INDUSTRIAL GROWTH

HL Deb 19 June 1978 vol 393 cc817-905

2.57 p.m.

Lord BAKER rose to call attention to the need to encourage enterprise and innovation in order to stimulate industrial growth; and to move for Papers. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. I may say that I do so with some trepidation, but I am impelled by the apparent inability of our country to create sufficient wealth to fulfil our obligations in the world outside and our reasonable aspirations at home. All my experience is in engineering innovation and the encouragement of enterprise. The first draft of my Motion would have tended to concentrate discussion on the problems of engineering innovation, but when I found that other Members of your Lordships' House were interested in the general theme, but in a wider context, I was very ready, with the help of the noble Lord, Lord Terrington, to amend my original draft. This has the very great advantage for me that I can let my speech be as specialised as I wish, knowing that others will deal more effectively with the economic and social aspects without which few engineering projects could come to fruition.

We are still a great industrial nation. A high proportion of the wealth which we create comes from manufacture. In this activity, the engineer plays a very important part and therefore, in attempting to diagnose the cause of our ills, we must examine the state of engineering. We still have an enviable reputation for skill in technological innovation. Unfortunately, it is unevenly distributed. Our best firms are magnificent, but some are not good. There may be some reason for disparity between one industry and another, but from my experience and from my knowledge of the recruiting field, I am convinced that the overriding factor is the quality of the engineer at the top; the professional man responsible for design, innovation and enterprise. This, of course, contradicts the popular view that it is management that is important Apart from the fact that, in a successful manufacturing firm, the managers will be engineers, there is still something in what Emerson said: If a man make a better mouse trap than his neighbour, though he build his house in the woods, the world will make a beaten path to his door".

My diagnosis of the trouble is so simple that it should be easy to raise the efficiency of all to those at the top, but it is not so easy because there are not enough outstanding engineers to go round—and this despite the great expansion of higher education since the Second World War. The shortfall has often been blamed on Dr. Arnold and our devotion to the classics, but I am not going to look back further than the end of the First World War. Then perceptive industrialists, realising the competition that they were going to face from abroad, advised young men to go to university to read engineering and so be firmly grounded in the fundamentals. But the total output from the universities in those days was very small; so industry's needs, particularly manufacturing industry, largely was met from those taking up apprenticeships and getting their technical education the hard way, by attending evening classes at the local technical college.

It is not surprising, when you remember the rigours of that life, that many failed to reach professional status. But a reasonable number did; they became the backbone of their firms and provided much of the design staff. The usual small proportion—that is, probably not less or greater than those from the university entry—had the gift of originality. They became the innovators. They developed the new products on which their firm's prosperity was built, but these men had the great attraction to their employers that they knew their place. They stayed close to the drawing board; they did not aspire to the boardroom.

After the Second World War came the millennium—or that is what we who served on the University Grants Committee felt when we carried out the plan to provide full-time higher education for all who could profit from it—full-time higher education in any field a child chose from astronomy to zoology. We were solidly for academic and every other kind of freedom. One of our aims, of course, was to relieve those apprentices of the drudgery of night school. Some took advantage of this, but many did not. They merely avoided industry.

There were two reasons for this. The first was quite simple, but I do not believe that we saw it. This was the natural desire of those tasting higher education for the first time to rise in the world, as they thought. It is unfortunate that no one in industry, or even in the professional engineering institutions, had lifted a finger to ensure that engineering stood high in popular esteem. Far from telling the world of the importance and the thrill of innovation, the professional engineering institutions did not do what older professions had taken care to do—to ensure that their products were properly paid. Is it surprising that these aspiring graduates did not flock into industry?

The second reason was the extraordinary misconception which came out of the war that science had won the day, so that all that we needed to do in future was to pour wealth and brains into scientific research for prosperity of all kinds to be ours. So far as I remember, Sir Henry Tizard was the first to see this danger in 1948. Regularly down the years since, distinguished scientists and others have tried to put the record straight and have stressed the fact that the impact of science comes only from its application through engineering.

Sir Alec Cairncross, one time Government Chief Economist, said as recently as 1971, and I quote: Looking at Government policy towards innovation in Britain since the war, I am tempted to argue provocatively and dogmatically that the problem was misconceived. Post-war discussion was dominated by what were thought to be the achievements of science in wartime. In fact, these achievements were, in large measure, the achievements of scientists rather than of science and, what is more, scientists acting as technologists—that is, helping to produce military hardware. The necessary scientific knowledge was largely available before the war. It was the engineering know-how that had to be created". Of course, few took any notice of these authoritative statements. The damage was done. The schools decided that scientific research was the thing—following that comfortable bias against the useful of our society at large and of our bureaucracy.

The University Grants Committee became aware of these two developments, but a little late. They reacted in the only way they could, and quite honourably. They did engineering education rather well. It would be irksome to recount all that the UGC and others did under one Government or another—at least until 1974, when, again because of our inability to create wealth, the universities were very hard hit. Engineering education could not have been treated more generously. I am now glad to say that further support is coming again in the shape of enriched engineering courses and new industrial scholarships.

In short, the University Grants Committee looked after academic education and left the practical, professional training to industry, monitored by the professional engineering institutions. The quality of this training varies alarmingly from one branch of engineering to another—perhaps I should say from one branch of industry to another. No doubt the Government's Committee of Inquiry into the Engineering Profession, the Finniston Committee which was set up last year, will give this matter its attention. And I understand that the Committee of the Engineering Professors' Conference has some interesting plans for more integration of the academic and the practical.

I have been a little critical, mildly critical, of the professional engineering institutions for what they have or have not done for their members, but I will say this in mitigation: the professional engineer is a difficult fellow to help. I believe that he is the least mercenary member of our society. He is completely absorbed in his work and he hates any talk about status. Of course, this is highly civilised and attractively modest, but it does not help to refute the familiar accusation that he is a dull dog gracing a mediocre profession. This is tragic for the country.

It is difficult to compare one occupation with another without denigrating one or the other. All I will say is that the intellectual demands on the engineer that we are discussing—the innovator—are as high as those which are met with anywhere. Of course, he needs other qualities that are found elsewhere—courage and persistence—but what differentiates him from all others is his creativity. Of course, the arts call for creativity, but that is of a more sensuous kind.

Creativity is difficult to describe, particularly to a generation—I am not suggesting it is your Lordships' generation—so pampered that it takes our engineering marvels for granted. They no longer realise, to take a very simple example, that the machines on which their lives depend, literally, in the intensive care unit of a hospital or, more mundanely, when they are exported to provide food, have first to be conceived. That is something which I cannot explain to your Lordships. These machines have to be conceived and then designed in the most exact, minutest detail, fabricated to fine limits from the right materials at the right price, and put together; and then they must work. That they must work provides the stark discipline but also the immense satisfaction of the engineer's work. All of this applies to the vast, complex schemes of every kind for which the engineer is responsible. When they do not work there is disaster. It is not something you can push to the back of the bookshelf and forget.

What an inept people we have become! Not only did we make that inexcusable error that Cairncross described, but we continued for years living beyond our means without giving particular encouragement to those who could change this position, those educated and trained to develop schemes that work—schemes, incidentally, that create industrial wealth. One thing is certain: however much they created, whatever they were paid they would not be allowed to keep any of it. We should have been over-producing these people for years so that the surplus could have been used to run the other affairs of the country. We might even have had chief engineers and not chief scientisis in our Government Departments.

That outlines the position of the engineering innovator as I see it, and it is a very sad one compared with that of any other industrialised country in the world. I hope the debate will throw up some solution. i cannot see any easy one. I am told that the engineering profession is attracting reasonable support from the available talent; I doubt it. I know that at the top the quality, both academic and in every way, could not be higher. Of course, eventually our women will come to the rescue, bringing in new talent, but I am afraid that that is some years away. The only short-term hope I can see is that we should use our engineers more effectively and pick up some ambitious entrants from other disciplines who were misled by their schoolmasters before they realised their country's need. But to do this we must improve salaries and prospects for engineers. This is not an original proposal. It was made powerfully by the noble Lord, Lord Bowden, and others in an important debate on industry and society, introduced by the noble Lord, Lord Rochester, 16 months ago.

All I ask is that all firms emulate those which are most successful. It will not surprise your Lordships, though it may others, to learn that in what is probably our greatest industrial concern in the past ten years an engineer was chairman for four, and in that time a third of the 30 deputy chairmen were engineers. I believe that such emulation would have a remarkable and surprisingly rapid effect on engineering and engineering innovation. But I no longer have any faith in exhortation, only in example. The record of your Lordships' House is good. It is reassuring to see so many engineers down in the list of speakers; it is delightful to see that there are to be three maiden speeches and I welcome the noble Lords who are to make them. We look forward to hearing their contribution to our debate. As I have said, our record is good. We have a large number of engineers in the House covering a wide range of experience. Would that this were so everywhere! We shall not be able to feel confident of the nation's economic wellbeing until a high proportion of the brightest children from all families, including, of course, your Lordships' families, aim for a career in engineering. My Lords, I beg to move for Papers.

3.14 p.m.

The Earl of GOWRIE

My Lords, I very much welcome the Motion before us, not least because it was tabled, and if I may say so has been quite admirably introduced, by a Cross-Bench Peer. The Motion requires us to attend to the encouragement of enterprise, and we on this side of the House believe this to be specially important. Much of our own thinking on economic policy depends on the need to encourage enterprise. The Motion also gets to the heart of the matter for Britain in the late 20th century, which is how to stimulate efficient industrial growth to service our social and cultural needs. If I may put it this way, it is welcome as a cake baking rather than a slice distributing Motion.

I am rather afraid that over the next few months, for reasons quite beyond the control of your Lordships, it is unlikely that this question will be raised in quite such calm and rational tones as we have heard from the noble Lord, Lord Baker. Therefore I congratulate him for giving this unelected House the chance to debate matters which elections, for all their myriad other attractions, tend to obscure; and indeed for attracting three fine maidens whom we all look forward to hearing. I am also very pleased that the Motion has lured the noble Lord, Lord Melchett, back from Northern Ireland. When the noble Lord left the Department of Trade and Industry for the Northern Ireland Office we were pleased at his promotion as we have a high regard for his ability, if not for his attitudes. But his move stripped us of the single Minister in this House in an economic department. As I have often argued from these Benches, in view of the quality and quantity of economic debates, this is a gross dereliction of Parliamentary good manners and of Parliamentary good sense. We need to talk to each other in this House, arid of course we need to use our position to talk to the public. It seems to me that we also need occasionally to offer a little counsel to Ministers directly concerned with economic management--it is not as if they were getting along very well without it.

The noble Lord, Lord Baker, is an engineer and a Fellow of the Royal Society, so he has concentrated principally on engineering, and of course he was right to do so. This country has an immensely successful agricultural system, but even so it can feed only about half its population; so the other half depend for their food, let alone for the surplus of wealth which our domocratic and humane values require, on importing raw materials, adding value to them and exporting them as goods for cash. We built our surplus originally on agriculture, but for 200 years or more have depended on scientific and industrial skills for the surplus. This dependence has not altered in recent years, but, as the noble Lord, Lord Baker, has argued, maintaining skills to the scale of our needs has indeed altered and for the worse.

I was very interested to hear what the noble Lord said about the role of the educational sector in this matter. I was for 10 years, in America and England, a university lecturer; and in my latter post at University College, London, where my field was American Studies, I tried to persuade the English department, under which my discipline was supervised, to abandon English as an undergraduate discipline but to make it a requirement for all other disciplines, to promote ordinary communication skills. One argument I used for the necessity of this was that the literary magazine put out by the engineering department of the university was greatly superior to that put out under the department of English. I hope that University College is trail blazing in the same way still.

I do not want to fall into the bad habit of quoting myself, but in the interests of brevity it might interest noble Lords to know that two years ago we had a debate on industrial growth under the name of the noble Lord, Lord Rhodes. He took up some of the points cogently argued today by the noble Lord, Lord Baker, and responding to them I argued that able people in our community are attracted to success, or at least to the possibilities of success. Our educational elite, from whatever background it is drawn, overwhelmingly joins the successful service sectors, including the service exporting sectors of our economy.

I was particularly interested then in what the noble Lord, Lord Rhodes, had to say about the surplus of places at the present time in the scientific, technical and, above all, in the engineering fields in our universities. I went on to say in that debate: If I may echo (Lord Rhodes) briefly, I myself have just made an altogether private survey of what has happened to those who, in my view, were the 20 or so ablest people at Oxford and Cambridge 15 years ago. About a third of them are household names, mainly through work in journalism, television or the arts. More than another third are fulfilled and productive people in their respective professions.… Only one entered manufacturing industry (and he had a family connection) and only two of them live North of Bletchley. I suggested to my wife, who is German, that she do the same thing. About 10 out of her 20 entered industry. They are distributed all over the country in Germany, and most of them have post-graduate degrees".— [Official Report, 3/3/76; cols. 1023/4.] This decline, then, which the noble Lord has drawn our attention to, and which we debated also on that occasion, has taken place throughout the century, although the stimulus and desperation of two World Wars did ensure that we lasted rather longer as a major innovative Power than perhaps we deserved. But I would also argue that the pace of the decline is now accelerated. There seem to me to be a number of reasons for this. It is fair to debate many of them in political terms—I mean precisely in terms of political factors which determine the management of our economy. We should debate them in political terms, in terms of political choices. That is part of the job, which, as Parliamentarians, we are paid to do.

Therefore, I do not mean to shirk from politics, and I am certainly no CrossBencher. Nevertheless, there are also reasons which are less easy to translate into politics and so less easy to translate into action. There is, for instance, the decline of imperial preference in cheap food and cheap raw materials. The public, egged on by minority political opinion on both Left and Right, blame the Common Market. But given the pace of world growth since the last war, cheap food and cheap raw materials were an illusion as far back as two decades ago. We in this country simply used our last days of Empire to maintain a fools' paradise.

The country in which I myself grew up—the Irish Republic—has an immense food surplus, but it has not in recent years deluded itself that food is inherently an inexpensive commodity—it exports it, after all, to live—and that the debate about improving one's standard of living only starts after one has had four square meals in each day. Nor do our other partners and rivals in the EEC so delude themselves.

Then there is the accompanying decline of cheap energy. I think that the noble Lord, Lord Baker, might agree with me that cheap energy—first coal, when labour itself was cheap, and then oil and gas, as domestic labour costs rose—did provide a lot of the incentive for our development, in the 18th and 19th centuries, into the leading world engineering and manufacturing Power. Maintaining our Navy, and developing a quarter of the globe for its raw materials, was perhaps as great an incentive.

Both indeed came down to the same thing. If the energy to run machines is cheap, there are huge incentives, huge money profits to be made, in developing machines that can utilise that cheap energy to good effect. This surely is what mass production, mass marketing and mass communications were all about. That party is over as well, even though we ourselves, as a nation, are at a relatively favourable point where energy is concerned at the moment. The stuff is not cheap any more, for the time being, and what we do not need ourselves we do need to export.

As the last of these categories of change, which I like to think of as not in political dispute, I would suggest the decline of cheap labour. Cheap energy plus technical innovation create mass markets and mass communications and involve more and more people in the surplus of goods and their distribution. Their consciousness raised, to coin an appropriately American phrase since America has expanded further and faster in this regard than has Europe, many more people become involved in the political process than the pre-industrial world ever dreamed. Indeed, apart from anything else, technical innovation itself, in medicine particularly, saw to it that there were in fact more people. The pressure therefore on wage costs was relentless. It was contained in America because the market there was so large, and assured growth. It was even contained in Europe by the seismic upheaval of war, not once but twice, and of course wars between industrial Powers are global in their effects. It was contained in Britain by the survival of cheap food for much longer than was realistic, as I argued earlier. But, contained or not, the upward pressure on wages kept reasserting itself.

Where are we now? What is the net result for our country of the kind of forces which I have outlined? What political response should we make to such forces? The net result, it seems to me, is that we have entered a very dangerous and difficult phase of our economic history, and that is only to say of our history generally. In the 18th and 19th centuries all that cheapness—cheap food, cheap energy, cheap labour, the Navy, the chances for an educated middle-class to become as rich or richer than the old landowner—put us ahead of our world competitors. In the last quarter of the 20th century, dear food, dear energy, dear labour—or rather our failure to adapt to these increased costs—has put us behind our competitors. For while we may be partners of the European nations, we are also competitors. In all sectors of manu-facturing industry, except possibly chemicals, we are behind them. I am even gloomier on this score than the noble Lord, Lord Baker.

Then we are losing industry after industry to the Japanese. The noble Lord, Lord Melchett, has come to this debate from Belfast. He knows of the efforts there to sponsor a high-fidelity sound reproduction industry. What serious chance does that have on the home market, let alone on the export market, against Sony or National Panasonic? We may be able to live with Japanese cameras, or hi-fi equipment, or even television sets, but can we live with the Japanese drive in heavy engineering, with Japanese cars? The Japanese themselves are under pressure from the lowlabour-cost but otherwise Westernised economies in Northern and South-East Asia. If the Japanese are under pressure, where on earth does that leave us?

Then we share a language, and to some degree a set of social and cultural aspirations, with the Americans. Until very recently, at any rate, our technical educational system was better than theirs. But many of the best products of our system, as the noble Lord, Lord Baker, argued, have been able to find not just more money—although that is important—but greater involvement and greater freedom of personal choice by working in America, or by working for American companies abroad. There is no lack of eagerness to receive them.

In almost all fields, therefore, except in agriculture and the financial services, our exporting position is chronically weak. Nor has the decline in sterling helped exports in net terms since it has of course, accelerated price inflation. To maintain our living standards we have submitted our agricultural and financial sectors to intense strain. If the present high marginal taxation rates, plus capital transfer tax, continue, they will be under even more intense strain.

