ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH (Hansard, 2 November 1978)

§ Lord THORNEYCROFT

My Lords, I rise to continue the adjourned debate, and it has been suggested to me that it might be convenient if I made a few remarks upon the economic and industrial questions. I was brought up in a tradition where one declared one's interests to the House, and I have some. I am chairman of Trust Houses Forte Limited, Pye of Cambridge and the Pirelli Companies in the United Kingdom, but my remarks will not necessarily imply that I express the views of those companies. As it happens, I am also chairman of the Conservative Party which has some views on these matters.

I am bound to say that I am not very tempted to enter into the detail of the gracious Speech. Somehow it does not seem to grip me in that way. However, I thought that it might help if I said something about those references to the part which Her Majesty's Government hope to play in Europe and the battle—and Heaven knows it is a battle—that has to be fought against inflation and unemployment. Your Lordships' House is perhaps not a bad place in which to debate matters of that kind, because we count among our Members representatives of the trade unions, men with experience in the Confederation of British Industry, chairmen of companies, bankers, economists, diplomats—people who have played a leading role in both the public and the private sectors. May I say—because it is always good to start on the non-controversial side—that in my view we are not all of us as black as we are sometimes painted.

30 Trade union leaders are not concerned with the break-up of the capitalist system; they are concerned with how to work within it and the mixed economy that goes with it. The Confederation of British Industry is at present busily engaged in trying to improve the methods of collective bargaining. Companies, even great multinational companies with which I am associated, and which are sometimes cast in satanic roles in the public Press, make an enormous contribution to the creation of wealth and the provision of jobs and employment in this country. The public and private sectors are not engaged in war with one another. They are both customers and consumers of one another's goods and, thank Heaven, very often partners in great overseas projects and matters of that kind.

Therefore, there is nothing very much wrong with the actors; nor is there much wrong with the setting. The stage upon which we act is a country rich in resources with great reserves of skills, with supplies of coal, natural gas and oil. It is fertile and is all set in an island so beautiful that men and women come from everywhere to see it and the historic sights, arts and treasures which we possess. There is nothing wrong with the actors, the setting or the stage. However, I am a little worried about the play that is being enacted at present.

Why is it that we manage to be, with all that going for us, among the least productive, the lowest paid and the highest taxed countries in Western Europe? Why is it that the Treasury is estimating that, without natural gas and North Sea oil, there would be a deficit in this coming year of £3.5 billion?—which means that we are really using all those great assets simply to keep going without really sparing anything for the investment, the repayment of debt and the rest.

It is necessary to take a cold, hard look at what is going on in British factories. In factory after factory we are 15 to 50 per cent. below the productive capacity of our main competitors and rivals in Japan, the United States, France, Germany or Holland. We survive—we even sometimes earn a profit. We sell abroad, but we sell against the background of the protection provided by a declining currency, for that is what it is. We sell by 31 holding wages—and we shall all talk about wages in this debate—lower than the wages of practically every other industrial country in Europe.

Even with record tax rates we find it hard to raise the revenues to pay for education, the Health Service and all our other social service. We have borrowed to the hilt. We have halved the value of the pound. It seems to me that between us we have managed to create rather an odd world. Unemployment is up and yet "moonlighting" is now a kind of regular occupation in the country. Tax evasion has become the most prized reward that one can offer anyone to do a job. If young men arc asked on television what they propose to do, one after another they choose the social services rather than productive enterprise. The whole system of rewards and penalties, with which most of us were brought up, has somehow or another been turned upside down. I am not here to make an attack about all that. I dare say that some things could have been better done and perhaps it would have been better some had not been done at all.

Some of the matters I have mentioned ought to receive more attention than they do. We spend a tremendous amount of time talking about wages and very little time talking about production. Yet, whatever happens in the rest of the world, unless we can get the production right it will be others who take the growing markets, not us. Therefore, I think that incentives, rewards and productive efficiency ought to be the main themes of industrial and political circles.

First, I want to ask where the Government would really like to take this country. It is no longer a great empire; it is a part of the Continent of Europe. But the leadership of Europe has been passing from us—if it was ever there—to Germany and France. I am bound to say that I am a little unhappy to contemplate this country as the most reluctant recruit of all, grumbling a bit and renowned mostly for a rather untidy barrack room. I believe that we have a better role to play. Although it is not directly referred to in the Speech, perhaps the most important decision that Her Majesty's Government will have to take in the months or even weeks ahead is the attitude they will take 32 towards the European monetary system, which is important in terms of both foreign policy and finance. I do not pretend that that decision will be an easy one. My Party was not a party to the negotiations and it would be foolish of me to commit that Party to some line in matters on which one cannot be fully informed unless one has participated in detail with all the advice that can be given.

