious Speech, and which seem to me to be a long list of divisive and largely irrelevant proposals. They are a complete non sequitur; they have nothing to do with all those hours of discussion.

They begin with the nationalisation of the aircraft industry. There are enough problems in the public sector already—the losses, the lack of profitability, the problems of management, the problems of new capital formation. Would it not have been wise to try to get sorted out some of those problems in that great proud public sector before embarking on yet another? Moreover, the view that it somehow does not matter, that it is just a change of assets, is one upon which I would beg the Government to take a little more advice from the Treasury. The printing of Government stock is in some way said to be non-inflationary; it does not matter, it is only a transfer of assets. But the effect on the whole money market of moving in on industries on that scale is bound to be considerable. Moreover, the Government will have to support their own stock; otherwise, it will go to a discount. They will have to pay the interest on the stock. They will have to bring about in the aircraft industry the enormous new capital formation that goes with that.

In business one of the things you learn is not the acquiring of a business, it is the problem of running the business. All that will follow. I am not going to say anything derogatory of Her Majesty's Government; I have the greatest admiration for the quality of men in government and in Whitehall. But I would say there is a limit to the number of men available. In private industry you have men like Sir Arnold Weinstock and Lord Robens. They are great men. I could not do their job. I would hestitate to make proposals to search around England to find someone else to do these things. This matter will create enormous problems, and there are vast risks involved. So that proposal seemed to me to be a little irrelevant to Chequers.

Then, was it sensible to give the dockers a monopoly over the control of food supplies in this country? It is not exactly being controversial to the trade unions to say that if you give the dockers a complete monopoly, not only of the ports but also of the refrigerators, it is rather a remarkable decision in the light of history—and to do it at this moment. What on earth has that to do with all the efforts made at Chequers? It only puts the Government in greater peril than they were in before.

The Health Service, I suppose, is not strictly the economy, but politically, I was brought up in Wales where I was a neighbour of Aneurin Bevan. He represented Ebbw Vale and I represented the valleys of the Wye and the Usk. We used to speak in one another's constituencies, he more effectively than I. In my day—and it shows how old and decrepit I must be—Aneurin Bevan was regarded as on the Left Wing of the Labour Party. Yet he introduced a Health Service which somehow managed to bring the private doctors within it; it was a partnership, and everybody could do his bit in some way or another. Never mind whether or not I agreed with what he achieved. I think one can reach a time when one is able to look back with a certain detachment. He reached a kind of compromise which, compared with the bitterness and misery in the Health Service today, indicates some kind of deterioration in Socialist thinking now, as well as everybody else's thinking, on this matter.

One can follow the list through, such as the dictation as to what sort of school one attends, and so on. I was in Yorkshire the other day, and the dock workers there were complaining about the abolition of the direct grant school, because they were not satisfied with the comprehensive school. They wanted a choice as to where to send their children. The area of public opinion is changing all the time. I cannot help wondering why the Government have put together this body of suggestions in the Queen's Speech. It is certainly not relevant to the economy of the country, but I wonder whether it is even relevant to the political thinking of the country today.

There is a great change taking place in this country. There is a move towards moderation and good sense; a move towards people trying to work together and having a wider pattern of choice. As we saw in the engineering industry the other day, there is a move towards moderation and away from extremism. So I even wonder about the political wisdom of making a series of bows, as it were, to the Left. It seems to me that on the whole, these measures tend to divide the country. I should like the noble Lord to say in what conceivable way any of these proposals contribute to the vast problems—and I grant that they are vast problems—which not only confront us, but confront the world: we are not alone in these problems. It would be a tough assignment for any Government. There are no easy answers. But how do these measures help? What relevance have they to the earnest consideration of both sides of industry and the Government's economic Ministers, when they meet together and try to find a common platform?

I conclude by saying this. I was brought up as a politician, and I admit that throughout history politicians have appealed to human emotions—to hatred, patriotism, loyalty, envy, greed or ambition—but the greatest politicians, the Ernie Bevins and the Churchills, sought somehow to appeal at least to the higher range of those emotions and passions. If I could be granted a wish today, it would be that the British people were moved less by envy and hatred and more by ambition; that when they saw something they were not envious because somebody else had got it, but were more ambitious to try to win it for themselves by their own efforts. We have an enormous opportunity in this country today, and we have enormous resources. If we wanted, we could play a leading part in Europe. We could be an example to the world. But, by heaven, we should need to have some leadership which was determined, by speech and by action, to achieve a united rather than a divided Kingdom.

3.42 p.m.

Lord SHEPHERD

My Lords, the noble Lord, Lord Thorneycroft, has undoubtedly failed in what he was seeking to achieve, which was to establish some common ground. I have to say to the noble Lord that there was very little, except perhaps one short sentence, on which I could find common ground with him, and I shall deal with that in a moment. The common ground is this. There is an undoubted change, which is perhaps yet only a glimmer, of a new relationship between both sides of industry and the Government. It is in fact a very marked difference from the bitterness between Government and the two sides of industry from 1971 onwards. Many accusations and criticisms have been made of this Government in seeking to achieve a new accord with the trade union movement, but I believe that the effort that we have made is now beginning to pay off. As the noble Lord, Lord Thorneycroft, said in a tribute to Jack Jones of the Transport and General Workers' Union, it was a great act of courage to be the "pavement layer"of an incomes policy which is going to be very hard upon the bulk of the working people of this country during this winter.

My Lords, I hope that the House will believe that the gracious Speech is a reflection of the acknowledged dangerous times in which we live and of the Government's determination to face them and not in any way to hide from our people the serious position of our country. There are undoubted hard times before us, particularly during the winter. But there is a real hope that, if we can maintain our present resolve, there are better days ahead. Today we discuss economic affairs; on Tuesday, after consultation through the usual channels, we shall be discussing home affairs and, on Wednesday, foreign affairs and defence. In a sense, these will be general debates, and detailed consideration of the proposals can take place only when either they appear as a Bill or as a White Paper.

I suppose, in one sense, the most important of these proposals will be on devolution. These proposals will represent perhaps the greatest change and challenge for centuries to our Constitution. The White Paper will shortly be published, and I know that your Lordships' House will be anxious to debate it. However. I hope that the House will agree that the debate should not be rushed and that there should be adequate time for consideration. I hope, too, that the House will agree that the debate should arise on a Motion from the Government after proper consultation through the usual channels. For, while it is open to any noble Lord to take the initiative, I hope that the House will feel that it will be a debate of such great importance that it would best serve our interests if we get right the timing of the debate, and this is best discussed through the usual channels.

The central theme of the gracious Speech is about inflation, unemployment and the economic situation. Therefore, it is both right and necessary that we should begin our debate with a full discussion of economic affairs. Our economic problems are our most fundamental problems and only by tackling them can we begin to tackle others. By the same token, success in our economic strategy will give us the opportunity for success in other fields that may arise but which are now being denied to us.

We must look to economic growth. With that, I grant the noble Lord, Lord Thorneycroft, the need for profitability within the private sector; but I do not mean economic growth as an end in itself but as a means of generating the resources needed to meet social and personal ambitions. We have a need for more and better hospitals, more schools, more leisure, better housing, better transport, a better environment and a better life, and for all this we must develop the resources. One thing must be absolutely clear; we cannot go on living on borrowed time and on borrowed money. This does not mean that we have to abandon all other policies. On the contrary, your Lordships will see that the programme we have put forward contains far-reaching proposals for continuing social and political reform.

But we must consider means as well as ends, and we need to consider carefully our priorities. For me the supreme priority must be to get right our economy. The magnitude of our present economic ills is now beginning to be understood. They are as serious as they are complex, and there is no easy way out; for many of these ills are deep-seated and have grown worse with the passage of time. We have moved today into deep recession, a degree of slack unmatched in post-war Britain. The United Kingdom with exports constituting 30 per cent. of our gross national product, was bound to feel the draught of the severest world recession since the 1930s. Listening to the noble Lord, Lord Thorneycroft, one would have thought that we were in fact alone, when of course the recession is worldwide. We have, moreover, been faced with crippling inflation—again, throughout the world—which has forced the private consumer out of real consumption and into precautionary savings. This has undermined the confidence of the private industrial investor and added further to the difficulties of our exporters, which were already acute.

But the recession has struck us even more heavily than most people expected, with results that are now all too plain to see. By the second quarter of this year, world exports, which usually grow at 10 per cent. a year, were 7½ per cent. lower than the same period a year ago, and world industrial production had spiralled down to a level around one-fifth below potential. In the domestic economy, total output fell by 2¾ per cent. between the first and second quarters and the volume of industrial production dropped by 4 per cent., reverting to 1970 levels.

In human terms, this tale of world depression and falling domestic production has meant above all a rapid rise in the level of unemployment. As the level of demand and activity has fallen over the last year, unemployment, excluding school leavers and adult students, has risen by 450,000, from a rate of 2.7 per cent. to about 4.6 per cent. In this we are no different from other developed countries; France, Germany and the United States are experiencing unemployment on the same scale, or even worse.

But this is no comfort to those concerned. Nor can it hide the fact that 4½ per cent., with figures as high as 6 per cent. in the worst hit regions, is utterly unacceptable to those on this side, as it is, I believe, to the country as a whole. It is too costly in economic and in human terms. One more fact which is perhaps critical: other countries may have the same or worse unemployment, the same or worse loss of production, but our competitors have less than half our rate of inflation.

Looking to the future, the economic objective we must set ourselves is a high-output, high-earning economy, based, as it must be, on full employment. To do this, we must give first priority to improving the perfomance of our manufacturing industry. It is on our manufacturing industry, both private and public, that our survival as a trading nation hangs. And in this area we have been falling steadily behind, not in this recession, not in this inflation, but for decades. We have a deep-rooted structural problem here and reversing this continuing decline in our industrial performance compared with that of our main competitors is as fundamental to our economic success as I have argued that economic success is fundamental to our other ambitions. The first economic priority therefore is production.

But for all that has been said about this problem, there is no general agreement on the factors at work. It is no longer possible to blame our troubles on an over-valued exchange rate or excessive international commitments. We have to face the fact that the roots of our troubles go wide and deep. They include a low rate of investment by international standards. At present too high a rate of inflation and too low a rate of return on capital compound the problem. But the relative decline in our international performance seems to have proceeded over the years, irrespective both of the rate of inflation and of the rate of return on capital in Britain compared with other countries.

The fact we can no longer avoid is that we simply do not put our resources to the best use—and by resources here I mean both capital and manpower. With honourable exceptions, British industry in general produces significantly less additional output than others do for each unit of new capital employed. The evidence on this point is particularly compelling in the case of some multinational companies which have introduced identical new machinery into their factories in Britain and abroad. Both sides of industry must combine at plant level to solve this problem and I believe that the effect would be dramatic if we could get that degree of co-operation.

A high-output economy cannot be achieved painlessly and I believe that we have very many hard years ahead before we can achieve what we need to achieve to be able to deal with all the problems of industry. We know that price effects have still to work through, which will mean some general reduction in living standards, even before we can regard the first battle, the battle against inflation, as won.

We also know that when we talk about the better use of capital and manpower, what we mean in many cases is changing jobs. With the present unemployment position, those concerned want to feel sure that new jobs will in fact be available for them—new jobs created by new investment. That is a prime consideration in our positive manpower policy, the need for which is now generally acknowledged. I announced in your Lordships' House a wide measure of grants and assistance being given particularly to regions and companies to assist them in the sphere of unemployment.

In the present situation we have a variety of advice being given to us. There are those who proclaim—and I am not aware that the noble Lord, Lord Thorneycroft, advocated this today—immediate and savage public expenditure cuts. This may seem very attractive indeed, but at the present level of activity, when there is slack in the economy, I do not believe there is any doubt but that any major cuts in public expenditure at this time would have a catastrophic effect on the existing problems of unemployment. There are others who are calling for immediate reflation on a general scale by a deliberate policy of stimulus. I do not believe that such a reflation is possible, particularly through public expenditure increases. We have looked at this matter because, of course, it is attractive, but as the Chancellor said last April, and has repeated on a number of occasions, we believe that any reflation at this moment would present the Government with the gravest dangers indeed.

I suggest to the noble Lord, Lord Thorneycroft—and I am sure that he will agree with me—that our strategic aim must be to switch resources, manpower and capital, into exports and productive investment by holding back excessive rises in consumption at home and by checking public expenditure. We must heed the lessons of 1973, when we adopted a consumer-led boom which proved disastrous and from which we are still suffering. It is expected that next year's pattern of development in the domestic economy should produce a swing of resources into the export field. Next year we intend to carry out our undertaking to cut public expenditure by some £1,200 million, and in the years immediately following we shall be seeking further substantial economies. This will be necessary in order to release resources for production and export at a time when we expect world recovery to be well established, and our own economy to be moving back to full capacity. In other ways, we are already moving in the right direction.

When the last Administration—of which the noble Lord, Lord Thorneycroft, was not a member—went out of Office, it left a deficit in the balance of trade running in the last quarter of 1973 at an annual rate of some £4,000 million, when oil was having only a minor effect on this figure. In less than two years, we have wiped out the whole of the non-oil deficit and are now making inroads into the oil deficit. This year, the current total deficit should be around half of last year's £3,700 million. It is indeed interesting to know that, even in a world recession, our exports have held up and that had it not been for the increase in oil prices there would have been a current surplus of the order of £1,000 million.

The Earl of GOWRIE

My Lords, if may interrupt the noble Lord, may I ask him this question? If he is making these very large claims about wiping out a deficit, will he also say what is the cost of the increased borrowing that has achieved this position?

Lord SHEPHERD

My Lords, I shall deal with that in a moment. What I should like to go on to say is that we have to recognise that the change-around has to some extent been due to falling production in this country and to destocking by companies, and that there will be a dangerous period once industrial production starts to develop and we begin to absorb new imports. However, I am dealing with the situation as it now is. Clearly, the momentum of exports is particularly good at this moment, and I should have thought that the noble Earl, Lord Gowrie, would be one of the first on his side of the House to acknowledge what British industry has done and what it will be doing in the export field during the next 12 months.

The crucial point about Rambouillet was that the Heads of Government of six countries, accounting for over half the world's trade, have not only declared their confidence that recovery is under way but have pledged themselves not to allow that recovery to falter. That is a very brave decision on the part of the Governments, particularly those of the United States, West Germany and Japan. Above all, if we are on course here, we can succeed only if we can deal with inflation.

The noble Earl asked me what would be the cost, and the noble Lord, Lord Thorneycroft, referred to the borrowing which we required. The borrowing requirement has been due, as the noble Earl himself knows, to the massive trade deficit which we and other developed Western countries have incurred as a consequence of oil prices and, of course, to the deficit which we inherited. The recent borrowings are, however, on much more favourable terms than those which were undertaken by the Government of the noble Earl's Party and those which we have since undertaken. I should have thought that the recent borrowings were therefore to be welcomed, though I share the view of the noble Lord, Lord Thorneycroft, that it will be better when we have no need to borrow, because I do not believe there is any dignity in borrowing.

However, we have a particular set of circumstances and, as a Government, we have taken the view that we should try to keep our industries going and to maintain the momentum within the country, in an effort to avoid a collapse of industry—and we should remember that our production has fallen less than that of most Western European countries—and to maintain its structure. Then, when the upturn comes, we shall have the capability of participating to a major degree in the upturn of trade and, above all else, be able to avoid a further increase in unemployment.

I have no doubt at all that the great structural difficulties of our country can be dealt with only by co-operation, not confrontation. The lesson of 1971 and 1972 which we have learned is that the two sides of industry have to co-operate. That is why we look to the new mechanisms that are being built up through certain pieces of legislation, which will require the two sides to come much closer together. We believe that this cooperation is the only way. The noble Lord, Lord Thorneycroft, acknowledged the outcome of the Chequers meetings. I hope we shall see more of these meetings, not necessarily at Chequers but within the Neddies. However, I believe that we must do a great deal more, not only on the factory floor but also at a regional level, between both sides of industry.

I believe that co-operation is the key word here, but management has perhaps a greater responsibility than the noble Lord, Lord Thorneycroft, was prepared to acknowledge. For my sins, I sit on a number of Cabinet committees which have to look into the problems of British companies which apply for assistance. I can only tell the noble Lord that the story is the same. It is management, its weaknesses, the failure to use whatever investment was available for a long-term plan for the development of new models, which is the cause of the trouble. I do not wish to go into the question of Chrysler, but that is an agonising decision. One can see Chrysler's problems if they have, as is said, no new models available. However, there are many other industries and companies which are in a similar position.

The noble Lord, Lord Thorneycroft, said that one of the tragedies of Chequers is that we are still pursuing our policy of nationalisation of the aircraft and shipbuilding industries. I wonder whether the noble Lord can tell me of any shipbuilding companies—other than one—which are making sufficient capital for themselves to keep their plants modernised? I am speaking of this country which was once one of the major shipbuilding countries of the world. We are no longer so today. There is no doubt that those who know anything about shipbuilding are aware that there is a great need for rationalisation, for improvement and investment. There is no doubt at all on the part of those who have studied the matter that this can be brought about only by a form of public investment. However, we can argue about this when the Bill comes before the House. Unfortunately, the noble Lord, Lord Aberdare, is not present, but, on the theme which we have been discussing, and in spite of the fact that so much mud has been thrown by the noble Lord, Lord Thorneycroft, I, too, am looking forward to debating the problems of the motor-cycle industry. There, again, I suggest that what I have just said proves my point.

Perhaps I may conclude by saying that I agree with the noble Lord, Lord Thorneycroft, in one other respect. This is rather surprising, but I agree with him on points which he may not like to accept. I agree with him that Whitehall is not the perfect instrument for making these commercial decisions. That is why the last Labour Government set up the Industrial Reorganisation Corporation. That was by way of recognition that Whitehall was not the perfect instrument for making commercial and industrial judgments. But who, in the very flush of victory in 1970, abolished that organisation? This is one of the reasons why we have come forward with our proposals for the National Enterprise Board. We believe that the National Enterprise Board will be a real force for the improvement of investment and for the streamlining and development of industry. I believe, too, that the planning agreements, once they are fully understood by both sides of industry—and both sides have yet to understand the purposes and the applications of these planning agreements—will play a formidable part in our industrial development.

