ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH

HL Deb 08 November 1977 vol 387 cc32-148

2.50 p.m.

Debate resumed on the Motion moved on Thursday last by Lord Ponsonby of Shulbrede—namely, That an humble Address be presented to Her Majesty as follows:

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

Lord CARR of HADLEY

My Lords, the gracious Speech contains a number of proposals in the economic and industrial field which are indeed unexceptionable; in fact, they are proposals which, I am sure, all of us can positively welcome. I am sure that this is something for which we are all grateful. We can all agree, for example, that the main objectives in this field should be, as the gracious Speech says, the speediest … return to full employment", as well as, "a sustained growth of output". We can also all agree that the highest priority should be given to cutting inflation. I think we can also all agree on the need to promote industrial training, because already, even in this period of very severe, indeed intolerable unemployment, there are shortages of certain types of labour which will represent even greater danger of bottlenecks once production begins to expand again, if, as we hope, it soon does.

But I believe that the question we must ask ourselves is whether the Government's present and projected policies will in fact achieve these admirable objectives. This is the question which we need to examine in today's debate, and I will try to start this examination. There is no doubt that the policies adopted by the Government a year ago have transformed for the better the country's economic position, and we unreservedly welcome that fact. But I believe that in doing so we are entitled to comment, at least in passing, that these policies were adopted by the Government only under compulsion from the International Monetary Fund; and the same policies had been strongly and consistently urged on the Government by the Opposition in another place, and in this Douse, for at least a couple of years before that; and, if only they had been adopted much earlier, much of the pain and grief through which we have passed, and are still passing, could have been avoided.

I also welcome at least in principle—indeed, in practice—most of the Chancellor's proposals in his mini-Budget two weeks ago, while at the same time entering the caveat that the relaxation of income tax needs to go much further, but that the increases in public expenditure on non-capital items need to go no further at all in real terms.

We also welcome in principle the decision to let the pound float upwards, but we are bound to say that the timing of his action was, in our opinion, deplorable. It ought to have been taken much earlier and ought to have been accompanied by a substantial relaxation in exchange control, because if that had been done, the threat to the control of our money supply, and the danger of too much hot money coming into the country, would never have arisen; at least, it would never have arisen to anything like the extent to which it has. So this decision ought to have been taken much earlier, but to take it finally, just two days before the result of the miners' ballot, was surely craziness of an order new even to this Government.

I cannot go along with those who believe that British industry can be kept competitive only by perpetual creeping devaluation of the pound. In the long run, this is a policy of despair, and even in the short run recent history does not show that the policy has been an outstanding success. But having said that, let me also say that we do not want a yo-yo pound. What we want is a pound whose exchange value is stable over a long period of time, but stable with a natural strength which leads to a tendency for its value to edge upwards, rather than downwards. This, we believe, is the vital requisite for industrial recovery which underlines the need for the first priority to be given to cutting the rate of inflation, because in anything but the short run the pound is bound to collapse downwards if our rate of inflation is significantly higher than that in other major industrial countries. Thus, in our opinion, it follows that it is essential for the Government to continue the main lines of the firm and prudent financial and fiscal policies imposed by the IMF a year ago.

So to sum up at this point, we genuinely welcome the Government's policies over the past year and the results that they have achieved, and we welcome the objectives for the future. But we are bound to say that since 1974 the Government have really been acting like a mad surgeon, who first breaks his patient's legs in order later to show what a good bonesetter he is. At least we are thankful to have come to the bonesetting stage. But we cannot forget that it was this Government's own actions which broke the nation's legs in the first place.

So, we have to look ahead, and while, I repeat, welcoming the improvement which has taken place, I cannot help now coming to what we see as a much more gloomy side of the picture. The financial aspect of our economy has been transformed for the better, but, as I said in commenting briefly on the Chancellor's announcement a fortnight ago, the underlying industrial position, the position of the real economy, is still in very had shape and is the cause for grave concern.

In judging this position let me take the three main objectives chosen by the Government themselves in the gracious Speech as the key indicators of success or failure; namely, unemployment, the level of production, and the rate of inflation. I will take first unemployment. The seasonally adjusted figure of unemployment excluding school leavers—and I stress that—is still now about two and a half times as great as it was when this Labour Government took office in March 1974. In our view, the present level of unemployment is a scandal and a disgrace to any Government. It is quite intolerable, particularly among younger people, and action must be taken to deal with it. To be successful that action will mean substantial further changes in policy by the Government, to which I shall come a little later on in what I have to say.

I will now take the second indicator, that of industrial production. This is still virtually stagnant, and stagnant at a level which is actually lower than the level of production achieved in the first quarter of 1974 when we had the three-day week. That is scarcely credible, but it is true. Not only is production lower than in the first quarter of 1974, but productivity (that is, the output per person employed) is also lower now than it was then, when for about half of that first quarter we had only a three-day week. This seems incredible. It is incredibly bad.

Now let us look at the third indicator; that is, inflation. Even though inflation is now falling, it is still very high. It is much higher here than in most other major industrial countries, and it is much higher than when this Government came to office in March 1974. Perhaps now one understands why I described the Government as a mad surgeon.

These, though, are the grave problems we have to face, and they give no sign at all for any optimistic thinking that we are on the verge of a golden era of prosperity and national strength. I put a very high value on the contribution to our economic well being of the financial services industry in this country, and indeed of other service industries. They can grow in the future, and they ought to be encouraged to grow further. It ought to be a major purpose of Government policy to encourage these earners of huge invisible exports—as we, rather strangely, choose to describe them—to make an even bigger and more vital contribution to our economy than they do at the moment, and have done for at least a century past. So, for example, policies on exchange control, on overseas investment, and on taxation should all be consciously, deliberately geared to encourage the international financial services sector of our economy.

Quite contrary to the prejudices of at any rate some trade union leaders, all these international activities are a source of security and prosperity to everyone in this country—yes, to everyone in this country—and not to just a few narrow sectors or circles of people in the City and places like that. It is vital to the future employment and prosperity of our country that Britain's activities as an international financial centre should be further encouraged and strengthened so that they can contribute even more.

However, having said that, I am equally sure that we shall not get back to full employment and to soundly-based prosperity in this country unless we can also put new vitality and, above all, new growth and new competitive power into British manufacturing industry. This regeneration of our manufacturing industry is, I fear, going to be a much longer and much more difficult task for any Government than the regeneration of the country's financial position has been over the last year, vital though that is. Furthermore, this industrial regeneration is not going to be achieved by woolly talk about an industrial strategy. It is going to be achieved only by hard practical attention, sustained over a long period with consistency, in order to deal with a number of underlying practical industrial problems. I want to devote the rest of what I am to say today to dealing with just a few of those problems.

First of all, personal incentives. The rates of British income tax and the structure of the tax system are now a severe burden and a severe disincentive to people at all levels of pay in this country, from the top down to the bottom, and we must reduce taxes on earnings and savings to levels comparable to those which exist in other major industrial countries. So we welcome the reductions just announced by the Chancellor: indeed we do. But we also have to point out that they are a very small start down a long road which we need to travel pretty urgently; because even now the main personal tax allowances are much smaller, and the rates of income tax at each income band are much higher, in real terms, than they were when Mr. Healey first became Chancellor in March, 1974. Indeed, a letter from Mr. Healey to Sir Geoffrey Howe on the 21st October—only a fortnight ago—showed that in order to restore the levels of personal allowances and income tax rates at different bands, in real terms, to the position left by the last Conservative Budget of April 1973 would mean income tax reductions amounting to about £5,000 million a year. It would need reductions of £5,000 million a year to bring back our income tax burden, in real terms, to where the last Conservative Government left it—and that, we were well aware, was still not competitive with the income tax burdens suffered by all those who work in industry and elsewhere in other countries.

So while we welcome the little step which has been taken, if we are going to regenerate the British manufacturing economy we must press for much further progress down this road as a matter of great urgency and in spite of great difficulties and the making of sacrifices in other areas. We are of course glad, as I drew to your Lordships' attention a fortnight ago, that Mr. Healey now publicly admits the important connection between high levels of income tax and high levels of unemployment. Because he now recognises that connection, he has at last put his previous income tax policies into reverse. About time, too, but only after great damage has been done to levels of employment and to the prosperity and investment levels of British industry; and, as I have just said, we still have a very long way to go before we put ourselves on an equal footing with other countries in this vital respect.

I come second to the need for more productive investment—probably the industrial need in this country about which, in principle at least, there is more unanimity than there is about anything else. But this, too, is a matter for hard practical realism, and not for political prejudices, because it is the key to a return to sustainable full employment and is therefore vital to the major objective of the gracious Speech. The political prejudices which I suggest we have to get out of the way are really two. First of all, we have to stop the nonsense talk about a deliberate investment strike in British industry—because it is nonsense talk. Secondly, we have to get rid of the idea of the need for the Government to direct investment because there is supposed to be a shortage of available funds for productive investment, principally, apparently, owing to too much of the funds available going into other uses, such as property, service industries and overseas investments. This, too, is nonsense. There is a plentiful supply of funds for productive investment available for British industry; a plentiful supply and a plentiful variety of channels through which those funds can flow with more efficiency than they do, probably, in any other industrial country in the world.

What is lacking is not the supply of funds or the channels for them to flow through: what is lacking is the demand for the funds from industry. So we must create a higher demand for new productive investment, and for this I suggest a number of things are necessary. Companies must see an adequate demand for their products. No company will invest for the future unless it can see a growing demand for its products both at home and overseas. Companies must not only see a demand for their products: they must also see the possibility of being able to meet this demand at prices which will show a reasonable level of profitability compared with long-term interest rates. If real profit on investment is to be only 2 or 3 per cent. net while the cost of new long-term finance is to be 10 to 15 per cent., of course there will be very little new investment. People would be mad, generally speaking, whether they be a public enterprise or a private enterprise, to invest in face of those prospects. So that is one hard practical reality: create the markets and make sure that industry is able to sell at prices which allow the satisfaction of those markets to be profitable for an efficient operator.

The second hard practical reality is that companies must be able to make much better use than many of them can today of their existing capital equipment. The more one looks into British industry the more one realises—and this comes out of all sorts of reports from Government Departments, from the "think-tank" and other sources—that on the whole (with, of course, many honourable exceptions) we in this country make poor use of the capital equipment we have, compared with other countries. This is partly a matter of manning scales compared with those in other countries, and it is partly a matter, I think, too, of the number of hours for which our machinery is kept working each week. We in Britain need a much wider use of at least the double-shift system of operation; and I suggest that our motto in this country should be: "Work people for shorter hours and work machines for longer hours". This could make a major contribution to both our unemployment problem and our efficiency of production. I believe that this question of manning scales, and above all this question of the greater development of double-shift working, which can be done without too many unsocial hours problems—it is very different from 24-hour, round-the-clock working—is one on which the Government ought to take a major initiative with both the CBI and the TUC; and both the CBI and the TUC should, in turn, be giving a very strong lead on these matters to their respective memberships.

The third hard practical reality in this realm of investment is that companies will not show much confidence in investing for the future unless the Government can convince them of two things. The first is that the Government are determined to get the British inflation rate down to the levels of other industrial countries, and to keep it there, and are not just keen on cutting inflation in spurts and in relaxing the battle when Elections draw near. The second is that British Governments will no longer subject industry to the wild fluctuations of policy to which it has been subjected for much of the last 30 years. I deliberately say, "much of the last 30 years" because I am prepared, as a member of my own Party and as a Minister over periods, to take blame with noble Lords opposite and the Party opposite for the wild fluctuations of stop-go in the general economic management sense and of detailed Government policies on taxation and regional policy, as well as in many other fields, which we have imposed on British industry in a way which has not been done to the industries of other major industrial countries in the postwar era.

So, my Lords, I want to stress the third hard practical reality if we are to raise the rate of productive investment in the future. I suggest that, if we have a will in this country to achieve this, none of the three hard practical realities to which I have drawn attention need be a matter of Party political controversy. I believe that, if we have the will to make things better, they are substantially matters on which we could get a broad consensus of agreement which could transcend switches of Governments at General Elections. I believe that we need to do so.

The third major, fundamental problem to which I turn is the need to encourage small firms. Medium-sized firms down to really small ones make a major contribution to the total national output and to employment in this country. I did not have time to find the source of some figures that I wanted to quote in order to show the proportion of our total employment in this country's manufacturing industry which is in companies with 500 or less employees; but it is a very substantial proportion indeed. I guess that it could be 50 per cent., or even more, of our total employment. It is certainly a high proportion. So this is a very important sector in which to restore full employment and get that sustained growth in national output which is outlined in the gracious Speech.

Therefore, we welcome the Chancellor's measures of two weeks ago to give some relief to small firms and we also welcome the promise of further measures to this end contained in the gracious Speech; and those welcomes are wholehearted. Once again, we cannot help drawing attention to the fact that this is another of those pretty well near death-bed repentances. It is no good the noble Lord the Leader of the House shaking his head; for he and I were in another place in 1974 and he will remember the debates, though perhaps not quite as well as I remember them because I had the onerous job of being Shadow Chancellor at that time. Over and over again it was impressed upon Mr. Healey, the new Chancellor, that the measures he was taking would clobber small industry and small firms in particular—and did they not do so? So we welcome the bone-setting now going on while still deploring the bonebreaking in 1974–75.

My Lords, the fourth fundamental problem to which I wish to draw attention is the need for pay restraint. Of course, we ought to be aiming, like most other successful industrial countries, for a high-pay, high-efficiency economy. But we cannot suddenly get to their level of pay, and we shall not get there at all if pay increases continue grossly to outstrip improvements in national productivity. Pay restraint is vital, therefore, both to our long-term objective of raising our standards of living and also to our need to cut inflation.

In the short run, the Government must be firm in maintaining their 10 per cent. guideline as the maximum permissible increase in earnings and they must do so not least in the public sector of the economy. I want to take this opportunity of assuring the Government that they can count on the support of the Opposition in seeking to achieve this objective. For that reason I shall, admittedly with some difficulty, restrain myself from making any comments at this stage on certain of the current pay claims which carry with them great danger to us all. I believe in the old tradition which I remember when I first entered Parliament in 1950: we did not enter into debate on those sort of things while the claims were in a very explosive state. I regret the loss of that tradition in another place over the last 10 years or thereabouts.

In the longer term, on pay restraint policy, I believe that the Government must take their own strong initiative, along with the TUC and the CBI, in seeking to work out radical improvements in the British system and practice of collective bargaining. For the last 10 years at least, under Governments of both major Parties, we in this country have alternated between periods of rigid pay policy which cannot, and ought not to be, sustained for more than a short time and other periods of British-style free collective bargaining which equally, under Governments of both major Parties, have proved to be unsustainable for more than a very limited period because of the gross cost inflation and other problems which British-style collective bargaining now produces.

Other countries seem to manage their affairs in this respect better than we do. Why, I wonder? Perhaps I may be permitted briefly to remind noble Lords of something which I said in the debate on 7th July last year, when we were debating the Government's then recent White Paper entitled The Attack on Inflation. Having then asked myself the same question, I told your Lordships that I did not believe that it was because British trade union leaders or their rank and file members were less knowledgeable, or less patriotic or less responsible than their opposite numbers in other countries. I said that I believed that our troubles were of a different nature; that they stemmed partly from institutional reasons connected with the actual manner and method of government in this country; but that another very important reason, for which I do not blame the unions or management, is that we have a peculiarly old trade union structure which, because of its age, is peculiarly inappropriate to the modern conditions in which we now operate. I said that the old trade union structure is coupled with old-fashioned attitudes and procedures throughout British collective bargaining to which employers contribute just as much as trade unions and that we should never, in my view, be able to remain competitive with other countries in terms of our inflation rate and, at the same time, enjoy free collective bargaining unless and until we reformed our union and industrial relations structures and policies.

I believe that to be profoundly true. I believe that that is a fact which will not go away and which will remain with us and hamper our country until we deal with it. We must start work urgently on making radical improvements in our free collective bargaining system. This, I believe, is a joint task for the Government, the CBI and the TUC, but one in which the Government must take the initiative without delay and not leave it until every summer at a crisis point, when another period of pay policy, statutory or voluntary, is coming to an end.

My Lords, a few months ago—I expect your Lordships noticed it—the Confederation of British Industry published a discussion document on this very subject. I do not expect noble Lords in every part of the House to agree with all of it; I do not agree with all of it myself; but it is the most constructive attempt that has yet been produced by anybody in this country at a basis for discussion, a starting agenda, for tripartite talks on this subject. I believe that it needs to be taken seriously. If, for any reason, the discussions cannot start on that basis, then I beg the Government to produce their own discussion document which they think is a basis on which these talks can start; for until we start in this area we shall be failing to tackle one of the hard, practical problems holding back the regeneration of British manufacturing industry.

Fifth, and last, I come to our problems of industrial relations. I welcome the promises in the gracious Speech to encourage profit-sharing and undertake further consultations on industrial democracy with a view to producing proposals which should command general support. This is very encouraging compared with the original attitudes leading to and flowing from the Bullock Committee Report. But I do not believe that we shall get much benefit from either more profit-sharing or more industrial democracy unless we also tackle some other major flaws in our industrial relations in this country.

In many sectors of industry and in many individual companies—indeed, in the majority—our industrial relations are peaceful and constructive. But in some large, critical sectors of British industry our industrial relations record is appalling. A great deterioration set in at the end of the 1950s and it has never been corrected. I think that we have to look at this problem and understand the nature of it. Apologists say, "But our record in Britain is not so bad as in many other countries." In terms of working days lost per thousand employees it indeed is not all that bad, and it is better than most.

Baroness LLEWELYN-DAVIES of HASTOE

Hear, hear!

Lord CARR of HADLEY

I say "Hear, hear" with the noble Baroness; but, my Lords, we suffer from something different: we suffer, as virtually no other country does, from very large numbers of small strikes, which are usually also unofficial and most of which take place almost at the drop of a hat. This is immensely disruptive.

I always recall the words of the late Ray Gunter when he was Minister of Labour in the Labour Government in 1967, almost 10 years ago, but for a few days, to today. Referring to a big strike in the American motor industry which he was asked to compare with our strikes here, he said (at column 35 of the Commons Hansard on 13th November, 1967): When Mr. Walter Reuther brings his men out on strike in the American motor car industry, they have had at least three years' peace. No one has broken a contract. When he takes them back there is another three years in which they can plan and wait. The dilemma of British industry is continuous interruption of production lines. No one knows when it will strike next". That type of strike does enormous damage to the continuity, reliability, quality and every other aspect of British industry. We must get down to tackling it.

In the middle 1950s, year by year we had approximately 600 strikes of this kind in the whole economy other than in coal mining. By 1969 that number had risen from 600 to almost 3,000. In 1970 it rose to nearly 4,000. It then fell; but in 1976 it was 1,700, three times as high as the middle 1950s. In the first 18 months of this year it was almost 1,600. I do not think any of us are in much doubt about what has been happening in September, October and the first part of November, So this matter cannot be neglected.

My Lords, what are we to do? The urgent needs are simple to define and it is worth briefly defining them. We need to improve our system of collective bargaining as I have already mentioned. That is fundamental to our strike position as well as our pay restraint policy. We need to deal with the problems posed by multi-union situations—a major cause of ferment and competitive leapfrogging in wages in British industry. We need to deal with the recognition and closed shop problems. We need to improve the content of individual collective agreements. We need to learn how to do better in honouring agreements once they have been made, perhaps by developing the use of conciliation and arbitration—arbitration at least to deal with disputes about the interpretation of agreements.

It is silly to have strikes about what an agreement means. It may be inevitable to have a strike when one is trying to make a new agreement and cannot do so. We are almost unique in the world in having strikes instead of going to arbitration about the meaning of an agreement which has been made. We also need, in this and other ways, to limit the use of strike action to really major disputes and not minor ones. The Donovan Royal Commission appointed by a Labour Government, the Labour Government's proposals, In Place of Strife, and the Conservative Government's proposals contained in the Industrial Relations Act, were all directed to these ends. All have either not been implemented or have been largely rejected. But the problems will not go away. It is all very well to reject one lot of remedies; but it is not all very well to put no alternative remedies in their place.

What is it that other countries do in these matters? I do not want to give a long history and I will not do so; but take the case of Sweden and the other Scandinavian countries, of West Germany, France, Belgium, Holland, America and Canada. In every one of those countries collective agreements are legally enforceable. In almost every one of those countries strike action becomes lawful only when certain processes, either mediation, delay or taking secret ballots, have been gone through. In every one of those countries but one the closed shop is illegal. The one exception is Sweden where the Swedish equivalent to the TUC lays down that its member unions must operate open shops; so in Sweden, too, the closed shop is effectively banned.

In all these countries unorganised groups of workers are given no legal immunities such as they possess in this country. Even fully organised and recognised trade unions do not have legal immunities from civil action such as trade unions do in this country. We may not wish to copy these countries; we appear to have rejected their methods. We ought not to pass off too easily the fact that we are unique in not having these arrangements; and we are also unique in having this vast number of disruptive, small, unofficial strikes. Those are two situations which may or may not be connected, but whether or not they are, we will have to tackle them. I am in no doubt that we should tackle them now, on a one by one basis.

We should again ask Government to approach the TUC and the CBI to try, on a voluntary basis, to arrive at how we should learn better to keep agreements. We should try to arrive at a code of practice—forget the law for a moment. We should then try to get them to tackle the similar problem of a code of practice for dealing with multi-union shop situations; and then recognition problems; and then closed shop problems; and then picketing problems; and so on. Let us now, if we have tried and chosen to reject other methods, work on a point by point basis, seeking voluntary agreement to each of these problems one at a time. Until we start this we shall not regenerate British manufacturing industry.

My Lords, I have trespassed on your time in trying to outline some of the major real problems which, regardless of Party politics, have to be faced in this country if our aim concerning manufacturing industry is to be achieved. Until we tackle these problems on a hard, realistic, practical basis, seeking as much consensus as we can between one Party and another, we shall not regenerate British industry, nor shall we deserve to do so. I believe the whole British public, regardless of their personal political allegiances, are longing for the British Government to give such a lead.

3.29 p.m.

Lord PEART

My Lords, I thought the latter part of the noble Lord's speech gave a constructive approach to matters which affect our country. In other words, he spoke in a serious vein about the need to improve industrial relations. Here, I am with him. No one can blame any Party in this field. The noble Lord said quite rightly that this situation has been with us for over 30 years. Successive Governments, whatever their political complexions, have not solved this problem. This is a challenge which the Labour Government will have to take up. If the Opposition in the other place and elsewhere are as constructive as the noble Lord it may well be that we can achieve considerable improvements in this important section of our economy. We need to have good industrial relations.

Of course, all of us do not wish men to strike at the drop of a hat: we deplore it. On the other hand, there are often good reasons for it, and we forget this. After all, sometimes we may have bad industrial relations which may be the fault not only of the men but of the management as well. All must take the blame, and anyone who has studied carefully the history of industrial relations in our country must accept that conclusion. However, I am grateful to the Tory Party today for registering a much more constructive approach than we have had on previous occasions. I am sorry the noble Lord used such strong language in saying that the Government had acted "like a mad surgeon". In that part of his speech I thought he was behaving like a gloomy undertaker. Even the lights were dim then: now there is brightness and light and I hope I can respond to some of the arguments that he has put forward.

