NORTH SEA RESOURCES AND THE ECONOMY

HL Deb 08 February 1978 vol 388 cc1040-114

2.50 p.m.

Lord SELSDON rose to call attention to the opportunities now available for the rebuilding of the United Kingdom economy following the successful development of the oil and gas resources of the North Sea; and to move for Papers. The noble Lord said: My Lords, with a somewhat heavy heart, I rise to move the Motion standing in my name on the Order Paper. As I move from the hopefulness of youth to the cold reality of middle age, I ask myself daily whether those of my generation and the generation to come after me will have any hope at all of improving the standards and the way of their lives. I think it is a question that every family man asks himself regularly. I clutch at straws, and one straw I clutch at, as I believe many other people do today, is the North Sea. But knowing relatively little about the North Sea, other than from my time in the Navy, I view it with fear and suspicion; and my suspicion is directed more to what Government policy may be towards the North Sea and the fruits that it holds rather than to the technical, financial and other difficulties related to it.

I remind myself, and I would remind your Lordships, that we have been faced with successive Governments who have tried, often against overwhelming odds, to promise the British people rising living standards, while the cake has been getting smaller and smaller. At the same time, successive Governments have camouflaged, despite the trappings of the consumer society, the real decline that has taken place in worldwide economic influence, in domestic standards of living and other elements. Today I should like, in moving this Motion, briefly to remind your Lordships and myself of what the North Sea can offer, and to suggest ways in which these benefits could perhaps best be utilised.

On the second point, the utilisation of whatever benefits may come out of the North Sea, there will be considerable differences of opinion, and now is perhaps an appropriate time to debate these. But, on the first point, on what exactly the North Sea offers, there is also a considerable difference of opinion. Preparing for this debate, I sought the advice of people in the private sector, friends in the public sector, and others, to try to determine what was the value of this thing called the North Sea, and what would come out of it. The figures and information which I will now quote are not my own views but a distillation of the views of others.

We are faced on one side with the private sector trying to keep from Government profitable information, and, equally, Government trying to keep from the private sector what their intentions are. Above all, we must remember that the situation in the North Sea started relatively recently. I have put down my Motion in terms of gas and oil so that we should not forget that it was gas that started the whole thing off. Back in 1959 there was this discovery of the Slochteren field off Holland. That seems a long time ago, but it was not until 1965, just 12 years ago, that any real exploration got under way in the British sector, when BP found gas in the West Sole field. There were other finds off the Norwegian coast, and from the Dutch again.

Today we should remember that the whole of the British Gas Corporation network is now fed by the North Sea with supplies in excess of 3,600 million cubic feet a day. I cannot envisage 3,600 million feet of gas, but I can envisage its equivalent of about 130,000 tons of coal. New supplies from the Frigg and Brent fields will increase this to some 6,000 million cubic feet a day by the 1980s—that is, within two years—and we shall have sufficient natural gas to meet the estimated requirements of industry and the consumer; all this in a relatively short period of time.

Furthermore, there are other developments in the gas area which are not so much related to gas itself but to oil, where opportunities exist for utilising resources of natural gas which are related to oilfields. Unlike dry natural gas, this type contains substantial quantities of heavier petroleum gases, ethane and prothane, which have a value to the petrochemical industry. What I am trying to say is that it seems that by using the resources of gas we can be reasonably self-sufficient for a period of between 25 and 50 years; this is the gap involved. We are talking of 51 trillion cubic feet. That is the estimated reserves of natural gas in the North Sea, with possibly more to be obtained. If, as is suggested, there may be pipelines linking the oilfields for extracting natural gas, it being often uneconomic to have a single pipeline going to an oilfield, then this could even increase, and there are such proposals being made at the moment.

Half of our natural gas is in the North Sea and half in the Northern basin off Liverpool Bay. Exactly what would the position be if we had not had that natural gas? In theory, we have adequate reserves of coal and we could, in theory, have utilised that coal. But somehow the productivity of the coal industry has not been as great or as effective as that of the gas industry, and I will ask this question and try to answer it later. Despite the 1¾ billion tons of coal, the equivalent of gas in the North Sea, it is not gas that has captured the imaginatior, but oil. Although oil deposits were first found in the Norwegian and Danish sectors, it was not until 1969 that AMOCO found the Montrose field, and the BP Forties Field came a year later. The most significant finds took place only five years ago. We must remember that it is only in the last two years that oil has actually come ashore.

I think it is right to point out that, had this operation been under a single Government, of whichever Party, it could never have financed, nor would it have attempted to finance, the development that has taken place. In all, expenditure on North Sea development could be in excess of £15 billion, of which 7 per cent. would have come from Government, 40 per cent. from American and 40 per cent. from British corporations. When these companies first started their development oil prices were low. The risks were considerable. We were all suspicious and doubtful whether oil would come on stream on time. The Department of Energy were often fairly cynical about this. But, at the end of the day, people achieved what it was they had set out to achieve, despite considerable difficulties, despite danger and loss of life, despite the risks and political pressure involved, and as a result we are in a position where we could exploit in our own territory approximately 4 per cent. of the world's oil reserves.

It has only been recently that Government have taken a hand and become involved, and, in my view, quite rightly so. The way in which Government are involved, and continue to be involved, may be a matter for discussion, but it is fair to point out that, where Government have been overinvolved in these developments, things have not gone well, there have been problems and ultimately relatively little profit. It seems that any developments in the North Sea can be reasonably financed, that money is no longer a problem; and more than that, the mere existence of it, and the emotion going with it, has increased international confidence, strengthened sterling, and provides us with a chance to take certain economic steps which would have been denied to previous Governments because of constraints on the balance of payments et cetera. We are currently running at a production rate of 800,000 barrels a day, roughly 43 per cent. of the United Kingdom total requirements.

This will rise to some 1.4 million barrels a day during this year and some 2.2 million barrels a day by 1980, when it is estimated we shall be self-sufficient in oil. We should bear in mind, of course, that the quality of our oil is very high, and therefore we shall be exporting some and importing others of lower quality, so complete self-sufficiency in the true meaning of the word does not necessarily apply. What is the value of these reserves?— because cubic feet, tonnes and barrels do not mean much to me and, maybe, to many others. At current prices, roughly 14 dollars a barrel, we could assess that amount at £300 billion, roughly £20,000 for each household in the United Kingdom.

Coming back to a more practical point, what comes out of it in real terms, in monetary terms? We are faced with the knowledge that the development costs are so high—many times those of any other part of the world—that it often costs something like £5,000 per barrel a day; thus, it will take two years or so to recover the costs of producing one barrel. However, the revenue that is estimated to come out of it is best looked at in terms of what we believe would come to the Government rather than to the oil companies themselves.

I am advised that the current structure is such that in 1978 40 per cent. of the total revenue from oil and gas in the North Sea would accrue to the United Kingdom authorities, which would be of the order of some £600 million rising to £2.2 billion by 1980 when the Government will be taking 80 per cent. of the total revenue. There may be arguments between the developers and the Government as to exactly what is a fair cut of the cake, but I have reason to believe that although oil companies and others may complain bitterly, they are risk-takers and have taken the risks and would not feel too put out if that were the pattern that developed.

However, that £2.2 billion a year starting in 1980 is not new money, for we have already consumed and spent much of the resources of the North Sea. The Government may try to persuade us otherwise, because often that is a valuable course to take; but we should bear in mind that the public sector borrowing requirement is some £8 billion at present, perhaps falling to £6 billion this year. These deficits were obviously opposed by many people on all sides of the House, for perhaps in real terms we should have taken a dive in living standards and had very high unemployment, although for various reasons that did not come about.

Therefore, I raise the following question: If the oil is to come ashore—and I am assured that it is coming ashore on time, with remarkable efficiency and with good co-operation with the technical aspects of Government, the Department of Energy— what does it mean? Many of us would say that there should be direct cuts in taxation and that we should give the benefit back to the British people. There are considerable fears that the Government, for one reason or another, will squander and waste in consumption the benefits of the North Sea, that our reserves will run out by 1990 and that we shall be back in a stop-go cycle probably stopping long before then. We should bear in mind that that need not happen.

For the first time in economic history since the War, the Government need no longer be quite so concerned about the constraints of the balance of payments. It would be as well to point out that the impact of North Sea oil—the gas, of course, not being exported and with insufficient quantities to export—could have a positive contribution to the balance of payments of some £2.75 billion this year, rising to £5 billion in the 1980s. If we consider the "oil surplus", as it may be called, plus the invisible surplus which, although falling at present, as more people may go abroad as tourists and as the pound strengthens, could still remain constant at £1.5 billion, we are faced with one factor: the balance of payments account so far as visibles, and in particular manufactures, is concerned.

We have never really had a surplus on visible exports—I think only three in 50 years. We have ceased in real terms to be a major competitive manufacturing nation. We have, however, had a tremendous shift away from manufacturing. The question that I should like to ask is, whether we should continue to try to be a manufacturing nation, except perhaps in those specific areas where we have greatest competence and greatest competitive ability.

Many people have tried to point out to me when doing my research for this debate—sociologists in particular—that people always look at their own job and position in relation to their parents and their grandparents. They have reminded me that we started our industrialisation 40 years before many other countries, when it was hard and unpleasant, and the sons of those who worked in the mills wanted to improve their situation. Improvement was sought by their sons, and gradually people fought against the idea of repetitive work in manufacturing industry. Yet repetitive work is what provides the jobs.

We are advised that while the Bank of England estimates that there could be a £2.25 billion surplus on current account this year, it seems probable that this could be very much on the high side because we might estimate some form of reflation by the Government and with that a rather serious position on the visible balance of payments, as inevitably in these events manufactures are sucked in from abroad as consumer booms are created. Therefore while one says to the Government, "Perhaps you need not worry so much about balance of payments," that is only one aspect. The strength of sterling need not necessarily be related to balance of payments. At the moment it seems probable that we are almost back with a strong currency, for two reasons: the possible benefits of the North Sea and the constraints of policies which have been imposed by the IMF.

If a middle-of-the-road course is pursued and moderation is shown on consumption from the North Sea, it is probable that sterling could remain strong for a period. However, that does not solve the major problem which I think confronts this Government and any Government that succeeds it; namely, unemployment. Politically a high level of unemployment will always be unacceptable and is to be condemned. However, one of the biggest worries has been the shift in the balance of employment by different sectors. Over the five-year period between 1971 and 1976 employment in the private sector fell by 350,000 and employment in the non-productive public sector rose by 800,000. In the same period 800,000 people left manufacturing industry. They would not necessarily be the same people who moved over to Government employment, but that was the shift. But while that number of people left manufacturing industry, the service industries took on 1,200,000 more. The question I ask is whether perhaps greater emphasis should not be given to service industries if we are to be a manufacturing nation again.

Of the total workforce of some 25 million, approximately 30 per cent. are employed by the Government sector and 70 per cent. by the private sector. The CBI and others are urging reflation and reduced taxation, on the basis that such action will stimulate industry and could create employment. I think that that is true. However, a point to be borne in mind is that major capital investment in British industry at present would be more likely to create unemployment or increase unemployment than to create jobs. I would suggest, therefore, that we should concentrate from the grass roots upwards.

There are people who have pointed out that if, tomorrow, every small business took on one person there would be no unemployment. The small businesses advise that the Employment Protection Act is tantamount to banning increased employment. I have often looked at other companies around the world and marvelled at the way the British can work abroad; at their ingenuity; their ability to work long hours right through the night; and their ability to be creative and full of ingenuity when there is no plant and machinery available to make a spare, and I wonder why that does not happen back in the United Kingdom. I come back, I am afraid, to the simple question: Why should they? It is a question of incentive. The noble Lord, Lord Boyd-Carpenter, pointed out that it might be taxation. It is not necessarily taxation. It is more than that. There must be a reason.

We all hate shirkers. There have been examples of companies having started to work "flexi-hours" or people have used punch-cards. Surprisingly enough, the shirkers get caught out and everyone supports the idea. The British genuinely want to work, and the level of moonlighting is such that I am very much encouraged to believe that they do. There must be many noble Lords who have supported the aspect of moonlighting and have made cash payments to assist people to do jobs in their own time. However, it is taxation that needs a rethink and the Government will, I know, do that.

To me it seems odd, speaking as a Conservative too, that, of the total receipts from taxation by the Government, 50 per cent. come from income tax. Therefore, one asks the question: How much of that is company tax? What comes from profits? Under 8 per cent. comes from companies because of stock relief assistance and so on. If one asks every company: "Would you rather pay more tax to the Government and let your employees have a higher take-home pay?" they would all agree with the idea, because it is an argument they could not fault. The Government say historically: "We cannot alter a tax system". Experts point out that it is extremely difficult.

At the end of the day, the British only want to know that if they do work they may be rewarded. I remember that when I was a small boy my great-uncle Stafford Cripps, to whom I think the noble Lord, Lord Lee, was PPS, told me that if one worked hard at school and educated oneself one could get a good job, and that if one worked hard at one's job one could improve one's standard of living and save. I believe that that was Socialist philosophy. I do not believe that today the Conservative philosophy is any different, but I do not see any signs of it coming from the Benches opposite. My Lords, I beg to move for Papers.

3.10 p.m.

Lord SHEPHERD

My Lords, it is a customary courtesy of your Lordships' House to congratulate the mover of a Motion and I think that on this occasion we should offer our very sincere congratulations. The quality of the noble Lord's speech is something that we shall remember. It is not the first occasion on which the noble Lord has intervened and certainly we on this side of the House have listened and, to a large measure, agreed with him.

If I were to express two disagreements with the noble Lord's Motion, it would not be in a critical sense. First, this debate, which is broadly an economic debate drawing attention to the possible opportunities to be gained from North Sea oil and gas, is one that we should have held many weeks, if not months, ago, when what would have been said might perhaps have influenced the Government, because the Government are obviously giving great consideration to this matter. My understanding is that a White Paper or a Government Statement is shortly to be issued.

Therefore, my first question, which must be to my noble friend the Minister, is: When can we expect this Statement? I say to my noble friend that this is now a matter of great urgency. We have already wasted some of the opportunities. If we had not had the great need to exploit the North Sea in the way in which we have, incurring great expenditure overseas to the cost of our balance of payments, we should not have lost the opportunities of using our own industries for that particular development. Therefore, time is of the very essence in this matter.

My second criticism really arises from what the noble Lord, Lord Selsdon, said at the very beginning of his remarks about his and future generations, when he wondered whether there was hope for a higher and better standard of living. My criticism concerns the word "rebuilding" in relation to the British economy. From that remark, it sounds as though the British economy is flat on its face. I accept that it compares unfavourably with our major competitors, but, taking the world as a whole, we are still a strong economy and we have a strong manufacturing base. As I have said on many occasions from the Dispatch Box, many of our problems have arisen over very many years. We can always debate whether they stemmed from the beginning of this century or from the middle of the last century. However, our gradual decline has taken place over a long period.

