INFLATION AND EMPLOYMENT: POLICIES

HL Deb 05 December 1979 vol 403 cc717-856

Debate resumed.

3.53 p.m.

The Earl of GOWRIE

My Lords, I should just like to say that we on this side are extremely proud to share these Benches with my noble friend.

Today is also an important day for our political economy. The Chancellor has been discussing the immediate and long term prospects for Britain at the December "Neddy": our only tripartite forum; and long may it survive! The House of Commons is debating the Government's expenditure plans for 1980–81. We in this House are considering pay, prices and unemployment: the three ugly sisters who seem forever to be blocking our Cinderella of an economy from going to the ball. Your Lordships will not expect me to welcome all that the noble Lord, Lord McCarthy, said in his trenchant speech which I much enjoyed. However, the only unfortunate thing about the speech made by the noble Lord, Lord McCarthy, was that it was not in fact a declaration of the policy of the official Opposition. I welcome the opportunity that the noble Lord, Lord McCarthy, has given the Government to explain both their immediate and longer-term remedies for the problems of the economy. I am very glad to see that his Motion has attracted a distinguished—indeed from my point of view a pretty formidable—lot, as well as three maidens to whose speeches on this startlingly controversial Motion we are all looking forward.

If the House gives me leave, I shall deal with the detailed points made by the noble Lord and by the noble Baroness, Lady Seear, as well as by all the speakers who are to follow me, when I wind up the debate. But I should like to make two brief preliminary points—some of the points on pay and prices issues which the noble Lord, Lord McCarthy, raised will be dealt with over the whole sweep of argument of my speech.

The only detailed points I wish to make at this stage are on what the noble Lord said about the reduction of taxation. The Government do not look upon the reduction of direct taxes as a kind of trigger mechanism. The point is simply that 30 per cent. is better than 33 per cent. When prices are going up 30 per cent. it is still better than 33 per cent; when prices, as a result of a counter-inflation policy, are coming down, then it is substantially better and there is no question of our abandoning the desire to have the principal shift in the burden of taxation away from direct and on to indirect taxation.

May I just say to the noble Baroness, Lady Seear, who courteously informed me that she will not be able to be here at "wind-up", that there is no question that control of M3 is the single shot in the Government's political or policy locker. If I may say so very politely to the noble Baroness, with whom I have shared every economic debate in this House since the last Conservative Government were in power and for whom I have immense respect, she has been listening to too many academic comments and possibly to too many debates in your Lordships' House if she thinks that is so. What I should like to say to her is that we find that there is a statistical corrolation between the level of money available to an economy and the level of inflation if it is looked at over the 10-year period. Therefore we think that some attention should be paid to that, but it is certainly not the only—or indeed the principal—aim of policy.

What I should like to do as quickly as I can, is to give a brief outline of the Government's "flight plan", so to speak: where they are trying to go and how they are trying to get there. I think there is wide agreement about the nature of Britain's economic difficulties. We have debated our difficulties frequently, and indeed recently, in this House, and there is not very much new to say, so I hope I shall be let off with a brief résumé.

In economic terms Britain is two nations, though not quite in the sense that Disraeli described. There is a dynamic and prosperous nation, mainly but not exclusively in the South. This nation lives mainly by services: the export of financial services and the kinds of expensive manufactures, high technology products and luxury goods which virtually constitute a service. It is supported by a highly productive agriculture and by the service industries which its own dynamism creates. It has the educational, the scientific and the technological capacity to enable it to continue to prosper, other things being equal. But, my Lords, they are getting day by day less equal. It is a stable and settled people who live in what are still mainly very beautiful surroundings. It has the folk memory (though this may not always be an advantage) of having enjoyed a spell as the richest, most powerful and yet most civilised nation in human history.

Crudely soldered on to this nation, and mainly but not exclusively in the North, is the debris of a great manufacturing civilisation. For years it has been in relative decline and now it is in absolute decline. It is under-invested, not because there is any shortage of funds, as the noble Lord, Lord Lever, told us in the last economic debate in this House; but because it is signally unprofitable. It suffers from poor and frustrated management: partly because the rewards and styles of life are so much better for management in the service and financial sectors, and partly because so much of management's time is spent dealing not with manufactures but with manpower. It has weak trade unions with immense negative powers; or, if you prefer to put it the other way round, it has strong trade unions with few positive powers. It employs far more people than its productivity can sustain. Its people live surrounded by the visible and tangible evidence of bitter decline. And while they, too, have a folk memory of greatness as a manufacturing civilisation they have also inherited not the fruits but the sweat of that civilisation: the sour memories which enable the great labour unions, incredibly, it seems to us, in 1979, to trade in the emotions of the exploited, or of the underdog.

My Lords, since the war successive Governments have tried to unite these two nations. The whole thrust of policy has been to get them to share the same social services, the same educational system. The high capital taxes and high marginal rates of income tax have tried, with broad success—or broad success, at least, until the inflation—to spread the wealth more evenly. An immense bureaucracy, whether in central or local government or in the labour organisations, or in the educational and social services themselves, has grown up to unite these nations by administration, as it were. Although our inherited political system makes it rather hard for us to say so, there has been far more consensus than conflict in these aims, and usually too in the methods of economic policy.

What are they? To get consumption up, to get productivity up, to go for growth, to improve the social services, to extend the social services, to correct regional imbalances, above all to keep unemployment down: these have been the aims of every Government since the war. Concerning the last few years we can add another aim: containing inflation and trying to bring it down. Much more consensus than conflict: in theoretical aims if not in actual practice.

In spite of this relative consensus the two nations are less united than ever. The manufacturing sector is virtually in collapse. This, coupled with inflation, makes it impossible for the service sector to generate enough wealth to support it, or to support the taxes which support the social services on which these policies of consensus depend. If the centre cannot hold it it is because it can no longer afford it. As things fall apart the political clamour becomes strident and shrill. The Labour Party try to distract attention from the necessary but uncomfortable business of deciding whether to become a socialist or social democratic party. They attack policies which they presided over and administered and promoted only a year or so back.

What on earth is the Leader of the Opposition, Mr. Callaghan, doing at the head of a march against the cuts? He and Mr. Healey and Mr. Barnett and the noble Lord, Lord Lever, had the distinction of cutting public expenditure by 6 per cent. in one year; by £4,000 million. That is by four times the differential cost to us of the Common Agricultural Policy. By contrast this Government have, with considerable pain and grief, succeeded in stabilising our predecessors' expenditure; in fact we have added to that expenditure by some 0.2 per cent.

That is something; that is a sensible beginning: progressive stabilisation is a better procedure, in our view, than hiccups or fits and starts or veering from one extreme to another. But it is nothing to tear up and down the streets for, or indeed against. Then there is the Conservative Party. It too has a significant minority of opinion within it moving away from the consensus I talked about—although not so much, in my view, because of a turning away from one-nation policies but because some despair that we shall ever again be able to afford them.

Where does this leave the Government? We have three overriding aims. To deal with the situation that we find, with our legacy: because I do not accept—and this is perhaps a significant and substantial difference between me and noble Lords opposite—that the present inflation is anything to do with Government policy so far, or with the Budget. Secondly, to follow all Governments—another aim—of the past 20 or more years in turning the economy round, in getting the productivity going on which our tax base and our social services depend; only this time to succeed, to actually make it start to happen. Thirdly, to bring down the inflation; the context or climate in which all our troubles flourish and multiply. Let me begin with the legacy.

Lord McCARTHY

My Lords, would the noble Earl allow me to intervene? I am trying to follow him. Did I understand him to say just now that the policy of the Governent has not affected inflation? I thought that it was a common ground between us, and that the Chancellor of the Exchequer had said, that the VAT added between 3 per cent. and 4 per cent., and the mortgage rate another 1 per cent., which makes 5 per cent.

The Earl of GOWRIE

My Lords, unlike the noble Lord, I do not interpret inflation in terms of the retail price index. Perhaps we could take up that difference between us.

Lord McCARTHY

My Lords, thought the retail price index meant rising prices. The noble Earl's definition does not include rising prices?

The Earl of GOWRIE

My Lords, of course any inflation will affect the rise in prices, but if you raise prices deliberately by taxation methods, or switching one form of tax charge to another area, that is not in itself a permanent inflationary action. It may bring inflation up, or it may bring prices up in a particular given fiscal year, but it does not do so in the next fiscal year.

I said that I wanted to begin with the legacy. All Governments blame their predecessors. Apart from pointing out that Labour has had the lion's share of office during this spectacular acceleration of our relative decline over the last 15 years, I am not going to do so. Indeed, I am going to praise aspects of the last Government's legacy. I want instead to point out that the policies to counter inflation which we are pursuing and which the noble Lord's Motion calls neither fair nor effective, are in fact substantially those whose example was bequeathed to us by the last Government during the one period of their term of office when they met with some success.

One of the reasons we are certain that we shall bring the inflation down is that we do have the example of the trial run of the period when the last Government were influenced, to put that rather politely, by the International Monetary Fund. It is a remarkable fact that in 1976 and 1977 and the first part of 1978 there was a minimum lending rate of 15 per cent.; public spending cuts amounting to some £4 billion; a cut-back of £6 billion in the public sector borrowing requirement. Quite remarkable. But let us also remark the result.

I am not making any crude mechanistic correlation here, and the noble Lord will have his chance in a minute, but let us look at what happened. Inflation fell from 14.7 per cent. in October 1976 to 7.4 per cent. in June 1978. If the noble Lord will again contain himself, I am coming to the point about incomes policies in a second. The unemployment figures during this period are also instructive. In January 1977 unemployment was 5.4 per cent. or just over 1¼ million seasonally adjusted. By the end of that year, December 1977, it had risen to 1,363,000 or 5.8 per cent. One year later, by Christmas 1978, it had stabilised back, indeed fallen slightly, to 1,261,000 or 5.3 per cent., and by the general election it was down to 5.2 per cent. We do not believe that Taylor and Threadgold, or any other academic study, can altogether argue those effects away.

In a common and accurate image, the ship of State is of course a super-tanker. When you turn the wheel it takes several miles before anything happens, which is no doubt why we suffer badly from pollution of the seas. The last Government demonstrated that monetary and fiscal policies had some bearing on the bringing down of rates of inflation. No doubt they would also claim that their pay policy helped to do so as well. That may indeed be the case, but it seems to me to be a rather harder case to demonstrate. But I am quite prepared, for the purposes of this debate, to concede the case at least to the degree that the directives on earnings limits made by the last Government helped.

But if they helped, nevertheless it remains true that the deflationary policy of dear credit and a cut in public spending, and a reduction in public borrowing, made a substantial dent in the rate of inflation. You do not have to be a monetarist—and I certainly do not class myself as a monetarist, or indeed anything else—to notice that, in an economy, high rates of inflation and high rates of unemployment go together.

My argument is that there is some agreement, consensus, whatever you will, about one part at least of this Government's counter-inflation policy. Tight money controls—or, if one takes money as a commodity, expensive money—have a role to play. So does tight control over public borrowing and spending. One does not have to go to Chicago or be what the noble Lord, Lord McCarthy, called a "guru of monetary economics" to agree with Mr. Joel Barnett when he said as recently as 25th September—and I remind noble Lords that this was the last Financial Secretary to the Treasury speaking— We have to face the unpalatable fact that with, at best, low growth and, at worst, nil or even negative growth, public expenditure cuts will be necessary … the laws of arithmetic do not change with a change of Government ".

Lord McCARTHY

My Lords, will the noble Earl continue that quotation? This is what was pointed out in another place last week. The quotation continues and shows that the honourable Member of another place wants to see that done so that other areas of public expenditure can expand. It is not an argument for overall cuts in public expenditure if one reads the entire quotation.

The Earl of GOWRIE

My Lords, if the noble Lord will do me the courtesy of turning in Hansard to the early part of my speech he will see that we are all in favour of certain sectors of public expenditure expanding. As I have frequently said, one of the most pleasant jobs that a Minister can have is spending other people's money. The question is getting up the amount of money which we can obtain by taxation without destroying any given profitable sector of the economy.