I would only say this to your Lordships. It is particularly appropriate that our debate today should be on both economic and industrial affairs, because the attainment of our economic objectives is not possible without a sustained improvement in our industrial performance, and I believe that the noble Lord expressed such sentiments in his speech. He praised the Government. I have found no sting in the attack today. I think it is the weakest criticism I have ever known in a debate where Parties are divided and where talk of a General Election has been in the air. I shall not argue about that now but, as I said, I think that the latter part of the noble Lord's speech was in a different vein and so I do not need to answer some of the charges that he made. It is important that our economic policies should be successful because of the effect they have on the economic environment in which our industries have to operate.

It is easy for this to be overlooked when we consider the great changes we have seen in our financial conditions and our external payments position. We have had to give priority to the establishment of economic and financial conditions in which our industries can thrive. Since the House debated the gracious Speech last year, your Lordships have seen some remarkable improvements in our financial circumstances—one cannot deny that—improvements which offer our industries a real opportunity to emerge from the recent period of stagnation, low investment and falling living standards. I would say only this to the noble Lord: I cannot accept that all was well just before the Labour Government came in. In 1954 the period of a Tory Government was never marked with much confidence in the future. On the contrary, we now see a different situation, even though we have had our difficulties. We have emerged from, as I said, a period of stagnation, low investment and falling living standards.

In the past year my right honourable friend the Chancellor of the Exchequer has introduced four sets of measures, including the March Budget. These adjustments—including those announced on 26th October—reflect our response to changing circumstances. They do not represent any change either in our objectives or in our strategy for attaining them. I remember many noble Lords a year ago praised the policy and the strategy which were being pursued by the Prime Minister and the Chancellor of the Exchequer. I can remember that praise was given from the Cross-Benches and different parts of the House: even Conservative noble Lords praised the courage and the purpose of our policies.

It is difficult today to recall the sense of gloom and foreboding which permeated your Lordships' debate on the gracious Address last year. There had been significant withdrawals of sterling from London and our official reserves had fallen to a level which could not finance a continuation of these withdrawals. As your Lordships know, the exchange rate for the pound had fallen almost continuously since March. Sales of gilts had stopped and it was quite widely supposed that the Government deficit could only be financed by an inflationary expansion of the money supply. Interest rates had been raised to a level which if continued would effectively deter investment. Minimum lending rate was 15 per cent. The current balance of payments was still in substantial deficit and showed little improvement since the previous year. Our temporary standby credit was due for repayment at the end of the year and we had yet to hold our discussions with the IMF to obtain a new line of credit. Money supply appeared to be surpassing the Chancellor's target and was thought by some to be out of control.

The Government were urged in some quarters to make draconian cuts in public expenditure, which could only have added to unemployment and savaged the education, health and other services. We tried to pinpoint the Opposition on what cuts in expenditure they would propose. We never had anything specific but only a general assertion. Finally, the rate of inflation was rising again, fuelled by the frequent depreciations of the pound and by a series of bad harvests at home and abroad. Fears were expressed in this House and elsewhere for the continued existence of our institutions and our democracy.

Your Lordships will recall that the Government did not hesitate to apply the necessary remedies, which were endorsed by the IMF. As far as financial conditions were concerned they worked rapidly and effectively—so effectively that we are now facing a new set of problems posed by the very success of our policies. Last year we were concerned about the outflow of money from London and the apparently continuous fall in the value of sterling. Today we are concerned at the inflow of money into London despite a fall in interest rates, with minimum lending rate down to 5 per cent. The exchange rate for the pound recovered at the end of last year and remained steady until July but has since then been rising, with the consequence that we are losing some of the competitive advantage in export markets which was a beneficial side-effect of the falling pound last year. I do agree with the noble Lord that we must try to achieve a measure of stability in this field: I do not dissent from that.

Some of our critics felt last year that the money supply was out of control because of excessive Government borrowing to finance excessive spending. Having seen the effective operation of cash limits applied to Government spending and of Government measures to keep within its limit for money supply, your Lordships will, I am sure, recognise that today the main threat to the money supply comes from the massive inflow of funds into London. The main worry last year was the inadequacy of official reserves to finance the outflow of funds from London. Discussion now concerns these massive movements of funds in recent months which are in part speculative and therefore potentially disruptive.

One striking improvement in our affairs is the virtual elemination of the current external deficit as a factor restricting our ability to stimulate the expansion of our economy. Our current external account was very nearly in balance over the first nine months of this year and was in substantial surplus in the third quarter. North Sea oil has played an important part in the improvement but so also has the success of our exporters both of goods and services.

But the most important improvement in our conditions is the long delayed break-through in the fight against inflation. I am not gloomy here. The effects of last year's depreciation and poor harvests have been fully absorbed into retail prices. And since the spring the retail price index has been rising at less than 10 per cent. a year. We are still reaping the benefits, in terms of a falling inflation rate, from the pay limits which held the rise in average earnings during Phase 2 to 8 per cent.

This would not have been possible without the co-operation of the trade union movement and the common sense of employees throughout the country. This was displayed at a time of painful adjustment to our reduced national income which had fallen as a consequence both of the oil price rises of a few years ago and the recent recession. The Jeremiahs, who feared for our institutions last year, certainly would not have expected them to survive such a painful adjustment. It is a source of great pride to the Government that, during this most difficult year in the recent history of our country, we have been able to maintain intact our essential social services and to safeguard the real purchasing power of State retirement pensions and benefits paid to the sick and the unemployed.

Unfortunately, in the harsh world of economics everything has its cost. The cost of our successes—in the fields of financial stability, external balance and decelerating inflation—has been paid in terms of depressed domestic demand, and therefore stagnant production and high unemployment. With tight pay limits and limits on public spending, economic growth could only be slow. In the event, it turned out to be slower than had been expected throughout the industrialised world. It was possible, however, in the March Budget and the July measures, to add some fiscal stimulus to demand without breaching the limits set on credit expansion and public spending and thus giving impetus to renewed inflation.

Fortunately, we have now reached the point at which our economy is broadly in internal and external balance, where we are living within our means and there is no further painful fall in living standards in prospect. We are now able to look forward to a sustained period of steady growth which will bring us improving standards of living, the means for providing better public services, and a reduction in the appallingly high level of unemployment.

This is the prospect before us, provided that we do not give way to calls for Government spending far beyond our means, or for pay rises which can lead only to another bout of inflation and stagnation. It is in the context of the opportunities now open to us that the latest measures announced at the end of last month should be viewed.

Your Lordships will have studied these measures and will forgive me, I am sure, if I allude only to the main features of them.

Lord HARMAR-NICHOLLS

My Lords, will the noble Lord allow me to intervene?

Lord PEART

My Lords, I intended to make a short speech. The noble Lord will himself be making a speech, and I do not want to have a prolonged discussion. I am always courteous, but if the noble Lord insists it will lead only to my making another debating point.

Lord HARMAR-NICHOLLS

My Lords, if the noble Lord will allow me—

Several noble Lords

Order!

Lord HARMAR-NICHOLLS

My Lords, we are debating the Queen's Speech which will, to some extent, decide the destiny of the country. The noble Lord has given a glowing description of our present situation, and I merely wanted to ask him whether he agreed or disagreed with the points made by the Governor of the Bank of England, when he spoke at the banquet the other evening, which are the opposite of what the noble Lord has said.

Lord PEART

My Lords, that is another question. Anyhow, I was not at that banquet. All I am saying is that that is the prospect before us, provided that we do not give way to calls for Government spending far beyond our means, or for pay rises which can lead only to another bout of inflation and stagnation. It is in the context of the opportunities now open to us that the latest measures announced at the end of last month should be viewed.

As I have said, your Lordships will have studied these measures and I shall allude only to the main features. They do not represent a change of course, but they do provide a correction for the shortfall in the public sector borrowing requirement which had become apparent. There is an uncommonly wide measure of agreement among economists, that there is headroom to expand demand and activity within the guidelines of our policies for bringing down the rate of inflation.

The raising of the personal allowances in calculation of income tax acts very quickly, as noble Lords know, to raise personal incomes and spending, and therefore to stimulate activity. On the other hand, it does not prejudice any of the options open to the Government at the time of a spring Budget. Like previous tax cuts, it raises real take-home pay without raising industrial costs and therefore threatening jobs. The October measures will take a further 900,000 of the lower paid out of liability for tax. The Government felt that it was only right that people on retirement pensions should also benefit from the general improvement in our economic situation. Noble Lords will, I am sure, welcome the £10 Christmas bonus, the temporary tax relief on this month's uprating and the raising of the age allowance in calculating tax.

The announced increases in public expenditure for 1978–79 are, of course, accommodated within the agreed limits set on public sector borrowing. I recognise that some noble Lords are apprehensive at any mention of an increase in public expenditure. But a good deal of the increases in public spending for 1978–79 had already been announced: the increases, for example, in the child allowance and the extension of eligibility of free school meals.

The most important new addition to expenditure is the £400 million for construction. I do not think that this was stressed or mentioned by the noble Lord, Lord Carr. This has the advantage that it will provide jobs in the sector of the economy worst hit by unemployment and will, to some extent, revive public capital spending which took the brunt of the expenditure cuts announced last December, and which were for that reason widely criticised.

I should like to draw noble Lords' attention to the measures in the recent package which are designed to help small firms. The noble Lord, Lord Carr, talked about his Party's attitude. I can only say that I have always, even in another House, been a strong supporter of small firms making their contribution. I know of this from my own experience in a very distressed area which later became a development area, and I also know how many of these small firms provide considerable activity in the regions. I publicly welcomed the Bolton Report which examined this subject. So that there is nothing between us on that issue. We believe that small firms should be helped, and I am glad that the Chancellor has been praised by industry for these measures.

These firms represent something like one-fifth of our economy; they play an important part, both in the provision of jobs and in the introduction of new products and processes. We cannot afford any reduction in the numbers or vigour of firms in this sector. It is for this reason that modifications have been introduced which reduce their liability for corporation tax and capital transfer tax. The Government are also considering further measures to encourage the development of small firms.

All these measures have been adopted in order to assist our economy to realise its undoubted potential for growth over the coming year. We cannot be satisfied with our progress in financial markets, in balancing our external account, or in bringing down the rate of inflation, until it is reflected in a sustained growth in consumption, investment, production and employment. We do not delude ourselves that this can occur, unless our industries are able both to hold their present share of markets at home and abroad and to improve upon it. This is unlikely to occur, unless we are at least as successful as our competitors in checking the rise in our costs.

On the other hand, real wages in this country are below those paid by many of our competitors and there is in many industries plenty of scope for improvements in productivity. Increases in labour costs, which are fully financed by parallel increases in productivity, are of course compatible with our objectives of full employment and a lower rate of inflation. Increases in labour costs which, however, breach the Government's guidelines can only hinder us, or even prevent us from reaching our objectives.

It is for this reason that the Government have made it clear that they have no intention to print money in order to finance pay settlements, either in the public or the private sectors, which are clearly in breach of their guidelines. The majority of the people in this country are aware of the painful consequences over the past three years of the pay explosion of 1974. They do not want to suffer any repetition of that experience. The Government will continue to take whatever measures may be necessary to maintain the steady recovery of the economy.

3.50 p.m.

Baroness SEEAR

My Lords, before I knew the date of this debate I had agreed to chair a committee at five o'clock this evening. Subsequently, I have to go to Brussels. As a result, I apologise, especially to the Leader of the House, for the fact that I shall not be able to be here for the winding up.

We on these Benches are glad to give our support, if qualified support, to both the long and the short term plans outlined in the gracious Speech and to the indications, so far as they are clear, of the Government's long term economic and industrial strategy. The short term deals with the all-too-familiar problems of inflation and unemployment, matters which are linked and which must be seen as two aspects of one problem. Too often, it is suggested that steps should be taken to deal with unemployment even if there is a risk of increasing inflation. To those people I would say that, whatever short term gain in employment may be achieved in that way, the long term damage to employment prospects resulting from failure to control inflation far outweighs any temporary or partial gain that might be made in the short run.

The question of the control of inflation brings us immediately to pay policy. So far, we are very glad that the Government have reaffirmed in the gracious Speech their determination to maintain the pay policy that was previously outlined. The 10 per cent. overall average figure is, I suppose, as low a figure as we could have hoped to achieve, but the fact remains that even that figure is inflationary, with an aspiration only—and probably an optimistic aspiration—of a 3½ per cent. growth rate. So it is essential that that 10 per cent. should be seen as an average, not as a minimum. Yet in the discussion which is going on up and down the country the old traditional industrial relations arithmetic seems to be emerging—the arithmetic which in the field of industrial relations has always said that an average equals a minimum. That is the talk that is going on at the present time. I appeal to noble Lords on both sides of this House to use the influence which they undoubtedly have in both trade union and management circles to see that the pay policy averages 10 per cent. or even, if possible, less.

May I stress in particular the management side in the making of this deal, for it is my observation—and noble Lords will have observed this, too—that there is already an indication that some managers are taking the line that the term "productivity deal" can be used very usefully to overcome the difficulties of containing wage demands. It is even murmured, and I think there is some ground for believing this to be true, that if there is a break in the pay policy it may well come from the management side even more than from the trade union side. I stress this point because there are many people in your Lordships' House who are in a position to influence this matter and to bring home to managements that whatever they may gain in the short term by the easy settlement of a pay claim, both they and the country stand to lose far more by giving way too easily to claims of this kind.

This is one reason why we are particularly glad that the Government have included encouragement for profit sharing schemes in the gracious Speech. We have always wanted profit sharing schemes, although for quite other reasons, because we believe that they are an essential part of good industrial relations. But there is a very specific reason why profit sharing schemes, to be treated as a form of productivity agreement, are particularly suitable and particularly to be encouraged at present. A pay-out which comes as a result of the application of the value added or profit sharing scheme is made after the money is earned; it is not included in the initial assessment of the cost and does not have a cost increasing effect. It is the only form of productivity deal which can be genuine because it can come only after the result has been achieved and not in anticipation of it. For this reason, we would urge the Government to take steps to see that these schemes are given encouragement, not so late as next April when all the pay deals which are immediately important will have been settled, but even earlier, if they can find any way in which this can be done. Otherwise I gravely fear that there will be a spate of so-called productivity deals which will not be productivity deals at all. They will be reached by collusion between management and trade union representatives and the result will be that the final earnings figure will rise very considerably above 10 per cent.

The problem of pay settlements and of the control of inflation is not just a problem for this year. The noble Lord, Lord Carr of Hadley, referred to the need for the reform of industrial relations. This is important but, inevitably, it is somewhat long term. We have to ask ourselves now what is going to happen when the 12-month rule passes away. Unions are accepting the 12-month rule for the present round, and this means that most of the agreements will have been entered into by Easter, or shortly after. What will happen then? That is the question which we should be dealing with now, for plans for claims in 1978–1979 will already be generating in the minds of the trade unions.

In all the discussion that has taken place we have spoken of 10 per cent. and of the 12-month rule, but I have seen very little suggestion that anybody has a coherent plan regarding what will come after the 1977–1978 round of pay claims. Yet what will be the good of holding down to 10 per cent., even if we do, if immediately after that there is a kind of free-for-all which enables pay to rise again by 15, 16 or 17 per cent? Of course, the Government have the power to link this question with fiscal policy and to say that the additional relaxation of taxation which we all want to see will be dependent upon and will be adjusted according to the way in which pay settlements are made in the 1978–1979 period.

I urge upon your Lordships' House that attention should be given now to what is going to happen in 1978–1979. We are living far too much from year to year. We are beset by the idea of the annual pay round. We need institutions to deal with it, we need a policy now and we need to educate the public as to why this policy must go on. I have asked before in your Lordships' House and I ask again now that the Government should give their attention to a much more intensive education of the public in what is at stake. There are very welcome signs that the public at large has learned the lesson of inflation, but whether that lesson will stick and whether the full implications of the control of inflation in terms of what is required in an incomes policy have gone in, I very much doubt. An intensive and prolonged campaign is needed to ensure that people really have grasped what it is about. We need continuing control over incomes, not just something which controls them for the next 12 months.

Therefore, we are asking the Government what plans they have, what discussions we can have, what part "Neddy" can play and what is the Government's approach towards synchro-pay and, indeed, the CBI proposals put forward by the noble Lord, Lord Carr of Hadley. We very gladly congratulate the Government on the stand that they have so far taken about pay claims, but may I say from these Benches, as has been said in another place, that the support of this Party is entirely conditional on the Government maintaining their stand over pay claims. We are in this agreement with the Government primarily because we believe this is the best way to hold down inflation in this country, and if the Government falter in facing the challenge of either the public or the private sector then that support cannot be continued.

From the problem of inflation to the problem of unemployment and particularly, perhaps—though it is the subject of debate on another occasion—to the problem of youth unemployment. Of course we welcome what the Government have said in the gracious Speech in regard to the promotion of improvement in the employment field and we are glad to know that the Manpower Services Commission has developed detailed plans for seeing that action is taken throughout the country to create greater opportunities for employment. However, may I say—and I can fully believe that some of the reports in the Press may not have been altogether well founded—that, in the question of the generation of new employment opportunities, co-operation at the lowest possible level of all interested groups is of the very greatest importance. This cannot be a bureaucratic exercise. I believe there is great anxiety, a great deal of good will and a great deal of expertise among managers, trade unions, careers officers, educationists and young people themselves who are intelligently organised to look at this problem; and whatever is done through the Manpower Services Commission must surely be done with the greatest local co-operation at the lowest possible level that can be organised.

Your Lordships may have seen in the Press doubts expressed as to whether in fact the manpower services programme is going to be handled in this way. I would ask the Government for an assurance that unorthodox measures of utilising or tapping that good will and that knowledge will be adopted; perhaps in particular that young people themselves should be associated, through their organisations, in the campaign to get more jobs available for young people. Perhaps the Government will give us an answer on that point.

The question of unemployment also leads to the problem of the small firm. As has been said by other speakers today, the small employer can generate new jobs very quickly; not only is he a generator of jobs but he is a generator of ideas. Both sides of the House have paid tribute to the importance of the small employer. I am bound to say that under both Governments the position of the small employer has deteriorated. The Conservative Government had ample opportunity to do something about promoting the issue of the small employer, and so have the Labour Government. The noble Lord, Lord Carr, spoke of the numbers of persons engaged in small enterprises but in fact our showing is far worse than that of any of our competitors. It is a great source of strength to the German economy that they have a very large sector of small businesses because that is where the ideas and the training come from. I do not wish to make a Party point—yes, I do wish to make a Party point: it was as a result of pressure from the Liberal Party that attention was paid to the small business. Otherwise why is it only happening now? The state of the small business has been becoming a scandal for a very long time and, as the noble Lord knows, this was one of the points which the Liberal Party in another place pressed very strongly on the Prime Minister, both in regard to taxation and in regard to the development of a programme for the assistance of small businesses. I should be glad if the noble Lord the Leader of the House would acknowledge that this is in fact the situation. I think he agrees that it is in fact so.

To turn from the immediate short-term problem of employment and—

Lord TAYLOR of GRYFE

My Lords, before the noble Baroness, Lady Seear, leaves the matter of the small businesses, which has been discussed at great length today, will she develop the point of discriminating between small businesses which are inefficient and small businesses which lead to innovation? Are we not in danger of generalising about small businesses without analysis of the problem?

Baroness SEEAR

My Lords, I believe the answer to the noble Lord is in another part of the gracious Speech, which I am delighted to see there and to which I was going to refer in a few moments. It is the belated conversion of the Government to a policy of competition. If we have a competition policy our inefficient small businesses will not in fact survive. That is the way to ensure that the small businesses are innovative, because if they are not innovative they will not be there.

To turn to the long-term strategy, the indications in the gracious Speech are not as clear here as they are in relation to short-term plans. In the desire to generate jobs there is a danger that the Government will fail to recognise what can be the only hopeful long-term strategy, which surely is to ensure that our resources are concentrated in those activities which will produce high profits and high value added in the manufacturing activity; out of the profits so generated we can pay for the services that we all want, both the public and the private services, which have had to be cut in recent years. To find a job anywhere, even if it increases our already excessive over-manning, is simply a recipe for spreading the poverty even wider than it is spread at present, while what we want to do is to generate and to spread the wealth.

So if the Government will accept that this is what is needed, then the consequences of this must be spelt out in detail and the details will not please a great many people. The fact remains that we are supporting a great many businesses which are over-manned; we are keeping in being a great many enterprises which in the long-run interest of the economy and of employment ought really to go out of business and the resources ought to be used elsewhere. The approach of encouraging employers to find jobs for people even if they do not really need to employ them may be a necessary short-term procedure but it is a very dangerous one in the long term. It is high time that we got down to the problem of how we are going to have a real transformation of our wealth producing process so that we generate the wealth for the services that we want.

I would go along with the noble Lord, Lord Carr, when he says that what we want is technically efficient industry using its machinery far better. What a good answer it is to the unemployment problem if you employ people for short hours on a shift basis on highly expensive but highly useful machinery which is highly wealth generating! That is the direction in which we ought to be going. Then you can indeed put two people on one job and gain by doing so. That is the direction n which we ought to be going. Too much of the talk at the present time is in regard to finding jobs anywhere, whether they really need to be done or not. That is all right as a short-term expedient, but let us start working now on the long-term transformation and in that long-term transformation we have to put the greatest possible emphasis on the need for a more skilled and knowledgeable labour force.

In our programme for young people we are trying to find work experience for them. But work experience does not necessarily increase their skill, and the one thing that is quite apparent as we look at international figures is that the lower the level of one's skill the higher the likelihood that one will be unemployed. That is the point we must take on board, and what is needed is a drive to intensify the level of skill. In Germany every youngster who does not go for higher education goes compulsorily to get some kind of training. We do not do this, and our unemployment figures will stay with us whatever the Government do in regenerating the economy unless we raise the level of skill. So the regeneration of industry that we need requires an intensive campaign to see that we reduce to the absolute minimum the number of people who have not got the skills or knowledge which will be marketable in the economy of tomorrow.

That brings me, finally, to the issue of competition policy. Of course we were glad to see in the gracious Speech that the Government were preparing plans for an intensification of competition policy. It is long overdue. On these Benches we have for years fought to have a more effective attack on monopoly, and to see that competition can become a really effective instrument for making a more competitive and better use of resources in this country. I very sincerely hope that that part of the Queen's Speech will not be relegated to the end of the queue; that the other very important matters in the Queen's Speech will not push it out; that it will not be one of those things the Government hope to be able to attend to if they have time and sadly find at the end of the day that time was not available. If they are going to be so busy in another place—and I hope they are—with the important matters of devolution and direct elections to Europe, would it be impossible to start the discussion of competition policy in your Lordships' House, to make here a beginning to the regeneration of British industry that we all so want to see?

4.12 p.m.

Lord GREGSON

My Lords, it is with considerable deference and humility that I rise for the first time to speak in this historic and essential place, your Lordships' House. Having spent the whole of my working life in manufacturing industry, I think it would be expected that I should comment on the industrial aspects of the present economic position. I apologise if I repeat in a somewhat different way some of the points made by previous speakers.

