ECONOMIC POLICY

HL Deb 03 March 1976 vol 368 cc1013-115

3.4 p.m.

Lord RHODES rose to call attention to the conditions necessary for economic growth; and to move for Papers. The noble Lord said: My Lords, in calling attention to the conditions necessary for economic growth and moving for Papers, may I thank the usual channels for the opportunity, and all those Members of this House who have put down their names to speak to this ever going problem. I suppose that the reason why I put down this Motion is because of a visit I made with the noble Lord, Lord Wilson of Radcliffe—who is sitting in the House, and who is to speak later on in the debate—to the Mansion House for the celebration of the hundredth anniversary of the Co-operative Bank. I moved around in the boardroom there and I came across a man I used to know in Manchester. I used to sell to him. He is now very big and important. I asked him how his manufacturing was going on. He said, "Only a fool manufactures today ". That went very deep with me.

I have said before in this House, and when I say it again today it will not be the last time either; I still have a nightmare every so often of my looms running empty, and the weavers looking at me and expecting me to go out and see that they have got work to do. This is the situation everywhere all over the country today. That is the recurring nightmare. Any men or women of metal can go back in their experience and can pick out items which have meant more to them than anything else; and I warrant that, more often than anything else, it is when in conjunction with other people they have been pursuing a common cause

I felt it to be that kind of experience when my own workpeople asked me to stand for Parliament as a Labour candidate. It was one of the biggest honours that I have ever had when they did just that. The experience that I had with them in ups and downs—and many downs—always seemed to be in those days when it was thought that a grapeshot of credit squeeze could put the economy back on balance. But the recession that we are in now is unique in myexperience, and probably unique in the knowledge of any experienced person not only in this House but in the country at large, since every recession brings an increased complication because of the sophistication that has intervened. This one is no exception.

So we come in this recession to Rambouillet, and for the first time the leaders of the Western countries, with Japan, got together and considered what they could do in the short term; whether there was any growth to be achieved in the Western economies. Notice my mention of the Japanese—and I shall have something to say about that before I sit down. Out of Rambouillet came Chequers, and a good document it was! Whether it would ever have seen the light of day in the way of a White Paper I do notknow, had we not insisted on it in the debate in which the noble Lord, Lord Thorneycroft, spoke on behalf of the Opposition. He will remember the occasion.

Remedies have been advanced on every hand. The White Paper wrapped up most of the accepted tenets asto what should he done about manufacturing businesses: for example, build up the profitability; increase the willingness to invest; profits that have fallen too low should be allowed to recover. Whatever can be done to help exports without offending theinternational trading community should be done. Anybody in business or in the unions knows that these things have been discussed time and again, and they are epitomised in the White Paper. We know that there is a feeling in Government that planning arrangements should he introduced, and we also know that people outside Government are apprehensive about whether planning agreements would be deleterious to them. Another tenet is that improved planning should be developed on an industry basis by the economic development committee of Neddy. Everybody agrees that a willing labour force is necessary and that it would be good if the implementation of Sandilands came about.

Many noble Lords wish to take part in this debate and I shall endeavour to be brief. I say this about the White Paper: it is the first time in the last two years that I remember any reference being made to growth. This is mentioned in the introduction and it is as well for noble Lords to remember what it is all about, because it says: Our prime objective must be to become a high output-high wage economy. This can be achieved only by improving our industrial performance and raising the growth of our productive potential. Sometimes it looks as though we have no enthusiasm for encouraging this. Let me say at this juncture that we have had too much criticism of management. The way in which managements are hemmed in these days by a variety of additional duties can be appreciated only by those who can see the problem at first hand. It is all verywell looking at it from the distance of these Benches, but get into the offices of management where the work is being done to appreciate the difficulties. If every noble Lord, when shaving in the morning and looking in the mirror or, if a female, powdering her nose, should ask this question: what have I done in my lifetime—this morning, this week, this month or whenever—to increase the wealth of the community? If they are honest, there will be a heck of a lot who have not been able to do muchbecause the number of people who actually make things in this country are in the minority. Do noble Lords realise that only 16 per cent. of the community arc engaged in making things? What are all the others doing? Why is so much criticism levelled at management when they are in such a minority. I think we know full well what the answer is.

A really good barometer of how the land lies is the number of entrants either to polytechnics or universities. Is it generally realised that the universities admit thatat the present time 20,000 places in science and technology are empty? My informants tell me that that is not the correct figure and that it is nearer 30.000. What are we playing at in tolerating this state of affairs? A fort-night ago I was honoured in Huddersfield by being made a fellow of the polytechnic there. The rector made a speech in which he quoted what Ministers of Science and Technology had had to say and he said: Recently in a major speech the Secretary of State for Education and Science said that he was bound to concentrate talent on the brutal necessity of earning the nation's living and that polytechnics and universities should endeavour to change the attitude of our ablest achieved only by improving our industrial per-a career in industry. The rector went on to say that industry, particularly our wealth-producing industries, needed hard work and they were very demanding but unfortunately they paid lower salaries than the service industries. For how long can we tolerate this? Is it not time that we moved things around a bit, adopted a different outlook and accent on this? What is the prospect of a man being enthusiastic nowadays when he goes out to get work for his factory in the knowledge that in four days a solicitor can make £850? It is time we upstairs in this place directed our criticism from management to those who live on the backs of management.

I began my remarks by saying that we were not in a usual depression. I said that other factors were at work which we had not seen before. In the last month or two we have been reminded of this: for example, Mr. Ennals, a Treasury Minister, is reported to have said at the beginning of January: Short-term solutions are essential to our recovery, but are they enough? I am personally convinced that growth and more growth as a target to be pursued for all time is an illusion and a dangerous one. In the end it will kill us all. I am largely in agreement with that sentiment, which was echoed by the Chancellor of the Exchequer in an interview last Friday night. When asked whether he anticipated that unemployment would be reduced to anything like the 600,000 it was two years ago, he said: It will probably be 1979 before it comes down to that. Thus, the Chancellor is also assuming that there will be no growth in the economy.

A publication came out about two years ago entitled Limits to Growth. It received a tremendous amount of publicity. From the point of view of focussing attention on one of the topics which need constructive debate today it did a tremendous service. It was heavily criticised and partially discredited, and the reason was that they failed to read the small print on the bureau of mines tables which led to inaccuracies. But this should not take away its importancetoday. In my belief, this is one of the most important topics of this generation.

I remember in 1950–51, when I was at the Board of Trade under Mr. Wilson, having conversations with a great man who was on our side of the House. It was in the dining room in another place and we were discussing the requisition of minerals of all kinds, and considering fibres, wool from Australia, cotton from America, sulphur. The man I am talking about was Nye Bevan. As long as I live, I shall never forget what he said. After a long discussion he said, "It won't be the geophysical you will be talking about in another generation. It will be the geopolitics." I did not know what he was talking about. I had to go to a dictionary to find out. I thought that it was something which he had picked up at Ruskin College or at a WEA class. It was far in advance of my time.

But, on the other hand, I suppose we always pillory our prophets. Had the geopolitics been thoroughly understood and pursued we would not be in the mess we are in now with the cod war. Of course we would not. This stupid cod war, which we ought to call off, is not a question of whether people are able to fish from Grimsby, or Hull, or whatever. It is a question of the maintenance of resources which will be valuable to people who wish to live a decent life.

But this is not the only one. This is only the tip of the iceberg, as we shall find out, and as Nye Bevan knew. But we did not. The urgent task today is not to bother about our great great-grandchildren. Let that aspect of posterity take care of itself. The task is to bother about the communities which will be very seriously harassed during the next few years. Have your Lordships ever thought about where some of the raw materials come from, where some of the minerals come from? Let us take a few examples, such as aluminium, chromium, cobalt, manganese, mercury, nickel, platinum, tin, tungsten, to name a few. If one looks at a map one sees that they come from very awkward places in the world, from countries which arc not particularly friendly to us, either. We are told that of course substitutes will be found. That has always been said. Geopolitics means confrontation, but we are not trained to it.

Only one country has been right so far in getting her sums correct on the question of geopolitics; that is, Russia. That is why she is in Angola today. We have been told often enough about this danger, but have taken little notice. Consider, too, the trends of the last four years, involving copper, with Zaire, Zambia, Peru, Chile, all ganging up. Consider, too, the situation involving bauxite and international organisations. We all know about oil, do we not? So it goes on, and the confrontation will go on, too.

That is one of the difficulties involved in achieving growth, other than those I have mentioned previously. The next one is the size of the growth rate of countries like Japan. When I was in Tokyo in 1947, they were bargaining for coking coal to make a few hundred thousand tons of steel. I knew the man who wasmaking it. The same man today is the managing director of a firm and makes 33 million tons in his firm alone. The Japanese make 103 million tons of steel a year, while we make 17 million. In this country a person engaged in the steel industry makes 77 tons. In Japan the figure is 504. How these differences are to be married is one of the problems we must face during the next few years; otherwise the idea of growth will be an empty one. It is the same with cars. Here is a modern phenomenon. When I was in Japan in 1962 car production did not number more than 500,000. I was there again in 1972 and the number was 5 million. If it is such a snip to get the advertising for one motor car company out of Japan—half a million pounds worth a year—what will it mean in terms of their imports here if the increase goes on exponentially. Think of the taking away of the ore from Western Australia or the Southern Philippines. We need to be thinking it out.

My Lords. I am coming to the end of my speech. To sum up, as I see it people in this country are fairly content to see others doing better than they are, if they can feel and see their own living standards improving at the time time. I see in the country a demand for a policy for differentials. I see a general urge for increasing living standards, too, and I have no doubt that the chief requirement for keeping general satisfaction with incomes and earnings is steady economic growth and rising living standards, rather than massive redistribution. In my belief, in the long run the people in this country will not be bought off by massive redistribution. But the Government may find large-scale disturbances on their hands because of a general sense of injustice about differentials, and if the Government act in haste they are certain to repent at leisure. My point is that redistribution is more acceptable when we have growth, than in a static or declining economy. It might sound a platitude, but it is true.

Last night I addressed an audience of almost 400 men in Manchester town hall. It was the occasion when awards were being given for safe driving. There are some fine people in this country yet, do not forget. Do you know what was said to me by the man who was there to take the shield for the best depot in the whole of Manchester, out of thousands of them? It could be the motto of anybody's speech or anybody's approach to people in the country. He said, "Having the pride of doing it is more important than the incentive ". That was from a working man. You do not need a university professor or some "clever Dick "to analyse that one. It is bang on—and is it not what the country wants? It is waiting for it. I am convinced of this, too—as old as I am—through what I have seen in my long life; the majority of people in this country are eager to be proud of an achievement and to belong to a community which has a sense of direction. It is because, somehow, we have buried ourselves in our own "tuppenny-ha'penny "affairs and not been wise enough in our conceptions that we are blaming our people.

Today is a fitting day for my speech—I shall sit down in a minute—because it is Ash Wednesday. Self-denial is a Christian tenet—a tenet which will have to be in the heart of everybody in this country if we are to pull through. If you look at the scripture for today, what do you read? I will tell your Lordships. It reads: Blow the trumpet in Zion, sanctify a fast, call a solemn assembly; Gather the people, sanctify the congregation, assemble the elders, gather the children.… It is our job to see to it that they are gathered, and that they are informed about the truth of the situation. My Lords, I beg to move for Papers.

3.33 p.m.

The Earl of GOWRIE

My Lords, the noble Lord, Lord Rhodes, has moved for Papers on "the conditions necessary for economic growth "in this country. I hope that, Parliamentary conventions notwithstanding, such Papers will be studied with the same rapt attention that the House has just given to the noble Lord's moving speech, because I believe, with him, that there is no more important topic. Britain's long slide from being the principal Western economy just 100 years ago to what is almost certain to be the very bottom of the Western industrial ladder in the next few years is nearly complete. The effects are legion and appalling. Worst of all, in my view—and I think the noble Lord, Lord Rhodes, would agree with me here—is the damage done to the self-confidence of a people whose political, economic and cultural history should give them very good grounds for confidence. Scarcely less bad is the perpetration, and indeed the increase, of social division—in our simply being able to get along with one another—which economic decline on such a large scale is enforcing.

As our successful economic perform ance in the last war showed—and I mean by that the speed and certainty with which we adapted a peacetime economy to war, first to seige and then to offensive—common tasks and common challenges unite our people and raise morale, and therefore performance. But a scramble to save something for family and self from the wreck does not. if I may adapt the old Chinese calendar, the last two years may be redesignated "the Year of the Ostrich "and the next two "the Year of the Rat."

One part of the United Kingdom is at present being kept from civil war by an almost incredible combination of bravery and tact on the part of the Army; another part will almost certainly, in my own reluctant but considered view, sever itself politically from this capital within two or three years. It is becoming clearer that we in Parliament, whatever Party we owe allegiance to, have misled our people about the levels of employment our present industrial performance can sustain.

At the Coventry by-election tomorrow the political argument is over which of the two Parties of Government is likely to sustain unemployment of over a million and a half longest. Both private and nationalised industries haveto turn to the Government for cash; and the Government, having soaked poor and rich beyond the level of tolerance, are in debt to nations which only 10 years ago, my Lords, we thought of as belonging to the Third World and deserving of overseas aid. Theentire economic strategy of a Socialist Chancellor of the Exchequer —a man, in my opinion, of exceptional ability—is directed towards maintaining interest payments on our national "never, never ". Your Lordships will remember that "Never, Never land "was the home of Peter Pan, and I leave it to your Lordships'imaginations to provide candidates for the roles of Captain Hook and Wendy. It is time, surely, that we as a nation grew up anew; and growing economically, my Lords, means growth.

A few moments ago I mentioned the last war. There was a phrase which I believe was in vogue at that time, and it wafts to me, along with tinned orange juice and powdered milk, from an infant consciousness. The phrase is, "It is later than you think ". I have been rather gloomy so far, and I am going to be gloomy again, but I hasten to say that I am not a professional pessimist. No one sensitive to the tenor of the speech of the noble Lord, Lord Rhodes, especially when he said that people in this country areeager to take pride in any national achievement, could have the slightest doubt that we can still arrest our national decline. We can grab, if you like, at the last few rungs of the ladder and start the long haul upwards again. It is, however, very late—later, perhaps, than we think. I feel this especially because the upturn in the economies of those who buy our goods, at rates which we have made temporarily competitive by our massively devalued currency, is likely to usher in a false dawn I fear, as a result, a false political optimism in the next 18 months or so. It will be false because our problems are structural ones, and we must really determine to use any brief respite in our fortunes which world recovery from the recent energy and commodity recession may bring to patch up, to mend and, where possible, to strengthen our national economic framework.

My Lords, if we do not do so, if we do not re-establish, in the sense required by the noble Lord, Lord Rhodes, the structural conditions for economic growth, the next decade will in my view witness our withdrawal from the Western industrial complex of mixed economies. It will witness our establishing a fully collectivised economy along Eastern European lines but without the present level of Eastern European prosperity. If your Lordships doubt my authority for making this statement, consider it in terms of the recent speeches of Mr. Roy Jenkins, Home Secretary in a Labour Administration. Consider it, too, in terms of the noble Lord, Lord George-Brown, who, whatever our disagreements with him on this side of the House, not to mention his disagreements with the other side, commands enormous respect as well as affection in the country—respect, above all, perhaps, for his record as cne of the three or so ablest economic Ministers in the Labour Party's history. Consider it, most of all, in terms of the facts of life of this country—and I do not know what other definition of the word "economy "will really serve any more.

We have 55 million people. We have food for how many?—27 million, perhaps 30 million?—and this with what most people acknowledge is one of the most efficient agricultural sectors in the world. We make up the difference in two ways. We import raw materials, addvalue to them and export them for cash with which to feed ourselves and to start the whole ball rolling again. We also export financial and other services and we export our skilled labour, whether it is blue collar or white collar. Incidentally, how much longer will our labour remain skilled without economic growth to prevent the consequent deterioration of our educational sector? This latter source of revenue—and I refer to the financial sector (the City, in shorthand; but it is not confined to London) is by far the most successful area of our economy. Its track record, its ability to grow, is in my opinion what is presently keeping us going: that, and, of course, Providence in the shape of our present and prospective energy sources. These must include our temperate and fruitful climate, our coal, oil and natural gas.

Nothing irritates me more than the attacks which arc made from time to time on the City. We ourselves on this side of the House are not politically blameless in this respect, although of course the attacks are concentrated from the other side. The Prime Minister is on record with several of them. "Men who make money with telephones ", was one of his choicer phrases—and how unlike the home life of our own dear Post Office. In the Prime Minister's case, the force of such attacks is blunted by their patent insincerity. I have never seen him look as if he were enjoying himself more than when he got the Freedom of the City the other day. Without our invisible exports, would we even be visible? The record and expertise of our financial sector—much more than the record and expertise, I regret to say, of British Governments—and the global rather than provincial scale of its operations not only attracts money into thiscountry but provides a world network through which our immense borrowing can be serviced and sustained.

The financial sector has, more than any other, what my right honourable friend Mr. Peter Walker called, in another context, "the problems of success ".I will refer briefly to two of them because they are, I believe, acting as obstacles to the recovery in the manufacturing and value adding sectors which the noble Lord, Lord Rhodes, spoke about and which we so urgently need. In the first place, able people are attracted to success or, at least, to the possibilities of success. Our educational élite, from whatever background it is drawn, overwhelmingly joins the service sectors including the service exporting sectors of our economy. I was particularly interested in what the noble Lord, Lord Rhodes, had to say about the surplus of places in the scientific, technical and, above all, engineering fields of our universities at the present time.

If I may echo him briefly, I myself have just made an altogether private survey of what has happened to those who, in my view, were the 20 or so ablest people at Oxford and Cambridge 15 years ago. About a third of them are household names, mainly through work in journalism, television or the arts. More than another third are fulfilled and productive people in their respective professions, and many are very notably so. Only one entered manufacturing industry (and he had a family connection) and only two of them live North of Bletchley. I suggested to my wife, who is German, that she do the same thing. About 10 out of her 20 entered industry. They are distributed all over the country in Germany and most of them have postgraduate degrees.

The other problem is this. Look around you in London, look around in the Southern counties of this country, and you will find what is still in the main a prosperous, contented and stable society, a sort of Belgium with the added advantage of having a major world metropolis. But try to compare Wigan with Stuttgart or Glasgow with Lyons! The success of our servicing sector sometimes blinds even those who hail from our Northern industrial mezzogiorno to the structural tasks that we face in manufacturing and to the political consequences of our manufacturing decline.

My Lords, I said earlier that I felt that a consequence of such a decline continuing would be the full collectivisation of our economy in the 1980s. Why should this be so? Is it because of "Reds under the bed ", or the far Left or the militancy of the trade unions? I do not think so, even as I acknowledge that there are people and groups in this country who would welcome full collectivisation, some, though, I believe, not all, from motives which, while I disagree with them, I accept as sincere. In any case, in what remains of my speech I am concerned with the treatable symptoms of our decline and not with the hunt for scapegoats.

A retreat from a mixed to a collectivised economy would be brought about by the collapse of our lines of credit and, therefore, of our very vulnerable currency, We should not be able to borrow and so we should not be able to buy. Even passionate democrats could not run a democracy (which is only to say a mixed economy) in such circumstances. The standard of living of the vast majority of our people—those who earn (let us say) between £1,500 and £4,000 per annum—would be cut by, I reckon, 25 per cent. at best. And this would be at a time when all raw material prices stemming from outside these shores would increase by 25per cent. at best and at worst by much more than that. The risks of capital outflow would be so great that even a Government that continued to pay lip service to democratic freedom would have to curtail entry into and movement out of this country.

The temptation for Scotland to negotiate separate terms based on North Sea resources—which are already strong enough, goodness knows!—would become irresistible. The successful invisible sector which I mentioned earlier would perish, depending as it does on capital inflow and the possibility of operating on an international scale. We had last night the lesson of what could happen in such circumstances to some kinds of legislation which are going through Parliament at the present time. The effects on foreign policy, on NATO, on a controlled and equitable de-escalation of the arms race would be obvious and awful. I do not need the eloquence of Mr. Solzhenitsyn to tell your Lordships that. We must not say, "It could not happen here ". It could happen!—and, given the right circumstances, it probably will.