I have a last word to say on pay and the pay policy, because the noble Lord referred to it in regard to Mr. Jack Jones. I believe that the Government should be pleased with the reception given to the proposals put to the nation in July. Over 2 million workers have now settled for the £6 limit. This is a remarkable voluntary achievement by all the unions concerned; and the National Union of Mineworkers, despite some provocation in certain areas, has accepted this policy, and is now putting forward a claim that falls within that £6 limit. That too is, in itself, a remarkable achievement. But I do not doubt that there are difficult times ahead. There will be great strains put upon this policy. I hope that the junior doctors will recognise that within the policy there is, and can be, no further money available to settle their claim. Since they received a 30 per cent. increase last April, clearly this is not the moment for them to pursue their present policy, particularly by industrial action.

We shall be able to discuss these matters in greater detail during the course of the year. The noble Lord, Lord Thorneycroft, posed the question, as did the most reverend Primate the Archbishop of Canterbury: what sort of people are we? what sort of country are we? The noble Lord, Lord Thorneycroft, thought that we were in strife with ourselves. I think that we were very close to that situation. However, I believe that our greatest problem is not strife but doubt—a lack of understanding; perhaps not being fully appraised of all the information that should be available to us. That is very much a Government responsibility, and we are seeing what we can do, particularly within the inflationary field, to see that the public are aware of the situation; and already, as a consequence of some of the negotiations that have taken place, there is a genuine realisation of the importance of this policy.

But the matter goes much wider. I believe that while we may have doubts, there is now in this country a recognition that, in July and August we looked over a brink at the type of catastrophe that could face this country unless some new order was brought into being. My Lords, I believe that the spirit exists; I believe it is developing; and I suggest that Parliament should seek to be a leader in co-operation, and not be an exponent of confrontation.

Lord STRATHCLYDE

My Lords, might I say one word in relation to the noble Lord's remarks regarding shipbuilding? I did not want to interrupt him in the middle of his speech. But would he apply the remarks he made about shipbuilding in this country to the two great firms of Scott Lithgow and Yarrow, on the Clyde, both of which have invested huge sums of money in recent years; both of which have full order books; and both of which should really be encouraged? I cannot understand what the Government can do to improve what has been done in the past years.

Lord SHEPHERD

My Lords, I could answer the noble Lord but I have already "poached" a position in the order of the list of speakers, because I have to go to a meeting at about four o'clock. Therefore I shall leave my noble friend to reply to the noble Lord on this matter, and let the noble Baroness, Lady Seear, have the floor.

4.15 p.m.

Baroness SEEAR

My Lords, in these times when Parties are much divided and controversy runs deep, it is agreeable to be able to agree, even in small measure, with what is being said from the Government Benches and with some, though, alas, by no means all, of the aspects of the gracious Speech. There was indeed much in the diagnosis that the noble Lord, Lord Shepherd, has given us, to which many of us would respond; in the diagnosis, though not, alas!, in the prescription for the cure. May I pick out in the gracious Address one clause, which has not so far been referred to, which responds to economic needs and to social needs, particularly at a sensitive and important place. I refer to the clause that refers to the provision of vocational training for school-leavers between the age of 16 and 19 years. We are deeply afflicted by growing unemployment at the present time, and I suspect that it may well be, sad though it is, that it is the realisation of what unemployment means—more than Government propaganda and Government preaching —that has brought sense to people who are frightened by the consequences, in terms of unemployment, of what inflation means.

But if there is a group in our society which is most grievously damaged by unemployment, it is the group comprising those who leave school only to find nowhere—during the vital, formative, adolescent years—in which they can learn skills and acquire habits of work. Therefore, I particularly welcome the recognition that special effort has to go into providing relevant training facilities for this category of people. But the emphasis is on the word "relevant". For what are these youngsters being trained? How well do we know that when they reach the end of their training period there will be jobs waiting for them? Nothing can be more demoralising than to take a youngster, put him through a training programme, encourage him in the belief that if he gives effort and attention to the training there is a reasonable job with a future ahead for him when he has finished his training programme, only to find that there is not. Are we confident that the plans are good enough—we have, in all conscience, been working long enough on manpower planning—to be able to give that kind of assurance to the youngsters whose training is suggested in the gracious Address?

But, my Lords, it is not only a question of whether there will be a job when these youngsters have finished the training course. The youngsters referred to here have, one hopes, 50 years of working life ahead of them in this country, if this country has a future, and jobs, to offer them. It is the long-term prospects, even more than the immediate prospects, which should be concerning us. Because I fail to see in the gracious Speech any real long-term strategy to deal with the problems that face us, I regret not so much what is included in the gracious Speech as what is omitted from it. The noble Lord, Lord Shepherd, said that there are many diverse diagnoses of our ills. But, I believe, on the contrary that there is much agreement on certain major points as to the causes which afflict us and which lead to the circumstances from which we suffer.

There is, I think no disagreement among noble Lords on all sides of the House, or indeed among economists in the country, that we have suffered, and have suffered for a long time, from under-investment. I would say that under-investment and the misuse of manpower are the two root causes to which we should be directing our attention, and I do not believe that there would be a great deal of disagreement about that diagnosis. On what we ought to do to get it right, of course, there would be disagreement; but on the need for greater investment and for a far better use of manpower—on these two facets of the problem—I think we can agree.

My Lords, what is the Government's long-term strategy? As I listened to the speech of the noble Lord, Lord Shepherd —and, of course, I had not had the opportunity to read it—he seemed to me to be relying on world recovery and on our ability to take advantage of that recovery when the upturn comes. I hope with all my heart that he is right, but I have my doubts, and these doubts are also to be found among objective commentators, both in this country and overseas. Are we right in assuming that we in this country will take part in this upturn? There are some who are saying that the upturn will come soon in the United States; shortly after that—perhaps a matter of 18 months—in the rest of Europe; but that for us the slide goes on. The slide will go on unless we get the investment that we need, and get it now, and unless we get a far better utilisation of manpower than we have at the present time. We have no right to assume that the upturn will benefit us along with other countries unless, in these two vital areas, we begin now to put our house in order.

My Lords, it looks as if the major strategy of the Government, which is not reflected in the gracious Speech, is that, as the value of the pound falls in international markets, our prices will of course fall; that when there is an increase in demand overseas, the prices of our exports will fall; and that as there is an increase in demand overseas we shall get the benefit of low price in comparison with our competitors, because of the fall in the value of the pound. This, so far as it goes, is not an unreasonable strategy, but it is not by itself an adequate strategy. Mere cheapness in recovering world markets will not be enough unless we have new designs. Unless all those non-price factors which have haunted us in our attempts to capture and retain export markets come right, then the mere fact that we are cheap will not benefit us greatly when overseas markets begin to recover; and these non-price factors require a very much better level of investment, starting now. Old designs will not do when other countries offer new designs, and price will not help us greatly. Indeed, the fact that there is recovery in other countries may make price less relevant, not more relevant, as prosperity returns to the people to whom we wish to sell.

So, my Lords, what is there in the gracious Speech to lead us to believe that we are really going to get the investment that we need? Where is it in fact coming from? We have squeezed resources so much in different directions, we have laid upon the productive sector of industry so many demands of one kind or another, we have raised the level of taxation and discouraged profits to such an extent that it is hard indeed to see where these resources can be found. If only the gracious Speech had given some hope that profitability would be encouraged to recover!

Surely we know perfectly well that noble Lords on the Government side realise as well as we do what a myth is the abuse of profit, and how impossible it is to have investment unless you have profit. Yet, here is the vote-catching emphasis on price control. Price controls are to be statutorily enforced, and yet we are to trust voluntary agreements for wage control. Where is investment to come from, except by donations from the Government, unless industries are allowed to make profits; and where are the profits to come from if prices are held down and, at the same time, wages increase?

Like the noble Lord, I was extremely glad when Mr. Jones, of the Transport and General Workers' Union, agreed to the£6 increase; but, of course, it was even at that time intended that it should be a £6 maximum. We have not heard very much about anybody settling below the level of £6; and in some cases, although this was not a rate of increase which kept pace with the rate of inflation, it was still a pretty high increase by previous standards. So where is the investment to come from, and what real hope is there for recovering industry, based on better investment, to be found in the gracious Speech? Although there was much in the tone of the speech of the noble Lord, Lord Thorneycroft, with which I would not agree, I am bound to agree that by continuing with the nationalisation of shipbuilding and aircraft we are increasing the hostile climate which makes it much more difficult for industry to recover.

So, my Lords, it is not only investment, important though that is—and I would put it first. It is also the utilisation of manpower. When we talk about the utilisation of manpower, attention is frequently drawn to old-fashioned methods in industry; the failure to use the people employed in manufacturing industry to good effect; the rejection of new technology; and a variety of criticisms with which we are all very familiar in the field of manufacturing industry itself. But when you look at the total distribution of manpower in this country, although it is undoubtedly true that waste and misuse is to be found in the manufacturing sector, what stands out—as those of your Lordships who have read the recent,. extremely interesting articles in the Sunday Times by Oxford economists will agree—is the extent to which the manpower of this country has increasingly been absorbed into public administration in one form or another. I would draw your Lordships' attention to the cartoon in the Sunday Times supporting those articles—and I think it should be displayed in every workshop in this country —which showed a labouring, manufacturing man on the factory floor supporting an enormous superstructure, on the top of which was a vast basket of civil servants.

The Government must accept responsibility for this continuous increase in public administration, both at national and at local government level. It is absorbing our manpower; it is absorbing our money; and what are we getting for it? The noble Lord, Lord Shepherd, admitted that the civil servant, for all his virtues, is no person to control the development of industry. When are we going to recognise that industry is a highly professional and technical job? The noble Lord, Lord Shepherd, said that management has let the country down. Indeed, one of our great weaknesses in this country is that we have never given that regard to the professional job of management which we should have done. If there is one reason why we in this country are so behind our competitors in America and Europe, I believe it is because in North Atlantic countries and in Europe the title "engineer"is held in honour, and it is not held in honour in this country. I speak as an engineer's daughter and an engineer's sister, and I know what a low lot we are.

My Lords, there is this great need to recognise that industry is a technical job, and that it is no business of civil servants to try to run it from Whitehall; to cut down the cost of maintaining this huge superstructure of public administration and, from there, to get the manpower that we need back into the manufacturing sector, back into the wealth-creating sector, back into the export market, so that we really are using our manpower (which, given the opportunity, is capable of first-class results) to produce the goods that we require to finance both the economic recovery of the country and the kind of society that we need to have.

It is not from envy that it is believed that public administration—control from Whitehall—is not the way in which to get the country back on its feet and to make us rich again. Look at the kind of planning from which we have suffered from which the people in industry have suffered. Many a manufacturer is saying today, "We do not really mind what sort of plan Governments have; for we know Governments, they will make plans, it is their way. But if only they will stick to them; for there is no consistent planning that lasts for more than a couple of years! "Manufacturers are no longer feeding into their computers information they get about plans because by the time they get results the plan has changed.

My Lords, let me just give a few facts about what has happened on regional planning. In 1947, a Labour Government introduced Industrial Development Certificates. In 1958 to 1960 a Conservative Government introduced development aid concentrated on very restricted areas. In 1966, a Labour Government greatly increased development aid areas and a Labour Government gave development aid investment grants. In 1967, a Labour Government instituted regional employment premiums. In 1970–71 a Conservative Government again restricted development aid areas, a Conservative Government abolished investment grants and it was Conservative Government policy to abolish regional employment premiums. In 1974, a Labour Government reprieved the regional employment premium. How is industry to make its long-term plans—they have to be long term—in the face of the chopping and changing that we have had from headquarters, from the national Governments of both Parties? We on these Benches are in the clear because we have not had the opportunity to make any of these plans or to perpetrate any of these mistakes.

My Lords, surely what we need now is a long-term strategy. Let us have a minimum strategy about which all groups in the country, both sides and all Parties, can agree. We are agreed on the need for investment and on better utilisation of manpower. We can surely have a policy with some continuity. If we have that then the 16- and 19-year olds who, according to the intention of the gracious Speech, are to be trained, could be trained in hope, rather than in fear.

4.32 p.m.

Lord MOLSON

My Lords, I said last year in this debate that if politics were indeed a game of cricket, I thought that the Conservative Party might well feel that the wicket was one where it was as well to put the other side in to bat. Certainly, all the events of the last 12 years have shown how sticky the wicket has been. I do not, however, entirely share what I thought was the self-congratulation of the Lord Privy Seal in considering that the position at the present time has improved as much as he would have us accept.

I fear that Britain at the present time is really almost ungovernable. There is nothing new in a country being ungovernable. Even in my own lifetime I watched France ungovernable on several occasions, Greece on a number of occasions and the South American republics are almost always ungovernable. But our country, I am glad to say, in the past has not been ungovernable. That is because of the spirit in which Parliamentary democracy has been worked. The minority has always acquiesced in the decisions of the majority and the majority, for its part, has not attempted to impose upon the minority policies that were so distasteful as to drive it into revolt. Parliamentary democracy depends upon mutual understanding and respect. Unfortunately, in recent times that spirit seems to have changed. We have Clay Cross; we have the Shrewsbury pickets; we have Ulster; we have the junior hospital doctors; and I read that a Conservative ex-Cabinet Minister has said that because of his own personal views he does not intend to carry out the instructions of the House of which he is a Member.

My Lords, with no desire to be divisive (to use the phrase of the noble Lord the Lord Privy Seal) I think one must recognise that the trade unions at the present time—many of them and certainly sections of them—are behaving very much like those predecessors of ours in this House in medieval times who were the over-mighty subjects ", as one king called them, and were frequently in rebellion against the constitutional authority. These trade unions, many of them, are behaving irresponsibly. I use the word "irresponsible" in two different senses. Many of the officers of those trade unions are not elected or periodically re-elected by any proper democratic process. I call them irresponsible also because in many cases they have not adequately considered the consequences of the actions they are taking and especially the industrial actions in which they have indulged.

My Lords, as has already been pointed out by my noble friend Lord Thorneycroft and the noble Lord the Lord Privy Seal, there has been a most welcome sign that where there is something in the nature of genuine industrial democracy it is the moderates who are successful. What has happened in the engineering union is most encouraging for the future; but I would point out to the Government that it was only because the postal vote was retained and that between 37 per cent. and 38 per cent. of the members voted; whereas before the postal vote it was not more than 12 per cent. Therefore, I hope that the Government will bear in mind what they have promised in the gracious Speech; that is to consider the way in which industrial democracy can be extended.

My Lords, the trade unions' power outside the Constitution resulted in the Labour Government of ten or twelve years ago having to abandon the White Paper, In Place of Strife it resulted in the defeat of Mr. Heath's Government and at the present time this Government are obliged to rule on terms acceptable to the trade unions. The failure of the so-called Social Contract was a clear indication of the power that can be exercised outside Parliament and without regard to the wishes of the constitutionally elected Government. The so-called Social Contract has been replaced by something which, as the Lord Privy Seal said, is working a great deal better; that is, the £6 maximum. That was a policy adopted on the initiative of Mr. Jack Jones of the Transport and General Workers' Union. If it had not been for his massive and powerful support, that policy would not have been any more successful than the Social Contract.

I read in the gracious Speech that the Government favour devolopment of industrial democracy in both public and private sectors. They are going to hold an inquiry as to how industrial democracy in the private sector can best be extended. I say again that to ensure that the great mass of members of trade unions can effectively make their voices heard not merely those who attend at branch meetings—will be one of the most effective ways of doing that. I have great hopes of industrial democracy. When I reflect and read what the high Tories foretold before the passing of the Reform Bill of 1832, that the Constitution would be brought to an end and that demagogic chaos would succeed it, I am hopeful that the happy precedent of political democracy in this country may be followed by industrial democracy. On almost every occasion when the electorate was widened by successive reform Bills throughout the 19th century, there followed a Conservative Administration in power for a considerable period of time. It is an old phrase but a true one (which was applied largely to our colonies), that there is no better cure for irresponsibility than responsibility. That again was shown by the massive response of the people of this country in the referendum on the Common Market.

The Government say that they give the highest priority to the attack on inflation and unemployment. Although no one, I imagine, would now deny that the last Conservative Government's reckless printing of money and extension of credit was largely responsible for the degree of inflation from which we are suffering at the present time, no one who has read Sir John Hicks's lucid and remarkable article in the Westminster Bank Review would argue that monetary restriction in itself is enough. There will have to be a wage policy running simultaneously. In the long run we cannot go on borrowing overseas in order to put off the evil day indefinitely when the output per worker must equal his real wage and not exceed it. That state of affairs can obviously be reached in one or two ways: either by increased output or by reducing real wages. We all prefer the former.

We are fortunate that the pound has not a fixed value in terms of foreign monies. It is generally referred to as a floating pound; but of course it is a sinking pound—it has sunk and unless there is a great change in the productivity of this country it will continue to sink. But that is not an unqualified misfortune in itself. It must be left to fall so that imports are checked by higher prices and exports are encouraged by the fall in the external value of the pound. Left in that way, the pound will accurately register our balance of payments. I beg Her Majesty's Government not to prevent this automatic and salutary effect from operating, either by imposing import restrictions, or by subsidising food and services. The only effect of that is to cushion for some time our people against the necessary fall in our standard of living unless our production is increased.

I also deplore what the Lord Privy Seal referred to again this afternoon: the policy of subsidising employment in industries which are not themselves expanding and are not likely to be viable. We must at the same time reduce both local and central Government expediture. It is a burden on all of us, but it is especially a burden upon industry, and I was glad that this has been admitted by Ministers and also by the Lord Privy Seal this afternoon.

The Lord Privy Seal said in his speech that he did not think that my noble friend Lord Thorneycroft had advocated any immediate slashing of expenditure. I do not know what my noble friend's views may be. I had some experience in 1951 and 1952 when I was charged by my noble friend Lord Eccles with administering the building controls. To attempt to slash expenditure which has already been initiated is wasteful. But the longer that the reduction in expenditure is postponed, the greater the reduction will have to be, and the longer the period of time during which that reduction will have to be maintained. I am glad that the Government have not slashed expenditure this year in order that a school which has already been started will be completed and brought into use. But if that expenditure is not slashed this year—and I am glad that it is not—then it is essential that there should be a corresponding and an increased economy upon schools in the next year and in subsequent years. That I believe to be the policy that the Chancellor of the Exchequer is following.

Reduction in capital expenditure on the social services is essential and will make available additional capital resources; not merely money, but the real physical resources that are required for capital investment, in order to do what the Government announced in the gracious Speech they wished to do: achievement of a satisfactory level of productive investment to assist in the reduction of unemployment. That is the right way to deal with the problem over a period of time. It is the creation of new jobs in efficient industries that is needed and not the preservation of jobs in old and declining industries. But the Government will find that lack of investment is not the whole problem, which everybody has criticised. For example, £60 million was invested in an up-to-date steelworks in South Wales and the labour force was not willing to work there at an economic wage. It was the Chancellor of the Exchequer who had the courage to quote that example at the Labour Party Conference this autumn. Too much emphasis can be put upon preserving jobs.