So while I would argue that their inherent strength and competitiveness will, for the moment, be able to take a certain degree of strain, it is alas! true to attempt to raise our living standards (as we feel we have a democratic right—indeed, perhaps a democratic duty—to do) we have inflated our currency. The consequences of doing this are apparent to everyone in the House, and I do not need to go into them. But I would just say that it is equally apparent that the consequences of inflation will ensure further deterioration in the productive and investing sector.

I am just as sure myself that inflation will be in excess of 10 per cent. next year as Mr. Hattersley is sure that it will remain below 10 per cent. this year. I am quite certain that it will remain higher than the rate of our principal competitors. It is an effective tax therefore on our exports, as the relative strength of sterling because of North Sea Oil does not enable us to produce for export more cheaply. If your Lordships doubt me, let me just say that 10 days ago we witnessed an additional export tax with the surtax on employer contributions. The present position, then, is not good, and all the indicators, as well as a smattering of historical and common sense, are that it will get worse. So what do we do about it? Where do we go from here?

Whether we like it or not we are going into a General Election, before or after next Christmas, as the Prime Minister's little joke has it. The Government's platform—very broadly but, I think, fairly—is as follows: They plan to reduce the rate of inflation, or rather stabilise it, primarily through the wages sector. They will do it by depending on what they feel to be their special relationship with the leaders of the trades unions. This is the reason that the Government is quite popular with the higher management of very large companies at the moment, although I believe that when the tax level and price side of the equation is fully appreciated any such popularity will disappear.

The price they will pay for this form of wage control or—to give them absolutely the benefit of the doubt, to see the problem in their own terms—the price paid for this level of wage influence, is not really in dispute between the Parties. There will be continued controls over dividends or profits, continued price controls, high standard rates of direct taxation, high general levels of social spending in response to the new Social Contract, lower levels of productivity as shorter working hours are traded off against wage claims.

My Lords, you will notice that there is no—and there will not be any—coherent programme of containing inflation other than through wages, nor any coherent programme set out in the terms of this Motion; that is the stimulation of growth. "Steady as she goes" will be the password, and, "More of the same", its echo. We heard at the last Election a great deal about a shift in the balance of wealth and power to working people and their families. I really think this will have to be re-examined. Working people will not get richer, because only growth and increased production can take care of that. They will in fact get poorer, since wages will bear the brunt of the inflationary burdens which the Government side of the bargain will impose. They will, however, have the doubtful satisfaction of seeing other working people—which is only to say all other people in the economy—get poorer as well, and if you think that is a partial view it has been recently noted by Mr. Peter Shore.

As for the shift in power, if it means the power of the union leadership to influence Government policies, that power has been with us since the 1930s. "Power to people" is a slogan which only has meaning in terms of one electoral system or another—and the existence of Elections is not in doubt—or in terms of the choice, people exercise with the money in their pockets. Where "More of the same" is concerned, I have frankly to say that I should almost prefer a sharp shift to the Left and the use of our 15-year supply of oil to rebuild our industrial economy from behind a fortress of import controls. But, quite apart from any moral objections to such isolationism, there would be the intense practical difficulties of continuing to depend on the export of financial services while building such a new industrial base. I have had a very interesting, and to me enlightening, private correspondence on this issue with the noble Lord, Lord Kaldor.

I think there is, happily, an alternative strategy, and it is interesting at least that even political opponents of the Conservative Party, with whom it is identified, are starting to take it seriously. Again I should like to mention Mr. Peter Shore and quote from a recent speech of his: Nothing would help the [economy] more … than the recognition of two major propositions: first, that there is far more real income and wealth to be gained for Britain by increasing its share of world trade than by any major change in group relativities secured by collective bargaining inside Britain itself; and, second, that when the share of profit has been reduced to whatever level is agreed to be necessary for financing further investment, wage and salary claims on what is left over can only be about the share of different occupational or bargaining groups in the total available for all such groups". It is a "softly, softly" strategy that we are putting forward, requiring much discussion and more than one Parliament, requiring persuasion and assent, but it is an inexorable strategy all the same. It is a strategy to put substantially more money into the hands of working people and their families and to make it substantially more worthwhile in money terms, to increase both the productivity of all workers and the international competitiveness of our goods. The instrument of such an alternative strategy is a relative shift from direct to indirect taxation. I say a relative shift, and one monitored in relation to productivity; not a shift at a stroke; in other words, one does it Budget by Budget. There are no "at a stroke" solutions to the British economy.

This alternative strategy is pay as you spend rather than pay as you earn. Those who are frightened that an increase in spending power means an increase in imports—the classic, and, to my mind, rather elitist objection to increases in take-home pay—should be aware of three points. First, a shift in taxation is, in terms of the Chancellor's share, relatively neutral; secondly, goods cost more and their purchase is more of an event so one saves for them; thirdly, spending sprees on consumer durables of the kind going on at present take place because people are not fools: they are stocking up against the rainy post-electoral day when the brakes are put on again.

If your Lordships think that the present state of affairs in the British economy is as satisfactory as it could be in the circumstances, you should certainly use your influence to help re-elect a Labour Government. I have not mentioned unemployment, because that is to be the subject of a Motion in the name of my noble friend Lord Amory next week, and because the consequences to employment levels of the present "steady as she goes" policies are clear to the 1½ million who are unemployed. Only by increasing production will we be able to afford expansion. All Parties are agreed on that. Where we differ is on the role of taxation as a stimulus to increasing production, or, as the noble Lord's Motion puts it succinctly on "the need to encourage enterprise and innovation in order to stimulate industrial growth." My Lords, as the moment of political choice approaches, I for one am heartened by the difference.

3.38 p.m.

Baroness SEEAR

My Lords, it had not occurred to me that today was the occasion to open a General Election campaign, nor shall we be initiating it from these Benches. I wish, however, to draw attention in this Motion, first, to the second section, which talks about the need to stimulate growth. There can be no question that we need in this country to have a far faster rate of growth than we have had over the last two decades, apart from an occasional hiccup here and there when there has been the seeming return to increased growth.

Increased growth would help us with our other major problems. It would help us, of course, with unemployment. It is difficult to see how, without increased growth, we can get out of the present morass of unemployment without a policy which would simply share around the poverty. it would help us with the improvements in standards of living that people in all sections of society are asking for, improvements both in public spending and private spending, but which are impossible without improvement in growth. And, perhaps, most important of all, it would enable us to move towards the restructuring of British industry without which long-term recovery is out of the question. That is the central point in fact of the whole issue which we discuss. Indeed, it is one of our major problems today that in order to deal short-term with the problems that beset us we continuously take measures which make it more difficult to make the changes which we need if we are to have long-term and sustained recovery, and growth is at the heart of our requirements.

The Government recognise growth, of course, and would very much like to have growth. Nothing would make it easier for them to go into a General Election—if that is what we have to talk about—than the evidence of rising growth in this country. But the fear, as we all know, is that growth stimulates inflation and the Government have said in my view, rightly—that the No. 1 enemy is the fear of inflation. So the problem boils down—and this is at the very centre of our discussion—to the ways we can find to stimulate growth while minimising the inevitable inflationary consequences; and every measure which enables us to get growth without increasing inflation must be a right measure to take, and, conversely, every time we take a measure which increases inflation without increasing growth we are moving backwards rather than forwards. I urge the Government to have the courage of their convictions, recognising that if they are going to solve this dilemma to get growth while at the same time minimising inflation—because I am not pretending that we can get it without some inflation—reducing inflation to manageable proportions, then indeed they must rethink a great many of their policies and be prepared on a number of matters to go into reverse.

In some directions the Government have already committed themselves to the policies they ought to be taking. The regrettable thing is the failure to realise that nothing is more inflationary than backing failure; nothing is more inflationary than to pour money into enterprises for which there is no value added. Conversely, every time an enterprise succeeds in raising value added we are moving in the direction of growth without inflation. Money spent without an adequate return is bound to he inflationary. It is here that so many Government policies have in fact been inflationary, understandably in the short-term desire to minimise unemployment, but in the longer term fatal. This approach goes back over both Governments, over a period of more than a decade in bolstering up those enterprises for which there is no future, instead of having the courage to move away from them and into the areas in which there really is a prospect of continuing success. It is not for the Government to bolster up enterprises which are doomed to failure. It is for the Government to help the people affected by the failure of those industries to get into occupations in which they really can make a genuine contribution to continuing growth. Supporting, and indeed at times encouraging, overmanning can do nothing but impede growth, on the one hand, and increase inflation on the other.

The Government have made some gestures in the right direction; for example, they have recognised that competition policy makes for efficiency and serves consumers best. As I understand the position, the Government are committed to an effective competition policy. This is a really welcome conversion from some of the previous statements that have been made by many occupants of the Government Front Bench, but how vigorously is this competition policy being pursued? We in this country are still hamstrung by monolopies and near-monopolies. It is true that we have a Monopolies Commission, but in most cases it takes no less than three years to get a monopoly report through the Monopolies Commission. This is not a criticism of the Commission—it is set up to work in this way—but if we take anti-monopoly seriously, if we believe in a competition policy, then we must make it a matter of first urgency to find more effective ways of cutting through the undergrowth of monopoly that besets us, so that we can embark on a really effective programme for genuine competition.

I know, that the Government are looking at this matter. I would ask the noble Lord, Lord Melchett, how far they are getting and when we are likely to know more about the steps which they propose to take in order to have a more effective anti-monopoly programme in this country. I greatly hope that whatever happens after the General Election, be it that the present Government are returned or that a Conservative Government take their place, this attack on monopolies and commitment to a genuine competition policy will be high in the list of priorities for the Government to pursue.

Secondly, it must be plain that we need to encourage success. It is no crime to be successful. Those who achieve, those who innovate, those who are enterprising must indeed be allowed to keep the rewards of their success. Competition policy implies risk-taking, otherwise it is only words. It implies that some will fail and others will succeed, and those who succeed must be allowed to reap the benefits of their success. In this country we have a tax system which makes it almost impossible for people to reap the rewards of their success. Even with the proposed changes in the Budget we have a situation in which at the highest level a man with no children but with a wife, if paid £40,000 a year, nets £16,824; if he is paid £16,000 a year, he nets £10,546, and if he is paid what is today's best estimate of average earnings, £4,500 a year, he nets £3,450. This means a ratio between average earnings for male workers, calculated from the age of 20 upwards in most cases, and what is paid to the most highly successful people in industry of less than one to five. I suggest that a tax structure of this kind simply does not reward success.

I have no desire to live in a society peopled with millionaires, but I think that is not the greatest threat which besets this country at the present time, and if a few more millionaires is the price we have to pay for growth then I, for one, am prepared to tolerate it. When one looks at those figures can one wonder why ICI is shutting Wilton today because of the artificers' earnings, since when they move into that level they reach a position in which they are already paying tax at a rate which gives them very little encouragement? Do you wonder that it is difficult to get people to take up engineering apprenticeships, which the noble Lord, Lord Baker, was asking for, when they see the rewards for the labour they put in so quickly minimised as soon as they move above a very mediocre average—mediocre, that is, by international standards?

I intended to say more on this subject but perhaps conveniently, and perhaps not, the Economist newspaper has almost done the job for me in this week's issue. It shows this country leading the tax level with a marginal rate—they say with a first rate of 25 per cent. But even with the change in taxation which is proposed in the present Finance Bill, if you add social security contributions, as you must, you find that a single man earning very little more than £40 a week moves into a situation in which he is paying back nearly 40 per cent. of his earnings. That is crazy. Of course, at the top level we have 83 per cent. It is true that we have indexed it slightly, but at the top level we fail to a ridiculous degree to compare with all other countries. Let us look at what is paid at the top level in some of the great social democratic countries: Sweden, 58 per cent.; France (which is hardly a great social democratic country, I would agree), 60 per cent.; West Germany, 56 per cent. These are the top levels which are having to be paid in other countries. Is it surprising that our younger men—the men who should be filling the jobs which we need to fill if we are to get growth—are simply not staying in the country?

A student of mine in his early thirties came to me not long ago and said that his company was moving him to America. I said to him: "I expect that it is worth your while". He looked at me and said: "In real terms I shall be five times better off". That is a most profligate use of the young men and women that we have trained in our universities, and surely it calls for a shift from direct to indirect taxation. The Government must know that that is what is required, yet they are so reluctant to do it. Why are they so reluctant to do it? The reason must be that they have made a totem of the retail price index, a totem around which Mr. Hattersley jogs once a week! Do your Lordships really believe that people are taken in by all this? Do your Lordships believe the argument that unless we get the retail price index falling week by week we shall not be able to control pay claims? Neither the trade union leaders nor their members are as foolish as all that. They want the money in their pockets—of course they do—and if they know that they are getting more money in their pockets they will not really cavil at an extra 1 per cent. on the retail price index such as an increase in VAT would have given, instead of the holding back of cuts in tax.

However, that is not the only point. We badly need to stimulate the opportunities for getting into new kinds of jobs. If the Government cannot do this, then we shall for a little while go on at the same level as we have at present; but then the situation will become worse. There is no half-way. We must decide either to break through, to back success and allow people to keep the rewards of their success, or to sink further and further back.

Not only do the Government need to make changes in taxation and competition policy. The fact is that for at least a generation and a half people have been growing up with a contempt for the wealth producing occupations. In this respect I echo what the noble Lord, Lord Baker, said about the attitude towards engineers. Apart from that, there is the scorn—and I use the word deliberately—that is often poured on people who go into industry "making the money" and "making profits", as they say. If only they were!

For three-quarters of my working life I have lived in a university atmosphere. I know how many young people come up to university genuinely believing that the right thing for them to do is to be concerned with the distribution of wealth—perhaps today they think it right to be concerned with the protection of the consumer, but hardly ever with the creation of wealth. As Mr. John Garnett of the Industrial Society once remarked: I cart find 50 young men and women who want to redistribute wealth for one who wants to create it". Yet the simple question of how on earth wealth is to be distributed unless it is first created, is never asked, let alone answered. How can we alter this situation? Indeed, unless we alter it, we do not have much hope for the future. People must begin to see that it is in fact a high calling to be among the wealth creators, and that these people—who take far greater risks than a great many of the rest of us—are worthy of our respect.

As I have said, I have spent three-quarters of my working life in a university atmosphere and one quarter in competitive industry. I know, now that I come to retire and look back, that I have had security of tenure for three-quarters of my life. I have an indexed-proofed pension and I have had total security. If I had stayed in the industry in which I spent the other quarter of my life—an industry which was subject to a high degree of competition; indeed many of the firms in that industry have gone bankrupt or face a very difficult future—I might or might not have earned a higher income from time to time. I certainly could not have been guaranteed as good a pension. I would have taken far more risks with my future by staying in the manufacturing industry than by going to the cloistered atmosphere of the London School of Economics. Yet many people would say that I did a far more respectable thing when I moved into academia. I do not believe it.

3.55 p.m.

Lord DONNET of BALGAY

My Lords, since qualifying for membership of your Lordships' House and having recently successfully weathered the hazards of my introduction, I have been aware of the need to take my next step towards full participation in the decision-making procedures of this House. I have spent many years in the service of industry and the trade unions. Those years have developed in me a sufficient awareness of the importance of practising self-restraint. Indeed, by now, I have been well instructed on the conventions of the House. My maiden speech today will be short and unprovocative. I must not become involved in political argument—at least, not today.

Like other noble Lords, I am, of course, greatly indebted to my noble friend Lord Baker for selecting a very important subject for discussion, and for initiating and promoting a debate on the attractive theme of enterprise and innovation to stimulate industrial growth, the fruits of which reflect powerfully on the collective standard of living of our British community. I should like to make a few comments about enterprise and innovation because I have spent the greater part of my working life advocating those qualities to trade unionists. I know, of course, that enterprise and innovation can be merely words upon which we can hang whatever homily we like. However, I am thinking about a clutch of personal qualities; not just brains, but effort, industry, single-mindedness and resolution. We need those qualities and we must encourage them. We must encourage their application to wealth creation, upon which our standards depend. Most of all, I challenge the realism of this because these qualities are central to improving our standards, and because to me enterprise and innovation imply not our past record but tomorrow's jobs.

As noble Lords will know, the standard of living is a matter of goods and services. If living standards are to be maintained and improved we need a larger volume of goods and services. There is diminished hope of meeting expectations in this area and in those of education and the social and welfare services without increases in our national output. The two main ways of increasing the amount of goods and services produced are, of course, to increase employment and to increase productivity. To boost our standards of living we must rely more than ever before in our history on our own productive resources.

This brings into relief the problem of how we, the 50 million-plus people confined within these small Islands, are to compete and secure for ourselves a rising standard of living in an increasingly competitive world. We need to practice and to utilise to the maximum our available material resources, still mainly imported, our labour skills, still highly thought of throughout the world, and our scientific and technical resources which are second to none.

It is in the employment area where we are suffering savage loss and waste. In the 1960s and 1970s we have seen the total labour force rising to over 23 million people, although it is now regressing. We have seen a shift of employment into service industry. In the past and present decades approximately 2 million jobs have been lost in manufacturing industry. Unemployment generally is running at a very high figure and even higher than average in my native Scotland.

That is the wrong background for productivity, and in that atmosphere it is difficult to secure the active co-operation of the unions and the workers who fear that to raise productivity will lead to further unemployment. Workers fear that they will work themselves out of their jobs. This fear is greatest where high unemployment already exists, and a worker who loses his job will find it hard to get another. If anything, I must have sounded pessimistic. If enterprise and innovation can help to project us into a more optimistic mood, we must give them all support and encouragement.

4.3 p.m.

Viscount CALDECOTE

My Lords, it falls to me to have the privilege of congratulating the noble Lord, Lord Donnet, on his maiden speech. He spoke from long experience of the trade union movement and industry, and I know that the whole House will agree with me that it was most refreshing to hear him speak with such sincerity and such wisdom on matters that concern us all and, indeed, which are closely related to the subject of our debate today. I know that we all hope that the noble Lord, Lord Donnet, will, in spite of his other preoccupations, come often to this House, and give us the benefit of his wisdom and advice, as he has done today. We all congratulate the noble Lord.