My Lords, I want now to indicate, with considerable diffidence, what I believe we can do about our situation, about the growth crisis, if you like, in our vulnerable importing, value-adding and exporting economy: about the 25 million mouths, if you prefer it more graphically put, whose hungers, let alone whose social and cultural needs, that economy keeps at bay or fulfils. To put it in the form of a question: how can we collectively avoid an imposed collectivism at around the standard of East Germany 20 years ago? That. I think, would be the product of what Mr. Peter Jay—who, I can vouch from personal friendship and experience, is no Tory—calls the "present classic profile of national bankruptcy."

First, the Government, as theirs is the first responsibility. Under our system, they bear responsibility because they have overall charge of managing the economy. They also bear responsibility in the moral sense for their disastrous refusal to contain inflation and to allow the British people to feel the effects of world recession at the beginning rather than towards the end of its cycle. The Government must cut rather than merely reduce the rate of increase in public expenditure. As one who works part-time in politics and who would like to work full-time in a Government Department, I can frankly say that I like Government expenditure. I do not consider it an absolute evil. I approved of most of the handful of programmes that I was able to observe in operation in Government, and, for what my opinion was worth, I commended most of them. But, as Mr. Crosland said in the context of local government expenditure, "The party is over now ". Growth in Government spending must be linked—indexed, if you like, my Lords —to growth in output over the whole of the economy. Partly due to structural difficulties and partly through the abdication of responsibility for inflation by the Government in the period March 1974 to June 1975, our present output is rising by rather less than 2 per cent. per annum. The spending for which the Government have overall responsibility —and I include local government expenditure—is rising at 12 per cent, a year.

Lord BALOGH

My Lords, may I ask the noble Earl which Government reorganised local government so that the cost of it increased beyond measure?

The Earl of GOWRIE

If the noble Lord listened to the tenor of my speech he would find it was not severely Party political. However, if he will contain himself he will see that the Tories get it in the neck in a minute. My Lords, I said that the overall growth was rising at around 2 per cent. a year and the overall spending over which the Government have control at 12 per cent. a year. I draw these figures from the Government's own White Paper, and critics of the Treasury on both sides of the political divide argue that this is indeed an underestimation. Certainly it does not take interest payments fully into account; as the Chancellor himself said only 10 days ago, "We are having to borrow £1 for every £4 we spend ". It is absolutely no good at all for us to congratulate the Prime Minister and the Chancellor for "courageous "cuts in expenditure or for making "brave "speeches—my quotation marks are ironic—about the impossibility of further overall raises in taxation. All the proposed cuts are purely notional, and interest servicing can in consequence only be provided by raising taxes or by printing money, or both.If I announce to an expectant nation that, in the interests of the crisis, I am postponing or even altogether cancelling my forthcoming holiday, that may be an admirable recognition of necessity or of priorities, but it is not a cut in expenditure. A cutis a cut, and it means the unkindest cut of all: a cut in the levels of employment.

This is where my own side comes in. It is fair, because it is only the truth, for the Opposition to say that much of our present level of unemployment stems from the Government's long attempt to cushion our people from the energy-commodity recession at the same time as they abandoned for 18 months the Heath Government's attempts to control inflation. I know the Heath Government bears some—though by no means all—responsibility for creating that inflation, even though it was at worst well under half the level achieved by Mr. Wilson. But it is not fair if the Opposition yields to the very strong political temptation to suggest that the present levels of unemployment can be reduced with any ease. Only when the framework is strengthened, as the noble Lord, Lord Rhodes, suggested, and when the conditions for a modest but inexorable growth obtain will relatively full employment again be achieved.

My Lords, our next collective task—and it will be painful for both Parties —must be to wind down the Welfare State. Like many Tories, I received my political education—albeit indirectly, so he bears no responsibility—from the noble Lord, Lord Butler of Saffron Walden, so I do not say this with any relish. But until we can clearly establish in the public mind that there is a connection between the levels of manufacturing output and the levels of social spending and until the present imbalance is improved we have little choice. In the years since 1966 we have moved from a cheap food/low wage economy to a dear food/high wage economy. This has caused a major trauma and both sides have suffered the political consequences of so rapid a change; 10 yearsare not very many against 150 years. But many of our people—and nearly all the unionised work force—prefer the new situation. Proof of this is the relatively small outcry against the present high levels of unemployment. The Heath Governmentswitched all their policies when the noble Lord, Lord Rothschild, told them that unemployment would reach 600,000—less than half the present level under a Labour Government. So long as our people retain this preference they will have to pick up thebill for quite a high proportion of the present welfare provisions—the "social wage "as Mr. Healey calls it.

My Lords, it is either that or skilled and highly unionised labour in this country will be paying taxes at the same rates as their colleagues in management. I was delighted to hear the noble Lord, Lord Rhodes, stick up for British management, but does anyone think that British management in the manufacturing sector has a tremendous record overall? Does anyone deny that the levels of taxationand the discouragement of wealth accumulation in this country have something to do with this? Why work in an industrial city or in manufacturing industry unless you make some money? It is much more fun to stick to the service sector or to the security ofthe public sector; it is even more fun to make speeches to your Lordships. I really believe that any political Party which suggests that welfare provisions should—and I admit that this would have to be done in a controlled and gradual manner—be wound down until they help only those on low wages, the unemployed and the elderly perhaps through negative taxation, will orchestrate a tremendous response from the people of this country. And if we get that response, we will get the growth.

My Lords,I have one last suggestion. Recent experience has led me, again reluctantly, to the conclusion that price control and dividend restriction are too high a price to pay for wage restraint and the erosion of differentials, which is only to say the erosion of incentives. Of course all Governments should try to encourage a controlled and orderly expansion of wage levels in the private sector, linked —though it is very difficult to suggest I how—to productivity. Of course all Governments mustresist wage inflation in the public sector over which they have direct responsibility, even if this means resisting strike action. It seems to me that one of our economic fallacies where industrial relations are concerned, is comparing like with unlike between the private and public sectors. I do not believe the public are fools; still less do I believe are the unions. I believe that we in Parliament, on both sides, have been foolish in setting up the prices and incomes equation; it is a sight too simplified and a sight too simplistic. If the private sector, which at present remains everywhere starved of profits and liquidity, fails to recover soon, there will be further calls on Government money. We all know that the cupboard is bare.

I remain optimisticthat we shall recover. Nevertheless, we have a long way to go and it remains later than we think. We cannot even be in a position to create conditions for economic growth unless and until we stave off economic collapse. The noble Lord, Lord Rhodes, has however reminded us there is a Promised Land beyond the mountain. As we embark upon the wearisome journey we have reason to be grateful to him.

3.59 p.m.

Baroness SEEAR

My Lords, it is common ground On all sides of the House that we wish to reduce unemployment as soon and as fast as we can. It is also common ground that we want to restrict and reduce inflation. It is further common ground that we want, so far as possible, to improve the living standards of the people of this country. The problem is how to achieve all these things.

The pressure for increased growth symbolised, voiced by the TUC in its recent demand for a growth rate next year of 7½ per cent., is a measure of the desire in many parts of the country to get moving again. It is a desire that many of us would wish to echo—not that I am for one moment saying that we support the idea that 7½, per cent. growth rate is a possible objective at the present time. The purpose behind it is one with which we can all sympathise, But if we are going to move towards a higher level of growth than we have had over the last few years —not the growth which the TUC is asking for—there must be common agreement. It must be on the clear and absolute understanding that we do not go through the weary pattern which we have been through again and again—a move towards growth, a reduction in unemployment, followed all too soon by a switch back into increasing inflation, balance of payment problems and all the troubles we have experienced again and again. It is not just that we arc tired of this pattern, but that if we succeed even temporarily in getting out of a situation in which we find ourselves at the present time, if we reverse our present state and get back again into yet another bout of inflation accompanied sooner or later by a further bout of unemployment, that situation will be far worse, calling for far more drastic remedies than anything we have experienced up to the present time.

The kind of future which the noble Earl, Lord Gowrie, has sketched out— although I believe, as I think he does, it can be avoided—will surely be upon us if, as a result of an attempt at growth now, we simply have the same old pattern but with a thrust deeper and problems more serious, inflation higher and the disappointment greater even than we have experienced this time. So I say that the first prerequisite for growth is to work out a way in which we can get growth at such a level as is possible under these conditions, and which will not be simply the cycle as before. I suggest it is to that objective— how we can get growth but avoid the return to inflation after a short period of growth and all the consequences that flow from it—that we ought to be directing ourselves, because growth without taking that into account is the most dangerous trap into which we could possibly be led.

What, then, have we to do in order to find a way towards growth which is also a safe way for us to take? The first thing we have to do—and this theme will run through all I wish to say—is to try to see this matter not in terms of Party advantage. It is surely true that the plight in which we find ourselves has been the result of forces which have nothing to do with political Parties. In part, they have also been the responsibility of Government, both of the Conservative Party and the Labour Party; and if we have the good fortune or the ill fortune, according to our point of view, to be in Government ourselves, it would no doubt be our fault too. If we approach this problem from the view of trying to get short-term Party advantage out of it on the eve of a bout of by-elections—and I do not think we approach it in that spirit—if we adopt this partisan approach towards the most serious issue that we have been up against since the Second World War, and perhaps in some ways even more serious than that, we are doomed to failure.

The first thing we have to do, and which I implore the Government to do, is to come clean with the public about what is the real situation. I do not think that the White Paper, as it has been presented to us, makes the issues clear to the ordinary person in this country; it is blurred. What are the issues? The issues are that we are in debt right up to our eyebrows. As Peter Jay said, we are now in a situation not only of borrowing £1 in every £5 which the Government are spending, but we are borrowing in order to pay the interest on our borrowing. If that is not a rake's progress, I do not know what is. The extent of the debt, and the implications of what debt in these dimensions means, has to be brought home to people. The other fact that has to be got over in all its starkness and in all its implications is the failure in our manufacturing industry. This is by no means all, in only a small part in my view, the fault of manufacturing industry itself.

Throughout the period 1951 to 1970 under Governments of both Parties value added in the manufacturing industry in this country measured 88 per cent. compared with 423 per cent. in Germany and 276 per cent. in France. Perhaps there is some special reason behind the German situation—one can always find special reasons—but you cannot find special reasons sufficient to explain away a difference of those dimensions; labour productivity over the same period in this country was 100 per cent compared with 200 per cent. in our Western competitors. These are figures of the greatest possible seriousness, and of course in no small part they derive from gross under-investment in industry. This has been pointed out by previous speakers and will no doubt be referred to again and again. It is common ground between us now that industry needs a much higher level of investment than it has hadof recent years. But the point is, have the Government really explained to the people of this country what the position is, what the implications are and what we need to do in order to get out of the jam we are in? I do not believe that they have. Itmay be that it has to be done on a non-partisan basis, spelling out what is required to be done. Summarising our situation, we have in fact eaten up the heritage which was handed on to us and have mortgaged our future and our children's future, and that is no record of which to be proud.

What do we really need to do? I believe that we are obliged to ask the Government to work out the economic objectives in terms of the kind of economy that we ought to be working towards in this country. I know that it cannot be done overnight, but if people knew where we were trying to go and the sort of economy that would enable us to support the kind of life, the kind of welfare services, the level of personal consumption and the level of investment we need to have, they would realise it is not the economy we have in this country today If we are honest about it, most of us know that we need to move to a high technology, high profitability industry, and out of the high profitability of a high technology industry we shall then be able to pay for the services, both those provided by the public and those which private consumers wish to buy for themselves. We can pay for this out of the success of this quite different kind of industry, different from the industry we have at the present time. Do not let us forget that a high technology industry is capital intensive, not labour intensive, and services which can be bought with the profits of a high technology industry are highly labour intensive; and that is the area out of which it will be possible to absorb a great deal of the labour which is now so sadly, so grossly under-utilised.

If we are to do this, what must Governments do? First, they have to say, "This is the way we are going ", and they have to see that the investment goes either directly through Government sources or through real encouragement to private enterprise, to reinforce success and not to back up failure. This is the lamentable story of so much of the expenditure made by Government in the past. I know it will be said, "If you see industries tottering on the verge of collapse, would you let them collapse? "I believe that in the future we shall have to face even that, because it is no good going on pouring money into industries which are not going to be able to give us the kind of return that we need. We may have to do it slowly and we may even have to say that it needs a 10-year or 15-year plan to move from the kind of industrial structure we have into the kind of high-technology industry which we in this country could still achieve if we preserve the knowledge and skills that we have. I agree with the noble Earl, Lord Gowrie, that if we delay this transformation for much longer it may be that those skills and that knowledge will not be there to be mobilised. They are still there at the moment, but we are not mobilising them.

It will take time. It will be difficult and painful. But I believe that if the Government would speak to the country and say, "This is the way we shall get gradual but sustained growth ", we could then get a firm industrial structure. We should not have then the ghastly cycles of temporary periods of seeming prosperity followed by high unemployment and an inflation which eats into people's pay packets, into their savings and into their hopes, because people do not want that any more. Once it is made clear to them, I believe they will go along with a very great deal of difficulty and hardship so long as they can see that the future holds out a prospect of some certainty—backing success and not staving off failure, because this really is only staving off failure and not curing it.

My Lords, you may say that this is my King Charles's head, but when I speak of reinforcing success and supporting it by means of investment, this must also involve reinforcement and support by manpower. When I last spoke of this I was told by the Government Front Bench that it was easy for people who did not have to change their jobs to say that other people should change theirs; but, after all, we now havewell over a million people whose jobs have been changed for them. They have to go somewhere; even at the present time, as your Lordships will be aware—this was brought out very recently in a publication by the Government's Manpower Services Commission—there are a number of unfilled vacancies concerning jobs where there is a persistent shortage of manpower. Such jobs include electrical engineering, systems analysis, accountancy and tool-making. These are not jobs to which people would normally be reluctant to go, but these are the kind of jobs that we need to build up because there are already shortages in those areas and they have persisted. With growth, they will become more acute.

In your Lordships' House before Christmas, I asked whatwere the areas of shortage and what the Government were doing about them. I received a courteous reply, but not a complete one. That was three months ago. What has happened since then to ensure that people are being put into jobs where their skills may be properly used and where that use will be continued and not be just a "flash in the pan "such as that which we have seen over and over again?

In addition, we have to face the fact that Government policies—I refer to both types of Government—have themselves contributed grossly to the inability of industry to do the job it should be doing. Indeed, in my view, people in this country—here I greatly agree with what the noble Lord, Lord Rhodes, said—have even been encouraged to denigrate manufacturing industry and have been encouraged to denigrate managers. I know that we shall be told that, of course, the Government believe in manufacturing industry, but the kind of comments made about the jobs done by managers do not encourage our best and ablest young people to go into manufacturing industry. The social climate in many of our universities does not encourage people to do the kinds of jobs which were referred to by the noble Earl, Lord Gowrie. Commentators in the media do not really create great wealth but often create very considerable havoc. This is the kind of job which does not add very greatly to the prosperity of this country; but the wealth-producing people in the country —the ablest and the best—must be encouraged. Are they? Does our social and political climate lead people to think that these are jobs of the highest social importance, which indeed they are? A friend of mine who is concerned with industrial questions has said on more than one occasion, "I am constantly meeting young men and women who are burning with the ideal of distributing wealth, but hardly ever do I meet one who wants to create it."

What has been done by the leaders of opinion—politicians, of course, are leaders of opinion—to change this kind of attitude? It is obvious that Governments and political Parties have a large role to play in changing this point of view, in the change of values and leadership which needs to take place. Also, changes should be taking place in Government policies. There used to be a study called Political Economy. It scarcely exists any more. Politics has gone in one direction as a study and economics has gone in another; the more's the pity because all politics is in some sense economic and all economics is in some sense political. When we have relearnt that, we shall have made very considerable progress.

The Government's political economy has a sorry record. There have been changes of policy and of economic programme—a high growth rate one year falling away to a low growth rate another year. How on earth can manufacturing industry make plans within that kind of framework? Let us all accept that one of our basic difficulties is that the time-scales of politics and of industrial development are totally out of phase. The Government have one set of plans and lead industry to suppose that there is to be a growth rate of a certain kind, and sometimes they back this with their political and monetary policies for a few months, and then there is a change. But the industrialist has committed his investment and has started to build his new factory, to extend his plant and buy new machinery. What is the good of a half-built factory which will no longer he needed because of changes in Government planning?

Therefore, our economic problem is at base a political problem, and we must find a way of changing our political system so that we can make it adequate for the needs of our industrial and economic system. We shall not do this so long as we go on as we are at present, with adversary politics and a change of Government—and we have started again this afternoon in this House, with speakers trying to make Party points out of something which is far bigger than Parties. Is it really impossible to reach a situation in which we can have an agreed economic programme and stick to it, so that we cease to score points off each other, at the expense of every man and woman in this country? From these Benches, we believe that it is impossible as long as there is the kind of electoral and Parliamentary system which we have at present in this country. It is not for nothing that the German industry has been as profitable as it has been. It has had the advantage of stable Governments, with agreement between different parties as to the kind of progress and plans they need to have. Our economic problem is a political problem, and until we face it in this way and until it is clear that the Government are to give a lead and stick to it, changing their plans and eating their words if they have to—because all of us have been wrong—the country cannot be given a clear idea of where we are going. This must then be backed up by means of a political system which makes it possible to carry it out. Until this happens, all hope of growth with stability is a fantasy.

4.20 p.m.

Lord JACQUES

My Lords, I should like to thank my noble friend Lord Rhodes for putting down this Motion, and giving us this very timely opportunity of discussing the conditions necessary for economic growth. Prior to the war, our gross domestic product increased at constant prices by an average of about 2 per cent.; in the postwar period, it has increased by 2¾. per cent. From the mid-'fifties to the mid-'sixties, the rate of growth was somewhat higher than the post-war average; but since the mid-'sixties it has been somewhat less. We are discontented with the overall average of 2¾ per cent., even though it is so substantially greater than the pre-war average, because our competitors both in Europe and in America, and indeed in Asia, are doing very much better than we are.

There are some noble Lords who in the past—though certainly not this afternoon—have been inclined to blame Labour Party policies, particularly taxation policies, as being substantially responsible for the lack of growth. To those I would give a reminder of these few figures, which are in terms of constant 1970 prices. During the period of the Conservative Administration, from 1951 to 1964, the gross domestic product increased by £5.5 billion per annum; during the period of the Labour Government, from 1964 to 1970, the increase was £9.2 billion per annum; and in the period from 1970 to 1974, when we again had a Conservative Administration, it fell to £4.6 billion per annum. I know that every Government inherit the continued effects of the policies of the previous Government. I know that every Government have to put up with conditions which are outside their control. But I believe it will take more than those explanations satisfactorily to dispose of those figures.

The White Paper on Public Expenditure (Cmnd. 6393) gives us a timely reminder of why growth is especially necessary in the next few years. If our growth rate is the same as it was in the years immediately before this depression—that is, 2.4 per cent.—and if we limit the increase in public expenditure to 1 per cent. and give priority to the correction of our balance of payments and to the resources necessaryfor investment for that rate of growth, then the amount left for personal consumption will allow an increase of only 0.8 per cent., which compares with 3 per cent. in recent years. If we get a higher rate of growth of not 2.4 per cent. but 3.8 per cent.,and again keep the rise in public expenditure to just 1 per cent., we shall then have available for personal consumption resources which will give an increase of 1.8 per cent. compared with 3 per cent. in recent years. So that the need for economic growth in the next few years is spelled out very clearly in that document.

The first essential if we are to have economic growth is the control of inflation and I think it is fair to say that, thanks to the Government's counter-inflation policy, we are well underway to achieving the target of reducing the year-on-year rate to approximately 10 per cent. by the end of 1976. In a country as dependent upon overseas trade as we are, our growth must be based upon exports. We must not—and here I wholly agree with the noble Baroness. Lady Seear—repeat the mistakes of 1972–73. In those years, domestic spending was stimulated with the idea of sparking off a revival in investment, but the consequence was that imports rose by 11.5 per cent. while exports rose by only 2.1 per cent. So that in a matter of months, not years, it was necessary to slam on the brakes in order to save our balance of payments, which put a brake on intentions to invest. If we are to have sustained growth we must have the efficiency to compete, and the capacity to deliver on the overseas market —that is the key—and any sustained growth on our part must necessarily be based upon exports.