Although North Sea oil and gas provide us with certain opportunities, they will not in any way rectify or change the decline of the last 50 or 100 years. They give us an opportunity, but, if we are to see the changes which the noble Lord himself wishes to see, it lies in Governments, industry, trade unions and everyone in the United Kingdom—and I shall return to that later—to make a fundamental change not only in our structures, but in our basic attitudes.

I believe that a change in attitude has already taken place. I believe that 1976 was a landmark: we looked down into the abyss of the possible collapse as a consequence of inflation of all that we in this country understood. We have made great changes. I think it was in October last year that we spoke in rather euphoric terms about a major change in our financial situation, saying that we had been able to move out of deficit on current account into a small surplus. I believe that the British people recognise the dangers and that many of the financial achievements have been due to the recognition and co-operation of the CBI, the TUC and the Government.

Despite all the difficulties and pressures, I hope that the Government will maintain their stand in the fight against inflation, because, unless we deal with that over a period, whatever opportunities may arise or steps may be taken in other directions, there is little or no hope for this country. I believe that the mass of the people will stand with the Government and will stay within the guidelines. It is no credit to management or to those who negotiate with management who break the guidelines. I hope that this House, with its semi/non-political hat, will maintain its support of the Government in the fight against inflation.

Great changes have taken place in the financial field. I believe that we can also see some successes in the manufacturing and economic fields. In volume, our exports rose by some 8 per cent. during 1977—twice the rate of the increase in world trade. Let us give credit to our manufacturers and exporters for what they have done. I believe that North Sea oil and gas give us the opportunity to give help and assistance to those companies which have made a major contribution to the change during 1977. But I think that the Government need to walk with a degree of caution. There is a degree of uncertainty as to what contribution North Sea oil and gas make to the economy.

One figure given is that it represents some 3 per cent. of our gross national product. That figure of 3 per cent. is miniscule in relation to opportunity and growth. Taken as an average to the middle of the 1980s, I think it represents some 10 per cent. of our exports—that is, visibles and invisibles combined. One could say that those are significant figures, but they are not figures which can in any way allow us to relax. The noble Lord, Lord Selsdon, was right in saying that they give us time to adopt economic policies which can foster and develop, in particular, our manufacturing base. But, as the noble Lord said, if we do not seize these opportunities—whether they be available for five years or 30 years—this country's situation will indeed be dire. They give us time in which to change, develop and go for growth.

The noble Lord was quite right in saying that we can have a debate on how we can use those opportunities. Apart from the fight against inflation, the basic need is to deal with the unemployment situation. I do not believe—and I share the view of the Secretary of State for Employment—that we can look to the manufacturing industries for any significant employment prospects. I believe that we have to find that employment within the service sector or the public sector. Therefore, of the resources that become available from North Sea oil and gas, I hope that a part—not a large part, but a part—will be used with some discrimination within the public sector so as to have the greatest effect upon employment. Perhaps the construction industry is one that stands uppermost in most people's minds.

However, I suppose that one could put the opportunities into two categories. What does one do with the revenue? I have touched on this in one aspect of the public sector. I have no doubt at all that, if this country is to play its part and if it is to make inroads into its competitors' markets, it will have to be much more engineering-orientated. I believe that what we are doing in training and retraining in the field of engineering and production is pathetic in relation to the needs of this country. I have no doubt at all that, if we were to move to a 4 per cent. or 5 per cent. growth next year, we should have a great overheating in tile economy because of bottlenecks and shortages of skilled operatives.

With so many young men and women unemployed we have an opportunity now that we have some resources with which to play, and I hope that the Government will not only redouble their efforts in the field of retraining but will go out and see how they can improve and direct the whole general educational system towards young men and women going into the field of manufacture and production.

Retraining is essential, but I also think—and here I may be slightly provocative—that the Government ought to look seriously at the proposals for bringing about earlier retirement. I do not say compulsory early retirement, but they should provide companies with an opportunity to do it within their organisations. There are today so many young people on whom the future will depend, who cannot get into industry or commerce because there are men who are nearly at the end of their working career. I think that the nation would gain a great deal if their departure were expedited and we were to bring in some of the younger people who are looking for work.

There are many other ways in which we could spend the revenues. I think that this is something that we should debate on another occasion. I have read with care the CBI proposals as to what one should be able to do for the balance of payments. I am attracted to the CBI proposal that one should ease the restrictions on overseas investment. I believe that there is a good case to be made that exports follow investment, but I cannot help feeling that, in the present political climate, it would be unacceptable for the Government to do this at a time of such large unemployment and when there is a belief in the need to invest within our own industry. This was touched on by the noble Lord, Lord Selsdon.

There is a great deal of money lying around this country waiting for investment. Much of the problem is that the return appears to be inadequate. This touches on one factor to which I was going to refer earlier. While our trade may develop next year, it will only develop if we can increase our competitiveness, because the value of the pound sterling has undoubtedly moved against the exporters and therefore they can only recoup that situation by increasing their competitiveness.

May I come back to the balance of payments? The noble Lord's suggestion is worthy of consideration, but the timing is not right. During the course of 1978, I should like to see a considerable repayment of our overseas debts, particularly those of the nationalised industries and local authorities which were taken on at a time of relatively high interest rates. I would hesitate to recommend paying the IMF loan back because that is at a very favourable rate, but I would seek to repay those overseas debts on which there is a very high interest rate.

In conclusion—and it has been, I fear, rather a rambling speech—I come back to something I said at the end of last year in regard to investment. When one looks at the countries within the EEC and compares their improvements in productivity and world trade, one thing comes out clearly indeed. It is that what they have been able to achieve has been largely due to consistency of policy. They have known fairly well what the policy was likely to be for 3 years, 5 years, 10 years. All the political Parties assembled in your Lordships' Rouse have some responsibility in this matter. I well remember one of the first actions of the Conversative Party when it returned to power in 1970 was to sweep away the Industrial Re-organisation Corporation. On reflection they knew they were wrong.

I hope that the various agencies which we have set up will be allowed to continue, not necessarily because they are right or because they have all the resources available to them, but because they provide some means by which, particularly, the Scottish Development Agency and the Welsh Development Agency can deal with regional problems. I come back to the need for consistency. We have to create—and I believe that we are now in fact in the course of creating—far greater consultation and participation at factory level. I believe that there is now far greater agreement between workforces and management. There may be exceptions, but, by and large, I believe that this has taken place.

There is a greater understanding and spirit of co-operation between the little "Neddies" and the various bodies that have been set up by industry, Government and the trade unions—the 40 Industrial Groups, I think. I hope that that will be fostered. But I would hope that in the next 12 or 18 months there could be a greater identification of view between the two major political Parties in the field of the economic needs and economic demands and developments of this country. At least we could identify our intentions and the means of achieving them. I believe that that would be the greatest step forward, giving industry the confidence, first, to invest and, second, for the workforce to support its management.

3.30 p.m.

Viscount SIMON

My Lords, after two such speeches as we have just listened to I rise with great diffidence to address your Lordships. I should like to start by echoing what the noble Lord, Lord Shepherd, said about the extremely thoughtful and interesting speech with which the noble Lord, Lord Selsdon, opened our discussion. I do not think anybody could doubt that the discovery of oil and gas under the North Sea, and its successful but costly extraction, has brought considerable benefits to this country and will bring more for some years to come. For how many years is a matter upon which we cannot be certain, but most authorities seem to agree that it is of the order of 20 to 25 years. But even over this short period it would be a mistake to exaggerate the benefits.

I suggest it is worth remembering that, when our needs for oil are fully met from the North Sea—this point has perhaps already been made in a certain sense—we shall be spending, or shall have spent, in obtaining that oil, real resources far greater than the resources that we used to spend in manufacturing and exporting enough to buy oil at pre-1973 prices. In other words, as a result of the oil coming from our own North Sea we are not going to get it any cheaper: in fact, I think it has been suggested that it may well be more expensive in real terms than the oil we are buying now.

Of course we get the advantage in the balance of payments, and this is an important advantage which helps the Government and the country in what has been one of the constraints upon our working for many years. But we shall still have to adjust ourselves—both industry and the private consumer—to a high price for energy. We are not going to get it any cheaper. As I say, the balance of payments improvement may well ease the restraints which have been working on us, but in themselves they do not do anything to improve industrial performance. As the noble Lord, Lord Shepherd, put so clearly, that surely is our crying need at the present time.

To turn to the financial benefits to the Government—and I am here referring to oil—this is a different matter. What we want to discuss—and we believe the Government are going to produce a White Paper on this—is how we can best make use of the very substantial increase in Government revenue which will arise from oil during the next 20 years. I think the figures have already been given—at any rate, they are quite well known. In the simplest possible terms the increased revenue can be used either to increase expenditure or to reduce taxation—and I include in the increase of expenditure what the noble Lord, Lord Shepherd, said about repaying debts. Of course, this is a form of expenditure. My own feeling is that, subject to the overall requirement to contain inflation—and, as both noble Lords have said, it is perfectly clear that that must be our first requirement—the first claim upon the revenues should be to encourage in whatever way the Government can the modernisation and expansion of industry.

I was disappointed to hear the noble Lord, Lord Selsdon, saying he thought that as an industrial nation we were reaching the end of the road. Undoubtedly we have to redeploy resources out of some of the older established industries, which are fading, into new ones, but I agree with the noble Lord, Lord Shepherd, that we are still a major industrial country, and we can be a greater one still if we do the right things about it. Speaking from these Benches, I would hope that the development and expansion of industry would be mainly in the private sector, but even in the public sector there are industries which could be expanded and brought more up to date to help us in our industrial future.

How then from these revenues can the Government best encourage the modernisation and expansion of industry? May I, in parenthesis, add that I would include among industry, agriculture, because I believe there is much that could be done to develop our agriculture so that we become more and more self-sufficient in the production of what we need. The first thing that occurs to anyone is tax reduction. There is little doubt that this would improve the situation. What we have to get over is the feeling among industrialists that it is not worth investing further. Of course, there is a temporary position in which existing plant is under-utilised. I certainly hope that over the next few years that will not deter industrialists from going for expansion if they are given the right incentives. Apart from tax reduction it is very desirable that there should be some encouragement, through the tax system or otherwise, for small businesses. They can contribute an enormous amount to our economic prosperity. I think that in recent years they have been clobbered—that is certainly what they feel—and some encouragement to small industries would be of immense help.

There is still the question of the industries that for historical reasons are in a permanent state of decline. The noble Lord, Lord Shepherd, touched upon that position. It seems to me that in the short term decisions may be forced upon any Government to give temporary help to what have been called "lame ducks", but I suggest that whatever is done should be accompanied by positive steps to prepare for the fundamental changes in the pattern of industry which we need. And I support most firmly what the noble Lord, Lord Shepherd, said about training. Nothing like enough has been done about retraining, and with revenue available for the purpose it seems to me that important improvements could be made. This change in the pattern of industry is unavoidable if we are to survive as an industrial nation, and in spite of what the noble Lord, Lord Selsdon, said, it is difficult to see how we can survive as anything else.

I mentioned before that, above all, we must keep inflation under control. This means that we should not encourage too rapid an expansion of industry. That in turn will mean that in the early years we shall have more funds available from oil revenue for other purposes. I suggest that there are two other purposes which we might consider. If we are to become self-sufficient in energy for 20 years, must we not prepare ourselves for something near self-sufficiency after 20 years? Last week we had a debate about alternative sources of energy, and it seems to me that some of these revenues could well be applied both to research into alternative sources of energy and to their development. Noble Lords who were here for that debate will remember that it was agreed that energy conservation is just as much an alternative source of energy as anything else. The Government have now put a certain amount of money at the disposal of local authorities and one wonders whether it will not be possible, with the oil revenues flowing in, to increase that in some way.

The other alternative use for these revenues I have touched on and it was mentioned by the noble Lord, Lord Shepherd; namely, some repayment of our debt, and I am sure he was right to say that we want to repay the high interest debts as early as we can. I do not know the details and perhaps the Minister, when she replies, will be able to say whether what Lord Shepherd suggested is practicable. In my experience, people who lend large sums of money at high rates of interest usually say they do not want it paid back before a certain length of time, I therefore do not know how far we could pre-empt the repayment of those loans.

There is one other possible claimant on these revenues to whom I must refer. The exaggerated publicity that has been given to oil and its benefits will make it difficult—dare I say, particularly in an Election year?—to resist public expectation of an age of boundless affluence. Yet to use this bonus—for that is what it is—to jack up indiscriminately the support which the community rightly gives to the disadvantaged could be both unwise and wrong. We can all think of anomalies in the social services which could be ironed out at relatively little cost, and if some money could be found to do that there would be a welcome in many quarters. But any general improvement of benefits must, I suggest, wait until the economy really gets going again, and then we shall soon find additional revenue coming in sufficient to provide, on a continuing basis, improved social services.

I come back to what I believe to be the first claim on the oil revenues, and that is the objective of the regeneration of industry. To this end, fiscal methods made possible by the oil revenues will help, but I agree with Lord Shepherd that much else is required, and that does not necessarily come from Government; it comes from employers, workers and the people. Unfortunately, people do not always react to a fiscal stimulus as economists think they will or as they think they ought to. I am sure our fundamental problem is the feeling of uncertainty among industrialists, and again I find myself saying almost exactly what Lord Shepherd said so much better than I could say it. One of the principal causes of a lack of confidence is the uncertainty which arises from our present political system or the manner in which it is worked. Every few years a General Election comes along and the unfortunate industrialist knows that the ground rules may be changed.

Your Lordships know that from these Benches we believe that electoral reform would help to damp down these violent oscillations, and I know there are noble Lords in all parts of the House who share that view. But even before we are able to get this very necessary reform—and surely we shall get it in time—cannot an effort be made to reach a consensus on these important decisions which will affect the life of the country for 20 or 30 years? Is not the essence of democracy the search for common ground rather than a pitched battle between conflicting views with one Party gaining a transient majority and enforcing its policy on the minority, or indeed in many cases what is not even a minority, of voters? I feel that action of this kind—searching for a common policy—would do far more to put confidence into industry than any adjustments that could be made in taxation.

3.46 p.m.

Lord BOYD-CARPENTER

My Lords, I agree very much with both the noble Lords who preceded me in saying that the House is greatly indebted to my noble friend Lord Selsdon both for introducing this debate—if he will allow me to say so, with admirable timing—and for the wholly admirable speech with which he introduced it. I cannot hope to match his obvious expertise in respect of the technicalities of the North Sea oil industry, but I did have a small opportunity to see something of it when I was chairman of the Civil Aviation Authority, since I was responsible for the airports which perform the important rôle of servicing the oil rigs, and I took the opportunity of going out to see some of them in operation. No doubt many noble Lords have had this experience, but to those who have not I must warn them that as you sit in the helicopter approaching the rig, the pad on which you are to land looks very small indeed while the North Sea looks very large, very cold and very green. That only strengthens one's admiration for those who, in the process of earning their daily bread, make these journeys with continued regularity and subject themselves to the most appalling climatic conditions existing in any oilfield in the world.