I know that we are all very grateful to the noble Lord, Lord Baker, for introducing this debate. I had the privilege of working for the noble Lord for six happy years in the Cambridge Engineering Department. It was, therefore, no surprise to me that he introduced this debate with such wise words and that he chose such a very fundamental subject. He dealt so well with the need for good training of engineers and the contribution of engineers and designers to our national prosperity that there is really no need for me to say anything more on that subject. Therefore, I should like to deal principally with two other facets of this problem.

An unhappy part of our national scene today is our very high rate of unemployment combined with our total inability to provide adequate resources for many things that we need: for a better Health Service, education, housing, the police and defence forces. The fundamental reason for this is the insufficient creation of real wealth to provide the required resources. Industry has been criticised for lack of investment in new plant and, indeed, from time to time the trade unions have used this as a stick to beat management, directors, the City and other institutions. However, after more careful analysis, through the evidence given to the Wilson Committee and through the analyses that have been made in the sector working parties at NEDO and in other ways, they have now seen that lack of capital investment is not the primary cause of our difficulties, though of course more is desirable.

At least as important is investment in new product design and development; in innovation, such as the noble Lord, Lord Baker, has drawn to our attention today. Already there is much spare capacity in industry. So what is the point of increasing that capacity? The sad fact is that Britain's share of world trade in manufactured goods has fallen in the last 25 years from over 20 per cent. to under 10 per cent. If we could make that up, we would have no unemployment problems.

Part of the reason for that is that the less developed countries are now making many things that we used to make and they are supplying them to us, and all over the world, at very competitive prices. What is the way out of this gloomy scene, where high unemployment is causing widespread misery, and in due time, as Mr. Scanlon mentioned the other day—I do not always agree with him, but I certainly agree with him on this—may well cause violence and lead to the breakdown of law and order?

First, let us be clear that there is no general solution to this problem. We shall be wasting our time and deceiving ourselves if we seek one. Certainly, an adequate supply of trained and competent engineers and designers—to which the noble Lord, Lord Baker, referred—is of paramount importance. As he has said, the best British companies are second to none in enterprise, management, innovation and skills. Large and small are making great contributions to exports and to our national prosperity. No doubt many of the best, especially the larger ones, could do better still if all working restrictions could be swept away. They could be more competitive and could create more jobs.

However, as those of us who work in industry know only too well, that is a very long job indeed. It involves better communications and understanding and, ultimately, changed attitudes. But it is rather sad to see a report this morning in the Financial Times that trade union leaders, gathered together to discuss the importance of creating more jobs, have threatened to withdraw co-operation on increasing productivity until better progress is made in curing unemployment. If that is not putting the cart before the horse, I do not know what is. Anyone working in industry knows the difficulties of this part of the problem, the frustrations and the need to persevere patiently on the course that the best companies are now taking.

Although such efforts must continue throughout industry, there are other things that must be tackled at the same time if we are to regain a bigger share of world trade and create more jobs. There are two areas of special importance and both are closely related to the subject of today's debate, the encouragement of enterprise and innovation. In both these areas I believe that we desperately need some new initiatives, for up till now little progress has been made in stimulating industrial growth. The first is with regard to enterprise. For example, let us take small companies. About 1¾ million people are employed in some 96,000 small companies employing less than 100 people. If, on average, each of those small companies could employ two or three more people, we should make a big dent in the unemployment figures and at the same time should create much more wealth.

But that is not all, for the formation of small companies is the very foundation of national prosperity in manufacturing industry. Great companies today, well-known companies, started as very small companies not very long ago; perhaps 25, 30, 40 years ago. Most small companies are family owned and managed, and so they have a big incentive to be prosperous and to grow. But the fact is that their expansion and their formation, too, is being frustrated, in three main ways. High taxation leading to lack of finance for expansion is sapping their initiative. This has already been referred to by previous speakers in the debate. Secondly, there is excessive legislation, form-filling and bureaucracy, which diverts a vast proportion of effort in these small companies into non-constructive activities. Thirdly, specific Acts, such as the Employment Protection Act, increase the already high risks of small businesses.

Some of your Lordships may have seen a letter to the business section of The Times a few days ago in which I think six chairmen of small independent companies referred to the enormous number of Acts about which they had to be very knowledgeable and which affected employment in their companies. They cited 18 Acts involving employment legislation; eight of them enacted within the last five years. I would add that in taxation since the war there have been 23 changes in the systems of industrial taxation—not in the rates, but in the systems of industrial taxation—compared to two in Germany. Can we wonder that small companies particularly, with their limited staff, find the pressures and problems of dealing with this mass of legislation almost overwhelming? They are all major disincentives to the formation and expansion of small companies.

I appreciate that the Government have recently shown that they have some understanding of the importance of small companies, but I do not believe that we can expect anything really effective to be done with the present Government in power, because Socialist egalitarianism is all against allowing successful entrepreneurs, and those who own and create small businesses, to become rich through their own efforts. I believe that this is a fundamental problem at the moment.

There is all too little understanding of the risks undertaken by small companies; particularly of the risks of new product development. The penalties for failure we see exacted in bankruptcies, and forced sales of those small companies. But the rewards for success are largely taxed away. Innovation and new product development is a risky business. If you spend £100,000 on developing a new product and you have made a mistake in the market, or in the technology of the development, you have a pile of scrap which is of no value to anybody at the end of the programme, and not many bankers will lend you money for that kind of work.

It is quite different if you invest in new plant, or new buildings. You have an asset. Even if you have made a mistake in the purchase you can still sell it for something near its original value. For that reason, the kind of risk capital needed for new product development, particularly in small companies, is hard to come by. In spite of the very successful activities of ICFC—and I give my respect and congratulations to the noble Lord, Lord Seebohm, for all that he has done in this sphere—and of Equity Capital for Industry, and special companies which have been set up by banks and institutions to provide risk capital, there is still a shortage of real risk capital for small companies with no track record.

The reason is clear; all these institutions hold money as trustees for other people, and it is only if you are risking your own money that you can take the ultimate risk. Sir Harold Wilson has called attention to the need for "Aunt Agatha" with a bit of money to spare and who would like to invest it in her relation's small companies. If she loses her money she will not be on the rocks. If she makes a success of it, it will be great fun and she will have helped her nephew.

However, even if she has that money, is she wise to invest it? I heard recently of a man who did have some million pounds to invest in this way because he had just sold a small company to a bigger one. His accountant advised him on no account to put it into a small company. "You will be taxed to the hilt as unearned income on what you get out of it, and you may lose the lot if the company goes wrong". This is not the climate to encourage innovation and risk-taking.

The evidence from the past is clear. When Britain was the workshop of the world, taxation was low and incentive was high. New companies were starting every day, and there was no shortage of risk capital. These small companies create and provide enormous opportunities for increasing employment but, as I say, I do not really believe that there is any chance at all of progress in dealing with these problems today under a Socialist Government, because their powerful Left Wing is in principle against allowing people to become rich through hard work and enterprise. But the damage done to our national prosperity by such policies really needs to be understood and emphasised.

The second area requiring initiative is in innovation. Again, the best British companies are successful and they devote big resources to design and development of new products, but we desperately need to raise the standards of the others up to the best; to encourage more to trade upmarket where the less developed countries cannot yet compete, and to develop new products which are able to compete effectively with imports. The noble Lord, Lord Baker, has indicated some of the problems of innovation and design, the success of which is fundamental to industrial prosperity. As I have said, innovation is risky and it is expensive. In an ideal situation, the cash flow from past success produces the finance for the next innovation, but the fact is that external conditions of world trade and restrictive internal policies on taxation and industrial relations have sapped the ability of many companies, large and small, to develop new products.

There is a desperate need to prime the innovation pump until the return to policies favourable to enterprise and risk-taking produces results. The difficulties are very large. New products must be developed to meet market needs, not in vacuum. They must be designed in close association with manufacturing methods, and any proposals that may be made which appear interventionist will he resisted. But experience available in the Design Council, of which I have the privilege to be chairman, has indicated that there is a place for an external agency to advise and stimulate design teams. With clear objectives, co-operative intervention of this kind has been shown to be successful and constructive. Two hundred firms are now paying the Council £100 a year for membership of the Design Advisory Scheme, and it has only been going for 18 months and is still growing. Much more could be done with some more money, and I shall deal later with the source of it.

The present schemes run by the Department of Industry, for instance, rely mainly on companies to take the initiative in suggesting proposals which might be financed. I believe that something more dynamic is now required if we are to make progress, but it must not engender a reaction against intervention. I believe that a valuable new stimulus could be given to many firms by offering substantial financial support for design and development of new products on specific terms. First, the company must be competent to do the work and exploit it in the market place. Secondly, the products identified as meeting market requirements must be involved particularly, I suggest, in import substitution.

Mutual confidence is vital in such a scheme, and I submit that the Design Council should be given the opportunity. It has no political axe to grind. I believe it would not engender any opposition on the grounds of intervention, for it has already won the confidence of many parts of manufacturing industry. I submit that the Design Council should be given the opportunity to run such a scheme on a pilot basis to see if it would work. The Council has the detailed knowledge and experience of problems of innovation through its design advisory service. It is already in close touch with the Department of Industry and NEDO. A pilot scheme could easily be set up and I hope it will be given a try. It could grow into a major contribution to creating employment and industrial growth, and surely there could be no better use of North Sea oil money than that. If too much has already been committed, there is no doubt that it would be better to divert some of the money that is now being used to prop up declining industries into the creation of new products for growth industries.

So I submit there are two areas where urgent action is needed; first, the stimulation of enterprise, particularly in small companies, by removing restrictions and through new policies, though I do not believe much will be done until a new Conservative Government are elected. However, before then, a new initiative could be taken in the sphere of pump priming in innovation, to which I referred. As I said earlier, there is no general solution to the problems of industrial growth and creating more employment. The noble Lord, Lord Baker, drew attention to the vital importance of the supply of trained engineers and designers. The two suggestions I have made would, I believe, help to get the best out of those people and out of the creative talents of the British people.

4.22 p.m.

Lord CROHAM

My Lords, in speaking to this Motion I feel a particular, I might say extradordinary, need to seek the indulgence which your Lordships customarily give to maiden speakers: I have for so long been hound by a tradition of silence which leaves all public speaking to others. Much of my working life has been spent in assisting in Government with what is sometimes called the management of the economy. I confess that I felt more certain in 1947 that I knew how industrial growth could be stimulated and unemployment reduced than I feel today, and I believe there are many others who have been forced by experience to have greater doubts about what can be achieved by the manipulation of fiscal and monetary policy and even by some of the so-called incentives for investment. However, I have not the slightest doubt about the vital importance of enterprise and innovation for this and all other economies.

Nearly 50 years ago one of the most influential thinkers of the 20th century wrote: It is enterprise which builds and improves the world's possessions … If enterprise is afoot, wealth accumulates whatever may be happening to thrift; and if enterprise is asleep wealth decays, whatever thrift may be doing". I am sure many of your Lordships will already have identified the author of those words; they were written by John Maynard Keynes in 1930.

Without enterprise—enterprise in all activities, both public and private—wealth will certainly not increase and without an increase in wealth it is very difficult, if not impossible, to increase welfare. But we may have to look at a new definition of both "wealth" and "welfare". for it is highly improbable that the world's wealth can go on increasing without stop if that means increasing the output of those products of industry which satisfy the consumption pattern of Western countries today. The standard of living of the West requires a large and disproportionate use of materials and energy.

For instance, broadly speaking the energy consumption per head of the United States is twice that of the EEC countries, which, in turn, is about five times that of Latin American countries and about 20 times that of countries like India and Pakistan. The world supply of energy and raw materials will fall far short of what would be needed for an increase in the living standards of the West on present patterns together with even a limited move towards that kind of consumption by the developing countries. That is what I mean by saying that wealth and welfare will need a new definition in the future world. And if that is so, the need for enterprise and innovation will be vastly greater than anything hitherto contemplated.

There are other factors impelling massive changes in the United Kingdom economy and other economies like it. The pace of technological change will be extremely rapid in many industries with the development of the new micro-technologies. We are lagging in this field in this country. In addition, the competition of the threshold countries, to which the noble Earl, Lord Gowrie, referred—those former developing countries who have begun to develop major manufacturing industries—is threatening the contraction, if not the extinction, of many industries in the West. Thus, we need to develop, and to develop against the clock, new products, new industries and new services if we are to survive as an industrial nation. That will not happen without a great deal of enterprise, innovation and risk-taking in the public as well as the private sector. The most significant industrial revolution is still to come. All enterprise risks something and will not be forthcoming unless the reward of success measures up to the risk. What is risked is not always money. Where it is, enterprise will not be encouraged without an adequate monetary return. But enterprise of the scale we need will require many people to take risks, and not all will be risking money; it may be reputation, it may be a quiet life or it may be risking a short-term bargaining position and taking a chance on being treated fairly if the enterprise succeeds. Enterprise is not the monopoly of the so-called entrepreneur, vital though that function is for our economy. Enterprise is the attribute of anyone in our society who sees the possibility of stopping something going wrong or of doing something in a better way and who is prepared to act about it. This is, of course, only too often likely to be resented and opposed rather than commended and rewarded.

Some innovators are motivated mainly by the desire to see their ideas put into practice and to receive praise for them. But we have to accept that innovation and enterprise will not be forthcoming on a sufficient scale without reasonable monetary reward, especially when we are considering enterprise at the level of the firm. It is a paradoxical feature of our times that enterprise in manufacturing industry is far less likely to be adequately rewarded than enterprise in other fields. Perversely, the reward for much industrial innovation is greatest if the innovator sells out rather than continues in the business. Moreover, while the rewards of successful risk-taking in industry, whether profits or high pay, are frequently attacked as immorally high, much higher rewards to popular entertainers are not resented but admired. Again, one can contrast the quite different treatment given to the returns on risk-taking in industry with the treatment of the gains from gambling.

I do not regard enterprise and innovation as being required only in industry or as being in industry the monopoly of only a section of it, though a very heavy responsibility for enterprise and innovation in our economy must inevitably lie in industry and with senior managers, designers and engineers, but major periods of innovation have occurred only when there has been a welcoming attitude to change which permeates the whole of society. In these days many innovations in manufacturing, for instance, have no hope of succeeding unless they have the co-operation of the work force, who need to be convinced that employment is more at risk if innovation is obstructed than if it is carried out.

It will not be easy to overcome fears in those of our industries which are overmanned, and which are facing intense overseas competition. Yet it is in these very industries that enterprise and innovation are most needed if the industries are to survive at all. We cannot either increase growth or sustain employment by hanging on to overmanning, let alone by increasing overmanning. Without enterprise and innovation, our wealth will decay. My Lords, I should like to end by expressing my gratitude to the noble Lord, Lord Baker, for initiating this important debate. I should like to congratulate the noble Lord, Lord Donnet, upon overcoming a similar hurdle so successfully earlier this afternoon.

4.31 p.m.

Lord THOMAS

My Lords, it falls to be my privilege and pleasure to convey three messages of thanks and congratulations. Two of them are to the two maiden speakers, Lord Donnet and Lord Croham, who have contributed so ably, thoughtfully and forcefully to the debate, and I hope, and expect, that we shall hear more from them in terms of their wisdom and judgment based on their experiences. Thirdly, I am sure that I convey the feeling of the whole House when I express our gratitude to the noble Lord, Lord Baker, for introducing the Motion today. It gives us an opportunity to air our views on the need for stimulation of industrial growth and enterprise. I am sure that all your Lordships agree that that need is self-evident. The noble Lord has confined himself to a comparatively narrow sector of the subject, in both the terms of the Motion and in what he has so cogently said. I was very impressed to hear him make a reference to Emerson which, badly paraphrased, was to the effect that whoever invented a better mousetrap would have a path-way beaten to his door. Equally, I am sure that the noble Lord will agree with me that it was Emerson who said that any organisation is but a lengthened shadow of the man at the top. I hope that one of the outcomes of the debate will be to make it easier for people to get to the top, and to live in prosperity.

I propose to draw attention to the decreasing gap between the work wage and the non-working awards that are available today. In other words, I wish to suggest that the differential between the amount of money that is earned by working, and the allowances that can be obtained for not working, are far too narrow nowadays. Surely that narrowing gap takes the keen edge off incentive and dulls the energy, initiative, and inventiveness of those who are willing, and in most cases anxious, to earn their money. It is all very well for some people to say that the strength of trade unionism and the organisation of labour has over-swung, and that nowadays there is too much influence on the shop floor. However, I put it to your Lordships that it is equally wrong to say that all management is lax and biased, and that it has bought industrial effort at too high a price and has not concerned itself sufficiently with getting full value for the money that is paid out in wages.

The facts of the matter are quite plain to see, both statistically and by general observation. The best information that I can currently obtain is that the average working wage increased 2.8 times between 1965 and 1975, and between 1966 and 1976 increased 3.1 times. In broad terms, this means that in about 15 years the work wage has risen four-fold, but the non-work wage—the allowances—has risen six-fold. In the meantime, prices have gone up three and a half times— and that reduces the standard of living—and the real work wage has risen only 14 per cent., which is less than 1 per cent. a year. On the other hand, the non-work reward has risen 77 per cent. So no wonder there is a stagnation of energetic output, and employment falls.

To emphasise this point, let us consider that in 1976 the average weekly earnings for males in industry was £61.18p. If one assumes, reasonably, that there was a 10 per cent. increase in 1977, that figure would be roughly £67 a week. Now, a man on this kind of salary, or wages, would pay £3.13 for National Health insurance, probably £2.50 for occupational pension contribution, and tax of £11.35. This would give him a take-home pay of roughly £50.