Manufacturing industry is responsible for 80 per cent. of our exports, so it is necessary for us to encourage investment in it, and if we are to get such investment we need confidence. I do not believe that taxation is the principal cause of lack of confidence. I would point out that between 1964 and 1974 taxation of company profits declined from 14.9 per cent. to 5.1 per cent. Since then, there have been further allowances made to companies, particularly the stock allowance, and I expect that the rate for 1975, which is not yet available, is probably somewhat lower than the 5.1 per cent. of 1974. Indeed, if one takes the whole of our taxes as a percentage of the gross national product. we are about the same as Germany and are certainly below France and the Scandinavian countries. Therefore. I do not believe that it is taxation which underlies the lack of confidence.

The Earl of GOWRIE

My Lords, will the noble Lord give way for just a moment? Does he not appreciate that one must add the rate of inflation to the rate of taxation, inflation being in itself a kind of across the board form of taxation?

Lord JACQUES

Yes, my Lords; I agree with that. But as the noble Earl himself admitted, we were certainly not responsible for the initiation of inflation. We have had the difficult task of getting it under control. What the investor fears more than anything else is idle plant. When plant is idle the overheads still continue and not only is a company's economy affected, but future income also ceases, because failure to deliver undermines good will.

Compared with the United States and Canada, we have a very good record so far as industrial strikes are concerned, but compared with Western Europe our record is very poor. For every eight hours lost here as a result of industrial action, only three hours are lost in France and only half an hour in Germany. Therefore, the Government have taken the view that one of the key factors in economic growth is industrial relations and have spent a good deal of time and energy on the creation of an independent Advisory, Conciliation and Arbitration Service. That Service came into being in 1974. Therefore the first full year of the new Service was 1975, while the last full year of the old service was 1973. In 1975 there were 2,500 requests for conciliation, which was two and a half times the number in 1973. Furthermore, the Service had an 82 per cent. success record. In 1975 there were 292 references to arbitration. In 1973, under the old system, there were only 54. There is strong evidence that, like their counter-inflation policy, the Government's policy in relation to industrial disputes is successful.

As the noble Baroness reminded us, throughout almost the whole of the postwar period we have had very sad shortages of skilled labour. In 1973, 51 per cent. of firms reported that their output was restricted because of shortages of skilled labour. Even in the depth of the depression we still have shortages. I believe that we must take any action that is necessary in order to put a stop to shortages. It can and it ought to be taken. In particular, if we need more apprenticeships we should have more. I would remind the House that the Government have given financial support to the continuation of apprenticeships which, had the Government not taken action, would have been discontinued because of the depression. I would also remind the House that the Government have doubled their expenditure in real terms on industrial training. The Government also give substantial support to assisting movement but I believe that probably we shall have to go further and, if need be, use housing as an instrument for attracting skilled labour to the places where it is wanted.

I come now to management. If there is one thing above any other that I ask for from management, it is for awareness that the standard which is set at the top permeates and influences attitudes throughout the whole organisation. The second layer of management copies from the first layer, the third copies from the second, and so on throughout the organisation. Con-scientious management not only makes decisions but monitors their execution, and there is strong evidence that there is lack of monitoring in many of our industries. Monitoring gives better utilisation of both labour and machinery. The recent report of the West Midlands Economic Planning Council showed a disturbing failure to make the fullest use of labour and machines.

Speed of decision affects the whole organisation. Speed of decision not only prevents those who are awaiting the decision from being frustrated but sends through the organisation a feeling that those at the top know exactly where they are going. But speed of decision has to be combined with quality of decision, and speed and quality are combined only if management has done its research and clarified its objectives. In many cases that is not done and in consequence the decision is not as speedy as it should be. Timing is also important. If, in order to increase productivity, innovations are made on a rising market, confidence in the organisation will be generated, but if those innovations are made on a falling market then resistance will be generated. If organised workers are treated as partners and given the consideration they ought to have, usually they will respond as partners, to the benefit of all concerned.

Baroness GAITSKELL

My Lords. before the noble Lord sits down, may I ask him a brief question? If there is any truth in what the Opposition has said—that is, that high taxation stops growth—is not this a very ignoble and even unpatriotic reason for lack of investment?

Lord JACQUES

My Lords, so far as the company is concerned, I have shown that the rate of taxation on profits has fallen very rapidly. Consequently that cannot have been the reason for any lack of growth. There is only one way in which high taxation can be an influence upon growth and that is when a few people say that there is not sufficient incentive for them. However, as the noble Baroness inferred, they are relatively few in number.

4.38 p.m.

Lord NORTHFIELD

My Lords, whenever he speaks to any assembly my noble friend Lord Rhodes brings a great gust of Northern fresh air to all the discussions. I am sorry that I cannot follow him today because, as is traditional on a first occasion, I must remain rigorously non-partisan. I hope, however, that I shall remain within the tradition of the House if I speak plainly while avoiding Party controversy and, I hope, select some of the points on which we are in agreement. But what a daunting task it is to remain non-partisan when the subject of today's debate has been hotly debated throughout the whole of my 30 years in political life! In any case, I am deeply influenced by the saying that "truth is not all on one side ". I have found this is a very useful principle to guide me so far in political life.

Are there not at least two aspects—. linked with each other, of course—to the problem of restarting economic growth? The first I distinguish is to plan for a correct ordering of the economy for years ahead so that healthy growth of production is at least not hindered. The second aspect is to create conditions that trigger off confidence and a positive and increased will to invest, modernise and expand as the really secure basis for a rapid advance in prosperity.

To turn to the first aspect, the broad path of the economy, I suggest that now there is a good deal of agreement. I cast no blame at all when I suggest there have been mistaken attempts to start off growth by a consumption-led boom. Perhaps we had actually to try it out in the uncertain world of economics before it could be proved absolutely that it could not work here. Even a relatively healthy balance of payments at the beginning was not strong enough to hold the situation when it was attempted last time, and the final stoking up of inflationcompleted our disillusion.

Therefore, I suggest that we are now united on the sort of strategy that is in the counter-inflation policy of the White Paper on Public Expenditure, although of course we differ, as the noble Earl, Lord Gowrie, was saying, aboutits rigour and timing. It is a strategy simply of export-led and investment-led expansion, possibly the only one we now know in our community that will not be self-stultifying in the medium and longer term. We know its main features, of course—holding public expenditure until 1980 broadly at the levels planned for next year, if not actually cutting it, as the noble Lord would have it, so that all the extra resources as we emerge from recession go towards exports, towards getting the balance ofpayments right, towards increased productive investment with only a modest—oh, so very modest —increase in private consumption. We are surely agreed about this much. I suspect that public opinion outside understands the need for this stategy much more readily than some imagine. "You can't get summat for nowt ", as they say in my part of Yorkshire, and that sort of feeling is now spreading in this country. We could have afforded the 20 per cent. growth in real public spending of recent years if we had had steady growth, but without it we have been trying to pre-empt growth that just was not there.

I thought that the Chief Secretary to the Treasury, a Minister in the other place, explained matters well to a local government conference recently.He said that local authority expenditure has grown at no less than 55 per cent. in real terms over 10 years, but the economy has grown only 26 per cent. Local authority manpower—he was not dealing with national manpower as well at that conference—has grown 34 per cent. while manpower in manufacturing industry has actually declined by 7 per cent. while increasing substantially and significantly with all our major competitors abroad. So much for getting that side of the economy right, and stopping the hindrances.

It is one thing to restrain spending, to find within the total, as the Government propose, several hundred million pounds for extra aid for industrial expansion and to keep national agreement on curbing inflation to more tolerable and competitive levels. This is hard enough, in all conscience. It would depend supremely on the continuing statemanship of trade union leaders like Mr. Jack Jones. Their willingness to give a lead on wage restraint, I am sure we are now all agreed, despite differences between us. is perhaps the most heartening boost to economic prospects we have had for as long as I can remember through a fairly long political life.

May I now come to the other question. A close reading of the White Payer reveals that the Government are hoping —rightly, in my view, if it can be attained —for something much more than the simple pick-up in the economy which should follow the recession. For the economy to take up the unemployed, to turn over at perhaps the higher rate of activity of imports, the White Paper suggests that we must look for performances literally not realised up to now—a steady 7 per cent. or 8 per cent. per annum increase in exports, a similar 7 per cent. or 8 per cent. figure for increases in investment every year, and a 4½ per cent. growth for the remainder of this decade in the economy as a whole. These figures will be immensely difficult to reach.

Therefore, I come to the second aspect of the problem we are discussing. That is, given the basic economic conditions, and if we keep them under rein, how we can stimulate the new burst of confidence which will bring totally new levels of investment, modernisation and expansion of productive industry? It is not an easy task to reverse the alarming trend of past decades. The British economy may in fact be at the end of one of those long-period waves of early acceleration and later relative decline that economists can distinguish in their studies. It seems almost sad to say that we have not had the cataclysm of wartime total destruction that forced new beginnings and totally new social attitudes in Germany, and to a lesser extent in France. Both of these countries are now in a period of relatively rapid acceleration.

However all that may be, and whatever the achievements of the National Enterprise Board or other bodies in stimulating investment, the fact is that the major challenge in the years ahead is to the private sector. On the parallel of social democracy in Germany and Scandinavia, it is time for the Labour Party—my own Party particularly—to accept much more openly than it has ever done, and to champion, the success, profitability and confidence in the sector particularly of small and medium firms which are expected to remain in private enterprise. I suspect that the time is ripe in the Labour Party for these frank adjustments in our thinking. There have been similar adjustments in the past. I recall how the Labour Party of protest and of the deprived began in the 'fifties to accept and espouse home ownership rather than the indefinite spread of public housing. I recall too—one of its beginnings, which will be remembered also by my noble friend Lord Houghton, was in a taxi but I do not remember where we were going—when Labour began to move its thinking from standard retirement pensions to earnings-related benefits in old age. Just as consensus on wide ranging agreements with the trade unions has been reached on the dangers of wage inflation, so I suggest it could be reached on creating confidence in the private sector in the future. The trade unions have realised the economic revolution through which we have been passing. Here I make no judgments in what I wish to list.

No one can deny the change in society over my 30 years. The Welfare State is here, though with standards now below those of our richer neighbours. Redistributive taxation is now here to the point where cutting off all income over £5,000 a year would add 6 per cent. to the yield of the Inland Revenue. People below social security levels are now being drawn into tax to pay for public spending. Union power over the economy has been asserted and at least understood, and although the boundaries of public enterprise are in dispute its advance hasbeen notable and gained acceptance. Even things like capital transfer tax, capital gains tax and land development tax will remain in some form by some agreement with the Parties; and I suspect all Parties are now in agreement with some form of worker participation.

Whether we like it or not—and again I pass no judgment on these points—a new society has crystallised under our noses. It is a factor that has led the trade unions to agree on the dangers of wage inflation without increased production, and that we are near the frontiers of what could be done by redistribution from the very wealthy to the rest. Perhaps it is understood—I go so far as this —that the great battles over economic power and redistribution have now been fought and that now is the time, if all standards of living are to rise, to put all our forces behind making a success of the economy that has emerged. In a very real sense, it is now much more the economic system of all of us than ever it was. I suggest the basic principles of this new society are so nearly enough attained that consensus should be possible on reasonable prosperity and assurance for the small and medium firms which I believe are the cornerstone of strategy for our economic recovery.

My Lords, I end on a personal note. In my work with the Development Commissioners who invest resources in the rural areas I am continuously impressed by the enterprise of small industrial firms and, above all, by their reverberating effects on the confidence of growth, and growth of the surrounding areas and small towns. Such confidence and enterprise—I could take my noble friends to parts of Britain where we have achieved it—are the catalyst that sets off self-development in those areas, and that is a lesson for the whole economy.

If I may take another interest, it is Telford New Town. In Telford we have nearly 200 new firms but nearly half of them employ just two or three dozen people, and most significantly, most hearteningly, only a half a dozena year have gone under in this recession. They have sheltered that town, they have prospered, they have fought, they have exerted their enterprise in what I believe is an example to the economy of survival in the worse conditions. I believe there is a lesson here for my Party—I think I have been non-partisan as between the Parties today. I do believe there is a very real lesson here, that this great shift of positive thinking is needed in my Party to make a success of the economy, the society, that the last 30 years have created by the struggles of all the political Parties in that period.

4.51 p.m.

Lord ROBERTHALL

My Lords, I generally enjoy only the last part of my own speeches, but on this occasion at least I am going to enjoy the first minute or two, because it is my privilege to congratulate the noble Lord, Lord Northfield, on an extremely interesting and forceful maiden speech. I do not think that we have met before, but we have at least a sort of link in that we are both ex-Fellows of Nuffield College. That gives me additional pleasure in being able to speak about him today. He spoke with the ease of delivery and manner which is, of course, the advantage which those of your Lordships who have been in another place enjoy over people like myselfwho have not. I suppose we have come to expect it, but besides that, which we may have come to take for granted, it was quite clear from the noble Lord's speech that he knew what he was talking about and that he has ideas of his own—one or twoof which I should like to come back to in the course of my own speech. I am sure I am speaking, for all your Lordships when I say that we hope we shall often hear him again, and, in particular, may I hope that he will speak again on economic subjects, where we are sometimes perhaps a little thin on the ground?

My Lords, I join with other speakers in welcoming the opportunity which the noble Lord, Lord Rhodes, has given us to talk about this important subject. Whether we are for growth or against it, I think we must all admit that it is a very important subject. I should like also to congratulate him on his courage in embarking on this subject, which is an extremely mysterious and uncertain one. The amount of writing about growth which there has been in economic circles in the last 30 years is absolutely enormous, but I doubt very much whether it has added anything to what we already knew about the subject. I certainly feel very doubtful whether these colossal growth theories which take up so much of the literature in question have been of the slightest use to the countries that most want to grow—that is, the developing ones.

While the debate has so far to a large extent turned on what I might call short-term issues in relation to the problems of getting the economy growing again from the parlous state in which it is—though I think that towards the end of his speech the noble Lord, Lord Jacques, began to touch on the rather longer term issues—I want to confine myself mainly to rather longer term questions. If we take the wording of the noble Lord's Motion, it speaks of "the conditions necessary for economic growth". I suppose that those have generally been considered to be increase in the amount of capital and development of new skills and new ideas about how to use capital. Many growth theories have taken capital as the principal growth factor. I think we still know very little about it.

The growth in the production of the United Kingdom over the last 30 years is, as the noble Lord, Lord Jacques, said, a little under 3 per cent. a year, and all the efforts we have made to increase productivity have not had the slightest effect on that figure. Occasionally one hears optimistic remarks about the rate picking up, but I myself feel very doubtful as to whether it is doing so at present. The most sinister thing to me was the dash for growth made by Mr. Barber—Lord Barber as he is now—during the last Conservative administration. As noble Lords who have studied the subject will know, recession will he succeeded by a rather rapid period of growth, taking up the slack accumulated during the recession period. But the Barber boom petered out rather earlier than, on past form, one would have expected. We ran into bottlenecks, and into an increase in imports to take the place of inadequate home production. I think, looking at those figures. that there is something alarming there. Certainly, our concepts of unemployment will have to be considerably revised after that.

My Lords, we can all agree that it would help if we had more investment; it would help if we had better capital equipment; and it would help if we had more ideas; particularly if we adopted them rather more quickly. This country has a very much better record in thinking ofnew ways of doing things—which is one of the great ways of getting growth—than it has in applying them. Over and over again we have made quite striking inventions here and then have found that some other country, particularly the United States, has got them into production while we are barely at the pilot stage. All these things would help a great deal. But a third factor is needed, the willingness to make use of the equipment and the ideas. What the Americans call "motivation ", a word which I think is familiar enough now for us to use it here, is also essential, and in the remainder of what I hope will he my very brief remarks I should like to address myself to this aspect, taking three illustrations.

The first illustration is from agriculture. At one time this was not thought of as a very promising growth area. We were all brought up to think about the law of diminishing returns, with the suggestion that the more you wanted to produce the harder it was going to be to produce it. But in fact in recent years agriculture by the use of two necessary conditions, better ideas, applying scientific methods, and better use of machinery, has had very striking increases in productivity. It is one of the success stories —the noble Earl, Lord Gowrie, made the same point—especially in the United States and this country. Why is this? I expect that one of the causes is that in both countries there were something like price guarantees; the farmers did not have to worry about whether they could sell their products, they could get on and produce them.

I think another factor is that on the whole, agriculture is organised on a small-scale basis. This is where I bring in my reference to Lord Northfield. The motivation must have been there. I think it arises because the farmer wants to increase his income and because of the nature of farm operations. In many cases he and his family do all the work; and in other cases, where he has to employ labour he knows them all, and he takes a personal interest. So the motivation factor is almost automatically present. If we contrast with this the USSR, who have access to machinery and knowledge, we find that they have not done nearly so well. Although no doubt climate is a factor, one cannot help comparing their determination to do it on a very large scale with Britain and America, which have a certain amount of freedom of holdings but, on the whole, a manageable size of operations. This provides the motivation factor. I do not for a moment suggest that we should go back wholly to small-scale industry, although I agree with the last speaker that small and medium sized firms have a great contribution to make. As we have to go on with large-scale production, the problem is how to get the motivation there.

My second illustration is from the three-day week in the early part of 1974. Prima facie many people would have expected that we dropped to something like 60 per cent. of normal output in that period because we were dropping to 60 per cent. of normal work. In fact, reports soon began to come in that firms were doing much better than that: they were getting up to 80 per cent., and in many cases better than 80 per cent., of their normal output. These reports are confirmed in an economic manner if you look at the index of industrial production for that quarter. It only fell from a little over 110, taking 1970 as a base, to 104.4 in 1973, and recovered in the second quarter to, I think, about 108. That, on any count, is a striking and significant feature. Why didit take place? I think there is no doubt at all that management and workers took it as a challenge. They thought, "Here we are, being stopped ". Whether they sympathised with the miners or not, they felt that this was something that they were up against. They all got down to work, and were motivated and interested in what they were doing.

My third illustration is a much more depressing one. It is a quotation from the CPRS review of the car industry, which we were all reading a short time ago at the time of the Chrysler takeover. It is from the first page of the main conclusions: With the same power at his elbow, and doing the same job as his continental counterpart, a British car assembly worker produces only half as much output per shift. What is the cause of that? It cannot be the quality of British labour. Some of them are the people who fought the last war, and the rest are the sons of those people. I need say no more about the hereditary point. During the period we have become better educated, our health has been better looked after, nutrition has been better, so that it must be something to do with the feelings which exist in industry.

The remainder of the report, as I am sure most of your Lordships will remember, points out that the principal factor was bad industrial relations in the motor industry. I am sure that the trouble is on both sides. I agree with the noble Lord, Lord Jacques, about the factor of management. But I think, in the light of what we can do in a pinch and what we are doing when we are not in a pinch, it is quite clear that capital is not going to save us; new ideas are not going to save us. Nothing is going to give us an upsurge in growth until we are prepared to make the best use of the capital we have now, or the capital and the ideas that we hope to get.

I know that industrial relations is a very difficult subject. A lot of thought has been given to it, and is still being given to it; but one of the things that has to be done is to try to educate people much more about the relationship between productivity and national income. I remember, in my early days as Government economic adviser, when sitting on the Planning Board I used to see a lot of Vincent Tewson. He was very keen in those days to get this point over. He did a lot of work without a great deal of publicity in order to try to get the trade unions to see that productivity was an important factor. I do not know whether that has been kept on or not. He used to make the point that you cannot do it if there is unemployment, because people are afraid they will work themselves out of a job. For a long time we have had high levels of employment (although I agree that there is a high level of unemployment at the moment) but it has not produced that effect. There is still a failure on the part of us all—I mean the people who ought to make opinion. Management are beginning to realise this and to feel that they ought to take more trouble to explain to the men the relationship with productivity, and to try to get a little of the spirit of the three-day week when they were really interested in what they were doing. It seems to me that we could make an enormous change with the existing equipment and existing ideas if we could all get motivated, but we will not get it until we can do something about this perplexing and difficult problem of industrial relations.

Lord ZUCKERMAN

My Lords, before my noble friend and old colleague Lord Roberthall sits down, may I ask him a question with reference to his remark that it would help (I hope I quote him exactly) if we had more ideas, and then the further implication that we introduce the ideas and other countries abroad exploit them. The question I should like to ask is, whether it is appreciated that this really refers to a point madein that, if I dare say so, magnificent maiden speech of the noble Lord, Lord Northfield, that the decline in manpower in manufacturing industry to which he referred hides the fact that there has been a much bigger decline in that part of manufacturing manpower which is concerned in this country with research and development. If my figures are right, the decline over the past few years has been something like 20 per cent. of what it was in the latter 1960s. This is a figure of immense importance. Added to that is the further question as to whether it is also appreciated by my noble friend Lord Roberthall that this decline began at least three years before the general decline in investment in manufacturing industry. The third fact—and I think in essence the most dangerous thing from our economic point of view—is that while we have been slipping behind in these fields our competitors have been going forward.