Another part of our legacy was less welcome. We shall pay dearly, indeed we are paying dearly, for the last Government's boosting of demand in 1978, once North Sea oil had liberated it from the International Monetary Fund, and for their boosting of public spending. That inflation, and I may say in real terms those imports, are still galloping their way through the economy. How the Japanese must long for the run-up to general elections! How the Japanese must long for Keynesians to take command at the Treasury! But even more serious in my view was our legacy on pay issues and indeed the ambivalence of the Labour Party, whether in Government or in Opposition, towards the whole question of centralised pay policy. I exempt the noble Baroness from any ambivalence in this connection—although there are difficulties in her applying any sanctions to her programme—because the record of the Liberal Party in incomes policy matters is consistent if only because it has never been in a position to try them.

All Governments would like to have pay policies if they could pay for them. It seems to me that, from the remarks I have heard from noble Lords opposite, including the noble Lord, Lord McCarthy, today, and from all I have read coming from the Opposition in another place, the Opposition is moving towards the idea of a permanent incomes policy. If that is the case, it should say so. The indications of official Labour Party policy are, in fact, that it is not the case. But, we are entitled to ask, what are the trade-offs for such a policy?

If the trade-off is expansion of public expenditure, or of public borrowing, or of the money supply—although I put that as least important—then we are agreed that the counter-inflationary effects of pay policy are nil. Worse, they are probably minus, and if they are minus they do not have much chance of holding, of going on, or of obtaining sufficient consent.

If the trade-off is an expansion of the corporate power of the TUC leadership, well, whatever we may think about it, our view is that it might not greatly impress the bulk of union membership. If the trade-off is a corporate socialist state, withdrawal from the Common Market, import controls, disarmament, supply—rather than price-rationing and all the rest of the package of the Left—which it has perfectly honourable declared—then that may not be compatible with Parliamentary democracy or the party system.

If the trade-off is price controls—and I shall not waste time on something which has had as little effect on prices as the Price Commission—then what is the effect on investment and productivity? I shall concede to noble Lords in all parts of the House that incomes policies have an immediate, if, in my view, short-term, effect on levels of employment. I remain sceptical about their effects on inflation. Indeed, I go further and argue that they can be inflationary, and can therefore generate greater unemployment. They lower wage cost inflation in the early stages and they increase the pressures for it as time goes on. If they break down, as we have seen in the last wage round and are seeing now, they open the floodgates. There is also, in my view, a moral objection to them. The logical end of incomes controls is that the Government decide, the State decides, what we shall all be paid. Speaking entirely for myself, I do not believe that that is compatible with a mixed economy or an open society.

Is the alternative a free collective jungle, the "snouts in the trough " in Mr. Sid Weighell's colourful phrase? I do not think that it need be, although I acknowledge that everything in this declining economy—all policy in fact—is fraught with risk. There is evidence creeping in, as the present wage round progresses, of a plurality of settlements. There is evidence that people are beginning to accept that strike action, particularly in the initial stages of a dispute, is not necessarily a solution—witness the result of the miner's ballot today. There is evidence that stick works as well as carrot and that settlements moderate as fear of unemployment sinks in.

Unemployment will rise, I have no doubt of that. It is being propelled by the accelerating erosion of our manufacturing base—take steel as an example. It is locked into the next year or two by the consumer boom of last year. It is waiting for us if we relent in our policy of progressive stabilisation of public spending for an instant. It is guaranteed to all political philosophies or party practices by our dependence on the Western community and by the Western community's dependence on the shifting sands, or rather what lies underneath them, of the Near East.

Above all, unemployment waits upon what wage claims can do to unit costs in the private sector—and I must include there the producing bits of the public sector—and upon what wage claims do to the quality and quantity of services in the public sector. As I have always argued from this Box or the Box opposite, the greater difficulty which a Conservative Government will face will be with local authorities who prefer to cut services rather than resist large wage claims which they cannot afford.

Over 70 per cent. of the rate support grant is now being swallowed in wages. Our greatest challenge will be to convince people in this country that they can take money in the form of money or in the form of services, but increasingly less, in a no-growth economy, in the form of both. I have never concealed which I prefer. I have never been anything but in favour of a high wage economy. I attribute many of our difficulties to the Imperial decades of cheap food and cheap labour. Cheap food and cheap labour mean low motivation towards the high technology which cuts labour costs, which increases production and which incidentally creates a lively service and small business sector which soaks up the displaced labour.

I want to see this country move to high technology, high productivity, high wage and low-manned industries. I want to see a lively and proliferating small business sector—not merely soaking up displaced employment but generating new employment and new and marketable ways of meeting people's needs. But neither move can be made if the claims of authority, if the claims of the State itself, continue to outstrip the resources available to it and loom, like some awful ministerial office block, over the small street and backyard enterprise that should make a up lively market place. That is why we have to squeeze the inflation out and get the public borrowing down—not in a sudden lurch, compensated for, as with the last Government, by falling into the bad old ways again, but steadily, progressively and continuously, a conscious shift of resources from one arena of this economy's activity to another.

In the first speech that I made from this Box as a Member of this Government, I said that we were handing back to employers and trade unions the awesome responsibility for the general levels of employment in this country. This is a serious message and we mean it seriously. As a Government—and this is the point I want to underline—we are much more frightened by the unemployment which will be created by continuing inflation than we are by the unemployment caused by our measures to combat inflation. The latter is temporary or non-malignant; the former may be terminal. Within tight control of the money supply, excessive wage settlements, whether in the public or private sectors, can only lead to redundancies and in private firms to bankruptcies. We have not forgotten—and I join the noble Baroness in urging the unions also not to forget—that the massive pay awards of the size agreed in 1974–75 contributed not only to the peak inflation rate of 26.9 per cent. in August 1975, but to the doubling of unemployment in 12 months.

We acknowledge that the level of unemployment in this economy will, in the next two or three years, depend heavily on union attitudes. I want there to be no mistake and no ambiguity about this. The credit squeeze, the cash limits, the irresistible force of wage demands meeting an immovable money supply—all this will have an effect on the levels of employment. We are not fooling ourselves about that and we shall not fool others. There are those who are convinced that when unemployment rises we shall change our ways. The last Government changed their ways. After the IMF was paid back, they scuppered the long-term benefits of the disciplines imposed on them. That change did no good to the country or to the unemployed. It was not exactly a spectacular success in electoral terms either.

I do not believe that there is any painless way in which to cure an inflation which halves the value of money every four years. I am quite prepared to concede to the noble Lord, Lord McCarthy, or to the noble Baroness, Lady Seear, that a formalised pay policy, without of course inflationary trade-offs like price controls or increased Government borrowing, might he the fairest way. But it was not on offer to the last Government and still less is it on offer to this Government.

Nevertheless, if the path is painful I an quite convinced that it need not be very long. It may be politically or socially difficult to start living within one's means, but it does not take very long to do so. We believe that we are in for deflation, recession, rising unemployment over the next two years and in for the first real cut in living standards for people in many years—an event which should of course have taken place when the oil quadrupled in price. There will be considerable pressures upon us, both in Parliament and outside it. But if our nerve holds—by which I mean not my nerve but the nerve of my honourable friends, especially those with marginal seats in another place—by 1982 we shall get this wretched and largely self-induced affliction of inflation out of our body politic. If we get our inflation down, I can assure noble Lords that the other measures which we have already taken in the Budget—the direct tax cuts, the small business incentives and the rest—will then, and only then, start to get employment, prosperity and self-respect up again. The progress will not be without difficulty and it will not be before time.

Lord McCARTHY

My Lords, before the noble Earl sits down, and in the light of what he has just told us about the importance of wage settlements, do the Government still expect, as they say, progressive reduction in the level of wage settlements over the coming year in response to their fiscal and monetary policies? If they do not, what will be the consequences for the increase in the RPI?

The Earl of GOWRIE

My Lords, as I said, the consequence will be high levels of unemployment.

4.25 p.m.

Lord ROSS of MARNOCK

My Lords, I rise to make my maiden speech, and strangely enough crave the indulgence of the House. It is not the first time that I have used that phrase in this Chamber, for I can recollect 33 years ago speaking in this Chamber from a more remote spot and uttering the same words. I remember that speech and I issue a warning to the noble Earl, Lord De La Warr, who is to follow me. One has to be careful not to give any hostages to fortune. I see the man who courteously rose and congratulated me on that first maiden speech; then he uttered the words: And I hope that we shall hear you often ". He was my noble friend Lord Maclean, who, when he became Secretary of State for Scotland, very much regretted those words. But, simple-minded as I am, I had taken him seriously. I felt very hurt when, as Minister of Transport, he moved a guillotine Motion on one occasion.

Fairly recently I have spent some time simply trying to size up the House and trying to put new names to, I shall not say old but familiar, faces. When I realised that there werealready three former Secretaries of State for Scotland here, six Ministers of State for Scotland and at least two Under-Secretaries of State for Scotland, I felt that I had joined a Scottish enclave. Yet I was conscious of the parallel that there was between myself and another statesman—the first Secretary for Scotland. In 1885 a letter was received by the Duke of Richmond and Gordon from Prime Minister Salisbury who wrote to him in these words: What are your feelings about the Secretaryship of Scotland? The work is not heavy, but measured by the expectations of the people of Scotland it is approaching to the Archangelic ". It is the reply that worries me: I am quite ready and willing to take the office if you would like me to do it and think I can be useful to you. You know my opinion of the office and that it is quite unnecessary ". Noble Lords must not start to relate that to my opinion of this noble House. The reply continues: I certainly never expected to have such an honour imposed on me, as carrying out a measure I have unceasingly denounced—fortunately, only in private ". I am afraid that my speeches in relation to this Chamber have been much more public than that. But as a Secretary of State for Scotland I was very conscious of the fact that all the Scottish legislation, which took the time and the efforts of at least four Ministers in another place, eventually had to come here and be dealt with probably by one. I am eternally grateful for the work that was done by my noble friends Lord Hughes and Lord Kirkhill, often struggling alone and without a single Scottish supporter on the Back-Benches. That was a tremendous improvement. I hope that noble Lords will appreciate that from 1945 to 1951 the then Labour Government did not have a single Scottish Labour Member here who could be promoted to Minister. That was serious, and even with the appearance of my noble friend Lord Galpern and myself, there has been almost a 50 per cent. increase in the Scottish Labour representation here, discounting, of course, my noble friend Lord Shinwell, whose voice gives away his early upbringing, of which he is proud.

I want to speak about something that was mentioned by the noble Earl, Lord Gowrie. I am trying to remember that this is a maiden speech and that I have to be both brief and non-controversial—demanding qualities that, I am afraid, are not always associated with me. However, he said that there was unity of purpose in respect of our aims, in respect of trying to reduce unemployment and to redress the balance between the various parts of this country—areas where unemployment is traditionally high and where it is low. This is important from the point of view of Scotland, Wales and the North. We should remember that Scotland is not now at the top of the unemployment table; it is the North of England that has the highest unemployment.

We must appreciate that since the end of the war Governments of both parties have made strenuous efforts and fashioned instruments in order to help redress that balance. Regional policy has become a reality, together with development grants, loans, Government factories, REP, temporary employment subsidies, and of course the negative control of IDCs. When I was Secretary of State in the last Government I was very glad that I tackled the Whitehall departments very strongly and was able to obtain the establishment of a Scottish Development Agency with very considerable powers—powers that were in Scotland—and executive authority. Additionally, the Secretary of State for Scotland took over the Section 7 powers. The Scottish Office, wrested from the Department of Industry Section 7 powers on selective assistance to industry. They have been an invaluable help to the Secretary of State, who is always regarded in Scotland as having responsibility, but did not always have the power to do anything very much about it.

What I am concerned about now—and I hope the Minister will take note of this—is what is happening to regional policy. He did mention that, of course, we have cuts. I think I remember introducing cash limits in Scotland in about 1975. But today, when we talk about cuts in respect of local authorities, remember they have been squeezed and squeezed, and what we are now cutting is not just expenditure: we are cutting services if the Government go along with this, and the people who are going to suffer are the people dependent on those services, and they are not always the people who got the best out of the Budget and the tax cuts. But notice what we did. We spent more on our industrial strategy and on regional aids for industry.