The situation in which we have to consider this matter is a curious and, perhaps for a Labour Government particularly, a paradoxical one. We have a financial recovery for which the Chancellor of the Exchequer is taking all the credit to which he is entitled, and perhaps even a soupcon more. On the whole, the financial recovery which we all welcome is, as we know, due above all the to fact that many eons ago Providence, foreseeing that in the late 1970s we should have a Labour Government in this country, provided oil in the North Sea by way of compensation. Add to that the salutary discipline of the International Monetary Fund.

We have a financial recovery which perhaps in some people's minds, or at any rate in their speeches, has blinded us to the very different picture of British industry, with no growth, lagging investment and a failure in productivity. I do not know whether other noble Lords were as shocked as I was by the figures embodied in Mr. Rees-Mogg's article in The Times on the 6th of this month in which he showed that, over the period 1974 to 1976, whereas the productivity per worker in all our rival countries had risen, in many cases by very substantial amounts, that in this country had actually marginally fallen. In a country which lives by industry, and which will have to live by industry when the North Sea oil has run dry, this is the crucial matter.

I agree very much with what the noble Lord, Lord Shepherd, said, as did my noble friend, that the bounty of Providence in the North Sea has given us and given the British Government an opportunity, almost certainly our last opportunity, to get things right. It has given a welcome easement to the balance of payments and thereby reduced very much the need for restriction to be imposed for balance-of-payments purposes and so on. It has provided substantial funds—and this House, like the other place, is not lacking in those who suggest agreeable ways of spending them—and it has also given us a pause and an opportunity to try to get right the industrial and commercial system by which we live, have lived and always will have to live.

I hope I shall not seem to be introducing a partisan note, or indeed to be offensive to noble Lords opposite, if I say that there is a fairly wide apprehension outside as to whether the present British Government really are going to seize this opportunity. If one reviews the history of Labour Governments in this country, one sees that they have a very creditable record indeed in social advance, for which they are fully entitled to take great credit. But the obverse of that has been, as a matter of history, that their record of financial and economic management has been bad, and they have had to face, or attempt to face, a series of crises which have turned up with a regularity and punctuality which, in these days, British Rail might well envy. I think there is a reason for this. Labour Governments, in their heart of hearts, have not much enthusiasm for the dynamic that makes what is still basically a free enterprise society "tick"—the pursuit of profit, the pursuit of individual earnings, the desire of the individual to provide well for his family and perhaps for his children.

There is a resistance to it; and the trouble, I think, is this. If one looks round the world, one sees that there are basically two methods by which a complex industrial and commercial society can be run. One is the carrot and the other is the stick. The Communist world uses the stick; and, to be fair, however brutal its methods may seem to those of us brought up in the liberal traditions of this country (and I would add, my Lords, "liberal" with a small "I", for the benefit of the noble Viscount), it uses it in such a way that it works. Indeed, we have seen in the Communist part of the world notable advances under that system which it would be foolish for those of us who disagree with it to deny.

The other method is the carrot, and the carrot is profit. The carrot that stimulates energy and gives the incentive to which the noble Viscount referred is the desire for profit; the reasonable and proper desire to earn and keep to oneself a reasonable proportion of one's earnings. I think the failure of Labour Governments—and, if one looks at it historically, every Labour Government except the first in fact ended in a financial crisis, and as the first lasted only 10 months it is perhaps unfair to blame them for failing to show the form of their successors—is due to the fact that they really are too liberal and generous to use the stick (at least, I thought so until last week, and I shall say a word about that in a moment) while not having the enthusiasm for incentive.

I want to say a word about those two things, and I hasten to assure my noble friend Lord Selsdon,in view of his reference to me, that the fact I am going to say a word or two about personal taxation does not mean that I am under the illusion that getting that right is a panacea for all our ills. Of course it is not. If I or any of us were to attempt to give our views on what needs to be done to restore the economy of this country, we would need to make a speech as long, as discursive and as inconclusive as is the normal Budget speech in another place. I am going to pick out only those two things, not because I think they are the only things but because, with respect, they are the two points which I should like to urge upon the House. The first is the incidence of a system of progressive personal taxation which successive Governments have failed to adopt and adapt to the development of inflation, with the result that very high rates of personal taxation are now being imposed, particularly on high earners.

I asked a Question for Written Answer of the noble Baroness on the 22nd November last as to what proportion of his income was kept by a married man with two children under 11, at various relatively high income levels in this country, and for comparisons with the same man in the countries of one or two of our Western European friends and in North Amreica. The noble Baroness, with her habitual courtesy, furnished this information and, out of the generosity of her heart, added another set of figures, which are most helpful and for which I thank her, showing what is left after, on top of taxation, social security contributions have also been deducted. I prefer, for my own purpose, the figures relating to taxation, for this reason. As one who was once Minister of Pensions and National Insurance, I still cherish the pathetic illusion, perhaps, that people feel they are getting something for their social security contribution, although I am sorry to say that the link of a contributory system and the strength which it gave to our social security in this country has been very much eroded in recent years, and I regret it. Still, people feel that they get something for it, as compared with the ordinary man's reaction to the demands of the Inland Revenue.

The figures which the noble Baroness gave me—and, if my eyesight is as good as it normally is, I think she has them there— are really startling. If you start at the level of £5,000 a year (which in these days includes a number of skilled industrial workers on overtime, et cetera), the man in this country on £5,000 a year retains, after taxation, only 78.4 per cent. of what he has earned. In all the other countries in the group they retain over 90 per cent. except in the case of Italy, where it happens, irritatingly, to be 88.7 per cent. before social security; and all except Germany and Italy retain that 90 per cent. after social security. At the other end of the scale which I put to the noble Baroness, the £25,000-a-year man, in this country he retains only 45.1 per cent., whereas among all the other countries the lowest figure of retention was 64 per cent.

So, despite the total figures for the burden of taxation which Ministers have used in this House and another place from time to time to suggest that, as a nation, we are not out of line in the burden of taxation that we bear as compared with our rivals, it is clear that in the higher brackets we are completely out of line. I can only make the comment that, whether or not there be a connection between them, it is perhaps significant that, while we are out of line completely in the way we penalise the higher earners, we are also, alas!, from the figures I have already quoted, out of line from the angle of productivity, growth, investment and all the rest of it. It may well be that there is a certain significance, and indeed a link, between those two sets of figures.

Indeed, the answers to both the Question I asked in this House today and that which I asked of the noble Baroness on 7th February indicate that the actual revenues obtained from these higher rates of taxation are negligible. Both the figure I asked for today, and was courteously given, and the figure in respect of investment income for which I asked on 7th February show that the yield at these higher levels of taxation is so small as to be within the margin of error which any Chancellor has to accept in drafting his Budget, anyhow. It is therefore clear—and this is the point I want to make to the House—as indeed I suggested at Question Time, that the purpose of these high rates of taxation cannot be the raising of revenue, because the revenue is derisory. It must therefore be something of a political or social nature; indeed, not perhaps without some connection with what have been so well described as the politics of envy.

Envy is the most corrosive factor in the world. It can ruin a family, it can ruin an individual, and perhaps it can ruin a nation. I would beg the Government—and I had a helpful Answer from the Minister on the Front Bench, perhaps the most helpful so far, at Question Time—not to persist in rates of taxation of this sort which may well have a quite disproportionately damaging effect on the whole enterprise of those who conduct the private sector, and indeed the public sector, enterprises of this country, for the sake of a revenue which cannot be a material factor and is therefore, perhaps, simply for the appeasement of those who envy the more successful and more active of their fellow countrymen. That was one point I wanted to make on taxation.

I want to follow it up with a reference to the matter of the guidelines which was just touched upon by the noble Lord, Lord Shepherd. I agree with the noble Lord that it is plainly in the national interest that we should all, to the greatest of our capacities, seek to abide by these guidelines. I remember arguing in another place when I was a Treasury Minister that high increases in wages produced inflation. This observation was greeted as apparently humorous by the noble Lords, then honourable friends who were present on the then Opposition Benches in the Commons. It is only in recent years that noble Lords opposite have accepted that there is a close connection between the two; and I welcome them as St. Paul was welcomed on another occasion after a conversion hardly more complete.

The Government risk losing that goodwill by the methods they are seeking to adopt to enforce it. I thought that The Times had it very well when it described it as lawless, secret and undefined. It was attempting to say that the Government view of what is the national interest is law. Charles I could not have put it more strongly. I sincerely hope that the noble Lord opposite will not suffer the fate of his very late and most sacred Majesty. But this was what our forbears fought against at the time of the Stuarts: the doctrine that the will of the ruler, the will of the Executive, is law. The guidelines are not law. They are the policy of the Government.

Does the House reflect on where this can lead? If a company is to be blacklisted, if a company is to be denied Government contracts because it does something which, though lawful, displeases the Government of the day, where is that going to end? It is possible to displease the Government of the day in many ways. It may well be that I am doing so at this moment. If the fact of the guidelines, which are not law, being departed from is a reason for abandoning all the normal rules about Government contracts, may not the handling by a company of its trade unions, or the politics of its chairman, equally be grounds for penalising a company, once this principle is accepted?

I beg the Government to get back to the position where either you must have—if you must have; and it is for them to judge—a compulsory wages policy backed by law and by the decision of Parliament, or you must really have a free and collective system. But to move secretly behind the backs of the companies, and sometimes without informing them, is an exercise in arbitrary power which is repulsive to the British people. And it is arbitrary power, one sees from the arbitrary way it is used. It is not used on everybody. It is used on small companies. What about Ford's who granted an increase, I think, of 13 per cent? And what about the agricultural industry which granted an increase which again appears to breach the guidelines? Not a squeak from the Government about that. But if it is a small company—Holliday Hall or somebody like that—then the full force of Government displeasure is displayed against them. It seems—and this is one of the aspects of arbitrary rule—that the Government are applying the principle that the noble Lord, Lord Thorneycroft, once quoted in the other place: And first of all we fall upon the weak, mainly because they do not squeak so loudly when they die. I hope that the Government will abandon this policy. The concept, as we were told in another place last night, of putting it into Government contracts but not leaving that term of the contract to be construed (as every other term of the contract must be) by the courts, but leaving it to be construed at the whim, unfettered and without appeal, of the Government, seems, even for so good a cause, to be quite intolerable.

May I say one thing more as one who was chairman of the Public Accounts Committee in the other place for six years. We did our best, and I think we succeeded, in securing that Government contracts were awarded, without arbitrariness, simply on the basis of the lowest tender of someone who could satisfactorily do the work. If you depart from that—and this was our experience on the Public Accounts Committee—you not only get inefficiency and waste, but you get, in due course, corruption. Therefore, I ask the Government, in the interests of goodwill in this situation, to drop this approach and rely on the powerful persuasive argument that they have. I do not underrate it. In their place I would seek to expound it. In all honesty, even in my place now, I support it wherever I can. But please do not tarnish the whole thing with procedure of this sort which must, taking up again what the noble Lord, Lord Shepherd, has said, divide us as a nation on one of the crucial issues for our economic recovery.

Lord SHEPHERD

My Lords, would the noble Lord not agree that there is a touch of fairness. There are very many companies, a vast number of companies, and trade unions, who have accepted the Government guidelines. There are others who seek to break it. There is, therefore, advantage to those who break it. Is it not right that the Government should find all ways open to them—and I agree it should not be done secretly; it should be done publicly—to say, as buyers: "We will not do business with you if you break these particular guidelines"?

Lord BOYD-CARPENTER

My Lords, it is just that argument which illustrates the danger of what is being done, because when liberty is attacked, when sound principles are broken, they are always, to begin with, broken in a good cause. I am sure that the noble Lord, with his peat experience, knows well that once you start tinkering with the way that Government contracts are allotted, and do not allot them because someone has done something, wholly lawful, which annoys or is contrary to the policy of the Government of the day, then you are opening the door to every sort of abuse. I say this to the noble Lord. If it is essential to bring these other companies into line—and it may be that it is—then it is up to the Government to come to Parliament and ask for powers. If it be essential for the Government to have these powers, no doubt Parliament will give them. But I beg the noble Lord from his own experience and the skill with which he managed this House—and many of us have grateful memories of his management—not to allow himself to be led into that most dangerous of all arguments which he put to me a moment ago: that because a thing is, on merits, virtuous, and because those who are against its being applied are less than virtuous, then the method does not matter, nor the legality.

I have only touched on these two matters. I know that there are many others which noble Lords will produce. I want, finally, to say that the North Sea has given us the sort of opportunity which comes to a nation only once, perhaps, in many centuries. It ranks perhaps with the storm of 1588 which routed the Armada or with the calm weather of June 1940 which saved the BEF. It is of that order of magnitude. I say with all humility to the Government that a Government which betrays that opportunity, for any reason whatever, whether it be envy, whether it be ill-will or whether it be incompetence, will never be forgiven by the British people.

4.10 p.m.

Lord GREGSON

My Lords, may I add my congratulations, first, to the noble Lord, Lord Selsdon, for the excellence of the Motion and the admirable way in which he proposed it, and, secondly, on the contributions which have been made by subsequent speakers, especially when they bear a relationship to the Motion. When I listened to the opening remarks of the noble Lord, Lord Selsdon, I nearly tore up my notes and crossed my name off the list of speakers because of the many points that he made. However, some of the points are worth restating. First, I should like to make a little further projection than the noble Lord, Lord Selsdon, did in saying what the figures might be by the middle of the 1980s when North Sea oil is in full production.

We could be talking of a source of new revenue to the Government of about £3½ billion. At the same time, we have the economic effects, which could be giving us a benefit of around £7½ billion in relief on balance of payments arising partly because we do not have to buy oil from abroad, and partly because, within that figure, there is some percentage for export.

The revenue figure of £3½ billion must be considered in relation to the total Government expenditure. We must get it in perspective. In the recent White Paper, the figure projected for Government expenditure in 1978/1979 was £58.5 billion. The figure of £3½ billion I have just given is for the height of the North Sea advantage at present day worth, so we are not dealing with a very large figure. Nevetheless, there is a quantum of money arising from this operation. It has been questioned whether this relatively small amount should be considered at all for special treatment. On the other hand, it is identified in the public mind as arising from an identifiable separate source, and it could be useful and justified to treat it as an additional source of expenditure. This is, of course, only true if it is applied as an additional expenditure and not as a substitute for planned and required expenditure in the main bulk of Government spending.

Turning to the aspect of the economic effect, in many ways the effect of saving on the balance of payments will have more impact and, at the same time, will be loaded with much more danger. This is especially so if we take into account the problems that are facing the Dutch nation from its previous handling of the benefits of North Sea gas. Despite our membership of the Common Market, the United Kingdom is still an island community which does not have sufficient resources of either food or raw materials to support its population and which is therefore completely dependent on the value added by manufacturing to pay for the imports of food and raw materials required to maintain the population at even a minimum standard of living. I recognise that I have not taken into account the net credit of invisible earnings and spending, but whatever this net benefit may be in the future—and I add the comment that this is at the present time a falling figure—it is completely and utterly swamped by the value of United Kingdom North Sea gas at the present extraction rate. This has been completely absorbed into the economic structure of the country with hardly a sight to be seen of its benefits in terms of reference to our balance of payments. It is patently obvious that the United Kingdom manufacturing industry is failing or has failed in the task of providing this added value which is so essential to the economic well-being and standard of living of the population in this country.