I am glad that the noble Lord, Lord Beswick, is on the Front Bench and will be replying. I should be glad if he would tell the House just a little about the thoughts in his mind when he revised the modernisation plans which were put forward by the Steel Corporation. I read what he said to your Lordships' House and had an uneasy feeling that many of the modifications he made to that programme of reconstruction were intended to preserve jobs in existing plants rather than to expedite the time when there will be a smaller and more efficient steel industry, capable of competing with our foreign competitors.

I have said that the country is in danger of showing itself to be ungovernable because of conflicting sectional interests advancing themselves at the expense of the community as a whole. I therefore welcome the Government's statement that they, will continue to work closely with the Trades Union Congress, the Confederation of British Industry and with the British people as a whole on a continuing programme to control domestic inflation and to prevent its resurgence. Those words are in the gracious Speech, but I am bound to say that I cannot regard the gracious Speech itself as a very favourable indication of how the Government are going to do that.

4.53 p.m.

Lord ROBERTHALL

My Lords, I listened with great interest to a number of the points made by the noble Lord, Lord Molson, and I hope to refer to them later. This is an economic debate and I propose therefore to say a little about economics. The gracious Speech said extremely little about how we were going to deal with our economic affairs, and what it did say specifically suggests to me that things will only become worse.

One of the great problems at the moment, as I think the Government, and of course everybody connected with industry, know, is the lack of confidence in business. I do not think there is any doubt at all that most businessmen, reading that part of the gracious Speech, will be very worried about the difference between what is said there and what has been said at other times in other places, and particularly quite recently at Chequers. I agree in particular with several of the points already made by other speakers concerning the nationalisation of the shipbuilding and aircraft industries. This seems to me most unsuitable. It will depress business confidence and will add to the long list of industries which the Government are having the greatest difficulty in managing. The shipbuilding industry is quite efficient and on the whole, the aircraft industry, too, is quite efficient. Therefore generally speaking, this is not a good augury. However, I shall confine myself to the general principles put forward in the gracious Speech and shall refer especially to the fact that the highest priority will be given to the fight against inflation.

I last spoke in a debate on the subject about 18 months ago, and then I felt extremely gloomy about the state of the economy. It was badly overloaded as a consequence of the policy of the previous Administration. Partly because of this and partly because of the oil, the balance of payments was in a very bad state. Companies' liquidity and profits were very low, and the whole thing was compounded by inflation. As some of your Lordships will know, I have had a long experience of having to forecast and to speak about economic trends. I have to confess that from that time onwards I became more and more gloomy, and about six months ago I felt that the country was on the brink of disaster. It seemed to me that we were very near the point when we should be unable to borrow any more, that we should then be forced into a period of very severe retrenchment, which would put great strains on the social and political life of the country.

It would be foolish to say that we are now out of the wood, but I think that during the last six months we have to some extent pulled back from the pit, on the brink of which, in my view, we were standing. The noble Lord, Lord Molson, used a cricketing comparison. Perhaps I might use a baseball one. Noble Lords who are familiar with the game may recall that when the pitcher is pulled out because his side is behind, he is recorded as the losing pitcher until such time as his replacement pulls the game round. After that, the new man will be recorded as either the winning or the losing pitcher. I would not say that Mr. Healey is the winning pitcher just yet, but at least we are still in the game and we still have a chance. I hope very much indeed, and I am sure my hope will be shared by all your Lordships, that Mr. Healey will be recorded as the winning pitcher.

What are the good things? We are not overloaded; on the contrary, unemployment is one of our severe problems. The balance of payments is improving and there are now large resources available to take advantage of the world recovery for which we are all hoping. I think it is unfortunate that this is being so much delayed, but at least we have made efforts which have put us in a position to take advantage of a recovery, and the Government should get credit for that.

Regarding inflation, I thought the noble Lord the Lord Privy Seal was a little too optimistic. He compared us with other countries and said that they had all got it too. I do not think he mentioned that at the moment our disease is much more virulent than theirs. The fact is that our incomes policy broke down after a comparatively short period. But these catastrophically high rates of inflation have now begun to turn downwards. It is not a big turn but, after all, when the tide turns you never see very much change in the first half-hour. On present form it seems to me quite likely that we shall get down to something like 12 per cent. by the end of next year, if the present policy can be held to.

Company liquidity is certainly much better than it was 18 months ago, largely because of the Chancellor of the Exchequer's changes in the assessment of corporation tax on the stock appreciation side. I know it still has to be carried in the balance sheet, but the saving has improved the company position a great deal. Finally, I should mention monetary policy. The Chancellor and the Bank of England, in my view, have done astonishing things in keeping it under control in spite of the enormous Government borrowing requirement which makes that almost impossible. There is much still to do. I am afraid that I thought the Lord Privy Seal was looking on the distant pastures rather than on the horrible country that is still in front of us. No doubt many other speakers in this debate will deal with some of those problems, as indeed some noble Lords have already dealt with them.

I would mention just two matters which seem to me to require very high priority. The first is incomes policy. As I have said, and as we must all admit, the incomes policy so far, within its own limitations, has been extremely successful. But the past history of incomes policy is not at all encouraging. We have had periods of freeze or standstill and a number of things of that kind. All of them have broke down after a comparatively short time, and have been followed by an explosion. It was the explosion after the last standstill period which set off our recent inflation and so many of our troubles. But things are somewhat different now. I ought not to be too optimistic, but I feel that we have some hope.

As several speakers have already said, especially the noble Lord, Lord Molson, the position of the trade union movement has been transformed in recent years. In many respects it is undoubtedly the most powerful body in the country. People say that the country is ungovernable—or that is what they mean—but to my mind, and I think to the mind of many people, it is an illusion to think that Parliament governs the country. It can govern it only within the limits which the trade union movement will allow. In the past that power has been exercised, apart from short periods of responsibility, in a very destructive manner. The means was the ability to stop the country by strikes or to affect Parliament by votes, but it was not constructive. It is one thing to threaten to kill a hostage or to cut your throat if you do not get what you want; it is another to suggest what the community wants.

I thought that recent events, particularly negotiation of the incomes policy and the reports which came from Chequers, could give us some encouragement. Very late in the day, perhaps, the trade union movement is beginning to realise that power requires responsibilities. I thought, for instance, it was very encouraging that although in the past the movement has always said it wanted nothing to do with a statutory incomes policy, the present incomes policy is really a statutory one. It is not statutory on trade unions, but threats to deal with employers who break the ceiling by not letting them take any of the increase obtained through the Price Code, or threats to the nationalised industries that if they broke the policy they could not look to the Government any more to bail them out, gave the policy a statutory backing which has been accepted. I will not weary your Lordships any more by going into the troubles and requirements of the trade union movement, but we can get some encouragement there.

It is essential to start getting to grips with an incomes policy straight away. Mr. Foot may be right in saying that we do not need it just yet, but I hope he will not persuade himself that because of that we do not need to think about it. I suppose he is thinking about it, really, and if he is let me encourage him. I do not think the present policy of a £6 wage increase for everybody is one that can last for very long. If it is £6 again we shall stick to 12 per cent. or 10 per cent. inflation. If it comes down to £3 a week, which sounds miraculous, we might get down to a rate of inflation which is more or less that of our competitors. But I am sure that the problem of differentials and injustices will be such that there must be some machinery for adjustment of the kind the Pay Board dealt with. It will be a terrific task to persuade the trade unions, but as I say, they seem to me to be more realistic than they were.

The second point which I want to mention, and it is one which several noble Lords have mentioned, is the level of Government expenditure. I am one of the people who agree with that school of economic thought which I think the Chancellor of the Exchequer is following at the moment, which says that if Government expenditure is cut now unemployment will be increased and that cannot be right in present circumstances. To talk about it in monetary terms. I believe that the resources required to finance Government borrowing will be found one way or another, although of course we all hope that the external borrowing can be got down as soon as possible. But, with respect, I do not think that that is really the point.

The difficulty is that it takes a long time to make an effective reduction in Government expenditure. Everybody who has dealt with this problem has experienced that. What has been so much wrong with our attempts at economic management is that a good deal of Government operations have got out of phase. The cuts are made when it is thought they are needed, but they do not operate until they are not wanted any more, or Government Departments are encouraged to spend because there is thought to be a slack and by the time they have got around to spending it is not wanted. This time-lag particularly applies to Government expenditure. Therefore, the sooner we get to work, the better.

If the Chancellor of the Exchequer and his advisers think that the effect of a cut which they can make quickly—I doubt whether they could make one but let us suppose they could—would make the slump worse, then there are plenty of things they could spend money on which are more urgently required than Government expenditure. There is investment; there is still the level of business confidence and business liquidity. The money could be spent on doing more for the unemployed, or there is the whole field of taxation which could be reduced—it could be raised quickly again.

The difficulty about the present situation is not so much that we are suffering from monetary inflation; it is that the whole system is becoming too liquid because of the enormous borrowing requirements. The Bank have done wonders but even they cannot fund long-term all of these requirements. As the debt gets shorter it puts everything out of control, should we want to use controls again. It is not that I feel that we need to cut Government expenditure and do nothing else —we need to make a start on it—but that if there is a bit of slack we should begin the diversion of resources which we need. There are many other points which I hope will be dealt with during this debate. I do not believe that those I have dealt with are panaceas, but those are two points which I feel are of considerable urgency.

5.11 p.m.

Lord ARDWICK

My Lords, may I begin by apologising for the fact that I cannot stay until the end of this debate. It is only the second time in five years that I have had to make such an apology. I am all the more ashamed to have to do so today, since it is obvious that it will not be a marathon debate. However, I should explain that those of us who have the privilege of serving in the European Parliament have been out there for 11 out of the last 15 working days. Because of engagements that we ought to have fulfilled during our absence we tend to cram our diaries when we return. Having been abroad so much over the last few months I felt almost like calling my speech today, "Home thoughts from abroad"!

Not so long before the Recess, I was one of the few speakers in an economic debate in this House to express qualified optimism about our national ability to solve our problems. The encircling gloom on that day was very deep indeed. The cause of my optimism was the lead being given by Mr. Jack Jones of the trade union movement to the Labour Government. It was a moment when the Mark I Social Contract was in ruins. The crucial question was: Where do we go from here? and it was Mr. Jack Jones who showed the way. At the time, I said that his idea of a flat rate increase was most attractive, but I feared that the powerful unions had such a self-interested respect for the differentials that I doubted whether that detail of his proposition for a new voluntary incomes policy was realistic.

We now know that this tinge of cynicism on my part was unjustified. Mr. Jones persuaded the Government and the TUC that this was the way forward, and he performed a great service to the nation and, incidentally, to his fellow trade unionists. The £6 pay limit has been not only agreed but held, and it is being held. It is essential that it should continue to be held at least until the Government are ready, as was suggested by the noble Lord, Lord Roberthall, with proposals for the next phase of the voluntary incomes policy.

Who are the enemies of the £6 pay limit? They are not members of the Party opposite. I doubt whether even the most determined free enterpriser wants to return to a free-for-all in wages—certainly not at this moment. No, my Lords, the enemies of the voluntary incomes policy are on the extreme Left. The most powerful argument that they can use with workers and trade unionists is that the Labour Party have sold out to the bosses and the Tories, and that they have ceased to be a Socialist Party. This was said only a day or two ago by the most charming, seductive and, therefore, the most dangerous voice on the Left, that of Mr. Jimmy Reid, who was astonished to find himself knocked off the executive of his union.

Noble Lords and Tory leader writers, too, should recognise that this Government's authority over the people of this country, although unique, is by no means absolute. The Party opposite knows that our only hope of getting through this crisis with minimum disorder is if this Government retain their acceptability. The Party opposite, I fear, has forfeited its hope in the immediate future, though not for all time, of securing such acceptability. It is doubtful whether a coalition Government would acquire it, except in the most dire of national catastrophes. However, the precondition of the Government remaining acceptable to the mass of the people is that they should remain a Labour Government. The Government have to make a bitter admission to the people that the standard of living must go down for the first time in the memory of even middle-aged people, and get them to accept that no massive scheme for the relief of the worst unemployment ever known, again to the middle aged as well as to the young, can be immediately envisaged. Therefore, it is essential that the Government should remain a Labour Government both in appearance and in reality.

I am not pretending that the mass of the people of this country are impatient for the nationalisation of the shipbuilding industry, or that they are likely to demonstrate in Hyde Park because a handful of education authorities remain committed to a selective system of secondary education. Indeed, there are items in the gracious Speech which do not even represent the social priorities of every one of us on this side of the Chamber. However, we must not view them separately and in isolation from the general political situation, which is what noble Lords opposite are doing. That is what The Times was doing this morning in a leader which was technically brilliant and avoided all their old-style faults of double negatives in order to express positives, and sentences which begin, "On the other hand". It was absolutely direct but, to use its own adjective about the gracious Speech, "politically dreadful".

Almost all the nationalised industries, says The Times, are in a state of managerial disorder, grotesque over-manning and huge loss. It must have struck even readers of The Times, as well as noble Lords of the Party opposite, that the same might be said of the privately owned motor car industry and, indeed, of parts of the newspaper industry itself. The Times wants the Government to cease legislation for a whole year. After the experience of the last Session, legislators of any Party in either House would give two cheers for that. Of course, it is a kind of after-dinner suggestion: it is not a serious political proposition and cannot be taken seriously. What kind of authority would any Government have if they followed this advice, and what kind of authority would this Government have? It would be a eunuch Government that basked in the affections of the Institute of Directors, the world bankers and the editor of The Times, but unfortunately their acclaim would not have the effect of persuading the masses of this country to give their essential co-operation to the Government. In fact, it might have precisely the opposite effect.

Sometimes the Government's critics remind me of Professor Higgins in the musical version of Shaw's play, "My Fair Lady". Professor Higgins was a brilliant man but he had no understanding of women. "Why can't a woman be more like a man?" he asked in that well known but rather pathetic song. Equally pathetic are those who ask, "Why can't Labour be more like the Tories?" This question was put by the noble Lord this afternoon and I thought of Professor Higgins when he was speaking, but the answer is, "Because they are not made that way." Of course, criticism of any item in the gracious Speech may be valid and, indeed, useful. I myself hope to say a few critical words during this Session, but to condemn the whole package as a package is foolish and shortsighted, though, ironically enough, it may serve one useful purpose. It is a proof to the people of the good Socialist faith of a Labour Government that has so much to ask of them in these hard times.

5.20 p.m.

Lord HAWKE

My Lords, we have had a most enthralling debate and, being a man of peace, I find it difficult not to agree with almost everything that has been said by everybody. Particularly, I should like to re-echo the words of my noble friends Lord Molson and Lord Roberthall, on the importance of an incomes policy in the future. If we do not have something of that sort. I do not see how we can get on at all. I also plead for an end to the bitter Party battles that go on. whereby one Party automatically says it will cancel everything done by the other Party. A country cannot be governed under those conditions. Battledore and shuttlecock is no alternative to good government.

I was reading the other day in the Sunday Press a resumé of the economic decisions made by Government over five or six years (I think it was) and I was struck by the fact that they all seemed to have turned out to be wrong. We have a vast army of economists, statisticians and computers all serving the Government, which cost many millions of pounds a year. Of course, we shall never know to what extent the decisions were made in accordance with their recommendations or against their recommendations, but whichever way it was, it would seem that there could be a case for scrapping the lot and substituting a good witch doctor to roll the bones and study the entrails. I think Mr. Healey, plus a good witch doctor, would do quite well!

In any case, when the experts claim to to be able to foretell the economy, within £100 million either way, when there is a gross national product of over £40,000 million, I do not think they can expect to be believed by anybody. At any rate, the result to date of the Governments and their advisers has been a pound lower than ever before, a rate of inflation higher than ever before—just damping down now—rising unemployment and a record burden of debt. That is a deplorable situation. Unemployment is a horrible thing, not only for the people who are unemployed but for its side effects, and if one gets a slump working on an economy which is known to be employing more people than are really necessary to do the jobs, one is bound to have some unemployment when firms start to economise to meet the falling conditions.

But it is interesting to see that there is still a brisk demand for technicians and experienced administrators, and it is quite clear from any of the newspapers, both Sunday and weekly, that there is a big demand; I suspect that the supply is not equal to the demand. I wonder how much of the unemployment is due to the rapidly falling purchasing power of both the better off, who have inflation underneath and steeply progressive taxation on top of them, and also those whose incomes are fixed or more or less fixed. These people are economising so far as they can and the type of services on which they are economising—the ones they feel they can do best without—are things like telephones, postage, railways, newspapers, petrol, Christmas cards and the like. I wonder how many Christmas cards will be sent this year. All that means unemployment for one person or another and none of these industries—neither the Post Office nor the railways, nor the newspapers—is very prosperous. I suspect that quite a proportion of that unemployment is due to the facts that I have just enumerated.

Of course, if your aim is an egalitarian society, you cannot have your cake and eat it. While you are getting your egalitarianism, you must somehow provide that those people who are coming up will substitute purchases for those people who are going down. In other words, the expenditure on The Times, the Financial Times, telephones, postage and Christmas cards must be taken up by the trade unionists to make up for the formerly better-off people who are unable to continue spending on them.

The classic remedy for unemployment is cheap money. We are hamstrung because the Government are relying on borrowing foreign money to pay for our overseas deficit. They say that money will not come here unless we pay a very high rate of interest for it, and in the long term the rates are really quite ruinous. I am not very good at calculating compound interest, but if one is borrowing money at about 10 or 12 per cent., but not paying the interest, the debt expands at the most remarkable rate. I should have thought that the rate of interest required to attract money is purely comparative. If your neighbours are paying a negative rate (as has happened), you do not have to pay a very high rate to be better off than them. If we were all to get together to decide to bring down our rates, I believe we should still get our share of the international funds which are available. We should have to pay more, of course, than some countries, but I do not believe we should have to pay the outrageous rates which are being paid at the moment.

I hope this little problem was discussed at the Rambouillet Conference, because it seems to me that would be an ideal media for making an unholy alliance on matters of this sort. After all, the industrial countries of the world are about the only places where large funds can find a home at any rate of interest at all with any chance of being paid. People always argue that the bank rate must be high enough to compensate for the effect of inflation on your money. I do not accept that. It has not always happened in this country and, so far as I am aware, it has never happened in those countries where high inflation is indigenous. In the more primitive society you would probably have to hire a private army to keep your funds intact, and that would certainly be a charge on the funds.