If he were unemployed, he would receive £29 unemployment benefit, and earnings-related supplement of about another £10, giving him a total of almost £40. To that there needs to be added the equivalent of such benefits as rent rebate, free school meals and the ability to report to the social security officer and to demonstrate this need. Of course that entirely overlooks the possibility of his picking up a few untaxed pounds in pay for cleaning windows, for picking potatoes or for a little casual gardening, for which he will be paid in cash, and which will not go through any books. One then sees how the difference between working and not working is most unattractively eroded.

I should be the last to advocate cutting down working wages. I believe that every worker is well worthy of his hire, and indeed the higher the skills that are exhibited, the higher should be the reward. However, I passionately feel that steps should be taken to increase the differential and to make the incentive to get him to hold a job greater, and not less, as time goes on. We are given all kinds of statistics almost daily from the Government and from the Opposition. The financial wizards tell us in the media all about the productivity per person in this country and in other countries. These figures are sometimes conflicting, sometimes impressive, but they all lead up to the salient fact that as a nation we are not earning our keep sufficiently well to maintain our place in the international market.

There is another disincentive to effective and efficient work; namely, that the benefit paid to out-of-work people is related, to a degree, to the wages that they were earning, and so the higher the wage of the job that they left, the higher is the rate of allowance. The idea that a man or a woman must be offered a job which gives as high a wage as the one that he or she last left, is also a disincentive to effort. It really means that market forces in the accepted sense of the term cannot apply effectively, and that there is little or no encouragement for enterprise and innovation on that scale that both Lord Baker's Motion and general opinion agree is needed for industrial progress and prosperity in this country.

During my 50 years' practical experience in industry I have found that this state of affairs also has the effect of militating against the production of goods of increasingly high quality. We all know that the fear of the sack is brutal and antisocial. However, the fact remains that a man can know that if he becomes unemployed—possibly because the goods that he produces do not find a market, and not as a result of any emotional or social situation in the factory in which he is employed—he will be able, after a period of redundancy (for which, incidentally, he will be amply rewarded), to find another job at as good a rate, or even at a higher rate than he has had in the past.

Another effect of this state of affairs is that people simply do not want to have what are commonly known as "skilled jobs." Members of this House may be surprised to know that while overall unemployment in the country is high, there is a very acute shortage of highly trained engineers. Companies which have efficient and very expensive training schemes, find that a number of the trainees, when they qualify, simply do not take skilled jobs. They prefer the flexibility of work in unskilled jobs. What is more, the high rate of taxation on the wages paid for skilled jobs makes skilled men feel that they are not really getting a proper reward, and that the tax gatherer is taking far too great a share of what they earn. I can tell your Lordships that out of 1,400 trainees who were put through a course by one of our larger industrial companies, which required 400 skilled engineers, no fewer than 1,200 simply did not apply for the vacancies. Some went to Saudi Arabia for highly paid, untaxed jobs and some opted to go for unskilled jobs, thereby putting unskilled men out of work. Admittedly, they received a lower rate of pay, but, equally, there was for them a far lower rate of taxation; and so only a mere 200 became available to the company.

The demand for skilled engineers is extremely acute these days. Britain recently introduced a very successful high-speed train. These trains are increasingly both in use and in demand. However, the rate of production is woefully restricted by the insufficiency of engineers at the railway building shops in the Midlands, and elsewhere. In other words, the climate of attraction in British engineering is poor for growth of the kind that we want to see. School-leavers are not attracted to what they imagine to be the dark satanic mills of the machine shops or the assembly lines of industry.

These young people prefer to be television salesmen, where part of their reward is in cash, untaxed, and where they get all kinds of other advantages such as a motor car on the firm and an entertainment allowance for customers. These occupations are not really productive so far as gross national production is concerned, and how very much better it would be if there was a working climate in which energy was directed towards inventiveness. Then, after an invention had been made, shaped into hardware and a prototype made and tested, the engineers would produce productive processes that were thoroughly developed, and aids would be given to the workers on the shop floor to make the product modern, stylish and, above all, promptly delivered, with them being in a position to earn still better wages. That is where a nation can get into realms of true prosperity.

Debates of this kind should be constructive as well as critical, and in a very few words I will conclude by saying that the Government, this Government or any other Government of this country, should look to the question of the relationship between wages for work well done and rewards for not doing any work. It is not a difficult situation. Wages will inevitably rise, but that need not mean that alterations cannot be made in the scale of rewards and unemployment and allowances. Frankly, unrealistic welfare can well be overdone, and too much of it takes the keen cutting edge off national ambition. The other step I suggest is the lowering of taxation of wages of the skilled workers and of the technicians. As the noble Baroness, Lady Seear, has so cogently and effectively said from the Liberal Benches—I wish she were here now—there really should be more financial inducement for creative engineers: creative either in initial inventiveness or in productive processes that lead to better and more attractive British products in the markets of the world. I heartily support Lord Baker's submission.

4.42 p.m.

Lord PLANT

My Lords, it gives me great satisfaction to take part in this debate alongside two other noble Lords who are making their miaden speeches. It gives me satisfaction to speak on the same afternoon as my noble friend Lord Donnet, with whom I served on the General Council of the TUC for many years; and also as the noble Lord, Lord Croham, who in the last few years has done a great deal to improve relationships between the official and staff sides in the Civil Service by giving great impetus to the Whitley system—a system which I think could well be copied by many parts of industry.

In the last few years I have taken a more active part in the governing body of the International Labour Organisation in Geneva, and it is through that organisation that I have seen some of the difficulties of workers throughout the world, and perhaps how fortunate we in this country are in many respects. Of course, no country is an island in the competitive society of the world. The transnational companies are spreading their tentacles wider; and, of course, 20 per cent. of the United Kingdom companies are foreign owned, two-thirds from the United States. Against this background it would be too easy to say that we could put some of our difficulties right by import controls. I was at the AFL/CIO Convention in Los Angeles last December—that is the American TUC—and George Meaney, their president, issued words of warning that the American Government were exporting too many of his members' jobs. He wanted a wall of protection against the export of jobs, and his finger was pointed at transnational companies. It is state- ments of this kind that are being made in various parts of the world of which we have to take some note.

There are 1,000 million people in the world existing on less than 200 dollars per annum. There are 300 million totally unemployed, in grinding poverty. We must bear in mind that there are 18 million unemployed in the Western democracies. By the end of this century—and it is approaching fast—there will be 1,000 million more people for whom jobs have to be created. In 1976 the International Labour Organisation, with some monies provided from the UNDP, mounted a world employment conference. It was tripartite. The advantage of the ILO is that the workers have an equal voice with Governments and employers. That conference was a success.

I believe the British Government should reactivate this conference, because I believe that we should not be seen to be looking after ourselves but should have some concern for improving the living standards of everyone in the world, and in turn improving our own. The ILO has studied the economic development of countries, and has offered advice. The organisation is a caucus of knowledge about development strategy. It occurs to me: Why should not some developed countries, such as our own, invite these experts to look at us to see whether we can learn anything at all from their unprejudiced advice? To inspire people to greater effort and to motivate them is one of the great problems we face today, and this theme has been running through most of the speeches we have heard from noble Lords so far. I am not sure that we have put forward any solutions.

To put a slightly different slant on motivation, in 1967 I was invited to go to India to endeavour to suggest to the Inland Revenue staffs in India that they would raise their standard of life if they embraced computers. I was very naïve to undertake such a visit. When I landed at Bombay Airport with my wife we were garlanded with flowers, but my wife was somewhat disconcerted to see the first placard, saying, "Plant go home". The second placard said, "Computers in—millions out". Then I realised there were 45 million unemployed in India, and they had little use for computers; they still wanted the quill pen. Of course, today there are 80 million unemployed in India. By the way, the third placard said, "Britain devalues".

To be more parochial, production is our Achilles' heel. I accept that. I think we all accept it; and yet we have to explain why it is that we export £200 million worth of goods to Detroit, one of the homes of considerable production. I believe that the high turnover of labour hits production more than the strike weapon. In one period last year 60 per cent. of skilled workers left undertakings for more money. That may be a way of contravening wage restraint. The lack of understandable differentials means a bleeding of skilled workers. We need more motivation. Will tax differentials give this motivation? It may do so, but I believe we have to start, as so many noble Lords have said, with education. I think that some impetus must be given to the educational system, because going into industry should not be the second-rate job which some schoolmasters seem to present it to be. You are only a success if, as the noble Baroness, Lady Seear, said, you go into academic fields, the professions, the Civil Service, local government: if you have to soil your hands in industry, you are a failure. I believe that we must get away from that and, until we do, we shall not motivate people.

Our industrial relations have improved tremendously. Of course, there are headlines in the newspapers whenever there is a strike, an unofficial strike, or a downing of tools; but the situation is nothing like as bad as it is painted in some parts of the media. Our problem is with equipment and managerial skills. Ninety-eight per cent. of our workshops are free from disputes; the 2 per cent. cover the large concerns—which seems to indicate that "bigness is not best". We have many advantages, environmental and others, in the United Kingdom: the seas surrounding us, fast-flowing rivers, good communications and political stability. But, of course, we paper over many of our crack in relation to unemployment and ours current difficulties with job creation, premature retirement and the like. Here I would say that it would be wrong for the Government to consider that those who, unfortunately, are unemployed should not receive adequate payment in order to keep body and soul together. I think the National Enterprise Board should be used more. I am glad to see that it is allocating £50 million for microelectronics. As the noble Lord, Lord Croham, said, we are sadly lacking in this field of industry. This is going to be one of the areas where the inventive British can make a considerable contribution. I think the stimulus centrally from the Government can do only a great deal of good.

Many United Kingdom employers complain at the amount of legislation. I realise, as does my predecessor as General Secretary of the Inland Revenue Staff Federation, my noble friend Lord Houghton, all the extra legislation there has been in the last few years on taxation—a growing industry. But many United Kingdom employers have complained at the amount of legislation over a wide field. But in the United Kingdom we are not the pioneers of this legislation, we have followed the practice in Europe and, in fact, we have a long way to go to catch up with many of the Acts and much of the legislation now in force in parts of the EEC.

I know the difficulties that employers have—and the smaller employers in particular. I sympathise with them greatly. I believe that when companies have issues referred to the Price Commission, or the Monopolies and Mergers Commission, it takes a great deal of money, scores of thousands of pounds, to defend themselves or to put their point of view. But, more than that, it takes the time and energy of managing directors to do this. I think that matters of this kind clearly must be examined. Small businesses are in the majority so far as numbers are concerned in this country. There is a move now that small businesses should be greatly helped. I agree with this. There must be tax concessions in CGT and in CTT. I believe that the Export Credits Guarantee Department must give more help to small businesses in order that they shall export and there should be easier loans from the Government to enable them to expand business and to help them take the risks which have been mentioned.

My Lords, in this country over the last three years the workers have helped the country and the Government and, in doing so, have reduced their own living standards in order that inflation might be brought under control. Worker participation is something that has to come. The workers must be identified with the policy of the firm they work in. The workers are not investing their money in the firm; they are investing their lives in the firm, and therefore they must have a say in the future policy of that company. Shorter hours and such things are all issues which will be talked about in Stage 4. On the question of stopping overtime, if it were stopped there might be no unemployment but the price of goods might go up; I do not know. But worker participation is one of the issues which, I believe, has to be given greater understanding and it has to be investigated more, in order that both sides of industry can feel that they are on a firm basis to progress further in the struggle that lies ahead.

4.57 p.m.

The Lord Bishop of ROCHESTER

My Lords, it is comparatively rare in this House to hear a hat-trick of maiden speakers on the same day. I am sure all would agree that it has added greatly to our debate this afternoon. I count it a special privilege to follow the noble Lord, Lord Plant. I should like to say with what interest we have all followed his wide-ranging speech and how much we have appreciated his contribution to our thinking. I particularly valued and was grateful for the international view that he brought to our discussion this afternoon. The noble Lord, with much greater courage than many of us, has made his maiden speech within ten days of being introduced. I hope that we shall here him on many other days as well.

As the ninth out of 18 speakers, your Lordships can, with some justification, look for a half-time break. I venture to try to provide this albeit with some of the same trepidation as the opening speaker. I am sure I am not alone among Members of your Lordships' House who are grateful to the noble Lord, Lord Baker, for initiating this debate because we are concerned that our country shall be strong industrially and financially, so that it may the better play its part in helping create economic wealth in the developing countries. The interdependence of mankind is something that is brought home to us more and more as each year passes, as, I believe, is the truth that the rich and the poor need each other and that both have a vested interest in helping each other in the years that lie ahead.

At a meeting of Commonwealth Heads of Government in 1975, the then Prime Minister, Sir Harold Wilson, announced that the British Government fully accepted that the relationship, the balance, between the rich and poor countries in the world is wrong and must be remedied. Five years before that, the United Nations agreed that all the rich nations should contribute 0.7 per cent. of their gross national product to official development assistance. This target has never been met; nor does there seem to be much prospect that it will be met without a change of heart by the rich nations. In 1975, we in Britain allocated 0.38 per cent. of our gross national product to Third World aid, and last year the proportion decreased rather than increased. Meanwhile, the lot of the poor is bad and gets worse, and sadly there is an accelerating gap between rich and poor.

This is a matter of deep concern to many people of all religions and of none. It is particularly offensive to the Christian conscience, as the remarkable response to the endeavours of such agencies as Christian Aid clearly shows. The very complexity of the problems is such that the ordinary person who feels helpless, so far as influencing Government or international action is concerned, tends to fall back on voluntary aid hoping that his money will enable processes and programmes to be inaugurated by the international community so that people may be helped to help themselves.

The successes of voluntary aid come about because sometimes a very small amount of aid can generate very impressive results. A tiny loan of only £300 to a village co-operative in South Vietnam some time ago gave rise within a couple of years to such substantial growth and such success that it was generating an annual turnover in excess of £26,000. But the shortcomings of voluntary aid are that it is but a drop in the bucket, that it cannot provide in sufficient quantity the means of enabling developing indigenous people to stand on their own feet. Too much voluntary giving has to go in relief or salvage work rather than in the creation of wealth and prosperity.

Our concern to encourage enterprise and innovation in order to stimulate industrial growth in this country must go hand in hand with the concern that the riches of the world may be distributed more equitably throughout the human family. The interdependence of mankind—as the noble Lord, Lord Plant, suggested in his speech just now—means that not only are the poor countries dependent on the richer countries for initiative and investment, but also that the comparatively rich countries, such as our own, are dependent on other nations, as we are for 50 per cent. of our food and 70 per cent. of the commodities used in our manufactured goods. If mankind is to survive, then the bearing of one another's burdens becomes essential to share the resources that we have and to respect the innate dignity which is the potential of every man, woman and child on the face of the earth.

Ruskin said that the wealth of a nation lies in its people. I hope that all the enterprise and innovation we deem it right to encourage may be such as will enable people to recognise and develop their own potential, and that it will also enable this or any future Government of Britain to have the political will to take the lead among the nations in seeing that the lot of the poor improves rather than continues to deteriorate.

5.04 p.m.

Lord SEEBOHM

My Lords, I also should like to thank the noble Lord, Lord Baker, for introducing this subject. Nobody could be better equipped than he to do so. I should also like to congratulate our three maiden speakers. I want, at the beginning of my speech, to take up a point raised by the noble Lord, Lord Donnet. At this stage of the evening practically everything has been said; but there are one or two things in the various speeches that have been made that I should like to emphasise. The first one is on productivity, because productivity is the name of the game. I believe that every trade unionist should have the words, "Higher productivity equals higher pay" tattooed on their breasts; or, if not on their breasts, in modern parlance, tattooed on their T-shirts.

We seem to be moving into a community of Luddites. This frightens me very much. It is obviously clear that a great number of trade unions believe that more investment simply means more unemployment. There is the strange situation when the General Council of the TUC is screaming for more investment but, lower down, the new investment when made is not allowed to be used unless manning remains constant. If it were true that productivity increased unemployment, we could not have reached the affluent society that we have today and it is an affluent society when compared with society when I was young, as anybody who has lived as long as I have knows.

There is one important point that we must make when thinking of innovation and productivity—that is, it brings about a change of employment. People are not necessarily, going to be employed in the same jobs that they had before. It means that there has to be mobility of labour, and this involves something touched upon by several people; education or training and re-training. I believe that is where we have fallen down very badly in this country compared with the other countries on the Continent, particularly Germany. I know that it is not easy, but, if we are going to move into a world of micro-processing and what I call the "chip syndrome", re-training and social changes will be so enormous and, in a way, frightening that more attention should be given to them straight away. That should be given the highest priority in Government research. I hope that it will receive the necessary finance to see that it is looked at very closely.

Management must be blamed for a number of our troubles. Where management falls down is mainly in communication. Some companies are getting it right; some companies explain clearly what is going on to the majority of the workforce. What very few understand is that communication upwards is probably as important if not more important than communication downwards. This is not so easy to arrange but it is very important indeed. The other aspect which I think is wrong is confidentiality. For some reason, management is very reluctant to tell people everything that is going on. If one really analyses the situation carefully there is very little that is confidential in a business and that cannot be told to the whole workforce. Also, I cannot emphasise enough that it is very important that people should know that there is nothing to know. This will remove suspicions that a lot of things they should know are being withheld.

I am not going to say much about disincentives or incentives because this subject has been covered by practically all the speakers so far. What seems to me to be the case for moving from direct taxation to indirect taxation has been made. I do not believe one can argue about that. I should like to contribute a target to the argument: I believe this should be at both ends. I should like to see a move as soon as possible to ensure that nobody earning less than £100 a week pays tax, and I believe that, as the noble Baroness, Lady Seear, said, the least we can do in this country is to see that the top rate of taxation is no higher than the Common Market average—that is, about 60 per cent. That again is something that we should do as fast as we can. The noble Earl, Lord Gowrie, said that it should be gradual but I believe it should be done as quickly as possible.