I was disappointed to read in Hansard of another place a Treasury Minister saying: Of course we have increased expenditure in defence and police, [but] of course, areas have been chosen for reductions in spending. They are the activities carried on under the Votes of the Department of Industry and the Department of Employment. They cover the full range of State economic activities that are normally described as an industrial policy ".—[Official Report, Commons; 13/6/79, col. 484.] If the Government really mean that they want to continue the attack on unemployment in the development areas—and remember that when we are in a recession and unemployment rises it is the development areas that are hit first and hit hardest and take the longer time to recover—and if they are sincere in their feeling that they want to keep unemployment down in these areas, is this the right way to go about it?

We have already had announced changes in relation to development areas, intermediate areas and special development areas. I do not quarrel too much with that, although I hope they will look again at what they have done in respect of Aberdeen and Leith and Girvan; they are quite wrong in respect of what they have done there. They were very right in what they did in regard to Kilmarnock. I noticed that the Secretary of State included his own constituency, Ayr. It is most surprising that that should ever be a special development area; but there you are, times are changing. But the Government are going to spend less, and they have cut the development grant in respect of the development areas. They have not cut it in respect of the special development areas.

I am concerned, too, about what is happening in the SDA. I think it is rather sad that an organisation which was set up only four years ago, has only been working for three years, which has already proved itself, which has earned plaudits from the other side of the House for the Secretary of State for Scotland and his Ministers, should now be embroiled in a quite unnecessary dispute. May I say right away that the Secretary of State has, and must exercise, the right, if he feels it right, to change any appointment at the right time, and in changing the chairmanship of the SDA I have no quarrel with him at all; I have no quarrel even with his choice of replacement. He is a very good man. He should be, because the Labour Government made him chairman of the Clyde Port Authority and the last Secretary of State also put him on a new town corporation.

But the way this operation has been conducted has been very distasteful indeed. I do not think the Scottish Office has changed. As soon as the new Secretary of State appeared in that office he would be given a list of the appointments that were going to run out during the year. He must have known six months ago that he had to make a new appointment in the Scottish Development Agency, or continue the old one, taking effect from about 14th December. I spoke to the chairman last week. He did not know what was happening. When he read the newspapers on Friday there was a leak to say that he was not being reappointed; and not until Monday of this week—two days ago, within about 10 days of the date for making the new appointment—was he officially told. With all due respect, this is not good enough. It is not fair, either to the old chairman or to the new chairman. I will say no more about that.

I come back to the Government. They have cut the budget of the SDA. This year, 1979–80, it was to be £98 million; it has been cut to £73 million, and nothing has been settled for next year. Here we are, at a time when the Government know that unemployment is going to get worse, if they know what is happenning in Scotland, what is happening in Clydebank— Goodyears, Singers, and the problems of the shipbuilding industry; if they know what is happening in Ayrshire, in Kilmarnock—Massey-Ferguson, just outside Kilmarnock, Monsanto, SKF, practically every one of them clearing out, thousands of jobs. They have not taken effect yet, not all of them, but come February! The position at the moment is that Scottish unemployment figures are 179,000, nearly 180,000. What is it going to be like in February? What is the outlook going to be for youngsters leaving school at Christmas?

Figures have been mentioned in another place to the effect that there are going to be 300,000 more unemployed in this country, and it is said that this is going to be temporary. But some people will be put out of work who will not work again. Some youngsters will have to wait for months and months before they get a job if there is going to be any cut by the Government in the kind of aid we gave for creating jobs or for training youngsters (I am very glad that the Minister is shaking his head). Some people have said that these were not real jobs and they scoffed at us when we introduced them.

Appreciate the gravity of the position. There are parts of Scotland which are going to become industrial deserts. You do not cut your way out of a desert. You bring in the water of investment, and that is what is being cut by the Government's policy. I am sorry to have to say this, but it is a fact and the Government know it. What is the chance for a small businessman who is hoping to expand? Minimum lending rate is at 17 per cent. That is not what he will be asked for by the bank; it will be much more than that. Wherever you look you will be faced with this situation. You are going to be faced with bankruptcies in small businesses. It may well be that to the Secretary of State for Scotland this is reckoned to be the sign of a healthy society. It is not the kind of society the people of Scotland want.

I want to warn the Government of this fact. Let them support the demands and the needs of their present Secretary of State when he tries to give to the regional area in Scotland some measure of insulation from the worst effects of these cuts. He has a difficult task. He is only there because the Scottish Tory Leader was defeated at the last election. He has behind him in the House of Commons only 22 Conservatives. There are 44 Labour men, five more than before the last election. Do not let us hear anything about mandates for this kind of thing in respect of Scotland. We want to avoid difficulties with a party which we pretty well beat on both sides at the last election, but we must appreciate the frustrations of the people if we get policies we never voted for and policies which are not related to the needs of Scotland.

I conclude with a quotation. I get more time now to read memoirs; I have always been fond of fiction. One of the best was that written by the late Reginald Maulding—President of the Board of Trade, Home Secretary, Chancellor of the Exchequer; a distinguished man—in which he tells us on page 208 of his experiences when he was asked to rejoin the Shadow Cabinet. He said: From the start there was a tendency in the Shadow Cabinet to move away from the Heath line of policy further to the Right. To this I was totally opposed. In particular I could not support the arguments of Keith Joseph. I could not help recalling Selsdon Park and the swing to the Right in our policies which occurred then—and how long it had taken the Government to get back to the realities of life ". I trust it will not take so long this time.

4.41 p.m.

Earl DE LA WARR

My Lords, it falls to me to congratulate the noble Lord, Lord Ross of Marnock, on his maiden speech and we have all been impressed by the depth and sincerity of his feeling for the Scottish people. Scotland is not, he will be happy to hear, a subject on which I am accustomed to speak, though he may be interested to hear that I have the honour to be married to a lady whose great uncle was Sir Henry Campbell Bannerman, the Liberal Prime Minister, and that perhaps brings a slightly non-contentious element into my congratulations. We have it in common that we both, I when I made my maiden speech and he today, did not worry too much about picking a contentious debate. I recall the guffaws from some of my noble friends when I said that I was in an invidious position because it was a Bill with which I most heartily disagreed. I think I then proceeded to put the matter right, Nevertheless, we have been very pleased to hear the noble Lord today and hope we may hear a great deal more of him in the future.

The speech of the noble Lord, Lord McCarthy, took a form which took me rather by surprise because I had read the wording carefully and I had expected—I have it in a note in front of me—what I was going to describe as three canisters of grapeshot thrown at random across the Government Benches to see what would transpire. Instead of that—and I have no doubt he knew exactly why he did it—the noble Lord used a single bullet which he aimed with unerring accuracy at the noble Earl, Lord Gowrie, and the bullet had on it "monetarism". One would have thought, listening to him speak, there was nothing that this Government were about in their economic policy except an obsessive use of monetarism.

The noble Earl dealt with that very effectively, and I shall come to it shortly. But is is necessary to put the Government's policy in a much wider perspective than that. It is pledged on the economic front to do many things and I shall mention only a few of them. It is pledged, first of all, as par excellence to defeat inflation, that wicked and creeping thing which so easily can destroy a free society; it is pledged to set the scene for the re-establishment of incentives both for management and workers by increased net rewards for what they do; it is pledged to encourage investment in new industries and techniques and to encourage in particular the entrepreneur, the small businessman who is prepared to risk his capital, a vital ingredient in any growth economy; and it is pledged—this is something I must not dodge—to do something not inconsiderable to change the present imbalance of union power that we have seen particularly over the last few years.

I do not wish to refer to coming legislation; that we shall debate in due course. I want to talk about the view the Government have taken that far too much during the last five years the unions have been asked to do the job of the politicians. I well recall in my job that the private secretary of one of the union general secretaries, who I was trying to run to ground with scant success, said to me en passant, "You know, the general secretaries do precious little industrial work these days ". I therefore regard this as being a plank of the Government's policy which is vital in order to put our economy back on a sound footing.

The Government have made a determined start, but let us remind ourselves—and I do not want to be in any way political—that the dice were heavily loaded against them in two ways when they came to power, and the noble Lord was good enough to make some admission of this. First, public sector expenditure was already scheduled in the present year to have a substantial increase, and, secondly, all the underlying ingrediants for a sharp increase in inflation during the present year were already there. Those were things the new Government faced and to which perhaps they did not give sufficient attention at the time.

Already we have seen an attack beginning on direct taxation, the greatest disincentive of all to hard work and enterprise. I was amazed to hear the noble Lord say the Government had now abandoned that. I should like to know where he has heard any Minister say that they have abandoned it. I recall the Chancellor saying the other day in another place that, if inflation, and wage inflation, continued at the present rate, it might make it more difficult to continue with the programme of cutting taxes, but I do not regard that as abandonment. We have seen the Government pruning both central and local government expenditure back from the inflated level to which it was due to rise this year, and no doubt they will be doing more of that and I earnestly hope they will be doing more of it.

The Government have—and this is a matter not of legislation, but of style and attitude—made it quite clear to industry that they must manage their companies and their industries themselves; they must stand on their own feet and must not expect to lean on the Government and on the unions, as they have in the past. This was a point that I made not long ago when referring to my experience at the CBI conference in Birmingham. They have set the scene—set the scene; that is all I say—for a new attack on wage increases of a type that this country cannot afford. We are a very long way from seeing whether the way that this Government are going about it will he effective, but we have had one or two encouraging examples already, and I totally reject the proposition that has been put that this new approach, when all others have failed, cannot work. I believe that it will, and that it has got to.

In conclusion, I must accuse the noble Lord of failing to realise that, following decades of decline, this Government have had only six months to do something about making a change. Six months is so little in the life of any Government, and I will not speculate what percentage six months is. But six months only have they been there, and already I detect a new spirit of economic understanding among the public and the beginnings of some sense of economic discipline—a discipline which is more akin to self-discipline than the discipline that comes from waiting upon the Government diktat; the type of self-discipline without which neither this, nor any other, nation can survive.

4.53 p.m.

Lord GODBER of WILLINGTON

My Lords, in preparing myself for the ordeal of making my maiden speech here today had intended to preface my remarks with a sense of my trepidation at daring to speak on such a controversial subject; but after listening to the noble Lord, Lord Ross (whom I congratulate upon his speech) I feel that I can now speak in a sort of gay abandon and that anything I may say may go. The noble Lord and I have crossed swords many times in another place, and I hope that we shall have the pleasure of doing so on many future occasions. This is a subject which I think deserves very full debate and which can perhaps be discussed more effectively if it is done by objective analysis rather than by partisan confrontation, and it is in this sense that I venture to put forward my thoughts today.

Perhaps I may be permitted to remind your Lordships that at different times in my life I have been involved in the implementation of policies on pay, prices and unemployment. In the early 1960s I was Minister of Labour—a title which obtained at that time before the more long-winded title "Department of Employment "—and I was vitally involved in these matters. At a later stage, in the Heath Administration, I was Minister of Agriculture and I had responsibility for food prices and for the administration of the Price Code that was introduced by that Government. During the last five years, since my return to commercial activities, I have been involved with different aspects of manufacture, distribution and retail sale of many commodities, and I have only very recently given up the chairmanship of the Retail Consortium, whose duty it is to speak collectively for the retailing industry to the Government of the day. I apologise for speaking at such length about my former activities, but I have done so only to indicate to your Lordships the background against which I wish to speak. I would only add that interspersed between those various activities I had two spells at the Foreign Office when I was able to study at first hand the interplay of trade, commerce and economic activities between our country and others.

I know that the noble Lord, Lord McCarthy, who introduced the debate, speaks from a deep knowledge of the problems of industrial relations, and of course his words deserve careful study. Without in the least wishing to be controversial, may I say to him that I was not quite sure whether, at one stage of his speech, he was attacking this Government or the previous one. I can well understand his feeling of concern that the previous Government did not adopt his policies; and if he wishes to cross to this side of the House, I am sure that we shall welcome his help.

But for myself I should prefer to approach the matter from a somewhat different angle. The problem of runaway inflation, which is at the centre of our present difficulties, has not always been a problem in this country. Indeed, right up until the beginning of the Second World War the pound sterling was probably one of the soundest currencies in the world. That war created its own strains and distortions; but even so, in the immediate post-war period there was still a strong situation so far as our currency was concerned. I think Mr. Harold Macmillan was the first Prime Minister who felt the need to create a dialogue between Government, unions and management on the need to relate wage increases to increases in productivity. The National Economic Development Council which was then instituted, and on which I had the privilege to serve at one stage, did not seek to lay down arbitrary rules on wage settlements, but we did at that time seek to give guidance to both sides of industry. I believe that at the time I am speaking of we used to refer to a guiding light to wage settlements, and I recall with some nostalgia that in 1964, when I was on that body, the guiding light which we then established was, I think, 3.8 per cent. as being the kind of salary rise that could take place without adding to the rate of inflation. That gives some measure of the problems that have arisen since then.