Lord ROBERTHALL

My Lords, I am most grateful to the noble Lord. I think that the answer to the first part of his question is that I was not aware of that fact. I had not seen that paper, and I am obliged for having my attention called to it. I knew that there was some decline. I had not been aware that it was as serious as the noble Lordsays. I accept everything he says on this point. It is a very serious factor. Offhand, I cannot say what we should do about it, except that we should take note of it.

5.10 p.m.

Lord McCARTHY

My Lords, in rising at this time I am peculiarly aware of the guidelines laid down by your Lordships in your little red book which says that a maiden speaker must first be short and secondly unprovocative. It is good enough to tell me what "short "means—between 10 and 15 minutes, and I promise not to speak for more than 15 minutes, although I cannot promise that it will seem like that—and as for being unprovocative, it does not tell me what that means, so I consulted the Oxford English Dictionary which tells me that "provocation "is an intention to irritate, incite, ferment or tempt. I assure the House that nothing is further from my mind at the moment.

I wished to intervene in the debate for two reasons. The first is because I think this is an admirable Motion, one which deserves our support—I will explain why shortly—and, secondly, because it gives me an opportunity to say a few words about what I consider to be the necessary connection between economic growth and what we used to call, in the days of Frank Cousins, the planned growth of incomes. The sudden appearance beside me of the noble Baroness, Lady Wootton, almost put me off because, as noble Lords will know, she has been the doyenne of academic experts on this subject since her path-making publication The Social Foundations of Incomes Policy in the early 'fifties. I felt like giving her my notes—indeed, I would have done so if I thought she could understand them—asking her to mark them, and if she did not give me a beta plus, I would not have risen to my feet.

Having decided to speak, I would say on the first point that this is an excellent Motion because it focuses our attention on the conditions necessary for economic growth rather than attempts to commit us to, or to let us think in terms of, a commitment towards a specific growth target, whether it be 4 per cent., 5 per cent., 4½ per cent. or the 8½ per cent. of the TUC. One can see why, in the 'sixties, we felt that there was a case for committing Government to precise economic growth rates. It was because we thought that we could then think through the bottlenecks in the way of achieving those growth rates and we thought that in that way Governments would be, as it were, nailing their colours to the mast and saying to the rest of us that they intended in future to give economic growth a higher priority.

Those advantages were significant, but I think that in practice they were gainsay wiped out or more than compensated for by the fact that, as a result of specific commitments to sudden increases in the rate of growth, we allowed ourselves to get into a situation in which we felt that we could start spending the effects of higher rates of growth before those higher rates of growth had actually arisen: rather like somebody going to his bank manager and asking for an extension of his overdraft on the grounds that he is putting in for promotion.

I believe that that approach to growth is the one that we must get away from. In the past 10 years or so most of the truly lunatic things that we have done —most of the rapid and, for the most part, unproductive rapid increases in public expenditure—have been undertaken by successive Governments in a growth euphoria. This has been the period, above all, when people have said not simply, "What will it cost? "but, "We should not ask what it will cost, anyway." The decisions, for example, to reform local government and the National Health Service were taken at a time when it was considered not proper to ask what the costs were and, as a result, nobody asked the cost of either of those operations.

I come to the question of incomes policy because probably the most disastrous effect of commitments to precise and rapid increases in paper rates of growth has been felt in the area of incomes policy. I have had, for the purposes of my students, to try to analyse successive phases of incomes policy since the early 1960s and I have worked it out that we have had 11 different phases of incomes policy since 1964 through three successive Governments. There was only one very short period, from June to October 1970, when a Government formally said, "We have no incomes policy; so far as we are concerned, it is a free-for-all ". For most of the last 12 years or so we have had some kind of incomes policy and, as I say, we have had 11 separate phases of incomes policy, most of them ushered in by a new White Paper.

What stands out, if one looks at those different phases of incomes policy, is that the policy in broad terms has been taken seriously only in crises situations. Three phases we have moved through. There have been the periods in which Governments have on the whole been optimistic about their growth prospects, in which they have committed themselves to 4 per cent., 5 per cent., or whatever the figure might be and in which they either did not operate an incomes policy or, if they did operate one, they operated it in a rather casual, offhand and unrealistic way. This was followed by sudden periods when their growth hopes collapsed and they moved into drastic, often too drastic, incomes policies, which they then proceeded to abandon six or 12 months later in the third phase as their growth hopes revived, or at least the immediate crisis receded. One after another, Governments have used incomes policies as crises solutions and they have not been prepared to sustain those policies into periods after the immediate crisis situation.

It is quite easy to understand why this should have occurred. It is, after all, easier to gain acceptance for incomes policy in a crisis situation; in the psychological environment of a quasi Dunkirk position it seems easy to say to people, "Now we shall have a squeeze, now we shall have a freeze and, once round the corner, it will be a free-for-all ". There is also the fact that in a crisis situation and a downswing of the cycle, the incomes policy itself is considerably helped by the fact that it is usually because of the downswing situation being accompanied by monetary, fiscal and Government expenditure policies which are moving in the same direction as the incomes policy. Finally, in a downswing situation many of the features of the labour market which undermine the effectiveness of incomes policy—such as the growth of wage drift, labour shortages and so on—either are not in existence or they are rather weaker than they are in the upswing of the cycle. For all those reasons it is natural that Governments should come to incomes policies in crises situations.

The conclusion which I draw from this and the conclusion which I think this House should draw is that incomes policy is not needed less in periods of upswing. In fact, it is needed more, although it is more difficult to do. I think that most people who have looked at this situation would say that the kind of incomes policy which is required in that situation is a more flexible one, but fortunately a policy which can be more modest in its intentions, though we hope more sustained in its effects. Why do I say that it has to be more flexible? I say that because, as I have suggested, as labour shortages begin to appear, those shortages are inciting employers to get round the policy, unless there is something in the policy which takes account of this situation. If we are in the upswing of the cycle employers find a need for greater efficiency and, if the incomes policy does not permit some margin for increased efficiency, once again both employers and unions have an incentive to get round the policy.

As the upswing of the cycle proceeds, certain groups of workers are naturally held back. Certain other groups of workers feel that they have suffered in the previous periods of the policy, and they now have the means to frustrate the policy unless the policy is flexible enough to contain some measure of acceptance of what they want. As the policy proceeds, as the upswing of the cycle proceeds, all kinds of things which were possible during the period of depression, such as we have at the moment such as putting into permanent cold storage all kinds of comparability, independent review bodies—like the Civil Service Pay Research Unit, or the Boyle Committee—become increasingly impracticable and impossible.

So for all these reasons the policy in the upswing of the cycle has to be considerably more flexible than it is in the downswing of the cycle. Fortunately, it can be more moderate, because in the upswing of the cycle we hope that it is no longer necessary to use an incomes policy, as we are doing at the moment, in order to cut the rate of real wages, but merely to mitigate the pace of the upward movement in real wages.

I want to conclude in a moment, and I do not have time today to spell out, in the context of 1976, 1977, or 1978, whenever one thinks the upswing will he coming, what the details of such a policy would be in that period. I merely want to make three points. The first thing which seems to me to be obvious is that an incomes policy in an upswing situation has to have more than one norm. It has to have a general settlement level, but it also has to have exceptions. Secondly, I think that an incomes policy in an upswing situation has to have some device built into it to deal with those groups of workers who are able, as a result of the wage drift process, to avoid the effects of the incomes policy at that level. Thirdly, and the most difficult of all to be accepted at this time, I do not see how a realistic, effective incomes policy in the upswing of the cycle, which is flexible in the way I have suggested, is possible without some kind of adjudicating authority. That does not mean that we have to go back to the rigours of the Pay Board or the Prices and Incomes Board.

I have said virtually all I want to say. Many things will be said against this kind of suggestion. It will be said that the kind of thing I am suggesting is, in many ways, not new. It will be said that this kind of policy looks distinctly like the policy from 1964 to 1970 of the Labour Government. The answer to that is if we have had 11 different kinds of policies over the last 12 years or so,nothing completely new can be found. One is not looking for new things in incomes policies. One is trying to pick the best things from the past. The second thing to say is that the policy in the period from 1964 to 1970 was a policy carried out with an unrealistic general settlement level. It was a policy carried out with, in practice, only one exception —a productivity exception—and it was a policy increasingly not negotiated with the trade unions, but attempted to be imposed upon themby statutory regulation.

My Lords, I said at the outset that I wanted to observe the guidelines. I hope that I have observed the guidelines on both brevity and non-provocation. If I have overstepped the lines of brevity, I hope that your Lordships will putit down to enthusiasm. If I have overstepped the lines of provocation. I hope that you will put it down to inexperience. I must sit down now because I understand that your Lordships have heard from two ex-fellows of Nuffield College, and now one fellow of Nuffield College, and it must be time to change the batting.

5.23 p.m.

Lord BALOGH

My Lords, I wish to join the noble Lord. Lord Roberthall, in congratulating the noble Lord. Lord Northfield, on a most interesting and illuminating speech. I am sure that we shall hear from him on future occasions. I have known him in earlier capacities, and he was not one for remaining silent for long under provocation. It gives me an absolutely exceptional pleasure to congratulate my noble friend Lord McCarthy on a speechwhich was notable for its brilliance and its wittiness, and for pointing to the really important problem in our economic life. I am sure that one does not need to have the generosity of the noble Baroness, Lady Wootton of Abinger, to award him an alpha double plus, which I do as a member of another college.

As I address you for the first time since my retreat to the Back Benches, I must crave your indulgence. So recently liberated, I must still be careful with my liberty. As a reconstituted maiden, moreover, I am speaking from an exposed position. With the stout Dispatch Box and the Table no longer protecting my middle, I feel distinctly naked. The present painful reassessment of the British situation, culminating in the recently published White Paper on Public Expenditure, is not the first and will not be the last one that is undertaken with critical urgency. This is not the least due to the unfortunate complications of our malaise; namely, that long and short-term factors, international and domestic factors, coincide. I must confess to some astonishment that, apart from the noble Lord, Lord McCarthy, nobody mentioned incomes policy, and hardly anybody mentioned foreign countries and what is going on in the foreign countries. I shall now rectify thatas well as I can.

The first thing I say about the British positon is that it is the confluence of these factors which make it so intractable. There is, first of all, a world depression. Do not let us make any mistake about it. For the first time in the post-war years we have a very sharp fall of national incomes in all countries, and a much greater fall of investment. That is to say we have returned, in a way, to a pre-Keynesian pattern of capitalistic crises and cycles. This was due to the fact, and this is where I think my noble friend's speech is so important, that in each country of the world, not excluding, for instance, Communist countries, there has been a struggle to harmonise full employment and stability. In all countries, Communist or not, in capitalist and in mixed economies, everybody failed. This failure and the consequent accelerating inflation has made people really despair of full employment and yearn for a situation of stability, thus they were willing to give up more or less full employment.

If one looks at America, or Germany or, indeed, at this country, one finds that unemployment levels exist which a few years ago would have been considered intolerable and would have had very serious political consequences. In my opinion full employment has been the greatest achievement since the quasi-capitalist economy has been established in the more advanced part of the world. However, full employment is a fact which radically shifts political power, and there is a growing inconsistency in relation to the growth of the political power of the trade unions, which is in total contrast to the division of income.

For the first time in mankind's history the lower income classes have political power, but they have not got the income. If this is true, if my sociological approach to the economic problem is correct, we must say that here we have an extremely difficult situation, because this contradiction between political power and economic power will mean a conflict at the point where the two meet, that is, wages determination.

I shall not repeat the wise words of my noble friend, because he expressed this far better than I possibly could, but what I would say is that, on the one hand, the management classes did not realise that in the new situation the differentials had to be reduced because otherwise the trade unions could not be converted to the view that they had to have some restraint, that no restraint meant inflation and that inflation meant unemployment—and unemployment might mean some other things, too. This was one of the problems. Therefore, in Germany and in America we had an attempt to create unemployment, which was followed, as it was at a certain phase of the previous Government's policy and, I may say, also, perhaps, of the Labour Government before that, by a certain tendency to vacillation. If we want to live together we must admit that a very much more equitable distribution of income is necessary. At the same time, of course, it has also to be accepted by the trade unions that restraint will be necessary, for otherwise, of course, you cannot possibly have the reconstitution of industry and productivity which we all desire.

Now I fear what has also happened is that, on top of a very unstable position—and I do not have to remind your Lordships of it—for the first time since the war we had the sort of typical prewar type of boom in 1972–73, with the attendant errors and fraud which go with booms. This was stopped, and I was extremely anxious lest a crisis of confidence should break out, lest the banking system of the world would be attacked—and here I must give generous praise to the Bank of England and certain other central banks, which prevented this, because had that panic occurred some time last year or the year before we would have swept towards a situation like that in 1929 to 1931, with extremely damaging consequences.

On top of that, in 1974 we had the sudden increase in oil prices, which obviously aggravated the liquidity position, because the Arab liquid balances accumulated at the rate of 60,000 million dollars in 1974. It was somewhat less in 1975, but in the aggregate it made the holding of the liquid balances by the oil producers not less than 300 to 400 billion dollars. That is a potential source of danger of collapse of no mean magnitude. Thus I conclude that, on the whole, we can hope for a recovery only if the credit nations change their policies and if the international monetary institutions can be given sufficient power to stifle a possible money panic at the root. Both of these things have been attempted in the recent Jamaican conference, but in my opinion it was not enough, and I hope that our Chancellor, a valiant defender of our interests, fortified by this debate, will press further for remedial measures. There is a certain amount of recovery in America, but I do not think that, for the health of the world, that is sufficient.

However, even if the recovery of those countries is purposefully stimulated, and even if a money panic can be avoided by swap arrangements between central banks, we shall still have a problem to face: and I think one must keep a certain historical perspective in this affair. Our crisis did not begin last year; it did not begin in 1970; it did not begin in 1964: it began sonic time between 1875 and 1890. Certainly the Baring crisis has very interesting parallels with the money panics which we suffered from again in 1907 and 1931. One must not forget that there is a background history of deep insufficiency which is very disturbing indeed. Since the war there has been no recovery in which employment has risen more or in which unemployment has been reduced less than in the one before, and this downward trend has now come to a point where we might even be caught by a downward vortex, where the capacity to produce effectively is menaced by the paucity of means available for education and training, and vice versa. I think that this is a point which has to he taken into account, though I am told that the recent cuts in education are not really as dangerous as they seem because they are more in buildings and rather less in spirit. On the whole, if I look at the universities, I could have wished that we had built less and appointed more. That is, of course, a totally egomaniac observation.

Our problem has been created, I think, mainly by insufficient management. This is shown by the fact that not only have we had insufficient investment but we have also had an obsolescent type of investment; and, on the whole, from being the bell weather of international industrial progress we have become a country which has no more certain advanced technologies and which must obtain them under licence or pay for them by hiring them. This, I think, is a terrible problem. Some noble Lords who have already spoken approached the problems really from the point of view of public expenditure, which I quite understand, and from the point of view of incentives. The incentives argument is a very dangerous one in my humble opinion. You cannot have incentives only at the upper end of the scale. There will also have to be incentives lower down; and, as to incentives at the top. I am sorry to say that certain Members of your Lordships'House were among the first to accept very high increases in their salaries (that is. the judges), much against my wishes. Therefore, if there is no noblesse oblige there should at least be sagesse oblige, and one ought to observe a certain silence on the other side of the House in this matter.

Moreover, the programme which the right honourable lady the Leader of the Opposition in another place outlined the other day has been tried on several occasions since the war. It is not that. "There she is, springing from Zeus' forehead, fully armed, to the fray ". It is not like that at all. She really is Mr. Heath. Mark I—which was not so successful, as is attested by prescient colleagues on the other side of the House who voted him out. On the whole the repetition of that experience is not frightfully promising.

My Lords, I have also certain observations to make regarding the present situation and the present prospects. It is obvious that the implied conditions for our recovery in the Blue Book of Public Expenditure are based on a very rapid expansion of exports—very rapid. I do not believe that this rapid expansion is possible unless the Chancellor of the Exchequer is more successful in persuading his colleagues abroad to expand, because, if creditors do not want to take payment for the debt, one cannot pay. Thiswas obviously the case in 1929–1931; and the German reparations caused enormous damage on a relatively narrow front. Secondly, it occurs to me that we have been very much limited by the Rome Treaty in our choice of policy making. This is a very serious matter now because there is in the history of world economics no example of a country being able to reconstitute or to establish its industrial power without protection. The United States before 1875, the Germans of the Zollverein and, since the war, Japan, Germany and France reconstituted or constitued their industry under severe controls.

Therefore, while I believe that one of the most important things for us is to ask our trading partners to help our recovery and enable us to perform the restructuring through internationally permitted means, one must consider what would happen if they do not do so. I think that there is a great deal to be said for avoiding international complications. On the other hand, I must say that I would keep my options very open indeed; for, if we do not keep our options open, it may be that it will be more difficult to persuade foreign Governments to expand because we have no bargaining power in our hands. There is a French word for it—a phrase by La Fontaine which says: "It ne fout pas dire à la fontaine ' je ne boirai pas de ton eau '." That means that one must never tell one's partners that one will not employ strong means against them.

My Lords, I think that we are in a very serious situation but, obviously, hopelessness ought not to be in any Government's mind. What we need is to emphasise our difficulties to our trading partners and to keep our options open. I fear that the statesmanship of the Government, the trade unions and management will in the next year be sorely tried unless they will accept that our problems are long range and that it is their attitudes which need to be altered.

5.44 p.m.

Baroness BURTON of COVENTRY

My Lords, everybody in the House will feel that we have been privileged to listen to two maiden speeches of quite out standing excellence. I think that the whole House will feel that. Not having to be non-partisan, I naturally feel proud that both of the speeches came from this side of the House. I am sure that everybody will hope to hear both my noble friends again soon. Those of us who were in another place with my noble friend Lord Northfield knew what we were in for. We know of his experience and of the many different types of work he has done and, as I understand it, he made a success of all of them—if that is not too wide a statement. The noble Lord, Lord McCarthy. I have not heard speak before; but I know that I could not present a paper to my noble friend Lady Wootton of Abinger and hope to get a C minus let alone a B plus! He taught me a lot, in common, I hope, with other noble Lords. I had not the good fortune and would not have the intellectual capability to be connected with Nuffield College: but it taught me a lot this afternoon. I have always felt that it was the hallmark of a real intellectual to put things so simply that the rest of us could understand. We have enjoyed it very much

One of the other things about this afternoon is that many people outside this Chamber seem to think that our House has good debates. Far be it from me to think that they always say that they are better than in another place; but I frequently hear that remark. This afternoon, having got half-way through this debate, I hope that there will be room for it in the newspapers because I think it has been quite outstanding. That brings me to my noble friend Lord Rhodes, whom we are always glad to hear. He always calls a spade a spade and always has something worthwhile to say.

When he put down this Motion for this afternoon I knew at once that I wanted to speak, but I had a problem; because, without knowing that we should attract all the intellectual elite that we have attracted, I wanted to devote myself to one thing and. I thought that I was quite likely to do so in a different way from anybody else. That is never a happy feeling because, as the debate goes on one wonders whether one has been right or not; but it is too late to change. I noted many points made by my noble friend Lord Rhodes and I am hoping that what I have to say, probably not as effectively as he, will fit in with what he said; because we all are indebted to him. I think we owe a great deal to people like him who are always ready to stand up and say what they think irrespective of what anybody else does.

My Lords, I amno economist and had I imagined this debate was to be one solely on economics, I should not have ventured to join in. But, as my noble friend implied in his Motion, our economic growth depends on various conditions. I believe one of the most basic of these to be a change of attitudes; and it is that that I want to talk about today. Without a change of attitudes I think we are doomed; and I think we deserve to be! The irony of what I am trying to say (and, I think, what other people are trying to say) this afternoon is that the people of this country know this. Indeed, they have known it for some time. But no one has arisen to tell them so—not in the sense I mean and not in the sense that many other speakers mean this afternoon. There has been no crusade, no warmth, no call to battle. That is what the people have wanted. If ever a country has cried out for this type of leadership over the past few years it has been our own. The people were there and they were waiting to be led. I believe that both major political Parties failed here. I should like to try to put things as it seems to me the general public, the people outside Westminster, feel.