I was very interested in Lord Caldecote's speech on the Design Council and on design as an important element in our recovery. I have had the honour to serve for five years on the Design Council under his command. I have found in the business that I now have the honour to chair, in the Industrial and Commercial Finance Corporation, that even in the worst industries a good design succeeds and the company makes a lot of money.

I have investigated a number of companies where there are long delivery dates, and there are two main reasons; one is a lack of skilled labour, a lack of craftsmen, and the other, I am afraid, is the Employment Protection Act. There is a letter in The Times today giving figures, which tend to prove that the numbers involved are not very great. But all I can say is that the fear of the penalties of having to reduce it has prevented many companies which deal with me from increasing their workforce. One very large firm said to me not long ago that it would never again go for the top of the trade cycle; it would aim at the middle of it. Otherwise, it would have the impossible problem of reducing labour at a cost which would bring down the firm. This is happening in a number of companies, and I believe that it is increasing unemployment, although I fully agree with a great number of the provisions in the Act. So I am quite certain that good design is one of the things which we should support financially as generously as possible.

I suppose that greater opportunity in the promotion line is also important. If it is due to privilege or to the automatic ladder of dead men's shoes, it probably does a lot more harm than the converse, which is preventing people with ability from getting to the top. I am not sure that this is as bad as it used to be, but certainly there is a great deal to be done in evening out the opportunity ladder.

I also believe that official attitudes must be changed. One despairs of official attitudes to industry, and wonders whether any Cabinet Minister has ever worked in industry or really cares for it. I do not believe that we have an industrial strategy; I believe that we have a Party political tactic. I certainly cannot see any strategy. Finally, I believe that the duty of Government is to help, not hinder, business and that they should stop thinking up measures such as ACT and an increased National Insurance contribution, which one might almost believe were designed with evil delight to destroy the morale of those who create the wealth on which we all must live.

5.13 p.m.

Viscount MONTGOMERY of ALAMEIN

My Lords, I should like to add my congratulations to the three maiden speakers. It always seems to me that your Lordships' House is composed of experts in an infinite variety of subjects. It is quite clear, from the thoughtful contributions that we have heard this afternoon, that three more have been added to your Lordships' deliberations.

We are all indebted to the noble Lord, Lord Baker, for having introduced this subject. I was privileged to be a student in the engineering faculty at Cambridge, under the noble Lord, I rather fear that this is a matter which can have given him little pleasure at the time, as I was not one of his star pupils. This is also no reflection on my noble friend Lord Caldecote, who was a lecturer at the same time. I consider myself fortunate to have received this teaching and it is something which I have not forgotten. Unfortunately, I have never practised engineering so that the specialist knowledge has gone, but I have been involved with enterprise in a variety of forms.

The point about engineering as further education is that it is an exact science. It is therefore a stern discipline in which to have been trained. There is nothing like engineering training for concentrating the mind. If industry is to innovate, it must have more qualified engineers to compete in an ever increasingly technological world. The fact of the matter is that you cannot turn managers into engineers, but you can turn engineers into managers. The noble Lord, Lord Baker, said that most emphatically, and also that we must start with the fundamentals.

The noble Lord, Lord Baker, has asked us for ideas to stimulate enterprise and promote innovation. As the noble Lord, Lord Seebohm, said, much has already been said, I shall therefore confine my remarks, very briefly, to private enterprise which is where my experience has been. Private enterprise needs a stable economic and political climate, plus a lack of interference by Government. It also needs to earn and retain profits. It is particularly on this last aspect that I should like to concentrate. Unfortunately, at the present time, one gets the impression from both Press and Parliament that profits are no longer respectable. This is sad, since they are not only desirable but absolutely essential. Several noble Lords have already touched on this, but I should like to say how fascinated I was by the powerful speech of the noble Baroness, Lady Seear. The noble Baroness's speech needs a great deal of study and attention by Government, especially her comments on the penal tax system.

If capitalism is to flourish, and flourish it must if we are to continue to raise the living standards of our own people and of the free peoples of the world, profits must be retained in order to create new investment and new enterprise, both at home and overseas. Where systems other than capitalism exist, standards of living are low. It is capitalism and enterprise that have brought about the increase in living standards world-wide. Unfortunately, the political focus is always on the distribution of wealth, and we seem to overlook the creation of wealth which, surely, must come first. Wealth creators are people with ideas, imagination, courage and the authority to take risks.

Britain has a new source of wealth in the North Sea. My noble friend Lord Gowrie recently made an important speech about this, and he was quite right. We must ensure that it is not squandered. I recommend that it should allow us, from our increased foreign exchange reserves, to change the rules somewhat so as to facilitate productive investment overseas. Much of our previous wealth was derived from investments overseas, which were reduced during the last war. It is only now that we have an opportunity radically to reinstate this investment, which would not only provide increased employment in this country but also vast benefits in the Third World.

There is clearly an interplay between interference by Government and the ability to retain profits, but somehow we must find ways to free enterprise. Industry has been reliant to a certain extent on negative legislation, attempting to prop up backward industries and to maintain outmoded jobs and production methods. Heaven knows, my Lords, we do not need any additional legislation, and we must somehow prevent further nationalisation.

That brings me to my last point. We frequently hear criticisms of the multinational corporations, and no one speaks in their favour. But it is precisely those organisations, with their extensive and competitive research facilities, that have brought untold benefit to the world, particularly the Third World. I should like to be told of one single invention, one single material benefit, that has not come from private enterprise initiative and inventiveness. If enterprise is to flourish, profit must be given a new aura of respectability. Private enterprise, which is the only instrument capable of stimulating economic activity and the wealth of nations, must be encouraged to believe that profit is praiseworthy.

5.19 p.m.

Lord BALOGH

My Lords, the noble Lord, Lord Baker, is to be thanked for giving us this opportunity to discuss what is certainly the country's most serious problem. But before I go into that, I wish to join in the congratulations to our trio of maiden speakers, especially my noble friend Lord Croham, whom I hope to hear very often on these questions.

I shall not follow the noble Lord, Lord Baker, in discussing the pros and cons of the engineering profession. I shall try instead to give a reasoned answer to the noble Earl who spoke second, and I hope that I shall convince him—although I am not sure about that.

The fact that the noble Viscount, Lord Amory, has put down a very similar Motion, which is to be debated, I think, in a fortnight's time, underlines the growing anxiety of thoughtful people about our industrial future. The first and most important fact in analysing this matter—and I am astonished that it has not been mentioned—is that the process of the relative decline of Britain is not a post-war phenomenon. It started, at the latest, in 1873. Those who suggest that Government interference is the fountain of all our ills completely disregard this. The relative growth of Britain before the First World War—that is, in the period of total dominance of free trade, laisser faire, low taxation et cetera—was appreciably inferior than it was after the Second World War, with its "crushing" burden of direct taxation. It is interesting to note, moreover, that Britain's growth was only approximately equal to that of her foreign competitors in periods in which Britain enjoyed protection. During the First World War, it was the U-boats which cut off her competitors, and from time to time in the 1920s, as a result of the McKenna Act, safeguarding duties, and between the slump and the Second World War as a result of Imperial preferences and tariff protection. Indeed, most of the new industries that we have were established in these periods.

Since and including the last quarter of the 19th century, British expansion caught up with that of other countries only in the periods when some protection was in force.

This fact was obfuscated and veiled by the immense foreign income, the result of investment made in a more dynamic age, and the existence until 1931 of de facto—after 1932 de jure—Imperial preference in the ever wider territories that Britain ruled in those days.

These advantages were lost as a result of the last World War. In that war period, immense debts were incurred, and foreign assets were liquidated. The wartime agreements about post-war reconstruction and the loss of the Colonial Empire removed protection for our industries before industrial reconstruction had been completed. In this, as in other matters, we should have done better to follow the ruthless example of Japan and also of Germany.

Economists have put forward a number of explanations for our industrial decay, which can be measured in the decline of relative productivity, our share in the world market of manufactures, the share of manufacturing in the total gross national product and import penetration. All of these signs point to a future in which full employment at socially tolerable levels of real wage income might become unattainable.

One of the conventional views which the noble Earl explained very cogently is that this decline is due to the growth of the public sector, but this is contradicted by the fact that the process is a century old. Nor can one blame the frequent alternations between "stop" and "go". The more successful countries, like Japan, had very much greater fluctuations of national income than had we. Another explanation, beloved by the conventional and finding rapid acceptance by politicians and journalists of all political loyalties, is that the decline is due to high personal and corporation taxation. But one can point to the fact that the decline was also prevalent before the war when there was no taxation of any kind, or hardly any, and also in periods when successive Conservative Governments reduced taxation. What was always present was the decline.

The relatively low level of productivity which we have—about 70 per cent. compared with that of Germany and somewhat less than that in France—should enhance rather than impede the possibility to take remedial action, because by imitation we could pull ourselves up. The victorious over-running by Japan and Germany of our markets while their unit export prices seem to have risen more than our export prices, leads experts to conclude that non-price factors—quality, delivery dates, servicing, design and advanced technology—played a decisive role in our relative decline and excluded us from markets of high technology and of more effective, more sought after products. Differences in manufacturing structure, however, do not seem to have affected the outcome, as some people thought.

No doubt we have been suffering from a severe and probably self-stimulating gap in education, training, technology, design. The very fact that the decline has gone on for so long a time shows that, somehow or another, our social structure is in question—promotion not on the basis of who knows what, but who knows whom, and also being a good member of committees and boards: that is, non-cantankerous and lacking in original conceptions. This is a heavy handicap and it will not be eliminated very easily. It certainly is resistant to impersonal general economic policies and monetary manipulation. It follows that productive risk-taking is restrained; contrarywise the adventurous, as we have seen in 1973–74, get more rope than in less stodgy countries. The fear of excess capacity, the dread of investing in new plant when the old would do, is notable. This means that the limits of expansion are reached in this country before they press on our foreign competitors. Thus our improvement is interrupted at an earlier stage, and we are reluctantly sinking further.

Disregarding, or, worse still, in total ignorance of, this weakness, the Foreign Office, the Treasury and the Bank of England, despite the evidence of boringly repetitive crises, were set irrevocably on the path of liberalisation. Hardly had we managed to survive, through Marshall Aid, the crisis caused by the insufficiency of the means provided by Bretton Woods relative to the rigours of the rules of the game it had imposed than we plunged back into liberalisation. We gleefully joined GATT. We plunged into the organisation of the Free Trade Area, thus effectively compressing our field of economic manoeuvre. We ignored the lessons of the considerable success of the reconstruction period, when comprehensive and discriminating controls were at our disposal, and at the same time rushed into a rearmament programme of enormous dimensions. We disregarded the lessons of the considerable success of the reconstruction period between 1946 and 1949, when comprehensive and discriminating controls were at our disposal. The 1951, 1955, 1957, 1961 and 1964 crises and the 1967 forced devaluation showed that intrepid adherence to the doctrine of free trade was not shaken. Then we had 1973, 1974 and 1976, despite the appearance of the oil slick in the turbulent waters of the North Sea. The entry into the Common Market further and violently restricted our capacity to deal with the basic problem of the country.

The resulting insufficiency, both of the volume and of the quality of capital investment throughout this period, limited the possibility of a satisfactory increase in real wages. The growing concentration of economic power, on both the labour and the employers' sides, increasingly constituted a bilateral monopoly in which the bargaining advantage varied according to a number of—often non-quantifiable—social, sociological, psychological, political as well as economic factors. Obversely, the oligopolistic control by the few of the commodity, especially in the manufacturers' markets, permits the manipulation of prices. Consequently, it is possible to shift higher money wages on to the consumer—to a very large extent the wage earners. The insufficient economic progress thus resulted in strikes to obtain higher real incomes than were warranted. This led to a cost-induced inflation, and finally to indirect monetary and fiscal constraint and unemployment.

In my humble opinion, a successful industrial policy requires, first, a permanent incomes policy; secondly, an acceleration of growth and an increase in productivity, without which no Government can attain compliance with the incomes policy; and, thirdly, a social compact over a very large field by which the workforce can be integrated into policy-making, and thus enforce some sort of discipline.

I cannot deal with the wider aspects of such a broad package, but I doubt whether a narrower one could successfully be made acceptable so long as anti-inflationary policies are pursued which increase unemployment, or the fear of unemployment. Already we are in the gravest danger of wasting the oil and gas gift, to which so many hopes have been attached in a continued import spree and the continued vast export of capital.

On the narrower economic field we need a drastic increase in investment to accelerate growth. This is difficult for the private sector to undertake at times when there is a large amount of idle, if obsolescent, capacity. It has to be done on a massive scale, for otherwise the unemployment, to which Lord Seebohm referred, would be caused by increased investment. To achieve it some measures are needed to create a vacuum in markets, inevitably in that segment which had been suppled by imports. Alternatively, imports must be limited where national production and money income are allowed to rise. Either would help to reduce costs as unit-fixed outlays are cut and profits rise, and this might create the basic preconditions for modernisation and a virtuous circle. Without such a protective system we seem likely once more to be stifled by imports at an early stage of the recovery.

In view of the proven incapacity of managements to provide for up-to-date renewal of plant, and to organise adequate design and marketing, it would be essential to make protection dependent on industry discussing agreements, detailing their plans, and discussing them with the unions and the Government. The fulfilment would have to be monitored by NEDC. The special working parties which have been organised, and which are based on self-criticism and self-help, will not, I think, do the job at all. But if we do not have these contracts between the Government and the main industrial companies, protection would only add to our inefficiency.

These considerations suggest that the present policy means—the reliance on the money supply or other monetary indicators as policy determinants—are likely to perpetuate our malaise. Much more direct and discriminating controls and policies and means are needed. Unfortunately, it is difficult to hope for an automatic boost for our industry by a sufficiently rapid and sufficiently extensive world economic recovery, as long as the persistent creditor countries stubbornly adhere to the restrictive policies which are appropriate to persistent debtors, and thereby stultify efforts at readjustment on the part of the latter. I do not claim that such an approach would necessarily work. I do claim, however, that the present policies, which represent a relapse into pre-Great Depression thinking, are doomed to failure.

5.35 p.m.

Lord SHERFIELD

My Lords, I should like to begin by adding my congratulations on the trilogy which has been presented by our maiden speakers. All three spoke with effect from long experience, which will be of value to the House in the future. It was a particular pleasure to hear an old bureaucrat, and an old colleague, the noble Lord, Lord Croham, so eloquently break the silence of a lifetime.

I am grateful to the noble Lord, Lord Baker, for initiating this Motion on a subject which is dear to both our hearts. We served together until three or four years ago on the board of a company—Technical Development Capital—set up to finance and encourage innovation. It is from this angle that I approach this Motion. I shall mention a few points emerging from my experience, even though I may be getting a little out of date. There is, first, the distinction between inventions, research and development, and commercial exploitation. The second—and to some extent the first—of these have been the principal concern of the National Research and Development Corporation, of which the noble Lord, Lord Schon, is chairman—himself a shining example of a successful innovator and entrepreneur. It is at the third stage that the demand for substantial finance arises and where the banks and other financial institutions take over the main burden.

What, then, are some of the main problems in starting up an innovative enterprise? I shall identify four: first, the cost of developing a product for the market is commonly under-estimated; second, the market research is often inadequate; third, the innovative engineer often lacks commercial sense and experience, and most new ventures demand a combination which is not always present, of a good production engineer and a good marketing person, who must work together as a team; and fourth, many new ventures depend initially on one product. For those and other reasons the failure rate in this field is high—probably as high as one-third. Such high risks naturally require comparable rewards.

It has, I think, been demonstrated that venture capital companies need one or two block-buster successes to sustain profitable operation. ARD, one of the best known American venture capital companies, had High Voltage Corporation and Control Data which ensured its success. But its European offspring, EED, has been less fortunate. At home the National Research and Development Corporation had Cephalosporin, which has proved a real money-spinner, and one or two other successes which have put it safely in the black. It is now self-financing. In general, it is often said, probably with truth, that while the British talent for innovation and research has been, and remains, high, the record in exploitation has been very poor in comparison, notably, with the United States.

In all fairness, however, the comparison with the United States of America needs to be qualified because the American market is so much larger than ours and the economy so much more dynamic, and innovation prospers with economic growth and flags with a sluggish economy. But I will give a specific example to illustrate a disparity. The Americans have achieved a build-up of high technology companies linked with universities. The Route 128 companies in Massachusetts associated with the Massachusetts Institute of Technology and the Palo Alto companies associated with Stanford University are just two well-known cases. The American Defence Departments fund research and development in the universities and the spin-off is left for exploitation to entrepreneurs, often in association with members of the academic staff. This indirect method has been highly successful.

Since there is not the same degree of State funding of university research in the United Kingdom, the opportunities are obviously less. All the same, when the noble Lord, Lord Baker, and I and others did a trawl through the engineering departments of several British universities a few years back, we dredged up practically nothing. If my memory serves we only succeeded, in fact, in setting up three very small companies, one of which at least, I am glad to say, is going strong. I have no time now to analyse the causes of this serious disappointment. I merely record it as a fact. I should add, however, that the situation in this respect is being improved (at least I hope it is) by the efforts which are being made to strengthen the links between universities and industry through visiting professorships and other means.

Turning to the availability of finance, for ventures of the kind which I am describing I will not enter into current arguments about finance for industry, large or small, or about the equity gap. There are others here today with more recent experience than mine. I will only make two observations. I do not think that in recent years there has been any shortage of finance for projects which have a reasonable prospect of commercial viability, and many of those who protest to the contrary do so because finance is only available on commercial and not on subsidised terms. On the contrary, I suspect that it may be no longer a case of too many projects chasing non-existent finance, but ample finance chasing too few worthwhile projects.