However, the point I am seeking to make is that up until that time, since the abandonment of wartime control, there has been no Government attempt to lay down specific rules on either wages or prices. That started really with the succeeding Labour Government of 1964 to 1970, who were in turn followed by the Conservative Government of 1970 to 1974 who started by seeking to keep clear of statutory controls, but who later felt themselves impelled to adopt them. The last Labour Government maintained a control on prices, but endeavoured to modify wage demands through close co-operation with the unions, and for a time this appeared to succeed; but, as your Lordships well know, the strains became too great and the events of last winter are too recent to require being retold here.

I recall all this not to draw any comfort from those events; indeed, how could I?— because I was involved in one of the least successful of those endeavours. What I am seeking to point out is that Government intervention from either side, and by different methods, has failed to solve our problems and has certainly not alleviated the degree of inflation. In the past wage bargaining was traditionally between employers and unions, and was based on the economic facts of the industry and the standard of living either achieved or desired by the workers in that industry. But once the Government intervene, even from the best of motives, the danger, to my mind, is that economic facts get pushed into the background and the battle becomes one between the workers, on the one hand, and the Government of the day, on the other. That became very clear in the battles of last winter, just as it did in the battle between the miners and the Government of the day in 1974.

My Lords, I have long felt that part of our problem is that as a country we have failed to come to terms with the loss of empire. In the first 20 years after the last war we spent much time in dismantling an empire built up over the previous 200 years. I will only say in passing that I have never agreed with those who have claimed, as some have, that we unreasonably exploited that empire. Indeed, the economic state of countries which were not colonised shows clearly enough that our colonies benefited rather than suffered from our rule. Nevertheless, there was truth at that time in the saying "trade follows the flag ", and there is small doubt that our manufacturing industries profited from the secure markets thus provided. With the coming of independence, many of those countries chose to emphasise that freedom by trading elsewhere—and who can blame them if that is what they wished? Had we chosen to be in at the start of the European Common Market we might have nullified some of the loss which we suffered through the loss of empire. But we failed to take that step at the time when it was readily available to us, and when we finally joined it was on terms not of our own making; and it has proved difficult indeed to regain the advantage we then lost. I am making no party point here, because there were few indeed on either side of either House who really wished to join the Six when they first met to hammer out their differences in, I think it was, 1954.

All these factors, in their different way, have contributed to our relative decline, and until recently that decline has not been sufficiently understood by the mass of people in this country. Thus, too much time and effort has been spent by all sections of the country in endeavouring to maintain and, where possible, to enhance their own narrow sectoral advantage. It is in my view this failure to recognise our relative decline in the world and our determination to fight one another instead of combining together to fight our foreign competitors that has led to the inflationary scramble in which we have been involved. The Germans, in their post-war devastation, had forced upon them the need for maximum combined efforts, and the result, I think, has amazed the world. We, in the aftermath of victory, lulled ourselves into a state of false security from which we have only recently awoken. For some years failure to maintain exports sufficiently because of uncompetitive prices or unsatisfactory quality or delivery dates forced the Government of the day to take action to safeguard our balance of payments. The advent of North Sea oil has freed us to some extent from that constraint, but we are throwing away the advantages of North Sea oil, my Lords, if we allow our production costs to rise still further compared with those of other countries. If, in spite of North Sea oil, we allow our balance of payments once more to become adverse, then what hope is there for this country when North Sea oil begins to run out?

I give your Lordships one example—coal. I well recall Ernest Bevin, when Foreign Secretary, begging for another five million or ten million tons of coal to export, because he believed that that would greatly strengthen his hand overseas. Yet it is not exports of coal that we are talking about, but imports. The British Steel Corporation, to take one example, who are in serious difficulties already, are now saying that they must have freedom to import cheaper coal from overseas. These are the real problems, my Lords. Is not the real need for the economic facts in one industry to be brought home to the workers in another before the actions of the one imperil the employment prospects in both? I would interpose here how very happy I was to see the outcome of the miners' ballot, reported this morning. One can all too easily draw similar comparisons of our relative decline in motor manufacture, and I fear that there are others not too difficult to find.

It is not the failures of this Government that have brought any of these things about. Blame for that must lie with those who have gone before—in Government, in management and, yes, in the trade unions as well. I do not pretend that the faults are all on one side, either in politics or in industry, but let us at least acknowledge what the problems really are. I have no authority to speak for, nor do I have a brief from, my former colleagues now in Government, but if I understand their policies in this field their aim is to bring the economic facts back into the arguments relating to wage settlements. Government involvement has clearly not been successful from either side. If the present policy is to succeed, it is essential that the economic consequences of action, or lack of action, should be clearly understood. My fear is that at the present time the understanding is still insufficient.

What I have been saying relates to pay settlements and to levels of unemployment. Let me turn to prices for a moment. Governments of both sides have attempted to control prices, and any study of industrial profits since 1970 will show the extent to which profit margins have fallen as a result. The main worry here is the extent to which we have fallen behind our competitors overseas in industrial investment. Germany and Japan are the clear examples, and the more we fall behind them in investment the more vulnerable we become. In the field of retailing, we are sometimes criticised for importing more consumer goods than we should. British retailers would always prefer to buy British, and to a very large extent they do. They must be free, however, to bring in goods from overseas when those goods are clearly competitive in quality and price, because after all this is the most effective way of safeguarding the purchasing power of workers' wages. If the Government of the day intervene in the free play of supply and demand for other than clearly defined and limited objectives, then I would suggest that in the long run they will only undermine the efficiency or the competitiveness of British industry.

Of course, unemployment in this country is far higher than any of us would wish it to be, but the real question is: Would Government intervention by subsidisation or by artificial protection be of help other than in the very short term? Is it not more likely to enfeeble still further our competitive position in the world? I happen still to believe in British inventiveness and in British manufacturing ability. I also believe in the capability and good sense of those engaged at all levels in British industry, provided, and only provided, that the true facts are available to them. I believe that the policies of the present Government are more likely to get the facts over to our people than any amount of Government intervention, however well intentioned. It is for that reason that I feel myself opposed to the Motion which is on the Order Paper.

I apologise, my Lords, if I have ventured too far into the realms of controversy in this, my first speech to your Lordships, When I first spoke in another place, some 28 years ago now, I sought to excuse myself on the grounds of youth and inexperience. I can no longer take refuge in the first, but I can at least continue to claim the second so far as your Lordships' House is concerned.

5.9 p.m.

Lord HANKEY

My Lords, it is a particular pleasure to follow two such distinguished and experienced maiden speakers as we have heard today. Both of them have long parliamentary and governmental careers. As regards the noble Lord, Lord Godber of Willington, I was privileged to see at first hand the excellent work, if I may say so with all respect, which he did in the Foreign and Commonwealth Office. I hope we shall often hear both of them in this House. I am absolutely confident, as I am sure are all noble Lords, that they will make a great contribution to our debates.

I feel that it is only fair to sympathise with the present Government for our present economic difficulties, many of which are the result of the mess made of our economic affairs during the last five, six or seven years. Remember, my Lords, that the Labour Government had a public sector borrowing requirement of £10 billion to £12 billion year after year until the bottom dropped out of the pound in 1976 and the IMF made the rescue of the United Kingdom conditional upon much lower figures. In view of some of the things said about the Common Market at present, remember also that we owed our rescue on that occasion very largely to our European partners and to the USA. The public sector borrowing requirement still runs at over £8 billion a year, an insupportable and most inflationary overhang of 10 per cent. or more on the Budget. It would be regarded by OECD as a specific condition to create inflation. I think that the Government are tackling our built-in inflation in the right way if extensive OEEC and OECD experience is anything to go by.

It was obvious last February, after the events of that winter, that inflation would be running now at 14 per cent. to 16 per cent. The increase of oil prices and of VAT, which was intended to help correct inflation easily explains the present high inflation figure of 17 per cent. I think it will go higher still. One cannot expect the terrible hangover of excessive public expenditure and an excessive borrowing requirement to be corrected in a few months. If much greater hardship is not to be imposed on our people, the process of correction must take several years at least. I would say, at least, five years. It cannot be done quicker. Until then, the Government are bound to go on borrowing large sums, with most undesirable effects on rates of investment, on mortgages and all the rest.

But a steady course must be—and, I believe, now is—set for lower expenditure, lower borrowing, lower taxation, lower interest rates, and for better incentives to industry to get on with production. I should like to say that control of the money supply and control of interest rates are awkward partners and, in a way, awkward alternatives. Too rigid a control of one seems to involve embarrassing effects on the other. At present, we are trying to control the money supply, but this involves unstable interest rates; and that is very embarrassing. As a director of a large building society, I should like to say that we are peculiarly sensitive to this, but we are only one part of the economy and it affects the whole economy.

I hope that Government policy will be flexible. I think, with all respect, that it would be a mistake if they became absolute "whole-hoggers" in pursuing either the control of the money supply or the control of interest rates, or anything else too exclusively. It is desirable even, I would suggest—in spite of what has been said in this debate, with much of which I agree—that the Government should not throw out of their hands all the tools required to give the economy a push here or a nudge there. I believe that the National Enterprise Board has a useful function, even if two of its principal teeth are drawn. I believe, also, that the National Economic Development Organisation would be a very useful means of contact with the trade unions in practical work for better production and better productivity, and that, whatever either political party thinks of it, the Government would be well advised to try to make better use of it.

We cannot make the economy work efficiently unless the monetary factors are corrected. I warmly support the Government on that. But that is not enough to get industry going again, however effectively the monetary factors are eventually put right. Please face the fact, my Lords, that our economy has the brakes on. The brakes are on. For example, the system of planning inquiries and permits allows any group of objectors to delay essential roads, factories and other investments to an intolerable extent. It is a dreadful burden on industrial progress. The system really must be improved. I recognise that there has to be planning, but let it not go on and on while the files mount up and staffs are employed in all the local authorities all over the land. This is somewhere where streamlining would pay handsomely.

Secondly, the ridiculous rent and housing laws have virtually destroyed the privately-rented sector. I speak from these Benches without any ideological feeling in this matter. I think that the politicians have been wrong to get too ideological about it. Let us look at it in a practical way. There are nowhere near enough houses, or mortgages for purchasers, not in the right place or at the right time, anyway. This is a burdensome rigidity in our economy. We must recreate the privately-rented sector. There are masses of ordinary people who would like to let a room or two if only they could get the rooms back when they needed them. It would facilitate the movement of key skilled workers to development areas and make industrial progress much easier; whereas the building of endless houses absorbs more and more capital and involves more and more complications.

Finally, our labour laws seem to have been carefully designed to magnify and multiply disputes and confrontations in industry, transport, mines, docks, and even in the public service. To my certain knowledge, they correspond to what the Swedish Communist Party tried to get in 1975 and were wisely prevented from having by the Swedish Social Democrats and Trades Union Congress. Perhaps it is hardly surprising now, in view of the alarming rise of Leftist and Marxist power in the Labour Party, that our own Labour Government and TUC were less wise. We warned them in this House. Any group of objectors in key positions can at present create a dispute and stop any industry, any plant any trade, or break any contract in their own factory or any other.

Lord LEE of NEWTON

My Lords, the noble Lord makes a point of Marxist influence in the Labour Party. Can he tell us about the same influence in the Civil Service?

Lord HANKEY

My Lords, it is most alarming. It is precisely the affair of Blunt and the members of the Foreign Service who decamped to Moscow which raises these doubts in one's mind. A diplomat is more conscious of it perhaps than anybody else in your Lordships' House.