What has gone wrong? Why need attitudes be changed? Bearing in mind the many problems and difficulties, for these are admitted by everyone, what has happened in people's minds over the past, say, eight years? What has brought the disgruntlement and disillusion of today? What are the causes giving rise to these attitudes and the, as I feel, acceptance or imposition of lower standards as a result—lower standards all round? I am sure that people do not feel they have been treated fairly; they do not feel that burdens have been shared as equally as possible. They do feel that the country has been held to ransom by the big battalions, by those with the loudest voice, whether that voice be medical, educational or industrial. They know, without being told and in spite of denials, that inflation in Britain has been pushed higher and higher by wage and salary increases. They have seen the total disregard of those with increases above the rising cost of living for those less fortunate than themselves. They have become tired and I believe they have become sickened at the marches, the sit-ins, the industrial disputes, the greed and the selfishness we have shown in this country of ours. They have felt powerless to do anything about it. The pressure groups and the sectional interests always seem to win. Yet democracy is surely more than the organisation of pressure groups and sectional interests. I wonder whether we may look more deeply at these feelings because if we wish to change them we must know what they portend and how deep they go. Equality of sacrifice? Equality of burden?

On several occasions—and lastly a year ago on 5th March—I endeavoured to put forward the case of those living on small fixed incomes. I did not get much encouragement. Yet this section of our community has had for several years a sense of complete disillusionment and a feeling of hopelessness. And it could have been so different. They feel that they have been discriminated against. I agree with them. Their savings have almost gone and they deplore the injustice of taxation imposed on elderly people who worked and saved, with some pride and considerable effort, towards financial independence in their old age.

In the past no Party and no Government have been interested in this section. They have had no powerful friends. For some reason they have been completely beyond the pale, the "untouchables "for any political Party. I offered various suggestions as to what might be done but we did not seem to make progress on 5th March 1975. The first words of hope, that I have heard anyway, came four months later, in July. And they came from two significant sources: my noble friend the Leader of the House Lord Shepherd, speaking on 1st July last year (at col. 120 of Hansard), said: What I think few appreciate is that one also needs to consider those who have saved their money, and to ensure that the sacrifices they made to achieve that are not lost". This gained additional significance when my noble friend Lord Feather, speaking on 30th July last year (at col. 1080 of Hansard) said: There has been a heavy fall in the living standard of those on low incomes or fixed incomes. They have no margin, no fat, no cushion to take the shock of rising prices. They are living on the bare bones of subsistence level ". This is a section of our community which holds strongly those old-fashioned ideas of thrift, responsibility, hard work and independence. These are ideas that a nation loses at its peril—or the standards that go with them. May we hope, after the past eight years and in view of the remarks quoted, that a little more fairness might creep in here?

What about the big battalions? In an effort to be all-embracing, I classified them as medical, industrial and educational. The feeling of the general public runs very deeply here. With all of them, whether or not the increases demanded were justified, overdue or even right at such a time, the nation had not the money to pay. And everyone in this country has suffered as a result. But at last—and it is for everyone to decide whether or not it is too late—many of the leaders of these big battalions have realised that that way lies ruin for us all.

My Lords, I will return to that in a minute, but may I now come to unemployment. We have looked at the basic attitudes arising from unfairness, from the might of "size ", from the feeling that too many people no longer care how much harm they do to others, and to society in general, so long as they get what they want. What about those thrown out of work as a result of all this? What about the unemployed? I feel that inflation and unemployment are the giants we have to overcome. And, while I believe that much of our present unemployment comes from inflation, to me the more evil of the two is unemployment, and I should like to say why. In the 'thirties I worked in the Rhondda Valley where I lived with an unemployed miner and his family. Subsequently, like them but not for so long, I was unemployed and on the dole. I know what the cancer of unemployment means, and I defy anyone who has not experienced unemployment to know what it feels like tobe unwanted, to be refused a chance to earn one's living, to go out day after day in search of a job and find nothing.

As I have just said, I believe that with less inflation we would have had less unemployment. I believe that many people have put themselves out of work; but that is cold comfort today. And so, my Lords, with this as background, what are the conditions we have to bring about to give us a last chance to win through, because we must win through economically if we are to succeed. I think most people, and I only wish it were all of us, at last realise that we are in most terrible trouble. When one reads the comments of economists to the effect that all the sacrifices demanded of us by the Government over the next few years will mean only that we can pay the interest caused by Government borrowing, and that we shall be no better off in the end, one wonders what is going to happen to us all.

Lord BALOGH

My Lords, will the noble Baroness permit me to interrupt her? I am sorry that she was taken in by the point that the national interest payments absorb resources; they exhaust resources very little. They have hardly anything to do with it. It is something completely different. It is a question of taxation and not unemployment and employment.

Baroness BURTON of COVENTRY

My Lords, I would argue with my noble friend Lord Balogh on most things but not on economics. I would merely refer him to Peter Jay (whom I regard as a very good economist) and let them settle any difference for themselves. I took that statement from Peter Jay's article, which no doubt many have read, and although I would not be qualified to judge between Peter Jay and my noble friend Lord Balogh in the economists' battle, I think that Peter Jay's television programme on Sundays is the best current affairs programme of the week. I will leave them to sort that out. I do not know whether my noble friend Lord Balogh said this, but I hope that the Government will make plain to the people of this country the terrible trouble that we are in, because there is no doubt about it.

I believe we have to do what we have failed to do in the past—and I have said this before: I believe we have to win this battle for men's minds. As near as possible we have to see that burdens are shared equally; we have to remove the greed, the envy and the uncharitableness that exist in our society today. I believe this Government, at considerable cost and with much courage, have indicated guidelines. And the leaders of the trade unions, at equal cost and with equal courage, are determined to keep intact this partnership—a partnership which has given us the £6 pay limit. I hope, and I certainly believe, that the TUC will do all in its power to support the overall economic—industrial strategy of the Government, while, obviously, arguing about emphasis. This will not be easy and the task is made harder by Left-wing critics, political or industrial. I have had my say about these in this House before and I propose to do so again.

I think that the public, the unions and the political Parties must stand up and fight and I think that we on these Benches must do our share. I believe that the Government have a right to ask that. I should have thought that all critics, Left-wing or otherwise,would have realised by now that the money was just not there to meet what they demand. I feel that we shall not get economic growth unless we face and accept the unpalatable fact that our productivity is not equal to that of our competitors, even given the same conditions, and that to continue along any other road is economic suicide. What is more, my Lords—and this is the hardest thing to say—if we do not make our output competitive now, even at the risk of not bringing down unemployment asquickly as we would wish, then I believe the numbers out of work at the end of the day will be very much larger. And we shall have failed to produce the conditions needed for the economic growth of our country because we lack the courage to tell the truth.

6.2 p.m.

Lord PARRY

My Lords, may I also congratulate the noble Lords who have made their maiden speeches today. May I do so without too much elaboration because my own is so close behind me and it would be presumptuous of me to over-elaborate. I have already congratulated them personally. May I, too, join in the praise to the noble Lord, Lord Rhodes. I joined in this debate because on my first day in this House I heard two highly significant speeches that I took away with me—one of them made by the noble Lord, Lord Rhodes, and the other by the noble and learned Lord, Lord Hailsham of Saint Marylebone, who was sitting on the Front Bench opposite.

There is in the epic poem by Matthew Arnold, which many of you will have learned in your local primary or preparatory or in your neighbourhood comprehensive, or wherever you were educated —there is in that poem a moment when the father, having inadvertently applied the death stroke to his son, in great agony at what he has done, seeks to end his own life. The son says: .Some men are born to do great deeds and live As some are born to be obscure and die Do thou the things I died too young to do And reap a second glory in my age. My Lords, in this debate I have been conscious, as I have in your Lordships' House during the last few weeks, that there are men here on these Benches who have done great deeds in their youth and are now being called upon, possibly, to do even greater service to their country in their age. There is a very real sense in which, as the noble Baroness, Lady Burton of Coventry, has just said, there needs to go out from this House and from another place a call to this nation of ours to rally in a moment of crisis.

One of the pleasures in coming to this place has been to find sitting here noble Lords like the noble Lord, Lord Rhodes, who initiated this debate: to see others on the Benches here who served in the Attlee Parliament after the war. One of the great pleasures, to one of my political persuasion, has been to talk with them of the challenges which they accepted. There was one great difference in the challenges facing that Government and the way in which they applied themselves to it. This has been indicated in what the noble Baroness, Lady Burton, has hinted at in part of her important contribution this afternoon. One of the conditions existing at that time was that the people willed the Government which they had elected to achieve the changes which they had in mind. That Government, in office, was backed by the strong support of the people. The people understood that all change, even when it is change from good to better, is sometimes harmful to some people.

In coming to grips with this debate it is essential that we in this House should remember not only the conditions under which the people willed the Government to create great social change but that there were also powerful instruments at the hands of Ministers which in peacetime they do not normally have the opportunity to operate. Sometimes we are half-hearted in willing change and in applying the powers to change to those to whom we give it. I do not in any sense challenge those questions of freedom and the questions of the right to limit power over the individual, but I do say that when we have come to decisions making it necessary to change the course of our advance we should be prepared to institute the machinery of Government with which to achieve it.

On this Public Expenditure Blue Book 1979–80—and I must make this point in challenge—I havea feeling that a great many people on the opposite side of the House who were making points critical of the Government did so without having given fair attention to what is actually written in this Blue Book of Public Expenditure regarding what it is proposed to do. The point that I was making earlier was that in the speech of the noble and learned Lord, Lord Hailsham, he referred to a "malaise "in society and the philosopher Hegel pointed out that if in fact people disillusioned with the machinery of the Government under which they lived followed from that disillusionment a decay of the institution, and that leads to a disintegration of society itself. Out of that decay there emerged an ethic which was usually the antithesis of the ethic that it replaced. So the challenge to us is important and I think it should be underlined.

The first two paragraphs of this Blue Book set the seal on the debate. This White Paper sets out the Government's plans for public expenditure until the end of the decade. In managing public expenditure two problems stand out. The first has been with us for many years. Popular expectations for improved public services and welfare programmes have not been matched by the growth in output or willingness to forgo improvements in private living standards in favour of these programmes. This, of course, is now codified in what is called "the theory of rising expectations "something which the Attlee Parliament and those who helped to build a new society after the war had not bargained for, that there would emerge these rising expectations of people for a greater share of the product of their own effort.

The second problem is cost inflation, which has become acute in the last few years—and I am deliberately reading from the detail of the Blue Book as so much has been said about it, which seems to be based on an imperfect understanding of what it is about. It says on unemployment: At a time of world recession, rising public expenditure without matching tax increases has helped to sustain employment. The tax burden in recent years would have been much larger if the Government had not accepted a high public sector deficit for this reason. Finally, it says: Changing the structural distribution ok resources in this way is the only means of restoring and maintaining full employment. We have heard technical arguments on an economic basis. I want to change very rapidly for the actual personal problems involved. It is late in the debate but it is important that we should realise that when we are talking about a small percentage here and a small percentage there, we are talking about people's homes and families, and the people most likely to be disillusioned, most likely to turn away from the type of leadership that is perhaps necessary, are the people who find themselves thrown out of work, rejected as they feel, perhaps at a time when they feel they might be making their maximum contribution to the job in which they work, in the society they have created. Within the general overall problems there is a structural one in this nation, with which we have lived, rightly, as the noble Lord, Lord Balogh, said, since before the turn of the century.

In the area in which I live we have always been aware that if there is an unemployment level in the South-East of England of a certain percentage, then in our area there is a multiplying effect. I can give the comparative figures which I have checked today. At the moment the figure for the United Kingdom is 5.6 per cent. unemployment overall; in the London district it is as low as 3.7 per cent. and in the South-East of England it is 4 per cent. But in Wales the figure rises to 7.4 per cent. and as one moves further Westwards the figure rises catastrophically to 10.1 per cent., 10.7 per cent., 11.6 per cent., 15.5 per cent. and 16.6 per cent. That represents 76,130 people who are registered as unemployed, in Wales, many of them for a very long time. Therefore we have within this overall problem a considerable local problem.

I should like to make that point as a supporter of the Government and I should also like to make it clear that I believe the Government have tried to grapple with the situation in a very courageous way. I hope that the noble Baroness who preceded me will accept that I dissent from her in only one particular, which is that I believe that all criticism, within a coalition of interests of people working towards a common goal —whether such criticism comes from Right or Left—is of value. I welcome criticisms that are aimed at restoring progress but, if they are aimed at distributing the balance of the Party they criticise, they are of no value at all.

Here, I should like to take up a point which was made by the noble Lord, Lord Balogh. There is no doubt that the cuts which are foreshadowed are real ones, because the Chancellor of the Exchequer is not a man who shadow-boxes and when he says that he is going to cut expenditure in the future that is a promise that there will be a fall off in expenditure in the area under review. The noble Lord, Lord Balogh, said that the cuts in education were not as dangerous as they seemed because they were mainly confined to building cuts. It is important to say that there is a sense in which the cuts are dangerous because they affect the attitudes of people working within the education service who may not take quite so liberal a view of buildings. It is true that many of our university buildings sprawl grandly over vast acres, but there are also primary and secondary schools that were slums in 1862 and which are today still occupied. Cutting the school building programme offends teachers who are working in those conditions. While there may be classes of 35 or 45 children, if there is one unemployed teacher in Britain that destroys the confidence of the others, who may be teaching in crowded conditions.

Looking at this White Paper, the National Union of Teachers has examined the proposed cuts in public expenditure referred to in the White Paper of 1976 —cuts that are in the order of£1,030 million, which represents a reduction of some 5.7 per cent. Such a cut would reduce the total share of public expenditure for the educational budget from 12 per cent. to 11.4 per cent. Successive Secretaries of State for Education, including those coming from my side of the House, have said that the expenditure figure of about 6 per cent. of the gross national product on education seemed to them to be about right. It has never seemed to me to be just about right. My parents gave a great deal more than 6 per cent. of the small amount which was coming into the home to educate their children. I have a suspicion that many of your Lordships are at present giving a higher percentage of your gross product to educate your children. Therefore, I would say to those on the Benches on this side of the Chamber that any cut on expenditure on education services I will challenge, criticise and attack.

The White Paper attempts to argue that the school section of the education service will be adequately funded, but serious issues of reduced capitation, worsening pupil-teacher ratios and unemployment among newly qualified teachers are not acknowledged. Perhaps one of the most serious cuts concerns the limitation of the size of the teaching profession to 464,000 from 1977–78 onwards. This is a cut of some 15,000 teachers on the Alexander projects—I am sure your Lordships will know what they are—and it will almost certainly lead to unemployment among newly qualified teachers during 1978–79. That would be in excess of 10,000 teachers.

It is indeed surprising that the White Paper is definitive on the matter of teacher supply to such a degree as to bring into question the role of the organisation dealing with this complex and difficult matter.The teacher unions generally are convinced that the detailed cuts and reduction in growth, which are clearly set out in this White Paper, will really affect the standards of education. I should be failing in my duty if, in this first moment when I am freed from the natural and reasonable rigours imposed upon a maiden speaker, I did not bring home that point to my own Government on this side of the House. I should like to say that we may sometimes reach a point where we do not honestly admit in our debates that the real clash of opinion concerns how we should dispose the assets which are available.

The limitations have been clearly laid out in the debate so far, and I should like to say in this House, with a due sense of history, that it is exactly 111years tomorrow since Abraham Lincoln made his famous speech about a house divided in his second inaugural address as President of the United States of America. I point that out at the beginning of this bicentennial year because it is important in a democratic sense that we should look to origins elsewhere, as other speakers have said, because we do not conduct our affairs in a vacuum. It is probably worth quoting President Lincoln in his inaugural address. He said this: We should govern with malice towards none, with charity for all, with firmness in the right, as God gives us to see the right. He urged: Let us strive on to finish the work we are in, to hind up the nation's wounds, to care for him who shall have borne the battle and for his widow and orphans; to do all which may achieve and cherish a just and lasting peace among ourselves of all nations. I believe it is essential that we should look at education in a special context, because it is no accident that the founders of social change in Britain—they were not limited to people of the Party who now occupy this side of the House—had the slogan, "Educate! Educate! Educate! and then you can Legislate! Legislate! Legislate!" I believe that some of the malaise and some of the reaction against what is called "too much government "arises from the fact that there is too little education, too little serious political education, in the sense that the Parties confine themselves to the limited horizons of attacking each other and pointing fingers at each other rather than in the direction in which mankind is moving. While we have occupied ourselves with the local and particular issues of our own nation and perhaps extended them a little to a corner of the economy of Western Europe, people have been giving their allegiances elsewhere. The young people now growing up in Britain will find themselves with a vastly more difficult world situation to inherit than we did, even in those difficult years following the great World War, and we have grown up in conditions of peace.

6.20 p.m.

Lord CULLEN of ASHBOURNE

My Lords, I should like to add my thanks to the noble Lord, Lord Rhodes, for having initiated this debate today on such an important subject. I enjoy listening to the noble Lord, who always seems to provide us with the very best possible tonic in the shape of good sound common sense. Before considering the conditions that are necessary for growth, I think we should examine how growth on a national scale is achieved. As I understand it—and I speak as a simple stockbroker, and by no means as an economist—growth can be achieved by increasing productivity or by additions to the productive labour force, and where the two are in combination growth can be rapid. The reason why so much emphasis has been placed on growth since the last war is that we have been living in such inflationary times and on borrowed money. In more normal times, any growth that is achieved results in an increase in national prosperity, but in inflationary periods, unless the rate of growth exceeds the rate of inflation, prosperity either decreases or, at best, stands still. For many years, we have attempted to go for growth instead of making determined efforts to contain inflation and to pay our way.

It was in the 1950s that this policy of going for growth was conceived, and it is interesting to study two sets of figures between 1950 and 1975. I do not suggest that there is any direct correlation between them, but there is no doubt that the first is greatly influenced by the second. The first set is for the United Kingdom's share of world manufactured exports. In 1950, our share was 21.9 per cent.; in 1965, it was 13.9 per cent., in 1970, it was 10.8 per cent., in 1974 it was 8.8 per cent., and in 1975 there was a slight increase to 9.3 per cent—hardly a history of national growth. The second set is for public expenditure as a proportion of gross national product. The ratio in 1950 was 39 per cent.; in 1965. it was 44 per cent.; in 1970, it was 50 per cent.; in 1974, it was 56 per cent., and in 1975 it was 60 per cent., and I think it may be a little higher than that now.

Fortunately, it is clear from the recent White Paper on Public Expenditure that the Government appreciate the significance of these figures. They appear to be determined to stabilise public expenditure at the 1976–77 level for the next three years or so, and thereafter to make more resources available for improving industrial productivity and efficiency, and for coping with our balance of payments. To make real cuts at the present time is probably not possible, but it was highly unfortunate that what really amounts to a reduction in previously planned profligacy should have been portrayed in some newspapers as cuts in expenditure—it was not so portrayed in the White Paper, but in the newspapers it was—particularly as the reduction will be swallowed up by increases in debt interest.

Whether these cuts will prove to be adequate I doubt, but what is quite certain is that, as the economy improves, the Government must stick to their policy of reducing the ratio of public expenditure to the gross national product. At last, it seems that we have begun to reduce the rate of inflation and there are signs that the economy will start to pick up this year. But as the economy picks up, so will the pressure mount for the Government to reflate. This will be the crucial test. I do not know how many of my noble friends will agree with me, but I believe that Mr. Healey has learned some of the lessons of the past, and he is standing firm against the demands of the Left Wing. But this will become harder and harder to do, and no less important, as the months go by, and the price of failure is too high to contemplate.

There is no need for me to go into detail about the causes of the increasing rates of inflation which we have experienced in recent years. Suffice it to say that the doubling of the money supply in 3½ years by the Conservative Government, followed by the sudden and dramatically sharp rise in the cost of oil imports and the enormous increases in wages which took place, have presented the country with a bill that it will have great difficulty in settling. The decline in the value of sterling is the sickening measure of the size of the bill that will have to be paid. Perhaps these inflationary excesses have had the effect of concentrating many minds, which would have been less per ceptive if events had moved more slowly. There is today an awareness of the dangers of rapid inflation by many who, only a few years ago, turned deaf ears to warning voices. Two very welcome converts are Mr. Healey and Mr. Jack Jones. This is a most encouraging and significant development on which to build.