In 1950, imports of manufactured goods were barely one quarter of our exports. This year—or, at the latest, next year—imports will equal exports. That decline is steady and is irrespective of Governments or political Parties in government. The noble Lord, Lord Boyd-Carpenter, quoted productivity figures from The Times from 1974 to near the present date. I suggest that he might look at the figures from 1970 to 1974. I think he would be surprised that the slope of the curve does not change.

Lord BOYD-CARPENTER

My Lords, will the noble Lord allow me to intervene? If he will look at the figures in that same article in The Times, he will see that Mr. Rees-Mogg also gave the figures for the preceding four years. They show a productivity figure which, though smaller than that of some of our rivals, represented an increase.

Lord GREGSON

My Lords, I thank the noble Lord for that correction. The figures relating the import/export performance for the years from 1950 to the present are taken over a period where we have comparatively reliable statistical data. There are people who claim that the decline in the United Kingdom's manufacturing industry, measured on a world trade basis, has been identifiable for at least 100 years. It is absolutely essential that, within this context of our view of the benefits of North Sea oil, we should note the living example across the Channel and should recognise the danger of not taking into account the effect British industry is having on our trade balances.

It would be regrettable if the effect of North Sea oil on the balance of payments were allowed to mask this critical underlying problem of the import/export balance of manufactured goods. I would make a plea to the Government that, in the future and relative to our trade statistics, the oil account should be treated as a separate figure so that the trend of performance of industry and the effects of import/export figures will be patently obvious. Only in that way do I believe that we can avoid falling into the easy trap that has affected the Dutch people in dealing with the advantages of North Sea gas. The direct effect of the economic well-being of the United Kingdom on the state of our manufacturing industry is serious enough. But, when the related effect on unemployment is taken into account, the social and economic result is clearly shown to be the critical problem of our time.

There is good reason to believe that the decline in manufacturing industry is accelerating, and changes in civilian employment quoted by the noble Lord, Lord Selsdon, give an indication of the rate at which people are leaving manufacturing industry and are being taken into employment elsewhere, or are appearing on the unemployment lists. If I might just take, I think from the same source, the complete figures for that period and add to them the loss of employment in the other wealth-producing areas, such as agriculture, mining, forestry and so on, in the same period we have actually lost over 1 million workpeople from wealth-producing activity into either service activity or on to the unemployment register.

To these changes in the employment pattern must be added, in addition to the trend of unemployment, a combination of the birth-bulge and the changing employment requirements of married women. The 1977 total for the labour force was projected as 26,053,000. That is expected to increase by 1981 to 26,734,000, and by 1986 to 27,781,000. That means that by the time North Sea oil is in full flow, and taking into account our totally unacceptable unemployment levels, about 2.5 million jobs have to be created. That does not take into account the replacement of existing jobs which will become obsolescent during that period. One has only to look further at the birthrate statistics to see that this continuing increase in the labour potential of the United Kingdom will go on at least to the year 1990. That, to me, is a very real and serious economic and social problem.

While it is recognised that manufacturing industry cannot provide the employment levels that are necessary in the longer term, manufacturing industry must provide the wealth that supports acceptable unemployment levels. It is quite apparent that private industry and commerce have failed consistently over a long period of time to provide the base for United Kingdom economic well-being. You have to consider that in this wealth-creating area of activity the overwhelming percentage of the activity is in private hands. Recognising the failure of this situation, it is imperative that an extra injection of effort has to be put into manufacturing industry. It is also apparent that the present impetus has to be drastically increased and a considerably expanded programme of effort through public agencies, whether in being or to be created, is critical to improving the performance of private manufacturing industry.

Like another speaker in this debate, I think it would be catastrophic if, following peak-out and decline of North Sea oil, the United Kingdom were forced to purchase oil in the world market at the then ruling prices, considering that the sources by that time could well be the tar sands of the Athabasco or the Orinoco or the shale sands of the United States. I think that projections of the cost of that type of extraction have been widespread in the Press. And to think forward to the point where North Sea oil has peaked out and we are on the world market for oil in that sort of cost-atmosphere is an almost incredible task.

Since there is no way, in addition to reversing the trend, that manufacturing industry could support such a massive overseas financial drain, therefore in parallel to improving the performance of manufacturing industry, financial resources must be applied to both the conservation of energy and the replacement of fuel sources, particularly coal, as a portable fuel both liquid and gaseous, as a direct oil/natural gas replacement. For basic electrical power generation I cal see no alternative to a steady increase in investment in nuclear power. That, of course, assumes a continuing programme of replaceable energy resources.

We are already receiving the benefits of North Sea oil, and additional programmes relative to manufacturing industry and energy conservation and replacement will take some considerable time to build up to the levels required. In the meantime, North Sea oil revenue should be applied directly, in addition to existing schemes, to job creation, with emphasis in the manufacturing sector; but not exclusively, since there is no way that manufacturing industry could absorb the employment levels that are required to eradicate this social evil. Indirect job creation, in my opinion, by stimulating the economy, carries the very grave danger of having a negative effect by sucking in imports; and, when considering the present state of United Kingdom industry, I believe that danger is real. The increased value of the pound against other currencies also considerably increases the danger, since it reduces the export potential and makes import costs more attractive. Therefore, I believe that we have an opportunity, with the advent of North Sea oil, as no other nation in the Western world has, to tackle the problem which I believe to be endemic within Western countries at the present time; that is, the very grave social evil of our massive unemployment potential.

Viscount MASSEREENE and FERRARD

My Lords, before the noble Lord sits down, may I ask him this question: As he appeared to be disappointed that private enterprise had not been able to employ all the people in this country, does he therefore agree with the policy on which the Government have been embarking in taking money from private enterprise and from the wealth created by private industry and giving it to customers to buy our goods—for instance, in connection with the various shipbuilding orders that we have read about lately? Does he agree that that is the way to create wealth?

The PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF THE ENVIRONMENT (Baroness Birk)

My Lords, I think the noble Viscount should confine his intervention to a short question, because that is usually the practice in these matters.

Lord GREGSON

My Lords, if I may be permitted, first I never said that manufacturing industry had failed to provide the employment: I said they had failed to provide the money to provide the employment. In any case, I think that the sheer economics, and the position of shipbuilding throughout the world—including the so-called "economic miracle" countries—is such that it would be completely wrong to sit back and watch our shipbuilding industry disintegrate before our eyes and to lose the skill and the employment of those people. I believe that, beyond the present state of world depression, there will be a requirement for their skills.

4.30 p.m.

Viscount TRENCHARD

My Lords, may I add my humble thanks and congratulations to my noble friend Lord Selsdon for providing this opportunity at this time. When I mulled the words of his Motion, I found myself wondering whether this great wealth that has come our way would help us to rebuild the economy, or might even be a slight deterrent to our doing so. The noble Lord, Lord Shepherd, mentioned the importance of attitude and I believe, from an industrial viewpoint, that in the last two to three years there has been a welcome return to an attitude of realism over a great part of British manufacturing industry. I believe that this has been largely due to the fact that, for the first time in the last two years, the real standard of living of this country has reduced, and this has reminded us all of the importance of first making the national cake before discussing its distribution.

While thinking along those lines, one thought of Germany, Japan and Holland and realised that more than one generation of the population of those countries still has it firmly in mind that they had totally to rebuild their economy, or their national cake, after the war—and how well they did it! One remembers that the population of the USA, with the dramatised enormous growth of that great country over a century, believes that the cake can always be made bigger. The tragedy, perhaps, in the British situation is that we have been relatively more static, and that people have come to regard the cake as being of fixed size. This thought, together with the fact that stronger sterling would make it harder for our manufacturing industries to increase their exports, as has been mentioned, led me to wonder whether the opportunities that we were seeing were like those of the man who saw a light at the end of the tunnel, until he realised that it was an engine coming the other way!

But, leaving flippancy on one side, clearly the enormous opportunity of this huge sum of money—yet, relatively, a small proportion of the GNP—cannot afford to be missed, and we have a duty to make sure that attitudes do not again become complacent. It provides us with a breathing space, as has been said. I believe that in that breathing space, if we are to rebuild the economy we really have to diagnose what has gone wrong with the economy, in what section, when and why. I shall not repeat the statistics of how badly we have done in productivity and in shares of world markets. They have led to the fact that whereas, at the end of the war, we had incomes and wages above all levels of the Nine in the EEC, there are now many countries with wages which are, in real terms, double ours. Although it is true that there are elements of decline in some areas of our manufacturing performance dating from the last century, we need to keep our minds on the period since the war and on the accelerating decline of recent years.

The first point of diagnosis that I should like to make is to consider those parts of the economy that have not declined—the City, agriculture and much of the distributive trades and service industries. All of these areas, so far as comparisons have been made, are at least as efficient and productive as their counterparts overseas. Without their successes, the general standard of living would be lower than it is now. It is a commercial policy, very often, that the reinforcement of success is easier than the turning round of failure. Therefore, I believe, first, that in a plan to rebuild we should give every incentive to the successful areas to continue to expand. I do not accept that service industries, which the noble Lord, Lord Gregson, mentioned, or the distributive industries do not make a real contribution to national productivity and to our standard of living.

Are we helping these successful areas at the present time? I doubt whether the City would say that our tax system, our exchange control and the fluctuations of our currency in the last decade have been helpful. I doubt whether our farmers would regard capital transfer tax—and we have larger and more efficient units than our competitors in Europe—the threat of wealth tax or a 25 per cent. subsidy to their competitors to ship temperate foods into this country through the green pound, as encouraging success. I hope that we can really reinforce success and give it some encouragement.

To return to diagnosis for a moment, not all of our manufacturing industry has had a poor record. A lot of our industry has records which are as good as those of our competitors in any of the more successful industrial countries. Of course, standards of performance and quality vary in all countries, always. But I feel that commentators have not looked closely enough at the areas within manufacturing industry where our competitivity and our productivity have declined. They tend, I believe, if one looks at various factors, to be the areas of large labour employment and labour-intensive industries.

Then, if we look for culprits so that we can make a plan to rebuild, I think that the groups of people who can affect the performance in this fairly selective, though very large, area of our economy are the Government, the shareholders and investors, management and, finally, labour. Government bashing is great fun. It goes on all over the world—industrialists love doing it—and it would be a bonus if our Government were blameless. But let me keep my remarks to only two aspects of the performance of our Governments in recent years which have had quite a major bearing on our performance and will certainly influence our recovery; that is, tax and price control.

Tax has been well mentioned by my noble friend Lord Boyd-Carpenter, and there is little need for me to go into it to any extent again. Some of your Lordships may have read the survey on the demoralisation of management, particularly senior management, which was entitled The Motivation of Management and was conducted by the ORC very recently. It validates all the points that my noble friend Lord Boyd-Carpenter has made and, while there is a lot of argument about how to interpret the various reports of the Donovan Commission and other comparisons about our tax level, there really is no doubt that 83 per cent., reached in exchange rate terms at not very high levels comparatively, is unequalled in the industrial world. It is also true that there is a severe disincentive right at the other end of the scale. Our standard rate starts at a relatively low level and, therefore, at skilled worker level, if one considers the other benefits of our social security system there is, in some cases, a disincentive to work.

As regards price control, I feel that a visitor—perhaps a judge from outer space—studying the figures of the fall of profitability in manufacturing industry, in inflation-proof terms—and they have been reviewed by the Bank of England, by Lloyds Bank and by many other reputable sources—showing a decline from a 15 per cent. or more return on capital before tax in the 'fifties to 2 or 3 per cent. in recent years, would ask, "Why do you control prices?" The truthful answer to that question would be, "Because we are trying to make an incomes policy stick and get the trade unions to accept it". However, the trade unions are among those who criticise industry for not investing. Two writers from the left of the political spectrum, which is often demanding stricter price controls, Sutcliffe & Glyn, say in their book British Capitalism, Workers and the Profit Squeeze. Between 1964 and 1970 the share of profits was almost halved … The steady fall has become an avalanche". Possible culprit No. 2 is the City and investors. There is no lack of funds. All of the up to date evidence has made this clear. Also, there is no lack of will by would-be investors to use those funds, provided that they can earn profit. There is one important problem area when one considers growth and the reduction of unemployment. It is clear that where private individuals have played a major part either through the banks or directly in investment in small businesses, the changes brought about by the egalitarian influence of our tax have left the small entrepreneur less well supported than he ought to be.

Before turning to management generally, may I point out that management recommend investment. One of the factors that they take into account in deciding whether to recommend new machinery and new methods in order that Britain may become competitive is their assessment of the share of any extra profit that will accrue to those who have paid for the investment rather than to those who will operate it. My experience, which covers a good many countries, is that this assessment is nearly always found to be more discouraging in Britain than it is in other countries.

The question one has to ask is whether our management in general is inferior to that found in other countries. First may I repeat the point that I have already made: That large areas of our economy are well run and successful. One must think also of the management of events like the Jubilee firework display! Could there be a better example of British management at its finest? There is nothing wrong with the British. My international experience has included the moving of British managers to many foreign countries and the moving of foreign managers to this country to do precisely the same jobs. No country has a monopoly of any one quality of management. I believe that it was the noble Lord, Lord Shepherd, who mentioned technology. I agree that our universities have not always encouraged our technical graduates to regard industry as providing a challenging and satisfying career. In any plan for rebuilding the economy a great deal of attention must be given to changing that attitude.

If I may make a final comment on the standard of management generally, in industry it is not fashionable to mention the Services. However, when the nation was at war I do not think that our overall leadership and management was inferior to that displayed by other countries. Of course we must do everything that we can to improve management standards, and we must start by improving the incentives.

May I now turn to labour and begin by saying that I believe that exactly the same things can be said about the average British employee in relation to employees in competitor countries as I have said about management. He is as calm, solid, reliable and reasonable as any foreign employee, and, in the case of some nationalities, more so. At times, members of any nationality can move into a mood of apathy or antipathy. I believe that the structure and atmosphere to be found within our larger factories is quite different from that which can be found in the factories of most of our competitor countries.

I believe that our collective bargaining systems and our trade union organisation are totally different, and here lies one of the biggest keys to the rebuilding of the economy. I hope that in the not too distant future the House will find the opportunity to allot a debate to this key area. If we were prepared not to copy but to parallel the kind of balanced bargaining positions in many other countries, I believe that we could double the real wages of the average employee in this country in little more than a decade. Because our wages are so low and because North Sea oil will be of such benefit, I feel that we could grow and reduce unemployment to a far greater degree than other speakers have thought possible. We might even be able to stop arguing about incomes and prices. We might also be able to relieve inflation, allow for flexibility and stop trying to judge exactly how much should be paid to individual employees in different firms.