It is now universally recognised that for at least the past two decades the wealth-producing manufacturing industry in this country has been shrinking relative to other activities. Whether it is measured by relative employment, by export performance or by import penetration, they all tell the same story. If this situation is added to the structural effect on unemployment patterns of fewer and fewer people producing more and more goods with more and more capital investment, then without the wealth being generated by manufacturing industry to employ people in service industries there must inevitably arise what we now have; namely, an unacceptably high unemployment level.

During the past 12 months I have had the opportunity of considerable discussion with the European Commission and with other industrialists in the Common Market countries. I believe there is now genuine concern regarding what is considered the structural nature of unemployment within the industrialised nations of the world. Countries like Germany and even Japan are devoting a considerable amount of their effort to studying this problem and looking for the solution. There are, however, two specific aspects where the position in the United Kingdom differs both from our partners in the EEC and from other industrialised nations. First, the product base of British industry has shrunk over the past few years at an alarming rate, particularly when related to the expansion of the product base of Germany and Japan. It would be all too easy to list the products that are no longer made in this country, but I think the situation is obvious and no doubt all noble Lords can think immediately of goods that used to be made in this country and are no longer made here. I would, therefore, urge the Government to consider expanding considerably their efforts to encourage product development in all its forms, whether it is a product by process or a product by manufacture.

Secondly, there is the equally alarming increase in import penetration. While this is somewhat allied to my first point, especially when you consider product obsolescence, there are many other aspects such as labour costs, dumping, et cetera, which have to be considered. Again I do not think I need quote statistics; I think we are all somewhat depressed by reading about them month by month. I would urge the Government to set up a special unit to study all the aspects of import penetration and to encourage import replacement by all means possible. It may be good individual company policy to apply the latest dictum of management jargon—that is, to reduce your product range and increase your market penetration—but without indigenous replacement of the discontinued products there must be a vacuum for imports to fill.

I should also like to join previous speakers in welcoming the Government's study of, and possible further assistance to, small businesses, which make a large contribution to manufacturing industry in this country. I am also convinced that in many cases they are best suited to reduce the time-scale of product development and make the quickest response to import replacement. My Lords, I thank you for your kindness and courtesy in listening to my brief contribution.

4.17 p.m.

Lord MANCROFT

My Lords, I know your Lordships would join with me in congratulating warmly the noble Lord, Lord Gregson, on his authoritative, professional and commendably short maiden speech. He spoke with authority and professionalism, but perhaps he will be surprised if I say that what appealed to me most was when, in his opening sentence, he referred to your Lordships' House as essential. Possibly he was not present at the Labour Party Conference at Brighton; nor was I. He may however have heard the numerous jokes made against your Lordships' House and in particular, against "backwoodsmen" like "Lord Littlehampton". But he will take it from me, I think, that it is the essence of your Lordships' House that people like him, with his lifetime of experience in industry, can come here and give us the benefit of that experience without rancour and with factual support. When I say that I hope we shall hear him frequently again this is no cliché, because too often, if I may say so without being pompous, a few noble Lords come here, make a maiden speech and are next heard 36 years later. I hope the noble Lord, Lord Gregson, will become a regular, and as brief a speaker as we have heard this afternoon. We congratulate him warmly on his maiden speech.

My Lords, I will take up one or two of the points he made in the course of my own remarks, which I will try to make, if not as short as his, at least not too long. I should like to talk on only one point, industrial relations, upon which every previous speaker has touched. A few days ago the Economist published a review of a book on the Grunwick dispute, by a distinguished writer on economics, Mr. Joe Rogaly. The opening paragraph contained this sentiment. "We have", said the reviewer, "become obsessed with industrial relations". My Lords, one never knows in which cheek the Economist places its tongue, and here once again I declare myself defeated. Of course we are obsessed with industrial relations. The Government have rightly, put into the forefront of the gracious Speech their determination to combat inflation, and what greater effect on inflation has anything than industrial relations. On the very day that the gracious Speech was delivered in this House one could note—apart from the television scandal, no fewer than 15 industrial disputes, and they are increasing daily giving hardship to the whole of our population, particularly to the old and the sick. And today we had the first symptom of something which I regard as dangerous. People are asking: "How can we hit back, how can we, the defenceless, hit back against these all-powerful unions?" I understand that, and I would particularly understand it if it were my wife lying on the operating table when the lights went out. However, it is a dangerous, though understandable, sentiment for us to have to experience. When all is said and done, it is up to all of us to support, if we possibly can, the Government in their attack upon inflation.

There are half a dozen references in the gracious Speech to industrial relations. Therefore, if I am obsessed I am at least in good company. First, the Speech says: My Ministers will continue to work in close co-operation with the Trades Union Congress and the Confederation of British Industry". I agree. If they had said that they would try to work in closer co-operation I should wish them even better, but still I wish them well. That is vital.

Secondly, it says: Further consultations will be held on industrial democracy, with a view to producing proposals which should command general support". If they had put it in more vulgar language and said, "Bullock is dead", I should have been happier. I think that that is what they mean but they do not actually dare say it. What was good in the Bullock Report is not new and what is new is not good. Any firm worth its salt is already doing the good things that the Bullock Report recommends.

Thirdly, there is mention that amendment to company law is overdue. No one will quarrel with that, particularly as our entrance into the EEC has changed the whole of our attitude towards company law. I should like to ask the noble Lord the Leader of the House to bear in mind that the two previous company law Bills were introduced first into this House to the great advantage of those Bills. That might very well be a means by which your Lordships might help the noble Lord to make what I am sure is an excellent Bill even better.

My Lords, I am worried about the next reference. It says: There will be a review of the legislation and institutions governing competition policy, to see that this makes its maximum contribution to improving industrial efficiency". For woolly incomprehensibility that paragraph deserves an entry in the Guinness Book of Records. It cannot have been drafted even by a politician, certainly not by a civil servant. I suspect that it was drafted by a computer and a somewhat demodé one at that. What on earth does it mean? Does it mean that we are no longer to see nationalised industries, like the Gas Board, with huge showrooms on one side of the street, in competition with the electricity boys, with huge showrooms on the other side of the street? Surely it cannot mean that? Can it mean that the competition which is inherent in the whole system of private enterprise has now been preferred to the dead and clammy hand of nationalisation? The noble Baroness, Lady Seear, said that she did not want to make a political point. I, also, do not want to make a political point. However, if I did, this is what it would be: "Look who's talking!"

My Lords, the next matter concerning industrial relations which has been touched on, I think by every speaker so far in the debate, is the question of small firms. Both the noble Lord, Lord Carr of Hadley, and the Leader of the House, Lord Peart, referred to it. Something like 6 million people are involved in small firms in this country and the Government are quite right to give them thought. Their contribution to the wellbeing of our economy is quite disproportionate to their size. They could contribute even more if it were not for two handicaps. First, they are crippled by penal and vindictive taxation. Secondly, they are unable properly to reward those who have put their backs into making those firms successful.

From whichever way you look at the figures, the history of small firms shows one aspect clearly. Small firms are capable of a higher productivity than bigger firms and they nearly always enjoy better industrial relations. The bigger companies all too often have been a recipe for lower productivity and unimaginative political relations. I say "all too often" because sweeping generalisations are dangerous. I would be disloyal if I were to say "always" because I was for eight years an executive director of Sir Isaac Wolfson's Great Universal Stores, which no-one would describe as a small business. Nor would anyone describe Sir Isaac Wolfson as a commercial dilettante.

Then there is Marks and Spencer. We enjoyed the speech of the noble Lord, Lord Ponsonby, who moved the humble Address. He is now chairman of the London Tourist Board. For 10 years I was president of the London Tourist Board. I expect that by now the noble Lord has come across a letter in the files which gave us considerable pleasure. The letter was from a Japanese tour operator who was bringing a party on a round-the-world tour from Japan. He said that he regretted they would have only a few days in London, but nevertheless they wanted to see all the standard sights—Westminster Abbey, the British Museum, the Tower of London, Marks and Spencer and so on. That also gave pleasure to Marks and Spencer. Shortly before that, the American magazine Fortune—a publication of great commercial authority—stated that it regarded Marks and Spencer as the best commercial enterprise of its kind in the World. That, incidentally, is a view shared by Marks and Spencer.

I remember listening to the noble Lord, Lord Sieff, shortly before he became a Member of your Lordships' House, speaking at the ill-fated Twenty-Club, where a shoddy disaster occurred some weeks ago. I wish there had been a dictaphone on the table when Lord Sieff was speaking. He was asked to what particular facet he attributed the success of his great company. Being in the same line of business myself I awaited his reply with interest. I thought he might mention accurate budgeting, quality control, sharp margins or some such. He paused, however, for a minute and said, "Well, I have worked for a long time in Marks and Spencer. I have never heard anyone else who has worked in Marks and Spencer ever speak ill of Marks and Spencer." My Lords, there is a profound truth in that, and those of us who are interested in industrial relations wish that we heard the like of it more often. I wish that we heard that sense of pride more frequently expressed.

I was horrified during the recent GPO troubles at Grunwick. A firm of which I am chairman is next door to that factory and we suffered similar postal troubles. One of the postmen appeared on television and said: "It used to be a matter of pride to work for the old GPO, but now if I go into a pub and there are strangers there, I don't like to let the lads know how I earn my living." That is a terrible thing to have to say.

On the opening day of this debate the noble Lords, Lord Carrington and Lord Byers, made cheerful fun of the voting on the motion at the Labour Party Conference at Brighton calling for the abolition of the House of Lords. That may have been light-hearted, but far too often we see votes on the important matters being won by tiny minorities. I have only some slight experience of trade union affairs. However, there sit opposite many noble Lords who have spent their lives in the cause of the trade union movement with authority and distinction. Thirty years ago, however, I was appointed the independent chairman of the Joint Advisory Council of the carpet industry. When I finished my stint, to my pride and pleasure I was made an honorary member of the Power Loom Carpet Weavers' and Textile Workers' Association. I was given their badge. I was never allowed to vote on anything, though I was asked to subscribe to the sports fund. Noble Lords opposite, with much greater experience than can lend their voices with authority at this particular time. They will be listened to throughout the trade union movement and far further afield. The sobering influence that they can give by bringing facts and not theories to those who are puzzled and confused by what is happening at present would be of immense value.

My Lords, I have dwelt only upon the matters concerning industrial relations which are mentioned in the gracious Speech. I should like, however, to turn to one matter which is not mentioned but which I should very much like to have seen in that Speech. I should have liked to see the remark: My Government will seek to give management a better chance to manage". Much criticism is levelled against management, as of course criticism is levelled against trade unionism. That criticism is both equally fair and unfair. Of course management—and I speak as a manager—is far from perfect, and we have much to do to put our house in order. But, unfortunately, good news is no news; it is had news that is always news. Many of the things that are said about management in this country come from prejudiced or doubtful sources. The prejudiced source is often that source which is initiated by our rivals abroad who have an interest in denigrating management in this country for the benefit of their own commodity.

We also have a great deal of criticism from economic gurus and theorists who are probably incapable of running a fried fish shop—I withdraw that remark and apologise because I now remember that I said it once before and received an indignant letter from the National Fish Friers Federation, whose headquarters is at Leeds, pointing out that a fried fish shop is an extremely difficult shop to run and that I was welcome to try my hand at it provided I put a certain amount of hard cash on the counter beforehand. I believe it was my noble friend Lord Carr of Hadley who referred to "mad surgery". He will possibly remember the Marx brothers film in which Groucho introduced Harpo to a circle of friends as "my friend the amateur brain surgeon". There are too many amateur brain surgeons in commerce giving us instruction on how to put management to rights.

I should like to offer one or two suggestions as to how management could be helped. More than anything else management wants the chance to deploy its workforce to the best advantage of management, the firm, the shareholders and the workers. At the moment there are far too many shackles. In industry today it is as difficult to get rid of a fool, a lazy man or a crook as it is to reward a really hardworking man or woman who is prepared to put his or her back into it.

Secondly, we would wish to have the right to deploy new machinery and new methods without bringing an industrial crisis immediately round our heads. Several speakers in the debate so far have referred to the need for the introduction of new capital and new investment. Certainly that is true, whether it is investment from within or from without. The balance sheet facing anybody thinking of introducing new investment capital into a British company today is an interesting document. It is full of good news and bad news. Let me remind noble Lords first of the bad news.

Our strike figures are appalling. It is no good saying that they are worse in Ruritania or some such country. Those countries possibly can afford to have strikes; we cannot. Our economy is competing with Italy and with Southern Ireland to get off the bottom of the league tables. We are the only Western country to have suffered a fall in the standard of living, and for the fourth year running it looks as though our industrial growth will be close to zero. That is the bad news and I blame neither labour nor management for it. We are probably both to blame just as we will both take credit for the good news of which I should like to remind your Lordships.

For the first time in many years this country is earning its keep. The International Monetary Fund has expressed almost unflatteringly startled approval at the progress we are making. North Sea oil is contributing in a gratifying way to the stabilisation of our economy. I only hope that it is not also contributing to the subsidisation of our economy. Foreigners are putting money into our industry, though the brain surgeons may say that this is dirty money. Nothing venture, nothing win—we cannot be that fussy. To translate it into commercial language: Confucius, he say: "Man waste much time standing with mouth wide open waiting for roast duck to fly in". Anybody will invest in British enterprise, in British companies and in British organisations now if they see the chance of a return on their money, if they see that the company with which they are concerned, or with which they wish their hard cash to be concerned, is not bedevilled by bad industrial relations which will inevitably result in bad workmanship, bad delivery dates and bad after-sales service.

From reading the gracious Speech, I think that Her Majesty's Government are at last learning the facts of commercial life, and I congratulate them. They no longer seem to think that "profit" is a dirty word. They no longer seem to think that private enterprise is an ideological conspiracy. If the economic conditions which the Government seek to create enable us to carry out all that the Government have put into the gracious Speech, there will be no one better pleased than I to think that the Government have at least seen the error of their ways—and, my Lords, about time too!

4.36 p.m.

Lord LEE of NEWTON

My Lords, I should like to join with the noble Lord, Lord Mancroft, in congratulating my noble friend Lord Gregson. My noble friend reminded us that his background is in industry, as indeed is mine. I assure him that the more we hear from people who, like him, have a practical knowledge of the problems that face us, the better it will be for all of us. I also noticed, as did the noble Lord, Lord Mancroft, that my noble friend Lord Gregson referred to the House of Lords as being essential. I know just what was in my noble friend's mind. He had probably noticed, as had I, that quite a number of those who lend their aid to eliminating the House of Lords and to wrecking the Government's programme, played an outstanding part in wrecking the Government's programme in the Commons last year. For that reason, for the very first time we in this House are to deal with the devolution of Scotland and Wales and the elections to the EEC.

It would appear from the lack of criticism of the content of the gracious Speech that in general all Parties have found it satisfactory. I believe that the same applies to the Chancellor's interim Budget. The general feeling seems to be that although we should all like a little more in the way of tax relief, the dangers of doing more at this particular moment are too great and therefore on balance the Budget is just about right.

These days we hear much about the need for more open government. There has been a remarkable and welcome change from the situation which existed 30 years ago. Then Hugh Dalton had to resign over giving a journalist five minutes' notice of what he was about to do in an interim Budget. We now have the situation in which Chancellors can give six months' notice in public and it is considered quite lawful. I am all for the remarkable change towards open government. The Chancellor has made it clear that next April's actions will be conditional on increases in income being contained at around 10 per cent. I hope that it works out around that figure, though I shall be very agreeably surprised if it does.

The proposals for limiting increases in income and for reducing inflation are dependent upon a limit on what we pay ourselves. It follows that those who disregard such warnings—I care not who or what they are—are deliberately playing with fire, in the sense that they cannot at the same time demand no limit on the increases they are to receive while prating about their efforts to bring down inflation and unemployment. The two things just do not go together. Indeed, one gets tired of some of the moaning we hear about price increases from people whose own actions make such increases quite inevitable.

I believe that the Government are doing a great deal of work in their efforts to bring unemployment down. I have considerable doubts, indeed, about the ability of any one nation now to escape the consequences of a world slump by its own actions, necessary of course as such actions are. During this year we have had meetings of presidents and prime ministers of the great manufacturing nations. They have agreed on the need for expansion but, so far as one can see, very little, if anything, seems to have happened in this particular field.

In May of this year, I suggested that the ILO itself should be invited to study such issues as the length of the working week, the age of retirement, and related issues of that type. I was told then that the prime ministers and presidents were having their conferences and something would happen. Now that we have seen the resignation of the United States of America from the ILO—a decision which I consider to be a terrible mistake—I believe that our own Government should take the initiative in calling a conference of the Western industrial nations to begin an analysis of this problem. It cannot be done by the efforts of individual Governments alone. Certainly no one nation will face the need for these radical changes for fear of pricing itself out of world markets, so it seems that very little or nothing is being done. Now that new techniques are producing more capital intensive and less labour intensive industries, it is surely time for an international effort in that direction.

While it is quite clear that the incomes policy of the last two years has played the major role in reducing the level of inflation, the fact is that while the nation is certainly hoping for further relief from income tax in six months' time, we have now thrown away the mechanism by which so much of our improvement has been effected. That mechanism, although not statutory, was made possible by the Social Contract between the Government and the trade union leaders, which was afterwards endorsed by Congress.

Prior to the chaos of 1974/1975, the leading figures among the trade union leaders were opposed to an incomes policy but, having looked into the abyss of that period, they courageously changed their minds and did what they could to assist one to come into being. At their conferences this year, those trade union leaders were turned down and the Social Contract was spurned in favour of a return to the rule of the jungle in the form of collective bargaining. So we now face the position in which the Government have no statutory powers and no voluntary agreement, apart from the 12-month rule. When they attempted to impose the 10 per cent. guideline upon firms such as James Mackie in Northern Ireland, the CBI opposed such actions, yet both the CBI and the TUC demand Government action to reduce inflation.

I want to follow the noble Lord, Lord Carr, in some of the matters he was analysing as regards collective bargaining. With the attitude which the CBI and, indeed, in part, the TUC have taken up in opposing the Government in trying to get the 10 per cent, limit accepted, I want to say to both of them, "Now that you have made it clear what you will not support, perhaps you will tell us quite as clearly that which you will support". The House may have noticed that on several occasions I have tried to discover the position of the Conservative Party on this vital matter. Following what the noble Lord, Lord Carr, said today I want to do it again. My efforts have failed in the past, so I have been doing a little research.

Speaking on the BBC television programme Nationwide during April, Mrs. Thatcher told us that a Government led by her would seek to end Government intervention in this field. She said: I want to see a good deal of dispersal of power so that the people back in the factory and on the shop floor can take the decisions that affect them". She called for an end to wage bargaining at national level and a return to bargaining at the factory level. She said: I believe that you have to have more responsibility on the shop floor, because then you will see a better wage deal and better productivity". Sir Geoffrey Howe went a bit further. He managed to box the compass completely in a speech to the Institute of Directors at Norwich last September by describing the attempts of the Government to interfere in the present round of pay bargaining as, "dishonest, unjust, improper and misleading". On those grounds, he opposed action against Mackie and people of that kind. He then emphasised that the Conservative Party supported the concept of restraint in pay bargaining on the basis of a 10 per cent. increase in the national bill.

What does this amount to? He was saying in other words, "We demand large reductions in taxation. We give a very high priority to reducing inflation. We support a 10 per cent, limitation on income increases—providing you do nothing to make these things possible of achievement."

This is not good enough. I take it that, following the events of 1974/1975, there can be no doubt—and I should like to be interrupted if anybody disputes what I am going to say—that some kind of Government control over the global figure of incomes increases is a prime condition for the ability to govern, and that any Government must either devise a means of doing so or get out. Is there any contrary voice on that?

Lord CARR of HADLEY

My Lords, may I take the noble Lord back just a sentence or two to what he said about Mrs. Thatcher and Sir Geoffrey Howe and the attitude of my Party? He failed to realise that one of the things that concerns us is the lack of even-handedness in this area. Why clobber Mackie and do nothing to Ford? What do you do in the public sector compared with the private sector? Why does all the weight fall on employers and none on unions? There is a lack of even-handedness here. I agree that it is a difficult field, but it is the lack of even-handedness that troubles us most acutely.

Lord LEE of NEWTON

My Lords, I did not notice any protest from the Conservative Party over the Ford question. I do not believe that there is any lack of even-handedness in the reactions to employers and trade unions. I should have thought that, if anything, the Government received a worse deal from the unions than from the employers at the moment. I believe for my part—and I have never hidden this—that an incomes policy based on the ability of the economy to meet its provisions without stoking up inflation is the most sensible method of dealing with the problem. Again, Mrs. Thatcher made it clear that she would not accept the so-called Government interference which is implicit in such a policy.

The only alternative of which I am aware is the Milton Friedman type of acute squeeze on the money supply, which would reduce the number of jobs available and would thus multiply the unemployed. If noble Lords opposite want to deny that that is the choice of their Party, they had better tell us what other policies are available to them, because quite frankly I do not know of any. As a method it is pretty callous, and it is certainly not open for use by a Labour Government for it would wreck this movement beyond any hope of repair at all, far worse than 1931 ever did.

Those critics who argue that the Government are, in effect, using an incomes policy for which they have no statutory power are quite right. It is also true that they are striving to upset the very worst effects of the return to the jungle of collective bargaining—effects which all parties say should be avoided at all costs. To those members of the labour and trade union movement who are joining in the criticism, I would say that the Prime Minister gave the right answer when he said at the Labour Party Conference, "Back us or sack us". I wish him success in his policy.

There are some people for whom one has great sympathy, namely the obvious victims of collective bargaining whose position makes it difficult to use the power which they undoubtedly have. I am thinking for instance of the firemen. Their pay is lower than it should be when one takes into account the grave risks of their job. A percentage such as the Government are seeking as a short-term policy will, I hope, keep that position vis-à-vis the others; of course they can make no advance. Yet I am fairly sure that their low rate of remuneration is because of the responsible attitude they have always taken rather than go on strike.

On more than one occasion, I have suggested that what was called by some trade union leaders "an orderly return to collective bargaining" was not going to be easy because, in marked degrees, those leaders do not possess the power to enforce it. The noble Lord, Lord Carr of Hadley, said, in effect, that we must have radical changes in the structure of collective bargaining in this country. Unfortunately, he did not go on to tell us what those radical changes should be, although I appreciate that he spoke for a long time and could not deal with everything. The noble Lord went on as did the noble Baroness, to discuss the large number of small unofficial strikes which take place. I agree with both of them; this must be tackled.

Perhaps I may be allowed to revert to what Mrs. Thatcher calls "the return to bargaining at the factory level". I do not know why she uses the phrase "return to" because many of our key industries have no history of bargaining at factory or local level, in particular for wages; I agree that they have for fringe benefits, but not for wages. I also agree that the practice of factory bargaining for wages is now spreading, and with some very bad results. That is a subject to which I shall refer, but national wage negotiating has for long obtained—in railways, steel, coal mining, agriculture, for the merchant seamen, in local government and for millions of people within the Wages Council industries.