My Lords, our workers, faced with inflation, have justifiable anxieties. We must find a way of allaying those anxieties without harassing strikes. Successive Governments' inflations have made it easier for troublemakers to create disputes. Sir Michael Edwardes has to appeal over the heads of largely Communist shop stewards to secure the approval of the workforce for his recovery plan. He got 86 per cent. support. Is that not a significant comment on the shop stewards' organisation at present? With the closed shop legislation, it ought to be possible for the trade union leaders, most of whom are remarkable characters, to secure the execution of the works agreements that they have concluded. But do they? I have hardly heard of a single case of workers or shop stewards being disciplined by their trade unions for taking industrial action in breach of their agreements. The boot is on the other foot. They are usually only penalised for not striking when ordered to do so regardless of whether it is in breach of agreements or not. That is not collective bargaining; it really is collective swindling. It is a tremendous burden on the progress of investment in this country. The businessmen just do not think that investment is worth while. So all this has to be put right if our economy is to cease going downhill. We are still rolling down, although perhaps less fast.

I have just cited British Leyland's troubles. Remember also the Polish order for ships with our shipyard workers' reckless breach of the penalty clauses. Remember the terrible delay in making proper use of the new steel works and port facilities in Scotland. Do not forget the difficulties of Llanwern in South Wales. These have all been cases where investment, often with very great government help, and with a Labour Government, has been very severely hampered and made less productive.

Do you wonder, my Lords, that the motor industry has largely left this country? Our production of cars is only 70 per cent. of what it was in 1973. Meanwhile, the French produce two and a half times as many as we do; the Germans produce three times and the Japanese about five times. I have these figures from the Society of Motor Manufacturers and Traders. So how can our steel industry flourish if shipbuilding—and they are suffering from a world problem—and the motor-car industries go downhill? What else can happen? We can and must do better.

I ask whether this sombre growing calamity for our excellent workpeople makes it look as if Labour's policies had been correct? I do not think that it does. We have to do better. Anyone can now see that the Leftist policies embodied in our labour legislation would be fatal to the long-term survival of this country. That must be corrected. The arrival of our oil has only put off the evil day. The TUC are perfectly right, the oil money is being wasted. It ought to be used for productive investment. But how can it be at present? The brakes are on and our labour relations are in key sectors of industry chaotic.

Kaiser Wilhelm lost the First World War because he underestimated what Britain and her allies could do for France. Hitler lost the last world war because, having beaten France, he was not ready to beat Britain also before she rearmed and got more allies. I suggest seriously that the Kremlin is preparing for the next struggle by first undermining Britain's industry and economic position on which the maintenance of our interests at home and abroad, the power of our armed forces, and support for our friends overseas essentially depend.

The Government must get this right on a broad scale and take the brakes off our economy. The real answer to our troubles, financial, fiscal and others, lies in increased production and better productivity. We have been saying this for years on both sides of the House and nothing effective has ever been done about it. There should, however, be broad consensus between all loyal British people irrespective of party about the vital need to set this country of ours on the path to prosperity again. We would then easily hold our own in the new Europe. We have ingenuity and genius running out of both ears in this country; we simply do not allow it to operate. The new Europe represents a tremendous opportunity for us if we only can have more co-operation and less confrontation at home. Surely Mr. Roy Jenkins in his Dimbleby lecture was right about this vital need both in industry and Parliament. Some 2,000 years ago it was said that "a house divided against itself will fall". Please reflect: who wants that? Our politicians must somehow be persuaded to draw together in pursuit of our vital common interests.

5.25 p.m.

Lord CLEDWYN of PENRHOS

My Lords, I have been in this House for long enough to realise the great kindness and consideration that is shown to new Members, and that the indulgence of the House is readily given. Like my noble friends who have spoken, I have also been advised that I should be short and uncontroversial, both now and on future occasions. I shall do my best to comply, although the second injunction tends to clip one's wings considerably. It is very agreeable that I should be making a maiden speech at the same time as my noble friend Lord Ross and the noble Lord, Lord Godber of Willington. All of us at one stage or another took a close interest in the agricultural industry, as indeed did my noble friend Lord Peart and the noble Viscount, Lord Amory. Former Ministers of Agriculture are much thicker on the ground in this House than former Secretaries of State for Wales. I understand from my noble friend Lord Ross that a large number of former Scottish Secretaries are here. But I am the only former Secretary of State for Wales, although no doubt others will follow in due course.

May I begin by recognising the profound difficulties that face the Government at the present time. Successive Governments over the past 25 years have had the most appalling economic problems to contend with and a range of solutions have been tried with greater or lesser degrees of success or failure. The fact is that we have consistently fallen behind our main competitors, and although we entered the Community with high hopes it is now clear that we were unfortunate to join at the worst possible moment. We were not there when the Treaty of Rome was negotiated; we were not there when the great bonanza took place. We have been there during the bleakest period of the existence of the European Community.

There is general agreement on one thing: namely, that our prospects over the next two years are likely to be very grim indeed. The facts I do not think are in question. To catalogue the facts is not to be controversial. Output will continue to fall; inflation will remain in double figures; the immediate outlook is depressing; real output growth is slowly grinding to a halt; sharp monetary growth has persuaded the Government to fix a record minimum lending rate; prices are rising steeply and will continue to rise; some of the major pay settlements which have been arrived at are more than the economy can afford. Again, the balance of payments is in deficit notwithstanding the bonus of North Sea oil. This is a catalogue which gives me and all noble Lords no pleasure at all. In fairness, we must take that list of obstacles in the context of an equally depressing international economic situation with the United States in particular sliding into a depression at the present time.

I hope that the noble Lord's prediction that we shall be released from our present predicaments—I think he said the evil which is now in the body politic will have been snatched out of it in two years' time—is a true one. As the noble Baroness Lady Seear, said, there is no simple solution to our problem. We cannot somehow detach ourselves from the world trend. The Government's duty, as I see it, is to ensure that their policies are the best to meet the unwelcome circumstances and also to temper the wind to the shorn lamb. The Government have chosen to concentrate on two approaches to the problem: the first is positive and the other is negative. The first is the Government's dependence on monetary policies. This is defensible up to a point, and it is of course understandable because the Chancellor of the Exchequer and other members of the Government have not forgotten and have not got over the trauma of 1971–72.

My noble friend Lord McCarthy, in his very clear and helpful opening speech, dealt very carefully with the whole problem of monetarism. I do not propose therefore to follow him in any detail, save to say this. I believe that monetarism is an instrument which must be used very delicately. It can he carried too far. One cannot feel very secure at the present moment with bank rate at 17 per cent. and mortgage interest rate at 15 per cent. Surely the aim of the Government should be to keep the money supply and the rate of interest as stable as possible. You cannot have the kind of stability the country needs in the present crisis, when bank rate and mortgage interest rate are as high as that.

I believe there are times when it would be possible to use the monetary weapon without undue damage to the economy, but it is questionable whether a period of deepening recession is the right time—to depend upon it, that is to say, to the exclusion of every other available weapon. I feel that is the tendency of the Government at the present moment. I also fully appreciate the cares and anxieties of many members of the Party opposite at the present time, including members of the Cabinet.

Again, the Government have resolved to pursue a policy of non-intervention in industry. I would say that there are arguments in favour of this but that, again, it can be carried too far. The noble Lord, Lord Hankey, who preceded me—if I followed him in detail of some of the things he said I should be very controversial indeed—said one thing with which I agreed, namely, that he supported the National Enterprise Board. I am very glad that the Government have decided that the National Enterprise Board is to be retained. That includes its Welsh and Scottish counterparts, the development agencies. The Secretary of State for Industry has said. and I quote him— The National Enterprise Board will have a continuing task to perform. It will have a catalytic investment role, especially in connection with advanced technology and increasingly in partnership with the private sector as well as its regional and small firms role ". I believe that the National Enterprise Board is crucial in the regions. I take the same view as my noble friend Lord Ross on this. The consequences of the closure and the ending of steel-making at Shotton in North Wales are incalculable—not only on Deeside itself, but westwards throughout the whole of North Wales as far as Anglesey, where unemployment is far too high. Unemployment in Anglesey at the moment is over 14 per cent. of the insured population. Figures in Wrexham, an adjoining industrial area, are equally bad.

I think it is important to take an area like this as a microcosm of the regions as a whole. It is going to be extremely difficult to do the very thing which I believe the Government want to do—and certainly I have spent my political life trying to do this—which is to attract new industry into the regions, into Wales and into North Wales in particular, and also to sustain existing industries in the developing economic climate. I understand that the Secretary of State for Wales is at this very moment in Shotton on Deeside, meeting local authorities and other organisations. I greatly hope he can bring some comfort to this stricken area. He must, with his right honourable friends in the Government, help to bring 6,000 new jobs to Shotton alone if he is to fill the breach which has been caused by the closing of the steel-making process at Shotton.

Our chronic weakness is that we do not produce enough and our tragedy is that the increasing number of unemployed are paid out of public funds to produce nothing at all. That is the tragedy of our economic situation at the moment, and in an area like North Wales we become more dependent on public programmes at a time like this. I have heard that the Government are planning still further substantial cuts in public programmes—I repeat, still further substantial cuts. I hope we shall be told something about these plans. There may be still more room for savings on the administrative side, but further cuts in other directions would have the gravest consequences, especially in rural and semi-rural areas.

It is worth bearing in mind that the health of the nation as a whole is the health of the regions. We neglect a region at our peril. We must stimulate and encourage the regions to use their own initiatives and to think for themselves. I hope that the Welsh Development Agency and the Welsh Rural Development Board will be given the maximum freedom to search for solutions in Wales and to put them in hand.

There is also a longer-term problem, and it would be a mistake for us to overlook it. That is posed by the fact that the more is invested in any given industry the fewer workers you need in it. Agriculture is a classic example. Noble Lords will be aware that after the war, with the intensification of mechanisation in agriculture, the number employed on the land was reduced year by year in a remarkable way. I disagree with those who say that farmers are less progressive than those in other industries. I think that farmers are ahead of those in other industries because they have been more ready to grasp the nettle of mechanisation and the problems involved in mechanisation than representatives of other industries.

If we look at what is happening in the steel, shipbuilding and motor-car industries, we see another aspect of the same problem. Governments must give urgent attention to the employment implications of the investment we are all anxious to encourage. The more we invest, the fewer will be employed. It is possible that a high level of growth would in fact absorb those who are out of work. If we are moving, as the experts say, into the silicon chip era, what does that mean in terms of employment? I believe this is something that all political parties must consider and examine very carefully. It would be helpful and interesting if the Minister could tell us how he sees investment faring over the next 12 months and also what predictions he can give for our export performance.

Finally, would make three suggestions to the Government. Some have been touched on by previous speakers. I think, first, that it would be helpful if the Government entered into new, constructive talks with the unions through the Trades Union Congress about the impact of wage settlements on the economy and the economic problem generally. I know that talks do take place—the Secretary of State for Employment is of course in touch with union leaders—but I am suggesting something far more dynamic than that.

The last Government had started discussions in the early part of the year, as the House will recall, and I see no reason why the present Government should not take a firm initiative. It is in the interests of the country that this Government, and all Governments, should have close co-operation with the trade union movement. It is quite wrong to take any kind of doctrinaire view of unions.

Secondly, I think the House would agree that the Dublin Summit was disappointing in more ways than one. Leaving aside for the moment the imbalance which the Prime Minister, quite properly seeks to redress, I think there is a clear duty upon the Community to grapple with the economic problem which threatens us all. A collective approach is essential if the Community is to retain its credibility over the next two years. I hope the Prime Minister and the Government will take what positive initiatives they can in this direction as well.

Lastly, I cannot help thinking that an incomes policy of some kind must be considered, notwithstanding what the Minister of State said when he spoke earlier. He spoke, I think, of "trade-offs" in a way which did not appeal to me, although I value the Minister of State. I think he must think of this in terms of benefits. One is not talking necessarily about a rigid incomes policy. It may well be that at the end of the day this Government will have to come to an incomes policy. Therefore it is a mistake for the Minister of State, or for any other member of the Government, to turn his back on the possibility of an incomes policy. It is certainly an extremely difficult problem to handle, as all of us know; but I think that some day or other the acceptable norm, to which my noble friend Lord McCarthy referred, will be reached and the Government which succeeds in achieving that within an incomes policy will be in power for 25 years in this country.

I regret that what I have said has, in a sense, been depressing. Lest anyone misunderstand me, I should like to say that my faith in the courage and genius of the British people is not shaken. We shall come through this period of trial. We must have imaginative leadership. It is in the interests of us all that this Government should succeed. It is our duty to criticise the policies as we see them, but we hope that leadership will be given, and that it will be imaginative. For the policies to succeed, people at all levels of society and in every section of society must accept that the policies are fair and they must be seen to be fair. This is absolutely essential. Finally, any solutions which the Government present must be solutions which are consistent with a free society. It gives me pleasure to support the Motion.