Cheaper money would immediately encourage house building, which is a key factor in priming the economy. A person builds a house and the purchaser has to buy furniture, carpets, and so on. Of course, all investment in industry, also, would become much easier and much more attractive. The rates of interest are too high at the moment to encourage people to invest in industry on a large scale: 14 and 15 per cent. money is just "not on"if you are an industrialist. You have to pay if you are forced to, but you do not go out of your way to borrow at those rates if you can possibly help it, and the Government seem to want everybody to invest.

I know that we are in immense difficulties owing to what has been described as "runaway Government expenditure". I know that revenue must be running very high, too, but if the gap is anything like the figures suggested by some of the financial journalists, then the situation is rather frightening, particularly when one considers the rate of interest that the Government have to pay. That is the key factor. If you borrow £1,000 million at 12 or 15 per cent, it becomes much more burdensome than if you borrow the whole amount at 6 per cent. On top of all this, there is a torrent of legislation. Hardly a Statute gets on to the book which does not involve the employment of one or more—or many more—Government servants. At the moment, in considering their security of tenure the indexation of their pensions and their salary scales, they are extremely well paid compared with other people.

My Lords, with regard to pensions, in the private sector money is put aside every year and, in so far as it is invested in industry, it might be expected to be fruitful and to help pay the pensions in the years ahead. But even there, inflation is making private employers wonder whether some of their schemes will be honoured when the time comes. In the public sector, pensions are paid out of current income, and the burden of public pensions in an inflationary situation is very onerous on future taxpayers.

One of my favourite economic maxims is "The more you pay your pensioners, the more your currency declines in value", and that can be worked out. Looking backwards is always a rather unprofitable exercise. I thought at the time, and I think now, that we probably made a mistake in taking the oil crisis too much in our stride, with the 1940 spirit of "business as usual". It would have been an opportunity of giving the British people a nasty shock and of saying that if we are to spend all this extra money on oil, we must spend less on other things. We could—I think without difficulty—have imposed something in the nature of rationing of some foodstuffs, for instance. That would have given the necessary catalyst for a more realistic attitude to our position in the world, which has taken so long to achieve, and which is only now beginning to percolate. The British people could have been "talked tough to" at that time. We might have saved some of the large wage increases which have led only to a fall in sterling, and thus increasing prices. Our situation might have been better generally. However, it is no good crying over spilt milk; we have made our bed and must lie on it.

My Lords, one ought to mention the gracious Speech, but when one turns to it I am afraid I regard its contents as irrelevant, or even harmful in the context of our main problem, economic survival. When are the Government going to take a holiday from legislation and get down to improving administration? Apparently not this Government, which seems to believe in the old nursery proverb, "Satan always finds some mischief for idle Parliamentary hands to do"! My advice to the Government would be: scrap the whole lot and do not be frightened to follow.

5.33 p.m.

The Earl of SHANNON

My Lords, like the noble Lord, Lord Hawke, who has just sat down, I was considerably interested in those experts who have spoken and were analysing our economic troubles. We have heard about misspent resources, lack of investment, low rate of return on capital, defective legal mechanisms, inflation and other blinding statistics. I believe these to be purely symptoms, and not causes. My belief lies in the fact that the real cause is largely due to our social attitude. I am sure that that is not an original idea; it must have occurred to many other people. But I concede and agree that it would be impossible for any good Party man on either side of either House to make the sort of speech that I now intend to make.

My Lords, not long ago in our society we respected someone who, by his imagination, initiative and his drive, created industries, employment and wealth for the nation. As a nation, we were known for our entrepreneurs and our captains of industry but not so today. The tendency now is for such people to be treated with contempt and suspicion. They are either variously polluting the atmosphere, grinding the faces of the poor, or they might even be guilty of this newfound and ultimate crime, making money. That emphasis and respect in our society has now gone away from the creators to the spenders. Now we respect those who identify worthy causes. I fully concede that the causes which they espouse are worthy; there is no doubt about that. Each is more worthy than the last. But they all have one thing in common: they do not create; they spend. They go around battering the social consciences of their fellows to support their worthy cause. Like the mythical Robin Hood, they are worthy, laudable, and economically a dead loss to any country which happens to have them within its boundaries.

This is borne out in our education today. In the universities we have large numbers of vacancies. We have only to look at the Written Answers given to Questions on this subject in the House of Commons to see the truth of that. Those vacancies are all in the useful productive sciences and in engineering. There are queues of students attempting to get into universities for the "soft" subjects—worthy subjects, the "personal hobby" subjects; above all in areas where you can cultivate at public expense an acutely painful social conscience which you then proceed to satisfy out of someone else's pocket. All this is most laudable and worthy, but, as I have said, it has the basic defect that it is economically unproductive. All those people have to be carried on someone else's back.

At the last Election, the Prime Minister made great play of the theme of the divided nation. He was completely correct, except that in my opinion he chose the wrong area in which to place his division. He chose the old, archaic division somewhere between an ineptitude of bosses and an allegation of workers. I suggest the real division lies between the carriers and the carried, between the really creative producers and those worthies who wish to ride around on their backs.

Hitler found a way to hold a Party together, by declaring a common enemy. For too long we in this country have been teaching ourselves to go sniping and yapping at the heels of those who possess the very qualities now needed to get us out of this mess. Your Lordships will now understand why this speech could not be made from either Party Bench, because I place the blame fairly and squarely on those unscrupulous politicians —not all in oneParty—who, over three decades, very often have attempted to gain seats down the passage by teaching the electorate, or large sections of it, that it is easier to vote for your living than to roll up your sleeves and earn it.

My Lords, yesterday I was very worried when the noble Lord, Lord Byers, began to speak about Manifestos. I thought he was about to make all the points I wanted to make. Unfortunately, he did. I agreed with everything he said. I should like to add only that the basic objective of a Manifesto is to induct the very gullible to vote for what they think is plausible. A document designed for that purpose is not really a very good one for governing a country which requires an entirely different sort of document. Again I quote from memory. The noble Lord said, "After the Election please pop it in the wastepaper basket; it is the best place for it."

Alternatively, in return for a vote, the electorate is promised some good and desirable benefit, without directly having to pay for it or being seen to pay for it. "Put it on the bill", the Government tells industry, in respect of whatever benefit it happens to be, and industry is left struggling to sell goods bearing an increasing load of unnecessary and often irrelevant overheads. The very people for whom this benefit has been designed are often those who, when offered the goods for sale, look at it and give their verdict and their final judgment when they say, "Sorry, it is not worth it".

I implore those halo hunters to modify their activities until our economy is sufficiently recovered to enable them later to bleed and pay for their pet party hobbies. We used to have fine, ringing sayings: "To each in accordance with his needs", or: "A fair day's work in return for a fair day's pay". What have they become today? Today the first one has become, "To each in accordance with his wants and/or demands". As for the second, we do not even bother to try and say it now it did not work in the 'fifties and I do not suppose it would work today.

After the War the electorate, understandably, remembering the 'thirties and the late 'twenties, voted for what they thought was the right to work. Now that, unfortunately, has changed into the right to be paid. This change of emphasis and respect in our society from creators to spenders has resulted in the continual denigration of those very qualities that we are looking for in people to get us out of today's mess. It has also resulted in the ever-ready ear of authority to listen to the plaintive bleat from the lowest common denominators to "cut him down to our size"the moment they see anybody taking an initiative to break out and improve himself, and to take others with him. Look at the lack of real leaders this short-sighted policy of envy has brought about, not only in our country but in many other countries of the Western world! Look at our lack of leaders! Where have they gone, our leaders of yesterday? They are not here now, and nor do we see them coming.

It is an unfortunate fact that people react favourably to the possibility of reward, without which they are liable to join the ranks of those who happily stagnate or of what the noble Baroness, Lady Seear, called bloated administrators, leaving us quite happily to stagnate in our present mess. Governments cannot provide jobs for anyone, except, of course, "the boys", but that is known as forming an Administration, and that is hardly profitable to the country. But industrial leaders can and do, if they are encouraged and not forever ridiculed.

After the war, other European countries used their American money to rebuild their shattered economies and their factories. We "blued" ours on undeniably worthy—I should like to repeat "undeniably worthy", in case the following speaker says, "He is against social services and all the rest of it"; I am not —social services. Thus we calved sacred cows with little long-term prospect of feeding them. Please stop calving any more until we can afford to feed those we have Otherwise we will kill them, and I do not think any of us want that.

Man is an adaptable animal, and this social change has, I submit, brought about a very interesting change in young persons today. The past generation's status symbols are now unfashionable; the nice house, the smart clothes, the possessions—these are all out of favour. Today's privileged class is the apparent under-dog. It is best to appear to join him and decrease your vulnerability to the envious. Hence we have in fashion today frayed jeans, T-shirts, squatting in someone else's home, an unkempt appearance and a firm determination to remain a semi-permanent student and/or have a brilliant career on national assistance. Their demands are modest, but the necessary excellent hi-fi equipment and the car are obtained by moonlighting, to avoid becoming a taxpayer and hence degenerating into being a carrier instead of being one of the respected under-dogs who is carried.

What we need now is some hard work and people to take responsibility, with personal rewards for those who do, and we want less stodgy egalitarian stagnation. It is useless for the Prime Minister to announce this fall in living standards. Living standards have been falling for some years in respect of those very people who are of use to the country, while at the same time there has been a rise in the living standards of what were well called, during the last Session of Parliament, from the Back Benches on my left, "the well organised lay abouts". What we need is to respect any new emerging leaders and pay no heed to these envious cries of, "Cut them down to our size". They must be respected for the wealth and employment which they create for themselves and the nation, not made to feel embarrassed at the higher standard of living to which their efforts undoubtedly entitle them. They are your real carriers, my Lords, not those who decry them.

With regard to such little money as we have left and most of this is still obtained on the credit of those we still attempt to decry in generations gone by; let us remember that—put it in areas where we have proven leadership, put it in innovation, the transfer of technology, our technological capability, our research and development, places where we get a fruitful return on our money. Please do not pour it down drains which are variously labelled "nationalisation", "dead ducks", "lame ducks", or buy redundant jobs by supporting what are obviously commercially disastrous projects.

There has been a funny story circulating in Brussels recently, which goes as follows. The British are worried about their future in the EEC. The other countries of the Community rush to confirm to Britain their belief that this country has an assured future in Europe that of breeding a new generation of labourers for Europe. That is where we will end up if we do not take—and by "we" I mean Her Majesty's Government as well —a very firm grip on ourselves. May we please do so? But I am afraid that I do not get much encouragement from the gracious Speech.

5.50 p.m.

Lord ORR-EWING

My Lords, noble Lords will acknowledge that we have had some vigorous and thoughtful speeches from the Cross-Benches. If we come to reform our House I hope that the Hereditary Peers and the Earls will have a worthy place because we shall not get more robust and thoughtful speeches than we have had. I was particularly interested to hear the noble Lord, Lord Roberthall, who was the Dean of my college at Oxford and tried to keep me in control, and has managed much more successfully with the economy when he was a Treasury knight.

My Lords, quite rightly we give first precedence at the start of a new Parliament to a discussion of our economic situation and the resulting industrial position of our industries. This must be the main responsibility of Her Majesty's Government, and quite rightly this is the first debate we have, and the first subject on the first day. It is sad to think that the present decline in our economic activity is the sharpest for 44 years. That is taking us back to the disastrous days of 1931. We heard from the noble Lord the Lord Privy Seal—and from the Prime Minister yesterday as many of the quotations were the same—that this was mostly due to world conditions. I remember, and I could quote. the Prime Minister's speeches in the Election of February 1974 when the Conservative Government of the day were saying just this; that is, that we have been blown off course by the massive increase in raw material prices, particularly oil. This was pooh-poohed. Now the same arguments are fed back to us.

I think that, although the Lord Privy Seal quoted many figures showing what was happening in the world, he did not quote two significant ones. The Trade and Industry publication, a Government publication, for the 7th November gives the economic indicators for the EEC, and shows industrial production in the nine countries of the EEC, the United States, and Japan. A devastating position emerges from this table where industrial production in 1970, is taken at 100. We in company only with Luxembourg, are now below 100, and every other nation is either substantially or considerably above 100. It is no good saying that we are no better or no worse than the world; we are considerably worse. You have only to look at the rate of inflation of West Germany at a little over 6 per cent. and our own rate of inflation of over 25 per cent. to realise that we are not two to one worse, but in some cases four to one worse than our main competitors. This is why I was so disappointed when I heard the full terms of the gracious Speech. At best it shows massive irrelevance. Much of it is positively harmful. Too often it is continuing the divisive spirit which prevailed during the first legislative Session of this Government.

I think the noble Baroness, Lady Seear, referred to the disturbing report by those Oxford economists, Messrs, Bacon and Eltis, and they showed that in the last 10 years, 1965 to 1975, there has been not too bad a growth in productivity, 4 per cent. per annum per man over that 10 year period, but the disturbing thing is the vast numbers of people who have moved from productive industry into local government, Central Government, and other non-productive jobs. Fourteen per cent. have left industry, and in the same period there has been a horrifying 53 per cent. increase in local government employment. So one finds roughly the position where we have one-third of our working people in local and central government, we have one-third in the nationalised industries, and we have one third in wealth creating private industry. Thus, a smaller, thinner, and less profitable private sector has to create the wealth, and it has to earn and pay the taxes to carry a heavier and more expensive burden every year that goes by. This is leading us into further and deeper economic trouble.

I was hopeful of the Government, as other speakers have been, when they unveiled their new plan for the new industrial strategy, with the publication of discussions at Chequers, the presentations on television, and the Press conferences in London; they based this on NEDC. I hoped that this would show a change of strategy, because at last the message seemed to have come through that industry and industrial investment and the profit from which industrial investment came, would need to take overriding priority in the Government's next programme. We were told, as was said earlier, that the social services and the strengthening or improvement of them would have to wait.

In the last decade—the 61 years of Labour Government and 31 years of Conservative Government, so both Governments may have some responsibility—I must confess that I have not seen either in this Government or in the previous Government enough effort to help industry with its problems, save the one point to which the noble Lord, Lord Roberthall, quite rightly drew attention; that is, that the Chancellor of the Exchequer had quite rightly postponed the payment of corporation tax, and also tax on the appreciation of stocks, and this certainly has greatly helped. This is the one measure which has been favourable to industry, so that our cash-flow has been much better than many of us had feared. It seems to me that priority has been given —I am afraid, in the gracious Speech, it continues to be given—to what the TUC have demanded, and I regret to say particular priority to what the Left Wing of the Labour Party have demanded and continue to demand. It seems to me that there has been appeasement, appeasement, and appeasement again.

I was surprised to read in Hansard at column 719 of the 12th November just how much legislation has been steamrollered through our two Houses. In the 1970–71, or 1971–72 Session, there were just over 2,000 pages of legislation. In the first Session of this Government there have been 2,836 pages, or an increase of 33 per cent. in legislation, and all of it very complex. Surely noble Lords must admit that the Government are overloading the Parliamentary machine. Although we struggle hard in this House to cope with it, we are not suited to cope with it and it is much better, as my noble friend Lord Hawke said from these Benches, to try to drop something rather than continue to plough on.

I find tragic that this continuation of divisiveness goes on. We have had divisiveness in the Health Service, in the Edu- cation Service, among the self-employed. We have had higher and higher taxation for all those who wish to go rather faster, or further, than the average, and now we are to have even further nationalisation as well. I had hoped that after the first Session after the last Manifesto of October 1974 we were going to have more realistic measures to try to get a unity of purpose to unite our country and go forward. Like The Times leader today I am disappointed to see measures—they list six of them—which are positively harmful. They mention the nationalisation of shipbuilding. I concede that on a world scale shipbuilding has not been profitable, and we are in for a real world trauma in shipbuilding, but this does not apply to ship-repairing. It is extremely profitable in this country, and so is aerospace; a sensitive and highly technical scientifically-based industry, keenly competitive and keenly co-operative in the European market.

The second point I object to is the removal of the personal safeguards of appeal if persons are deprived of their job by their trade union membership being withdrawn. It seems to me that this is bad, and this is why so many people in all parts of our House voted against it, and we were threatened from another place with revision of our position and our powers. Thirdly, as others have said, surely it is a mistake to have given way to the militant sin the dockyards. We all remember those terrible picketing scenes when they picketed viciously the cold food storages. To say that they are going to be given the power, not only to man the docks but to pack and handle the containers in the food storages seems to me very poor support for the moderate and the true democrat.

Fourthly, the tied cottage. This has always been a Left-Wing Aunt Sally, and although I am not an agriculturist I foresee, as The Times does, that there will be a further slaughtering of some of our herds if they are not able to recruit herdsmen and provide accommodation for them. Fifthly, the development land tax, like the Community Land Act and other measures, will slow down the development of private and public house building, although the Government have promised in the Queen's Speech to improve the private house supply. Sixthly, the ills of the Health Service. To continue to war against the doctors seems ridiculous. It was sacrosanct in Nye Bevan's original agreement that they should have a place and make a contribution, and most people agree that they have one to make and that they have done very well in the National Health Service, but we have now reached the stage when a senior registrar in one of our hospitals is paid 69p an hour whereas a porter in the same hospital is paid 109p an hour, and the porter gets overtime money and the other gets none. Surely it is standing training and logic on its head when this state of affairs exists.

I agreed with the noble Lord, Lord Byers, in his remarks about manifestos. Like the noble Earl, Lord Shannon, I believe that manifestos are seldom read. We must certainly try to keep to them, but this manifesto was conceived during the period of the Labour Party's opposition in 1971–73, at a time when the Left Wing had been successful in pushing the Government off their In Place of Strife course and out of a number of measures which the Government believed to be necessary. After that success the Left Wing showed their strength and helped to draft that manifesto, and it was put into effect in the last Session. I had hoped that, after that, we would see an effort to unify and not divide our nation.