We avoid this subject because we are a little frightened of it. It is a "hot" subject and we tend to tiptoe around it. The emotional struggles of our heartrending history live on. One has only to look at Northern Ireland. We had the Industrial Revolution first and we made the most mistakes. The systems, or perhaps the lack of systems, in the area of collective bargaining which have evolved since those days are unique in the world. We need to take a look at them and we should not be too proud to look at the systems evolved by other countries.

If is comforting for us to say that we need a good, modern manager and that then there will be no problem about raising productivity and moving forward the efficiency of our big industries. We say that we need a manager who not only knows his trade and does all the things that the old-fashioned manager did, but who is also the kind of man who is able to explain everything to everybody. I doubt whether the pressures today on factory managers in particular are widely enough understood. Even in past days it required a very good and well ordered manager to spare up to 15 per cent. of his time in order to change things and move them forward, as opposed to just keeping the ball on the island and attending to routine affairs.

We have added one thing and another to the requirements for this manager. We have used not only 15 per cent. of his time but far more, and when we use far more the show not only does not move forward but actually moves backwards. We start exchanging comments over the luncheon table about how incompetent the servicing of our motor-car, or any other personal experience of industry we have, has been, and we say how bad the management must be. But we have added duty after duty. They have to negotiate with everyone, with many levels of trade unionists in many unions, on every question. We have added the pressures of consumer lobbies and environmental lobbies, of price control and of legislation in a profusion which has never been seen before. I believe this should have high priority.

In summary, I should like to reinforce success, the successful areas, where we are seeing that the British can in fact still do it. I should like to remotivate and provide real incentives. I would like us to get together, forget the history of the Industrial Revolution, and put together a structure and an atmosphere surrounding collective bargaining and the trades unions which could transform the areas of large-scale employment, which are the areas which have let this country down.

4.52 p.m.

Lord LEE of NEWTON

My Lords, may I pay a very sincere tribute to the noble Lord, Lord Selsdon, for choosing such a vital subject as this and for the way in which he introduced it, and thank him for his kindly reference to my close association with my old very dear friend Sir Stafford Cripps. Those days were hard and difficult. He, I think, in the end sacrificed his life for the work which he held so dear. It is a strange thing that the noble Lord should have opened this debate today, because the general argument and discussion around what we do with the bonus of North Sea oil reminds me so deeply of the arguments which were deployed in Stafford Cripps's days when the Marshall Plan became operative. Stafford was utterly and completely determined to use it to build up the capital of this nation, while others called him "austerity Cripps" because he would not deploy it on consumer goods. Today we have practically the same kind of thing happening again. Read Mrs. Thatcher's speech to the overseas bankers yesterday—all based on reducing taxation, a thing we all want to do, giving the impression that if only we can achieve that kind of thing all will be well. As I was saying, it reminded me of those days when Stafford had to conduct a great battle—which, thank God, he won—to give the nation the opportunity of a new springboard following the losses of the war period.

The financial matters connected with North Sea oil are not, I think, as clear as they might be. Again, strangely enough, the noble Lord, Lord Selsdon, mentioned that North Sea gas came on stream in 1965. I happen to have been the Minister of Power at that time. He mentioned the BP strike of gas. I remember going out to the Sea Gem, which, unfortunately, afterwards foundered with grave loss of life. The noble Lord, Lord Boyd-Carpenter, was so right in telling us that when you go down in a helicopter the landing pad looks about two inches square. I kept my fingers crossed. Coming back I had a remarkable experience. The helicopter landed. I got out of my Mae West and earpads and so on; I was so relieved to do so that when I saw a number of journalists about I put up my thumb in exaltation, and BP shares went up half a crown in after-hours dealing. I have often wondered what would have happened if I had put my thumb down. There is a need for clarity on how we propose to deal with the structure of financial matters pertaining to the North Sea.

The way the discussion has gone, not only in this debate but in the Press and so on, it would seem that a number of people are advocating the setting up of a separate fund, to which, I suppose, net proceeds from the North Sea—once you have looked at the expense side—would go. In some magical way this great sum would then be allocated to various goodies and so on. Is that indeed the idea the Government have? It may well be that one could perhaps look more closely at the financial affairs of BNOC than the others. My noble friend Lord Balogh will be able to tell us something about that in a moment.

However, it seems to me that this idea of a specific fund composed of the finances from the operations of the North Sea would fly completely in the face of the Consolidation Act and all the things we have done for so long. Perhaps it would be a good thing if we could be informed as to whether the Government have as yet come to any determination on that kind of problem. I myself would have thought that, given the structure of our taxation system, it would be far better if the money simply went into the revenues, and then Government proposed ways of using it, and Parliament either assented or did not, rather than to have a specific fund in the way we are now hearing suggested.

It is agreed on all sides that this great boon cannot survive perhaps the next 30 or 40 years, and at that stage we shall not only have had to make up our minds on the kind of energy which is to replace North Sea oil and gas, but have had to do a simply mammoth investment job to ensure that whatever capital equipment we had decided upon is not only in contemplation but is in fact available to us at a given moment. I know that Plan for Coal for the end of the century speaks in terms of 170 million tons. Perhaps I could be excused for being something of a cynic. That was the figure I gave for 1970, if only people had not decimated the industry afterwards. To get the facility to produce the 170 million tons by the end of the century we really must have decided in what form we are going to use that coal; whether it would be gasification, experiments in oil or other ways, I do not know. I think that it will also be necessary to decide on the structure of many of the new housing estates which are being created without chimneys. Those are vital matters which we cannot possibly leave until the end of the period of availability of North Sea oil. If we do so, we shall have a hiatus which will be fatal to our aspirations.

There have been references to how we should look at the possibilities of developing our manufacturing industries. I thought that the noble Lord, Lord Selsdon, was a little too fatalistic in the way in which he looked at this problem. Of course it is the case that huge industries which were utterly labour-intensive years ago will never again be labour-intensive. Of course it is essential that we should apply the new technologies and the new products of the scientific revolution, but that will lessen the number of jobs available for that period.

On two or three occasions I have suggested to the Government that no one Government can face the problems of unemployment which the new dispensation has brought about. I believe that only by international agreements on lessening the working week, on perhaps reducing not only the hours of work but the age at which we retire, and on pension facilities, can the problem be solved. No one manufacturing nation dare face that problem alone. If it did so, it would give a huge edge to its competitors. However, as the problem is now common to all manufacturing nations, why cannot it be solved by them collectively? It could have been done, as I first suggested, through the International Labour Office, until the Americans did a silly thing and resigned from it. However, I hope that the Government will take the lead in bringing together all the great manufacturing nations to decide on the best course to take. We should say that we have all entered a period of "automation"—that is the word that was used—in which this is now the order of the day in methods of industrial production. We cannot do that and at the same time bring millions of women into industry and also preserve full employment. We cannot possibly do it, no matter how hard we try, unless we look at how we can reduce the number of hours worked and the retiring age.

I believe that we are now in a position where we should accept the four-day week. I should like to see three eight-hour shifts and the three-day weekend. In that way we would encourage employers to use capital investment because their new capital would be worked 24 hours a day. We would encourage employees by the fact that they would obtain the three-day weekend. It would cut out a great deal of the stupid and inefficient overtime which is now looked upon as a very ordinary concomitant of going to work.

Viscount TRENCHARD

My Lords, would the noble Lord, Lord Lee of Newton, not prefer a system whereby we tried to devise a plan which could double, as I said before, the manufacturing output of this country in little over a decade and solve the employment problem in that way?

Lord LEE of NEWTON

My Lords, it depends on whether we can find a market for that which we produce at the end of the day. There could be a very considerable argument as to whether the lack of capital development in our industries is causing more of our unemployment than the world slump which, of its very nature, negatives our chances of increasing our exports. Therefore, I would not demur from the suggestion of the noble Viscount, Lord Trenchard. When all is said and done, increasing wealth production is the answer to all our problems, especially with a Third World which is hungry for all these commodities if only it had the finance to buy them. However, while we are in the throes of a world slump it is difficult to decide which of these problems is causing us the greater concern.

First, I hope that the Government can tell us shortly how they propose that the finances of the North Sea shall be organised. I should also like to know about the great programmes for the vast increase in coal production, along with the very essential developments and decisions in atomic energy both of which will cost huge investment. When we get them going we shall hear the very necessary argument about how we cannot do much more because of the inflationary tendencies of these great programmes. These are enormous economic problems. I think that the Government have done a first-class job up till now in the way that they have handled this matter, but I suggest that we are now reaching a point where decisions of a very onerous and serious nature in this area must be taken.

I should like to make a reference to the remarks of the noble Lord, Lord Boyd-Carpenter. He and I have terrific agreement on Gibraltar, but in very little else. The noble Lord told us that Labour Governments have done a great job—he did not use the word "great"; I am using it—in the social field, but their economic policies have been pretty disastrous. I do not believe that there has ever been a Government more successful in economic policies than the Labour Government of 1945 to 1951. They took over an economy which was broken and which, in Churchill's words, was bankrupt. There was never a pocket of unemployment during that period. That Government brought this nation through the most dangerous economic crisis which we have ever known since the Industrial Revolution. I am proud that I happened to be a Member of that Parliament. The 1945 Parliament was the greatest in our history. I do not believe that it does any good for the noble Lord, Lord Boyd-Carpenter—I enjoy his humour and so on—to suggest that Labour Governments have had no success in the economic field, implying that any success that we have had has been with the Conservative Government.

The Governor of the Bank of England made a speech the other day saying that in 1973 we faced the danger of a complete collapse of our finances. I do not want to go into detail about the Barber boom. However, quite frankly, against that kind of background I believe that the present Government have done a first-class job of work and I do not think that we, on this side of the House, could stand for denigration of the kind we heard from the noble Lord, Lord Boyd-Carpenter.

Lord BOYD-CARPENTER

My Lords, as the noble Lord, Lord Lee of Newton, has quoted the 1945 Government of which he was an ornament, does he recall the following series of events? In 1947, the convertibility crisis and the enforced abandonment of our obligations on convertibility; in 1949, devaluation—the first for very many years; in 1951, a balance of payments crisis so bad that Lord Attlee went into an Election which he knew he must lose and wanted to lose.

Lord LEE of NEWTON

My Lords, Lord Attleee did not go into an Election in 1951 for that reason at all. The noble Lord, Lord Boyd-Carpenter, may have forgotten that three or four men died. We had a majority of four. The noble Lord was a Member of the "nights" who was never seen until 10 o'clock at night and who came to pray all night in order to keep the Government Members on the Front Bench. In any event, the fact is that we could bring Britain through to the days of devaluation—I know that the Tories thought that they could never devalue, but of course, we found out later that they had to devalue as well. I do not know whether this has a great deal to do with North sea oil or gas. However, the noble Lord and I have argued these matters for the last 32 years and I hope that we shall go on arguing them for the next 32 years.

5.9 p.m.

Lord BALOGH

My Lords, before launch myself into the debate, I must declare an interest. I was the Minister who piloted two Bills through this House which, as your Lordships know, were initiated on this side but which did not receive a very enthusiastic majority reception here. I subsequently became deputy chairman of the BNOC and I am now economic adviser, having retired for the fourth time. This debate and the debates on this topic which we have had in the past few weeks show that if there is one thing we can learn about history it is that we cannot learn from history.

First, we had "Selsdon Man "—Mr. Heath, mark I—before his conversion. Then we had the "Selsdon Woman" who wants to take us back to 1970, or perhaps even 1951. Then, lo and behold! here is the noble Lord, Lord Selsdon. However, having listened to his speech, I must call him "demi-Selsdon" only; he was not altogether "Selsdon In all and every situation the Conservative speeches really present a sort of horrid feeling of déjà vu or rather déjà entendu. They go back again and again to incentives, taxation and the terrible problem of the managers, who, after all, only have Rolls-Royces paid for by the firms—no incentives!

First, there seems to be a tendency to count our chickens before they are hatched. There was very great resistance to appreciating the magnitude of the North Sea gas and oil from 1965 onwards. Now there seems to be a sort of euphoria, which in my opinion is not totally justified. Secondly, we must use whatever we shall derive from the sea purposefully and discreetly, lest we should let slip from our feeble grasp this last possibility for industrial revival—the only lasting guarantee for the survival of a gentle and compassionate society which we find in this country.

When the present Government came to power, they were confronted with an all but impossible situation as regards the North Sea. The 1972 fourth round of licensing—and I must say this because it is forgotten nowadays—had given away two-thirds of the reserves to foreigners; so far as taxation was concerned, we had only corporation tax, which was nominally 50 per cent. but which also contained possibilities for tax avoidance on a huge scale. There was an accumulated tax credit of £2,500 million and that was accumulating at the rate of £450 million per annum even when the oil price was only about £10 a ton, and now it is about £60 a ton.

There was no control over the operations of firms. The noble Lord, Lord Drumalbyn and the noble Earl, Lord Limerick, with whom I had a great many fights, can testify to my efforts to call attention to these anomalies and secure estimates of costs, prices, investment and return. For four years the previous régime did nothing about that. Through the two Acts which we passed we remedied that weakness. Noble Lords opposite now have the nerve to complain that it is this Government which is holding back development. The colossal inflation of costs, far beyond the general increases in price levels, testifies to the shortage of resources. It is not the willingness that is lacking; it is the means that are lacking for a speed-up of production. When noble Lords opposite complain about the slowing down of development they show themselves to be totally ignorant of that fact.

Moreover, there has been no recession of development of the North Sea; it has stabilised at its maximum level. So long as we cannot produce experts, we shall be unable to speed-up further, even if that speed-up would be justified from a geological and saving point of view. We are working at the limits of capacity even though we have probably experienced the worst weather in Scotland for the last 30 years.

Profits and the tax-take are vital for the capacity to fulfill our general aims. Ninety per cent. of any increase in costs is borne by the Exchequer and thus diminishes our capacity to manoeuvre and speed-up progress in other directions. Thus the monitoring of costs and prices is needed and close and expert monitoring is not possible without actually being in the business. The Inland Revenue is in the tax business, not in the oil business. That was my conviction as a Minister and I have no doubt that that is why every single country except America has established a State-owned corporation. In America, they are now contemplating the possibility of such a corporation. Already, we hear reports from Norway complaining of tax avoidance, if not evasion. The same uncertainties apply to prices in this complicated market, where two giant oligopolies are facing each other and making pricing extremely volatile.

All that grumbling and the wild suggestions which emanate from Mr. King, the Opposition spokesman on energy in the other place, if taken seriously—which I hope will not be the case—are a grievous menace to our future prosperity. I discern here a somewhat desperate desire on the part of the Opposition to decry the Government's record, as the noble Lord, Lord Boyd-Carpenter, has done in every direction, however impossible. In view of the history of the handling of the gas and oil situation during the previous Government's Administration, I find this all but incredible. On the Opposition Benches we see the futile remnants of the Government of 1972 which gave away over two-thirds of our oil and gas wealth to foreigners, and which had not prepared new legislation either for control or for taxation purposes. Now they are going to reproach us for this.