I think the right honourable Lady is confusing national bargaining with arrangements between Government and the TUC, which are a very different issue from national bargaining between industries. In any event, every Conservative Prime Minister since the war has supported discussion between the TUC and the Government of the day. It seems to me, therefore, that Mrs. Thatcher has a false impression of what constitutes national bargaining. I do not know whether she is getting all her advice from that genius who told her that one could cure a strike by having a referendum about it. It would probably take two months to get the referendum ready and I am wondering whether it would be deemed to be antisocial activity if the chaps went back to work before the referendum. This is a serious matter which the right honourable Lady might care to look into.

In my view, the great issue which we shall have to face is that, with the development of mass production techniques, we have now reached the stage at which a strike of 30 or 40 people can stop many thousands of workers who have no grievance. Indeed, it could be argued that it is this kind of fact—that 30 or 40 people can stop a huge number of people—which is in large degree responsible for many of the small stikes to which Lord Carr was referring, because it gives enormous power to a very small number of people. Those involved do not accept that they have any responsibility for the consequences they create—for the great number of people who lose their ability to work.

Consider the strike that has just finished at British Oxygen. It was an unofficial strike which stopped many thousands of people in a wide diversity of industries. This is typical of the problem Lord Carr was discussing. National and regional full-time trade union officials must accept responsibility for the victims of such strikes and they have to do what they can to end this victimisation. I put it to noble Lords that the real problem we are discussing in this sense is the complete divorce of power from responsibility in the trade union movement which is the root cause of much of our present difficulty and I believe that that is the key to which we must direct our attention. I was hoping that the noble Lord, Lord Carr, would develop his speech along those lines, but unfortunately he did not.

At national level, when there is a dispute, we have the TUC, ACAS, the Ministry of Employment machinery to deal with disputes. Those are not available to splinter strikes called when workshop bargaining breaks down and official trade unions disown the strikers. In other words, they begin something and they are in a blind alley immediately; there is no next stage. This is the main reason which leads them to attack the public rather than try to find some way to get a solution of their problem.

I suppose that the outstanding illustration of what I have called the divorce of power from responsibility is to be seen at Leyland Motors. I know of many highly responsible shop stewards at Leylands, but they are not, it seems to me, in charge of the policies which are pursued at that factory. I was pleased that the vote of the Leyland employees went in favour of a single bargaining unit for the Motor Division, as against the splinter bargaining which has obtained for so long. Many noble Lords will be as conversant with industry as I am. I had to do a lot of negotiating in engineering and I cannot think of any product in the engineering industry more simple to get a successful bargain about than a motorcar; solve six problems and you have solved the lot, whereas in some of the great general engineering factories we have thousands of problems, yet we manage to get an agreement. Therefore I have never understood what happens in the car industry.

The vote which took place was a triumph for the workforce over utterly unrepresentative shop stewards who sought to retain their power by retaining a set-up which is crazy by any standard of workshop organisation. It was of course the third occasion this year when the line which the stewards tried to carry out was shown to be against the thinking of the members. The first was when they tried to organise a day's strike throughout the whole of industry against the third stage of the incomes policy. Then they were going to have a great march on this place by hundreds of thousands of people, but it was a complete flop. Then they tried to organise a head-on clash with the Government with a demand for a 47 per cent. increase backed by an immediate strike, and again the workers defeated their efforts. As a former convenor of a huge factory, I would certainly have resigned if I had been guilty of such a misreading of the opinions of my members, although I have not noticed any of these chaps doing anything of that kind.

Another issue which must be looked at is that trade unionism is now being obtained on the cheap. If one takes the levels of increases in incomes as against the increases in dues to the trade unions, there is no comparison. This is important in the sense that there are not sufficient full-time trade union officials carrying out the declared policy of the trade unions and working in co-operation with their executive councils and national committees. That of itself gives the opportunity for spurious bargaining at factory level.

Therefore, I believe that the trade unions must examine themselves. I go with the noble Lord in saying that the Government must come in at some stage. But I think that the British trade unions must now analyse what has happened in what I have described as power being divorced from responsibility. I know the engineering unions better than I know others. I was appalled at the insults and the disgraceful attitude at Leyland when Hugh Scanlon tried to get a solution of the strikes which were going on there. That could not have happened some years ago. Shop stewards are within the jurisdiction of district committees and executive councils. There would have been a wholesale withdrawal of credential cards had that happened even a short time ago. I believe that the unions must now examine this dichotomy. They must also look at the reason why they cannot get sufficient full-time people to be on the job—I say this because, as the noble Lord knows, time is of the essence in all these matters—in order to affect a situation which can lead to disputes and strikes long before it gets to that stage. We have permitted cheap trade unionism to supervene in a rather silly way. In passing, I wonder how many noble Lords know of the research departments in the United States of America which deal with trade unions. They are glorious institutions which can analyse the technicalities of their industries, perhaps far more efficiently than employers. There is nothing of that type in British trade unionism.

I am sorry to have spoken for so long, my Lords, but I believe that here is the key to what the noble Lord was talking about. There must now be a demand that where trade union officials, elected by the membership as a whole, have been bereft of the power which those unions should possess, there must be a wholehearted attempt to get it back. So long as the kind of organisation which is typical of Leyland is allowed to be retained we will not get back to that position.

5.2 p.m.

Lord ROBBINS

My Lords, speaking from the Cross Benches I should like to echo the congratulations which have been given to the noble Lord, Lord Gregson, for his impressive and down-to-earth maiden speech. I can assure him that his remarks harmonise well with the traditional atmosphere of this Chamber, and I hope very much, as I am sure all noble Lords do, that we shall hear from him frequently in the future. I have an apology to make before I enter upon my theme. An engagement made some months ago, which I am unable to repudiate, may mean that I have to leave the Chamber before the debate comes to an end. I deplore that. I do not think that in 18 years in this House I have ever before been guilty of such a misdemeanour, and I promise your Lordships that I shall try not to be guilty again.

I will not follow the noble Lord, Lord Lee of Newton, in his highly expert and extremely thought-provoking discussion of the structure and tendencies of collective bargaining. Rather I want to revert to the themes which were developed by the noble Lord, Lord Peart, in his opening remarks from the Government Front Bench. I wish that I shared the buoyant confidence which appears to inspire the noble Lord. I personally find the present position an extremely perplexing one. I find it more difficult than almost ever before in my lifetime to peer into the tendencies of the situation in which we find ourselves. I do not know whether to be optimistic or pessimistic. I can see arguments on each side.

First, needless to say, I agree with what the noble Lord, Lord Peart, said about the comparison between our position today and our position 12 months ago. Surely there can be no question that in several fundamental respects the position has greatly improved. One thinks of the reduction in public sector borrowing requirement. Incidentally, I find it extremely difficult to understand the oscillations in the orders of magnitude which have been revealed just recently. I think that that is a gratifying circumstance. I think that it is a gratifying circumstance that so far the money supply has remained within the limits agreed between the Government and the IMF. I find it moderately gratifying that the rate of price increase is now slower, and that the balance of payments is becoming favourable. On all these matters there can surely be no caveat at the claims which the noble Lord made in his opening remarks.

Nor would I wish to dispute his claim that the principles of policy which have been enunciated by various members of the Government in the past few months have been courageous and realistic. I call to mind speeches by the Prime Minister, to the tendency of which, I presume, every right-thinking Member of this House would subscribe. I confess that I found it a little difficult to follow the noble Lord the Lord Privy Seal in his claim that there has been no application of brakes, that there has been complete continuity of policy throughout the tenure of office of the Government which he represents. I found that somewhat of an over-statement.

Holding the balance as evenly as a Cross Bencher can, I must say that I welcomed the admission by the noble Lord, Lord Carr of Hadley, that he would not be willing to claim that his own Governments in the past have been entirely immune from criticism, have been entirely immune from the suspicion, which some of us entertained, that some of the responsibility for the current deplorable state of inflation rests on that side.

Having up to now expressed very substantial agreement with the tone of remarks of the Lord Privy Seal, I must confess that I am unable to share his confident expectation that we are now set fair to recovery. I confess that I am unable to share the feeling of general optimism which was diffused throughout the majority of opinion in this country up to a few days ago. Let us suppose that our present policy is successful, and let us suppose that by next spring the rate of inflation is reduced to 10 per cent. per annum. I confess that I am surprised that people should view such a state of affairs with any degree of complacency. I find the rate of inflation of 10 per cent. per annum a terrifying rate. I find it a terrifying rate comparatively. It will still be in excess of the rate of inflation of our chief industrial competitors. If it is not reduced still further, then any advantage that we may have reaped by the comparative under-valuation of the pound sterling will very speedily pass away.

But I also find it is a terrifying figure, foreign competition and all that apart, from an absolute point of view. It may very well be that there are some sections of the community which, with the 10 per cent. guideline as regards average earnings, can, roughly speaking, keep pace with the deterioration in the purchasing power of money. But there are other members of the community who cannot. It may even be that there are such members of the community in your Lordships' House. I do not think that you can exaggerate the extent to which the current deterioration in the value of money is lowering, not merely the economic wellbeing of quite important sections of the community but also the general moral tone of our society, and is spreading cynicism and division among the members of it.

Will this guideline be achieved? I certainly would not stand here and argue that it will not, but I certainly do not think that at this stage we can take it for granted. The 10 per cent. guideline was, after all, supposed to apply to earnings. I have the suspicion that some people think that it applies to rates, which, of course, as the Chancellor has explained, have to be considerably below 10 per cent. if his objective is to be realised; and I thoroughly agree with the noble Baroness, Lady Seear, who reminded us that, in industrial relations, averages tend to be minima. All that may be wrong, but, in any case, at the present time there are some claims outstanding which are wildly in excess of the guideline, and certainly if they were granted, or if you struck an average between the guideline and the claims, we should speedily see the disappearance of our hopes for the slowing down of the inflation, and the strength of the pound would certainly be eroded.

This brings me to the question of the rate of exchange—a hideous question. Here I cannot help thinking that the difficulties of the situation have been to some extent elided in much otherwise well-informed discussion, and, personally, I must confess to real sympathy with the complexities of mind of those having the momentous responsibility of advising the Government in this matter. Needless to say—I hope I need not say it—if the strength of the recent demand for sterling was due solely to the expectation of a solid surplus in the balance of payments, I should decidedly have no objection to a rise in the rate of sterling. Doubtless such a rise would embarrass export industries other than those responsible for the surplus. Nevertheless, I should regard the balance of advantage to the community to be positive from such an appreciation. I certainly do not subscribe to the view that the rate of exchange should be kept low in order to protect export industries, other than oil.

However, the situation is not nearly as simple as that. The recent excess demand for sterling has doubtless been due partly to the prospects of an improving balance of payments, but it is obviously partly speculative, in anticipation of appreciation, and (what is not sufficiently emphasised in the technical discussion) partly due to the prolonged weakness of the dollar. That side of the situation can quite easily turn adverse with very disturbing effects on expectations in our own economy—an adverse turn which would certainly need a strong reserve to cope with it. Certainly, if current fears regarding the tendency of pay claims were to prove well founded, the strength of sterling at the rate prevailing till recently might easily wither away.

In the last analysis I agree with the proposition of the Governor of the Bank of England at the Mansion House banquet, at which I regret to say the noble Lord the Lord Privy Seal was not present. I agree with Mr. Richardson's proposition that adherence to monetary targets designed to diminish inflation must be one of the paramount objectives of policy. Let me say at once that this is not—I repeat, not—because I think that the movements of the money supply are the sole cause of inflation. I contend only that adequate limitation of the money supply is essential to cope with other causes. I admit that, personally, I would have hoped that there were other ways to cope with the excess supplies of foreign currency. I should not have been adverse to more relaxation of the exchange control to offset this inward movement.

I do not think such movements as British investment abroad, let alone the use of money to repay the massive debts that we have contracted abroad and which have to be paid off in the first half of the 'eighties, would be contrary to the national interest. But, besides that, as the situation built up, I will confess to your Lordships that the thought did cross my mind that some regulations preventing the inflow affecting the money supply, regulations, perhaps, of the kind practised to some extent in Germany and Switzerland, some segregation of deposits of that sort, would not be out of order. But these are complicated, expert matters. I am prepared to believe that in this respect I may have been wrong in underestimating the difficulties. At any rate, I am wholeheartedly behind the insistence of the government of the Bank of England that keeping to the money supply target is very important; so that if, for technical reasons, there was no other way of maintaining this objective, I agree that floating was incumbent. But I do not think we should deceive ourselves in this connection. If the rate of inflation moves up again, a higher rate of exchange will not be with us for long—and that is not a circumstance which causes me any gratification whatever.

The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk)

My Lords, before the noble Lord sits down—he said he will not be here later for the winding-up and he asked a number of questions—may I say that I was not sure whether he was optimistic or not. I should point out that when my noble friend (who was not here when the noble Lord was speaking) was, himself speaking, he did show optimism, which the Government are entitled to feel, but did not show any complacency. What he was saying was that the 10 per cent. rate of inflation was a decrease compared with inflation in the past and that we were able to get it down because the earnings in Phase 2 were held at around 8 per cent. I feel that it would be a great pity if the noble Lord, who is a distinguished economist—and I know he recognises that economics is not an exact science—were making his projections, which he appears to be, on a basis of pessimism rather than of giving the Government the benefit of an optimistic doubt.

Lord ROBBINS

My Lords, I hope that I do not stand truly reproached by the noble Baroness. I certainly did not intend any discourtesy to the noble Lord whose buoyancy of expectations inspired in me, as I listened, a certain temporary glow of comfort. I really do not know how to reply to the inquiry by the noble Baroness, Lady Birk, concerning the general tendency of my observations. I opened my speech by saying I found it more difficult to peer into the future than ever before in my lifetime. I really do not know whether, if she were to threaten me with a gun, I should be able to say that I was at this moment optimistic or pessimistic.

5.24 p.m.

Lord AUCKLAND

My Lords, those of us who recall the gracious Speech of two Sessions ago may well, in comparing it with this one, use a musical connotation: the storm scene in Beethoven's Pastoral Symphony, at that time, compared to the delightful final movement of the scene by the brook, this time, where all is relatively quiet. If I may use a Scottish connotation, having a good deal of Scottish blood in me, I would describe this as a rather "canny" gracious Speech. There is much in it for which we should give credit; there is a good deal in it which relative simpletons like myself cannot quite fathom out; but no doubt, as the Session progresses, we shall be able to understand a little bit more about what it means. Ministers are always under a great difficulty when speaking to the gracious Speech because in four days a great many questions are asked and a great many statements are made; and if they were to reply satisfactorily we should be here until Doomsday.

I should like to add to the congratulations that have been extended to the noble Lord. Lord Gregson, for a most restrained, sensible and valuable maiden speech, borne out by his tremendous experience in industry. His further contributions will be very much welcomed. I should like to say a few words about the construction industry. Here I declare a very minor interest as a non-executive director of a very small construction company which has had its struggles but which, over the last two years, has managed to acquire a number of orders. The construction industry employs per capita more than any other industry in this country and, of course, the £400 million which has been injected by the Government into the industry is very welcome so far as it goes.

I do not want to press the noble Baroness too hard on the gracious Speech but there are one or two questions which I think are important. Perhaps her Department could study the answers to them, because the industry is very worried about some of the implications of this grant. For example, how will the grant be distributed? Will the small construction industries be considered—and many of them have been in dreadful trouble, for reasons which are not difficult to fathom, over the past several years—or will the very large industries get the lion's share? One of the difficulties at the present time is that so many of the real experts in the industry are operating a kind of brain drain, are going to the Middle East or elsewhere, because of conditions over here. The blame for this cannot be entirely laid at the feet of the present Government. I think we must be fair here: all Governments have a certain responsibility for this situation.

There is also the question of training for the future. Will this £400 million be sufficient to attract young people for training purposes into what is a very vital industry; or are we going to have a further brain drain here? Over the years we have had more bankruptcies in this industry than in almost any other. It would be a crying shame if the smaller businesses engaged in the construction industry—and there are many facets of the industry which concern small businesses—suffered at the expense of the very large companies. As has been said in this debate, a small business—and I have worked in a small business all my life in the City of London—can, generally speaking, produce a more efficient product and enjoy better labour relations. Labour relations in the construction industry have, on the whole, been relatively good compared with a number of other industries.

Then there is the question of safety—another very important point. As a vice-president of ROSPA, I must declare a non-financial interest here. We now have the Health and Safety at Work Act, and I hope that this will be applied very rigorously, not only to those who hold key positions but to those who are undergoing training in the industry. The export record of the industry is excellent and one only has to read the Financial Times each Monday to see the achievements which the construction companies—and, notably, the smaller ones—make and contribute to our exports.

I should like to say this about small firms in general since much mention has been made of these. Of course I agree that small firms do not like to cry wolf and, just because they are small, expect a Government to adopt a "lame duck" policy towards them. They must be taken on their merits, and, generally speaking, these merits are considerable. Having also worked for a time in the field of management consultancy, I know—we all know—the value of communications, and in small firms these work admirably. For very obvious reasons this is not always the case in a very large company. It is so often lack of communication between the boardroom and the shop floor or the managing director's office and the typists' pool which leads to, if not industrial unrest, dissatisfaction.

I think perhaps we are overfed with some of the implications of industrial unrest. It hardly needs me or any of your Lordships to adumbrate upon the present very serious situation within the power industry, within the firemen's dispute, coalmining and elsewhere. It would be wrong and out of order to express views in this House while negotiations are continuing. From this House we wish those who are engaged in these negotiations Godspeed to get things back to normal. But there is one form of industrial unrest which is creating very real cause for concern, and that is on the railways. I am bound to make this point as one who has commuted on the Southern Region of British Rail since 1954: why is it that at five o'clock on a Friday evening two Southern Region stations are completely closed down because of one disciplinary problem? It is not so much the inconvenience to the general public—that is a serious and grave point here—but it is the publicity which this naturally gives—and particularly publicity outside this country. Incidents like this, which are short in duration but which cause great inconvenience, also create a great deal of exaggeration and the situation becomes out of proportion.

It is very clear that the economy as a whole is showing at least an underlying upturn. For this some credit should be given to the Government. They are now suffering from some of the headaches and problems from which the previous Government suffered. If the Government continue to stand firm on the guidelines which they have laid down by Statute, it is essential that they should receive support from all Parties and all persons in this country.

5.38 p.m.

Lord SPENS

My Lords, first I want to refer very briefly to the recent Jubilee celebrations which are mentioned in the first paragraph of the gracious Speech. We have all enjoyed this year of Jubilee and I believe that all of us who remember it have seen glimpses of that spirit of comradeship which we last saw during the war. It is a great pity that there does not appear to be any indication that Her Majesty's Government are trying to extend that spirit into the future. At the same time, throughout this year we have been plagued with the spectre of ever increasing unemployment. Who would have thought of a Labour Government, brought up on the basic policy of full employment, apparently accepting the inevitability of continuous unemployment of over 1 million people? Is that not how one interprets the paltry paragraph in the gracious Speech which says: My Government will continue to take action to reduce high unemployment through manpower measures and to promote industrial training"? Surely this places a very low priority on the battle to get rid of unemployment.

We have been plagued with strikes and go-slows. I do not need to refer to them any more because almost every other speaker has done so today. We have been plagued by that very nasty face of trade unionism, the mass picket—attempts through sheer numbers of bully boys to trample over small businesses, the who result being that it is the police only get hurt. We have been plagued by the fact that large businesses are ready to lay off hundreds, even thousands, of workers at very short notice because something or other has disrupted their production programmes, whether it be a strike or a lack of orders. We have been plagued with the utter failure of many large businesses to communicate quickly enough with their employees over future plans which will affect the very lives of those employees. This lack of communication has been the cause of several strikes.

We have been plagued with a Government which in the past had so grossly mismanaged the economy that foreign bankers had to be called in to put the brakes on the spending spree. I was quite staggered this afternoon to hear both the noble Lord the Leader of the House and, a little later, the noble Lord, Lord Lee of Newton, referring to the 1974 explosion of wages as if it were something that had happened in another world and that they had no responsibility for it. Surely it was the same Government that allowed the wages explosion to happen, and we have all suffered as a result. We have reached a state where a reduction, however small, in the rate of inflation is treated as though prices were actually beginning to fall. I think that point was made by the noble Lord, Lord Robbins. Only a few days ago my wife said to me: "Why is everyone getting so excited about prices? They are still all going up." Yet the Press seem to think that something wonderful has happened.

We have been plagued by the multitude of petty powers exercised by too many "little Hitlers" and "little Napoleons" who continually try to stop us from doing what we want to do, whether they be planners, persons with extraordinary powers of entry into our houses and offices, or just officials who automatically say "No" without giving any real thought to our problems. Many of these petty powers are enshrined by the multitude in recent legislation and in the regulations based on that legislation.

My Lords, I have given you seven modern plagues to take the place of seven of the plagues of Egypt. The plagues I am writing off were those relating to frogs, lice, flies, murrain on cattle, boils, hail and locusts. Thank goodness, modern science and technology have made it impossible for such plagues really to affect us! But we are left with three out of the 10 plagues of Egypt which do have a little effect today. First, the river of blood could come true very soon. If mass picketing goes on, the blood that will run will probably he that of the police and of innocent bystanders. Then there is the three-day blackout of the sun. We have not had quite that, but we have had something very like it. The slaughter of the first born, while not so devastating as it was in Egypt, if aimed possibly at the hereditary Peers in this House, could cause some little effect.

The big question now is: Do we want to rely on Moses to lead us into another 40 years of trials and postponements always until tomorrow of the joys and pleasures we think we deserve today—another 40 years of huge unemployment, strikes and all the rest of the modern plagues? There is no indication that Moses knows how to get rid of any of these plagues. Or do we entrust ourselves to the magic wand of the Good Fairy and hope for a miracle to solve our problems? If only she would give that wand a very small shake to show that she knows some of the answers to our 20th century problems, we should be much happier.

Surely it is time for all of us to get together, irrespective of Party, in the work of planning and, to switch metaphors, of planning a 20th century Magna Charta. I was encouraged not by anything in the gracious Speech but by references made by the noble Lord, Lord Carr of Hadley, by the noble Baroness, Lady Seear, and by the noble Lord, Lord Lee of Newton, to the thought that some kind of long-term planning has to be undertaken to help us to get rid of these modern plagues. We know who are the 20th century barons. They are not here, except perhaps for one or two. They are the people in all walks of life who have too much power to wield and who wield it to the detriment of everyone in order to obtain a temporary advantage for themselves and for their members. As a fitting finale to the Jubilee year, I should like to see the establishment of some kind of planning agreement between the Parties to tackle these longterm problems.