Britain is suffering from a degree of inflexibility and what I call industrial arthritis. This is particularly true in trying, as the Government have said they will, to give priority to dealing with unemployment. I simply cannot understand the figures, because in all the businesses with which I am concerned —I concede that most of them are in the South-East of England or South of the Wash, although one is in the North-East, which is a high unemployment area —we are advertising and continuing to advertise time and again, week after week, at vast expense, for semi-skilled and skilled persons, yet we simply cannot get people to answer the advertisements. We offer all the going rates of pay and are doing everything that everybody else does, so where are these 1.2 million unemployed? I begin to doubt whether they are realistic and I begin to wonder whether we can continue, unlike all our competitor countries, to give such good social benefits and support for those with vast numbers of children. Sometimes it is now easier and more rewarding to draw social benefits and unemployment pay than it is to go to work and help create the wealth on which our country depends.

I am not saying that these benefits should be done away with. but other countries have found it necessary to restrict family allowances to a limited number of children—toone, two or three —or to phase them down or reduce them after a certain number of children. The Sunday Expresscontained a statement the weekend before last which must have made conscientious people wild with fury. It told of an Trish couple who had come to this country with 11 children and, having not contributed to our social services, drew £67 a week in benefits. When interviewed, the father of the family said, "We have no intention of trying to find work. It is much better to live as we are." As the noble Earl. Lord Shannon, said, we cannot go on like this. We must save money in this context, but I am not asking that the money should be taken back it should be redistributed to help people. those who do want jobs, to move, to help train them in their new jobs and help them to move to new areas. It is this belief. that has somehow grown up, that a person is entitled to work in the same industry, in the same job and in the same town for the whole of his life which tends to make us an inflexible and therefore uncompetitive nation. I hope that the Government will look at this because, sooner or later, they will have to look at the level and distribution of social benefits and reexamine the whole position.

I must comment on the question of education, and I do so in the context of the difficulty of trying to find engineers, scientists and others to work in the industries with which I am associated. I cannot believe it is wise, as it appears in the Queen's Speech, totally to abolish the selective process at eleven plus by law. Have the Government seen what our competitor countries do? I have been looking into this in recent days and I have discovered that selection is retained as a very powerful force in France, Japan. Germany, Italy, Belgium. Holland, Switzerland, Austria and in all the Eastern European countries including the USSR. So from where does this Left-Wing pressure group get the facts? Why are they bullying this Government into abolishing any form of academic selection? I understand from leaks before the Queen's Speech that there are to be two exceptions; that we are to have elitism or selection at 11-plus in music and dancing. I wonder whether this is the most creative way of encouraging the really able, the intellectual flyers? Could we not include mathematics, science and engineering? If we are to make exceptions for music, why not make exceptions there, too, because a certain form of brain or mind is required for mathematics just as it is required of a person who is going to be a great musician or dancer.

Lord BESWICK

My Lords, I am greatly interested in what the noble Lord is saying, but may I ask him whether he has ever been to a comprehensive school and sat in with, say, a group taking mathematics?

Lord ORR-EWING

No, my Lords. I have visited comprehensive schools, although I am afraid I have never sat in.

Lord BESWICK

My Lords, would the noble Lord take it from me that there is selection there but it is on a somewhat different basis?

Lord ORR-EWING

My Lords, the gracious Speech says that selection at 11-plus is to be abolished by law, and I am speaking to that. Of course one gets same streaming in schools but I am not speaking about that; I am speaking about selection before one gets to one's comprehensive school and the abolition of the grammar schools. The Government have themselves recognised élitism.

I have two hobbies, one work and the other sport, and I was interested during the Recess to notice that the Government published a White Paper on Sport and Recreation in which they said: We have come to the conclusion that it is absolutely essential, if we are to train the best athletes, that we should have élitism and that we should select them and encourage them to go to one place where they can compete against each other. If that is true of sport, why is it not true of brains? It seems utterly ridiculous at this junctiure, when we are so badly in need, that we should abolish it. A survey of teachers taken just a year ago showed that a considerable majority supported the continuance of our grammar schools and, to quote a great authority, only six years ago somebody with strong Labour views said, "The grammar schools will be abolished over my dead body", and that was said by the present Prime Minister.

In last year's gracious Speech, there was a phrase to the effect that we were to have a mixed economy and that every encouragement would be given to the public and private sectors to improve their efficiency and investment. I am afraid that even those words are not included in this gracious Speech. We have the position of vast borrowing overseas, much of it against North Sea oil earnings at a later stage, yet it seems that even today, although the Government have begun to regain some of their backbone, they are still not able or are not in a mood to stand up against their Left Wing. I do not know why they fear them because, of course, they would get the support of all social democrats in this House and also in another place, and probably of most of the Liberals and Nationalists as well.

I have always wondered who would jerk our nation into a sense of reality. At one stage I hoped it would be the Treasury, and there are signs that they are regaining something of their backbone; the Chancellor is showing certain signs in that direction. Then I hoped it would be the Arabs, because I thought they would not go on lending vast sums of money, and I thought they would pull the rug and make us wake up. But the Government have looked after the Arabs who are constantly visiting London and being entertained and, I am glad to say, are leaving their money here, which is good for us. Therefore, I come hack to the only people who can awaken us to a sense of reality; that is, the International Monetary Fund. We have now had the first tranche of £1,000 million which the Chancellor is borrowing from the International Monetary Fund, but, if we go on in this way, we shall need a second tranche and that may be wanted at the end of February or the beginning of March. I warn noble Lords that that will not be given without some very firm conditions, so that we pay our way in the world and do not spend and print so much money. The sooner the Government get down to attending to these matters, the better, because, clearly, this money will be needed by the spring.

I supported the incomes policy, although it was the biggest U-turn in living memory. We have had two U-turns on this by Conservative Governments and two U-turns by Labour Governments. Can we now say, as previous speakers have said, let us get down, across the Parties, to consider what sort of incomes policy will be needed and, in particular, how the Government of the day are to cope with the second and third phases of this incomes policy? The standstill phase is always easy. That is why there has been some amelioration of the rise in the cost of living, which is down to 25.8 per cent. During the second and third phases, as a previous speaker said the financial water behind the dam will build up and up, so that, when one moves to another phase, one may get a rush of water which will sweep any Government out of their depth.

To summarise, I cannot but be disappointed at the measures outlined in the gracious Speech which do nothing to help industry. That was the first task, and I cannot understand—and I would ask the noble Lord, Lord Beswick, when he comes to wind up to tell us this—how the spirit and the pronouncements of Chequers can be reconciled with the divisive measures included in the gracious Speech.

6.12 p.m.

Lord RHODES

My Lords, may I say at the outset what a pleasure it was to hear the noble Lord, Lord Thorneycroft, at the Dispatch Box today? We used to listen to him in another place and the antagonisms which he at times aroused in me have long since been forgotten. I thought he made a good speech and said much with which I could agree. I listened to the Queen's Speech yesterday and then to part of a speech by the Prime Minister. I got hold of one little bit of that speech and though a lot about it afterwards. It related to the increased cost of local government. The Prime Minister said that the figure had risen by 25 per cent. in real terms since the reorganisation of local government. That is only 12 months last April. We have them on our backs and I would say this to the Government: let them think about this and what it will mean. We are to have a great debate on devolution, it is said. If the debate is as big and the consequences of it as bad for the country as those of some of the great debates we have had during the past few years, God help us! I would just give this warning. I hate threats, whatever their source, but I must tell your Lordships this: we have heard nothing yet in comparison with what we shall hear on devolution.

In the North-West, we have more population than the whole of Scotland or Wales and our circumstances which need remedying are greater than in either of those countries. The remedies that will be taken to bring this to the attention of the authorities are something which they will not like. It is building up now and I entreat the Government, before the resentment gets to the point where regions like the North-West are forced to express themselves in no uncertain term, that they should think not once or twice but many times about what they intend to embark upon.

In the past, I have gone for my intellectual, economic advice to a very unusual source. I have a friend who is a small farmer and gamekeeper and who lives up on the moors. He has been right more often than not. I remember that, in the days when Selwyn Lloyd used to talk 'about "guidelines", my friend used to say that he could always tell before Selwyn Lloyd when there would be a credit squeeze, which was the old-fashioned, accepted way of dealing with a boom. He said that, if he saw on the road leading from our district over into Yorkshire a bus carrying weavers to Yorkshire and another bus carrying weavers back to Saddle worth because of the competition for employees and increased wages, that would be the time when a credit squeeze would be put on. In those days he was always right.

But this sort of remedy is old-fashioned today, so I thought I had better go to see him again last week. I said, "Look, Joe, what do you think about things?" He said, "Since you came up to see me before we have this M.62 at the bottom of my field. It goes over into Yorkshire and to Hull, and it goes to Liverpool." I said, "What has that got to do with it?" He said, "The British economy today reminds me of nothing so much as this motorway and the people who use it on a foggy day. You have the careful ones, but they are outnumbered by the ones who are not so careful and more often than not they come unstuck before they get to Manchester." It is a good simile and it is one which people should think about.

Today, we have heard many references to the Chequers conference. That conference finished the weekend before last and a Statement was issued and was given to the papers. A copy of the Statement was put into the Library of the House of Lords and, being eager to sec what it was all about, I went to the office here and asked, "Could I see the paper which has in it the results of the conference that was held at Chequers?" "We do not know anything about that," they said. "You want to go and ask them in the Library." So I went to the Library and I made not one but four visits before I got to the bottom of this. As it happened, there was just one copy of the findings of the Chequers conference placed in the Library of the House of Lords. There was none at all in the Vote Office of the House of Commons, according to the information received from the Officials of this House. That is a grave omission, because I reckon that the result of that conference at Chequers was one of the finest pieces of thinking, of putting thoughts into words, that I have seen since I came to Parliament.

Many of these remarks have been made so often that they might be called clichés or platitudes, but truths are platitudes until they are accepted as truths. I think that the basis of our understanding of what this country needs to do lies in this paper. Why has this document not been made into a White Paper? Why has it not been printed and issued to every person in this House, to every person in the Commons, to every trade union, to every chamber of commerce and to every place where people meet? Why are we neglecting what has been done by these people at Chequers?

If we look at the Queen's Speech we see that what has been put in it are the little items that suit the Government just now. On page 4 of the Queen's Speech it is stated: The present price controls will continue to be vigorously enforced ". Then it goes on to say: My Government will also embark on a series of Planning Agreements with large companies in selected key sectors of industry… and so on. But that has been picked up from one part of this report, in which it states: It will be impossible to tackle these problems "— referring to the difficulties we are experiencing— without action by all parties concerned, Government, management, unions and the financial sector. We must therefore develop an agreed national strategy for industry on a long term basis. Such stategy must involve… It goes on about co-ordination and planning agreements, and the next item has to do with the NEB. The first two items are in the Queen's Speech, but why are items iii, iv and v not in the Speech? Item iii says: …ensuring that industry, both public and private, is able to earn sufficient profits on its investment to spur managements to expand and innovate and to provide them with the internal finance on which to base investment. Adequate sources of external funds are also vital … Why was that not in the Queen's Speech? Why was there not in the Queen's Speech something which told the country what was meant by investment? This is absolutely and utterly necessary if people generally are to understand the situation. I was interested in what the noble Baroness, Lady Seear, said about investment. She asked where were we to get the resources so that we could invest on the scale which she thought we needed. I shall go further than that. I shall ask the Government whether they know into which industries they would put their money if they had the money available. Which are the growth industries? That is difficult to say at a time of despond and when there is so much manufacturing capacity unused; of course it is! By the same criteria, it is no use blaming private industry for not investing if the Government do not know where to employ their money to a profit, anyway; and it is absolutely essential that they should know.

Much has been said about the economy There is no question about it—we cannot turn the clock back. Any question of confrontation, of forcing people to do this anti that will lead only to disaster. We had a big example of that in January and February of 1974. No one living today would ever dare repeat that situation. But there is something else. The whole Western system is having to face a challenge. The whole Western system is on test as to whether it can do anything about unemployment in the way that everybody would wish. I say this because if there is a rigid system we can do without unemployment. just as they do in China, where there can exist the latest technological machinery with, at the same time, the basket containing a little bit of dirt carried on someone's head. In recent years a darn was built just outside Hong Kong to supply the area with water, and 77,000 people were employed on that work carrying little baskets filled with dirt. The job could have been done with only a few thousand people using modern equipment. If, for instance, the textile trade does not want any unemployment, all it need do is issue an edict that everyone should wear a blue suit—as they do in China. It would then he known how many blue suits were needed. But what would be done with the surplus workers who have been making fancy checks and all the rest? Give them little baskets?—not here! That is why we differ from the totalitarian States.

I ask the Government, I implore them, to make this document a basis; to follow it through; to let everybody have a copy; to let every workshop have a copy; to ensure that wherever people gather together they know about this; to ensure that people know on what basis we are working for the future. Then we shall get somewhere, and perhaps we will be able to get our philosophy right.

My Lords, I see that I have been speaking for 16 minutes and I shall try to finish before 20 mintues have elapsed. But I cannot finish without having a final word on an aspect of industry which is very current and serious, and which will tax the ingenuity of government. We have good Ministers at the Departments of Trade and Industry; one of those Ministers is sitting on the Front Bench at the moment, and he is to reply to the debate this evening. I think that before long they will be faced with this issue of import controls. Here I come to the second conference to be held in recent weeks, that at Rambouillet. Six countries were represented—why there were not more, I really do not know—and I understand that the Prime Minister raised the question of import controls and met with no dissent. Why he met with no dissent was because three out of the six countries represented there are absolutely past masters at dealing with imports. They are the Japanese, the French and the Americans, and the different types of system that they adopt, either for delay or for whatever reason, are quite adequate to cope with the situation.

The deficit on the balance of trade in textiles, in clothing, during the first nine months of this year is more than five times that recorded during the whole of last year. How did such a spectacular increase take place? I will tell your Lordships. This world slump coincided with a textile cyclical downturn. There were more imports coming in on a reduced market at home. My noble friend Lord Shepherd said that world trade had decreased by one-fifth. In terms of imports into this country, trade has increased rather than decreased. So, the reduction here in the amount of activity in this trade and the additional imports have created this silly situation. Until this year the textile side of the industry had a healthy surplus in exports. It is now in the red. The figures for the manmade fibre sector, out this week, show that instead of the traditionally strong surplus they are now in deficit. The severe problems at the moment concern knitwear, acrylic yarns from South Korea, Taiwan and Japan, wool suits from Come-on countries and, of course, red cloth.

The EEC Commission has allowed the United Kingdom to refuse any more import licences for this year for synthetic fibre yarn. I understand that at Rambouillet the Prime Minister raised the question of selective imports. We should like to know how he got on. We should like to know what is happening in this respect. I am not pressing the Minister because I have been in the same position as he has been in, I am sure, during these last few months, with the pressure of the trade on the one side and, on the other, the desire to uphold the agreements in GATT, the multi-fibre agreements and now the Rome Treaty. The Government have my great symapthy; but what I can tell the noble Lord is this. Action will have to be taken on this matter; otherwise, the textile trade will be irrevocably maimed and handicapped. I am not a protectionist, but I can see what will happen unless some aid is given. Whatever they do on Monday, when they meet the trade and perhaps announce the results of their meeting, I shall support them in it. To recap, may I say this to the Government: you did a wonderful job of Chequers. If you pursue the aims and objectives, and the explanations of what was done at Chequers, in the way they should be pursued, there is no question but that Labour, if it succeeds here, will be in Office for a long time.

6.34 p.m.

Lord HARMAR-NICHOLLS

My Lords, on the generality of things, I would agree absolutely with the noble Lord, Lord Rhodes, when he compared motorway madness with the way in which we sometimes conduct the economic policies of this country. I would also agree with the noble Lord, Lord Rhodes, in the emphasis that he put on the distinction between the report of the discussions at Chequers and the gracious Speech. It is perhaps a great pity that the report which he showed to the House is not the blueprint that the Government present in the form of the gracious Speech. If that had been the case, it could be that there would have been more unanimity and more confidence that we are likely to be able to solve the great problems which surround this country.

I must say that yesterday I listened with growing dismay as the Government's blueprint for 1976 was disclosed to us. Despite what the noble Lord the Lord Privy Seal said, in no way does it reflect the true gravity of Britain's economic problems. Taken as a whole, it cannot. There are sections of it which could perhaps be presented as recognising that some problems may exist, but they are then brought back to a low average by the irrelevancies which surround them in other parts of the gracious Speech. What we had yesterday was a normal Labour Party Queen's Speech which would have been inadequate in normal times, before Britain had lost its industrial pre-eminence; but, today, in this abnormally dangerous time so far as our wealth-producing capacity is concerned, I believe that such normality almost becomes criminal complacency.

I should have liked to feel that your Lordships' House had reacted in a more positive way in recognising the dangers of the attitude of the stiff upper lip; that "Things will be all right eventually, and not altogether different from past problems", and "It is not our fault; world conditions are bad all the way around". I should have liked to feel the vibrations in your Lordships' House reflecting the dissatisfaction with that description of what the situation is supposed to be.

I think that all of us who have any responsibility in business at all, or who have had any contact with the Parliamentary system and politics as they have developed, know that Britain is in real trouble and that, oil reserves apart, world confidence in our ability to pull out of that trouble is a hope rather than a belief almost the world over. As a consequence of this, because it is felt that we are not able, as a result of our general governmental and Parliamentary set-up nowadays, to get together to deal with the problems that we recognise, world investment is flowing not to us but to our industrial competitors. It is that which worries me more than any other point, because it means that we are not going to get over these problems in a reasonably short time, if ever.

I am bewildered at the idea which creeps in, not only to the speeches from noble Lords who are representing the Government, who have to defend themselves and present their efforts in the best possible way, but to other speeches, too, including those from this side of the House. I refer to the idea that in two or three years matters will be all right again, and things will move more or less normally. I believe that the long-term prospects in the economic and industrial fields are more dangerous than the problems that exist today; because, though it is called investment today, in two years time the word "investment" will be transformed into a factory built somewhere else, which is more modern and better equipped than our own existing ones. That, in turn, means that the growing world trade that we are told will come is more likely to come not to our British-based plants, but to those more modern ones in other parts of the world. So we cannot just say that what we have to do is to keep firm, keep our feet on the ground and in two years' time things will automatically get better. They may get better for the world but, from all the evidence that one sees today, I cannot accept that they will necessarily get better for us. I believe that our outstanding aim as a nation must be to get world confidence back again, because that will also generate self-confidence. I am positive about that.

I will give your Lordships a personal experience of only a few months ago which shocked me and caused me to make the sort of speech I am making today. As a small Midlands business man, I had need to call on a Trust Bank about arranging finance. The Trust Bank has branches all over the world and I have every reason to believe is well in funds, and I met the President of it to talk about our personal and rather small problem. I was not known to him as a Parliamentarian or politician of any sort. He believed that he was talking to a small Midlands business man. After dealing with the matters which affected my business, we got on to talking about general matters.