Luckily, one of the basic philosophies of this Government, and one which I heartily support, is for full disclosure of information. The Government have been legislating for full disclosure of information to trade union representatives. I should like to see this philosophy extended much further, and for the Government to take a leaf out of their own book and take the people of the country into their confidence; in fact, to tell the truth to the people about the economic state of the country. How otherwise can the people be expected to accept the need for wage restraint and self-discipline? It is well-known that the British are at their best in times of crisis, and it always seems odd that Governments are so loth to tell more than part of the story in bad times. This not only seems unwise but shows a lack of belief in the character of the people and is, in my view, the very negation of leadership.

As I see it, the Government should make it quite clear that to survive economically we have to bite on the bullet for several years, during which there is no question of an improvement in the standard of living. Let the Government explain their strategy for getting the country on to its feet. A good start has already been made in this direction by setting a target for reducing the rate of inflation to single figures by the end of this year. I should like the Government to go further and set long-term and intermediate targets, with progress monitored and honestly reported at regular, perhaps quarterly, intervals, so that a spirit of partnership is engendered between the Government and the people, similar to the kind of relationship between managements of well-run companies and their shareholders.

I hope that the strategy would include unremitting opposition to overmanning wherever it exists, encouragement of mobility of labour, wholehearted recognition of the need for the profits that are vital for investment, and the maintenance of consistent policies with no U-turns, so that managements can make plans with confidence. So that drive is needed for productivity and profitability, then a gradual addition to the productive labour force, then our balance of payments will start to improve, confidence in sterling will return, and we shall not need to maintain such high interest rates. It will all take time, but it must be done.

In conclusion, as I said earlier, I am heartened by the fact that the Government are standing firm against the siren voices of those who try to persuade them to reflate, and I hope and pray that they will not weaken. If the Government do weaken, there is no point in even mentioning the word "growth", let alone the conditions that are necessary for it. The very desperateness of our economic plight presents the Government with the opportunity of providing a shining example to their successors, to tell the truth and to lead.

6.30 p.m.

Lord LEE of NEWTON

My Lords, may I join other noble Lords in congratulating my noble friend Lord Rhodes not only on introducing this vitally important subject, but on his usual down-to-earth, good common sense in which he displayed to us the problems of the practical men who have the job of producing the manufactured goods upon which we depend. While I agreed with much that has just been said by the noble Lord, Lord Cullen of Ashbourne, when he told us that too much GNP is being devoted to public expenditure, he seemed to lose sight of the basic fact that in money terms we are not spending as much as many of our competitors and that this points to our failure to increase our total GNP rather than to the fact that the Government are spending too high a percentage of it. This is the problem with which this nation is now faced. Indeed, it is the story of our failure since the end of the war. I do not think any of us can be too proud of the performances of Governments during the last 20 years in their efforts to improve upon the levels of both total production and productivity which the coming of the scientific revolution gave us the chance to bring about. One of our problems is that that same scientific revolution has gone sour on the people of Britain. I suggest that we must try to create the vehicle by which we can vastly improve our performance before we can hope to get out of the quite abysmal situation which has been described by so many noble Lords during this debate.

The noble Baroness, Lady Seear, mentioned the need for more technologically based industries, and I agree whole-heartedly with her. But if we are to treat professional engineers as second-rate people and if their degrees are not to be considered in the same breath as the classics, we must not be too surprised if we find that they become fed up and drift into other kinds of work which is not half so vital as that which they, as engineers, could do for the nation.

It has been said that we need a change of attitude, and again I believe that is right. I, as an engineer, remember complaining some months ago that we regard our machine tools as sacred cows. If we look at the approach to this problem adopted by the Americans and by some of the German firms, we find that they transfer wealth from the machine tool to its products at a much faster pace than we do. It is awful to have to say this, but we suffer from the very quality of our machine tools. In other words, we fail to throw them out because the accuracy of the jobs they produce is first-class, but the pace at which they produce them is pretty disgusting. We must look again at our approach to the problem of how we view the function of the machine tool. Until we change our attitude, until we grasp new ideas and get our new types of machine tool into production much faster than we do now, I do not believe that we shall achieve the levels that all of us wish.

If I may turn to our preconceived ideas, I do not know what proportion of unemployment is caused by our own failure to increase production compared with that which is caused by the problems of the world slump. However, I have an uneasy feeling that given the preservation of present rates of production, we shall not get back to 600,000 unemployed in the foreseeable future. It seems to me that we should be looking at how to work machine tools round the clock. Those of us who are engineering men are not frightened of shift work, but the vast majority of people in this country look upon their contribution to the economy as being from 8 o'clock until 5 o'clock, the rest being up to somebody else. If we are to persuade employers to invest in new, modern machine tools at the pace we want, we must think in terms of working those tools for at least 16 out of the 24 hours of the day. A four-day week could then be worked, which would give employees a three-day weekend. On that basis we could certainly employ far more people, and do so profitably.

I hope that the Government will look at this problem. Itis vital that they should do so if we are to obtain the productivity we require. Surely the best incentive for any employer would be to obtain new machine tools in the knowledge that they could speedily pay for themselves on the basis of a far longer working day. From the employee's point of view, the possibility of the coming of a four-day week would be the greatest incentive that could be given to him.

This is the first opportunity I have had to discuss this problem since the noble Lord, Lord Byers, moved his Motion on 11th June of last year. Since then we have seen not only the rise in unemployment upon which I have commented, but the period of runaway increases in incomes which has now brought about the acceptance of an incomes policy. Finally, in Cmnd. 6393 we have seen the cuts in public expenditure. In my contribution to the debate on 11th June 1975 I tried to make clear that I believe firmly that a permanent —and I stress "permanent "—incomes policy is absolutely essential to our ability to succeed in our economic planning. While I welcome very much the present flat rate increase arrangements, I doubt whether we can leave it at that. Discussions have taken place on the cuts which have been announced in Cmnd. 6393. As we pull out of the depression and strengthen our economy, I trust that one of our incentives will be to ensure that those cuts, especially those which affect education, will never need to be applied. This is a vital issue for all of us to face.

With this I couple what I have to say about an incomes policy. Indeed, I was heartened when the other day the Chancellor of the Exchequer said that if he could reach agreement with the unions he would like to think in terms of cuts in taxation being part of our incomes policy. This is a vital suggestion. It presupposes that the cuts would assist first the lower paid. I do not want to repeat everything I said on 11th June, but when one hears arguments about the poorly paid versus the highly paid, the real point is that if one is to continue with a free collective bargaining system which depends entirely on the industrial strength of those who do the bargaining, undoubtedly there will be highly paid workers among those who have the strength and poorly paid workers among those who have none. This has gone on for so long that the picture of incomes is distorted. If we merely freeze incomes by means of a flat rate advance, we shall rot alter greatly that unacceptable pattern. If, therefore, the Chancellor of the Exchequer were to look at the tax arrangements in order to ensure that increased living standards for the lower paid were part of the tax structure he is now trying to produce, that would be a very fine contribution towards assisting the unions in their approach to the next stage of the incomes policy. As it is. I look upon the acceptance of the flat-rate scheme as inadequate, but nevertheless it is the acceptance of the principle of an incomes policy.

I know that various Governments have blown hot and cold on this issue, and deplore the fact that Governments of which I have been a member did not continue with what was a successful incomes policy. I had to help to run it for 12 months, so I cannot be blamed for pressing it! But I am willing to contrast the results achieved then with anything that has happened since. I deplore the fact that we did not continue to employ those methods, but we are now enjoying, in the lessening of inflation, the result of the coming of the incomes policy. I would take a great deal of persuading that thenation as a whole would willingly now change that which we have in order to go back to the period when it discovered that 30 per cent. increases in incomes, which were not matched by proportional increases in wealth production, were anything but a sham and a farce. I believe devoutly that the nation has now reached that particular stage.

My Lords, the strident voices which for many years have been asserting that income increases have no worthwhile effect on inflation, for the moment at any rate, are muted. It is quite a triumph to witness the fact that there is hardly a "peep" from them now. If noble Lords will cast back their minds to the arguments deployed, it was said that those of us who, for 30 years, advocated incomes policies were wrong in saying that they would help to quell the inflationary rates, and would be proved so obviously wrong. But we have been proved so obviously right. I do not believe that the nation would willingly go back to that which failed us so badly in the past.

It is as absurd to argue that there are no other issues which contribute to inflation as it is to argue that incomes increases do not. So I accept at once that there are many things which the Government must look at, quite apart from incomes, if we are to succeed in getting inflation down to manageable proportions. The lesson that must be hammered home is surely that you cannot sustain a rapid increase in the levels of public expenditure along with an unplanned free-for-all on incomes in a practically static economy,without inviting a painful day of reckoning. Today, we have all been saying that that day of reckoning has arrived.

I have said that I should like to see the Government embark now on a study of the unemployment that we have, and on what they really believe can be achieved in getting the level down—but not by employing people to dig holes in order that someone else can fill them up again. As I have tried to say to the House, I am apprehensive that if we maintain our present structure we shall not get down to the levels of employment that I want to see. Many years ago, when I was a junior Minister at the Ministry of Labour in the Attlee Government, we used to say that a figure of a quarter of a million unemployed meant you had full employment, because no matter on which day you took the figures, always a number of people were changing jobs. I do not know what would be the minimum figure now. I have a feeling it has at least doubled. The velocity of job changing has increased. Indeed, both Parties have produced policies aimed at this point, for getting people out of the older industries and into the new ones.

I believe the Government must study what is the minimum we can expect. If we argue that we will not get down to a figure of 600,000 until 1979—I have seen that stated—that is a very depressing statement. Until one appreciates that that may represent full employment in 1978 or 1979. So a lot of work has to be done on that kind of thing before we can know what are the levels of unemployment and employment at which we should aim. The noble Lord said that he hoped the Government would stick to their priorities, and I devoutly join him in hoping that that will be so. Let us be under no illusions. The muted voices will not stay muted forever. There will be a determined effort made to get a free-for-all in being again. I think a great deal now depends on the next stage of the incomes policy.

I understand very well the need for a minimum time factor between advances; indeed, when I worked on an incomes policy we had a 12-month period. There is a great danger in this. We have just passed through a 12-month period in which the gross national product actually fell. If we are to say that we pay ourselves increases for no other reason than that it is 12 months since we last had one, and the gross national product is not increasing—in fact, it could be falling—how in heaven's name does that cure inflation? I make the point because I believe we are in some danger of confusing a 12-monthperiod intended as a minimum period of at least 12 months, with the fact that we can then claim that after 12 months, irrespective of the situation, we are entitled to whatever it is. Again, I should like the Government to have a look at the kind of measuring stick we must use if we are to continue to improve on the rather crude incomes policy we have at this moment.

In my own Party there is great argument about this matter. If I may make confessions in the privacy of these four walls, at one time it was thought that people who advocated an incomes policy were somewhere near in their views to the Communist Party. Nowadays, apparently, one is very near the Fascist Party. I will not mention his famous name, but in the 1945 Parliament one of the leaders of the Attlee Government said to me, when I was advocating an incomes policy, "Look, we want none of your Communism here ". That was because the only people with incomes policies were the Governments behind the Iron Curtain. We have come a long way since then.

The other day, I was reading with great interest an article by Professor Galbraith in the New Statesman of 20th February, and I think it would interest your Lordships if I read some of it. In this article, Professor Galbraith says: The purpose of incomes and price restraint is simple. It allows the economy to operate much nearer full employment without large, erratic and damaging price increases. It is the alternative—the only alternative—to using unemployment and idle capacity to restrain wages and prices. Equitably administered, therefore, such control is an indispensable part of the economic policy of the democratic Left. That is sound common sense, and coming from a man like Professor Galbraith I believe it is of considerable importance.

My Lords, I am sorry to be speaking for so long, but I should like just to mention one or two further issues. I have talked about the need to create the vehicles for expansion. One of the matters we look at now is that equal pay for women is here. I hope that means, along with the equality of the sexes, that women will be given the same opportunities of apprenticeship, of training for skill, as the apprentice boys. We are in a period in which the number of highly skilled people we require will increase fantastically. I can promise your Lordships that as we come out of the recession the first complaint will be of a chronic shortage of skilled labour. It always happens this way. And yet, here we are, now giving equality of the sexes. I take it that that means all the facilities for training for skill which the Government are offering; I take it that all the apprenticeship schemes throughout all the industries are now open to girls as well as to boys; because I believe if you are going to allow the concept of half a million women in industry condemned to be unskilled workers, at a time when you need skilled workers more than anything else, you will find a large problem of unemployed, unskilled people and an equally large demand for skilled people. I happen to believe that this matter of skilled people is one of the things that we should now go ahead with. I hope the Government will take that in their stride as one of the concomitants of a full employment policy, of a policy which will bring about far more skilled people and many fewer unskilled ones.

6.51 p.m.

Lord WILSON of RADCLIFFE

My Lords, we are indebted to the noble Lord, Lord Rhodes, for enabling this most urgent and important subject to be discussed. Before reviewing the Motion, I think I must add my congratulations to the two maidens of today, namely, the noble Lords, Lord Northfield and Lord McCarthy. Obviously, they are well versed in the art or oratory, and I am sure that they will make very many valuable contributions to the debates in this House.

In reviewing the Motion, I believe it is, first, essential to appreciate the position of this country. With our present population we are far from being self-supporting. Indeed, foodwise we are capable of producing only 50 per cent. of our requirements. Thus, we must either import massive quantities of food, or, alternatively, halve our present population. As it is not possible—at least, I have not seen any way—to reduce the population to approximately 30 million. we must find ways and means of paying for the imports necessary to maintain a reasonable standard of living for the people of these islands, and that means anything but a protectionist policy. During the past few years, money has been borrowed from abroad to assist in financing these imports, but obviously that cannot continue indefinitely. To maintain, and, preferably, improve our standard of living, it is essential that exports be increased, but the question is, how can that be done?

At present, productivity in many sections of British industry is much lower than in other developed countries. Many reasons are advanced for this, but it is not my intention to attempt to allocate blame. In my view, we must look ahead and concentrate our efforts on solving our problems. The first essential is a tremendous effort to improve the relationship between unions and employers, workers and management. To bring this about will involve a great deal of time and diligence on the part of management in particular. Whether we like it or not, the present climate of opinion is such that workers must be better informed of what is happening at the place where their livelihood is earned. Progress in this direction may be slow and require much patience, but the rewards should make the efforts well worth while. I believe that there is considerable scope for industrial relations to be improved in many parts of industry, and the need for this improvement applies not only in the private but also in the public sector. We have a mixed economy and we just must make it work. Little is gained and a great deal of harm is done by constant argument between the so-called "we's "and "they's ". Far better that workers and management should co-operate with the object of increasing profitability so that there can be a larger and better cake for all to share.

But improvement in industrial relations is, of course, merely one aspect of the problem of achieving economic growth. I hope that Her Majesty's Government will encourage efforts to improve profitability, even though this may mean towering some of the penal rates of taxation. I want to see those who make the effort being rewarded and allowed to enjoy the benefits of those rewards, although I do not believe that the fruits of these efforts should be available to be passed on from generation to generation.

Since the War there has been much discussion on the question of investment. In recent years, there has been a great deal of investment which has not been as productive as it ought, but even hearing this in mind, capital investment in this country has not compared favourably with that in many other developed countries. In addition, this low investment has not always been correctly directed, and if we are to achieve economic growth we must endeavour to ensure that future investments are made in those industries which will produce the maximum benefit for the country as a whole. Initially, decisions must be based on economies and not on socially desirable or politically motivated criteria.

But how do we pick industries which should be successful? The judgment will, presumably, be made on the basis of past performance and current prospects. The fear I have is that the assessments and decisions will be made by individuals who, possibly lacking a great deal of industrial experience, will have considerable power but no responsibility or accountability for the ultimate results. Assuming that the correct selections are made, those industries will, if the need arises—and by that I mean if they are unable to raise funds through normal channels—be backed by the National Enterprise Board or some other new financial institution.

We have many highly efficient and successful companies in this country and we should be grateful to them. I doubt if, in normal circumstances, there are many instances where such successful organisations have failed to attract the funds necessary for essential development. Almost invariably, success has been due to the high quality of management within those organisations. Those managers have dealt not only with technological problems and with organisation and administration generally, but have also ensured the right sort of relationship with the employees. From my own experience in business I know that there is no substitute whatever for good management. We must, therefore, do everything possible to encourage managers. We must not hinder them with reams of regulations, which merely divert them from the important task of developing their industries for the benefit of all concerned—the workers, the financiers and the community generally—because I believe that, in addition to encouraging management and workers, we must also encourage the savers who enable the finance to be provided.

Inevitably, there will be greater involvement by Government in business matters, but it must not be a dead hand; nor should there be unnecessary interference with management in the carrying out of their duties by individuals who are theorists and quite unfamiliar with industry. Here, I would ask the large banks to look at the possibility of having on their staffs individuals who have worked in and have some knowledge of industry, so that they can more accurately appreciate and assess the problems of manufacturers, particularly the small ones.

In summary, therefore, I see the principal means by which we can achieve economic growth to be the improvement of industrial relations, particularly at the site, and this places a heavy responsibility on the shoulders of both management and employees. I believe it is important that the good industrial relations should apply on site and not be a delightful exercise at head office. I believe in the encouragement of good management by not depriving them of their just rewards for their exceptional talents. Top-class footballers, pop stars, seem to get theirs without a great deal of envy being apparent. It is unfortunate that our taxes are such that many of our stars decide to reside abroad, for had they remained here they could have made useful contributions to our balance of payments instead of these benefits going to other countries.

Decisions on investment, whether of private or public funds, must be based on cold, economic facts and not on socially desirable or politically motivated ideals. More of the country's resources and manpower must be diverted to manufacture and away from non-productive and non-industrial sources. If we are to progress this imbalance must be corrected. With inflation under control and companies being permitted to make profits based on their efficiency, I doubt whether large, successful companies will have much difficulty in finding adequate funds with which to finance essential developments.

Some degree of Government intervention and supervision is, I believe, essential, and with sweet reason on all sides I am slue that this must be beneficial in ensuring investment in some potentially successful fields which have not yet succeeded in generating sufficient confidence to secure the necesary financial backing through normal channels. Once we have succeeded in our objective of real economic growth we shall then be able to improve our social services, and the whole community will benefit. Initially, however, some sacred cows may have to be sacrificed.

7.3 p.m.

Viscount MONCK

My Lords, I should like to thank and congratulate the noble Lord, Lord Rhodes, for having given us such a delightful afternoon. It has been most instructive and informative—at least until the present speaker stood up. What happens now, I do not know. Last 28th July we were in Committee on the Industry Bill, and at column 732 of the Official Report I said this: Do let us understand this! The manufacturing industry is the lifeblood of this country, especially exporting manufacturing industry. I make no apologies for repeating that, because the fact is that we need to manufacture and trade in order to survive. Therefore, I would suggest that instead of putting emphasis on redistribution of wealth we should concentrate on creating more wealth, and this can only be done by manufacturing industry and invisible exports. Therefore, it is essential to give these two all the encouragement possible. The question is, how?

May I first of all refer to corporation tax, which on profits exceeding £40,000 a year stands at 62 per cent. A slight dispensation was made in the last two years, and that was that this tax was deferred for payment on some future date on the increase in stock values. The increase in the stock value was itself mainly due to inflation. But people still do not know when they have to pay it. It still hangs like a Sword of Damocles over their heads. Why not remit it altogether and thus give confidence to manufacturing industry. If it is possible to go a little bit further, why not reduce that terrible figure of 52 per cent. corporation tax for manufacturing industry. I say, "manufacturing industry ". I know that the retailers would not like it, but it would give manufacturing industry enormous encouragement.

The second point I want to mention is the really terrific rate of tax. This concerns tax on personnel; tax on middle and senior management. Anybody earning £10,000 a year now pays 60 per cent. in tax; anybody earning £20,000 a year pays 75 per cent. in tax. These are just the people we want to keen in this country. The noble Lord who spoke just now referred to the fact that they are going away; they either settle in Jersey or emigrate to the USA.

I have one other little suggestion, and this concerns the Price Commission. At the present moment sub-contractors who sell to converters who export have prices controlled, but the converter does not have prices controlled. I rather feel that the original manufacturer should be treated in the same way as the converter. We give aid to what is popularly known as the Third World. I wonder whether it would be trying them a bit hard to say, "Here is your aid, boys, but we want you to use it for purchasing goods in the United Kingdom."I finish where I began (I promised my noble friend Lord Cullen that I would not be longer than seven minutes and I have only been four) by saying let us create more wealth, and this can only be done by boosting manufacturing industry. Give them confidence in the future and they will play their part.