I should like to put the following suggestions for incorporation into the new Magna Charta. First, the treatment of the workforce by firms must not just be as of an ever more expensive cost to be reduced wherever possible, but as a long-term and valuable asset in which the firm has invested. That would get rid of the plague of lay-offs just because of a temporary shortage. It might also get rid of the plague of failure to communicate with the workforce. Secondly, the introduction, as hinted at by the noble Lord, Lord Carr of Hadley, of a permanent three-day week for labour while machines work for six days: in other words, double the labour force everywhere but make productivity play a much greater role than it is allowed to do at present. That would get rid of most unemployment. Thirdly, I suggest the complete revision of taxation, to do away with the present appalling disincentives of PAYE and, to a lesser extent, the capital gains and capital transfer taxes. I believe that PAYE is the worst disincentive ever to be imposed upon us, and it has been the cause of a lot of unrest and complaint by millions.

Fourthly, and most important of all, I suggest a Bill of Rights to limit, if not to abolish, the right to strike; to limit very drastically the powers of today's "little Hitlers" and to limit the powers of any minority Government. By that I do not mean a Government which have lost their majority in the other place, but a Government which represent only a minority of the people in this country. It would limit the Government's powers to force upon an unwilling majority the sort of legislation to which we have been subjected lately.

My Lords, you may say that all this is pie in the sky because we could never pay for it. But with the use of the revenues from North Sea oil and from the unemployment fund, if that is no longer to be needed, I believe that such a scheme could be properly financed. However, the plans for it must be made quickly and now, before Government have frittered away our North Sea oil revenues. We have such an opportunity today; it may be our last chance to preserve our democracy. Let us not miss out on this chance just because it does not fit in with any Party's short-term policies. Let us, for once, sacrifice Party political gains in the hope of achieving something better for the coming generations in the 1990s.

5.51 p.m.

Lord HARMAR-NICHOLLS

My Lords, it was with feelings of some personal relief that I heard the opening words of the noble Lord, Lord Spens, who has just spoken. I thought, until then, that I would be the only one who was marginally critical of the speech of the noble Lord the Lord Privy Seal today. But it would have been very unfair if I had been the only one, because my personal regard for him is such that I have all the qualifications to be president of his fan club, whenever it is formed. But, today, I do not think that he really did a great service.

The noble Lord, Lord Robbins, whose speech was perhaps the most honest one we have had today and, certainly to my mind, the most effective, went so far as to say that he could not share what he called the "buoyant confidence" of the Lord Privy Seal. That is as far as the noble Lord, Lord Robbins, went. I have to go further than that because, while the noble Baroness, with all her skill and charm, stepped in to defend the Lord Privy Seal even before he had been attacked, to say that he had not shown personal complacency, I should have to say to the noble Baroness that whether or not he intended complacency—and I accept her word that he did not—the words he used today and the general context of his speech were such that they could only fertilise complacency in others. When the report of the speech is read, I think they will recognise some justice in what I have said.

What did the noble Lord the Lord Privy Seal do? How did he present his case? It really was an upside-down kind of appeal. He went to great trouble—and nobody could disagree with this—to say that, compared with 12 months ago, when things were dismal and dangerous in almost every field to the point of near disaster, they had very much improved. He quoted evidence, evidence which I accept and which it is right to have on the record. But 12 months ago his Government had been in power for two years. It is what they had done for two years which had brought about that dismal phase, compared with which he was able to talk about the great improvement. I thought that my noble friend's simile about breaking a leg in order to show how wonderful you are as a bonesetter was absolutely proved by the words of the noble Lord the Lord Privy Seal in his speech today.

But the part that disturbed me was the one sentence which I took down. When he was asking us to applaud what the Government had done, he said, in relation to the change which he said had started 12 months ago, that their policies had been endorsed by the International Monetary Fund. We know perfectly well, and so does he, that the policies recommended, indeed insisted upon, by the IMF were the absolute opposite of the policies that had been pursued for two years. The very idea of suggesting that they had endorsed the kind of policies that had brought us to that position was not a fair statement of the situation.

The reason why I dared to interrupt him—and it is very difficult to interrupt in your Lordships' House, which is perhaps a good thing; but the Order Paper says that we are having a debate on the gracious Speech and a debate means that one reacts to what is said, as distinct from reading a prepared paper that the midnight oil has helped one to get through—was that the noble Lord was giving the impression that this inflow of hot money was a wonderful thing from every point of view, and that it was likely to last.

Lord BALOGH

My Lords, may I interrupt? It is very difficult.

Lord HARMAR-NICHOLLS

My Lords, I shall quote the noble Lord in one moment. Perhaps he could just have patience, because I am going to agree with the noble Lord and I want to bring him in as a witness to support what I want to say. So perhaps he would like to interrupt me when I have used his words in support of my case. It will not take a minute. I want to remind the Lord Privy Seal of a quotation which I happen to have with me—I did not know that I would use it—which is that at, …the Lord Mayor of London's annual dinner for our top bankers and businessmen last night, a significant warning emerged. It was delivered by Mr. Gordon Richardson, Governor of the Bank of England, in the presence of Chancellor Denis Healey, on the day which brought forth a worrying increase in money supply. In the five weeks to 21st September the money stock rose by £920 million, around 2¼ per cent. … the situation gave no ground for complacency 'rather it emphasises the need for a sharp weather eye on present and possible future developments and the exercise of nice judgment'. That is what I gather the noble Lord, Lord Robbins, was saying, too, but that was not the impression given by the Lord Privy Seal, who I am delighted to see is back in his seat. Nor did he heed his noble friend Lord Balogh, who is going to interrupt me in a minute, who very wisely put this to the Lord Privy Seal on 26th October when the Statement was made on the last little Budget of the Chancellor. The noble Lord, Lord Balogh, asked: … does my noble friend not think that relaxation of exchange control on the basis of hot money flows is rather hazardous as was shown in 1951–55 and 1959–61 et cetera? When shall we learn that we should distinguish between real improvement and seeming improvement? "—[Official Report, 26/10/77; col. 1228]. Very wise words showing very great caution, which apparently the Lord Privy Seal did not take to heart if one looks at the tone of his speech today in presenting his version of the position.

Lord BALOGH

My Lords, I think that it is better to have hot money in, than hot money out.

Lord HARMAR-NICHOLLS

My Lords, the noble Lord likes to back his horses both ways, but on this occasion his first throught was very likely the better one. I hope that the advice he gave in that question will be taken to heart by this Government and any other Government. That is really an addition to what I had it in mind to say on the gracious Speech, when I asked for my name to be put on today's list of speakers. I really wanted to continue the question that I put to the Lord Privy Seal on 26th October, when he was repeating the Chancellor's Statement. What I said to him in that question was: … is the noble Lord aware that the sluggishness in industrial development at the moment is less due to the supply of funds than it is to do with the general feeling that employment regulations make it almost impossible for management to manage? He mentioned in the Statement that the Chancellor of the Duchy and the Treasury were looking into these matters together. Have they the power to look into this question as to how much employment regulations are the cause of quite a bit of the unemployment that we are facing? The noble Lord the Lord Privy Seal said: …I would not necessarily accept that, but I will look at the point and have a word on this matter with my right honourable friend the Chancellor of the Duchy".—[Official Report 26/10/77; col. 1228.] So that the first question I want to ask him is: has he put that to the Chancellor of the Duchy of Lancaster, and has he had any reaction? Is there any suggestion that there is any force at all in the point I made that, however attractive the easier funds at the moment may be, that will not really encourage the investment and the general buoyancy of industry and business generally that we need if, first, we are to get rid of this unemployment; and, secondly, we are to put this country back, higher in the league than it stands at the moment? If the noble Lord has put the point to the Chancellor, perhaps we may be told later on. If not, I should like to add the reasons why I put that question to him when he repeated the Chancellor's Statement. I put it because I often wonder nowadays why people undertake the responsibility and risk of owning and running their own businesses.

When I first started my businesses, which have been reasonably successful, 40 to 45 years ago, the conditions and general climate were such that you could have some confidence that you would be able to run your businesses in your own way and give your own views without overburdening intervention by Government or anybody else and with a reasonable chance that you would be able to keep a reasonable amount of the profits you might earn in order to develop your businesses. I often wonder now why people undertake the risk and responsibility of taking on their own businesses.

I worked out three reasons why people do it. The first, undoubtedly, is the commendable and natural urge to be one's own boss. The second reason is the self-confidence which makes people believe that their extra effort will result in giving them more money and, consequently, a higher status in their neighbourhood as a consequence of their material success. The third reason why I think that they do it is the hope and belief that they are founding an enterprise, however small, which their children, or anybody else whom they nominate, can perpetuate or benefit from. I should have thought that was a fairly reasonable reason why people undertake this risk and mortgage themselves and their possessions in order to be responsible for starting and running a business. However, over recent years, particularly over the last four years, each of these reasons has been under attack to the point of being undermined. It has been under attack deliberately by some people who are extreme in their political views. If I may remind my noble friends on the Front Bench, it has also been under attack from the wishy-washy pink outlook of some of our Conservative Administrations over recent years.

Lord PARRY

My Lords, will the noble Lord give way at this point?

Lord HARMAR-NICHOLLS

Certainly, my Lords.

A noble Lord: No, my Lords.

Lord PARRY

My Lords, I am advised that I should not intervene. However, I feel that I have been invited to do so, and I must ask the noble Lord whether or not most small businesses have been killed off by large businesses rather than by the intervention of Government?

Lord HARMAR-NICHOLLS

My Lords, that may be an extra reason. However, I was outlining the particular reasons that I in my business life have found to be most relevant. I have never been frightened of the big competitors because they are big and therefore have access to greater funds and of not being able to have my share of what was going in my particular field of business, because they never had the force of law, the force of creating a monopoly. But Government intervention has those things. I have no say about what my telephone bill will be because of mismanagement. I have no say about what my tax will be and no say at all about what the cost of nationalised industry supplies, which I must have, will be.

I am not frightened of competition, nor would anybody with any guts and any ambition at all be frightened of the big boys. However, I am frightened of the effect which Government intervention can have because it is unfair intervention. That is why I gave the three reasons. First, you take on the job because you like to be your own boss, but today it is an impossibility to be your own boss. Today you are the servant of so many bureaucrats in both central and local government. They have the power to walk in, examine your books and insist on your being a tax collector. They settle your wage rates and leave you in a position where your employee can walk out on you with a day's notice, whereas you have to give him at least a month's notice; and even when you do that you risk the charge of unfair dismissal.

The point I should like the Lord Privy Seal to pass on to his right honourable friend, whether or not it is well based, is the general image—certainly in small and medium-sized businesses and possibly in big ones, too—that the tribunals dealing with unfair dismissals are not, by and large, fair. The feeling is that too often a solicitor is the chairman—too often a solicitor who has not been a success in his own line and that is why he is available to be chairman. Next there is the employer's representative who, as is so often the case in our country, is inarticulate and who does not seem to take detailed interest. Then there is the trade union representative who does take a professional interest in the employee and who is usually very articulate and very keen, and who does his homework. As a result, you do not get the feeling that the tribunal decision is as objective and impartial as you do when a case goes before the law courts, where you have the chance to put your defence and call your witnesses in a traditional way.

I suggest that this problem ought to be looked into if the Government want medium and small-sized businesses to have sufficient confidence to borrow money to invest and expand so as to employ more people. All of these points together make the phrase "being your own boss" an absolute mockery.

Regarding the profits that are made in order to improve your general position and give you the satisfaction of knowing that you are being a success, the impossibility of making a net profit today in small businesses is driving people out of private business ownership. More than any one thing, as has already been mentioned, are the tax levels. Then the cost of electricity, telephones and the points I have mentioned, including the training levies you have to pay, are all outside the control of the operators of the business and make financial success almost unattainable in many instances, however efficient a person may be in his own trade.

The third reason—the incentive to take a risk because you feel you can pass on to your children or to the people whom you nominate—has been undermined. Capital transfer tax has killed that inducement stone dead. There are 800,000 small businesses in this country which come under that heading, and a terrific proportion of the 800,000 at this minute would wish to invest more money in their businesses and expand them. This means that they could take on extra people. It' there are 800,000 such businesses, they have to take on only one extra man, if they have the confidence to do so, and the unemployment list is halved, big though it is today. Whatever the reason for dissent that the noble Lord may give, the feeling that you are not going to be able to pass on this business, if it is a success, to the people you nominate is one of the biggest disincentives to the kind of encouragement that we want today.

I outline these points for the Lord Privy Seal only because they are ones which have to be taken into account, quite apart from making the borrowing of money more attractive and making the funds available. These are general feelings regarding the lack of being in control. My noble friend Lord Mancroft described this problem perfectly. He was absolutely right from the point of view of the people who are in a position to help the unemployment problem. You must alter the atmosphere and give management the feeling that they are going to be left to manage. At the moment that is not being done and that is not the feeling that is abroad.

Baroness BIRK

My Lords, the time!

Lord HARMAR-NICHOLLS

My Lords, the noble Baroness never likes to hear me make a speech. Every time I have spoken in a debate she has drawn my attention to the clock. I can tell the time. I also have noticed that little thing there, showing length of speech. But if something is entitled to be said I feel that it ought to be said, and I do not believe that we ought to be coy about it. It is because people who hold my point of view have been too coy in the past and have not been prepared to go on to the witness stand that the Party to which the noble Baroness belongs has been able to get away too often with very near murder. Having said that, I hope that my message will be passed on to the right quarters and, more important, that something can be done about it.

6.10 p.m.

Lord RHODES

My Lords, I listened to the noble Lord, Lord Spens, criticising the Government and, while agreeing with some of his strictures, I must say to him in all seriousness that one of the tragedies of the present day is that there is no real credible alternative Government in sight, even on the far horizon. With regard to the speech made by the noble Lord, Lord Harmar-Nicholls, on the subject of the small businessman, may I say that there is more humbug being talked about the small businessman today than ever before. I do not think anyone could appreciate what it is like to run a small business until they have sold their car on a Thursday night to help to pay the wages on a Friday.

What I wish to say to this Government is this: show some real reaction to the small businessman by doing something about the shocking injustice for men who have forged their own businesses and who, because of age, have sold and retired from those businesses. They have taken the due reward of what they have done in their lifetime. What they have received is their savings and they have been eroded by inflation and, to cap all, they are subject to the imposition of a swingeing 10 per cent. extra tax. For goodness' sake, give the present generation of small businessmen some indication that you are not going to penalise them when they retire. That is all I have to say on that particular subject.

Our early Industrial Revolution gave us a start on everybody else. It gave us notions of grandeur; it enabled us to build a Navy and to build an Empire. Empire preferences feather-bedded us for imports and exports, and meanwhile our manufacturing base became eroded. Invisible exports filled the part of the gap created by the erosion, but now we have North Sea oil. I reckon it is very unfortunate that the realisation about our eroded industrial base has coincided with the most unusual recession that I have experienced in a long life. All the recessions since the war have been lulls between more and more capacity to clothe, feed and service an ever-increasing world population. Of course, every now and again we have had a cutback to discipline the way in which the economy was being run: a mild credit squeeze, a guideline or two, and, hey presto! on to the next Budget with a mild reflation. That familiar pattern of filling up spare capacity and then a bit of confidence to invest that came nearly at the top of the boom, and more unused capacity at the next recession. This time 20 per cent. of British industry is unused.

There are certain very different additional factors which prevent a simple solution on the old-established orthodox lines. We have UNCTAD and a hundred organisations clamouring for a better deal for the poor nations, the Third World, North and South, black and white, insistent and demanding, and then we have OPEC—a phenomenon that we never thought we should have to face. In retrospect it makes one wonder how on earth the Western multinationals held the oil producers in thrall for so long.

What are the big debates which arise out of this? The first one is this: Is our present economic system capable of meeting the challenge of the day? Everyone has that question at the back of his mind; doubt on this is continually being expressed. The people on the Left are forever making promises to the workers that, with just a little more movement to the Left, there will be more bounty and better times ahead. We are told that the rich are getting richer, the poor poorer. The spivs and stars spring up into public prominence overnight—money, money, money, more money, for God's sake more money! That is what you see every time you open your paper in the morning. It is materialism gone mad. Until we really believe in what is good for us politically we can whistle for improvements in industrial relations; we can whistle for the tolerance needed to get us into the 21st century without disaster. People become enthusiastic about what they think and what they do if it can be demonstrated that there is no better way of doing it. If we cherish the freedoms, hard won as they have been, that we have got, there is no better proven way than the system we have; and I will tell you why.

It never seems to be brought out in argument these days that you can have a capitalist and a non-capitalist dictatorship but you cannot have a democracy without a fair amount of capitalism. When you look around the world, if you can tell me one good democracy that is not also a capitalist country I should like to hear of it—and, moreover, the system has been eminently successful. What can we do to catch up on our eroded industrial base? Short-term, long term, investment for efficiency is the only antidote to devaluation. Just as a strong currency—and let people mark this—is the only antidote to inflation. We shall never make any progress with regard to inflation until the currency is strong and until industry in this country is able to face up to the competition that that implies. Can we weather this politically until our industrial base becomes efficient, or are we in for massive remits from North Sea oil to bolster up steel, cars, Drax—you name it?

Then there is the big one that everyone is questioning and everyone is anxious about: What are we going to do with North Sea oil revenues? It has not been mentioned so often this afternoon as I had hoped; indeed it has hardly been referred to. There is no doubt that as long as oil production remains high the exchange rate will float upwards and come to rest at a point which reflects the balance-of-payments surplus generated by North Sea oil. But the other point is that alongside that is the question of "non-oil" balance of payments, which is at the crux of the whole of our modern debate. This is the point which can reduce our unemployment. Let nobody forget it. The whole of our situation, with our present inefficiency, lack of productivity, the lack of investment we have heard so much about this afternoon, lack of investment in the latest technical equipment, the high exchange rate, means that most of our goods could of course be overpriced in other markets. These are the thoughts of a comparatively (shall I say?) modest student of the times, but one having had a background as a manufacturer, which has been a discipline.

The next stage to this argument is: How do we make certain that North Sea oil leaves us something to live on once the oil has run dry? This problem is not just concerning this country; it is concerning every single oil producing country in the world—and I have been to several during these last two years. They are all at it. They are all buying machines against the day when their oil runs out. I went to Venezuela last year. They are up to the neck in it, buying know-how and machines from all over the world. Have we not seen the results of all this in Iran? It is worldwide. It would do our ordinary folk good if they could go overseas and see what is going on, because that is where you are going to get your cheap competition from. They have cotton mills, woollen mills, steel mills; and they are starting from scratch. They are not like our steel industry carrying 44,000 people too many. I hear on very good authority that you could close up the whole of our steel industry—and that it would pay the country to do it—and pension the workers off. Well, that is a smart state of affairs, if that is true!

Everyone in the world agrees that oil, this great gift of nature, should be used to build a brighter future for everyone and not be wasted in jam for today. But how many people are qualified to give an interpretation that makes sense about this? We want to hear more from the people who can. Being interested in this, I went to Sweden and had a stay there in the Recess, just as I have been to Germany on several occasions during the summer to have a look to see what is happening. Sweden—mentioned by Lord Carr this afternoon—is the most sophisticated nation in the world in terms of modern science and modern technology. What do we find? They believe that the problems have been too big for the business and the unions to settle for themselves. They, too, feel that the problems have grown much deeper than ever before; and when strictures are made about our Government today, it wants to be understood that this is the most difficult situation that has ever been encountered in industrial Britain.

The basic problem with Sweden is lack of competitiveness. They are accustomed to exporting 60 to 70 per cent., in some cases 90 per cent., of what they produce. But their unit costs of labour have gone up far higher than they have here. From 1974 to 1976 they went up by 60 per cent. So they have had three kroner devaluations this year. This is the country which has been held up as a model to all the industrialised world. Everything in Sweden is going to depend on the unions, and the unions in Sweden understand the political implications and the economic implications better probably than unions anywhere else in the world, perhaps excepting Germany. They know what the situation will be if what they get is not earned.

This is accompanied by loss of productivity. In the 'sixties productivity rose by 8 per cent. per annum,. From 1970 to 1974 it dropped to 6 per cent. Productivity in Sweden is now 1 per cent. It is causing a lot of worry, because they know that high efficiency gives high standards of living and a high level of social justice. And yet in Sweden 12 per cent. of the productive capacity is idle. They have made it very expensive to shed labour, so they try harder to get the orders. They are victims, too, of the tax and the welfare system converging, so reduced incentives to work increase voluntary absenteeism. That is the gloomy side of Sweden. But what I admire about the Swedes, unions and management alike, and Government, is that they do not see any alternative to the present system in the West, and despite the fact that they are in difficulties at the moment they have the confidence to go ahead and invest in the latest equipment.

I want to say this in conclusion. The argument is going on under three heads about North Sea oil revenue. Some say: "Let us have a great balance of payments surplus and the rapid repayment of debt." Others say: "Let us tipple the money into the National Enterprise Board and get everybody efficient again over the next 10 years." Then there are those with the liberal ideas, to spend it, in the hope that when you spend it it will generate enough activity to mop up the unemployment. I want to draw this fact to the attention of the House, that unless you do your efficiency investment first there is no hope of mopping up any labour later on.

It may be that we shall compromise on these three ideas about what we should do with North Sea oil. I would urge the Government to make a compromise between the first two, the repayment of our debt and the use of the National Enterprise Board and other media to increase our efficiency by the introduction of better machines. May I suggest this to the Government. You have your little Neddies who are the people in touch with industry at grass roots. Why cannot you bring in now a scheme that little Neddies report the number of machines in their own particular industries which are 10 years old or more, and gradually introduce a system whereby there are no machines in the manufacturing industry more than five years old. It will take 10 years to do it, but if we can set off with a plan of that sort it will give confidence to thousands of people in this country that the Government know what they are about.

6.30 p.m.

Lord DAVIES of LEEK

My Lords, it is always most interesting to follow my noble friend Lord Rhodes. From his vast experience as an individual in manufacturing and in the textile industry which was of vital importance to us from the 19th century right up to today, I have learned quite a lot from him in private conversation. I am sure that the other place and this House has done so from time to time. At least he tries to awake the spark of reality.

I have thrown my speech away. You will be overjoyed to know that my speech will take six minutes. That will please the House more than anything else. I have heard a good deal of talk, but I do not think that anyone has read the gracious Speech. The speakers have all said what the Government must do. However, the gracious Speech says: My Ministers will continue to work in close co-operation with the Trades Union Congress and the Confederation of British Industry". Did the House expect a diagram of that during this debate? We shall have an opportunity during the next 12 months to draw a diagram of that co-operation and, I should hope, make constructive suggestions from both sides of the House. I shall refer only to a couple of points, but the Gracious Speech goes on to say: Continued encouragement will be given to the efficient production, processing and distribution of food "— thank God for that— with the aim of meeting a greater proportion of our national needs from United Kingdom agriculture. My Ministers will seek improvements in the operation of the Common Agricultural Policy". I do not want to sit down tonight without mentioning the small farm. I do not mean the small farmer; I am referring to a farm with a small acreage. That is small enterprise, and no Government have done more for small enterprise in agriculture than British Labour Governments from 1945 up to today. Britishagriculture as neglected by the Conservatives and by the financiers. There has always been this dichotomy. "Dichotomy" is a wonderful word: I have heard it used here I think three times today. I repeat, there has always been the delicious dichotomy between the high-falutin', sharp-shooting, bumping, tough financier and the poor agricultural worker or the small entrepreneur in a textile factory like that of my noble friend Lord Rhodes. We have applied today 19th century language, 19th century so-called axioms, to 21st century problems. I have written a couple of booklets on oil and I have knocked around the parts of the world where they produce oil. We used the expression: "They were beggars sitting on a tin of petrol, the rags of their poor behinds beating their brains out because they had no chance to think that they were exploited". The capitalist countries of the world could drag on the oil. They did not care much about the people searching for the oil. The Darcy Corporation did well, but for the people who lived there it was all finished.