In the process of talking he said, "Yes, we have funds and we are very eager to deploy those funds to British firms. We have a high regard for the acumen and integrity of the British business man—which is different from some countries where they keep two or three sets of books, or where you do not know where you are." At that point, I was feeling happy for my country and for private business. Then he used the killer sentence which alarmed me then and alarms me today. He said, "The only condition we attach is that the investment must not be in the United Kingdom." That was from a man who was "pro" this country, from someone predisposed to think in favourable terms about us.

That was his objective view, looking at world conditions and prospects impartially and from the facts as he believed he saw them. You could have had a million pounds to buy a banana plantation, or two million pounds to set up an aluminium plant in some other part of the world. But the lack of confidence that he reflected!—and it was not nasty; he did not know he was saying anything wrong. The money was there, but in his judgment it was not good for investment in the United Kingdom. That is a killer sentence because, if that is the view of that one man whom I know to be objective and predisposed towards us, it is the view generally held throughout the world.

Those of your Lordships who travel, as I occasionally do, in other countries must have met that message in some form or another. Our job is to find some way of so altering the world's belief—if that is what it is—that we can start getting a reputation which enables some of the investment to come back to us. We have lost a lot, and I do not believe it is possible to regain much of the ground that we have already lost, because this deep feeling which is to the detriment of investment in this country has now existed for about 18 months. What can we do about it? What interests me quite a lot about we who call ourselves politicians, Parliamentarians—

A Noble Lord

Statesmen!

Lord HARMAR-NICHOLLS

My Lords, the word "statesmen" does not quite fit the bill in what I want to say. We have spent a lot of time in this debate telling everybody else what they ought to do; that the workers must get extra production and give a better return per unit, which is right, and that management must invest more—so Jack Jones told us. What ought we, as politicians and Parliamentarians, particularly if we are statesmen, to be doing? What we ought to do—as distinct from telling other parts of the community what they ought to do—is get together and recognise the really outstanding danger to this country's future and deal with it as a Coalition.

My Lords, I believe that the time has come to put into perspective the many problems on the perimeter where we differ, and differ deeply. I have been a Party man for many years and I have believed in the dogmas that we have argued for; but I believe that unless we can show to the world and to our countrymen, whose savings we want them to invest, that we are prepared to recognise the real volume of the problems facing us and get together, we are not going to get out of them. A Coalition is just as much a part of the Parliamentary system as anything else. It is part of its strength that one can have that. When your country is in trouble and the problem can be recognised and identified, you get together and overcome it! Only then can you again have the luxury of arguing the special detailed points on which you differ—and on some points we differ quite fundamentally. If we can get together in wartime, then why can we not do so when similar dangers present themselves in peacetime?

I am not prepared to accept the easy way in which people brush off the success of the 1931 Coalition. The 1931 Coalition was a success. It came into being when this country was in economic trouble, and it played its part in getting us out of it. It is true—and it is sad to think that perhaps this is the one thing that may "dish us" in terms of getting ourselves in order again—that, unfortunately, the way that Coalition developed seemed to be disadvantageous to the Labour Party as a separate political Party. I think that many of the disadvantages that fell to that Party were because Ramsey Macdonald became ill, and did not make the proper use of the leadership and position he held in the interests of what was left of his Party. If he had been younger and able—if one wants to think in Party terms—he would have been able to gain kudos for his Party. Whether it suited the Tory Party or turned out to be disadvantageous to the Labour Party, the nation benefited, the nation succeeded. I should have thought that if ever we were to preserve our independence we ought always to be prepared, even at some passing disadvantage to ourselves, to judge something on the overall result for the nation.

So, My Lords, I come to the appeal I want to make in this discussion on the gracious Speech. I am told that it is "not on", that to talk about coalition is premature, that it cannot happen. Indeed, the noble Lord, Lord Ardwick, said that coalition could come only after the catastrophe. Why? Why have we to wait for danger, when we are so much weaker and when investment has been diverted to other parts of the world? Now is the vital time to get investment here.

For example, if you get purchasers of railways to buy to your gauge then, once the gauge is set down, you get all the future business that comes from it. If we allow it to be the Continental gauge, the German gauge or some other gauge, we shall have lost not only one initial order but all the orders which flow, and this will delay the real long term improvement that we need soon, if we are to succeed.

I do not know whether I can interest the Leaders of my own Party to think in deeper terms about trying to bring this about. In many ways, if the argument that I am putting is right—and my Party is just as much at fault as are the Government for not being prepared to face up to it then I am arguing to interest them as much as I am arguing to interest the Government and their supporters. It is no new thought.

I will do the unpardonable thing, the thing for which members never forgive a colleague in any assembly, I will quote something I have an the record from another place which dates back to 3rd April 1974. On 3rd April 1974, manoeuvred in order to be allowed to move the adjournment of another place under a certain Standing Order. This is the argument that is on the record. I think it was sound when the situation was as it was then. I think it is more sound today because the situation, as it has developed, has become even more acute, and the things which can flow from it are even more dangerous. At column 1273 of Hansard on 3rd April 1974, in another place I moved the adjournment for the purpose of discussing the following: the need for a period of an all-party approach to deal with an inflation which has been accelerating since 1968–69, first because of wage costs and subsequently and more recently as a consequence of world commodity and oil prices, as well as wage costs, which has now reached a rate of over13 per cent. and which, according to the Secretary of State for Prices and Consumer Protection, is likely to reach a level of 15 per cent. this year—which may well be an understatement"— Heaven knows it was!— a rate of inflation which inevitably carries with it the threat of economic stagnation and heavy unemployment by the end of the year unless we can secure a Government which can carry the confidence and enthusiasm of trade unions, management, investors and savers; recognising that some trade unions would have insufficient confidence in a Conservative Government and that management and investors have insufficient confidence in a Labour Government, at a time when the nation now needs the wholehearted efforts of all these groups, as a matter of supreme urgency, to safeguard our standard of life at home and our influence abroad". All things I suggested might happen unless steps were taken, have happened in a way which is recognisable and cannot be denied. Even at this late hour—although much opportunity has been passed by—I urge the leaders of all Parties to consider whether or not it is possible for them to find some common denominator centered upon inflation which will allow them to put the differences which will emerge later in cold storage until this one overwhelming problem has been settled. If we can do that, we can to some extent make up for lost time. If we do not do that, it could well be that the consequences which will flow will be even more devastating than the most pessimistic of us like to suggest.

I have made a suggestion—which I did not expect to be accepted literally, but it underlies the importance which ought to be given to this—it is no good the two political Parties trying to sort things out through what we now call the "usual channels"; the differences in the fashion of how things are done have gone too far for that. I suggested—and I refer to it again with some variation—that consideration be given to whether it would be possible, in order that we can really be satisfied that it was not an extreme pessimist talking about these matters or an extreme optimist talking for selfish reasons, to have a Select Committee of ex-Prime Ministers and Chancellors of the Exchequer. They held the high Offices and ought to be objective. There are the statesmen in terms of ranking and in terms of protocol.

Would it be possible for people who have held the responsiblity of these high Offices to be members of a Select Committee which would report, as Select Committees do, as to what they believe the problems are, irrespective of Party, irrespective of any personal advancement for any group? That could give advice as to the general line that might be followed. It has been done before. Councils of State have existed. The experience is still there, and if that Committee considers this matter, I would ask them to recommend that things be done which the members of the Committee tried to do when they had the power of government but were prevented from doing for one reason or another.

I believe this is urgent; the consequences of the present situation will be disastrous. I know from the point of view of cosmetics it is sometimes a good thing to pretend for outside thought that things are better than they are. I am a salesman in my own business and, of course, one has to put a gloss on things, but do not put a gloss on things for people who can see through it. The only people you are fooling are the people at home. You are not fooling people abroad; they know the situation better than we do. I wonder whether it is possible to make full use of the Parliamentary system by bringing in aid what is known as a Coalition in order to overcome a dangerous problem facing the nation.

6.56 p.m.

Lord ROBBINS

My Lords, may I address the majority of what I hope will be my limited remarks to the speech made from the Government Benches, by the noble Lord the Lord Privy Seal. As may be expected, this was a forceful, lucid and candid speech, and it contained many utterances, some as asides, with which one could feel in complete agreement. I doubt whether many of us in this House would disagree with his emphasis that inflation was the main problem. In the noble Lord's admission that last summer, in July and August, with the breakdown of the so-called social compact, we glimpsed into an abyss that I do not think is so well recognised, and an admission of that sort, from a Minister of Lord Shepherd's standing, is important.

He worked the overseas misfortunes rather too hard. There is no doubt the world is undergoing a recession more severe than we have experienced since the War. But the rest of the world has a fairly good prospect of recovery, and our prospects are not all that robust as things go at the moment. What must never be forgotten—and I hope is never forgotten by Ministers responsible for policy—is that our position fundamentally is far worse than the position of the other industrial powers of the Free World. Inflation, as was said by the noble Lord, Lord Orr-Ewing, has been four times the order of magnitude of Germany and, at the present time, is nearly the same order of magnitude as in the United States.

I thought that the noble Lord the Lord Privy Seal was much too sanguine in the note on which he ended: that we were now on the right track and that if only the policies enumerated in the gracious Speech were followed we could look back on the past with horror, and with some anticipation and relief in the future. I doubt whether things are as simple as that. But, first, let me recognise the extent to which things have changed just a little for the better since we looked over the precipice in the summer.

I am sure that no one in this House would wish to underestimate the degree to which most of the leaders of the great trade unions have moved towards some degree of realistic appreciation of the pickle in which we find ourselves. I echo the praise which has been given to the initiative of Mr. Jack Jones, although I must confess that I think the simple solution which he suggested has laid up a rod in pickle for those who try to negotiate the next settlement as regards wage policy. Secondly—here I may appear to some Members of your Lordships' House to be somewhat perverse—I would not take too gloomy a view of the fact that we have now had recourse to a loan from the International Monetary Fund. It may well be that is a sign that enthusiasm for lending on the part of other possible sources of borrowing has waned, and it would be interesting to hear from the noble Lord, Lord Beswick, whose absence I deplore, although I have given him notice of my intention to ask this question, some indication of how long this loan is likely to last.

I am quite sure that the present Chancellor of the Exchequer—that great authority on statistics—must keep on his desk some indication of future cash-flow. Although doubtless it would be too much to ask him to put a date on the exhaustion of this charge, if it is anticipated that it may be exhausted, it would be interesting to know whether it will last a month, three months, a year, and so on. But I share with, I think, the noble Lord, Lord Orr-Ewing, a certain restricted satisfaction over the fact that we are likely to get from the officials of the IMF—even at the present time when the conditions attached to this loan are not particularly onerous—advice on how to deal with inflation which, having regard to the mistakes made by both Parties in the past, may be perhaps beneficial.

So up to that point I can see just a ray of hope here and there, but I confess I do not understand the suggestion which I think was implicit in the speech of the noble Lord the Lord Privy Seal; that is, that there is any strong light at the end of the tunnel, the way we are going now. The present situation, certainly, is not one which gives rise to any satisfaction. Inflation has been running for the last 12 months at about 25 per cent. The balance of payments is still alarmingly adverse, whatever the causes of that adversity may be, and, after all, there is a great deal of money in London, which has been kept here in one way or another by the blandishments of the extremely able men who manage our finances there, which might take wing in a crisis. And although I have no doubt at all that in recent weeks and months the rate of exchange has been to some extent sustained by expenditure by the Bank of England, we must realise that it is now only just over 2 dollars to the pound, which is not anything to be particularly proud of when one compares it with earlier days.

Of course, the inference to be drawn from the speech of the noble Lord the Lord Privy Seal was that a good deal of that is, so to speak in the past and perhaps the main problem is to see that unemployment does not rise excessively. Apart from that, the rate of inflation is diminishing, the rate of price increases is slowing down and the Chancellor of the Exchequer has promised that the rate of inflation will be down to 10 per cent. by the autumn of next year.

For a moment, let us suppose that that is true. Intrinsically I do not think it conveys ultimate comfort to us, either in our capacity as citizens or in our capacity as competitors in world markets. Should the rate of inflation come down to 10 per cent., it will still mean that all those—and there may be some in your Lordships'House—who depend on fixed incomes will be losing, in addition to what they have already lost, 10 per cent. of the value of their money. Moreover, in that wished-for position next autumn, in all probability, our costs will still be ahead of those of our competitors. We must always remember that the increase of £6 per head per week often, at least in many branches of activity, represents more than a 10 per cent. increase in costs. With the best will in the world, and conscious of my position on the Cross-Benches, I must confess that it does not seem to me that most of the legislation which has been occupying the attention of your Lordships' House in the last Session suggests to the mind progress towards great industrial efficiency, greater mobility of labour, fewer restrictive practices and fewer other evils which, in addition to inflation have contributed to the troubles of recent years.

Equally with the noble Lord, Lord Thorneycroft, and other speakers, I must confess to a sense of profound disappointment at the tone of and the suggestions in parts of the gracious Speech. It is all very well for the noble Lord, Lord Rhodes, to talk about the splendid achievements at Chequers, the nature of which, apart from certain abstract sentences, are still concealed from us. The fact is—and I feel confident that this isright—that in this respect the gracious Speech will cause great despondency and create doubt among just those sections of the business community, and particularly the younger end of the community, which we should most wish to enlist in an industrial revival.

This is really not a matter which should be blinked at by the Government—that of your managers, not all of whom are superbly efficient but some of whom do an honest day's work, some 50 per cent., I would dare to say, are doubtful and apprehensive of the future, and of the future as regards Government policy. Speaking as one who spends a good deal of his life among younger people, I would say that many people would be surprised at the number of the really clever ones—the ones who really have an aptitude for business management and so on—who are quietly thinking of going away. This may be wrong, but if one of these young people were to come to me, while I should represent all sorts of reasons which make this country rather a nice place to live in, I should feel myself fraudulent if I were to give him an assurance that we were going to get out of our present troubles.

Doubtless there will be some relief of our position as the rest of the world revives; and I am fairly confident that, barring political accidents, which are always possible, it is likely to revive next year. But never let us forget that we have a long way to catch up. I have in my notes: "How does productivity per million of investment here compare with elsewhere?" I need not emphasise that question. The answer was in fact furnished by the noble Lord, Lord Shepherd, himself. It compares very badly. That is a long period problem, but the problems of the short period are still with us.

To me, the most alarming feature of the short period is the magnitude of our deficit financing. It may be that the lessons which can be derived from contemplation of an uncontrolled money supply, such as occurred at certain phases in the history of the Conservative Government, have been learnt. I am not here urging the pure milk of monetarists' work or anything of that kind; I am simply alluding to the simple proposition that if there is not some upper limit on the rate of increase of the money supply inflation is bound to follow. It may be that we have learnt that. Certainly the rate of increase of money supply has been diminished. But the deficit financing goes from bad to worse. I wonder by how many billions the deficit this finacial year is going to exceed the estimate of the deficit given by the Chancellor of the Excshequer when he introduced his Budget in another place? This itself is a grave burden for the future, particularly at present rates of interest. But surely it is more alarming for the success of the anti-inflation policy.

I know that there is a very short-period answer to that question. It may be said, perhaps with justice, that at present the deficit financing is no threat to the anti-inflation policy. It may be said that people do not know what to do with their money; they are fed up and dispirited and leaving their money liquid simply because they do not know what to do with it. In such circumstances it may be argued, and argued with a certain cogency, that it should be possible to raise the money to finance the deficit without undue enlargement of the credit base, however it is measured. But what if a little recovery comes? The position will not be so sanguine then. We are told that industry is in so much need of extra investment. Is industry to be starved of investment because economic activity is greater? Is there not a real danger, while deficit financing continues at its present level, of further recourse, some months ahead perhaps, to an increase in the rate of inflation, particularly from a practical point of view if the persistent unemployment at its present level—and I think it is bound to rise—creates rising pressure for so-called reflation, which I am sure we here all agree would be premature?

So I confess that, despite recognition of some more favourable, or less unfavourable, elements in the situation, when I look round I see little but a series of unsolved problems. I therefore return to the central problem of all which is still, as the Lord Privy Seal said, that of containing inflation, and of inflation continuing at a greater rate than elsewhere. I ask: Do Ministers seriously believe that with measures no sterner than those which are being applied at present our rate of inflation after the autumn of 1976 will be no greater than that of the United States or Germany?

In conclusion, my Lords, I ask myself what can be said in a constructive way apart from the standard exhortations to prune expenditure, abstain from measures which militate against general inflation and so on and so forth, of which we have heard a great deal this evening. May I preface my concluding remarks and recommendation by taking your Lordships for the moment into the stratosphere of high fantasy. There is a group of extremely reputable European economists, one from each of the nine countries, including a very clever professor of economics from the University of Manchester, who have in recent weeks published a manifesto in which they recommend that the authorities of the Nine should issue a new currency, the Europa, and—this is the catch—that we should all be allowed to use it as an alternative.

I have no doubt at all that if this were done, and if the Europa were being managed so as to hold promise of a constant purchasing power, there would be a real safeguard against inflation for individuals just as there would be, let me say in passing, if we were all allowed now to make our payments or contracts in Swiss francs; it is only because of rigid exchange control that the present unequal rates of inflation which prevail in the world can be contained. There is an extremely interesting article by Mr. Sam Brittan in the Financial Times today, coincidentally about this. I have no doubt at all that if there were that degree of freedom, or if there were this issue of Europas under this condition, Governments would be compelled to undertake a greater degree of financial prudence on pain of seeing their own currencies disappear from use altogether.

As I said, that is an excursion into the realm of high fantasy. Governments would be against such a limitation of their freedom of action to inflate and it may very well be that central banks might enter some caveat. But I seriously think—and this is my one positive suggestion for dealing with the problem caused by the abnormal deficits that we should do well to look at some extension of the device of indexed Government bonds.

This is not I repeat "not"—an endorsement of indexation in general which I have come to believe carries with it, if generalised, certain dangers which have not been recognised in recent discussion, particularly for a country in a position such as ours where the terms of trade are apt to turn against us and where, therefore, indexation would be a positively inflationary influence. But indexation of Government borrowing is not in the same category as general indexation; it is simply an undertaking by Governments to maintain intact the real value of what they borrow. I have no doubt that if it could be introduced the relief to savers would be extraordinary and the easement of non-inflationary borrowing considerable. I will conclude by saying that if it were introduced it would put an end to the monstrous fraud of asking uninformed people to lend at negative rates of interest, which is what still happens today.