But, basically, it is not a technical decision that has to be taken. It is not a decision about baskets and snakes; it is about our attitude to life; it is what we are determined this country should do or should be capable of doing. It is a question whether we intend to play a major role in Europe or whether we are content to be on the fringe. I am a little worried about the prospect of Great Britain staying on the fringe of Europe and living a kind of Rake's Progress of its own. Therefore, I would rather like the Government to say as much as they can sensibly and safely say on what attitude they could take. Basically, the question that has to be answered is this: Do Her Majesty's Government contemplate the possibility of aligning our economic policies with those of Europe, or not? That is a critical decision, far more important than practically any of the other matters that are referred to in the gracious Speech, because it will affect us not for 12 months but for a generation.

Do we, or do we not, wish to accept or consider accepting the financial disciplines which plainly the Germans have accepted and which others are willing to accept, and without which we would be unfit to play our part—indeed, it would be dangerous to attempt to do so? Are we willing to accept, now or in the near future, the strong disciplines which are required in matters of that kind? Maybe the time is not now. I have forgotten which saint it was who said: Dear Lord, make me chaste but not just yet". A decision one way or another must be taken some time on whether we are willing to accept disciplines of that kind. The Opposition cannot take that decision for the Government. This field falls into an area which is more appropriate to a national than a Party approach. If we are to do it at all, it were better that we all do it together and that we all do it 33 with determination. I would simply say that I do not see the role of an Opposition as exploiting every difficulty along the way or deriding every hope that might emerge. If the Government can see their way to go forward, I think that one would be disposed not to make the path more difficult than it already is.

I realise that our capacity for manoeuvre overseas is dictated in no small measure by our strength at home. Just as my first question concerned our attitude to what we do overseas, I now want to ask about our attitude at home. I hope that noble Lords will observe that I am not making attacks upon anybody; I am asking about attitudes. In debates of this kind one can sometimes obtain more if one tries to discover where we are trying to go. Then if we differ, we can say so. At least let us discover in which direction we are going.

A great deal has been said on the subject of wages. Certainly it is a very critical one. The question I want to ask the noble Baroness, Lady Birk, is: Do the Government envisage a fixed percentage wage norm as a permanent feature of our society? I will say that again at dictation speed because it is critical. Until one knows the answer to that question it is very difficult to know what one ought to say about it. I repeat, do the Government and the noble Baroness regard a fixed percentage wage norm as a permanent feature of society? While she is thinking over the answer to that one—or she may have it quite ready—may I make a few reflections. Twenty years ago I was Chancellor of the Exchequer and I was practising incomes policies, cash limits, and indeed monetary techniques before Milton Friedman ever started to write about them, or indeed before anybody raised them to these religious mystisicms that now surround these problems. I discovered something about them.

May I say I was very well brought up. I had the advice of men like the noble Lord, Lord Robbins, and the noble Lord, Lord Roberthall—whom I am delighted to see here, and who is going to participate in the debate—and very wise economists like Frank Paish and others who were friends of many of us there, and much I valued them. I may have been an inept pupil, and nothing I say now reflects 34 upon the education which I had, but I discovered something. You can call it, if you like, the "Thorneycroft principle". It is that none of these systems works. It is a very great discovery once you have made it. I commend it to the Government because once you have made it you can sit back and get on with governing the country. That, in itself, is a very great advance.

The best you can do is to pursue a judicious mixture of policies concerning income, preferably, may I advise, as one who has failed as often as anybody on this, without fixed percentage incomes put into it—a policy of that kind coupled with a judicious mixture of monetary techniques, and the rest. It is a policy brilliantly described in another place by Mrs. Thatcher; a policy contained in a booklet called The Right Approach to the Economy. That, I know, is the bedside reading of the noble Baroness who is to reply, so I hesitate to quote anything to her about it. However, for those who are less assiduous in their studies I have made a number of copies available in the Library so that others can study it. I recommend page 16 which indeed describes in simple and admirably clear terms what is required, and what I would call the central ground of responsibility and flexibility which represents the views of my Leader and of the Shadow Cabinet.

I would add something else. I hope very much that we stop pretending that any economic system is a substitute for common sense or a cure for the follies of the world. If people misbehave enough, if they are too greedy, if they demand too much or give too little, nothing that we politicians will ever do will really relieve them of the penalty of the follies they commit. Do not let us go round pretending that there are slick and easy answers to the mistakes and evils of the world.