It is necessary to look further than the provision of finance for the causes of our relative lack of achievement. I take three texts here from the evidence given by the National Research Development Corporation to Sir Harold Wilson's Committee on the functioning of financial institutions—and I quote, first: The lack of encouragement for new technology—based firms is, on examination, perhaps more a criticism of the personal and corporate taxation system than of the arrangements for direct financial support", Second, the evidence then quotes from a survey done by Arthur D. Little (the well-known consultants) that: direct measures (including specific government programmes) are normally a poor substitute for a favourable indirect environment"; and third: special measures, including increased fiscal incentives (or the removal of current fiscal disincentives) may be required to promote the growth of small innovative enterprises". These sentences identify the principal causes of the trouble, but in a very low key. Perhaps I may be allowed to raise the pitch a little.

I have already said that the high risks involved in this field require comparably high rewards. These, under present levels of taxation on individuals, family partnerships and small businesses are just not attainable. This, combined with the effects of inflation, has had a depressing and disincentive effect to a point at which much more than the measures in the current Finance Bill will be needed to reverse the decline. One consequence has been that the availability of capital for joint ventures from private sources is steadily diminishing. Nor do I think that a satisfactory remedy is to be found in Government finance, either direct or through the National Enterprise Board. It is not a real substitute for individual entrepreneurial endeavours. Such finance has, quite rightly, to be strictly monitored and controlled by a bureaucracy which, however well-intentioned, has a depressant effect on the beneficiaries.

There are, of course, other, more general considerations, most of which have been referred to in the course of this debate and I will only just mention one or two of them. First, the narrowing of differentials between skilled and unskilled and between professionals and Government employees at all levels acts as a disincentive to enterprise. The hostility to innovation of some sections of the workforce deters capital investment and especially risk capital; and the ever-growing legislative regulations referred to by the noble Viscount, Lord Caldecote, imposed on industry harass and distract management. I am only echoing several other noble Lords when I say that the industrial climate in this country is unfavourable to innovation and enterprise, to initiative and hard work. It takes time to change such a climate and Governments can in many respects only set the stage, but it is within their power to modify the tax structure and over many years now they have failed to face up to this problem.

I am very conscious that in what I have said I have only been giving yet further variations on the theme which has been running through this debate, but I should like to conclude as follows. An American innovative engineer, with whom I was discussing this subject recently, brought to my attention a poem relevant to it by an American author, from which I quote the following line: If you tax away incentive you destroy those who create".

5.49 p.m.

Lord HEWLETT

My Lords, I wish to join many of your Lordships in congratulating our trio of maiden speakers. The noble Lord, Lord Croham, deserves our warm congratulations. In a quiet and penetrating maiden speech he gave warnings on wealth and energy that should be well taken by this House. I found his statistics quite frightening. Perhaps of all contributors to this debate, what he said made clear the urgent need for enterprise and innovation, and I am sure his further contributions to our debates will be most warmly welcomed by us all, as we shall certainly welcome hearing from today's two other maiden speakers.

I agree with the noble Lord, Lord Baker, that enterprise and engineering have lacked good advocates. Lack of entry into industry by the younger generation is a serious setback to Britain's prospects. Wealth creation indeed is the vital need and the noble Earl, Lord Gowrie, who has researched into this matter, pointed again to the deprivation of quality of entry into industry. The noble Baroness, Lady Seear, rightly pointed out the inflationary effects of the "lame duck" policy and again emphasised wealth creation strongly as she attacked monopolies. I agree with her entirely that the most expensive and inefficient of our monopolies are in fact our nationalised industries.

Their strong attack on the tax structure I could not endorse warmly enough. And how right to emphasise our hopeless uncompetitiveness in respect of taxation compared with countries abroad. The noble Lord, Lord Donnet, showed the loss of jobs in the manufacturing industry and the fear of worse to come. Alas, I think he is quite right; portents at the moment are bad. The noble Viscount, Lord Caldecote, concentrated on the loss of our share of world markets, which I think also is desperately frightening. I commend his comments to your Lordships. The small company does need much a fairer opportunity to make progress. In his excellent maiden speech the noble Lord, Lord Plant, was so right to speak of the disservice of those who try to prevent youngsters coming out of school from going into British industry. I must say I heartily disagree over the body of legislation with which industry is confronted today.

The Motion moved by the noble Lord, Lord Baker, is admirable but, in my submission, it does not go far enough—nowhere near. Encouragement is not enough. What Britain needs can be obtained only if its industry is unshackled and set free. What inhibits growth and innovation is the way in which we treat our industry. I say "we" because we in Parliament interfere far too much, with excessive and unnecessary legislation, as many Peers have already said. Over-government is making it ever more costly and difficult to operate at a profit. I speak as a working chairman of two companies in two different industries, chemicals on the one side and kitchen furniture, gas and electrical appliances on the other. Since coming out of the Royal Marines at the end of the war, I have spent all my days in British industry, so I am trying to speak on the basis of actual experience in management.

This Motion should be set against the nonsense that we have perpetrated in the Employment Protection Act. It inhibits and discourages enterprise. It would be better to be called the Unemployment Protection Act because it has been a veritable boomerang in terms of the employment of labour. Some of us in this House warned that that would be so. I am not trying to be wise after the event or to tell you how clever we are, but would that those who are not in industry listen to some of us who are! After all, it is the normal privilege accorded to the specialist, and we have heard in this debate some excellent contributions from those who have spent a lifetime in the service of industry and on all sides of industry.

We seem to be united in one thing—taxation is grossly too high. Since Budget Day there has been a massive increase in minimum lending rate and a proposed increase in the employers' National Health contributions. These two measures alone offer no encouragement whatever to investment. Let there be no humbug about it. An increase of £1,500 million is vastly in excess of the £500 million that would be required to take one penny off income tax. In meetings and speeches by leading Ministers we have been told that managers would receive major amelioration of their tax position in this last Budget. Not a bit of it; all forgotten. Now small businesses are promised some goodies in the autumn when the Government have worked out what they are going to be—and if the Government are still in power then, which I very much hope will not be the case. Exhortations and encouragements? No, my friends, we are long beyond that. That and 9p will get you a short ride on a London bus. "By their deeds ye shall know them". Systematically, and in the most calculated manner, this Government have clobbered British industry, and above all its management.

Just recently, apparently, a change in the Chancellor of the Exchequer, in particular, has taken place. He has had a conversion on the road to—disaster, not Damascus. The trouble with his conversion is that it is incomplete. The subject of the conversion only says now that he realises that we are being overtaxed, but he has done precious little about it. He should consider what the Californians had done and appreciate that the long-suffering British tax-payers might be tempted to emulate them.

I am no Poujadist, but this Government are trying to make me and thousands more like me that way. Some of us work hard enough. I rise at 5.30 every morning and I am in the office before practically any other employee. I do not complain; I volunteered to do it because I have a pretty hefty job to do. I forgo a big slice of emolument and waive my dividend, too. A fat lot of encouragement I am getting in terms of a fiscal opportunity to risk any more capital or work any harder! I do not think I could work any harder. Present rates of taxation are a ridiculous disincentive.

We in British industry do not want hand-outs; we do not want subsidies, and we do not want sympathy. But what we are entitled to demand from this or any other Government is that they create to the best of their ability the conditions in which industry can prosper, and then keep things that way. Reasonably stable conditions—that is all we ask. Do your Lordships remember October 1977?—15 per cent. MLR or something of that order. How can you plan future investment on that basis unless you are making a fantastic rate of profit and can afford to borrow against figures of that kind knowing that you will still come out on the right side? All the pratings and encouragements of both Houses of Parliament do nothing if the conditions caused by Government are so bad as to give no incentive whatever for investment and no proper reward for risk bearing.

I am sorry that some of us are being criticised and penalised, we think unfairly, and I am not speaking on the part of directors, but on the part of managers and indeed leading hands and foremen on the shop floor, all of whom are feeling the same sort of pressure. Why should we go on like this? We are just being taxed out of existence. Who is going to take greater risks, who is going to innovate when circumstances like this are created by Her Majesty's present Government? If you succeed, you are not entitled to a fair reward; if you fail, oh, bad luck, Big Benn will get you into his NEB web or you will go broke. What a prospect in either event!

This Government set out to favour trade unions so blatantly; they were so partisan in what they did fiscally with their pay policy, too, that they smashed the differentials, and now whole sections of the erstwhile higher-paid are suffering a vast reduction in their real standard of living—all pious-like. Her Majesty's present Government tell industry not to pay employees or executives competitively or properly. I refer to the comments by the noble Baroness, Lady Seear, in regard to ICI. They congratulate the unions on their forbearance. Many unions have had much higher rewards which others have not enjoyed in the whole of British industry and agriculture.

If you do not believe me in this regard, read in today's Times how and why ICI's youngest main board director is emigrating to the United States of America. Here are one or two of the salient points. On his return from heading up ICI at Brussels he received a cut of half in his net income. Sixty per cent. of his old salary in Belgium, or his new salary in the USA, will be retained by him; when he is here it is only 30 per cent. He has to buy a house and £25,000 is the maximum. We all know what has happened to London house prices and in regard to mortgage relief. It is interesting to observe that even in Communist countries it is realised that people bearing very heavy responsibility should not be frowned on for having two homes and indeed having some assistance in getting them—although I know how different their system is. I have been to Russia and China several times. Restraints is put on those who come back from overseas; earnings are vastly above the British earnings for those who are overseas in ICI. A senior ICI executive actually worked out that he worked longer hours than a Swissair hostess and received net less in financial reward. I have nothing against the Swissair hostesses—I am sure they are splendid—but I think we have got it slightly wrong. I think we had better get ourselves sorted out into some kind of competent position so that we can give adequate reward to those who are bearing responsibility, doing the extra work and bearing the risk.

Listen if you will, my Lords, to the ratios of earnings, taking 1966 as 100; I speak of Lord Melchett's predecessors' conglomeration. Today, ICI directors 70, ICI works managers 77, ICI scientists 87, ICI process workers 107. At such a level an executive—and I mean this very seriously coming from the chemical industry—should be free of monetary worries so that he can get on with his proper job. Nobody wants to be protected to the nth degree, of course not; but, frankly, people bearing that sort of responsibility, involving hundreds of millions of pounds, should not be worried about all the minutiae of detail as to whether they can meet the family budget or buy the house.

This Government are great in encouraging exports; unfortunately, it is some of our best people rather than some of our best things. They go off to get greater opportunity in countries of greater opportunity, and the trouble is that those who are going are the wealth creators. Many of our immigrants come here needing help and support. So we make it almost impossible to have the conditions in which industry can create the necessary wealth to support them. Where on earth is our modern equivalent of Gilbert and Sullivan; he could have a field day. We would have 50 Gilbert and Sullivan operas with this lot. The whole balance of our industrial structure is wrong. Let us remind ourselves what has happened. Ten years ago, of the total gross national product 40 per cent. was consumed by central and local Government and nationalised service industries. Five years ago, 50 per cent. Now, no less than 60 per cent. of the total gross national product of this country is consumed by central and local Government and the nationalised service industries. How on earth can enough wealth ever be created by those of us actually in the business of trying to create wealth if this tendency and trend continues, to the great detriment of the earning capacity of this country? There are fewer and fewer wealth creators and more and more spenders, and they are not the same people. It is central and local Government who blow in the created wealth and politicians who encourage them to do so, indeed on that side of the House, insist that they do so. We have more Inland Revenue staff than we have sailors in the Royal Navy.

Recent reports seem to show that the self-employed are to be the latest section of the community to be dealt with harshly, and even, it is alleged, inhumanely, too. Ask them to invest more when they have been investigated in the manner which we have read about in the Press. I need not tell your Lordships' what their answer is likely to be. I am not "agin" civil servants; I have just spoken highly of one who has made his maiden speech. They are a fine body of men and women. The only trouble is, there are too many of them. We have to carry them, and we simply cannot afford to go on carrying them at this rate, even without their inflation-proofed pensions, which, incidentally, the wealth creators do not have.

No, my Lords, it is not encouragement which is needed; it is relief from the excessive burdens of tax which, at the present level, push loyalty a little bit too far. Make it worthwhile at all levels of industry and agriculture to work harder, to take more responsibility, more worthwhile to carry risks and experiment and innovate, with a greater share of reward to those who do these things, quite quickly unemployment would start to fall and investment to rise. You will never get this from a Socialist Government. Look around the world and see the truth of my comments. We have to have a change of Government because we need a change of attitude which is fundamentally inimical to the attitude of Her Majesty's present Government. If we do this, then growth can be nurtured by enterprise assisted by the handmaiden of innovation, and only then, as the right reverend Prelate the Bishop of Rochester has suggested, will we be prosperous enough to make a far more important contribution to the less fortunate parts of the world, which it is surely our duty to do.

Baroness GAITSKELL

My Lords, before the noble Lord sits down may I ask him a question? He has made out a wonderful case showing it is not worthwhile for managers, for employers, to work at all; there is no profit in it at all. Why does not he give it all up and become unemployed, as some noble Lords have suggested that that pays more than working?

Lord HEWLETT

My Lords, I will do my best to answer the noble Baroness's question. I am not suggesting that it does not pay to work at all. With great respect, I suggested that the increasing differential of rates of tax is making it an increasing disincentive to the individual to carry responsibility, to bear due risks and work harder. It is interesting. The noble Baroness shakes her arm at me, but on my shopfloor I know the employees and they tell me this. Those who aspire to foremen's positions and chargehands' positions say simply, "It is not worth it, and you cannot make it worth it, because we have now joined the tax structure". So do not think I am trying to plead that ICI's directors are poor. What I am saying is that we are not rewarding energy and effort at any level appropriately.

6.7 p.m.

Lord HATCH of LUSBY

My Lords, may I join with those who have already congratulated the three maiden speakers this afternoon, and say, as a new Member of the House, how particularly pleased I am, and indeed grateful, to Lord Croliam and Lord Plant for bringing in the international aspect of this very important question, and for referring your Lordships' attention to the thousands of millions of people outside this country who are in some way dependent upon the kind of policy that we are discussing this afternoon. May I add to that my thanks, too, to the right reverend Prelate the Bishop of Rochester, who added his word to this international aspect. I should like, however, to take issue with the noble Baroness, Lady Seear. Coming from the Liberal Benches, I was somewhat surprised to hear her refer to figures of income and suggest that they were lower than an international average. What is an international average? The figures the noble Baroness gave—if my recollection is correct, £10,000 or £16,000 a year—may well be lower than those—

Baroness SEEAR

My Lords, if the noble Lord will forgive me, I was referring to the international comparison of tax levels, not income.

Lord HATCH of LUSBY

My Lords, I understood that the point of that part of the noble Baroness's speech on income was referring to income after tax, and she was in fact suggesting that this was below an international average. I only make this point to come to the main thrust of my argument, that we in this country are still, after tax, a very affluent nation in comparison to the vast mass of mankind. I feel confident that that point will be fully supported by the noble Baroness.

May I also thank Lord Baker for introducing this Motion, and refer to one issue which he raised in his opening speech, the necessity for conceiving machines. He said in that part of his speech that he did not understand how machines are conceived but that the essential issue in the promotion of industry was the conception of machines. Well, my Lords, I should like to suggest that it is not sufficient to conceive machines, and it is not sufficient to build machines; nor is it sufficient to work machines. Unless those machines are within a structure which is going to produce goods which can be bought and which people wish to be bought, then those machines in themselves are irrelevant to our issue.

As I have said, I am sure that noble Lords will have been grateful this afternoon to the noble Lords who have made their maiden speeches and to the right reverend Prelate the Bishop of Rochester for reminding us—especially those of us who are accustomed to travelling in different parts of the Third World—that when we talk about matters like the taxation system, the rate of taxation, the productive system, the rate of investment and so on we must not forget that if we were to go to Calcutta, Lagos or Kingston, we would find hundreds of millions of people unable to buy anything and unable to rise above a subsistence level. At the same time, if we went to Lancashire, we would find empty textile mills; if we went to the North-East we would find run-down shipyards; if we went to Wales we would find closed steel yards, and if we went to Scotland we would find the factories closed. Is that not an obscene commentary on the position which the human race has attained during the latter part of the 20th century?

On the one hand, a half to two-thirds of the world's people are unable to buy. On the other hand, factories are standing empty and men and women are standing in dole queues. They have the capacity to produce the things which could save children from brain damage through lack of protein, and which could provide mothers with the ability to feed their children instead of seeing them starve to death. That is as much the responsibility of your Lordships in this House as the responsibility of industry in this country. I want to show that the two are inextricably linked together.

As my noble friend Lord Balogh has already pointed out, the decline of British industry did not start after the last election. Indeed, it did not start after the last war. It started way back in the 19th century, at a time when industry in this country was in the hands of those of whom the noble Lord, Lord Hewlett, spoke—the hands of the private owners of industry. That is when the decline started in comparison with the major competitors of British industry—the Germans, the Japanese and the Americans. All the private ownership of industry did not stop British industry from declining. It was not due to the intervention of the Government because those were the days of free trade. It was not due to any socialist doctrines, because they were hardly known in this country. Indeed, the decline has continued, and if your Lordships look at the figures you will find that the decline was steeper during 1970 to 1974, when Members opposite were in Government, than it has been since that time.

However, more important than the political issue is the matter to which the noble Earl, Lord Gowrie, on the Conservative Front Bench referred; namely the educational system. He referred to the number of engineers having come out of the universities in Germany as compared with those who have come out of the universities in this country. That is not new. It began way back in the 19th century. It is the relic or the legacy of our classical educational system, by which it is much more important to learn Latin and Greek than to learn engineering or medicine.

Do not let us forget that at that very time when individual owners were in charge of this country's industry they also possessed an Empire. However, very little of their investment, whether in capital or in industry, went to the Empire. They may very well have stripped India of much of its wealth. They may have destroyed the textile industry in India. However, if we look at investment it is clear that it went where it was easy to make profits—it went into Europe and into North America where there were people with sufficient affluence.