5.41 p.m.

Lord ORR-EWING

My Lords, it falls to me to congratulate an old friend in the noble Lord, Lord Cledwyn of Penrhos, on his most admirable maiden speech. We are lucky in that we have had three members of their respective parties' Cabinets all making maiden speeches on the same day—one coming from Scotland, one from England and one from Wales. It has been good to hear the noble Lord again. I realise the clearness and succinctness with which he marshals his arguments—and his fairness. I hope that he will not be entirely non-controversial on other occasions. I feel that sometimes we lean over to be too non-controversial in this Chamber. Equally I feel that we can kill democracy by boredom as easily as by subversion. So I am sure that we shall be enlivened by what the noble Lord, Lord Ross of Marnock, and all the other maiden speakers have to say on future occasions.

Lord ELWYN-JONES

My Lords, is the noble Lord aware that he has never committed that error himself?

Lord ORR-EWING

My Lords, I am deeply flattered by that remark. I want to congratulate the noble Lord, Lord McCarthy, on his very lucid opening speech. One would expect it from a lecturer at Oxford, with a background of Merton and Ruskin, together with a whole host of responsibilities and books which he has written over the years. And recently he undertook a large number of Government responsibilities.

In opening the debate, the noble Lord described it as an attack on Her Majesty's Government but then proceeded, I thought, to attack most of the policies which his own Government had been following. He admitted, very frankly and fairly, that they made two errors which very much affect us today. In 1978–79, they assumed that wage settlements would be around 5 per cent. In fact, in January we had already had a wage settlement for the lorry drivers which amounted to 22 per cent; so it was unrealistic to think that they were going to hold that 5 per cent. target which had been set by Mr. Callaghan during the previous autumn. The noble Lord also said that he thought they were wrong to base their policies on an expansion rate of the economy of 3 per cent. I should like to endorse that. It has led us into a great deal of trouble. In the previous five years of Labour Government the expansion rate of the economy averaged 0.3 per cent. What made them think that they could justify a policy amounting to 10 times that rate of expansion during a year coming up to an election I do not know, but it has led us into this cutback in public expenditure which I shall talk about later.

The noble Lord said that he was going to be very fair—which he was—and very constructive. I waited. When 10 minutes were up I thought that the second half of his speech would be the constructive part. When 20 minutes had gone by I thought that it would be the last quarter of his speech which would be constructive. Then, unfortunately, the noble Lord sat down before he had had a chance to put forward exactly what a Labour Government's policy would have been had they inherited the present set of facts.

The noble Lord said that he felt they would still be in Government if they had taken his advice and set a target of 7 or 8 per cent. rather than the 5 per cent. target which was set. I am not so sure. I think that time for a change is one of the most difficult arguments to counter in General Elections. Eleven years of Labour rule out of the last 15 is a very dominant and difficult argument for the Labour Party to refute.

Apart from the lack of anything constructive, the sad thing about the noble Lord's speech was that there was not one word in it about productivity, or one word about a similar problem; namely, the overmanning which has produced this low productivity. This is endemic today to so many sides of industry. We need two or three times as many steel men to produce one ton of steel as do our European competitors. When one compares completely like with like in the Ford factory at Dagenham, one finds that the door hangers are supplied with exactly the same model of door to put into exactly the same model of Ford and that they have exactly the same capital equipment behind them, yet they need twice as many people to hang doors to produce the same results as in West Germany. That applies throughout too much of British industry. One can only hope that it will progressively be seen to be wrong. I shall mention this later.

I want to discuss the question of incomes policy, because I gathered both from the opening speech and from the last maiden speaker that this is still basically the thinking of the Labour Party. It was 30 years ago, in January 1949, that Sir Stafford Cripps first introduced an incomes policy into the post-war world. In my 30 years in politics it seems to me that for most of the time we have had some form of incomes policy. I have looked up one of his speeches in that month. It is dated 9th January 1949 and it is extraordinary to find how germane it is to today's conditions. Sir Stafford Cripps said: Those who are urging the workers to make such demands "— he was referring to big wage claims— are either thoroughly ignorant of our economic situation or, perhaps what is more likely, are intent upon the destruction of democratic socialism in order that they may fasten on the people of this country the sort of totalitarian régime which has destroyed the freedom in so much of Europe ". From that time on we have had a series of income policies which are very well summarised in an article which I came across recently. Since an academic opened this debate I realise that I am competing in his field. I am not an academic; I am an industrialist and an electronics engineer. However, there was an article in the journal of the National Institute of Economic and Social Research by Henry and Ormerod which sets out and summarises all the economic policies we have had from 1961 to 1977. Each time it states what the norm was, what the implementation was and what the exceptions were.

It is a sad fact that we have to look back and say—and it is their conclusion, too—that for a short time we probably do effect a lowering of the rate of wage inflation. In the long term, however—and that policy has to be phased out, sooner or later—the claims make up for all that has been lost in earlier years. There are several quotations which are apposite. Some of these incomes policies were compulsory while others were voluntary. Some had exceptions while others had none. And different authors have analysed the results and reached different conclusions.

Parkin and others concluded that the impact of incomes policy on wage increases had been "derisory". Tarling and Wilkinson claim: Incomes policies have repeatedly failed to achieve any of their stated objectives ". Other authors have found that there has been a significant effect, though not great, and in most cases it has been only small.

Those of us in politics and industry might summarise our feelings about incomes policy as a result of 20 years' experience from Selwyn Lloyd onwards in this way. In phase 1 there is some effect. However, in each successive phase it becomes harder and harder to operate it fairly. During an incomes policy there is a telescoping of differentials because it is the large unions, representing the unskilled and the semi-skilled, who punch the hardest and who can, if they wish, disrupt most. So they get more for their members. As a result, the foremen, the toolmakers, the junior managers and those who have the skills which are so essential, particularly in the engineering industry, do not get the rewards to which they are entitled. Then they are linked with productivity—and let us be fair, we all try to link with productivity but so many of those agreements in that incomes policy were phoney productivity agreements and they began to leak like a sieve, so that there were productivity agreements which were agreed between management and the workforce which were not really genuine and did not produce increased productivity.

Then when eventually we ran out of the 5 per cent. target at the end of the phases in Mr. Callaghan's incomes policy, the water which had built up behind the dam was very considerable indeed and there was a tremendous jump in earnings as a result. We seem to me now to be taking refuge in this year—and I have a horrible feeling that this Government are doing the same—not in an incomes policy but in what is called comparability. I ask this Government to be very careful about comparability. The Labour Party set up the Comparability Commission under Professor Clegg of Warwick University. How is it possible to compare man with man and job with job in different parts of the country, with different products which they are producing? It seems to me that the desire to be clear is seldom reached, the borders are blurred and we are not comparing like with like. We have seen the Civil Service Pay Research Unit built up again and that seeks to take the best 100 firms in British industry and compare the wages and rewards there and match it in the Central Government Civil Service. Somehow they are able to prove that the very favourable fully-indexed pension schemes which are available to the civil servants, and the six weeks of statutory holidays a year, are not very different from what happens in the private sector. That is not true. In the private sector few pensions are indexed to more than 3 or even 5 per cent., but in November there was a 14 per cent. increase in public service pensions. Incidentally, that raised the cost of public service pensions to £2,000 million a year and it added £288 million on top of that as a result of indexing. So they were seeking to compare like with like but I do not believe they have done it very successfully. They reckoned that all the benefits of public service—of which "sackability" or "unsackability" must be one—were only worth 2 per cent. difference in the wage scales.

Of course, as the Economist pointed out this week, they did not take unemployment into effect. If, say, 25 per cent. of the draftsmen (that is not the real figure) in private industry are on social benefit and not working, how is that corrected when one is comparing the earnings of a draftsman in the public sector with the earnings of a draftsman in the private sector? Surely that should be adjusted accordingly.

Fortunately we have a chance of running down the public sector, which is getting too big. I think everyone in every party realises that the wealth-creating section of British industry is carrying too heavy overheads in the public sector but as there is a wastage of about 8 per cent. a year it should not need difficult and painful and slashing economies if that wastage is allowed, even if we continue recruiting at 4 per cent. because it is desirable to continue recruiting if we are to get the right age structure and attract the right people for the future; but that would still leave a 4 per cent. wastage, which is well worth while and very significant in public expenditure.

I am afraid that another effect of the wages policy—and I now speak as a director in some four companies and the chairman of two—is that increasingly management shelters behind the Government diktat and says, "We are not allowed. We must not give you more than 4 per cent." or whatever the going rate is. I do not believe that is good for the firm, I do not believe it is good for the management, and I am not sure that it is good for the trade union movement because one should be negotiating and bargaining properly.

I want to come back to what I said in an interjection and to draw attention to what happened, which is very well set out in table 2 of the public expenditure programme, because there it is dealt with in real terms. This came out in November and I commend it to noble Lords because it shows just how the Labour Government cut public expenditure and how right my noble friend was in saying that it was a little unseemly of Mr. Challagan and others of Cabinet rank to march down the streets of London and elsewhere, to get on to the radio and to lambast the present Government for making these public expenditure cuts when they did exactly the same at the behest of the IMF in 1975 and 1976.

The Earl of GOWRIE

They did more, my Lords.

Lord ORR-EWING

My Lords, my noble friend is right: they did more. Of course they always cut defence because that is something they do not like, in spite of the increasing threat. Between 1975–1976 they cut £2½ million off the public sector; expenditure in part of it fell from £71 to £68½ million. In the next year they did the same and cut another £3 million. Of course the big cuts were not in the social security side; they were in education, science, the arts, libraries, health and personal social services. That is where the big cuts came. By the way, £1.4 million came in the industry and energy section although that was slightly distorted because a BP settlement came within those terms.

Lord KALDOR

My Lords, if the noble Lord will allow me to intervene, is it not a fact that since the Labour Government, for good or ill, made these very large cuts—whether they did it at the behest of the IMF or of the Civil Service or because they thought that the economy was overloaded—they have been made and will not have to be made again? That does not strengthen the case for the present Government; it weakens it.

Lord ORR-EWING

But, my Lords, I go on to say that it is not unusual for a Government to have to take that step, particularly when the previous Government have planned an expansion of 3 per cent. in productivity which just did not arise. At that time, by the way, the Government also had a MLR of 15 per cent., as the noble Lord, Lord Kaldor, knows only too well. They had all those things which we are now doing, and I cannot think it is by accident that that was the period when they began to get control of the economy and control of inflation, which went successively down from then until June 1978, when it reached 7.4 per cent. So we are looking at rather a similar set of conditions, and I cannot think why they condemn cuts in public expenditure now when they did the same themselves and when it was effective in producing results.

I think one of the areas in which we are having the greatest difficulty is in local authorities. They are tremendous public spenders; and it is sad to see from recent figures that, although there has been a directive that there should be no recruiting for the present in local authorities, 30,000 extra people are now working for local authorities as compared with a year ago. So there is a great deal to be done there.

The Motion deplores the manner in which unemployment arises. I wonder whether we sometimes talk ourselves into expecting higher unemployment than will in fact come about. Like people in every part of this House, I deplore the un- productive use of men wasting their time and not contributing to the creation of wealth in our country. It is deplorable and we are not organising things well if it continues.

I was surprised when the unemployment figures for November were published. I had been reading and listening to the BBC and everyone seemed to say that unemployment was going to be soaring by November. I think it was said that by Christmas it might be 2 million, and yet the November figures for unemployment were the lowest for four years. I bet not one single Member of this House would have predicted that result. Of course we do not want to see unemployment grow. Sometimes I think we talk ourselves into a slump unnecessarily and long before it is a real fact.

I perfectly well concede that unemployment may rise as a result of the credit squeeze and the 17 per cent. MLR. My noble friend said that in his opening speech. My anxiety is that our policies of encouraging the private sector, the small firms, the creation of new entrepreneurial activities, will not begin to take effect while the squeeze in the public sector and in other areas is taking effect, with the very high MLR and when it is so expensive to borrow money from the banks and particularly difficult for the small firms to do so.