I should like to give some "don'ts" to the Government, and I give them with modesty. They are based on experience; on errors which, over the years, at enormous public expense, I have committed myself, so they are valuable to listen to. Do not attempt to hold wage costs down by freezing prices. It is absolute folly. I know it is advocated by some of the trade unions. It is folly. For one, it encourages people to demand more wages because they think they are perfectly all 35 right; some godlike figure can hold prices down. For another, it is economic nonsense because all you do is attract more imports in, and the balance of payments gets into an even worse mess than it was before. So do not commit that folly. It is terrible, when one has had experience, to offer it. One always has to learn these things by making the mistakes oneself. But do not do it, is the answer. Do not tip the scales in favour of the unions and then punish the employers when they give way. You cannot hold it that way. You may feel inclined to help your friends; you may want to encourage them; but if you strengthen the unions year after year it is no good then looking at the employer and saying, "He is the chap who ought to stand up to them". Do not go on doing it. Do not buy a temporary deal on wages by committing a permanent political folly. That was what the social wage was all about. It is a mistake to do things you know are wrong in order to persuade somebody for some period to say they will stick to some percentage, which is inevitably broken.

Do not strengthen the activists at the expense of trade union leaders. What is wrong with trade union leaders today is not their strength, it is their weakness; that is what is wrong with them. The trade union leaders today have nothing like the strength over their unions of the trade union leaders that I knew when I was a young man—and some of them are in the House, too. Those great men did not stand much nonsense. Over the years, all the time, we have strengthened the activists, and weakened the leaders upon whom we ought to be depending.

Do not diminish the rewards for skill while increasing the subsidies for idleness. That is not an attack on helping the weak and the rest of it, but you must reward a man for making an extra effort or learning an extra skill. There must be some penalties and rewards left in this world. Do not allow people to get away with the idea that we are going to sell more by working less. I know that there are things in the Speech about helping people on short time, and God help them because it is very difficult at the moment, and I have never believed in moving away from positions too quickly. I think you can move much too quickly in these things. 36 But in a way it is not the answer. It is first aid stuff. It is not right to think that you can cure all the problems of the world by working half time—not unless we persuade the Japanese to do the same, and I do not see much prospect of persuading the Japanese to do the same.

Do not do these things, and do not imagine that prolonged debate on wages is a substitute for putting up production. The biggest problem facing British industry today—and I know the problem of wages is very great—is our failure to produce efficiently. That is the biggest problem we have. It is not one we are going to solve in a year, or even in two years. You cannot halve the number of men, or double the capital employed in a factory just like that. You have to move carefully, slowly, and, above all, you have to carry the men with you. This takes all the effort that all of us can give in order to bring it about, but the price of failure for this country is terrifying.

Where then do we go? I do not try and say what ought to happen because that requires wisdom far beyond my capacity. I try and say what will happen, which merely requires experience and which is a much simpler thing to deal with. The 5 per cent. will go. I do not say that cheerfully, nor do I abuse the Government about it. I failed on wages before—I think it was 4½ per cent. then—but it is no good pretending something is happening which is not happening at all. Consider the Health Service—poor Mr. Ennals being put up to say 5 per cent. was absolutely vital to the whole success of the policy. That was not Mr. Ennals speaking, and he has been a very falsely accused man. I have lived in Governments and I know what advice he was giving the Prime Minister and the Treasury. I know what the negotiators in the Health Service were saying. They were saying, "It's nonsense. You cannot go on paying the supervisors less than the men they supervise. You can't hold this position". That is what they said, and they were then forced off it. I have seen it happen before. Poor Mr. Ennals was told to read out a ridiculous statement and say it was absolutely critical that the position be held. It is not Mr. Ennals but the Government, and I suggest that the Government must think very carefully about this policy and how it is to be held. I 37 feel they must move into a rather more flexible position; at least, I must say that I have always had to move into a more flexible position.

The Prime Minister is getting into a rather ludicrous position. He is standing like some great supremo between the armies. He has given all the ammunition to the attacking forces and is standing on the ramparts, which he has lowered with his strange device of 5 per cent., and is telling the attacking forces, "If you win, do you know what I'm going to do? I'm going to shoot all the defenders for letting you in". That is an incredible position to adopt in conducting the economic policy of a Government.

That battle, I think, is lost, so what do we do? Whatever we do, we must not panic, because these sort of battles have been lost before. We shall still require restraint as well as flexibility, and I should say that we are going to require incentives, rewards and encouragements as well, and that we shall have to try to get back to some of the differentials; we shall have to find some way of paying people who work harder rather more and see that people who have skills are rewarded rather better.

People have an awful habit of quoting what they said before and I have always resisted it, but I intend to fail now and quote something I said 20 years ago when I was facing a situation not too dissimilar from that which faces Her Majesty's Government today. I was certainly under as much attack, and perhaps I should add that in those days there was a Labour Opposition. I do not know whether noble Lords opposite would agree with me, but the Conservative Party is not only better in Government but is better in Opposition, too.