I am glad that my noble friend mentioned the North and South problem, the Lomé Convention and the East and West problem. We can no longer get the raw materials at the prices at which we received them in the past. We must face that situation. Consequently, the old-fashioned enterprise that helped to make Britain great and which had a place in the gambit of human information, namely, the smaller capitalist enterprise, can no longer work. We have now invented State capitalism. We push money in. Noble Lords may ask about pushing money in. In the last two years we put more money into small enterprise than dear old Tommy Lipton had tea leaves. Damn me, the Government cannot get the statistics right because the Treasury will not employ accountants. We cannot trust the Treasury' statistics. Every time we have statistics baled out here, who is the authority for them? Who is the authority for the white books? About two years later they say that they were £2,000 million wrong. I am not making this up. This has happened. We must start to put the House right. If we have 21st century methods of production we must not depend too much on computers. Computers give the wrong answers if the people working them are daft enough to put in the wrong questions. We seem to be living in a society where we apotheosise a machine. Whatever system of society we go into we still depend on human know-how. We must learn that or perish.

Thus I make a plea that when we apply the Common Agricultural Policy we keep alive British agriculture and the opportunity of the small farm. Small is beautiful. Russia learned the lesson and I have been around its huge farms. Our most productive farms in Britain are still in many cases those that have small acreages. I do not want to lose that initiative.

I turn to my own people, the miners. I come from farmers and miners. If you want miners to cut the new coal seams then the industry must be made attractive. For heaven's sake, do not let us make mistakes such as the right honourable lady made on the television the other night. The productivity of the collier today is higher than ever, but his production is lower. I have said this before in the House. When I was a youngster there were 60 pits in the Rhondda. Now there are two. Therefore, if your production goes from 2 cwt. to a ton a shift and instead of 60 pits you have only two, your production must go down. Somebody does not seem to have grasped that elementary fact.

We shall have a delicious time ahead of us discussing the wonderful hopes of this Labour Government or any Government in a transition period. I know that if we cannot get a sense of decency, the elimination of greed and much more of the spirit of comradeship and working together that we had during the war, this country will lose its greatness. However, I have enough faith that whatever Government wins the next Election the people by then will have learned that we must work to make Britain great again, whatever the Queen's Speech may contain.

6.40 p.m.

Viscount AMORY

My Lords, when a distinguished Welshman says that he will throw away his notes, I do not believe that it makes the slightest difference, especially when the agreeable subject of debate is a small farm on which 1 know the distinguished noble Lord, Lord Davies of Leek, spent a good deal of his distinguished youth.

It goes without saying that there has been a dramatic improvement over the past year in some of the very important features of our financial situation, especially in the external sector. As was mentioned earlier, we are at present just about paying our way. If that is not so then the noble Baroness who is to wind up the debate will correct me. The Chancellor of the Exchequer is entitled to his share of the credit for this because after, I think, many of us feel, an unfortunate start, he has over the past 15 months or so been pursuing a commendably consistent policy in his priorities. Credit is also due to the skill and steadfastness of the governor of the Bank of England, Mr. Gordon Richardson.

Our short-term problems are relieved but our national performance, by any test, is still deplorably weak. The current rate of inflation is still dangerously higher than that of our competitors; our level of unemployment is sadly high with a tragic waste of human resources; and, most serious of all, is our very low level of productivity compared with that of other countries, our competitors. I say "most serious of all" because I suppose that that is the basic cause of the greater part of our poor national performance and is likely to be the most intractable of our problems. Overmanning seems to be a besetting national malady.

When we invest in more up-to-date capital equipment too often we do not seem to reap the benefit that others reap from it. My noble friend Lord Mancroft made that point. I believe that much of our relative overmanning is due not to national laziness, far less to bloody mindedness, but to a constitutional and traditional incapacity to believe that our ways are wrong or unreasonable. This handicap of low productivity, with its twin aspects of the human attitude and low investment, will take a long time to put right. Of the two, the human attitude will be the more intractable. Until we can begin to improve our productivity we have no valid ground whatever for expecting a higher standard of living.

North Sea oil has enormously improved our balance of payments situation, but, as I think is now generally recognised, it is a depleting asset. As has already been said, that windfall must be used for debt repayment—a point which I believe the noble Lord, Lord Rhodes, made—and for long-term investment so that our competitive capacity is strengthened and not frittered away in consumption.

Some people seem to believe that we can secure competitiveness by a continuous process of currency devaluation. That is a policy of despair and a recipe for continually falling standards of living. Again that is a point which the noble Lord, Lord Rhodes, made with great force. The only correct policy is to bring our level of efficiency up to that of our competitors. Nothing more than that need he done, but that must be done. That, too, is the only solution which is consistent with our national self-respect. We know in our hearts that over recent decades efficiency has been less respected than it should have been if we were serious in seeking a higher standard of living. Indeed, as a motivating force it has become almost something for which to apologise. Somehow we must get that fatal enervating infection out of our bloodstream.

I doubt whether it can be economically right indefinitely artificially to hold down the exchange value of sterling for fear of becoming uncompetitive. I doubt whether it is worth my while making this speech because the noble Lord, Lord Rhodes, seems to have made it just now. He must really stop nodding his approval. Of course, it depends whether there is a continuing pressure on the market for a higher value. If there is, then artificially to hold down seems to be a confession of weakness and had for confidence in us overseas. A flood of short-term money, as I well know, can be highly embarrassing, and it is always worth remembering that, however fast short-term money comes in, it can and often does go out still faster, and always at an inconvenient moment.

The reduced public sector borrowing requirement from an extremely high level is most welcome, and I am sure will be helpful. Tight control of the money supply—and the control over the past year has been firm—is absolutely essential if the fires of inflation are not to be restoked. So I hope that control of the money supply will be tightly maintained. The published monetary targets must also be a good thing. The current downward trend in internal inflation, from again a disastrously high level, is enormously important, but we still have a long way to go because we now need not only to get down to the level of our competitors but down to well below their level if we are to recover ground. Anything which slows down or halts that trend will, of course, be disastrous.

Phase 2 has been generally adhered to though at the price of reduced differentials, and the harmful effect of narrowing differentials is now showing itself in certain directions. In our policy for recovery taxation has a very big part to play. As I think is now becoming generally agreed, direct taxation on earnings and income must be drastically reduced, if necessary at the price of increasing indirect taxation. I believe that the Chancellor of the Exchequer is now converted in principle to this, though how far he will have the courage to go I do not know. But reductions must be applied at all levels and to all kinds of income. It is not a question of the Chancellor of the Exchequer giving away more money but one of taking less away from us. One goes on saying that, but when right honourable gentlemen get to the Treasury it is extraordinary how often they love talking about giving things away. I was always very fond of giving away things which did not belong to me, but eventually I was brought to a state of order and discipline over that. The movement in the direction of lower taxation of earnings must be accelerated.

It is not yet possible to predict the rate of increase in wages and salaries that will take place over the next 12 months. One would think that the Chancellor of the Exchequer's average of not more than 10 per cent. is the absolute maximum that can be absorbed without reaggravating inflation. It looks as though there is a danger that that 10 per cent. may well become the minimum rather than the average and that a good many so-called productivity schemes will be called in aid, many of which from past experience are unlikely to justify that term. If the average increase is higher than 10 per cent. I believe that the noble Lord the Lord Privy Seal would agree that more inflation and more unemployment will be the price we shall pay. It is fashionable among some economists to say that a higher rate of wage and salary increases than is justifiable will aggravate unemployment but will not directly exacerbate inflation. I doubt whether that is so. I believe it would aggravate both problems directly.

What about the tragic problem of unemployment? Sadly, I do not greatly believe in what is called deliberate job creation or widespread Government intervention. Even when they do create jobs it may be a palliative, but often sustainable productive jobs are not created. Higher employment in production and services depends more than anything on that psychological climate called confidence—not confidence in a boom, but confidence in sufficient stability to offer a good chance that efficiently conducted enterprises, both big and small, are likely to have the opportunity of earning a profit after tax, and through that profit to ensure the continuation and growth of the venture. I thought that my noble friend Lord Harmar-Nicholls quoted one immensely impressive statistic, among others, if I got it right. He said that if every small business in the country had productive work for one more employee it would halve our present rate of unemployment. To me that was a dramatic proof of how important small businesses are.

Unless there is such a climate, businesses big and small will simply not find it justifiable to risk borrowing to invest or taking on more employees. As has been said, it is now an expensive business to face all the obligations of taking on employees. Therefore, the Government's main role must surely be to create such a climate. The most effective way of doing that is by holding inflation at bay and maximising incentives by reducing direct taxation.

Inflation still remains the first enemy to conquer. That calls for three disciplines; the discipline of income restraint; the discipline of eschewing the printing press, and the discipline of restraint in public expenditure so that there may be sufficient resources left for the creation of wealth in the private sector. Our future depends on whether we are capable of exercising these disciplines. We have a wonderful opportunity now and some hope that we may have learnt some of the lessons we had to learn.

I have said several times in your Lordships' House that we shall make economic progress only when our main economic priorities are supported by all the political Parties. The harsh pressure of events has ensured this coming about to a greater extent than seemed likely a few years ago. It would be a tragedy if such progress as has been achieved were, through impatience or lack of self-discipline, to be thrown away. At the moment there are some incipient signs of renewed confidence in Britain overseas. Let us see that this confidence is justified. In the words of the Governor of the Bank of England in a recent speech, let us encourage by approbation and reward the skills and productivity of all who, in their myriad different functions, create the national wealth".

6.53 p.m.

Lord JACQUES

My Lords, I speak in admiration of the Government's stand against what could be a rising tide of cost inflation. It is a policy which will bring turmoil and carries with it great risks, but it is a bold and statesmanlike policy. Free collective bargaining is an attractive phrase, but sometimes the freedom is a different kind of freedom; it is freedom to extract from the community a monopoly value. The community, therefore, has a right to a voice. Furthermore, if the parties to the free bargaining are unable to get agreement and there is industrial action, it is not only the employer and the employees who suffer but also the community, and it should at all times have a voice. In today's circumstances those with the muscle set the pace; the weaker try to follow and inevitably there is inflation, and, as on five occasions in the post-war period, we have had to have a temporary incomes policy. If this country is to have any future at all as an industrial nation it must find a way of having a permanent incomes policy which is flexible, and which is acceptable to the community as a whole as fair and reasonable.

There is an understandable tendency in human affairs to postpone difficult decisions, especially if there are resources available which will tide things over. Let us not fritter away our bounty from the North Sea in simply buying time. That is a great possibility which we must avoid. The alternative of a greater reliance on the control of money and credit is no longer available to us in this day and age. The consequences of such a monetary policy are not acceptable to the community. Furthermore, such a policy would not achieve the objects for which it sets out; unemployment fosters a loss of human values which cannot be measured in money.

This is now understood by people in all walks of life and in all political Parties. They see unemployment as the most demoralising of all social conditions and consequently, in so far as that is a consequence of a strict monetary policy, it is quite unacceptable to the community. Furthermore, in these days a strict monetary policy which would bring unemployment would encourage militancy, and result in overmanning to a far greater extent than it would discourage the demand for higher wages. It would also bring us bankruptcies of the worst kind. The smaller firms in our economy are the seedbed of the economy. They are frequently overstretched rather than inefficient. They could be caught with insufficient cash flow and forced to liquidate or sell out at a bargain price.

For these reasons, put as briefly as I can put it, I believe that a monetary policy is no longer, in present-day circumstances, an alternative to a permanent incomes policy. I believe—and I think here I am in agreement with the noble Lord, Lord Carr of Hadley—that our first priority should be to attempt to reverse the tendency towards industrial anarchy. Industrial anarchy not only undermines our economic performance and discourages investment; it also threatens our democracy because anarchy is the greatest enemy of democracy. It is that which brings us dictatorship either of the Right or of the Left.

I would advocate that we should have a simple and short code of practice in industry dealing with only two things: the recognition of trade unions and, secondly, the conduct of their members after recognition. I should like to see it prepared by the Government, I would hope in consultation with the TUC and CBI. I would go further and hope that they might get their agreement. I should like it to be approved by Parliament and, if all that was possible, I should like to see that stated in bold letters on the front of the code of practice.

I am of course aware that such things as the recognition of trade unions was dealt with in the Employment Protection Act. As the House will be aware, I have very good reason to know that. I could even name the sections concerned. But I regard that as the background; something that could be referred to by the lawyers and by the officials. I want a code of conduct which will be simple—something which will be understood by the worker, and something which would be seen by the worker to be balanced and fair.

It would be in two main parts, the first dealing with the right of trade unions to enrol members, the right of those who are enrolled not to be victimised and the right of the trade unions to negotiate on behalf of their members. That I would put quite plainly. In the second part I would state that I expect conciliation before strike or any other industrial action, and to show to the workers that it was fair and not just postponing the evil day, I would limit the period of conciliation to one month; if at the end of one month the conciliator had not been able to settle the dispute, he would then issue a report which would be brief and simple, so far as that is practicable. A copy of that report would go to all the employees and not only to the employer, union and media. It would go to the whole of the staff concerned, and therefore they would have an opportunity of seeing it. If, then, they wanted to take industrial action, let them take a ballot, and after the balloting we can say that we have done all we can, and they may take their industrial action. We cannot prevent the right to strike, but we can insist on there being adequate consideration before a strike. That is all that I would attempt to do.

I appreciate that many questions arise. First, for example, would this code of conduct apply when it was an unofficial and not an official strike? I would say Yes; anything which inconveniences the public is deserving of some action, and if it is unofficial then it is quite clear that the first conciliation must be between the union and its members, so the sooner we start the better. Then there is the question: Should there be sanctions? I am not one to advocate either imprisonment or fines in industrial affairs. Experience shows that it would not work. However, I bear in mind that our professional associations—doctors and solicitors—are charged with the responsibility of discipline within their ranks. I know that they are in a somewhat different position in that they have a monopoly in their professions; nevertheless, I believe that associations of employers and trade unions could, if the wish were there to enforce greater discipline, get that discipline without the need for any mandates on the part of the State.

I appreciate that on all sides of the House I will be thought to be a little naive. I can only say that in my long experience in management I have found that on occasions it pays to be naïve. I am therefore content to be naïve, but anybody who thinks I am naïve I invite to put up an alternative proposition.

The Earl of GOWRIE

My Lords, I enjoyed the noble Lord's speech and listened with great care. However, he might care to know that most of the provisions he has so sensibly enunciated appear in the code of practice of the Industrial Relations Act.

Lord JACQUES

That may be so, my Lords, but what I am after is something quite different; I want a short and simple statement, not something for the lawyers and trade union officials but something that the worker will understand and which, above all, will deal with the two issues I mentioned. Show that it is fair and balanced, show that his organisation in a union will be welcomed but, having gained that concession, show that he has then to act fairly as a member of that union. That, I think, is not in that code.

7.4 p.m.

Lord HAWKE

My Lords, it is rather difficult at this stage to think of something that has not already been said, but I will do my best. In the last corresponding debate on this subject I asked for less Government borrowing, cheap money and some protection for British industry. All those three things have to some extent come about. One subject that has not really been mentioned this afternoon is cheap money and I would recall a reminiscence to show how important that can be. Not many months ago I had to look at a scheme for replacing some machinery in a textile plant, the existing machinery having been in the plant for a very long time. The calculation was that the new machinery would pay its way, but not by much of a margin. It would he run with fewer people, which meant that it would create more unemployment, but the interest on capital for the new machinery was infinitely greater than on the old, which had been written off for nothing. Thus, any decrease in the price of money would naturally make a great difference to calculations of that sort, and those are the calculations which are being done by manufacturers every day throughout industry.

At present the Government are fighting a rearguard action against price increases which have come to be called inflation. All sorts of theories have been advanced for this phenomenon and all sorts of remedies proposed, including that of the money supply, though I agree with the noble Lord, Lord Jacques, in that I have never been convinced that the money supply had much to do with it. For many years I have believed that the domestic price level was heavily influenced, if not dictated, by the price of energy and when one considers what the price level has had to compete with in recent years—the quadrupling of the price of oil, the devaluation of the pound and the EEC agricultural policy—it is no wonder that prices have been rising, and I only fear that we have some more adjustments to face. In facing price adjustments the Government have, by restricting purchasing power, succeeded in creating a large number of unemployed, and while I believe the situation is not quite as bad as the figures suggest, the level is unacceptable and is a menace to the future of democracy.

There are, in my view, three main reasons for this situation. The first is that the Government policy of income restraint has, of intent and through the taxation system, resulted in a progressive reduction of the purchasing power of the better off. I know that egalitarianism is the life-blood of Socialism, but surely they can see how shortsighted this has turned out to be. To pick on those who have skill of hand or brain has been a most shortsighted policy. I get a great deal of cynical amusement watching trade union leaders professing Socialism while at the same time leading their members in agitation and strikes against the erosion of differentials caused by Socialist egalitariansim. There will be no fall in unemployment until purchasing power increases, and this should particularly apply to the purchasing power of the better off, which means those skilled in hand and brain.

The second reason is that we are a nation of shopkeepers. Our traders are expert at scouring the world for foreign goods which appeal to their customers through novelty or price. The third is the industrialisation of so many countries, particularly in the Far East. In this connection, Japan has been with us for 50 years but we now have Korea, Taiwan, Singapore, China and Hong Kong, all prepared to pour cheap goods on to our markets if we let them. How can a heavily unionised country like ours compete with these new industrial complexes? They have no planning delays. They have cheap capital. They have cheap labour. There is a queue to get into a factory, and anybody who loses his job in the factory has to go back to the land; an there is no dole.

We have lost the motor-cycle trade. Our shipbuilding has gone virtually down to nothing. Much of our electronics has gone. Textiles are in a bad way, and so is the footwear industry. The field widens every minute. Furthermore, I believe that there is nothing to stop the Japanese, and in due course the Koreans, from putting our motor industry out of action. If I could see Messrs. Jones and Scanlon leading the workers at Leyland at 7 o'clock every morning, singing the company song, and raising the company flag, I might feel differently about that.

Last time I spoke on the subject of more protection for British industry I seemed to have a little result. Thank goodness! the EEC is tending to take the lead now, and collectively we are in a good position to act to secure the prosperity of all of us. But we must, at the same time, have collective policies to provide our respective populations with purchasing power; otherwise, we shall never make any inroad on unemployment.

7.11 p.m.

Lord WALSTON

My Lords, I propose to deal solely with a narrow but, I think all noble Lords would agree, not unimportant aspect of this general debate on the economy and on industry; it is the problem known broadly as industrial relations. Many noble Lords have referred to it, and the noble Lord, Lord Jacques, in particular gave us much to think about, and I must say that I agree wholeheartedly with what he said. But should like to go on from there, and remind your Lordships of a comment made by the noble Viscount, Lord Amory, when he brought to our minds, quite rightly, the point that the human aspect is the most important of all in this matter. I feel that we must give far more attention than has been given in the past to the actual human contacts between what should be the various partners in industry, the various facets of industry. I have in mind the contacts between the board of directors, the owner, the manager, the floor manager, and the workers themselves. They should have their direct contacts with each other, and an understanding of each other, rather than matters being referred from a committee of shop stewards to a committee with a personnel manager, and so on, where it ceases to be a personal question between ordinary individuals and becomes a stylised, bureaucratic, almost ritual, dance.

There are two particular aspects of industrial relations which are of very great importance. One of them is that which so many of us are talking about and thinking about at the present time; namely, strikes, industrial disputes, and the time lost by these means. The other is the point quite rightly raised by the noble Lord, Lord Carr of Hadley, of the very great importance of making better use of the capital equipment that is already available. In very many cases of course we need more investment; but many industries, large and small, could produce much more than they are producing at present if they made proper use of the investment already placed in their industry.

I do not want to exacerbate any political feelings that there may be in the debate, but I must say that I was somewhat surprised that the noble Lord, Lord Carr, should have gone on, in talking about this question, to say that the Government should take a major initiative here. I agree with him that this is enormously important, but surely it is a matter where industry itself, where the workers and management—above all management—must take the initiative and cannot just sit down and look to the Government to do something about it. It is essentially a problem of management.

In making these remarks I am reminded of a visit I paid many years ago, when I was at the Board of Trade, to one of the large motor car factories in Coventry; in fact, it was the Jaguar factory. It was a very fine factory, with many acres of very good buildings, with magnificent machine tools, and with a huge investment turning out a fine product. I asked the workers how many hours they worked in their factory. They replied: At the moment we are doing 35 hours a week, but when the demand goes up we get up to 40 hours, and we may even get 44". I asked: Do you never work night shifts to make these cars? They replied: No. People don't like working night shifts very much in Coventry". Surely that is one of the reasons for our absymally poor industrial performance in the motor car industry. We have the investment there. We have the expertise. We have the designers. But we cannot turn out the cars fast enough. The reason we buy foreign cars is because we cannot buy English cars, unless we wait six months, or in certain cases two years, for the better ones. But if the people in Coventry—it may be different now, though I rather doubt it—and those in other factories throughout the country worked longer hours, not unsocial hours, but six to eight hour shifts, properly arranged throughout the day, the production could be double the present figure. But that can be done only through good industrial relations, through the proper contact between management and labour; not through committees, but through the understanding, the personal human understanding, of what the problem is, what the difficulties are, and what the rewards are.

I believe that the same goes for industrial disputes or strikes. In my opinion it is not primarily a question of money, of high wages, or anything of that kind. One has only to look at my own industry, the agricultural industry, which on the whole has been one which, over the years, has had the lowest rate of pay in the whole country, and which has had the best record of industrial relations, and a complete absence of strikes. One may also care to look at my own region of East Anglia, a region which has an average wage level of about 7½ per cent. below the national average, but which last year lost only 20,000 hours through industrial disputes; that is about one-sixth of the national average on a per head basis.

I believe that agriculture and East Anglia have this record, of which all of us associated with both the industry and the area are justifiably proud, for two reasons. One is that it is an area with agriculture, which is an industry of small units—and we have today heard much about the importance of small firms—and in general we have very few factories employing more than 2,000 or 3,000 people. The other reason is that we are free of the old tradition of antagonism between master and man; we are free of the old industries of the Midlands or docklands, with their appalling labour conditions of the 19th century, and even the early part of this century. Those traditions die very hard.

But it is in our new industries, in our new areas, and above all in those industries which are small and where the contact is close between the people who have built up that industry, who have created it, and those who have helped create it on the shop floor or wherever it may be, where one gets the best industrial relations. I am not saying that it is only in small industries that one gets this. There are certain industries—of which Imperial Chemical Industries is one; indeed, the petrochemical industries as a whole—where labour relations are good, where output is good and where strikes are few. So it is not simply a question of being small, of having close personal contact. All I am saying is that it is easier in those industries, and we should learn from them, as should our big industries, too. But our big industries with the bad records should learn, above all, from the big industries with the good records. They should see how they manage their personal problems, their human problems. It cannot be done simply by employing a personnel manager; it can be done only by a complete mixing of all levels of those who are engaged in production, from the boardroom all the way down to the lowest employee on the shop floor.