The Earl of GOWRIE

My Lords, I am grateful to my noble friend for giving way. The point seems to me so important that I should like to answer it now. The fact is that the great threat to the policies on incentives for small firms and the like is the enormous claims on money and on borrowing of the public sector. That is why we are trying, by making gilts more attractive and by the credit squeeze, to get the claims of the public sector down so that then the policies which my noble friend outlined can come into effect. They cannot, unfortunately, come into effect until inflation is got down and the claims of the PSBR are got down.

Lord ORR-EWING

My Lords, my fear is that one is going to create the unemployment before the other one picks up and creates the new jobs. I am not pessimistic—and I am sorry that I have been longer than I normally am—because there are one or two interesting signs. I am chairman of an engineering company in Lincoln employing some 4,000 people. We have had a wage drift, or earnings drift, which has put us into an unproductive and uncompetitive position. We were paying 10 per cent. or even 20 per cent. more in earnings to our workforce than our competitors were in the West Country or in Western Europe. That meant in the long run that we were bound to lose our order book, which indeed we are losing, and our export order book.

The workforce there, after a lot of persuasion and a long time, have agreed to accept a cut of 10 per cent., on the understanding that we would then invest £3½ million on better machinery. They accepted of course that there would be a reduction in jobs over the next three years. That message seems to be getting through. That is a small example. In British Leyland I thought, from what a previous speaker said, that it was interesting that 87 per cent. should back the management and only 13 per cent. should refuse to have the cuts which they believed to be necessary and the investment which was so essential.

It was significant that it was "red" Robinson who was leading the 13 per cent. There was a dedicated Communist who, in the words of Sir Stafford Cripps, may not have been dedicated to producing a viable, economic and satisfactory democracy in this country. The same applies to the National Union of Mineworkers. I believe that Mr. Arthur Scargill was addressing the Institute of Directors this very day. He made it quite clear that he was there to disrupt all over the country in the coming winter to the maximum extent possible. How nice that the majority of mineworkers did not follow his example but followed the more moderate line!

To some extent the same applies in the motor industry. There you have a differential now where the hard-up company, Talbot, accepts 5 per cent. whereas Fords, with their great prosperity, with their tremendous order books and the success of their models, settled for 20 per cent. Surely that is the way it should be. Some firms have to take a pull and accept 5 per cent. while others can afford bigger awards.

I have only sought to give a little encouragement, a little criticism, of the noble Lord. We are all dedicated to trying to find a solution. I do not believe that the country is in a mood for another incomes policy at this stage. We have got the right formula. Let us try it; and let us try it, I hope, with good will on all sides. As the noble Lord, Lord Cledwyn of Penrhos, said, we are all interested in Britain succeeding. We hope that this new formula, with correctives as we go along, will help.

Lastly, 17 per cent. is too high, and the Government cannot like it any more than we do in industry. If they have to carry on the squeeze I hope they will consider in the next round perhaps limiting hire-purchase, perhaps throttling the money supply, and perhaps even these credit cards which seem to me to be absolutely pernicious in their circulation of money, for which you do not have to pay for a month. Those seem to me to be better and more temporary instruments than keeping 17 per cent. for too long.

Lord McCARTHY

My Lords, the noble Lord said some nice things about my speech, with most of which I do not agree. Would he not agree that the very short-term successes of incomes policies, coupled with their long-term problems, which he spelled out for us, are almost more true of our policies in relation to exchange rate control, our monetary and fiscal policies over the last 15 years, and that that is why we are in the state we are in now?

Lord ORR-EWING

My Lords, I have already taken 24 minutes of the time of the House. I should like to have a discussion with the noble Lord about that, but I think it might be more productive outside the Chamber, and perhaps over a drink it would be nicer still.

6.6 p.m.

Baroness WOOTTON of ABINGER

My Lords, it does not often fall to a Member of this House to congratulate a trio of maiden speakers. It is a great pleasure that it has come to me. I am sure that our debates will be greatly enriched by the passion of our Scottish friend the noble Lord, Lord Ross, by the persuasive eloquence of the Welsh in the person of the noble Lord, Lord Cledwyn, and by the ripe reflections on his wide public experience of the noble Lord, Lord Godber.

Gilbert and Sullivan said, in one of their operas, of your Lordships' House that it did nothing in particular, and did it very well. I suggest to your Lordships that we might turn that little saying upside down and be pretty near a description of the Government's economic policy. It has not done very much in particular, and it has done it very badly. Let us consider what they have done. I think we may be forgiven for believing that they put a great deal of store—at least until about three hours ago—upon their control of monetary policy. I do not know whether that has survived, or will have survived, the shattering attacks of my noble friend Lord McCarthy, but I did notice a certain reticence in the reply given on that subject by the noble Earl, Lord Gowrie.

I noticed that, even when he made an unprecedented statement in another place about monetary policy, the right honourable gentleman the Chancellor of the Exchequer was a little annoyed when the inference was drawn that this was not merely the most important but perhaps the sole weapon in the Conservative armoury. All Governments have to look after monetary policy, and the unprecedented statement made by the Chancellor of the Exchequer on 15th November showed that exceptional importance was, and perhaps is, attached to that aspect of policy by the present Government.

It was a highly technical statement. It was full of those mystic initials like PSBR, PRT, M3, and even a reference to the corset which was to be imposed upon bank lending—let me hastily assure your Lordships not upon the bankers. After all that, the Chancellor of the Exchequer concluded that the policy had failed in attaining its target. Next we look at the Budget. The Budget, as your Lordships know, made radical reconstructions of income tax distribution, giving the benefit of very large concessions to the more affluent sections of the community. The concessions of the threshold in the upper brackets were estimated in the Budget Statement as likely to amount to £662 million in a full year, and about half that in the remainder of the present financial year. So far as one can judge, these concessions were made in a rather naive hope that they would encourage the recipients to develop and modernise British industry.

But let us consider a little more realistically who the recipients would be. They would be people with personal incomes in the upper brackets. Most people in that category are fairly well on in years and I think that they are unlikely to launch into stimulating new experiments for the modernisation and development of British industry. Some of the more old-fashioned among them might even use this bonus to reduce their overdrafts and, in that way, they might be contributing to the restriction of the circulation of money. In that respect, the Government might claim something. They would certainly invest a good deal of it but they would invest it not in new machinery and plant, but in pieces of paper which they would buy in The Stock Exchange which would give them a title to a share in the profits of those firms which they thought stable and likely to continue profitable. It is very probable that, after the lifting of restrictions on investments abroad, a good deal of this money would go abroad.

The sad aspect is that there was a channel down which that money might have gone if the Government were determined that it should be available. It might have gone to the National Enterprise Board, the one channel through which it certainly would have stimulated new and enterprising developments in British industry. Unfortunately, the Government were so rude to the members of the National Enterprise Board that they resigned in a body—something which I think is unprecedented for any Quango. The situation is that those members have now been replaced. However, it was a two-sided body and one side has refused to suggest members for appointment.

The Government then decided that they would launch a great campaign of cuts in public expenditure. I do not want to go over what has been said so often publicly as regards the disastrous choice of where the cuts were made. I suppose that persons in the top 25 per cent. of the income hierarchy have not suffered at all from those cuts. But persons in the bottom 25 per cent. have suffered severely from cuts in, for example, school meals, school transport and so forth. The cuts were misdirected, even if they were necessary.

However, I wish to speak not so much about the cuts being made in the wrong places as about the extraordinary new attitude that has arisen in recent years towards public expenditure as a whole. The legend seems to be getting about that there is something iniquitous in the nature of public expenditure as such, which is not present in private expenditure. However, in principle both public expenditure and private expenditure are exactly the same. They both give employment, and these cuts have destroyed employment. They both produce goods and services, although the goods and services are rather different and are usually directed to different addresses.

I was rather shocked to hear not so very long ago an ex-Labour Cabinet Minister express dismay when the volume of public expenditure—I think it was in this country but possibly in other countries—exceeded 50 per cent. of the gross domestic product. There is nothing sacred about that limit. Public expenditure should be as great as public need, and private expenditure as great as private people can afford. Both, of course, in the last resort, are limited by the spenders' capacity to spend and that is true at present—it was necessary to make considerable cuts. However, the argument of the noble Lord, Lord Orr-Ewing, that, because cuts were made last year or the year before, cuts must be made again this year, is again giving in to the view that public expenditure is iniquitous and something that we slice when in trouble. If cuts have already been made on a very large scale, that should surely make it less necessary to make them next year. When I have reduced my personal expenditure, with a struggle, for a year or two, in the year following I hope to reap the benefit and not to have to do it again, even if I cannot restore the previous standard of living.

I sometimes wonder how many of those who support the Government cuts and who criticise public expenditure on the ground of its extravagance, are deliberately inflating their own overdrafts because they realise that in a world of inflation it is more profitable to be a debtor than a creditor. Those are active things which the Government have done and I suggest they have had very undesirable social results.

Lord ORR-EWING

My Lords, I hesitate to interrupt the noble Baroness, but she has made reference to me. I should like to point out that our view is that we need to create jobs in wealth-creating industries. From the creation of those jobs and from the prosperity of exports, we can then afford a good public expenditure side. In fact, we have kept total public expenditure about the same. We hope to expand the private sector so that percentage-wise public expenditure will be less. But the worry is that people choose to make the cuts where it hurts the public—in places like old people's homes and the like—and do not cut the bureaucrats at source. Thus, we end up with more administrators in the Health Service than doctors and nurses and more administrators in education than teachers. We think that that seems to be wrong.

Baroness WOOTTON of ABINGER

My Lords, I am happy to agree that if the cuts only cut unnecessary bureaucracy, they are to be supported. But that is not the fact. The fact is that they are cutting real services that are enjoyed by real people. Cuts in those services should not take priority over cuts in private expenditure. That is my point.

As regards inflation, I cannot see that the Government have any anti-inflation policy. They seem to take the view that if evil falls, leave it alone and all will come well in the end. That seems to be their view in all that remains of their policies. First, let us take inflation—there is no price control. They even concede the fashion that is growing up—and the language in this context is important—of speaking of "the" inflation rate as though it were a fact of nature, or what the insurance companies would call an "act of God ", which, by the way, is very unflattering to God.

Viscount MASSEREENE and FERRARD

My Lords, it is not the Government.

Baroness WOOTTON of ABINGER

No, my Lords, it may not be the Government, but it is a fact of man and the practice is growing up for both public and private enterprise to say, "We must raise our prices to keep pace with the inflation rate". That happens on the railways and it is happening right, left and centre, and no protests is raised against it, which is the one guaranteed way of making sure that inflation will always be with us. So much for inflation.

What about incomes policies? Incomes policies have been mentioned several times and it has been said that we have had them and they have failed. As a matter of fact, we have never had one. We have had occasional wage policies and I want very strongly to emphasise that a wage policy is not an incomes policy. There are many people—perhaps at any one time the majority of the people of this country—who are working for their living (for salaries or wages) under a contract of employment. There are many other people who are not doing that and who are making money; making money by their own businesses; by speculation in property; by speculation in foreign currencies and from investments. I know that we had a dividend limitation, but that is a most unjust method of control because the receipt of a dividend takes no account of the economic standing of the recipient. It is only a measure of the profitability or the lavishness of the company.

So we have had no incomes policy. Let us have an incomes policy, and I want to make one or two suggestions before I sit down about what that incomes policy must contain. In the first place, it must contain a norm. Everyone is very frightened of a norm, and fears to mention a figure. But the other day the Chancellor of the Exchequer was led into saying that 18 per cent. would be too much for the standard rise. I think that he should be put through the exercise: if 18 per cent. is too much, is 17 per cent., 16 per cent., 15 per cent., 14 per cent., 13 per cent., 12 per cent., 11, 10, 9 or 8 per cent. too much? We should get an answer within that range somewhere.

The Earl of GOWRIE

My Lords, I am most grateful to the noble Baroness for allowing me to interrupt her. My right honourable friend said that, regrettable though it was to have reached that stage, somewhere in the region of between 8 per cent. and 11 per cent. would be acceptable—I think that he said this on Weekend World—but he did not think that fiats from him or his colleagues would necessarily ensure it.