My Lords, do the trees in this country grow up to the sky? All one's instincts, all one's affiliations, press one to say, No. Yet I cannot help thinking that the prospect would be more hopeful if there were more of us who would be prepared to admit that it might happen.

Lord BOOTHBY

My Lords, before the noble Lord sits down, may I ask him whether he prefers Europas to gold as the basis of a viable international monetary system? At the moment we have no viable international monetary system. Bretton Woods is in ashes.

Lord ROBBINS

My Lords, it is very difficult indeed to give a short reply to the noble Lord, whose acquaintance with the subject of gold is, of course, infinite. I do not know exactly on what principles I would recommend the management of Europas. I know that it would be necessary to keep the issue within strict limits, but whether one should have a gold or a commodity cover is a matter for technical discussion which I should love to have over a drink with the noble Lord without trenching further on your Lordships' patience.

7.23 p.m.

Lord LUCAS of CHILWORTH

My Lords, when I saw that I was the thirteenth speaker in the list I had a shrewd suspicion that something might befall me, even though it was the pleasure of the noble Lord's intervention which has just befallen me and delayed me but two or three moments. We have had four hours of debate on economics and industry. Probably, therefore, it would be more helpful to your Lordships if I were to cut short some of the points I wished to make and confine my remarks purely and simply to the motor industry, for in these unsettled times I think that my remarks will be relevant. May I ask your Lordships to recall that about1½million people are employed in this industry. Whatever consideration is given to difficulties within that industry which would normally be confined to the manufacturing process, may I please ask your Lordships to recall that at least half are employed in the retail sector. There is a total investment in retail activity within this industry which is quite equal to that of manufacturing.

Until 1972 the industry was building at the current rate of 2 million motor vehicles a year. The reliable forecast now is that this year's total build will fall down to 1.3 million. Perhaps one should think about why this state of affairs has occurred. The recession in the motor industry, world wide, is well known but there is a point of view, one to which I subscribe, that the difficulties of our industry in recent years have been hastened by the practice of Governments using the undoubted success of that industry as an economic regulator. I need to give only one example, that over the last 10 years there have been no less than 17 different tax or other regulatory impositions on the home market. It is too often supposed that apart from raising general revenue, financial deterrents imposed on the home market create a greater awareness of export opportunities and divert energies in that direction. I think that the opposite is too often true. Punitive measures, whether they are financial in the motor industry or any other punitive measures, tend to depress not only the individual subject but the whole, whereas rewards encourage the whole. Greater rewards should have been offered to motor car manufacturers that would have enabled the home market to grow considerably stronger, from which the base of exporting could more successfully have been launched.

I have a feeling that the noble Lord may quote what the noble Lord, Lord Shepherd, had to say about exports. Certainly, exports from the motor industry have been phenomenally high. They are about 35 per cent. at the moment. However, this is not a big enough amount because the whole has sadly diminished, for a variety of reasons. It is true to say that over the last seven years or so labour has not been as co-operative as the industry might have wished. Equally, it is fair to say that management have not exercised that expertise that we would certainly expect of them today—in particular, in making changes in productive processes, in automation and the like. As was said earlier this afternoon, labour will often resist change if it feels that its livelihood is threatened. The record of management has not been successful in persuading labour otherwise, so bringing about smooth changes in production techniques.

Taxation itself has led to over-manning. I recall the introduction of selective employment tax in a vain endeavour to move personnel from the service industries to the productive industries, with premiums being paid. The net result was massive over-employment and a complete inability to get rid of personnel when that tax was removed. It is only now, when the hard, biting times are upon us, that the shake-out comes. We have not been able to introduce any legislation or any encouragement to promote that shakeout because we have failed completely to identify new jobs. It is no good diverting vast sums of money into retraining potentially redundant people when they cannot see a job at the end of such training. The man or the woman who can stand anywhere and identify the job of the 1980s will go down in history. That is our problem, but it will be our downfall if we continue the over manning in various of our industries.

Of course, United Kingdom investment in the industry is below par. Nobody denies that. I am a firm believer that the principal cause of this has been over-taxation of industrial profits in past years and an under-provision of investment allowances. The noble Baroness, Lady Seear, asked, "If this is true, and if we want to encourage investment, where are the resources to come from?" She suggested a variety of sources, notably profit. At this late hour it would be imprudent of me to repeat what the noble Baroness said. On balance, I agree with nearly everything she said within that context.

My noble friend Lord Orr-Ewing also referred to this, and I suppose instead of looking back it might be fairer to suggest that we should take a further look at this industry, to examine its role in the general economy and see what we can do. We shall have to see whether the Central Review Staff report, which the Press says is before the Cabinet, will provide this incentive. Whether the National Enterprise Board, which went into business today, will he able to make a significant contribution to overcoming these problems, that again we shall have to wait to see. For my money, I regret to say that I have very grave doubts as to whether the NEB can achieve this.

The noble Lord, Lord Rhodes, asked the question: where would the Government put their money? Will it be the role of the NEB to say where the money is to be put? I expressed doubts about the NEB participation in British Leyland; I am even more alarmed at the amount being put into British Leyland. I think it is staggering, and after all that has been said about the taxpayer's money and NEB and the motor industry; that is, that 250 press operators at British Leyland's Birmingham car body plants should create a stoppage, as reported on Wednesday, that has now resulted in a stoppage of the manufacture of Minis and Jaguars. How in God's name can anybody think that to be a responsible attitude at this time?

I shall now comment about Chrysler. Please believe me—and I address my remarks to the noble Lord the Minister —I make this comment with no anticipation at all of either answer or comment, but this is an opportunity to make some remarks. One of the most staggering things about the Chrysler situation is the complete failure of the Government to have made known any of their intentions in principle over these last three weeks. One does not expect them to say what they are going to do, or necessarily what they are not going to do, but one does expect them to give some leadership. Such leadership is completely lacking, to the extent that 27,000 Chrysler workers are making threats; 25,000 Chrysler retail dealer employees are desperately worried. My Lords, I think I really ought to be quite fair because since I last spoke in your Lordships' House on motor matters I have become a director of a Chrysler dealership. Whatever consideration is given to the Chrysler situation, there are more aspects at stake than the employment of 27,000 production employees.

Towards the end of his remarks, I understood the noble Lord, Lord Shepherd, to say in effect—I would not attempt to quote him—that a classical example of mismanagement is that of Chrysler. Be that as it may, any refusal to give some kind of support will prejudice sadly the whole dealer network. Any selective import controls as have been suggested by a Member of another place with regard to Simca can have an even more disastrous effect. These would be the kind of measures I would describe as punitive and they are not helpful to anybody, least of all the domestic industry. Selective controls will undoubtedly weaken our industry here, and if one takes the broader aspect of selective controls over the whole range of Japanese, Eastern European, European and American motorcars, I cannot feel that it will be at all helpful.

If dealerships are to be deprived of their franchises, where indeed can they look? At the moment they cannot look to the English-based manufacturer. British Leyland are totally embarrassed by the number of their dealers, as are Ford and Vauxhall. You cannot deny this centre of the industry the opportunity of working. If I were to make any suggestion—I make it perhaps without any real knowledge of the full implications—it must be that some selective support should be given to those sections of that part of the industry which can be seen to be viable, provided that there are assurances from both sides—labour and management—that there will be no ridiculous stoppages; that there will be a full and total commitment to making the thing work, even though most of the money is from some other source.

Finally, I will say that it is really the Government's job to provide the right kind of climate of confidence and opportunity, and I would urge Her Majesty's Government to make quite clear their intentions and strategies for the motor car industry—not only Chrysler and British Leyland but the whole of the United Kingdom-based motor car industry—before this very exciting, tremendously resilient, important and necessary industry destroys itself.

7.38 p.m.

The Earl of GOWRIE

My Lords, we have now just ended the first year of Mr. Wilson's fourth Administration. The present Cabinet has suffered little change. I think, since it came to office after the General Election of 1974 and even before that its senior members were well known to the general public, as well as to those of us who work in Parliament, from the politics of 1964 to 1966. It seems to me that the present series of debates on the gracious Speech gives us the opportunity not only to discuss the policies and legislative programme for the coming Session, but also to judge the Government's own claims, to be, in the words of the Prime Minister, "a natural Party of Government" and the Party best suited to guide Britain through what nearly everyone who has taken part in the debate agrees is the worst general economic recession since the 'thirties.

My Lords, my noble friend Lord Thorneycroft is chairman of another natural Party of Government—the score since the war is about 16 years' to 14 years' rule in the Conservatives favour. As we would expect from knowing him, he put national considerations first when opening the debate. For my part, and I shall not keep your Lordships long from the Government's answering of their own case, I want to try to follow his good example and be as little divisive as possible. I have to say that that is not going to be very easy.

Even if one tries to see some of the problems confronting us through the eyes of Government—and all political Parties will be faced with similar problems in Office—it is very difficult to avoid two conclusions. The first is that Mr. Wilson's Government have immeasurably added to the difficulties they inherited not just from our Government—and I acknowledge that they inherited considerable difficulties from us—but also from Britain's long slide in this half-century from prosperity and self-respect to at best living on tick, and at worst a bickering penury.

The second conclusion is that whenever this Government present us with evidence that they care about this long slide and that they propose to do something about it, they immediately follow on with equally convincing evidence to the contrary; with a legislative programme and a declaration of intent of the kind we have read in the present gracious Speech, and one which runs absolutely counter to the earlier commitment. This has been the theme of speaker after speaker, and not only from this side of the House. I make no apologies for following it.

As one would expect from their composition and leadership, this is a Government with a dual personality; in our modern jargon, a schizophrenic Government. Perhaps they could be nothing else, since the political Party from which they are drawn is undecided between social democracy and the mixed economy on the one hand, and collectivism of an Eastern European character on the other. I may be able to surprise your Lordships a little in that I believe, with the far Left, that there would be advantages for many sectors of a run-down industrial economy like ours in an old-fashioned Socialist protectionism. Where I differ is in my belief that this would be a very short-term solution; that it could be achieved only at the cost of a permanent across-the-board reduction in the standard of living of our people; that it would destroy for ever the one area of our national economy which is still successful, the provision of international financing services by the City; and that it would be quite incompatible with the tradition of individual liberties which the outside world, in spite of the Trade Union and Labour Relations Bill, still associates with this country.

So the sum of these conclusions is that this Labour Government, partly through their own choices and partly through their composition, are not capable of meeting our national needs at a difficult time. And since they are, in effect, once more a minority Government, the best thing for us to do, it would seem to me, would be to get rid of them; and the best thing that can be said of the Speech that we are debating, is that it will, in our view, make that task much easier.

My Lords, before I get down to cases, may I say something else which might cause a little surprise, coming from a Tory. It is that I feel a sharp disappointment in the performance of the Government since they came to Office in March 1974. Like many people outside Parliament, I know perfectly well that whatever issues of principle there were, and whatever the consequences of the failure—admittedly a failure at the post, but in our election system a miss is as good as a mile—of the Heath Government's counter-inflationary policy, in practice our Government did make critical errors. Albeit from the best of motives, our price control had driven British free enterprise, our natural constituency, to its knees; our stated and worthy desire to expand industrial investment and to release money for investment generally, ended up with money being shovelled by the sackful into South-Eastern residential and commercial property; the damage we did to differentials, again in the worthy interest of a counter-inflation and employment protection policy, cost us much needed working-class support. Our structural overhauls in local government and industrial relations law perhaps tried to do too much too quickly, and our budget-balancing hand did not always know what our public-expenditure hand was up to, although again I believe this was in the honourable interest of protecting employment.

So when in preparation for winding-up this debate tonight I reread my remarks made from these Benches just before and just after the February Election, I detected a buried feeling—and it must have been fairly buried as I am still on these Benches to make it, that "Back to work with Labour" was not only likely to be a successful call to arms, but was in fact a reasonable one. Secretly, I felt that seasoned politicians of the calibre of Mr. Healey, Mr. Jenkins, Mr. Callaghan, and Mr. Wilson himself just might be able to obtain the support necessary to control inflation before inflation controlled us and put our industries, our exports, our social and economic system even further down the Western scale. I cannot get over how wrong I was, and I apologise here and now. For look what has happened nearly two years and a whole General Election later. National productivity hovers at about the level of the three-day week, and in many key sectors it is lower. Lost working days are in most industries higher than in any period of the Heath counter-inflation policy of 1972 to 1974.

The Heath Government were trying to arrest an inflation of about 10 per cent. This Government are at last making correctives to an inflation rate of just under 30 per cent., and they recently produced evidence of a rate of 25.9 per cent. with something of an air of triumph. The noble Lord, Lord Roberthall, in an as always lucid and impressive speech, told us that with a little bit of luck—and he personally was optimistic—at the end of another two years the rate of inflation might be just 2 per cent, higher than it was in February 1974.

My Lords, the Heath Government were castigated—and the noble Lord, Lord Barber, particularly— for presiding over an unprecedented leap in public expenditure. I remember that in this House the noble Lord, Lord Beswick, who will defend the Government tonight, was a particularly adept castigator, a veritable flail. Public expenditure is now taking £56 out of every £100 of national income, an increase over the Tory percentile of £43 which is matched only by the increase, now running at 14 per cent. per annum, in the money supply. Because the Government waited until inflation was running, or perhaps I should say galloping, at 30 per cent., overseas and domestic investment remained on a short-term basis only; no chance of anything longer-term to produce the regeneration that all sides agree our industrial economy needs. Not only is the public expenditure deficit wider than ever before, but Mr. Wayne Godley, who is a brother of my noble compatriot, Lord Kilbracken, recently demonstrated that £5,500 million had been "mislaid" Time and again the charge of "confrontation, not conciliation" was hurled by noble Lords opposite and their friends at the Heath Government. I think the noble Lord the Lord Privy Seal did so again today. Yet in this gracious Speech, as was pointed out by the noble Lord, Lord Orr-Ewing, we have splendid and conciliatory passages concerning pay beds and direct grant schools. We have also the truly terrifying dock labour provisions; and these, echoing the trade union and labour relations and employment protection legislation, show that a group of workers is to be privileged at the expense, not just of the whole community, but of other individual groups of workers in areas far beyond the docklands themselves.

All this legislation, quite apart from being divisive, is surely extremely expensive. This country is in the hands of its creditors, and the whim of perhaps a dozen men saves it from being in the hands of its receivers. Three months ago the Chancellor borrowed 1.2 thousand million dollars in instalments from the Shah of Iran. I agree with my noble friend Lord Thorneycroft that it is sound policy to borrow back money we are forced to pay for oil due to the cartelised increases by OPEC. But I understand that 400 million dollars of that loan was bespoken by the National Water Board. So a country with the rain table of Persia is effectively paying for water for a country which still includes the soggy, romantic mists of Scotland and Wales.

The whole public expenditure borrowing requirement, and despite existing, let alone future, nationalisation plans—what a pitiful proportion finds its way into productive investment—is now expected by the Treasury to exceed the originally forecast £9,000 million. From the Cross-Benches the noble Lord, Lord Robbins, voiced his feeling that it will exceed this figure very considerably. No wonder then that the application to the International Monetary Fund for a loan of £1,000 million is the largest in the Fund's history. Yet even this borrowing is taking place in an atmosphere of increased rather than reduced taxation, and, therefore, of reduced rather than increased profits and investment. Only this morning I listened to the wireless, where I heard Sir Don Ryder engaged in castigating—and I felt with some justification—the cosy tenure of jobs enjoyed by much British management. But if management is to sharpen its competitive edge, something approaching other Western levels of take-home pay will have to be allowed.

Incidentally, I was interested that the last gracious Speech made mention of a wealth tax, whereas this gracious Speech appears to show that the Government's intentions have reformed. I should be grateful if the noble Lord, Lord Beswick, when he comes to wind up, could let me know what is the state of play after the damaging, from the Government's point of view, findings of the Select Committee in another place. Nor was there anything about inflation accounting, without which profits are rendered liable to a degree of taxation which they cannot effectively bear.

My Lords, I acknowledge that, in theory, you do not need to provide managerial incentives in a collectivist economy. In practice, you get over that theory, in Eastern Europe for instance, by the provision of "perks". But surely a mixed economy must compete in a free and mobile market for skilled management and skilled labour. If it does so, it at least has the chance of providing sufficient general employment to satisfy the needs and expectations of its national population.

Finally, in this catalogue of misery, we are confronted with the prospect of a part socialist, part social democratic Government presiding over the running down of the social services and over the highest level of general unemployment since the last war. I have not made too much of the unemployment figures, because I accept the inevitability of a figure close to one million; and, of course, we in this country have fairly lavish unemployment benefits, perhaps more lavish than we can afford. But anything over one million—and we shall suffer much higher figures, as most speakers have agreed— is the product, surely, of a wanton refusal to control the erosion in money values all those 20 months ago. "Back to work with Labour" must be the most ironic political slogan in twentieth century domestic politics. We often hear it said that it is easier to criticise than to construct. Curiously enough, I do not believe this need always be true. I believe that we could fight our way out of our present difficulties if we adopted just a very few instruments of policy, not Socialist ones to be sure, but not particularly Conservative ones either.

We must as a matter of urgency phase out price controls; the gracious Speech implies a firm commitment to retaining them. If price controls are retained, more and more companies, large ones in particular, will have to seek Government aid, and the Government will have to borrow even further to provide it. Nine times out of ten, of course, the Government will be unable to provide it, and with further disastrous consequences for employment. Wages in this country have hugely increased in real terms between 1966 and 1974. As a country, I believe we can take having to pay more so long as we then concentrate our care, our health and our welfare provisions on those who need it most, or on those whose real wages have not increased throughout that time. That really interesting and worth while politician, Mrs. Shirley Williams, is in effect doing as much practical damage to British industry as Mr. Wedgwood Bean did to its confidence.

Then we must use the psychological advantages, the gains to our national morale which the referendum on Europe produced. Our greatest potential natural resource is North Sea oil. But the mere possession of a great natural energy resource is of little use unless one can combine with a cartel to prevent price movements from militating against one; and, incidentally, from militating against those less fortunate countries who do not possess such a resource. Venezuela, for example, and Nigeria have had oil for years and it was not until the effects of the cartel were felt that we discovered them to be rich countries. I acknowledge that there are difficulties, not least political difficulties, in hammering out a common energy policy with our European partners. But unless we do so we shall he as much at the mercy of a lowering of oil prices as we were of their being raised.