There, I believe, my Lords, is where we should make our great effort: not the Government (because, quite frankly, I do not see what the Government can do in this kind of thing) but industry itself; the unions, the CBI, the employers, looking on each other, not as opposing camps across a table but as people talking as human beings to the individuals doing the job. If we can achieve that, I believe that our small industries and our big industries, too, will be able to make staggering increases in production from which all of us will benefit.

7.21 p.m.

Lord DOUGLAS of BARLOCH

My Lords, the economic position of this country certainly appears to have improved considerably during the past year, but there is still a very long way to go. We have not yet reached the stage at which the rate of inflation has come down to a single figure, although this was promised quite a long time ago, and I do not know when we shall reach even that point. But that is by no means the end at which we should aim. If the rate of inflation was 9 per cent., it would take only eight years before the price level had doubled, or, to put it conversely, before the purchasing power of money had fallen to half. That is certainly something which would be very detrimental, although not so detrimental as the present situation. I hope that the Chancellor of the Exchequer and the Government will do everything they can to reduce inflation more quickly than hitherto.

Inflation is one of the things which are keeping back industrial development, which make foreign trade difficult. I see that when the pound floated upwards a little recently a number of people suggested that this was going to diminish our capacity to export. I cannot understand this argument at all. It is true, I suppose, that if somebody contracts to export goods at a certain price and delivery does not take place for some months, or perhaps a year, the foreign buyer may be able to buy the sterling he requires to settle the bill at a lower price than he would have contemplated originally; but that is not a gain to this country. It is a gain to the foreign purchaser, not to us. Indeed, it is a loss to us, because the money which the manufacturer receives here will purchase less than it would have done at the time he made the goods. He has to provide for depreciation, not merely in his machinery but in the value of money, and this involves a higher demand for working capital.

This means that every business transaction is handicapped. In a state of inflation nobody is able to foretell what the future will be, and therefore every business transaction is handicapped by a sense of uncertainty and insecurity. As I say, this upsets the whole basis of accountancy. I doubt whether the accounts of many companies in this country show what provision has been made in order to cope with the need to provide for the depreciation in the value of money. I believe that a great many businesses are running at an illusory profit which does not really exist when you come to consider what the cost of replacing machinery and other assets will be in the future. This is a very serious matter indeed, and it wants most serious consideration. I therefore hope that we shall make a great deal more progress towards reducing the rate of inflation.

While we are thinking about this I should like to say a word about the proposal which was put forward recently by Mr. Roy Jenkins in favour of a European currency. Of course, this is something which every country will look upon with the greatest suspicion, because they distrust one another when it comes to matters of this kind and feel that they want to manage their money themselves without any intervention.

But there is a great deal to be said for the idea. It does not mean that each country would abandon its own currency. What it really means, as I understand it, is that there would be a common European currency which would be managed with a view to maintaining the stability of its purchasing power. If that were so, I am sure that people would be very happy to conduct transactions in such a currency, and that it would be advantageous. In the long run, it would possibly provide a means of dispensing with individual currencies within the EEC completely and of providing one common currency for all transactions, internal or external. The advantage of this to trade and industry would, in the long run, be enormous, and I therefore hope that it will not be looked at from an insular, prejudiced point of view, but will be seriously considered. It will no doubt take time to achieve it, but it is an objective which is well worth pursuing. More than that, my Lords, I do not propose to say this evening as the hour is getting late.

7.30 p.m.

Lord BALOGH

My Lords, I want to congratulate not only the maiden speaker, the noble Lord, Lord Gregson, but also the noble Lords, Lord Lee of Newton and Lord Jacques, on two of the most impressive speeches I have heard in this House on a question which is of the utmost importance, namely incomes policy. I think that the difficulties and also the experience which came out of these speeches was most noteworthy and I very much hope that my right honourable friends in another place will take due account of it.

I cannot congratulate the noble Lord, Lord Carr of Hadley, on his speech. I am sorry that he is not here but I am going to deal with it and no doubt the noble Earl will duly convey my sentiments. He wanted to wage war on unemployment and on inflation and he somehow got mixed up also with wanting to have a stiff monetary policy. You can have one or the other; but it has been very difficult until now to combine them all in one package. Having completed the sixth dozen of my years, I thought that I could not be astonished, but I was astonished by the noble Lord. Lord Carr, because he spoke as if these things had not already happened before, as if he were looking into a new situation. But this is the awful thing about the post-war history—and not only the post-war history but the history of this country since 1873. I think it was some time in November when the term occurred, the Viennese crash, which ended the supremacy of this country in industrial matters. The proposals that he put forward have also been tried. We were here before. He pretended that Governments have interfered all the time; but what about the period of 1951 to 1963? And what about 1970–71? The proposals which we heard not only from him but also from the noble Lord, Lord Mancroft, are vieux jeux, déjà vu. They are very boring because we have been here before.

The other matter which astonished me—and here I must declare an interest for I am still connected with the British National Oil Corporation—was that I had the impression that he was complaining that we are being too severe with the oil companies. I cannot discuss policy because of the Addison Rules, but I can discuss the factual information. The fact is, of course, that the oil companies have a better deal in this country than in the last little Arab sheikhdom. I was Minister at that time and I take full share of responsibility for it; but we ought to see facts as they are and not facts as they are related, ill-advisedly. His advice usually amounted to, "Do not resist rape; enjoy it."

BNOC, unlike some people have lately suggested, does not function as an authority; it does not try to duplicate the Government. It is an agency by which the nation can slowly and surely acquire expertise in seeing that the oil companies give us our due. I must warn noble Lords opposite that you cannot play with this very much, because if you play with it, if you do not develop it, if you do not treat it like a tender plant, you are going to be increasing all the difficulties we are trying to avoid by using the oil sensibly and with care. Nor do we want overhasty exploitation of the oil. That leads me already on to fields on which I am not supposed to tread.

Noble Lords opposite have talked about restraint on incomes, on wages; not directly but indirectly. As my noble friend Lord Jacques has said, they wanted to get at unemployment in an a-personal manner so that they cannot be blamed. It seems to me that this is not something that can be played twice. It has been played once and failed.

I now turn to a question which, surprisingly to me, has not been treated at all fully in this debate. This is the balance of payments. We have heard—and, of course, the financial journalists have been putting it about, I do not know whether briefed or unbriefed—that we ought to liberalise the export of capital. It was suggested that here are awful people who are preventing wonderful investment abroad. In order, so to speak, to give a balanced picture, we ought not to forget that since 1960, more than £13 billion were exported by this country on the basis of a surplus which was less than £1 billion; so that if one talks about severity of exchange control, all the people who know about it can only smile. There has been no exchange control of a ferocious character. It seems to me that we would do very well to remain where we are in this matter and not to experiment.

I now turn to the overall account of the balance of payments which is of extreme importance. Here, as one noble Lord opposite pointed out, we have had a miraculous transformation of the situation. This miraculous transformation was caused not by our export surpluses in the overall balance of payments; it was caused entirely by fear. In this case they did not fear us; they feared the Americans. I think this is not a basis on which one ought to do anything at all and I fear that we have not learned our lesson. The City ought not to be the beneficiary of British Government policy at the cost of industry. It seems to me, at any rate, that the financial newspapers and certain of the speeches, especially from the other side, have been tending to show that sort of favour to the City against industry.

In the last forecast, the Treasury is expecting a surplus; but that surplus will be entirely due to oil. In the non-oil imports, there is still a great deal of difficulty. As far as I can make out the import penetration is expected to increase. These calculations are, of course, rather fallible, as I shall point out in a minute; and, as far as I can make out, the Treasury is expecting a very much higher rate of increase in manufactured imports than in manufactured exports. This will be of course covered by the oil revenue; but is that sensible? Is it not necessary to use oil revenue now so that we should be able to stand on our own feet and decide what to do? From this point of view, I regret the decision to free the pound, not so much because exchange fluctuations of 2 per cent., 3 per cent. or even 4 per cent. are decisive for our import/export point of view, but the security, the certainty and decisive lack of suspicion on the part of the investor is extremely important. We had a possibility of stabilising the currency at about £1.73/£1.74 to the dollar and we ought to have stuck by it.

This leads me to my last point. I am afraid that the Government have been led by the black magic of the monetarist school to rely too much on mechanical gadgets to develop their policy. There are two weighty objections against this. The first is that one never can tell what those figures are or will be. In the case of the public sector borrowing requirement, we have come down from £14 billions to £6½ billions in one year. That is a colossal sum, and to have as the main criteria that figure is hazardous. I shall say no more, but in my private capacity I would say something else. Then there is this famous affair of the money supply. First of all, nobody knows how the volume of the money supply is arrived at. This noble House consists of very intelligent and extremely enlightened noble Lords, but I do not think they will know that foreign deposits in sterling do not count in the money supply. Are there any takers, my Lords? But, of course, as soon as it is re-lent and therefore appears in an English account as a borrowing, then it goes into the money supply. To have this as a fetish—I cannot say it is a golden calf, it is a paper calf—to adore it and, like Mr. Micawber, to say that if it is less than 9 per cent. it is terrible and if it is more than 13 per cent. it is even more terrible, is foolish. It seems to me that to be led to policies which, from a social point of view, can only make the situation more difficult is rather regrettable. I hope very much that those counsels who have been advocating this policy will not prevail.

7.44 p.m.

Lord ROCHESTER

My Lords, I will not follow the noble Lord except to suggest to him that it seems to me that the noble Baroness who is present on the Front Bench—as she will no doubt shortly demonstrate—is no less enlightened than any of the noble Lords who are present. May I from these Benches join with other noble Lords in congratulating the noble Lord, Lord Gregson, on his maiden speech and on the admirable clarity and brevity with which he expressed himself from his considerable industrial experience.

I want to deal with two or three of the major points in the Queen's Speech on the industrial side and, in doing so, comment on one or two of the things that have been said by noble Lords during the course of the debate. The first relates to the overriding need which is recognised in the gracious Speech for a reduction in the rate of inflation. That has obvious implications in terms of an incomes policy. Whatever our views on the extent to which there should be a statutory element in that policy, it seems to me that, having listened to practically the whole of the debate, there has been general agreement on this much at least: that everything possible needs to be done to adhere to the overall average increase in earnings of 10 per cent.

I feel that how far we succeed in that endeavour will depend a great deal on the extent to which the Government as employers are seen to be standing firm in the public sector. I join with the noble Lord, Lord Jacques, in welcoming the stand which the Government have appeared to take, more particularly in the past week or two, in that sector. From these Benches I should like to assure them that, if they continue to act in that way, they will find us their staunch supporters. Even in the past few days there seem to me to have been hopeful signs of a response to that stand, both from the power workers and—much more significant—from the public at large.

I join with the noble Lords, Lord Carr of Hadley and Lord Lee of Newton, and my noble friend Lady Seear in hoping that in our very proper concern over immediate pay problems we will not lose sight of the need for a longer-term incomes policy ready for implementation not later than the beginning of the next pay round, whichever Government are then in power. This means that preparations need to be begun now by Government, employers and trade unions under the aegis of the National Economic Development Council, and in a way which will involve Parliament.

Preparations need to be made to do a number of things. None of these things represents original thinking on my part. First, to determine what as a nation we can afford by way of increases in wages and salaries. Secondly, to determine broadly how such an increase is to be distributed; for example, by way of some uniform percentage increase or in some other way, not shirking the very difficult problem to which the noble Lord, Lord Lee of Newton, referred of relativities between one industry and another. Thirdly, as has already been suggested by the CBI—and the noble Lord, Lord Carr of Hadley, had this in mind at one point—there needs to be some compression of the pay round, as far as possible to synchronise settlement dates and to see that they are related in point of time in some way to the main Budget statement.

Fourthly, progress needs to be made in reducing the number of pay bargaining units at each level in companies and plants so that increasingly they comprise employees who share a common interest. I do not believe these are all pipe-dreams, for they can all be achieved within that essential condition for affecting any lasting change; namely, that you start from where people are and not from where you think they ought to be. I suggest that at least in the case of the last two points I have mentioned these propositions have been recently demonstrated to be feasible, at least in principle, on a small scale within British Leyland. The noble Lord, Lord Lee, made a reference to that point when he was talking, as he put it—and I took down his words— of that divorce of power from responsibility that is sometimes evident within trade unions". May I take this opportunity also to say how much I welcomed the honest way in which the noble Lord, Lord Lee, referred to the need, as he saw it, for trade unions to engage in some self-examination.

I should also like to say how much I welcomed the intervention of the noble Lord, Lord Jacques. Talking on a somewhat similar theme, he wondered whether he would be thought to be naive—I thought quite the reverse—at the point where, as I understood it, he was talking about the possibility of introducing some code of practice which would have to do, first, with the recognition of trade unions and, secondly, with their conduct after recognition. It seemed to me those were both very valuable suggestions. They both concerned trade unions and they both came from the other side of the House. For that reason it seemed to me they had all the more force. I hope that noble Lords will feel encouraged to follow up those suggestions in some way they think suitable. I would also express the hope that the Government will give to them the attention they deserve, coming from such authoritative sources.

I should like next briefly to welcome wholeheartedly the promise that has been made in the gracious Speech, that Further consultations will be held on industrial democracy"— that is, as is well known, a subject in which my Party takes a close interest— with a view to producing proposals which should command general support. In a debate which I was privileged to introduce in your Lordships' House almost immediately after the publication of the Bullock Report at the beginning of this year, I expressed the view that it was imperative for a consensus to be found on this question. I believe it is very important that those of us in all parts of the House who share this view should do what we can to support each other. Perhaps I can best do that by saying how much I agree with certain sentences which appear in a report on industrial participation coming from a body called the 1972 Industry Group, of which I believe the noble Lord, Lord Gregson, was a member. It was chaired by the noble Lord, Lord Houghton of Sowerby, and it comprised industrialists and senior executives who support the Labour Party.

The noble Lord, Lord Houghton, has told me he is sorry that he cannot be here, because I had given him notice that I was going to mention this point. But if he were here, the noble Lord, Lord Houghton, would be too modest to mention this himself and so perhaps I might quote the sentences that I have in mind for him: It follows that the system adopted should start from what we have already, and should build on this in a way that is not too far ahead of public opinion. It is no use, either of the "sides" in industry or in politics (the CBI, or the TUC or the Conservative, Liberal or Labour Parties, or anyone else with a share in political power) insisting on their ideal solution if that ideal involves a massive and controversial change which will not get general public acceptance. I do not agree with the particular solution which is then put forward by that group, but I feel that the basic philosophy put forward in those sentences I have taken the liberty of quoting is the right one. What we now need to secure is the maximum amount of progress that is consistent with the national consensus of which I have spoken.

If I may briefly suggest what form it seems to me legislation should take, I would hope no later than the next Parliamentary Session, it should be limited, largely enabling rather than mandatory, and flexible enough to allow experiments under differing company conditions. It seems to me also that the Companies Act should be amended in a way which obliges directors of boards to do what all enlightened boards do already, namely, operate in the interests not only of shareholders but also of employees and of the community at large.

It might even prove possible to secure agreement to another amendment of the Companies Act, one which would enable experiments to be carried out under which employees generally, along with shareholders, could play some part in the election of directors to boards, subject to the prior establishment—and it seems to me this is of vital importance—of suitable sub-structures. We on these Benches would certainly feel that if that were to be the case those sub-structures should take the form of works councils or committees, but that at the very least there should be agreed participation procedures below board level.

Next, following the consultations promised in the gracious Speech, there should be financial inducements for the establishment of profit-sharing schemes— some reference has already been made to that today—and the setting up of small businesses including, in appropriate cases, co-operatives, not least to help in finding fruitful employment for young people who are now unemployed. That subject has also been touched on by a number of speakers in the debate. I believe that some progress along some such lines as these might command broad general support; but progress of some kind there needs to be. We cannot stand still, for if we do there will again, if not sooner then later, be a danger of measures being introduced which will gravely damage industrial stability and performance.

Finally—and here I think I speak for my noble friends—we would support the intention expressed in the gracious Speech to introduce a Bill to provide public funds to finance payments to redundant shipbuilding workers. Such a measure seems to me to be clearly needed to help in the restructuring of that industry and to do something to bring about a reduction in the overmanning which is all too prevalent in that industry. Plenty of references have been made during this debate to the question of overmanning. I would hope also that the Government would consider extending this principle to other industries which depend on public money. I have in mind, for example, the steel industry where, according to The Times last Saturday, the existing agreement on voluntary wastage which was reached in January 1976 has reduced the labour force by only 2,200 to 208,000—only one-tenth of the manpower reduction which was first sought. I personally hope that any arrangements of this kind would be so framed as to encourage the retirement on a voluntary basis of older people—again, so as to help indirectly in alleviating this continuing problem of unemployment among younger people.

In general, then, we on these Benches welcome—indeed, we take some pride in having, we believe, played some part in its formulation—a legislative programme which in the industrial field shows more signs of consensus politically than any in recent years. We congratulate the Government on having in this way helped to provide the conditions in which there are now better prospects of an improved industrial and economic performance in our country.

8.1 p.m.

The Earl of GOWRIE

My Lords, if there were any doubt that the Lib.-Lab. pact were not functioning, it would be dispelled, I think, by the fact that we now have three wind-up speakers, where formerly we used to have two. In terms of verbiage this is inflationary, but we on these Benches, in spite of the pact, always enjoy listening to the noble Lord, Lord Rochester, and so we have no complaint on this score. I am delighted to see, incidentally, that the noble Lord the Lord Privy Seal is attempting to make amends to my noble friend Lord Harmar-Nicholls, by changing into a black tie. I only hope that he is going to dine with the Lord Mayor tonight, and receive a little more economic wisdom than perhaps we heard from him today.

From these Benches, we want to congratulate the noble Lords opposite who moved and seconded the Motion for a humble Address as well as the maiden speaker, the noble Lord, Lord Gregson. Where Lord Gregson was concerned, I agree with my noble friend Lord Mancroft in congratulating the noble Lord on his maiden speech on calling our House of Parliament an essential. But I feel a little frustration at the same time. When are Labour Prime Ministers going to create a few Socialist Peers? As I listened to impeccable Tory orthodox speeches in the first half of this debate, about money supply and the rest, I felt a little depressed. But I found towards the end of the evening the glimmerings of a Socialist case from the noble Lord, Lord Balogh, and also, to a slightly lesser degree, from the noble Lord, Lord Jacques, and the noble Lord, Lord Lee of Newton.

I was myself honoured to be quoted by the noble Lord, Lord Parry, when he seconded the Motion moved by the noble Lord, Lord Ponsonby, even if I feel obliged to thank him with a little pedantry. He referred to James Russell Lowell whom he quoted as an American slave poet. He was not that; he was America's Ambassador to the Court of St. James. Had he been a slave that would not have made him any less good an ambassador but simply ahead of his time. Pedantry apart, the passage which the noble Lord quoted, Once to every man and nation Comes the moment to decide", indicates that, while he discovers some return to self-confidence after the appalling economic cliffhangers of the last four years, he is well aware that we have quite a long way to go before we reach the happy isles notwithstanding our efforts to resist the Gulf from washing us down. I am afraid that, like the noble Lord, Lord Robbins, I myself remain somewhat pessimistic about our economy in the 20-odd years that are left to us of the 20th century. As someone put it recently, the light at the end of the tunnel may be an on-coming train. But I agree with the noble Lord, Lord Parry, and with James Russell Lowell that the future is indeed in our own hands for the shaping and we would not be here, we would not be bothering with frustrations and inhibitions as well as some of the joys of Parliamentary life if we did not think there was something we could ourselves do about it.

For the sake of brevity and I hope clarity we may look at our political economy in the short run, the middle distance and the longer term. The short run is at present a confusing spectacle with the competitors running around the place in different directions rather like the Dodo's race in Alice. Our currency is safe and with it our financial stability. In my view, and in spite of our industrial difficulties on the incomes front, the pound will continue to rise if it is allowed to and if what may be called the fallacy of export competitiveness is not allowed to prevail. I think that there are happier signs that in the economy at large if not in Whitehall's temples of wisdom exports are under criticism and scrutiny if not yet under attack. If you make the right goods and if you make them well, if you are conscientious over your deliveries and the service you offer your markets, the edge of pure price competitiveness is less keen, less relevant than is often thought. I think the noble Lord, Lord Balogh, disagreed with me there but I can call into aid the remarks made by the noble Lord, Lord Rhodes. The German motor industry maintaining its figure in spite of the almost continual revalution of the mark is a notable instance. I am even optimistic about Concorde in this regard, though I of course acknowledge that you have now to write off its development cost as so much water or perhaps I should say so much first growth claret under the bridge. But where high technology is concerned—and surely the Foreign Secretary, Dr. David Owen, is right when in a recent speech he saw this as the crucial export sector for a Britain faced with increasingly high labour costs—the product's concept and its reliability are what count.

Our currency, then, appears safe for the foreseeable future, and for that relief much thanks. Thanks to whom? —not, in my book, to the Chancellor who made it noisily clear to the Labour Conference of last year that he had no alternative but to bow to the IMF's terms if the flight from the pound were not to produce a bigger disaster in terms of unemployment and recession in this country than anything even dreamed of in the thirties. The IMF loan was conditional on the adoption by the Chancellor of policies initiated by the last Government in December 1973 in response to the fourfold increase in oil prices after the Yom Kippur war.

Similar policies were adopted to a greater or lesser degree by every advanced industrial economy since that time except ours and by every sensible Finance Minister except ours, except Mr. Healey himself. So no thanks to the Chancellor or the Government, but thanks rather to the IMF for bringing the Government to their senses, by driving a rather harder bargain in monetary terms than has in fact proved to be necessary. Academic economists are divided—and when are they not?—as to the relative importance between the monetary measures which we urged and which the IMF imposed and the role of North Sea oil in the recovery of the pound. My own view is that this is something of a chicken and egg conundrum. The oil helped confidence but it does not of itself attract the foreign money which presently accounts for our immensely high reserves. The presence of the latter is surely easily accounted for. There is nowhere else for the money to go.

President Carter's immense congressional difficulties—" Oh for the touch of a vanished Lyndon! " we could say—in getting his energy policies through mean that even as American industry's productivity picks up her balance of payments deteriorates. On that point at least I am glad to find myself in agreement with the noble Lord, Lord Balogh. So curtains for the time being for the dollar. Switzerland has shut her doors and West Germany and Japan are doing their best to shut theirs to foreign money. Where better then for the money to go than to a Britain, presided over by a weak Government on whom policies of an impeccably orthodox and Conservative character have been imposed and whose oil wealth and therefore improved balance of payments will for some years yet counteract and mask her fundamental economic weakness?