What are they doing now? They are trying to ensure that our efforts to secure our rightful share of that wealth are frustrated. Even in recent debates, voices were heard advocating substantial concessions to the private oil sector. Fears were expressed lest the Government's strong-arm tactics should upset the companies and they might pull out, or at least postpone development. Of course, nothing of the sort has happened. All that talk is nonsense, and pernicious nonsense at that.

As any oil man would admit in private—but not in public—Britain is the most hospitable of all countries in the world for oil companies. It has one of the lowest, if not the lowest, tax-take and the most advantageous depreciation rules, and it does not interfere with domestic prices. What else do they want? Of course, the oilmen complain about our brutality. That is their duty as trustees of their shareholders. We must not take them too seriously; they will not go away. They are panting for more rounds; indeed, for a speed-up in licensing. These demands will have to be closely scrutinised from a national point of view, lest we produce at more than the optimum rate of exhaustion of those fields. The least contested conservation policy is through the limitation of licensing. It would be a tragedy if the deterioration either in the tax-take or in our current balance of payments should force us to an eventually detrimental speed-up in development.

Now, I turn to the problem of utilisation of the wealth. Before I do that, however, I should like to enlighten the noble Viscount, Lord Trenchard, that the British post-war increase in productivity was higher than the American. In fact the American was the lowest. Of course it was from a very high level, but we are talking about the speed-up.

Viscount TRENCHARD

My Lords, can the noble Lord tell me over what period he is quoting? I am aware that, in recent years, from the very high level that the Americans have achieved, their rate of increase has been no more than fractionally different from ours, but it is at a very much higher level. In mentioning the American economy, I mentioned the last 100 years.

Lord BALOGH

My Lords, in the last 100 years it is quite true. That, however, contains 50 years of total laisser faire in Britain; such laisser faire as has never been seen in the world before or after. Free trade; incentives galore. What happened? Our progress then was much less than it was after the war. That is one of the things which the noble Lord, Lord Boyd-Carpenter, ought to read up a little.

Lord BOYD-CARPENTER

My Lords, if the noble Lord is advising me to read up, would he, on his own part, read up Mr. Rees Mogg's figures on 6th February which he must have seen and which show that, over the period 1974–1976, United States productivity rose 5.8 per cent. and United Kingdom productivity declined by 0.1 of 1 per cent. Does he dispute those figures?

Lord BALOGH

Yes, my Lords, they have. The explanation is that they are recovering from a depression. For one or two years you can always produce 5 per cent. increases, but not in the long run. Rees-Mogg never contemplated the long run at all.

Lord BOYD-CARPENTER

My Lords, does the noble Lord then dispute a similar table of figures for earlier years, when the United States figure was somewhat better than ours, though by a margin?

Lord BALOGH

My Lords, point 3 against 2.6. If you do not choose Friedmanite sort of periods.

Lord BOYD-CARPENTER

My Lords, if the noble Lord accepts those figures, does that not destroy the argument that he has just addressed to us?

Lord BALOGH

My Lords, it does not. If you choose the top of the nearest period and the lowest figure for the distant period, then, over a long period of time, you can get all sorts of interesting results. We could do it too. I am sure that Mr. Heath could very proudly announce that, in the Barber boom, the figure went up by 8 per cent. Much good that did to him. Figures must be carefully weighed.

Several noble Lords

Hear, hear.

Lord BALOGH

I agree. There are a number of ways in which the temporary relief which we are receiving, and shall receive, from oil and gas can be utilised. At this point, and in parenthesis, I must focus on the fact which the noble Lord, Lord Selsdon, also emphasised, and which was emphasised by other noble Lords, that we have spent the whole of the relief which we got from gas without changing anything at all in our industrial structure; without being more competitive, or anything at all. A portion of the oil has gone the same way. If you look at the non-oil balance of payments current account, you will see that part of the oil has already disappeared. If we go on in the way that I shall point out, we might lose the whole benefit.

What the gas did was to enable us to import more and lose some of our share in the world's export market of manufactures. This must not happen with oil. The oil shot in our arm can be exhausted by allowing sterling to rise. Secondly, we could use it to accumulate reserves; thirdly, we could use it to repay debt, or, fourthly, we could use it to allow an increase in foreign investment, as was proposed by one noble Lord. Alternatively, we could cut taxation partly on individual incomes and partly on corporations. Fifthly we could restore the cuts made in Government expenditure, especially that on education and health, which contributes to our future competitiveness. Finally, but not at all least, we could ensure an increase in private investment by selective reorganisation and injection of capital into the private sector so that we should, within a measurable period, achieve a balance in our non-oil current account. To my mind, that is the most important point. Without it, I do not think we can go anywhere.

Noble Lords opposite, and, I am sorry to say, the Bank of England, wish to use the benefit for the first four of these possibilities. No one would rule out some relaxation in taxation after all the speechifyings which have been made about the relief which is to come, particularly if it were accompanied by such reforms, especially of the corporation tax, as would act as an impetus to spontaneous industrial restructuring rather than increased dividends. However, I must warn noble Lords and the Government that our present propensity to import is so high that any increase in national income, and more especially in disposable private income, would result in an increase of half as much in imports, thus violently limiting our freedom of action.

The Government at first resisted the revaluation of sterling and the relaxation of exchange controls. Then they gave in, at least partially, on both. The pound appreciated against the dollar and recently against the French franc by over 10 per cent. A combination of this appreciation with sizeable cuts of taxes on higher incomes and with the relaxation of exchange controls would, in my humble opinion, be pernicious. It would lead to a repetition of the Butler/Maudling/Barber affair. We shall exhaust our accrual of wealth in driblets.

To allow the first appreciation was a most regrettable decision. It was explained by reference to the need to keep the increase in the money supply within the (totally artificial) limit fixed last year. This argument discloses a completely false basic economic philosophy. There is no strict connection between the increase in reserves and the so-called money supply and inflation. The influx could of course increase bank liquidity and thus menace the policy of the Government, but that contingency could have been dealt more easily by direct financial controls.

After the disasters of 1972/1973, there is surely no one in the Bank of England who would want to be bound by the delusions of "credit control through competition". In addition, or alternatively, the inflow could have been taxed, as in Switzerland, or sterilised, as in Germany. What actually was done was further to undermine our already ailing competitive position. A considerable relaxation of the exchange control on capital exports would be really the last blow for the budding hopes for our future. We are between the hammer of foreign competition and the anvil of our cost increases, especially because our capital equipment per head is totally insufficient.

It is shocking to see some Conservatives wishing to tear down the incomes policy which is the dam against inflation, and indeed the only effective dam. The behaviour of the Opposition and some trade unionists represents the most grievous possible menace to our being able to escape from this pernicious circle of having our booms ending prematurely in enforced cuts. We have already had news this morning that the market in gilt-edged securities is beginning to tighten up because they expect an increase in the rate of interest. An increase in the rate of interest in a period when we want to increase investment is all but suicidal. Moreover, there is a terrible problem. We have an idle capacity in equipment of at least 20 per cent., yet most of that idle capacity and much more of that in use is obsolescent. This is not mentioned by the CBI propaganda sheet, though they ought to know economic history does not know a case in which a country in the present situation of industrial inferiority of Britain has succeeded in escaping from it and regenerating its industry without first securing a protected home market. Such recovery as we made after the Great Depression, which was stronger and faster than that in any other country, was mainly due to tariffs and imperial preference.

I beg the Government not to close their mind against approaching the competent international fora to secure exemption from the restrictive integuments of certain of our international commitments. The post-war generation knew what they were talking about when they laid down rules for the protection of key industries in weak countries. They also provided for protection in general such as under the Bretton Woods scarce currency clause, which was unfortunately never implemented. It could deal as nothing else can with the cynical export of unemployment by Germany and Japan. This debate highlights the importance and the difficulties in the way of our industrial and general economic recovery from the secular sluggishness from which we are suffering and have been suffering for almost a century.

I think that the apology which had recently to be tendered by my right honourable friend to a foreign Government emphasises the correctness of the appreciation in the Berrill Report of the consequences of our economic weakness on our international influence. That report was almost unanimously rejected by your Lordships' House. I do not in any way blame my right honourable friend for what he has done. Palmerston could be Palmerstonian only because he had the strongest fleet and the strongest ecomonic, industrial and financial machine at his disposal. Had he suffered from our present circumstances, no doubt he would have been realistic enough to act precisely as my right honourable friend has done. Only let us not pretend that diplomacy is a substitute for strength nor indulge in dreams about the efficacy of measures which have time and again proved futile and forced reluctant Governments to retreat.

5.33 p.m.

The Earl of GOWRIE

My Lords, this is a very large room and it takes genius of a kind to raise the temperature in it. I congratulate the noble Lord. Lord Balogh, on what might, in the context of this debate, be called a formidable feat of energy conversion, because some moments ago we saw a little Parliamentary tennis of a kind which, in this churchlike atmosphere, we all too seldom enjoy. I certainly enjoyed it although I did not entirely follow it.

We expect the highest standards from my noble friend Lord Selsdon, and we get them. He has an admirable, and indeed enviable, gift of combining passion with clarity, and he brings experience of the real world to our sometimes rather theoretical councils. Unfortunately, he is an hereditary Peer and may not therefore get quite as wide a hearing as he deserves, but I certainly hope that another erstwhile hereditary Peer, also a man of ability, the present Secretary of State for Energy, will read that speech and attend to it. After all, in these days we are not supposed to hold a man's background against him. I hope the noble Baroness, whom we all know to be extremely persuasive, will see that the Secretary of State does in fact read it.

Except for getting the inflation rate much lower—and of course we have considerable disagreements about how this may be achieved—there is surely no more important national issue than this incredible stroke of good fortune, this perhaps last chance to arrest our long slide from being one of the healthiest industrial economies to one of the weakest. To make a brief debating point, I must contest what I understood to be the opinion of the noble Lord, Lord Balogh, that most successful economies are in some way uncompassionate or uncaring. Look at the present situation of chaos in the National Health Service as an incentive to improve our position now on compassionate as well as on economic grounds.

Mention of the noble Baroness brings me to something which I want to say before coming to the Motion directly, though the point is connected with the Motion. I want to say this very carefully because I do not want to cause her or anyone on the Government Front Bench personally the smallest particle of offence. We really must have a full economic Minister in this House. The economic Departments of State are the Treasury, the Department of Employment, the Department of Trade, the Department of Industry and the Department of Energy, not one Minister with executive duties and responsibilities, with the ear of the Secretary of State so to speak, from these commanding heights of a modern economy is represented here. Yet this House—reformed, unreformed or abolished—while it is here should perform its assigned constitutional task. It contains men and women with more varied and practical expertise in wealth creation as well as in economic theory than may be found in the House of Commons. No wonder a debate as important as this is relatively poorly attended and that the range of expert contribution, excellent so far as it has gone this afternoon, has proved relatively narrow. No wonder that the reporting of real issues consistently gives way to cynical accounts of day-to-day Party bickering in another place.

I do not wish to be misunderstood here and I repeat that it is no reflection on the noble Baroness—we know her to be an admirable Minister in the Department of the Environment and no doubt she would make an admirable Minister in one of the economic Ministries—but we need, and I think we deserve a full Minister from at least one of these Departments; I think it should be from two out of the four. My noble friend's Motion and the way he handled it proves as much, and so do the concerned contributions of the noble Lord, Lord Shepherd, and my noble friend Lord Boyd-Carpenter. When we on this side left Office the Secretary of State for Energy sat on these Benches and I look forward to it being not too long before he does so again.

Having got that off my chest, let me say that I think the moral of the debate is that North Sea oil is an opportunity and not a remedy, and I think my noble friend Lord Boyd-Carpenter used the word "opportunity". It cannot cure our economic difficulties but it provides a relatively short period of time—and I think my noble friend Lord Trenchard used the phrase "a breathing space"— in which we cannot claim that the fault is in our stars, but must ourselves buckle down and do something about the way we earn our living in the world. If I am correct in this interpretation of the debate—and I must say that I agree with it—it cannot be said too often that the oil is not a kind of celestial, or rather subterranean, football pool enabling us to spend huge sums of money—whether unwisely or wisely—whether on the much touted nostrum of industrial investment programmes, or on package tours or consumer goods. We cannot spend in the way of those small countries with colossal oil reserves such as exist among the Gulf States.

Put brutally, the effect of North Sea oil, always given the present world price of oil, is surely just to put our clock back to 1973, before the terms of trade in this area changed against us by as much as 20 per cent. I would be the first to argue that things were better in 1973 than they are now. At one level only I prefer Pugin's decoration in this House when viewed from that side rather than from this; it always seems to shine with a greater glow. But at a rather more profound level, there was then little more than one-third of present-day real unemployment. Even the most benighted Tory, however, would hardly argue that in 1973 we were living in Utopia. So we are hardly in Utopia now.

Some economists argue that we are worse off than we were, following the OPEC price rise and consequent development of North Sea oil, by about 1 per cent. of gross national product. My view is a little more optimistic than that, assuming—and we have no guarantees of the assumption—that international oil prices remain high. But optimists and pessimists agree that there is little fundamental change in the position of our economy; we are simply moving from problems associated with balance of payments deficits and cash shortages to those problems associated with relative surpluses and capital inflows. As a jazz fan, my favourite jazz singer said, "I been rich and I been poor and believe me rich is better". But we know, nevertheless, that there do exist problems of our relative and perhaps short-lived success. There is the inflation of money supply through capital inflows and there is the pound appreciating far beyond our battered industrial export sector's ability to cope. This is not perhaps quite Mr. Wynn Godley's nightmare, but it is nasty enough to jolt us out of any daydreams of riches.

The important message today, therefore, is that the problems of our real economy remain. It is to my mind incredible, and even rather disgraceful, that Mr. Roy Hattersley appears to think that inflation dipping under 10 per cent. should be the occasion for a kind of Parliamentary knees-up. The figure that surely counts is the figure that compares our inflation rate with that of our industrial competitors. We are still way above them. We are above the Dutch, with all their problems, as the noble Lord, Lord Gregson, mentioned; we are above the Swedes, the French, the United States and West Germany.

If we add to that imbalance the troubles of British Leyland and the tragi-farce of Swan Hunter, in which, as my noble friend Lord Massereene and Ferrard said in an intervention, we pay people to buy ships from us and offer to lend them money to run the ships and, having done all that, still cannot deliver the ships on time or even at all, we still find ourselves in a very poor state. I would say to the noble Viscount, Lord Simon, that I hope that any allocation of oil resources for industrial regeneration does not follow that disastrous pattern.