The same is happening today. As the noble Baroness, Lady Seear, said, a great deal of this country's industry has now fallen into the hands of the multinational companies. This has been referred to already by noble Lords opposite. I shall not this evening go into detail about the multinational companies, except to say in reference directly to this debate, that whatever one may think about multinational companies they are the inevitable product of the capitalist system. As individual businesses grow so they absorb other businesses. We do not have to recall the history of mergers and take-overs over the past few years to recognise that point.

However, what is more important to this debate is that those multinational companies have been increasingly dominating manufacturing industry in this country. In 1950 the 100 major manufacturing companies in this country controlled one-fifth of manufacturing output. Today they control one half. Many of their operations are conducted abroad. Their operations in Europe and in other parts of the world are a direct hindrance to our export policy. A great deal of this Government's economic policy has been undermined and is being consistently undermined by the operations of the multinational companies overseas.

Viscount CALDECOTE

My Lords, before the noble Lord, Lord Hatch, leaves the point about multinational companies, I should like to ask whether he is really implying that the subsidiaries of our great international companies have done this country a disservice? I suggest that Ford of Britain, IBM and the Standard Telephone Company—to give just three examples—have done great service and created large amounts of employment in this country. Is the noble Lord really denying that?

Lord HATCH of LUSBY

My Lords, I am saying that the operations of the major multinational companies, including those mentioned by the noble Viscount, have been based increasingly overseas; that a great deal of their sales have taken place overseas; that British capital is being used overseas to produce overseas; that the proportion of their operations overseas has been rapidly increasing over the past 30 years; and that that is in place of the exports that could have been produced by those companies in this country.

Viscount CALDECOTE

My Lords, the noble Lord is not accurate. Fords are investing many, many millions of pounds in a new factory. The noble Lord had better ask the people of Greenock in Scotland what they think of IBM's investment. IBM has created employment there. It is not true that these companies have acted to the disservice of employment in this country.

Lord HEWLETT

My Lords, before the noble Lord replies, perhaps he will take one point from me. As one who actually persuaded an important American chemical company to come into the development areas of Grangemouth, I think he should realise the sort of damage that his comments cause among those we persuade to come in, who comply strictly with British law and who earn vast sums of money by their exports out of Grangemouth. To speak as he has is to do great disservice in terms of international trade.

Lord HATCH of LUSBY

My Lords, both noble Lords opposite and myself are arguing on slightly different grounds. I am not suggesting that multinational companies have been no good for the economy of this country. I am suggesting—and I am prepared to argue this further in another debate—that a considerable proportion of their operations have, in fact, been undermining the economic policy of this Government and, indeed, of this country, particularly in the area of export policy during this Government's administration and the previous Government's administration.

Viscount MASSEREENE and FERRARD

Rot, my Lords!

Lord HATCH of LUSBY

Perhaps I could pursue the main argument which I have been trying to put before your Lordships. I fear that the decline of British industry that has taken place since the 19th century and the investment that took place in the easy places of the world—in Europe and North America—is now being repeated. I can give your Lordships figures to substantiate this up to the hilt. In 1975, taking 129 of the developing countries of the world, this country invested a rough average of £24 million in each of those countries. In the EEC the figure was £710 million. That is the kind of contrast between the industrial policy of this country towards two-thirds of the world's population—the mass of people who cannot buy at the moment—and those to whom it is easy to export. I believe that that is bad for the people of this country as well as bad for those of the Third World.

Taking the last year for which figures were given—that is, 1976—the total exports of this country came to £6,500 million. In rough figures, that represents one million jobs. Of that 25 per cent. went to the developing nations. Noble Lords may say that that is a good figure, providing something in the order of a quarter of a million jobs. But 35 per cent. of the exports of the United States went to the developing world; the EEC in general exported 36 per cent. and Japan exported 41 per cent. So taking the period of the 1970s up to the present what has been happening is that the value of our exports to the developing world has been increasing—it has, in fact, doubled—but the industrial world as a whole has trebled its exports, and we have been falling behind. We have done about 75 per cent. of the total export work of the industrial countries as a whole.

I want to suggest to your Lordships—and I know that this will be unpopular on Benches opposite—that this is first and foremost a responsibility of Government. I hope that the noble Lord who replies on behalf of the Government will tell us what the Government are planning to do about this vast, untapped market, and the necessity so to reorganise our industry that we can gear our export needs to the import needs of the people of the Third World. I refer especially to the nationalised sector of our industry which, as has been pointed out this afternoon, is a growing sector, and I am glad that it is a growing sector. The nationalised industries have a special role to play with Third World countries where, in almost every case, the only source of capital comes from the government and from government-associated industries. Now, of course, Third World countries have different approaches to overseas capital. What they need both from nationalised industries and from private industry is a transfer of technology, management skills, and marketing experience.

Let me give one example of how we are failing. Before nationalisation, the waiting period for British Leyland's delivery of the Land Rover was 18 months. The Land Rover is probably the most important export from this country to Third World countries. Yet the motor car industry of this country is concentrating a very large percentage of its time and effort on selling second cars to the inhabitants of this country. There are literally hundreds of millions of people waiting for the provision of Land Rovers in order to be able to live. I suggest that that is a direct example of the central point that I am making. Of course, there are some private firms in this country who do excellent business with the Third World. Unfortunately, they are a minority and there are very few of them. Those of us who travel around the Third World are constantly asked, "Why is it that Britain is always behind the Germans, the Japanese and the Americans when it comes to the sale of goods in our country and to commercial activities? We look to Britain as the ex-Colonial power whose language we speak, whose people we know".

Here is an opportunity which can be taken only on three conditions: first, our industrial structure must be transformed so that the machines about which the noble Lord, Lord Baker, spoke are relevant not just to what people in this country can make but—with the innova- tion that built up the industrial strength of this country—to the late 20th century and to the 21st century. Secondly, this inevitably requires a tremendous effort in public education. Unfortunately, our education system—at least our formal education system—is geared to completely outdated ideas about what the world is like and our position in it. Unless we can make a massive effort to enlighten people as to what the real world is like, what opportunities we have in that world and what responsibilities we have in that world, so that our children and our grandchildren become citizens of that world, then the industrial effort will not be made. It is only when public opinion throughout the country recognises this reality, that it will be possible for innovation and enterprise so to be geared and channelled within the industrial world that it will serve this purpose.

Thirdly, we must recognise that today the people of the Third World are not asking for aid. They are not asking for charity. The people of the Third World are now demanding an equal relationship as members of one world. We should recognise that. I hope that Members opposite who have influence in private industry will also recognise that you must not expect that if this country, or any other Western country, follows anything like the line that I have been suggesting this means that they can be expected to become anti-Communist, and if they refuse our invitation then they are within the Communist camp. This is just irrelevant in the Third World.

The Third World's people will become themselves. They will make up their own minds. They will not make up their minds between the Communist bloc and the Western bloc: they will make up their minds to be part of the Third World. This means that all sorts of different arrangements have to be made. In some countries association with Governments in partnership; in other countries supplying the management and the technological skills; in other countries private firms will be welcome. There is a whole complex of different relationships which need to be understood both by private industry and by the nationalist sector.

Finally, the whole of my argument comes to this issue. We are faced with a simple, stark alternative. The Third World peoples are going to get their rights. We have a special opportunity, and a special responsibility, to co-operate with them in getting those rights, and to them the right to live and the right to eat is an essential part of human rights. Our choice is whether they get those rights in co-operation, or in conflict.

Lord HEWLETT

My Lords, before the noble Lord resumes his seat, I wonder whether he would be kind enough to answer two questions. In regard to the historical analogy, would he be prepared to acknowledge the fact that British industry has not tried to contribute to its own decline? Two world wars impoverished this country, particularly the latter, and afterwards we spent a great amount of national resource building up those countries that we had defeated which were reduced to appalling standards of poverty, and in that matter the Americans played the greater part by far.

Secondly, does not the noble Lord correlate, in terms of our export failures, the fact that some of the points we have been making on this side of the House this afternoon bear ratio in the sense that we are not giving adequate reward to our managers and those carrying the great burden of export business? Nor are our firms able to remain competitive and preserve a reasonable margin of profit to undertake these risks. I suggest that there is a direct correlation between what he said and what I was saying.

Lord HATCH of LUSBY

My Lords, in answer to the noble Lord's first question, of course I am not suggesting that British industry attempted to undermine itself. What I am suggesting is something much wider. The whole social climate of this country undermined the efforts of British industry in the latter part of the 19th century and in the first half of the 20th century. While we had the fortunate advantage of natural resources, while we had tremendous innovative powers, while we had a record in 'invention second to none in the world, this gave us the first start in the Industrial Revolution, but that start was not maintained. You have only to look at the figures, for example, of output of steel in the latter part of the 19th century when you will find that the Germans and the Americans in particular were fast overhauling us; that they were building up technological institutes while we were still going on with our grammar school and ancient university systems.

Of course, this is a much wider issue. I am simply making the one point of the social effects under a private enterprise Government—indeed, a private enterprise Parliament—on the development of British industry. Secondly, I do not accept—and we obviously have not got time to argue it tonight—the policy put forward by the noble Lord, or indeed by the noble Baroness so far as taxation and rewards are concerned. I just do not accept that. I think that a great deal more of the discontent in this country will be caused by the pictures from Ascot this week than by the rate of taxation on a small minority of the people of this country. May I just suggest to the noble Baroness that when she reads the figures in today's Financial Times she compares them with the relative figures of taxation for different countries in the OECD shown in this month's magazine Which?

6.36 p.m.

Lord GORE-BOOTH

My Lords, I think I must start with an apology to the noble Lord, Lord Melchett, in that I have given myself just time to speak and then, in response to an important engagement concluded several months ago, I shall not have time to listen to him; and I am very sorry. Like all who have spoken, I should like to thank most warmly my noble friend Lord Baker for his initiative in launching this debate. It is perhaps a cause of just a little modest satisfaction to say from these Benches that the last two Motions which have come from these Benches have both been concentrated on the question of why this extremely talented and efficient country goes on being dissatisfied with its performance, and whether we in this House can do something to help our people to discover the faults and find out something of the answers.

I should also like to congratulate most warmly our three maiden speakers. It is always helpful on this House to have an addition of TUC experience. We learn a great deal from it, and we hope that they will continue to come and give us of their experience and wisdom. I associate myself most warmly with my noble friend Lord Sherfield in his compliment to our bureaucratic addition to himself and myself in what I should like to continue to call my colleague, Donald Allen, from the Treasury. It is always supposed that the Treasury and the Foreign Office squabble with each other all the time. My noble friend and I had many meetings together, and I can assure noble Lords that blood was never discovered on the floor. He will give us much wisdom in the coming months.

I had not intended to get involved in any political controversy that mattered. I think I must in fairness, both to noble Lords opposite and to British people whom I have seen during seven years working in developing countries, say just one word about the noble Lord who has spoken and his argument about selling to developing countries. He used the word "market". As anybody who has tried to sell in a developing country knows, the difficulty is that it is not a market. The difficulty is that many developing countries do not have the money to function as a market. Great efforts have been made through the International Bank, through democractic countries particularly, to work out methods by which goods that are badly needed may be conveyed in some way to these countries, whether by gift or whether by indefinite loan, or whatever it may be. It is thus not fair to talk of these countries to our people doing this business as though they were a market. However, I shall not continue the argument.

At this time of the evening the duty on the speaker is perhaps to underline one or two points that have been made, and possibly extend them a little. I take, first, the question—it was demolished by my noble friend Lord Seebohm—of the highest level of income tax, which is 83 per cent. and which, I understand from friends involved in this matter, can easily rise to 90 per cent. In addition to all the arguments raised against the 83 per cent. level, there is one which has not been adduced but which is important when we are talking about talent and enterprise.

The result of a taxation level of this height means that a whole industry has grown up which is not an advisory service for tax evasion but a skill in advising people how they can lose the least in a gain, or the earning of private and family income, in which the penalities are very great. I have every sympathy with people who employ totally legal expertise in these matters, but it is a great waste of the time and money of corporations and of the talent of the people who do it; we are wasting a great deal of very good brain power trying to deal on a personal and compassionate level with this ridiculous and unrivalled level of taxation.

The way in which we behave as a nation must be considered. If we are dissatisfied with ourselves—and of course if there is something to be dissatisfied with—we must ask ourselves about obligation, and in this respect I must mention a particular case because it is a vivid example. Our normally extremely obliging and efficient Post Office people appear simply to have turned down an idea which we in this House and many others have asked for, namely a postal service on Sunday evening. It is rather shocking because one feels it is not like our friends in the Post Office. It seems to have been abruptly rejected, contrary to the wishes of many people, and so far as I can see it has put the Post Office into confusion, a confusion from which I hope it will emerge giving a rather braver impression than it conveys at the moment. More generally, what I am saying is that if we are to accomplish what we are seeking, we must throughout the nation get back to a feeling of obligation to the people who live and work next door. If we do not, we shall not achieve the improvement we are all seeking.

I must mention the sometimes deliberate and sometimes callous attitudes that are adopted towards industry and which arise in many parts of our society, be it on television, in writing or elsewhere. Mostly, I think it happens carelessly, though sometimes with malice aforethought. The impression is given that industry is corrupt, inefficient and falling behind and that it is something into which one should not go. It is important for industry itself—it is doing this much better than used to be the case—to speak up and show what it really can do and how much better it would do given a fair wind. That does not mean making false claims for nonsuccesses; it means giving ourselves credit for what we do well—and we do a great deal well—and of course improving that which needs improving, and that ties up with the taxation question.

Another element which—I think temporarily—crept into the national character I regarded as some of the scum of the less reputable parts of what has been called the free society. That element induced in too many people in this country a feeling that there were rules but that nobody paid much attention to them. To be frank, I think that kind of spirit suddenly erupted the other day in Buenos Aires. As I say, I think this crept temporarily into our character and that those who care about the success of this country should do something to influence the rebirth of the spirit of loyalty, ambition and effort. I feel sure it has been a temporary aberration, but it is important for people to realise that it is there. In exorcising it, as it were, I am sure developments worthy of our talents will happen and will help to solve the problems about which we have been speaking in this debate.

I have strayed from the literal interpretation of the Motion, but I hope it has been worthwhile emphasising a few of the points which are admitted by almost everybody to be wrong. My final comment is about the vindictiveness towards industry which is implicit in the riposte by the Government to the loss of a certain amount of taxation money; their immediate reply was that the cost must be placed straight on to capital. That is not the way to run the economy and, while one hopes it was not intended to be vindictive, it must be admitted that some harm will have been done, even if the decision is changed. I am sure all noble Lords will agree that this has been a very worthwhile debate, and I conclude by once again apologising to the noble Lord, Lord Melchett.

Lord HATCH of LUSBY

My Lords, before the noble Lord, Lord Gore-Booth, resumes his seat, may I ask him to elucidate the point he made when referring to my argument? While agreeing with him that obviously many, though not all, of the Third World countries do not have conventional markets, would he not agree that it is one of the responsibilities of this country—indeed, one of our interests—to help to create markets in those countries? Would he further agree that it does not help to create markets in those countries if the IMF demand that their Governments reduce Government expenditure which, as I pointed out, is in many cases the only expenditure available for investment?

Lord GORE-BOOTH

My Lords, I think the noble Lord still has not got it quite right. There is value in the developing countries developing financial institutions and methods; it is not right to impose expenditure on them which they cannot be expected to afford; and although this country has not done quite so much as we should have liked in reaching the 1 per cent. figure for aid, nevertheless it has a fine record, to which I pay tribute.

6.50 p.m.

Lord TERRINGTON

My Lords, obviously there are many factors which have a bearing on the encouragement of enterprise, and this has been clearly demonstrated this afternoon by a wide variety of speeches, including three most interesting maiden speeches. As the last speaker on the list before the Minister who is to reply to the debate, I should like to spend a few minutes considering the role of the individual private investor in support of our objectives, following some of the remarks of my noble friend Lord Sherfield.

Quite recently, I heard it suggested that one of the reasons that we need a National Enterprise Board—namely, the inability of the small to medium size company to find sufficient financial backing from private individuals—was likely to be a more or less permanent feature of our economy. I must say, quite frankly, that I was simply appalled at such a suggestion. I do not want to start discussing the role of the Enterprise Board, or its future. However, I firmly reject this idea as a basis for long-term planning, and personally I look forward to an early revival of the individual private investor within our mixed economy. Having said that, I must follow the custom of the House, and declare my special interest as a member of a City partnership which is concerned with private individuals, as well as with the major institutions.

According to the dictionary, "enterprise" means "to attempt a difficult undertaking". In the past it was frequently the individual investor who was prepared to provide the main financial backing for small growing companies which showed enterprise, particularly if they were operating in his own locality. Today, however, owing to the ravages of taxation, this type of investor has insufficient reserves for the purpose. Furthermore, what funds he has available are given preferential tax treatment if he employs them through savings institutions, rather than directly in industrial shares. In addition, he pays less tax if he either invests in Government debt, such as National Savings, or chooses certain types of savings with the Trustee Savings Bank or building societies. On top of all this, he has to compete with such disincentives as dividend restraint, and the subjection of income from his savings in industrial shares to severe taxation as unearned income.

These are points which I made last year during the debate initiated by my noble friend Lord Hankey on a national recovery programme, but I think they are worth making again because, in my view, they are equally relevant to the subject under discussion today. After all, much so-called "investment income "derived from industrial shares is, in fact, the result of saving by thrifty people who have already met their tax liabilities during their working lives. In this connection, I wish to point out that no economy comparable to ours has a distinction between "earned" and investment "income—I think notably of the highly industrialised communities of the United States, France, and West Germany.