7.7 p.m.

Lord BROWN

My Lords, first I must apologise to the House for being absent from 2 o'clock to 4 o'clock because I had to chair a committee, strangely enough, the Government's Advisory Committee on Machine Tools, which may interest the noble Lord, Lord Lee of Newton. I have heard quite a bit of this debate, and, with great respect, I think we have to dig much deeper than most people are digging today, to find the fundamental causes of our problems. If we find them it may indicate a way of putting the problems right.

What has come out in the debate in the comments of most noble Lords is that the main support of our standard of living in this country does not yet enjoy that status and respect which it ought to enjoy. It is worth comparing the status enjoyed by agriculture and farming if we go back several hundred years (then the main basis of our standard of living) with the status enjoyed by industry today. The Church celebrated the success of agriculture in its harvest festivals and in many other ways, and if a manmade a success in agriculture he was a hero. Many people who make a success in one walk of life or another in industry today are, sadly, not necessarily regarded as heroes. Industry has become something referred to by increasing numbers as the "rat race ".

When we look at British society I think we can find a degree of tolerance in it which is the admiration of the world. I have done a lot of lecturing overseas, and for those who are not familiar with the expression of the viewpoint of other countries on this subject I can assure them that one of the virtues of the British population, as seen by people in other countries, is their infinite tolerance. Speaking as a Scot, I have always admired the English tolerance. They believe overseas that this is a sort of genetic characteristic of the British people. I do not believe that it is due to that at all. I believe that it is due to the fact that England in particular and Britain in general had the benefit of Parliamentary institutions 200 or 300 years before anybody else. And what did those Parliamentary institutions mean? They meant that, instead of the eternal conflict between the landowners and their power to raise armed forces, the Crown with its divine right to make decisions, and the Church with its psychological power over the population—all in physical contest with each other in deciding how the country should be governed—by some wonderful process agreement was reached that these matters should largely be decided by discussion instead of physical contest. That is when Parliament arrived.

If one looks at the British character at work in industry today, nobody could describe it as being tolerant. Industry, and particularly big industry, is the scene of so much intolerance today that it produces conflict on a horrible scale, alienation from work and a failure on the part of almost everybody to produce the goods at the rate at which we should be able to produce them. One has to contrast what happened in British society in the establishment ofthe institutions which led to discussion instead of conflict with their almost complete absence in industry. This country has often regarded Germany as being an authoritarian country, but what is not generally known is that the German Parliament was considering worker participation in 1860. In the First World War every German factory employing more than 100 people had by Statute to have a works committee of representatives. I do not think it is any coincidence that the effectiveness of German industry today is so much greater than our own because that apparently authoritarian country in many respects has, in terms of industry, outstripped us in a democratic sense for well over a century; we do not have within our industry the institutions we require.

Perhaps I may be allowed to recite a little more history. After the Napoleonic wars, new power groups of what I suppose were regarded at that time as low- or middle-class citizens emerged. At that time the cities of Birmingham, Manchester, Liverpool, Glasgow and Bristol had absolutely no representation whatever in Parliament. One thus had those associations of citizens wanting to take part and to change society but without any con stitutional means of doing so. They resorted to disruption, and any power group that has no constitutional means of giving effect to its power will inevitably have to resort to disruption. It is on record that in 1828 one-third of the city of Bristol was razed to the ground by civil rioting and commotion, and bloodshed was going on all over the country.

The Whigs of the day believed that a change in the distribution of the franchise would overcome this problem and they proposed what later became the great Reform Act of 1832. Peel in the House of Commons and Wellington in this House resisted this change for several years. Wellington resisted it on the ground that to hand over the government of the British Empire to those who were disrupting the country left, right and centre would be a national tragedy. What he failed to see was that a change of institutions, a change in the constitutional position of those people, was capable of bringing about a very great change of behaviour. After a great Parliamentary battle, the Reform Act was passed in 1832 and disruption died away. One can look at the 19th century as a time during which there emerged a series of Reform Acts enfranchising emerging power groups, as they appeared lower down the economic scale. Indeed, this went on into this century when the suffragettes proved themselves a most effective power group. My mother was a suffragette, and I was of conscious age while she was taking part at meetings. They won their way, they got the vote and disruption on their part ceased.

If one looks at industry today one sees enormous power groups within large companies. They are not only taking part in the governing of those companies but also of the nation. I note the recognition by the Conservative Party of the need to get closer to the trade unions, and I congratulate them on that fact. But because industry, and the TUC itself, has no constitutional authority to take part in government, so they are doing it with threats of disruption, both within industry and at national level, and they will continue to take part in government by potential disruption unless they are given a constitutional place.

I listened with approbation to the noble Lord, Lord Lee of Newton, talking about national wage policies. I agree with him that we must have them. However, I believe that in order to introduce a national wage policy which has a long life ahead of it we shall have to introduce something that amounts to a constitutional change. I have talked about that in this House before and I will say briefly what I seek. It is that the Government of the day will decide annually the amount, some percentage, by which the national wage bill shall increase, and then we need what is in effect a sub-parliament, accountable to Parliament itself, composed of representatives of every trade union and profession in the country who will take that percentage decided by the Government and divide it up differentially between all the employment groups. Who better knows the value to be placed on the different industries, on the social services and on the services of this country than the representatives of those who work in them? There is only one basis of deciding differentials, and that is a basis of intuition.

Having come to an agreement on that —and I would force agreement by holding wages static until agreement had been achieved—Parliament would then either accept it and make it law, or reject it and ask them to think again. If it were made law it would become statutory for every employer to pay such an addition as that body had decided for those in their employment. I will not bore the House by going into further detail, except to say that within that area there should be room for adjustment of internal differential wages for individual companies and employment institutions, and it would not be difficult to work that out. I did it in the company which I used to manage and it worked very successfully.

That is one constitutional or institutional change that would place the decision in the hands of those who have the power to make it, and management no longer have this power. Frequently I talk to companies which have these problems—over internal differential wages such as we have seen in the motor car industry, or over disputes as to who does what—and many of them do not realise that the only thing to do with a dispute like that is to say, "Hands off it as far as management is concerned; it is a dispute between one trade union and another and they must be left to settle it because nobody else can."We need institutions which tell people the rules through which disputes of that kind can and should be settled, but we do not have such institutions.

The other feature, apart from the wages issue, which forms the basis of all the conflict and alienation of work in industry, is the amount of time spent by managers on conflicts involving internal matters. Often it is as high as 50 per cent. The other day I visited a large, well-known company, and a group of managers all said that they spent at least 50 per cent. of their time in negotiation. The other action that must be taken involves participation. Many managers do not like the sound of that at all, but there is no choice in front of us. Just as the Government broadened the basis of government in 1832, and went on broadening it by successive Reform Acts, so the basis of management must be broadened within industries. We must create inside large companies what I would boldly call internal legislatures. This should be done not in order to over-see any decision a manager wants to make, because all trace of efficiency would be lost if it came to that, but to discuss and to decide upon the policies within which management operates.

This is happening already in a chaotic way. No management can introduce any change in policy in the company which it manages if a single section of its workforce objects strenuously. If the management goes ahead that section will walk out on strike and stop the whole place. In fact, we already have management by consent. Because we have not institutionalised the process and made it clear to everybody that they have the power of veto over proposals for change—they have that power already, although it is not clear to them—half the workforce of the country believe that they are the potentially exploitable workers of the country at the hands of authoritarian management. But the boot is very much on the other foot today. The people with power are those organised in the trade unions and in groups within our factories. Today company managements are rapidly becoming bodies without authority. In many companies the management dares not even propose necessary changes for fear of the disturbances which they would create among the workforce.

We must institutionalise the situation, so that it becomes obvious to groups of employees that by their decisions they are both hindering the success of the organisation which employs them, and collectively affecting the total success of our economy. If we can institutionalise this, and give employees the constitutional right of vetoing management's decisions, it will become unnecessary for them to use threats of disruption or strike action to stop changes. It will mean, as happened in England when Parliament emerged, that, instead of settling differences by threats and counter-threats, they will be settled round a council table. Clearly, until changes are agreed, the status quo will carry on.

At present, the Bullock Committee is sitting. Regrettably, its terms of reference are concerned only with whether supervisory boards should be set up in accordance with Continental practice. I hope that that Committee will not recommend the establishment of supervisory boards, but will advise the restructuring of single-tier boards. I believe that the trade unions have changed their minds in advocating that employee representatives should all be drawn from the ranks of employees in the employment of the concern. I hope that such a proposal may emerge, so that single-tier boards will consist of one-third shareholder representatives, one-third executive directors, and one-third drawn variously from among trade union officials and, perhaps, employees elected by the employees of the company.

Why am I advocating that trade union officials should sit on boards? I do so because if this became statutory the number of trade union officials who would he involved in the problems of management would be very large indeed. Furthermore, there is the utmost necessity that those in charge of trade unions, and involved in forming the hierarchy of officials which now compose the structure of trade unions, should begin to understand much more clearly the type of problems which face management in industry. They are too distant from those problems. At the same time, it is essential that directors and managers in industry should cease thinking of trade union officials as a powerful enemy who must be resisted. They should come to realise that trade unionism is not a manifestation of the original sin of mankind, but that it is potentially the most creative force in this country for overcoming the problems of low productivity and the alienation of the workforce.

I hope that the Bullock Committee will not advise simply on the creation of these new types of board. If it does that may perhaps produce an initial euphoria in the ranks of industrial employees who will feel that the whole relationship between employees and management will change overnight. That would be the same type of euphoria as was created by nationalisation in 1947–48. If anyone believes that the creation of new structures for boards will introduce that degree of participation in the management of companies which people hope for, I am quite certain that they will be disappointed. The boards will exist to consider long-term policies, investment, cash flow, products, markets and so on, but a very large part of what is meant by the word "participation "is negotiation, involving the huge number of variables which go to make up people's work conditions.

Therefore, I hope that simultaneously with the recommendation to establish some type of new structure of boards of directors, there will be a similar recommendation to make unanimous voting in works councils a statutory necessity in companies over a certain size. There are in this country a few companies which have successfully done this. Not much notice is taken of them, and they ought to be investigated, because success has followed the establishment of works councils of this kind.

I remember hearing the personnel director of the Audi motor car company lecturing 18 months ago in Harrogate at the annual general meeting of the Institute of Personnel Management. At the start of his lecture he said that he had been talking pjreviously to some of the people at the conference, and he felt that many people were expecting him to talk about supervisory boards in Germany, in relation to discussing participation. He said that he did not intend to discuss supervisory boards at all. They had nothing to do with participation in Germany. Participation in Germany meant works councils.

I hope that the Bullock Committee will take action along the lines I have sug gested, rather than confine its efforts to saying "Yes "or ' No "to supervisory boards. I believe, contrary to the beliefs of many people, that the behaviour of people in society, particularly people at work, arises not only from their genetic characteristics and from the culture which they have inherited, and so on, but also from the institutional, or constitutional, framework in which they find themselves. In constitutional terms industry is still primitive. Just think, my Lords, of the value which the citizen, as a citizen, places on the whole independence, and the operation, of the judicial system. Then note that he joins another type of society which may employ 10,000. or 20,000 people, and is bigger than many towns were a hundred years ago. In that situation the citizen finds nothing equivalent to a judicial system whereby he can appeal against a decision which he feels to be wholly unjust and contrary to the policies on which the operation of that firm is based.

That is just one example of the difference between industry and society today. I believe that we should set up the proper institutions within industry; that we should become constitutionalists again; that we should remember what some of our forebears did—Locke, Hume, Hobbes, Jeremy Bentham and, at a later stage, Bagehot—in teaching us the sore of civic and governmental institutions we required, and the lessons they set for the rest of the world. If they were living today they would deplore the absence of institutional and constitutional thinking in our whole industrial life. We have got to get back to becoming people who are concerned about institutions because we believe that these have such an effect on individual behaviour that they must be instituted and be kept up to date in accordance with the changing environment in which industry or society exists. So I think that we shall not achieve the new future for industry which we all want to see simply by taking the current ingredients of investment, taxation, full employment or better exports and producing a new mix of these old ingredients. I think the problem is more basic than that. It is a problem of institutions.

7.31 p.m.

Lord STRANGE

My Lords, I want to thank the House for giving me permission to make a short speech at the end of this debate. The reason why I make it is that I think it will be of interest to most Members of your Lordships' House. I think that this week we have come to a full stop in our life's history here. We are not going forward; we have come to a stop. I believe very firmly that we can now only go back. I think that what I am going to say will be of interest, and will show that people really do not know all the ways in which we can hold on, persevere and do these things.

I hope I shall be very short, but I should just like to mention a little bit about my sister Victoria, who wanted to be a marine engineer. She went and served her time with Lilly bank Foundry, Dundee, and became a marine engineer. She was determined to do it, and she did it. She went to sea for many years and became a chief engineer. She was at sea when her ship was raided by aircraft during the last war. People were watching her. She got full steam ahead, which was the first thing to do, to get as much steam as she could to keep the ship going Then she sent the other engineers out of the engine room and up on top, because obviously they had not got a chance down there. Then she went through the raid. There is quite a good description of what she did, but unfortunately before I started this speech I gave it away to somebody who wanted to read it.

The ship had a bump very early on, and my sister had a streak of hot oil running down her face the whole time, which could not have been very comfortable. She kept the engine going, and she kept it up to a speed it had never reached before. It was something fantastic, like 9½ knots, and she kept it going at that speed. Whenever the aircraft came in to bomb the ship she managed to give them the maximum speed and the captain was able to steer and keep clear of it. They managed to go through the raid, which lasted, I think, about half an hour or a bit more. They went through the whole air raid, and Victoria stood there the whole time. They were surprised how she had got the guts to do it. I knew how she could do it, and that is what I wanted to mention to your Lordships today.

My sister had a power which very few people have but which can be got; and if you have that power you can have self-restraint and do various things. You can be very strong-minded indeed. Victoria had it, and she went through that raid. They gave her some medals for it afterwards. Somebody said that if she had not been a woman she would have been given the Victoria Cross. She certainly did her job bravely. I know how she has this power, and it is something that very few people have, I imagine, because you have to learn how to have it. I feel that in the short period of slump that we are going through now a lot of people would be much better if they had something which would give them a certain amount of power to resist the changes that are going to take place, and which must take place. Those changes are going to be very upsetting to people, altering the whole way of their life; but that is what many people will have to do. Many people, if they live inside their houses, will probably now have to get out and live outside. All sorts of things are going to happen. It is not going to be fun, but if you have the right spirit you can go through it all, and we will go through it all. We will see it through.

The spirit which Victoria has comes in a peculiar way from what my family have been for years. We have had a clan—in fact, I am the chieftain of the clan—and that goes back and back, right through the ages, to when we were Crusaders—we were Crusaders at one time. There are not many people in this House who want to go off on crusades nowadays, but it was the thing to do in those days and they did it. They went right through the whole of history as we know it; and they had a certain way of signalling to each other. For instance, Robert le Bruce asked them to join up with him in a party he was forming at Bannockburn, and they went down to join up with him. He asked several clans, and they all turned up. He told them where they were going to stand. So the chieftain of my clan got all the boys together and they went out there with their armour. He put a thing in the ground and he said, "I am standing here, and I will be here throughout the battle ". That meant to say that nothing would ever make him run away. That was the first essential that the clan had to have: they could not alter their instructions. They were given instructions, and they had to go through with it. They got through all right that day; it was quite a victory, actually.

This goes back and back to people who were taught. People have to be taught some way of holding on; and how they are taught is that when they take part in the ceremony of being made a member of the clan—a very simple ceremony—they merely look at something which is like a compass (it is really crossed swords), they pick them up and hold them up and say, "I will hold it with honour ". That is all they say, and sure enough they do. They keep their vow, as Victoria did. She has always held it with honour, the whole way through. It is a funny, old-fashioned custom, but because things have lasted (Oh! I should not like to say how long) it does not mean that they are all wrong. They could be right; they could be wrong.

This is where we arc now, at the pause. I think that if people want to find any way of getting through the troubles that are going to come to us, probably the best way is to remember the old family custom and take an oath that you do not break. To have an oath that you break is very easy, but to have an oath that you will not break is a very good thing. I think that, at the present time, if people take a vow like this which they will not break it will help them a lot. My sister Victoria and I are both. of course, Victorians, and we have always been together. She is not well at the moment. On her last voyage she ran into a typhoon, which is a bad thing to do on a ship. She came out of it bashed up a bit. Nobody quite knows what happened to her, but I see her every weekend. I told her I was going to say what I have said to your Lordships and she said, "What better? It has kept us going long enough ". It has kept us going all these years. We are going all right as a family—quite all right from generation to generation; except for the ones who will not join it. The modern ones will not join it. If they think it is silly, they should not join it. But that is only one generation.

I will leave your Lordships with the thought that we are going through terribly hard times and that if the people can have something to cling to to give them some strength, like my old family motto: "Hold it with honour ", then we shall see it through; we shall not fail.

7.41 p.m.

Lord HANKEY

My Lords, I am sure that we could do very well with more engineers like the noble Lord's remarkable sister. I am sorry that I am not on the list of speakers; I am afraid there has been a misunderstanding. I shall not detain the House for long, but there are one or two things that I should like to say. Your Lordships will recall that in 1961 the OECD established a growth target of an increase of real gross national product of 50 per cent. over 10 years. That meant an increase of growth of 4.1 per cent. per annum at compound rates of interest. The target was achieved in 1971. I recall that as the United States represented about 50 per cent. of the total gross national product of the whole of the OECD area—which is the whole of free Europe, North America, Japan, Australia and New Zealand—the effect of attaining the growth target was in effect to increase the capacity of the area to produce wealth by the equivalent of the United States as it was in 1961. This was an incredible achievement and it shows what can be done if you set your mind to attain effective economic growth.

Now, my Lords, I want to reveal a little bit of confidential history. Our Secretary General was a remarkable man, Mr. Thorkild Kristensen, a former Danish Minister of Finance, and Party leader and a well known economist, so that his experience was both practical and academic. When we began ids-cussing at OECD what we were going to do, he said: "I must tell you, gentlemen, that nobody really understands economic growth. Very little is known about it. "He went on "The only thing that I can tell you with any real certainty is that if you adopt a growth target you will have a danger of inflation over the whole of the OECD area and it may be serious."I think that this was probably one of the factors behind the inflation which we have had in the 1970s. We blame ourselves in this country for our own inflation, but it has also been a world inflation and it has been extremely hard on the developing countries.

One lesson is clear, however, from our experience. I think it is very important to realise that we cannot have economic growth safely if we just go it alone and that we can do it only if we go it all together. I want to add though, in retrospect, that before about 1964 Europe and America in their economic activity had a sort of see-saw effect. When the US was up, Europe usually was a little down; and when the US was a little down, Europe was up. The result was that we never had aboom on both sides of the Atlantic together until, in fact. OECD adopted the growth target. Therefore, although I say that we must do these things together, I want to emphasise, drawing a lesson from history, that we must be rather careful about it. We must be careful to control any overstrong interaction of the growth in one country on the growth in other countries and make sure that the multipliers do not start pushing us into another undesirable state of boom.

The point is that when we all grow strongly together it causes inflation. Unfortunately, the reaction to that is the sort of recession that we have now, and I think is extremely hard on working people. It is politically dangerous and also very hard on the developing countries. I should like to say that for the future of the developing countries it is quite essential that the developed world should continue to progress. We cannot sit down and say that conservation, for instance, makes it desirable that we should not do anything more. We must go on and give help to the developing countries and in a big way. To do this we must progress ourselves.

My Lords, the United Kingdom has done much less well than most other countries. During the period I have mentioned we have fallen from eighth place in terms of the gross national product per head to seventeenth—a deplorable performance. A great deal has been said in this debate about that and I shall not repeat it. I should like to say that I agree with what the noble Baroness, Lady Seear, said in her remarkable speech, and I endorse everything which the noble Lord. Lord Rhodes, has said in his admirable introduction to the debate. We have had most valuable advice from the noble Lord, Lord Lee of Newton, from the noble Lord, Lord Wilson of Radcliffe, and from the noble Lord, Lord Brown. I agree with all they said, and I do not propose to repeat any of it.