Finally, we must set ourselves practical and attainable goals. We cannot suddenly reduce public expenditure, as my noble friends Lord Molson and Lord Thorneycroft acknowledged, be it at local or national level, without throwing even more people into unemployment. But we can, and we on this side will, develop and propagate an orderly but irreversible shift away from public sector consumption in favour of public and private sector production, and that is only to say in favour of a productive mixed economy. Yet this last is the declared economic strategy of the Government. We welcome it, as we welcome the spirit of Chequers, even if it is long overdue, and as we welcome the spirit of Rambouillet. What we do not welcome is the total affront to this spirit which the present legislative programme offers. The Government must abandon it or we as a nation will certainly abandon them.

7.58 p.m.

Lord BESWICK

My Lords, I begin by adding my tribute to the wholly satisfying way in which my noble friend Lady Phillips moved the Motion which we have before us at the present time. Inevitably, and properly, much of this debate has centred on the wretched state of our economy and the economic and social threat that is posed by inflation. My noble friend the Leader of the House has given facts, with which I think we are all now familiar, of the worldwide (or ought I to say the Western worldwide) nature of this current depression. I have myself previously stressed, and I do not believe it can be stressed too often, that this depression is different from other depressions. So far as that is concerned, I am in agreement with what was said by the noble Lord, Lord Harmar-Nicholls, and I am inclined to agree with what the noble Lord, Lord Robbins, said; that is, that it is possible to overdo the worldwide element in this present problem. This depression is different in depth. It is different, to a considerable extent, in causes, and it is different in degree so far as our own British case is concerned.

One very significant new post-War factor has been—I have referred to it before—the profound shift in political control which has taken place in the world since the last War. It has been a shift in political control which has also meant a shift in the economic centre of gravity in the world. There are now many millions of people who are getting a fairer price for the commodities which are found in their respective countries. We cannot really complain about the price of oil; what we can regret is that the sudden upsurge in price was bound to cause the economic dislocation we have seen. What we have to accept—and the noble Earl, Lord Shannon, the noble Lord, Lord Orr-Ewing, and others referred to this—is that we have to work harder, or more effectively, even to maintain the same standard of living as we have previously enjoyed. Our GNP can rise, but the net disposable income will not rise with the terms of trade against us as they are. It is this special factor which is still not properly understood.

We still have not thrown off in this country that "never had it so good" psychology instituted and encouraged by politicians other than those on this side of the House. I am bound to say that, as with the noble Earl, Lord Gowrie, I was taken in for a time by the noble Lord, Lord Thorneycroft, in his appeal for unity. I thought he was a reformed character. I thought it must be untrue that the "Selsdon man" had returned to the Central Office. But almost without pausing for breath he praised the spirit of the CBI and Cabinet talks at Chequers, and then said that some of the Cabinet Members were less sincere or patriotic than he or his CBI colleagues. I know that his spirit is really too generous for him to mean that, and I hope that he will not repeat it.

It is easier, I suggest, to avoid mistakes of that kind if we consult the facts. Take, for example, his quite impassioned criticism of inadequate investment in this country. Of course we need more investment, and a more effective use of investment, as various noble Lords have said, but it is a short-fall in investment which cannot by any rational person be laid at the door of Mr. Benn, or ascribed to the policy in the Queen's Speech. It so happened that last week I cleared up some newspaper cuttings in my office and I came across these which I had retained. The Economist, 20th March 1971 (days of a Conservative Administration); the headline: Help! The slump in Britain's manufacturing investment has passed beyond the stage when new orders drop off. Now the cancellations are rolling in… Take the Sunday Times of 7th March of the same year: Industry: squeeze till the pips fall out. Manufacturing industry is entering an investment recession, after the shortest investment boom in the past 20 years. It is not really surprising"— they say, and they go on to explain that it is because of the policy pursued by the then Conservative Government. Take the Economist, that most gentle and kind paper when it comes to dealing with Conservative Administrations. On 20th February 1971 their headline was: They're just not investing. The trickiest part of Mr. Barber's budget next month will be thinking up ways of getting industry to invest again. I say in all friendliness to the noble Lord, Lord Thorneycroft, that he does no good at all if he suggests that the present recession in investment is due to any policies being pursued by this Government.

I also suggest to the noble Lord, Lord Thorneycroft, and to the noble Lord, Lord Orr-Ewing, and others who decry, properly, divisiveness, that it can well be sometimes that the status quo itself is divisive. I have reason to believe that the old education system was divisive, and it is because we believed it to be divisive that we were proposing to make certain changes. Do not let them think that we do not value unity as much as they, but sometimes in order to achieve unity we have to think of the other side as well as theirs, and that is what we have been doing.

May I look again at this question of public expenditure, to which the noble Lords, Lord Thorneycroft, Lord Orr-Ewing and Lord Robbins, referred? Of course there is this gap between national income and expenditure—none can deny that, although there are some reservations about the actual figures. I understand that official statements will be issued before long about those figures. If the blame for that gap is to be allocated, ought we not to exercise, as the noble Lord, Lord Roberthall, said, the sort of objectivity which the noble Lord, Lord Thorneycroft, was preaching if not exactly practising?

Let us look, for example, at another old cutting of mine from the politically unaffiliated financial editor of the Sunday Times in an article towards the end of the life of the last Conservative Government. He said: If there was any common expectation back in June 1970 of how a Conservative Government would perform, it was probably that this Cabinet of hankers and the financially sophisticated would get its control of money right. And that is exactly what they did not do, and the noble Earl. Lord Gowrie, knows it as well as anyone. They go on to say: The terrible mistake as that instead of switching back to a…neutral money policy…money was allowed to take off out of control, all the normal monetary disciplines were refused and the four great monetary variables were all set free…The public sector's overall deficit, or borrowing requirement, was raised from £800 million and £1,000 million in the financial years 1970–72 to £2,500 million in 1972–73. The noble Earl, Lord Gowrie, commented on the fact that I used to castigate the Government in those days for performing that sort of disservice to this country. I did castigate them, and he wonders why I do not apply the same criticism to my own Cabinet. But let him think back to the years when his Government took over. They took over at a time when the Budget was balanced; when we had a surplus on our balance of payments account; when we had no public borrowing requirement. It was that situation that they converted into the state of which the Sunday Times spoke.

The Earl of GOWRIE

My Lords, as the noble Lord, Lord Beswick, referred to me, I think I can come in, and I thank him very much. I acknowledged in an earlier debate that from the point of view of certain Conservative attitudes Mr. Roy Jenkins was an impeccable Chancellor, but it was so at the cost of considerable unemployment, a growing rate of inflation, and the death of most of the last Government's programmes. I do not think that it is a very good example to cite.

Lord BESWICK

My Lords, I propose to deal with that later on. It is perfectly true that we did it at the cost of some sacrifice, but it was from that base that we had to move on, and the lessons we learned then we intend to apply at the present time.

Lord ORR-EWING

My Lords, if everything was so lovely in the garden, why did the Labour Government go to the country more than a year before their time was up? Was it not because they knew what was coming and wanted to get out from under it?

Lord BESWICK

My Lords, the answer to that is, No. The noble Lord knows that that is not true.

I was asked by the noble Lord, Lord Robbins, about how long the IMF loans are expected to last. The drawings on the oil facility are repayable not later than seven years after the initial drawing. There is an element of discretion. The drawing on the first credit tranche is repayable between three and five years after, and again there is some discretion. He will not expect me to discuss or to speculate on the actual course of future events so far as that is concerned. May I say to him that of course we must have control of public expenditure. The Chancellor has said, and this is in line with what others have said this evening, that while cuts of this kind are not feasible now, when we have so much slack in the economy and so much underemployment and unemployment of labour, we are making plans—and I assure the noble Lord that they are serious plans which are now being produced—which will ensure that the extra resources will be available when economic demand requires them.

The noble Lord, Lord Thorneycroft, and the noble Lord, Lord Orr-Ewing, referred to the nationalisation of the shipbuilding and aircraft industries. I have no doubt that there will be ample opportunity to discuss in depth the position of these two industries; there will be a full debate in the period ahead. However, I put it to the noble Lord that the situation in the shipbuilding industry, if he watches it closely—the way in which it has had to make demands for public assistance is such that full ownership is logic that is inescapable. As for the aircraft and guided weapons industry, I think he will agree that there has been agreement over the years that we need a restructuring here, that we need to bring the two major companies together under one control. The issue is one of ownership and not of structure and we take the view that if one has a situation where one has a powerful monopoly largely sustained by public purchases, that monopoly should be under public and not private control; that is the argument we shall make in the months ahead.

I was intrigued by the fact that the noble Lord, Lord Molson, was the immediate next Conservative speaker after the noble Lord, Lord Thorneycroft. I was intrigued because while my political memory may be failing, I seem to recall that the two noble Lords were young Turks together in the Tory Reform Group at one time. I can only say that the noble Lord, Lord Molson, appears to have retained his radical spirit much more successfully than his former colleague. I agreed with all that was said by the noble Lord, Lord Molson, about industrial democracy and the use of the printing press and about the dangers of borrowing. I found myself in agreement also with the noble Lord, Lord Robert-hall, and I hope that his responsible and authoritative speech will be considered by some of the defeatists opposite.

I could not agree altogether with the remarks of the noble Lord, Lord Hawke, but I agreed with him when he said that one of the mistakes that had been made in this country since the War had been the reversal of economic policy with changes of Government. Sometimes it would have been better—maybe on both sides—if there had been greater continuity of policy. The noble Earl, Lord Shannon, I am bound to say rather worked me up. I thought that things must be worse than I had imagined and perhaps he will allow me to tell him a story in view of what he said about nobody today talking about doing a fair day's work for a fair day's pay. I remember that, 22 years ago, the house next to mine, which had been bomb damaged, was being repaired and I became friendly with the clerk of works and we discussed social affairs. One day he showed me the publication of his association, I think it was the Clerk of Works and Building Surveyors Association, and in that publication—remember, this was over 20 years ago—was a reprint of a lecture given by a clerk of works 50 years earlier. The title of that lecture was, "Fifty years in the building industry," so we are going back 120 years. The lecture, I remember, started off by saying, "Today the trouble is that we cannot get a fair day's work for a fair day's pay."

Baroness SEEAR

Is that not evidence, my Lords, of what we have said; that we are on a long trend?

Lord BESWICK

My Lords, it is a trend which we have to reverse and I propose to indicate how we are trying to reverse it. The noble Baroness, Lady Seear, and the noble Lord, Lord Orr-Ewing, both raised this issue of price control. I put this to them, and I put it to the noble Lord in the context of the question he asked about the spirit of Chequers. If we are to maintain faith with those with whom we discussed this question at Chequers, it is a question of maintaining faith with both sides. If one is discussing price controls, one must bear in mind the issue of wage restraint; the CBI wants an abolition of price controls but it also wants a retention of wage restraint. We have to try to achieve a balance as between the two. I accept that when the time comes and the need for re-equipment is there, a source of finance must be internally generated and the Chancellor of the Exchequer in the Press conference he gave said that he was prepared to consider whether there was any possibility of adjusting price controls in such a way as to encourage new investment. We realise what is involved here and I hope that the noble Lord will also realise what is needed if we are to maintain this consensus which we have tried to build up.

The noble Baroness, Lady Seear, as always, impressed me with what she said about the social aspects of the economic problems, and I agree with her that what we need to offer to the young people who are now going into industry is some long-term prospect. She regretted the absence of any reference in the gracious Speech to industrial strategy. I hope she will accept that one reason why we did not go into detail in this gracious Speech was because our priorities were such that we dealt with this matter in the previous gracious Speech. This one was rather long. I happened to have to stand to attention while it was being read and I am in a position to know that it was on the lengthy side, and, to repeat what was said last year, I should have said it would have been a work of supererogation. Nevertheless, it is a fact that we need to have an industrial strategy. I accept what the noble Baroness said.

We have, I accept also, failed in this country—I am not talking about one Party only—to maintain here a proper manufacturing base; and, indeed, I was discussing only this morning the work of one economist who showed me a chart he was compiling from which I saw that, taking 100 as a base in 1965, output per head in this country in manufacturing industry had risen to 140 by the end of 1973 but employment had sunk to very nearly 90. It is a fact that we have allowed this drift from productive investment into other activities. We make a mistake if we say that they have all gone into local authority work. There has been a tendency in this country in recent years, especially under the previous dispensation when it was possible to borrow money so cheaply and charge the interest against one's tax, for there to be a development of the "spivs" in the City. Probably I am using that term too glibly, but there has been a development in the non-manufacturing sectors of our economy and it is a tendency that we have to watch and, if possible, reverse, and we intend to do all we possibly can to reverse it.

The noble Lord, Lord Robbins, made some constructive proposals which I shall certainly consider at greater length, and I think that that is what he would wish to have me do. The noble Lord, Lord Lucas of Chilworth, said that using motor manufactures as an economic regulator had been carried too far, and that is a point of view that is now more generally understood than was the case in earlier years. I am afraid I cannot accept what he said about the negotiations with Chrysler. I think it would be a mistake to negotiate on that issue in public. I recognise that there are many thousands of people whose livelihood depends, directly or indirectly, on Chrysler. They have a right to be told where they stand, and an announcement will be made as quickly as is possible after a thorough examination of all aspects of this matter.

All the criticism of our industrial policy may give satisfaction to those who utter it, but I believe that there is now an understanding among us all that we have somehow to ensure that we put greater reliance, greater emphasis and greater investment into useful and productive things. I believe that that is now beginning to be accepted. It is possible to say that we cannot get out of our present plight unless we do so, but it is also possible to say—and some say it too glibly—that we can get out of our present plight simply by cutting expenditure and leaving industry to the industrialists, with the Government just keeping the ring. That is what the noble Lord, Lord Thorneycroft, was saying and it is a point of view which has been expressed over the years. However, the facts have never supported that point of view.

The other day, I was given a letter written from No. 10 Downing Street to a respected former colleague of mine. It says: I regret that after a lifetime of work in the Labour movement some colleagues and myself have had to come to a decision in the interests of the country which may for the time being embarrass the Party.…For weeks past I have watched a situation of increasing difficulty. It has been a time of great strain and anxiety. As we all know, questions of international finance are very complex…It is clear that in the midst of the world depression, whatever its cause, fears have arisen abroad as to the stability of our credit…If our financial stability is endangered and a run made on our financial resources, the consequences are too terrible to envisage. This makes temporary retrenchment inevitable and imposes some amount of common sacrifice. That letter, the original of which I have here, was written by James Ramsay MacDonald to the late James Hudson, who was PPS to the Chancellor of the Exchequer, Philip Snowden. The solution which they adopted in 1931 was precisely that which is being advocated from the Benches opposite today, and it just will not do. It is not enough to say that there must be sacrifices all round. Ramsay MacDonald went on to try to justify a cut of 10 per cent. in the unemployment pay, and sacrifices are almost always felt most heavily by those least able to bear them.

Lord THORNEYCROFT

My Lords, I do not believe that anybody said that. I like the letter. It is a fascinating reflection and I feel that it is quite right to quote. While these arguments go on coming back, nobody has used that argument. May I ask the noble Lord to consider—and I do not ask him to give a precise answer, but simply to go on thinking about this—what the noble Lord, Lord Orr-Ewing, my noble friend Lord Gowrie, I myself and the CBI have said, which is that the constant taxing of industry and the holding of profit levels against rising costs is really relevant, though it is not the only factor, to the question of investment and the ability to pay wages. I am not asking for more than that.

Lord BESWICK

My Lords, the noble Lord is mistaken when he says that that was not the policy he was advocating. He was advocating a cut in public expenditure. He made the suggestion in very robust terms that industrialists understood industry much better than the politicians and that we should leave it to them. The whole tenor of the propaganda which comes out of Central Office now is that things should be left more and more to private enterprise. What I am saying is that, in the past and over the years, that has simply not delivered the goods and that we cannot afford to make that mistake again.

I shall not weary the House with the history since the War, but I am trying to say that we are endeavouring this time to make certain by a whole range of possibilities—including self-financing by industry, including, where necessary, advances from the new financial institutions which have grown up, and including, where necessary, help by the NEB—that we give priority to productive industry. This time, having taken a grip on inflation, with the overseas deficit reduced and with the beginnings of an incomes policy, we intend to build where we did not have an opportunity to build after our last effort in clearing up an economic mess. We shall endeavour to see that there are resources available from the private sector and that those resources are more effectively used. We hope to do all this in a spirit of consensus, with common consent. I believe we have made an advance in that direction. As I say, we shall try to keep faith with both sides of industry and I say again to the noble Baroness, Lady Seear, that she should not believe, because there was no reference in the gracious Speech—which, after all, is supposed to refer to the legislative programme for the years ahead—that we have forgotten all that we claimed for the Industry Act, for the NEB, for planning agreements. All that is part of the effort to give some continuity in industrial development.

The noble Lord, Lord Molson, asked me—and I appreciate his question—to state my attitude to modernisation in the steel industry. I am glad to tell him what is my attitude. I have tried and I have had the full co-operation of the chairman of the Corporation and of the TUC Steel Committee, to create an atmosphere within which change would be accepted. My most recent talks were with representatives from Port Talbot. They know and accept that the further huge investment needed there will be of no avail unless manning levels can be compared with those of competitors overseas. That undertaking to get down to those manning levels is now the subject of detailed discussion between the Corporation and these people. It would be wrong of me to talk of Llanwern; we must hope that the inquiry will yield results. But the pattern of consultation developed in the closure review between the three partners—the State, the work force and the managers—has done much and, I believe, can do more.

It is not simply in large industries like steel that we have been working, despite many criticisms. As I say, I took part on Tuesday in a conference of the clothing industry. We have made available £20 million as a pump priming operation to enable the industry to re-equip and to secure prefessional consultative advice. It was a great stimulation to me to see that conference of earnest people from all over the country who came together with the Government, the trade unions and the men to endeavour to see that their industry would be more efficient in the future than it had been in the past. They accepted that this would inevitably mean some reduction of manning. That is a pattern which is developing in industry and it is one which must spread not only in the affairs of individual companies, but in the affairs of our nation as a whole. I hope that what will emerge from the present debate is that all of us on all sides of the House will do our best to encourage it.

Lord STRABOLGI

My Lords, on behalf of my noble friend Lord Harris of Greenwich, I beg to move that the debate be now adjourned until Tuesday next.

Moved, That the debate be now adjourned until Tuesday next.—(Lord Strabolgi.)

On Question, Motion agreed to, and debate adjourned accordingly.