We are still living off the invisible sector, notably the City of London, and while I admire this sector—after all, I work in it—it surely cannot sustain what I think of as our industrial mezzo-giorno. I use the term because we are in almost the exact reverse position of Italy, where a relatively successful manufacturing sector tries to support a very large and very decrepit agricultural sector in the South. Our invisible sector cannot sustain the levels of employment that on all sides of politics we find politically and morally acceptable. Nor can the oil.

The only disagreement I have with my noble friend Lord Selsdon, if I understood him right, is that he thought we may in some way have to move away from thinking of ourselves as an industrial economy. We cannot afford to do that. I agree with my noble friend Lord Boyd-Carpenter that we are a country that lives by industry and will have to continue to live by it after the oil has gone.

It has been said in this debate and elsewhere that North Sea oil is not employment-generating. I do not wholly share that view. I am a "no-incomes policy, high wage man", rather, if I understood him aright, along the lines of my noble friend Lord Trenchard, and I should like to take up some of those points with him and some of the points raised by the noble Lord, Lord Balogh. However, that will have to wait for another debate, it not being directly connected with the oil. Nevertheless in the meantime, while I do not wish to make Party points, it would seem to me to be wrong not to stress general political differences of opinion and interpretation. I believe that the Government, most notably in the person of the Secretary of State for Energy, in the actions of Mr. Benn himself and the decisions that he and his Department have taken, are passing up really incredible opportunities for industrial regeneration, for the kind of spin-off from the oil which helps industrial regeneration and the employment it brings. I would say to the noble Lord, Lord Balogh, straight away, that the Government in which I was a Whip passed up such opportunities as well, but surely one of the points of a free Parliamentary system is that we should learn from each other's as well as from our own mistakes. But where employment is concerned let me cite an example. A Treasury economic progress report put out nearly two years ago, in July 1976—less than six months after the oil started flowing in any quantity—pointed out very fairly that the oil development programme had swollen the current account deficit in recent years, possibly by up to as much as £2,000 million. The report went on to say: The dominant item has been imports of goods and services connected with exploration and development—steel pipe, drilling rigs, hiring charges and so on. These imports cannot be directly identified from the trade statistics, but they are tentatively estimated to have amounted to between £¾ billion and £1 billion in 1975 alone My Lords, £1,000 million or, over two years, even £2,000 million worth of genuine old-fashioned pre-Keynesian demand is surely not negligible in employment terms. Can we really imagine the Japanese, had they discovered offshore oil in the early 'sixties or earlier, draining reserves by importing men and material to exploit it? They would have considered the chance to build a home-based oil exploitation industry, which later they could even use abroad—perhaps even in the North Sea to our own cost—virtually as important as having the use of the oil itself.

Very well, that chance has been lost and maybe we are all at fault. But look at what is happening now. Look at the chances that are still being lost and will go on being lost.

What is Mr. Benn up to where the allocation of blocks for development are concerned? He has consistently preferred transatlantic to home-based companies and has consistently preferred to deal directly himself with their executives rather than use the City of London's desire to finance new British exploration and development. What on earth is Mr. Benn, of all people, doing waltzing hand in hand into the sunset, usually I think by private Lear jet, with such legendary socialist figures as Dr. Armand Hammer of Occidental Oil?

Lord BALOGH

My Lords, Dr. Hammer and Occidental Oil came into the picture in 1972, of course, so I think the noble Earl's reflections on the Secretary of State are both unjust and incorrect.

The Earl of GOWRIE

My Lords, I conceded that point earlier. The point I am not conceding, and which the noble Lord has not faced, is the fact that, every year, British applications for development blocks are made which Mr. Benn continues to hand over to Dr. Hammer and his colleagues. I am not saying that they are not worthy of them, but over the whole sector there surely is a considerable imbalance here.

Lord BALOGH

My Lords, I am terribly sorry, but that is just not correct. Much the greatest number of licences have been given to single, individual firms; for example, to BP, which, after all, is still a little British-owned. So far as the others are concerned they are given only to those who have proved themselves, and in this sector there is not very much large-scale industry which is totally British.

The Earl of GOWRIE

My Lords, the noble Lord, Lord Balogh, has not been listening, as I have, to the great chorus of disquiet on this. That is all I can say. To use my Japanese analogy once more, can one imagine the Japanese pulling in the "Seven Sisters" to develop oil off their shores? And they, the Japanese, with all their sophistication, have less sophisticated capital markets than exist right here, on our doorstep, in London.

Mr. Benn is an apostle of open government as well as of the need to encourage British technology. Yet he is worryingly uncommunicative about why particular blocks are allocated to particular companies. He has never, so far as I can ascertain, given a single explanation as to why an application from a native company has been turned down in favour of large American corporations.

Lord SHEPHERD

My Lords, would the noble Earl permit me to interrupt him? This is a very serious statement—I will not say, accusation—that he is making. I wonder whether the noble Earl, for the benefit of the House, would put down a Question as soon as possible to elucidate this type of information. I think it would be of great value to the House.

The Earl of GOWRIE

My Lords, am perfectly prepared to do so. What I am complaining about is that, as my noble friend Lord Selsdon said, there is no lack of capitalisation prospects within this country for year-on-year applications for development grants. Indeed, it would cause many on this side of the House great delight if Mr. Benn and the Government were to utilise, or were to suggest the utilisation of, union funds or pension funds in this respect. But, so far as I can ascertain—I shall be delighted to put down a Question, as I have done some research on this—nothing of this kind has been forthcoming.

Lord SHEPHERD

My Lords, I will not exactly say that the noble Earl has made accusations, but his words give me a twinge by suggesting that there is something sinister going on between Mr. Benn and American companies.

The Earl of GOWRIE

No—

Lord SHEPHERD

Perhaps the noble Earl will forgive me. All I would ask the noble Earl is whether, for the benefit of the House, and as soon as possible, he would put down a Question for oral Answer, very much on the lines on which he has been speaking, so that the appropriate Minister can make the proper reply.

The Earl of GOWRIE

My Lords, I go back to my earlier point: Would we have the appropriate Minister? But I shall do what I can.

My Lords, this brings me, briefly, to the role of the BNOC. It is, regrettably—but I think there can be no shirking this—in dispute between the two major political Parties. We on this side acknowledge the need for a regulatory body, but we are very uncomfortable at the ability of the referee himself, so to speak, in this all-important game, to take shots at the goal. I think we should need to be very powerfully persuaded, in office, that the BNOC, in its entrepreneurial role, was not actively preventing the native private sector from developing as it should in this region. I think that many people on all sides agree that the record of State entrepreneurism in this country is pretty bad, and, to us, there seems no clear case that the confusion between wealth-creation and the provision of services should continue indefinitely in this area. Whoever is in office, I think there is now something of a new consensus of opinion here.

Two final points. There is the issue of depletion, which I am a little surprised that more noble Lords did not raise. I understand that the Prime Minister is on record as saying that in his view—and I think he made it clear that it was a personal view rather than a Government view as such—it was the most important issue. I am, myself, something of a maverick on depletion. I would argue that if our economy is healthy, if we pay our way in the world, there is no reason why we should not be able to purchase energy, or, rather, a proportion of our energy needs—and remember, as noble Lords have said, we still have the coal and the miners—on world markets in the future, just as we have done in the past. Of course, we have a duty and an interest to help the world, and therefore ourselves, to develop alternative energy resources. That is important, but a subject perhaps for another debate.

Some commentators, notably and persuasively Mr. Samuel 13rittan, have argued that abolishing exchange controls and allowing us to plant the seeds of capital round the world now, as we have fruitfully done in the past, would not only help us ensure enough dividends to make future energy purchases possible, but would also ease the harm to exports and employment of the upward movement of the pound. I happen to share that view, but I would gratefully receive suggestions as to how it might be put across to our still rather xenophobic labour unions. I think the noble Lord, Lord Shepherd, shared that concern when he said that in his view exports follow investment, but he thought that it was not politically "on" at the present time.

Then there is the issue of foreign debt repayment, to which, again, the noble Lord, Lord Shepherd, referred. This seems to me to be not only morally and psychologically desirable but also practical, in that even where there are opportunities for the rolling over of debt repayment may be a saving in high rates of interest.

My Lords, this debate will not end this evening—and nor should it—but I hope that what will end is the feeling that somewhere over the rainbow there is a Government policy which can allocate North Sea oil resources in some special, magical way so that we can rebuild our economy on them alone. We can rebuild our economy, but only in the time-honoured ways: by working hard; by finding it worth while to work hard; and, as the noble Lord, Lord Lee of Newton, said, by producing goods and services which we can sell to others as well as to ourselves. There is no bonanza and no short-cut. What North Sea oil can do is to ease the national import bill in such a way as to allow Governments a chance to get off our backs, and to let us get on with it. What it can do is to provide some alternative revenue in real terms with which Governments may ease the tax burden on our individual selves and enterprises. If our situation is eased in these ways we shall, in my view, recover, with or without the oil. If not, not.

5.58 p.m.

Baroness BIRK

My Lords, perhaps I may first add my tribute to those already paid to the way in which the noble Lord, Lord Selsdon, opened this debate. It sounds rather as though he made another maiden speech from what we are all saying; but he opened this debate in such a moderate and thoughtful way that I must say I think he set the tone for something which, like the noble Earl opposite, I was expecting to be rather more abrasive. This lead was followed by my noble friend Lord Shepherd, who I think made an extremely constructive and statesmanlike speech. I think that those two speeches, followed by that of the noble Viscount, really set the temperature this afternoon.

I must say right away that I do not take the noble Earl's comments as being offensive in any way. I appreciate that he is trying to lighten my burden. But, as he is very well aware, the composition of the Front Bench does not rest with me. I would only say that there is one advantage: one of the hazards of being in Government is that you get not only very departmentalised but very compartmentalised. Having to work in this way certainly makes one not only know, but have to work hard in, the various policy areas right across Government. I take his point.

In this debate this afternoon, we have naturally had a number of suggestions for the use of our North Sea revenue and a number of fears expressed of what might or might not happen. We heard ideas from using the revenue mainly for cutting income tax to using it—although we have not heard this taken to extremes today—to increase public expenditure. The Government will shortly be publishing a White Paper. I am afraid that one of the other things which always seems to fall to me is that I seem to have to reply to a debate almost on the eve of a White Paper. Before anybody says anything about that, I agree we produce a lot of White Papers and Green Papers so that it is difficult to pick out a day when one of them is not soon coming up. In answer to my noble friend, Lord Shepherd, I hope and expect publication will be very soon indeed. I cannot anticipate the White Paper. But what I can say is how far we feel that North Sea oil will improve the chances for our economy, and the choices we must make, and get right, if we are not to burn up the oil without deriving a permanent benefit from it. The extent of our opportunities and the number of choices are both finite. This is appreciated all round. But the benefits of North Sea oil can be measured in three ways.

First, there will be a relatively small increase in our total national resources. This will be equivalent by 1985 to about 5 per cent. of our present national income To put this in perspective, the Government are hoping for a growth rate of at least 3½ per cent. over the next few years. So the extra resources flowing from the North Sea will be less than the increase in resources from two years' normal economic growth.

A noble Lord

We hope!

Baroness BIRK

My Lords, we have to live on hope as well as on bread. Secondly, there will be a sizeable increase in Government revenue; and it is largely due to my noble friend Lord Balogh that the present Government tightened up the corporation tax régime for North Sea oil companies and introduced the petroleum revenue tax. This has secured for the country the greater part of the North Sea revenues which would otherwise have gone to private companies—many of them multinational companies based abroad—and thus exactly the things that the noble Lords have been arguing for would have been made impossible by events for which they were responsible. Lastly, and probably most important, North Sea oil will be of substantial benefit to our balance of payments. It will give us the opportunity to expand the economy and create extra jobs at a faster rate than would otherwise be possible.

My Lords, I think that from this I can draw two broad conclusions. First, the national income and Government revenues coming directly from the North Sea, although large, will not be enough by themselves—as, I think, every speaker in this debate has pointed out—to allow a substantial increase in either private consumption or public expenditure. Our policy must be to ensure that all resources are used effectively to strengthen the economy. This means that we must contain inflation. North Sea oil, if used wisely, can give us a breathing space to achieve industrial renewal; for it is on this renewal that higher living standards ultimately depend.

Secondly, and this reinforces my first point, North Sea oil, as almost every noble Lord has said, is only a temporary windfall. On present forecasts North Sea output will be on the decline by 1990 and demand for oil and gas will have increased in the intervening years; so that we can expect to become net oil importers again in the 1990s. Real oil prices will be higher and oil supplies will be scarce: the world will seem a very cruel place if we have not used the North Sea fat years to become industrially competitive. To do this will mean sustained investment in industry. If we fritter away the North Sea resources on a consumption boom, as my noble friend pointed out we did with gas, we will find suddenly that the oil has gone and there is nothing to show for it.

Our experience with North Sea gas is a classic cautionary tale. Things would probably have been worse without the gas, but looking back over the last 10 years—and this is something I hope my noble friend will agree that we should learn from history—it is difficult to say that we have used our opportunities single-mindedly enough or well enough to strengthen the economy.

Before I discuss how the oil revenues might be used, I think I must refer briefly to a point raised by my noble friends Lord Gregson and Lord Lee of Newton that an oil fund should be set up in order to separate the accounting of North Sea oil. This is something that the Government are currently considering and on which they have not yet reached a final view. What has been said in this debate will be fed into the Government consideration.

How do the proposals that have been made today look? Some noble Lords have proposed—and it was interesting that they were very few—that the North Sea revenues should be devoted largely to reducing direct taxation. I believe frankly that this betrays a complete lack of understanding of what the North Sea oil debate should be about. The noble Lord, Lord Selsdon, set the pattern at the beginning when he rejected this. What we have to do is to agree a policy framework to guide our detailed decisions for the next 10 or 15 years but not to lay down a rigid formula for the use of the revenue and then forget about the real problems.

The noble Lord, Lord Boyd-Carpenter, has been showering me with difficult tax questions; I was quite sure that they were going to come out in the wash when I gave my careful answers. I say immediately that we accept that tax rates are too high at all levels of income and should be reduced. In particular, the Chancellor's long-term aim is to lift tax allowances well above the main social benefits and take people out of the "poverty trap". I do not think that it is any secret that he hopes to reduce the burden of income tax in the coming Budget. I should like to feel, that, since the most sensible on both sides of either House, now accept the concept and the being of a mixed economy, we could perhaps get away from these cries and counter-cries of "Envy!" I think we are in a more sophisticated era now. We have seen in this debate a very strong feeling, an undergrowth, of a wish to co-operate and make sure that by arguing on Party political grounds we do not throw out the oil baby with the bath water.

Lord BOYD-CARPENTER

My Lords the noble Baroness has referred to my, argument. I agree with her approach; but would she, herself, take account of the fact that if tax rates on higher earnings are maintained at these phenomenally high levels, with such a really derisory yield, then some explanation must be required? If the one that I have given is not accurate, it is up to the Government to provide another.