Therefore, it is not surprising that the individual investor has for a long time been a net seller of industrial shares to the extent of well over £1,000 million a year, with the inevitable result that his place has been taken by the institutions, mainly the pension funds and the insurance companies. Of course, these institutions vary considerably in size and, to some extent, in their investment policies, but, generally speaking, they tend—for ease of management—to concentrate on companies with a large market capitalisation. So we have a situation today where small to medium size companies, full of enterprise, and with good growth potential, feel left out of it when it comes to raising finance through the market place, and feel less inclined to seek a public quotation which they used to do in the past.

Surely this cannot be a very sensible development in a mixed economy, particularly as if more individuals were encouraged to take a direct stake in industry the small, growing company would find finance both easier and cheaper to obtain. This is a point which was emphasised earlier by the noble Viscount, Lord Caldecote. Nor do I think that this is a very desirable development socially. Here perhaps I ought to declare another personal interest as a member of the Wider Share Ownership Council, which continues to work on behalf of the individual investor. In that capacity I want to congratulate the Government on their recent announcement regarding employee share schemes. I am delighted that they are now prepared to encourage, through tax concessions, a direct shareholding and involvement of individuals in the companies for which they work.

At the same time, I am afraid that I cannot resist the temptation of saying something that I did not say when we debated the principle of these schemes earlier in the year; namely, that I attach equal importance to general tax incentives for everyone, to encourage investment in enterprise on a wider front. After all, there are enormous numbers of people who are at work in this country for undertakings which can never provide the opportunities available under employee share schemes, and I see no reason why they should not receive tax encouragement to put their savings to work in support of industry which badly needs them. While therefore recognising a change of heart by the Government over these schemes—which my council has ceaselessly advocated over many years—I am afraid that I can view this only as a very small step in the right direction.

I really am amazed at the way we have allowed this drift of the individual investor away from supporting industry in his own country, when it is within our capacity to prevent it, and therefore I hope that we will now see the present Government, and any successor Government, actively encouraging the individual to take his rightful place in the general scheme of industrial growth. I say this with some emphasis, because I believe that it is now widely recognised that expansion by the small-and medium-size company probably offers the best chance of reducing unemployment to any significant extent. This, too, was a point emphasised by the noble Viscount, Lord Caldecote. That surely is what encouragement of enterprise is ultimately all about.

In fact, my Lords, I am very aware of one medium size company which is at present carrying out a programme to build two factories at a cost of just under £4 million, with the help of private backing. On completion, this project will provide much needed work for over a hundred people. Admittedly, in this case the private backing is coming mainly from one source. However, I do not think that this alters my case for enabling the small private investor to play his part. Perhaps this may be the subject of further discussion during the debate to be initiated by the noble Viscount, Lord Amory, in two weeks' time. I am grateful to my noble friend Lord Baker for having introduced today's debate, and although I have not followed him in the field of engineering, I hope that my remarks have been constructive within the context of his Motion to encourage enterprise and stimulate industrial growth.

6.57 p.m.

The MINISTER of STATE, NORTHERN IRELAND OFFICE (Lord Melchett)

My Lords, first, I want to join all the other speakers who have taken part in the debate in congratulating the three maiden speakers. My noble friend Lord Donnet brought to the debate the benefit of his great industrial experience, and I very much agreed with what he said about the real waste being the waste of potential of those tragically high number of people who are currently unemployed. The noble Lord, Lord Thomas, made a point about the disincentive effect of the level of benefits, and I would have said to the noble Lord had he been present now, that in my experience, and in any view, in practice, the misery of unemployment far outweighs any marginal economic benefit which a very few people with large families may receive by being unemployed and deriving an income from supplementary or unemployment benefit.

I wish to say, with great respect, that the noble Lord, Lord Croham, made an excellent maiden speech. If there is time, I should like to return later in my own contribution, to what the noble Lord said about micro-technology and its importance for the future. I was delighted to note two particular points that he made in his speech. The first was about the importance not only of products and industries, but also of developing services. I saw an extremely interesting article in The Times newspaper a few weeks ago about the importance, in terms of the future of this country, of developing service employment, not only in the City and the Stock Exchange—which noble Lords opposite constantly tell us is a very good export industry—but in many other fields as well. I was also glad that the noble Lord, Lord Croham, made the point that innovation came from the public as well as the private sector; and this is another point to which I hope to return later, if time permits. It is a particular pleasure to congratulate my noble friend Lord Plant on his maiden speech. He and I tend to see one another more frequently in Belfast—where he acts as a very much valued chairman of the Standing Advisory Committee on Human Rights—than in your Lordships' House. I tended at times during the afternoon to take another point of similarity between my job in Northern Ireland and something which my noble friend Lord Plant mentioned in his remarks: that on occasions it seemed that people were stronger on suggesting what the problems are than on suggesting new remedies to them.

My Lords, I confess, having congratulated three excellent maiden speakers, that I feel very much like a maiden speaker myself. It is at least 18 months since I replied to a debate in your Lordships' House, and I think it would be fair to say a good deal longer since I replied to a debate of such quality as this afternoon's. Besides that disadvantage, I was, I think, condemned at a fairly early stage of the debate by the noble Lord, Lord Baker, as one of a generation which has been so pampered that we take engineering miracles for granted, and I would certainly accept that rebuke. The noble Earl, Lord Gowrie, also rebuked me, complaining that I am not currently based in an economic Department. Still, I hope that, as Minister with responsibility for regenerating the most deprived inner city area in the United Kingdom—incidentally, one suffering from the highest rate of unemployment in the United Kingdom—I will make at least nearly as good a job of answering the debate as an ex-lecturer in American history made in opening for the Front Bench opposite.

The Earl of GOWRIE

My Lords, that is a nicely turned phrase. In fact, the noble Lord is attacking me for something I did not do. I had no personal rebuke for the noble Lord at all. My rebuke was for the Government in not providing us with an economic Minister. That is another matter.

Lord MELCHETT

My Lords, I apologise if I attacked the noble Earl for something he did not say, and will try to confine my remarks during the rest of my speech to attacking things which he did say. The noble Earl, Lord Gowrie, told us again this afternoon about a private survey which he conducted of careers chosen by a sample of his friends, and I remember hearing this with great interest two years ago, when he made those remarks. I am quite sure that if I conducted a similar survey among my own friends, coming from very much the same background and education as the noble Earl, I would come out with very much the same results. Indeed, I think it is fair to say that the noble Earl and I are both quite good examples of people who went wrong in this particular context. But I wondered today, hearing the noble Earl repeating those remarks, as I did two years ago when he originally made them, just what our respective experiences would have been had we both come from working-class backgrounds. Had we lived, for example, in a mining village, we and all our friends would have been, I suspect, likely to be engaged in very productive work; and I cannot help feeling that when the opportunities that the noble Earl and I both had are really available to all sections of the community, we will see more graduates with a bias towards manufacturing industry coming out of our universities.

My Lords, this theme of the effect of education and the results of our educative process for industry is something which I am particularly interested in, having moved from the Department of Industry to having responsibility for the Department of Education in Northern Ireland, so I have to some extent seen both sides of this matter from within Government, at least. My noble friend Lord Plant stressed, I think, the need for teachers to encourage young people to go into industry, and to present careers in industry in a way that is attractive to young people; and I could not agree more with what he said. But I must say that I very strongly feel that both sides in this problem have to make substantial changes.

When I was at the Department of Industry I was extremely struck by an experience I had when I went along to a course which was being run in a London university by something called PETT, Project for Engineers and Technologists for Tommorrow, which has been doing excellent work under the Department of Industry for several years now. That course was being run to try to encourage first-year A-level students who were doing chemistry, physics or maths to go to university to do engineering and to go from university into industry. A very great deal of trouble was being taken, both by the university and by several large companies—the Steel Corporation, ICI and many others were involved in this three-day course—to encourage young people at a very early stage in their education to think in terms of engineering and a career in industry following a university degree. In particular, I was very struck by the number of women and young girls that there were on this course; by the opposition which they had had to overcome, very often from their teachers, to get there; and by the enthusiasm which they showed for everything they had seen in the university and in the various manufacturing industries which they had visited. The noble Lord, Lord Baker, I think in his opening remarks, said that the women would come along and eventually bale us out. From my own experience, I would say to him that several are on their way already.

There are, of course, other problems in recruiting and keeping good engineers in this country. In 1971, of the 182,000 engineers in employment about 97,000, or 53 per cent., had qualified via the HNC part-time route, acquiring a detailed understanding of industry and producing a group of highly-motivated and competent engineers within industry. In 1971 the Council of Engineering Institutions changed its requirements to a degree standard, so that nowadays the great majority of engineers—maybe over 90 per cent.—are educated as undergraduates. This means that the characteristics of the supply of engineers have changed dramati- cally; and this has led to an urgent need for more industrial training. On top of this, many people accept that engineering courses as a whole need many other basic changes in order that our qualified engineers can be seen to be equal to the best engineers in, say, France or Germany, where engineers are more highly paid, are more often to be found in boardrooms and, by comparison, form a more highly respected profession as a whole.

The problems have not been helped by the internal difficulties in the relationships of engineering institutions within the CEI. Because of these problems, and particularly because of the importance (which many speakers in today's debate have stressed) of engineers to our manufacturing industry, the Department of Industry last year set up the Finniston inquiry into the engineering profession. At the same time the Government have taken a number of steps aimed at improving the status and quality of engineers. The Department of Education and Science has recently announced the availability of the first 100 national engineering scholarships, worth £500 a year tax-free and free of parental contribution. The scholarships are jointly financed by the Government and many leading firms, and are being limited this year to students on the new four-year enriched engineering courses being set up at selected universities. The Department of Industry has helped to fund the expansion of a joint Cambridge and Lancashire University post-graduate training course on advanced production methods and management, and jointly with the Science Research Council has set up a teaching company scheme concerned both with post-graduate training and with the application in firms of advanced technology.

Baroness SEEAR

My Lords, I am sorry to interrupt the noble Lord the Minister, but it would be very helpful if he would tell us whether that £500 grant—sometimes subscribed by firms, I understood him to say—will be exempt from the recent statement by the Inland Revenue that such grants financed by firms will be taxed against the firms' income.

Lord MELCHETT

My Lords, I think I would need notice of a tax question of that sort. Certainly the £500 grants are not means-tested; they are free of any parental contribution in the way that other student grants are, and I imagine that they are treated in the same way as other student grants paid to students at universities. But if I am wrong about that I will let the noble Baroness know. She is quite right to say that many leading companies have contributed towards the cost of these. Indeed, I was responsible in Northern Ireland for writing to many leading engineering firms there asking for their support.

I was saying that the Engineering Industry Training Board has a manufacturing fellowship scheme to help and prepare the more able engineers to move into manufacturing management, and also makes generous grants for the training of new engineering graduates. I hope that all that adds up to a fair amount of activity in advance of the Finniston Inquiry's report, which we await with considerable interest, and shows that the Government are very concerned, and indeed have been for some time, about many of the points which the noble Lord, Lord Baker, made in introducing today's debate.

The noble Baroness, Lady Seear, suggested, after the noble Earl, Lord Gowrie, had sat down, that he might have been starting a General Election campaign. I must say that, with long quotations from my right honourable friend the Secretary of State for the Environment and remarks about persuasion and assent when it comes to pay policy in the future, and economic policy, the noble Earl will make a very welcome addition to any Labour Party platform, whether it is before or after Christmas.

I think, without trying to score any points, that there was a large measure of agreement in many of the contributions to this afternoon's debate. But we heard two conflicting views on how industrial success is to be achieved and on the contribution of Government policy. On the one hand, there are those like the noble Viscount, Lord Mongomery of Alamein, and the noble Lord, Lord Hewlett, who put their faith in market forces. On the other hand, there are those like my noble friend Lord Hatch, who believe that positive Government involvement in our industrial life, in industry and at company level, is necessary if we are to reverse our industrial decline—a decline which my noble friend Lord Balogh pointed out had been going on for a great many years under a great many Governments and under a great many different taxation policies.

I place myself firmly in the second camp. Had it been left to market forces, whole tracts of British industry would now have been crippled or closed down: aero engines, volume car production, shipbuilding, computers, textiles and footwear are all examples. In these areas, without Government intervention, there would have been no enterprise, no innovation, no growth, because there would have been no industries. The noble Baroness, Lady Seear, suggested that this was a short-term policy to safeguard employment and to reduce unemployment. I, on the contrary, see it as a vital policy to safeguard our industrial future.

The public sector itself has a fine record of innovation. Examples are the Post Office Viewdata. the British Rail high-speed train, the National Coal Board's world lead in technology for the liquefaction and gasification of coal. The noble Lord, Lord Hewlett, referred in passing (and in not entirely complimentary terms as I understood it) to the National Enterprise Board. The NEB has made a major contribution to growth and innovation. The NEB may be more often in the news through its work in helping large companies like British Leyland and Rolls-Royce out of past difficulties and into more profitable times ahead—and I agree with the noble Baroness that they need to move into more profitable times—but, side by side with that well-publicised work, goes the NEB's work on investment strategy, selecting areas of industry and particular companies where the potential for growth is there and helping them to expand. There is no lack of examples to show that the NEB are getting on with this task.

There has been considerable public discussion lately on the importance of the computer and micro-electronics industries and the effect that they will have in the future on every aspect of our lives, in industry and in the home. As my noble friend Lord Plant said, the NEB are helping 10 companies in this sector and the number is continuing to grow. Besides computers and micro-electronics, the NEB is investing in office equipment, high technology spark erosion machine tools, and so on. The purpose behind all these investments is the same. The words of the Industry Act 1975 sound grandiose and I suspect that they are words which some of your Lordships spent considerable time discussing when this Bill was before the House. The Act describes the development or assistance of the economy, the production of industrial efficiency and international competitiveness, and the provision, maintenance or safeguarding of productive employment; but it is through selected investment in individual companies, some of them quite small companies, that the NEB are working to help growth and innovation in industry.

The noble Viscount, Lord Caldecote, made an interesting suggestion for a new method of generating new products involving the Design Council. I remember with pleasure my own visit to the Design Council when I was at the Department of Industry. As the noble Viscount said, this suggestion has been put to the Department and they are considering it in the light of the schemes that they have currently in operation.

The noble Lord, Lord Baker, started the debate by saying that this is a great industrial nation. I was delighted that we started on that positive note and I hope that we can end also on an optimistic note. If it will help, I could make a small contribution to the noble Lord, Lord Baker, by telling him that the Chief Scientist at the Department of Industry, to whom he referred, was re-titled Chief Scientist and Engineer last month. I understand that his qualifications have not changed within that period; nevertheless, the Department of Industry's heart is clearly in the place in which the noble Lord, Lord Baker, would like to see it.

The noble Lord, Lord Baker, suggested in his opening remarks that all companies should emulate the most successful. The fact that many are successful shows not only that it is possible now, as it has always been, but that it is possible despite some of the gloomy remarks which some noble Lords opposite have seemingly been keen to make about this country. I very much hope that all those involved, whether in the private or public sector, will heed what the noble Lord, Lord Baker, has said, and emulate the most successful.

Lord HARMAR-NICHOLLS

My Lords, before the noble Lord sits down, has he no comment to make on the contribution of my noble friend Lord Terrington? He said that he was not in a position to refer to tax when passing over the question put by the noble Baroness, Lady Seear. But surely if it is enterprise that we are after and the reinvigoration of our industry, one must refer to tax. Has he nothing to say at all? That is really the key to the market forces playing any part to compete with the Government help that is given.

Lord MELCHETT

My Lords, some of us have been listening to a long debate since before 3 o'clock and I had already spoken for 18 minutes. I have not been able to cover many of the points which noble Lords have raised, and many of which the noble Lord would not have heard since he was not in the Chamber; but I will certainly undertake to write to any noble Lord who feels that I have not answered his contribution sufficiently.

Lord HEWLETT

My Lords, before the noble Lord sits down, could it not be understood that by far the majority of Peers addressing the House this afternoon have dealt with taxation and with the fiscal position particularly of managers? Has he no comment whatever to make?

Lord MELCHETT

My Lords, if it is the wish of the House I shall be happy to talk about that for another ten minutes but it is a large subject that will take a considerable time. I dealt with the remark in particular which the noble Lord, Lord Baker, has made. If the noble Lord would like me to write to him, I will do so.

Baroness GAITSKELL

My Lords, would it not be true to say that the very fact that everyone on the opposite side has talked about practically solely taxation, and has put the whole emphasis on taxation, is not at all a credit to this country? It is simply a very ingrown comment on the way we review industry.

7.19 p.m.

Lord BAKER

My Lords, I want to thank all noble Lords, the right reverend Prelate and the noble Baroness, Lady Seear. I may be breaking a convention in not sweeping her in with "all noble Lords", but I gain such benefit from her speeches that I am quite prepared to do so. I was touched that two speakers identified themselves as former colleagues and one as a former pupil. The noble Viscount, Lord Montgomery of Alamein, need not have been so modest. How otherwise would I have remembered him from the thousand or so fellows that he dwelt among? When I come to think about it, it may have been his distinction in the air squadron rather than in the examination room that brought him to my mind.

I must say that it is a great pleasure to congratulate three maiden speakers for three outstanding speeches: the noble Lords, Lord Donnet, Lord Plant and Lord Croham—and I am tempted there to note that he mentioned the date 1947 When I think he felt he was more confident than he has felt since. There is some slight correlation there with the remarks that I made in my speech. The two factors that I spoke of as rather upsetting occurred at about that time. I knew that I was proposing an important subject but I did not expect such an interesting and important debate. It seems to me to have been constructive and, when one thinks of the intractable problem, I do not think I can say much more than that.

I should like to thank the Minister, the noble Lord, Lord Melchett, for his reply and for dealing so fully with the engineering matters that I brought up. The remarks were most reassuring. I am delighted to hear about the Chief Scientist and Engineer at the Department of Industry. I hope that I shall survive long enough to see him become the Chief Engineer and Scientist—and possibly even, just briefly, the Chief Engineer. I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.