I think that many factors which impede economic growth are not entirely economic; they are only semi-economic. There is the point about too little investment. I think that taxation is much too high to encourage a great deal of investment; because what happens at present is that a company's profits are heavily taxed, the dividends are limited, and then the limited dividends are taxed. Thus the citizens of our country must save what they can against very high taxation; and then when they have saved something and invested it, their dividends are treated as unearned income. This is ridiculous when you have sweated blood in order to collect savings and have done what the Government have wanted you to do; that is, to put your savings aside. There was a time when you could say that you got capital gains; but now they are taxed heavily and everything is made as difficult as possible. I do not think that Government policy in evening out the distribution problems of this country has worked as well as could be hoped, because we are not producing the cake which must be distributed. We cannot go in in this situation.

Then there are often many other considerations. Let us take planning permits. Let us suppose that you want to put down a factory. It is a terrible job to get a planning permit. I have done a great deal to promote British exports. Some years ago I met a young Swede who works for a Swedish company witha branch in England. It is a very well-known company. He said that the company in England had invented a product which would scoop the market almost anywhere on either side of the Atlantic, but added that in England the company were not really interested in producing it. "Why not?" I asked. He replied: "I put it up to the directors and they said that they would have to put another factory down and that it was much too bothersome."

Lord BROWN

My Lords, the noble Lord really is exaggerating. Investment of that sort is welcome. There is one condition: the factory should go somewhere where people are wanting employment and not be put down in an area where there is over-employment. We have one of the best policies to deal with this matter of any country in the world. I say this from experience, having compared notes with people in other countries.

Lord HANKEY

My Lords, I am delighted to hear what my noble friend says; but this is a true story. I dare say he is right, maybe the new factory had to be built in an area where these things were not permitted. I confess I never thought of that. I repeat that wherever I go I hear complaints about the tremendous slowness in getting planning permission.

It is also often hard to get delivery of machinery materials to put into the factory, and delivery dates usually slip. This worries people. They cannot get on with production; they invest a lot of money but cannot start to make the investment pay. This difficulty is greatly increased by the confused situation in many of our ports.

There are problems about houses; permission has to be granted to build the houses for workers. We ought to look again at the rent laws because there is much accommodation available in England and there are many people who would be very willing—especially young people—to work in a new area and live in rented accommodation. But people do not want to offer their accommodation for rent because they cannot get the tenants out if, later, they require the accommodation for their own use. This is one of the rigidities which makes it harder to get our economy moving. Something ought to be done about this.

It is fair to say there is the problem of the conservatism of our workers; one recalls the difficulties about getting the liner terminal at Glasgow into use. Mrs. Castle—for whom I had great admiration—did her utmost but there was still 18 months'delay. The container terminal at Tilbury was unused for over a year. The enormous steel plant at Llanwern—I have recently been in that area—was lying idle for over a year. This does not encourage industrialists to get on with growth. The unions do not seem as anxious to help as I should like them to be. With the legislation we now have it is hard for their leaders to ensure that they do help.

Another point is the terible shortage of trained engineers. My noble friend Lord Bowden has made several speeches about this; it is a disastrous situation. Something has to be done to increase the intake of young engineers and make the work more interesting. The conditions of work and labour relations in our engineering factories militate against getting young people to work as engineers. I met a very interesting person who is head of a steel plant-making firm. I asked him whether he had always been in that firm and he replied that previously he had been in another branch of the engineering industry. He said it was too annoying, he wasted his time trying to settle endless and rather futile labour disputes. He said he moved from that branch in sheer despair. He struck me as a sensible man who would not be difficult as a negotiator. We must improve our industrial relations.

Then I think more should be done about industrial training. My noble friend Lord Brown and other noble Lords mentioned this. This is an absolutely key point, one vital for our young people. We ought not to be paying them to remain totally idle now. We should try to foresee where they are going to be needed and persuade them, while the going is quiet, to betrained in order to be useful when the economy revives. This should not be too difficult. Even now, although we have increased the amount we spend on training, we still do not spend as much as a number of our successful competitors.

A further trouble is the constant swings of Government policy. Everything seems to be angled on short-term considerations. I do not know whether we blame the Treasury or whom we are to blame, but this is unfortunate. The steel plant-makers had great difficulty in getting decisions out of the British Steel Corporation regarding orders. The British Steel Corporation say that they cannot get decisions out of the Government. This makes our economic growth extremely slow. This is another source of real trouble and rigidity.

From discussions I have had with other industrialists I feel there is a lack of confidence in the country; we will not get the investment we need unless there is confidence. People do not want to take the risk; the return on the money is not high because of taxation. Despite the excellent arrangements we have for encouraging industrial investment and writing it off—it is a very good system —we do not get what we need. So I now urge that we must have a measure of consensus government. I should like to see a large development of the Chequers talks of last autumn which were most interesting. The Prime Minister did a wonderful job there. I should like to see a proper organisation set up under the National Economic Development Organisation with representation of all political Parties. This is a revolutionary suggestion, but we are always preaching to the Northern Irish regarding the desirability of power-sharing and we might take some of our own medicine here. One interesting effect would be that it would he completely impracticable for either Party to advocate extreme measures which would probably be approved only by a fraction of the electorate if there was a referendum. There would have to be a consensus. I know that in political terms this may seem to be a non-idea, but I think our leaders have to find a way of doing this, otherwise we are going to sink.

Almost everyone is fed up with the to-ing and fro-ing of political duelling that takes place. It is amusing for the Parties, but damaging for the country; it creates lack of confidence and sets back investment and it disturbs both management and trade unions. If we want this country to pull through we have to pull together, and the Parties must be asked to pull together too.

Now you may say, "That is all very well, but what is this organisation going to do?"I hope this will be regarded as a constructive contribution: I should like to see them agree on a proper programme on which the further progress of our country can be based. It should be based, first of all, on what the country needs. With due deference to the Conservative Party, only the Government know what the country needs because they are the only people who, with the aid of the Civil Service, and so on, can see the needs of the country as awhole. Secondly, it must be based on what industry wishes to do and can be helped to do.

I recall the French have a system of indicative planning by which industry is not corralled into doing something they do not like, as under the Russian plan. They are encouraged to say what the'intend and wish to do. If we did this, industry would feel they were contributing to something and were not being corralled into doing something they did not want to do. Thirdly, this has to be something which the trade unions can accept; they are an essential part and must take part in the planning. Fourthly, there ought to be an agreed target of productivity. Proceeding from that—and I recall what has been said about incomes policies—there should he agreed norms for the increase of incomes, as in Sweden. But the norm should be based on the actual increase of productivity in the previous year and not on "pie in the sky "hopes for next year which is where we went wrong in 1966. To conclude, my Lords, I appeal to the Parties to get together. I really think our present predicament is too great. I am afraid we may not get this degree of co-operation until the country goes over some economic waterfall. But if we have to wait until then, I think it will be rathera scandal.

8.0 p.m.

The PARLIAMENTARY UNDER-SECRETARY of STATE, DEPARTMENT of INDUSTRY (Lord Melchett)

My Lords, having listened to nearly five hours of the debate this afternoon on my noble friend's Motion, I must say that on the whole I am inclined to agree with my noble friend Lady Burton, that this has been an outstanding debate. Like her, I can be partial and in my own view this has been a good debate because we have avoided the usual dead weight of reds under the beds and scare-mongering speeches which seem to me generally to dominate the main Wednesday debates in this House. I suspect because of that the debate may not get the publicity which my noble friend Lady Burton of Coventry hoped it would. I hope that I am wrong about that.

My Lords, I should like to divide my speech into two sections. In the first half I want to touch briefly on the recurring theme of the debate: what causes economic growth? Secondly, I will try to underline what the Government are doing to encourage growth in manufacturing industry. There has been widespread agreement this afternoon that if we are to achieve higher rates of growth, or indeed any significant rate of growth at all, we must improve the efficiency and increase the size of productive industry in this country. I would touch briefly on two points which I will not attempt to answer. The noble Viscount, Lord Monck, and the noble Lord, Lord Hankey, both touched on tax questions; and my noble friend Lord Northfield in a notable maiden speech—all noble Lords have rightly congratulated him and the other maiden speaker, Lord McCarthy, for their outstanding speeches—and the noble Lord, Lord Roberthall, both mentioned the problems of small and medium sized firms. Noble Lords will be aware that there is a Motion on the Order Paper for this time next week on questions of tax on small and medium sized firms. I do not intend to provide the excellent answers the Government have to points that were raised tonight merely because I will be here winding-up that debate, I hone rather earlier than I am tonight, and I do not want to use up my material in advance.

I agreed very much with something I think my noble friend Lord Balogh said, that it is not the Government's role to appear to be compuletely without hope for the future. Because of that I do not intend to follow very much of what the noble Earl, Lord Gowrie, had to say. He said that he was not a professional pessimist, but, in keeping with the traditions of this House, he makes an extremely good job of it as an amateur.

First, what conditions are necessary for economic growth? I think we are all agreed that the underlying causes of economic growth—or lack of it—are complex and not well understood. This applies even more when we come to try to make comparisons on various indices between different industrial countries. The noble Baroness, Lady Seear, criticised the frequent changes of Government policy as adversely affecting our rate of growth. This was also mentioned by the noble Lord, Lord Cullen of Ashbourne. I do not believe that there is any basis for complaint that this Government have pursued a zig-zag course in the fundamentals of their economic policy to the detriment of industrial confidence and planning. This Government have maintained the REP and increased it; persevered with the system of regional grants, given stock relief and extended it and announced a further extension ahead of time. This Government have resisted calls for immediate swingeing public expenditure cuts which have been called for by some members of the Party of noble Lords opposite, which would in our view have nipped the recovery in the bud and served only to deepen the present recession. Instead, we have planned ahead of time to make room for expansion.

The Government have consistently sought to build upon their links with the unions to raise the status and responsibilities of labour in the economic structure to enfranchise it into new responsibilities as a condition of achieving new economic growth and a permanent cure to our own damaging social division, and I agree with what I thought was the message of the fascinating speech by my noble friend Lord Brown, that there is still a very great deal remaining to be done. Throughout, the Government have, with considerable success, aimed at strengthening the balance of payments; at absorbing the high energy prices, with a thorough going spread of pricing and conservation policies; at stimulating investment and industrial manpower policies; at strengthening the industrialbase as a matter of priority; at protecting and enhancing competitiveness.

It has often been argued that the low level of United Kingdom manufacturing investment has been the main cause of Britain's poor growth rate and that if industry stepped up its investment a significantly higher growth rate would result. There is much truth in this. While investment is certainly not in itself a sufficient condition for a rise in the growth rate it is almost certainly a necessary condition for a longer-term improvement in our prospects. A pointer to the size of our effort now can be seen by looking at the international figures for the period 1960 to 1972 prepared by the National Economic Development Office. On average over this period the United Kingdom devoted 3.8 per cent. of its GDP to gross investment and manufacturing. This compares with 6.9 per cent. in France, 4.9 per cent. in Germany, 6.4 per cent. in Italy and 8.9 per cent. in Japan. The United States was below the United Kingdom at 3.1 per cent. We are below our competitors on this criterion of relative effort, but even if we did devote the same share we would still have been building up capital less quickly in absolute terms because the GDP growth rates have been faster abroad.

More recently, of course, investment has been particularly badly affected by recession with a drop of 14 per cent. in real terms last year. Even in 1974, which was a year when investment showed some growth, we managed to invest only 1.8 per cent. of GDP in manufacturing on a net basis after replacement was allowed for. To give a measuring rod, this effort is equivalent to three-fifths of the money spent on tobacco and one-third of the amount spent on drink. However, when one examines the increments in output per increment in capital expenditure, the results show that the United Kingdom's poor industrial performance and low growth rate compared with other developed countries stems in a large part from an inefficient use of existing resources.

Over the period 1953 to 1973, for a given additional unit of capital expenditure, the United Kingdom derived only about 40 per cent. of the increased output achieved by Japan, half that achieved by West Germany and around 60 per cent. of that achieved by France, the United States and Italy. I fully agree with what my noble friend Lord Lee of Newton said in his speech about the productive use of our industrial capacity. What we must do in the light of all this is to make better use of our existing capital stock and to raise by a large factor our effort in the field of new investment. What is more, we must steer and, encourage that new investment into places where it will best pay off, in exports, in import substitution, in markets where prospective demand is buoyant in the medium and long term.

This leads me to the final point I want to make about the causes of our slow economic growth: that is, inefficient management. Some noble Lords may feel that T have omitted or at least skated over the inefficiency of Governments and unions and minimised the effects of low investment and low profitability. These are topics about which we hear a great deal and I acknowledge the role that all have played in depressing our rate of growth. At the risk of having to disagree with my noble friend Lord Rhodes —but in the hope that I may get a higher mark for all this from my noble friend Lord Balogh—it is my view that we in this House hear very little about the inefficiency of British management. Of course I would never suggest that that is because, in the words of my right honourable friend the Prime Minister, we are a House of chiefs rather than Indians.

My Lords, as my noble friend Lord Jacques said earlier this afternoon, a number of studies have produced evidence showing that the efficiency with which the United Kingdom manufacturing industry uses its existing capital and manpower resources is deficient. He mentioned the startling new evidence on the degree of efficiency in the manufacturing industry that has come to light in a resource utilization study of engineering and metal working firms in the West Midlands carried out by Professor Dudley of Birmingham University. The most significant finding was that if industry effectively used all the resources at its disposal it could yield increases in production up to 100 per cent. and if only the resource utilisation of the less efficient firms could be raised to that of the more efficient, increases of 50 per cent. could result. Other results showed that under half of the machine operative's working day was spent on productive work, and machines were idle for no less than 50 per cent. of the working day. The conclusion that the main responsibility for the scope for improvement lies with management is supported by the wide dispersion in efficiency between firms in the same industry and the fact that it is not only labour but capital which is under-utilised.

Several speakers, and particularly my noble friend Lord Brown, have referred to the fact that United Kingdom manufacturing industry seems to attract less able people into management than in other Western European countries, where both the status and the career prospects are much higher. I am quite convinced that many people in this country still consider "trade "as something that no "gentleman "gets involved in. The thoroughly repugnant class attitudes that still riddle this country do us great damage. They sour relationships within industry, and make many people regard working in industry as a thoroughly low-status career. For example, in an article in The Economist on 15th November on "The English Whizz Kid ", six people were listed as the most successful entrepreneurs of recent years. Five of them were mainly concerned with property and finance and only one with manufacturing. During the course of the debate, of course, other speakers have given even more startling examples, in particular the noble Earl. Lord Gowrie, who spoke about the lack of well qualified people who are prepared to go into industrial careers in this country. There are strong reasons to suggest that the poor quality of management is an important contributory factor towards the inefficient use of resources in United Kingdom manufacturing industry. It is never popular for the doctor to turn round and say, "Patient, heal thyself ", but as the noble Lord, Lord Roberthall, said, by increasing the efficiency with which existing resources are used, by improving management standards, by reducing overmanning and by altering social attitudes, a substantial increase in Britain's growth rate could be achieved.

I have discussed some of the problems that may be responsible for our low rate of economic growth. I should now like to outline what the Government are doing on the industrial front to improve matters; but I should like to utter a small word of warning—and here I think I am following a point which was mentioned by the noble Baroness, Lady Seear. Several of your Lordships may have been watching the series of programmes called Politics Now on BBC1 on Sunday nights. In recent programmes Professor Antony King has been expanding his theory that Britain is becoming harder to govern. This may or may not be so, but I entirely agreed with what seemed to me to be the conclusion of last week's programme —that politicians promise too much. That is easily said by a young hereditary Peer who has never had to face the electorate; but this is not just a problem caused by the election promises of MPs of both Parties. Governments promise too much; but people also expect too much of Government.

I do not think that this is the same thing as responding to the plea which is often made in this House, and which was made today by my noble friend Lady Burton and by the noble Lord, Lord Cullen of Ashbourne, that the Government should tell people the truth about our economic position. I have a feeling that here, as in many other areas, there are as many versions of the truth about economics as there are economists. Besides this, I cannot help feeling that a grandiose scheme for getting messages through would fall into the trap of expecting too much from Governments in the same way as Governments promise too much. Of course, the Government must tell the truth—I certainly hope that we do—but we cannot make people listen to it and we cannot make people believe us. It is not merely a question of getting over how bad things are but of getting over what should be done about them. In spite of the cosy atmosphere of this House, that is a political matter, and I think we can agree that politicians already do their utmost to get their political messages over to the electorate. On top of that, it is very simple to attempt to get over to people what a serious economic problem we have. But to get over solutions, as I think the debate clearly shows, is a much more difficult thing to do, because the solutions are so complex.

As today's debate has shown, what causes growth, what prevents growth and even whether or not growth is desirable, are very complex matters. The country's slow growth rate is a very long-term matter, which neither political Party has successfully tackled, although, as my noble friend Lord Jacques pointed out earlier, some are more successful than others. I am not going to pretend that there are any easy or simple solutions. Governments have over many years introduced a variety of methods to deal with many of the problems with which this Government's industrial strategy will be grappling. Many have been carried on and developed further by the present Government, and we have introduced some now instruments of our own. These will all be co-ordinated under our developing industrial strategy. Regional policies have been steadily developed by succeeding Governments to reduce the capacity restraints that appear in some regions while unemployment is still high in others. The noble Lord, Lord Hankey, mentioned some of the problems that he has encountered. We are now spending something like £500 million a year in attracting industry to the assisted areas, and to keeping it there. Since the Budget of April 1975, £230 million has been allocated under the 1972 Industry Act to assist firms in investing in new and better plant.

This Government have introduced two powerful new tools of industrial policy: the National Enterprise Board and planning agreements. The NEB will seek to make individual companies more efficient and internationally competitive. It will also help to promote the reorganisation of industries whose performance has lagged behind their potential. Thus, it should help to restructure our manufacturing industry and improve our overall performance. Planning agreements, which were mentioned by my noble friend Lord Rhodes when he opened the debate, will be another means by which we can set out to revive and where necessary restructure our industry. Planning agreements are designed to bring about a closer under-standing between workforces, managements and the Government on the aims and plans of companies. This will have an important bearing on the formulation of the Government's own plans and provide the basis for the effective deployment of Government assistance to industry.

For our immediate future, as my noble friend Lord Jacques said and as has been recognised by most speakers during the debate, the most important thing the Government can do is to control inflation. Inflation is not beaten yet, but we are doing well so far. Price rises since July are equivalent to an annual rate of inflation of 14 per cent. If industry is to make its full contribution to our economic growth, much greater co-operation will be needed between the Government, management and unions. There must be cooperation to ensure that adequate investment is made, that better use is made of existing and new investment and that our manpower resources (both managers and workpeople), are deployed in the right way. This will call for greater co-operation between all three parties at national, sectoral and company level.

As I say, we are dealing with very complex problems which will not yield solutions overnight. This is why we believe the industrial strategy is a realistic approach and will build up an under-standing of the problems and prospects of a limited number of key sectors of manufacturing industry, 32 in all, developing out of detailed tripartite industry-by-industry discussions an understanding of what should be done to improve our performance. These key manufacturing sectors together account for well over 60 per cent. of manufacturing output and employment. The strategy is very much geared to finding ways of increasing productivity of both labour and capital so as to improve the competitiveness of our manufacturing industry in domestic and overseas markets.

As is clearly vital, the strategy has the support of both sides of industry. The major contribution to increasing productivity must be made at grass roots level, and the industrial strategy, working on a tripartite basis at company level, recognises this. The Government, for their part, have committed themselves to giving priority to the growth of industry over consumption and even over our social objectives. Those who are sceptical about the ultimate value of the industrial strategy should realise the importance of that commitment.

The industrial strategy will not be a one-off exercise. We see it as being rolled forward on an annual basis, in such a way that it can have maximum impact on Budget thinking. It will be a developing process, increasing the contribution that industry can make to our economic growth by the only means possible—through the involvement and co-operation of all concerned.

Lord PARRY

My Lords, may I ask my noble friend whether he intends to make any comment about education and its relationship to economic growth?

Lord MELCHETT

My Lords, as I have sat down I hope itis clear that I do not intend to comment any further. But I tried to underline the importance which the Government attach to training both of management and workforce, and we shall certainly bear very much in mind what my noble friend said about the importance of education.

8.21 p.m.

Lord RHODES

My Lords, the hour is late, but may I say "Thank you "to those who have taken part in this debate. It has been a good one. I think that drawing the terms of reference of this debate rather narrower than usual has paid off. Time alone will tell whether the institutions of this country can be maintained in a period of prolonged no-growth, but that is probably the subject for a debate that we shall be coming to before too long. My Lords, I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.