Baroness BIRK

My Lords, there he goes at it again! Here I am holding out an olive branch to him—and I could take up a lot of time to quote exactly the words of my right honourable friend the Chancellor of the Exchequer—and the noble Lord comes back to this again. One has got to get this very difficult balance right. He knows this well. In a society like ours, we have to balance the economic, social and financial factors. I cannot see that it would help anyone if one pursued policies which brought the economy almost to an end. The noble Lord's Party did that in 1974. That is the last word on that at the moment.

I would point out to the noble Lord something, which came to my mind while he was speaking from my days at the London School of Economics and from reading economic history at the time. I remember that one of the worst periods of British economic growth was between 1873 and 1910. With production stagnant and large emigration, due to tremendous unemployment here, there was no progressive taxation at all. Yet in relation to Germany, the United States and other countries, we performed much worse in the post World War II period than we did then. This is one thing across which one can keep on drawing these red herrings.

Of course tax reductions are valuable because they keep down the cost of living by increasing take-home pay without inflationary pay increases—there is nothing between us on that—because they strengthen incentives to work at all levels, and because they will provide the increased consumer demand which will be needed to expand the economy. But, above all, what we want is sustained growth and investment, not a short-lived consumer spree. Experience—and we all remember the "Barber boom"—shows that massive increases in demand tend to benefit our overseas competitors without leading to lasting increases in domestic investment. Imports come flooding in and the boom quickly breaks down because of balance of payments difficulties.

That is why we reject any rigid commitment to spend all our North Sea revenues on tax reductions—quite apart from the social and economic need to put aside some revenue for public expenditure. It is on where we put it, and how much, that there would be differences of opinion between us. What we have to do is to strike a balance between increased consumer demand and the investment needed to satisfy that demand, and a balance between tax reductions and extra public expenditure.

North Sea oil offers the possibility of a sustained growth and a more stable economic environment. More than anything else, stability—I think my noble friend Lord Shepherd used the word "consistency", but we are talking about the same thing—will help give industry the confidence to invest much more freely than in recent years. Confidence is essential. My noble friend was absolutely right when he pointed to the lack of confidence in industry due not only to changes between Governments but to changes of policy within the period of the same Government. It is this that we have to crack right across the board.

The Government will continue giving industry all the encouragement they sensibly can. As the noble Lord, Lord Selsdon, has made clear, development of the North Sea oilfields themselves shows that the money and effort can be found if the prospects are right. The Government will want to continue to encourage industry through general investment incentives, both at the national and regional level, and also through continued selective assistance to specific industries, which will include successful industries of the future—for example, the Government propose to allocate substantial funds to a growth sector: micro-electronics, and microprocessors. All will agree that one needs to put money into success to get future success as well as putting it into industries that are limping along.

My noble friend Lord Shepherd mentioned the great need for training and retraining and education in this field. I entirely agree with him. The Government have recently announced a further year of special training measures, are keeping up apprenticeship training, and also have recently announced a new "training for skills" programme due to start next autumn. The universities are now more orientated to industry, and there are now industrial scholarships. The noble Viscount, Lord Trenchard, is right, that the universities took quite a time to catch up with what was going on in society.

Government and industry need to understand each other's motivations as well as their mutual problems. Dialogue, unless it is based on deep understanding which leads to action, will be unproductive and sterile. Achieving this is what the industrial strategy is all about. The industrial strategy cannot deliver the goods unless the rate of inflation is brought down to the level of our industrial competitors. Progress in the past year or so has been enormously encouraging, and we are well on the way to single figure inflation. I thought it was, if not exactly mean, just a little teasing of the noble Lord, Lord Boyd-Carpenter, to rap my right honourable friend Roy Hattersley for showing pleasure last night in the fact that in about two weeks we will be down to single figure inflation.

Lord BOYD-CARPENTER

My Lords, it was not I that did so.

The Earl of GOWRIE

My Lords, I was the guilty party.

Baroness BIRK

My Lords, I beg the noble Lord's pardon, and perhaps the noble Earl, Lord Gowrie, will accept my observation as addressed to him. Of course it is not the end of the road that we want to reach, but at least let us be less grudging when we are making some progress down the right road.

Only today the National Union of Mineworkers have agreed to accept the principle of basic wage rises within the Government guidelines. I am sure we will see the reaction to that in the Stock Exchange and foreign exchange markets. These show all the time that the City supports the Government's policy, even if noble Lords opposite do not. Directly there is a whisper of a possible Election, what happens? Down go the values on the stock market and foreign exchange markets. The City may not always come out so overtly; but I have many friends in the City and I can assure your Lordships that they prefer the Government in power at the present time. All this slow progress could be frustrated if the general level of settlements breach the guidelines.

There has been a change in work patterns. This was referred to by the noble Lord, Lord Selsdon, and by my noble friends Lord Gregson and Lord Lee of Newton. It is true that in many ways we are moving in some respects towards service industries. Where this helps our invisible exports—as it does in the tremendous leaps and bounds of tourism—it helps our balance of payments and also gives employment. As pointed out by my noble friends Lord Shepherd and Lord Gregson, it is essential that we improve our manufacturing industry in order to provide the wealth on which we can build anything else.

The noble Lord, Lord Boyd-Carpenter—and on this I am sure I am right—was very passionate on the subject of the alleged blacklist. I do not wish to weary the House on something which is now a matter of record and has been gone over at great length in the other place. Our position is that we are absolutely free. It would be wrong if we did not use our discretion not to subsidise with public funds those companies which threaten to refuel inflation by excessive pay settlements. My noble friend Lord Shepherd was absolutely right when he said that. We are not saying: "This is illegal; you have to shut up shop". We are saying: "You cannot have the benefit of Government aid—whether it be by grants through the Industry Act, or whatever it is—if you are going to do that". The people who are prepared to deplore this action are exactly the people who make a terrible fuss if a group of workers want a wage increase. This is something in regard to which, if we are going to try and hold a strong line—and the Social Contract has worked fairly well and so has the counter-inflationary policy—then it has to work for both sides of industry. Most sensible, reasonable people think so.

My noble friend Lord Balogh has urged the Government not to close their mind against seeking more protection for our industries. I was not surprised that he said that because he has said it on many occasions. We have a strong interest, however, in the continuation of an open trading system. We export more manufactured goods than we import. The Government have made it clear that they will not stand by and watch otherwise viable industries damaged by unreasonable levels of imports. What I find worrying in the suggestions put forward by the noble Lord and other people is that a "tit for tat" arrangement could damage us enormously.

Most recently, the United Kingdom has achieved—through the EEC—a much improved Multi-Fibre Agreement which should greatly benefit our textile industry. The Government have also expressed their anxiety that countries like Japan and Germany should expand their economies as fast as possible and get their imports and exports into better balance. So it is a case not only of being aware of the problem but of trying to do something about it.

As well as assisting investment in private industry, the Government will continue to be a substantial investor in its own right. Through the nationalised industries, the NEB and the Development Agencies, industries in declining areas will be modernised and new job opportunities provided. The industrial infrastructure will be improved—that is, our transport system and the public utilities—but there is no question of public sector investment replacing investment in private industry. As I have already stressed, and must stress again, our aim is to mobilise all the country's resources right across our mixed economy.

My noble friend Lord Shepherd raised the very vexing question of the construction industry. It is certainly true that in recent years this industry has had a very tough time. This was largely due to the fall in private sector demand, and there have also been cuts in public sector demand; but these have to be seen in the context of the need to cut back public expenditure generally. The prospects for the industry, as I think we are all aware, are now better. Private sector demand has already begun to recover; and, as a result of all the construction measures announced during 1977 (which added an extra £800 million to expenditure in the period 1977–80), public expenditure on construction will now run at a steady £4½ billion a year up to 1982.

That is the whole lot, including inner city areas, home improvements, allocated departmental programmes, a larger share for housing and the allocation made last November for 1979/1980, which has still to be split between programmes. This does show that a tremendous boost has been put into construction, and the latest inquiry by the National Federation of Building Trades Employers, which was quoted in yesterday's Financial Times, confirms that they believe that recovery is on the way. If they feel that way, it will probably carry more weight with your Lordships than my saying it to you.

The Government want to do all they can to create greater stability in the industry, and I am confident that the industry will be able to respond to the demands which will be placed on it. But it must be ready to recognise and respond to changes in these demands, for, at the end of the day, we can only spend what we can afford. This applies to public expenditure generally—we do not want again a certain kind of "boom and crash" in the construction industry, with all the terrible unemployment that is involved.

Public investment will also he needed for energy—and my noble friend Lord Gregson pointed that out very succintly—— since the conventional energy sources will have to be greatly expanded as the existing North Sea fields run down if we are to secure an adequate supply. The new energy sources such as wind, solar and wave power, are currently at an early stage of development but we can expect an increasing commitment to bridge the "energy gap" left by North Sea oil when it runs out.

Conservation—on which historically we have a dreadfully slothful record—is essential. Measures taken over the last four years (and we started very late) have already saved us considerable amounts of energy and, as real energy prices increase, further conservation efforts will play an increasingly important part.

So far I have concentrated—and as quickly as I could—on the use of North Sea oil in strengthening the domestic economy, because this is the central issue which must determine our approach to any other issues which arise. The use of the North Sea benefits to finance issue. Some noble Lords on the Opposi-increased investment overseas is one such tion Benches have argued or implied that exchange controls can and should be abolished, now that North Sea oil has come to the rescue of the balance of payments. My noble friend Lord Balogh, on the other hand, has argued that the controls have already been relaxed too far. These two different views, which have been expressed in the other place and among experts outside, perhaps suggest that the Government's present policy is not too far off course as it seems to strike a balance between them.

The home economy could be held back if heavy outflows on investment account weaken our balance of payments so that the economy has to run at a lower level of demand than would otherwise be possible. Therefore, the Government will keep exchange control restrictions under continuing review: any relaxations will depend on the strength of our current account position at the time. We have already relaxed exchange controls a little, but it is right for the Government to be cautious about further relaxation. The turn-around in our current account position is a very new phenomenon and, therefore, more experience is needed before we can be confident enough to place further burdens on the balance of payments.

The repayment of overseas debt, which has been mentioned by several noble Lords, is of course, another claim on our balance of payments. There is a considerable hump in our payment obligations of about 20 billion dollars between 1979 and 1984—that is, while North Sea oil production is building up to its peak. The Government's policy is to spread this hump by early repayment and by new borrowing. The programme of early repayment has already begun: on 26th January, the Chancellor announced the repayment of 1 billion dollars due to the IMF, and the nationalised industries are also repaying about 750 million dollars of overseas loans early. I think that was something that the noble Viscount, Lord Simon, and my noble friend Lord Shepherd stressed.

Turning to the exchange rate, I recognise that my noble friend Lord Balogh, who is a most distinguished economist, has expressed very strong views about the exchange rate. He quite rightly and frankly points out his views are different from those of the Government. I do not think that now is the time for a long debate on exchange rate policy, so I will leave that as a disagreement between friends or something that we can perhaps discuss later à deux.

Everything I have mentioned is designed to create the right climate for the regeneration of British industry—but this is not an end in itself. The great hope of North Sea oil, is that, if properly employed, it will give everyone an increased standard of living. The working population will gain directly from economic expansion through higher real incomes and increased employment opportunities—and when I talk of "the working population" I am including management, which, as I am sure noble Lords will agree, also needs increased skills in many areas, in the same way as other workers. But there are other equally important groups in the community, to which my noble friends Lord Balogh and Lord Shepherd referred—the old, the sick, one-parent families and those living in a wretched environment. All those, and many other groups which are unfortunately too numerous to itemise at this moment, are also entitled to a fair share of the benefits—because that is what we mean when we talk of a compassionate society and our social obligations as well as our financial and economic obligations. They will only get this through greater public provision. In the farther future, I would say that there are cultural and artistic areas where, given the resources, it would be marvellous to increase public expenditure and public enjoyment.

The latest public expenditure White Paper shows a steady increase running at about 2 per cent. a year up to 1982. That is designed to be well within the growth of the economy as a whole over this period. I make no apologies for this, because the Government will continue to make sure that public expenditure grows no faster than the economy can afford. Again, it is a question of balance—North Sea resources are no excuse for prodigality and we cannot afford to expand public expenditure too much or too soon.

I would just say finally that the converse of exaggerated euphoria, which I join with everybody in denigrating, is not desperate despair. While I think we should show, as has been said by every speaker today, the need to take careful decisions, and the need for co-operation and for dialogue based on something firm, we have during 1977 seen a balance-of-payments surplus, inflation brought down, the general financial position strengthened, and we have also seen interest rates come down. So we have something to build on, together with the oil. Nevertheless, I come back to the fundamental issue which this debate has raised—the urgent importance of using North Sea oil opportunity to strenghten the economy. My noble friend Lord Shepherd felt that the White Paper should be issued as quickly as possible, and I agree with him. But, even without the White Paper, there is no time to be lost in trying to change attitudes, as we have heard from both sides of the House this afternoon. It will not be easy, but the opportunity is certainly there. If we fail to use it, our grandchildren will not forgive us, for we shall have failed them.

6.31 p.m.

Lord SELSDON

My Lords, I do not think that I am very good at summing-up noble Baronesses. I might be a little hesitant in what I try to say in these remaining few minutes. To me this has been a most interesting debate, remarkable in that it did not go in any way in the direction in which I intended it to go. The comments from Benches opposite were comments which I might well have made myself. Inevitably, we had the usual history lesson on the economic failures of previous British Governments, but I suppose that that is a fact of political life. As a hereditary Peer, something that I value above all is the privilege of being able to listen at first hand in your Lordships' House to people who have been through many things before. Equally, I always enjoy the extremely cultural and elegant way in which my noble friend Lord Gowrie manages to speak on a wide range of subjects, and to make some fairly perceptive points with remarkable charm, but with certain barbs beneath.

May I first thank all those who have spoken today for the kind remarks which they have made about my contribution, which, as I pointed out, was not really my own contribution but a distillation of the wide range of views and advice that I sought before this debate. It is a debate which should be widened and should continue, because there is no doubt, after listening to noble Lords today, that the many issues which have been raised cannot be quickly and easily solved. The noble Baroness pointed out that I did not emphasise or suggest a reduction in taxation. I think that that is what I intended to emphasise more than anything else, from both personal and other points of view—not perhaps a dramatic overall reduction in taxation, but a shift in the emphasis, because the emphasis has gone too far. I was encouraged to hear that the Government have stopped encroaching further in the mixed economy moves, perhaps because they have realised how easy it is to burn your fingers in areas of activity about which you know very little.

The prospects for this nation, despite the depressing way in which I sought to start, are quite remarkable. Those who do not understand the social and internal political problems must, if they are required to write, point out that, of all the nations in the free world, this is one that has a greater opportunity than it has had since the end of the last war, and probably since the start of the Industrial Revolution. The direction in which we go will inevitably have to be a new direction. Maybe it is best that we go by consensus, but I think that the greatest way is to say to the British "Look, you have now got a chance. It is up to you to do something about it, and we are going to create a climate in which this is possible". My Lords, I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.