So bully for foreign money, my Lords, but not so bully for our urgent needs and our attempt to correct these same fundamental economic weaknesses, and to correct them before rising unemployment and the inevitable breakdown of incomes policies cause the Government, whichever Government of whichever political Party are in power, to wheel out the printing presses once again. For make no mistake: Governments do not print money because they have not read their Professor Friedman or because they like the crackle of all those crisp new notes; they do so from the usual human mixture of unselfish and selfish motives. They fear and detest unemployment and the human misery and political instability which it brings.

What I am trying to say is very simple but also very chilling. The relative financial stability in Britain at the present time has been bought at the expense of rising rather than maintained or falling levels of unemployment. Since these levels will engulf a generation of young people who have been brought up in an atmosphere of high material expectations and low reverence for traditional authority, Britain is, in my view, facing a nasty political explosion, no matter what Party is in power. The liberal-democratic consensus which the noble Lord, Lord Parry, mentioned in seconding the Address and which, whatever our harsh words across the Floor of the House, still prevails, will not survive for very long with 1¾ to 2 million people unemployed. What are we going to do about them?

At this late hour and with not very many people in the Chamber, may I, just for a brief moment, take off my official Opposition hat and step, metaphorically at least, on to the Back-Benches. Concern for unemployment is not fundamentally a Party matter, although I cannot resist mentioning in passing that since the last war Labour has consistently achieved higher levels of unemployment than the Conservatives, and that the years 1947, 1969 and 1976 should be engraved on every social democratic heart. But two wise men, one Conservative and one Labour, have recently, it seems to me, addressed themselves to this problem. They are my noble friend Lord Harlech and the Foreign Secretary, Dr. David Owen. A third wise man, my noble friend Lord Hawke, to some degree echoed this point in the debate this afternoon.

I should like your Lordships to hear what uncomfortable words both of these thoughtful men have uttered, absolutely independently of each other, so far as I know, in the very last month. Here is what one has said. In the context of taking a hard look at the traditional post-war belief that ever-increasing freedom of trade will benefit us he says. The doubts can be expressed simply as follows. Freer trade was desirable in a period in which the international market was limited in size and complexity and when, with the exception of the USA, it operated among like-minded nations of equal industrial power. This period is past. The industrial power of countries is far more diverse and this divergence is likely to grow. The industrial power of certain Asian countries and even of developing countries has introduced new tensions into the system. This means that in Britain's case we have become less competitive and the comparative advantage we gain from low wage costs in relation to our European neighbours is of no avail when confronted by imports from Taiwan and Korea, let alone Japan". Here I quote the passage from the other wise man: For some years Britain and other advanced industrialised countries have had to face competition from the less developed nations in areas of low technology like textiles and footwear. This kind of competition is liable to grow fiercer but, increasingly, competition is moving into areas of medium and even of high technology such as ships, steel, cars and electronics. The example of Japan, now in the first rank of advanced industrialised economies, shows what can be done within a comparatively short space of time, starting from the launching pad of an under-industrialised economy with a pool of cheap labour. Other countries, such as Taiwan, South Korea, India, Iran and Brazil, are either already following a similar pattern or could do so in the very near future". To sharpen the point, I will not say which passage is the Foreign Secretary's and which my noble friend's, but my noble friend Lord Harlech, being necessarily more free in what he can say, adds that Britain, probably within the European Economic Community context, must reconsider her attitude towards selective and flexible import controls. The Foreign Secretary, while hinting at the same solution, stresses, rather, the high technology industries which I mentioned in connection with his name earlier and which are less vulnerable to developing world competition. Yet be it noted, my Lords, that high technology industries are not usually labour intensive. It surely is something for us to take notice of when a centre-Right member of the Labour Party and a centre-Left member of the Tory Party both come into line with Left oriented TUC thinking, although the TUC, xenophobic as usual, miss the European dimension which makes their thinking credible.

I have spoken about the short run—our improved financial position—and the long term: the poor prospects for our political economy imposed by the human cost of such improvement and by the developing and competitive nations. Let me close with the middle distance—the immediate future whose character will be determined by the choices we make now and which we are assembled in Parliament to make. If we make the right ones, we will surely go a long way towards seeing that the next 20 years are rather less morally and culturally debilitating than the last 20. I say " choices", but there is really only one choice. We have to increase real industrial production in this country, as speaker after speaker in this debate has said.

A good commentator in The Times said recently that British economic policy since the war has really been all about trying to shuffle inadequate resources around in a society which seemed incapable of resolving the problem by expanding its resources. If this is true—and I think it is—how can we increase production? Common sense suggests that there are only two ways: making it worth while in money terms for people to produce more and making it uncomfortable, or less worth while in terms of their standard of living, for them to produce less. The one side of the equation means higher real wages and also, of course, to some degree higher prices. The other side of the equation means a lower social wage, lower taxation and far greater differentials between those in work and those who, perhaps through no fault of their own, none the less depend on the social wage. Of course this is less than absolute justice and of course it is unpleasant and uncomfortable. It sounds, even to me, not just like Toryism but harsh Toryism.

But the plain fact of the matter is that, even if a Labour Government were returned for another term, they would, in my view, be forced to choose between the flight from investment and from our currency, which a simple shuffling around of diminishing North Sea oil resources would bring, and increasing incentives towards production by cutting taxation in real terms. No one in this country is fooled by Mr. Healey's recent cuts, for they are not cuts in real terms. Under the last Conservative Government taxation was too high; public expenditure was also too high to stimulate real production. However, as my noble friend Lord Carr of Hadley said, Mr. Healey would now have to cut a further £4,000 million off personal income tax to restore even that relatively unsatisfactory position which he inherited in March 1974. Even to approach this figure would require a fundamental change of strategy.

Cutting taxation will be intensely unpleasant for politicians of both Parties. Look how unpleasant recently elected Tory councillors, who swept in after all on a platform of cutting public expenditure, are finding it as the crunch comes. But the alternatives to real cuts are continuing inflation and the squandering of diminishing assets, or a statutory incomes policy which both political Parties and the trade unions—and even in February 1974 the electorate—seem to have repudiated. Or yet again, as the Left would wish, the more or less complete collectivising of the country along Eastern European lines. There are no other options.

In an interruption the noble Baroness spoke as if getting down the rate of inflation to, not even 10 per cent., but an approximation of 10 per cent. was something of a triumph. I challenge the noble Baroness to produce one significant settlement in the last three months which has in fact been below 10 per cent. As the Chancellor has told us, there have to be substantial settlements below 10 per cent.

for even the 10 per cent. average to be achieved. So come Labour Governments, come Conservative Governments or even some Lib./Lab. or Lib./Con. salad of a Government, there are no other options.

As the noble Lord, Lord Robbins, warned us 10 per cent. may be hailed by Governments as success, but that is not successful; it is still terrifying. What is really happening is that Britain is in the process of moving, with much muttering and grumbling from all sections of society, from a low wage, cheap food, high benefit society with low unemployment levels, to a high wage, dear food, lower benefit society with high unemployment levels. We are doing so—witness pay policy trouble with firemen and police and civil servants as well as with miners and power workers—whether we want to or not. What we must also do is grasp the implications of this move and adapt our political economy and its institution accordingly. It seems to me there are some signs that we on this side of the House have a slow, belated, glimmering awareness of what is taking place. There are dangerously few signs that the Labour Party, in Parliament if not altogether on the shop floor, has any such awareness at all.

8.23 p.m.

Baroness BIRK

My Lords, certainly one area has been demonstrated this afternoon and this evening where our productivity is extremely high, and that is in the production of glum and gloom. This seems to have run through the whole of this debate with a certain amount of grudging welcome to the Government's policy and, I must say to be fair, from all sides of the House the odd wonderful spark of independent and wholehearted approval which was extremely warming.

I found the contribution of the noble Earl, Lord Gowrie, extremely pessimistic and also, at times, some of his arguments to be rather contradictory. I wondered whether he had got hold of that mad surgeon's wife—I am sorry, I should have said " knife " not " wife"; I shall consult Freud tomorrow!—that his noble friend Lord Carr was wielding so heavily earlier on. It seems to me that the time has gone almost between one Budget and another. This has all taken so long that I feel we are due for another Budget at any moment.

A noble Lord

Probably we are!

Baroness BIRK

Some hours ago, my Lords, my noble friend the Lord Privy Seal outlined our problems and successes, and in particular the successful handling of the financial side of the economy over the last 12 months. I felt that this caused some dismay in some quarters, although to be fair it was very much welcomed in others. I agree with my noble friend Lord Balogh that it is nonsense to treat the money supply as a golden calf, or even as a paper tiger, but I think he will agree that the Conservative Government demonstrated the folly of ignoring it altogether. The pound is now floating and I respect the reservations expressed by the noble Lord, Lord Balogh, too much to tangle with him about them. Large appreciations in the pound would make industry uncompetitive, but I do not believe that the present small increases would have that effect. What we cannot do is to keep the pound low to shield an underlying industrial weakness which still persists.

We also have to remember that the cheapening of imports will ease the pressure of wage demands and in this way will help trade union negotiators. It would also lower the cost of raw materials, and the cost of the raw materials in manufacturing industry is still dropping in " a highly encouraging manner", which is a quotation from today's issue of the Financial Times.

In an extremely interesting and authoritative maiden speech on which I join in the congratulations of other noble Lords, the noble Lord, Lord Gregson, suggested a special unit to study the aspect of import penetration. This aspect is considered by NEDC Sector Working Parties who are prescribing remedies and the Government have undertaken to support them. So this is not something that is just being ignored. What the strong pound does is to help against inflation, and success against inflation, which has quite naturally dominated a great deal of this debate, helps the pound. Inflation is dropping fast this autumn, and in fact has been less than 10 per cent. since April.

In the last two and a half years tremendous progress has been made in this country. It is not only in the last 12 months, but in the last two and a half years. The rate of increase in earnings is in single figures; the rate of increase of retail prices will also soon be in single figures and that is a dramatic improvement in the country's prospects. No grudging words can take that away. Also, as my noble friend Lord Rhodes pointed out, it is true that inflation is by no means a British phenomenon. We see it all over the world. The counter-inflation policy has worked; it has been the most remarkable achievement since the War and I agree entirely with my noble friend Lord Lee of Newton that an incomes policy such as this is the most sensible way of dealing with these very great problems.

If I may say so to the noble Earl, Lord Gowrie, it is hardly surprising that in the third year of a pay policy it is extremely difficult to sustain that policy. Tensions will arise and that is what is happening at the present time. Never in the economic history of this country have we had the situation where there has been a third year of pay restraint which it has been possible to keep going without the kind of conflicts we are getting and which we have seen erupting in various ways over the last few days and which possibly will erupt in the future. This type of eruption is quite different from rocking the whole system and one cannot compare the situation now with what it was even in 1974 at the end of the last Conservative Government. I think what we all have to do is to " keep our cool " and not confuse excitement over negotiations or pre-negotiations with the result when it comes.

One of the things which we seem to have lost is our capacity to celebrate victories. We have achieved a considerable victory in this country against tremendous odds. This is not the same thing as sitting back complacently. I would be the last person and the Government and my noble friends share this view—to say that we can afford to do that or indeed have the right to do it. We have not. We must not waver now. We have to hold to the Government's 10 per cent. overall earnings guidelines; this is essential to counter inflation and unemployment.

The noble Earl, Lord Gowrie, was talking about figures—and as a matter of fact I have them with me from an article in the Financial Times today—but he must also distinguish between pay agreements as such and the productivity deals which are allowed and are permissible under the present pay policy. It is also true, as the noble Baroness, Lady Seear, pointed out, that one has to watch very carefully that these are genuine productivity schemes. She also, quite rightly, put the responsibility on to management as well as on to the unions. It is true that if earnings rise much further the prospects for improvement in employment and in our living standards will deteriorate and all our sacrifices will then have been in vain. Nevertheless, I believe the British public has grasped these points. Indeed, while the pound was dropping the penny was dropping too. Massive and repeated support for the Government's guidelines is shown in the public opinion polls all the time.

The experience of the last decade has taught us all—and other noble Lords referred to this—that there is no solution through high money settlements. There is danger in giving way on special cases, and we all have to agree that there are some very special cases, but we could not give way on them unless everyone were to accept that they really were special. This is exactly what we saw as far as the police are concerned, and nurses and other people whose work cannot be assessed in terms of productivity. Special cases therefore are always at other people's expense.

What I would agree immediately is that our tremendous weakness lies in our industrial output. The noble Viscount, Lord Amory, was absolutely right when he said that this is the most serious problem of all, and this is a point on which I would agree with what the noble Lord, Lord Carr, said. But this is not a recent phenomenon. This has a very long historic causation. The basic problem of our economy is the performance of industry and output per head. It is not really just a question, I think we all know, of investment that is available. The last four years, in addition to our own national problems, have seen a world recession and financial instability added to them. These have without any doubt worsened our performance and added immensely to our problems.

The announcement today of the setting up of the North-East and North-West Industrial Development Boards to stimulate employment and industry in those areas seems to me to be a practical if rather specific way of trying to stimulate employment in these areas. The greater the problems the greater the need to act together. Both sides of industry, I would like to believe, are increasingly aware of this. The record of the trade unions over the last 12 months has been especially good, and there is no sign of the TUC backing down on the 12-month rule which is absolutely crucial to our pay policy. I think also in particular of the contributions of the trade union leaders in NEDC and the responsibility shown by so many workers on the shop floor. Increasingly they are conscious of the common longterm interest and I believe that this is being echoed by management.

My noble friend Lord Jacques made an extraordinarily constructive contribution when he spoke about a code of practice worked out in consultation with the CBI and the TUC. Many noble Lords referred to industrial relations. My noble friend Lord Walston, talking about the need for the bad to learn from the good in industrial relations, I thought put it extremely well. The noble Lord, Lord Carr, the noble Lord, Lord Mancroft, and many others also referred to them, as did the noble Lord, Lord Rochester. The Government policy is closely concerned with achieving what is needed, which is co-operation and not confrontation. This means expansion of conciliation services through ACAS at the moment, the diagnosis of problems through the NEDC Working Parties and also finding a generally acceptable form of industrial democracy. I agree with everyone who has indicated how enormously damaging it is to let the national potential of this country be thrown away in disruptive disputes. We are all in it together. I cannot agree with the noble Lord, Lord Spens, who talked about a Bill of Rights which I think would include making strikes illegal. It seemed to me, if I may say so, to be more a Bill of Wrongs than a Bill of Rights.

But it is equally important that management should be able to deal flexibly, energetically, responsibly and professionally with the problems of industry. This is not something that always comes automatically. It calls for better management education, and a great deal of effort has gone into this by the Government and the professional institutes. What is needed is a broadening and deepening of management understanding. This is particularly essential since the manager who understands the society in which he works as well as the firm or industry in which he works is both going to find his task easier and be more successful at it.

The noble Lord, Lord Mancroft, made his own original addition in his own inimitable way on what he would have liked to see in the Queen's Speech to help management to become more effective. I would say that there is a great deal that management itself can do. I think there is a great deal more that the CBI could do if it were more prepared to listen and to advise about effective management, rather than criticising the Government and expecting the State always to take the lead. I am not knocking by any means all that management does and can do in Britain, because it does a great deal and it does succeed.

Our problem is not that we cannot produce but that our average factories are not up to the standards of those of the best of our factories. The noble Viscount, Lord Amory, was quite right when he spoke of being able to compete with our competitors, and the noble Lord, Lord Carr, and my noble friend Lord Walston were also absolutely right when they said we could probably in many cases make much better use of our equipment and machinery than we are doing at the moment. I would not dream of understating this problem, because it is a very great problem of which we are all aware. But I must point out that other countries have problems, too. For instance, car producing countries like Germany, Japan and Sweden have serious difficulties, but they do not seem to have our innate masochism and do not advertise them quite so much as we do.

Our task is not one that can be completed overnight; it will take years. There is no question of members of the Government feeling that everything is all tied up in a happily produced package. What we are saying is that we have a sound base, we believe we are on the right road but that it is going to be a long haul. As the noble Lord, Lord Rochester, pointed out, the long-term is just as important as the short-term. Many noble Lords, including the noble Lord, Lord Auckland, saw that we have an upturn and a much sounder base on which to build.

North Sea oil will make this a smoother and easier operation. In spite of the things that have been said about it—and I certainly would not trespass on the authority of my noble friend Lord Balogh—we must not forget that without North Sea oil the fundamental problems of industry would still have to be solved and with greater difficulty; and, what is more, we should have to be going about them in the same way. North Sea oil is not only a great help, but it is essential that in something as important as this to the whole core of our industrial, economic and even our social life the Government should have a large stake. The plans that appear to have been floated for the future as to what the Tories would do with BNOC frighten me to death and I think are absolutely wrong so far as the nation is concerned.

The tax concessions in the Finance Act and the October measures have improved incentives for both sides of industry. I think that the noble Lord, Lord Hawke, must agree that this increases the purchasing power which he says ought to be increased. I remind the noble Earl, Lord Gowrie, that in the Dodo's race in Alice in Wonderland there were prizes for all. Our tax concessions have meant that everybody has got something. But tax concessions are not the whole answer. Alone they would lead us into exactly the same difficulties which brought expansion to a halt in 1973 under the Tory Government. They did not find that cutting taxes was the answer to the problem. Therefore, this is only one part of the matter.

What is needed is a consistent and steady climate provided by the Government, one where the structure of taxes and investment aids for industry is not being chopped and changed. At the end of last month the Chancellor announced the first conclusions springing from a study of small businesses. These have been welcomed generally; they had rather a peculiar welcome, I thought, from the noble Lord, Lord Harmar-Nicholls, but he has a very engaging originality of his own. Everything that he said was not being done is, in fact, being done. Small businesses are being helped through CTT, corporation tax, and there are other ways of aiding them. Noble Lords can imagine that if we had not done anything about small businesses the noble Lord, Lord Harmar-Nicholls, would be the first to say, "Why are you not doing something about small businesses?"

My noble friend Lord Davies of Leek with his usual marvellous flow of rhetoric talked about the " delicious dichotomy " of the small farm. He and the noble Lord, Lord Walston, reminded us that business includes agriculture as well as industry. We also have our invisible exports. I sometimes think that perhaps they are so invisible they get overlooked. In tourism and finance we have had tremendous successes. The City of London and New York are the leading financial centres of the world. The net overseas earnings of the City doubled between 1973 and 1976 to £l½ billion. At the same time the net earnings from travel and tourism, in which I take a particular interest, rose from nil to £600 million. These must not be forgotten. Indeed, I know that they will be much welcomed by the noble Lord, Lord Mancroft, who has played such an active part in London tourism.

I turn to unemployment which is the heart in the emotional and human sense and the worst tragedy of the lot. Like other general problems of our economy, it reflects the world recession. There are now about 16 million unemployed in the industrialised countries of the world. If one started taking in the third and fourth world, the figures would be too horrible even to contemplate. What is needed is a major co-ordinated world effort to expand the stronger countries' economies, and the Government are in the lead in urging this. As our financial situation strengthens, so we can play our part.

No one, and certainly no Labour Government, can be complacent about the present level of unemployment. I found it extremely odd that the noble Earl, Lord Gowrie, in order to make what he felt were his own individual remarks about unemployment had to take off his Front Bench hat and put on a Back-Bench hat.

The Earl of GOWRIE

My Lords, may I correct the noble Baroness, Lady Birk. I was not taking off my Front Bench hat to make remarks about unemployment. I was taking it off in order to look at what two people, one a Labour member, the Foreign Secretary, and the other a friend of mine, a Tory, had to say about import controls. That is another matter.

Baroness BIRK

My Lords, I still find it extremely odd. I am quite prepared to say what I think about unemployment and still keep on my Front Bench hat and my Minister's hat, even where there are differences of view, and that is certainly not in the brief from which I am reading. There is a tremendous problem of unemployment. It is perfectly true that unless we have economic growth and growth in wealth, with increased technology, the trouble is that unemployment is likely to rise. I do not think that the solution that has been offered by noble Lords opposite about having machines working six days a week and people three days a week is the answer, unless one is changing very drastically the whole structure of our society and taking an entirely different approach to education, leisure and everything else.

Lord CARR of HADLEY

My Lords, I am sure that the noble Baroness, Lady Birk, does not want to get it wrong. I was not suggesting that. I was suggesting a much wider use of a double shift system, which is very different indeed and which has worked very successfully in many factories.

Baroness BIRK

My Lords, 1 was not referring to the noble Lord, Lord Carr of Hadley. There are other contributions that made the point, but not in that way.

Nevertheless, as the economy has improved during the year, we are now able to inject more money into the areas where it would help most and principally, as was pointed out, especially by the noble Lord, Lord Auckland, into construction. In March, May and July a total of £230 million was provided. The most substantial help now is the extra £400 million in 1978–79 which was announced in October and which should create 30,000 jobs. We shall be announcing the details of the allocation of this sum shortly so that the authorities can go ahead with commissioning the work and help the industry as soon as possible. I do not believe that this will deter people from coming into the industry, because there will be only a certain amount that can be absorbed at a time. Therefore, there will have to be a rather slow build-up. Coupled with the public sector and public money going in, we hope, of course, to see at the same time an expansion in the private sector so that one feeds off the other.

Unemployment is affecting almost all sections of society and it is especially serious among those manual workers who form the mass of our working population, and indeed, of the Labour movement. Incidentally, the reason unemployment was so high in 1947 was that the troops returned and when they left the Army they were unemployed. That is the answer to the noble Earl, Lord Gowrie, as regards the figure which he put forward. I believe that he grumbled that we were not being political enough on this side. I personally believe that there is a difference in attitude towards unemployment between our two Parties. I do not mean that I think that the Tories sitting opposite are saying, "We like to see people unemployed". I do not believe that at all. However, I believe that if you take, as many do, what we can call for brevity the monetarist theory, then this must imply a great number of unemployed—more unemployed than we have at present.

There is still the lingering feeling that if there is the feel of unemployment at the end of the line, then the carrot and the donkey work very much better. I do not think of unemployment simply as an abstract set of economic relationships. That is how it is thought of by some Conservatives, I do not say all, and there are individuals who do not think that way. However, there is a difference between the social and human approach and the economic approach. It is a hallmark of our Government's whole approach that we do not see a strong economy as a desirable thing just in the abstract. We see it as a tool for social ends. A strong economy is needed to avoid the social damage of unemployment, to provide resources for the disabled, the deprived and the sick. A strong economy can abolish poverty at home and help abolish it in the world.

For better or for worse, we are an aspiring society: we want the material rewards of a strong economy. We must be honest and say that people in this country now are not prepared to do without them. Yesterday's luxuries have become today's necessities. This materialist approach may be offensive to many people, but it is nevertheless something that we must accept is here. The Government are trying to provide the economic, social and cultural balance that makes up a society that is compassionate and believes in the quality of life, but they cannot succeed without the participation of everyone—and I mean everyone. In this last Budget we have managed to squeeze not a great deal, but some extra money for the arts, mainly for the buildings of national museums and galleries. They have not been left out even in this very difficult time. We must join together to build the strong economy we need if we are to be a nation at peace with ourselves.

The LORD CHANCELLOR

My Lords, I beg to move, That the debate be now adjourned until tomorrow.

Moved, That the debate be now adjourned until tomorrow.—(The Lord Chancellor.)

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