Baroness WOOTTON of ABINGER

My Lords, I am obliged to the noble Earl; I am very glad to know that the Chancellor is committing himself to figures. We understand that the Government stand by the principle of free collective bargaining. To be honest, free collective bargaining is simply a matter of keeping up with the Jones's, or perhaps I should now say, with the Fords. We have again invented a very dangerous word—the "going" rate. Once that enters the vocabulary, then keeping up with the Jones's or keeping up with the "going" rate becomes the standard practice of collective bargaining.

First, the Government's incomes policy must have a norm, and it must be flexible enough to allow for exceptions. But it must not allow exceptions to be strung up after the norm has been established here, there and everywhere on any kind of grounds. When the policy is decided the grounds for exception must be laid down. There is a precedent for this; it is the case of the old Prices and Incomes Board which laid down four grounds on which one could plead that one could exceed the norm. With the grounds laid down it then becomes a judicial matter to decide whether a particular case is made out for exceeding the norm. That is the first condition.

The second is that there should be no criminal sanctions. There were criminal sanctions behind the Prices and Incomes Board, but they were not very important because although the rules were broken, no one was ever prosecuted and therefore no one suffered for his offences if he had broken the rules. We could work this through the tax system. Five years ago I worked out a system for this. It was that we should have an income gains tax; that is to say, that not merely that part of the population who work for wages but the whole population should take their share in bearing the burden of what the noble Earl has just referred to as the restricted productivity from which we now suffer; that that should be shared over the whole community; that no one should raise his standard of living when there is not sufficient productivity to allow it; and that one could have an excess income tax which would be graduated on the same principle as income tax so that it favoured those who had the greatest need.

This morning I was absolutely delighted to see my noble friend Lord Kaldor writing a letter to The Times suggesting that very system. As he said, it would involve certain administrative difficulties, but administative difficulties of that kind in an incomes policy are much fewer than the difficulties of policies which are worked through a payboard or a Prices and Incomes Board. In every region there is a tax collector and it would be his business to take any excess which is not justified by the situation under the permitted exceptions and which is not justified by the country's productivity which is available for distribution.

Those are a few moderately constructive suggestions which, with the assistance of my noble friend Lord Kaldor, may be taken up by the Government. I hope that they will commend themselves to the Government. They are not intended as a temporary expedient; they are intended as a basis on which we should fix the regulation of our incomes permanently. I do not know whether I have persuaded my party to this, but I believe that at present we are at the stage we were in, not quite in feudal times but not much later, when we settled our private quarrels by duels, by fighting or by force of some kind. We settle wage, payment and incomes policies in exactly the same way now. I hope that we are on the brink of working out an orderly method of distributing such productivity as we may have. Those are a few suggestions, but I can only end as I began. The Government do nothing in particular and have not done that particularly well.

6.25 p.m.

Lord JACQUES

My Lords, we have been fortunate this afternoon in having three maiden speeches which have portrayed great experience and a wealth of knowledge. I join with other Members of the House in congratulating the maiden speakers and in hoping that we shall hear from them often. I should also like to congratulate my noble friend Lord McCarthy. Whether or not one agrees with him, I think it was accepted on all sides of the House that he made a lucid and informed speech.

In management, whether it be management of a single business or management of the economy, before embarking upon a policy and continuously during the operation of that policy it is necessary to consider whether the policy will achieve or is achieving its objective, how long it will take and what are the side effects. In other words, we must consider what we shall get and what price we have to pay. Many trained observers now take the view that the present Government are determined to pursue their economic policy regardless of the consequences, and that they are not prepared to take into account such assessments as I have indicated.

It is all very well at the hustings to say, "We shall not print the money ", but in practice control of the quantity and the velocity of circulation of money and credit is much more difficult. Because it is much more difficult, estimates are found to be wrong and strong action must be taken. At present we have an excellent example. Because the money supply has exceeded the estimates, we have the highest rates of interest that we have had in the lifetime of most of us.

I should like to devote the rest of my speech to some of the consequences of high rates of interest. First, we have a high rate of interest on mortgages and houses. That cuts right across Government policy. Government policy is owner-occupation. It also gives added reasons why there should be increases in earnings and would tend to perpetuate inflation. Next, high rates of interest play havoc with small businesses. The small businesses are the seedbeds of British industry and the Government are to be complimented in having a policy which is to help small businesses. But their current policy of high interest rates certainly will not help small businesses. It is a recognised fact that small businesses are generally over-stretched; they are generally quite solvent, but somewhat unstable because their capital is very largely invested in fixed assets and they depend upon other sources for their floating assets. Very often they are depending upon short-term bank loans for those floating assets, which means that in times of high interest rates their costs rise steeply. They may in fact have their loan reviewed and may be refused a loan which might be necessary, for example, to meet the inflation in the replacement of stocks. Consequently, as a result of the present monetary policy, many small businesses will be placed in the position that they either wind up or have to sell to a larger firm at a bargain price.

Next, high rates of interest inhibit long-term investment. When interest rates are high there is a tendency for money to be attracted into short-term uses. Consequently, there is less long-term investment in industry. This means that there is less provision for the future, and this is at a time when there is perhaps the greatest need for investment in private industry.

Another effect of high rates of interest is that it strengthens sterling, and the strengthening of sterling in turn means that exports are dear and imports are cheap. In other words, foreign competition is being used to inhibit increases in prices by home producers. Many firms will be put in the position that they have to face immediate losses if they meet applications for higher wages or future probable losses because of lack of ability to compete, and many will choose the probable future losses rather than the immediate loss arising from industrial action. But that means in the end that output falls, and in the meantime there is a severe effect upon our balance of payments.

But, my Lords, the effect upon wage applications is negligible. In a free for all, in the words of Frank Cousins, the workers are part of the all ", and it is inevitable that they will try to maintain their standard of living. Where wages are low they will try to improve their standard of living; where some other workers have got a high increase they will try to get the same increase. There will be competition between the unions. The cry, "We will not print the money ", has no immediate effect and the long-term effect is negligible. So often one man's increase in wages is another man's unemployment. It is much more likely that the worker will commend the trade union leader who tries to maintain his wage but will blame the Government for the consequential unemployment because it may be affecting somebody else.

My Lords, we must bear in mind that failure, like success, is a snowball operation. When there is a fall in output there is a rise in the ratio of overheads and there is a tendency to overmanning. Consequently, industry becomes even less competitive. But eventually there is a shake-out and there is mounting unemployment. There are indications that we shall very soon get the beginnings of the shakeout. It has been said that if the Government's present policy, which involves high rates of interest, succeeds, we will have depression, and if it fails we will have continued inflation. It is likely that we will get both. In a country which is so dependent upon international trade it is possible to have both depression and inflation, and there is every indication that we are likely to have both. The Government themselves estimate that inflation will rise to 19 or 20 per cent., and the most optimistic estimate is that by one year's time it may have fallen to 14 per cent. That means that in the next wages round next year trade unions are going to be trying to maintain the standard of living of their workers by seeking a wage increase at least as much as the rate of inflation, and that will give us more inflation in the following year.

I have only one question for the Government: Where do we go from here? There seems to be no end to the possibility of inflation. I believe that so long as you try to control inflation by simply controlling the supply of money and credit you will fail because of the reasons which I have given. I believe that it is necessary that you should use other ways of controlling inflation, and in particular a permanent incomes policy. I have on two occasions in the present Parliament outlined the kind of permanent incomes policy which I would advocate, but I would accept that there could be many variations of that. I believe, however, that a permanent incomes policy is absolutely essential if we are going to solve the problem of inflation. If the Government are not prepared to look at that, then I say, where do we go from here?

6.38 p.m.

Viscount MASSEREENE and FERRARD

My Lords, I agree with 30 per cent. of what the noble Lord, Lord Jacques, said about these very high interest rates; I will come back to that in a moment. First, I should like to congratulate the three maiden speakers on their excellent speeches.

I should like to refer for a moment to the speech of the noble Lord, Lord McCarthy, who opened this debate. It rather reminded me of the saying that people in glass houses ought not to throw stones. If we look at the record of the Labour Government during their term of office of just over five years from 1973, we see that in that time they doubled public expenditure and they doubled unemployment. Public expenditure rose in real terms by 16 per cent., but of course in the money supply it doubled. The noble Lord appeared to attribute most of this—that is how I read his remarks—to the present Government, but the present Government have been in office for only six months. We could hardly manage all that within six months.

What does the noble Lord suggest? Do we follow on? Do we print money? Do we halve the value of the pound as the last Government did, or do we join the Gadarene swine and rush to our doom? I believe Her Majesty's Government have taken the only alternative policy, namely to reduce public expenditure. This will be a very long process and the amount of public expenditure they have cut so far is really nothing at all. The process will probably take about five years.

The noble Lord, Lord McCarthy, accused the Government of selfishness and of an abuse of power. Where does the abuse of power come in? It is no abuse of power to reduce very slightly what we consider to be non-essential expenditure. And how is it selfish? We are accused of reducing taxes on the rich. I am not rich, but it has not made me any richer; in fact it has made me poorer, if anything, through increased VAT and higher interest rates.

The poor, or so-called poor, are certainly no poorer; and indeed we can thank God today that, from the point of view of man's physical well-being, there are no poor, although I agree there may be much frustration. It is true that we have cut back slightly on school meals and transport to school and thing like that, but if a family falls below the national level they can apply for supplementary benefit, which is not being cut. Thus, from the point of view of the poor, things will be exactly the same and I really cannot see what all the fuss is about. As I say, despite any cuts that may be made, the poor will not be affected from the viewpoint of the social services.

It may be unpleasant to restrict the money supply, but we must cut down on public expenditure which now takes more than 60 per cent. of the gross national product, far too great a slice when one thinks that not long ago it took only 40 per cent. We cannot expect the private sector, which has been squeezed all the time, to supply such vast amounts to meet that public expenditure percentage. Even Mr. Denis Healey recognised in the end—for noble Lords who are interested the reference is column 1546 of the Common's Hansard for 15th December 1976—that excessive spending destroyed, rather than saved, jobs. He learned by experience.

I used to employ people—I had a small factory, and I still employ people in agriculture and on the land generally—and it is with that experience that I speak about incomes policy. If we had an incomes policy with a norm and we were prepared to support it by the gun—which of course we cannot do in this country, and I hope we never shall—of course we could cure inflation. There is no inflation in Soviet Russia because the Government there completely control wages; but the gun is needed to do that, and that would be unthinkable in this country. The trouble with a pay policy under a Labour Government is that the unions know, because they are the financial supporters of the Labour Party that finally the Government will cave in. That is why pay policies under Labour have failed. Nor do I believe a pay policy under a Conservative Government would be particularly effective; but certainly it failed under Labour.

It is difficult for people to talk about unemployment if they have never been in the position of having to pay the wages out of their own pockets on a Friday. I do not know how many noble Lords opposite have had to do that, but I assure them that it can be a most unnerving experience. I recall telephoning the employment exchange—let me make it clear that I am out of industry now—to ask whether they could send us some unskilled men to work on automatic machines; they simply had to look at temperature gauges and fill hoppers. Some men came, but very few of them would take the job because they were already getting so much by way of supplementary benefit and the dole that they were not interested. Indeed, if they paid the wages that were asked, many employers would go broke.

We are of course talking about human nature. The reason why I was not a Socialist as a young man, though many of my friends were, was that I had been brought up in the country and understood nature. We all come from the same Creator, like the animal kingdom, and looked at naturally man is not meant to work; it is not his instinct to work, nor is it the instinct of animals to work. Ambitious men apart, many men do not have any incentive to work. I am all for the social services because we must cure hardship; but we must face these facts and, in this connection, we must consider the question of job vacancies.

I have a cutting from today's Daily Telegraph about the situation in the town of Derby, where employers cannot find bricklayers and electricians. The cutting reads: Mr. Derek Crowther, Derby jobs recruitment agency manager, said yesterday he wondered whether it was true that hundreds of people in the Derby area were sitting at home because they did not wish to work as their state benefits were ' so well organised'. Mr. Crowther said trade unions were also unable to offer an explanation about the missing workers. There were 4,516 unemployed in Derby on 20th November, equal to 3.6 per cent. of the working population ". I have quoted many instances like that to your Lordships in the past and I would like the Government to do something to bridge this gap and provide job incentives. Whether wages can be made so much higher that those who are at present unemployed will accept jobs, I do not know. Indeed, I do not know how the problem can be overcome. It would be a very brave Government who would decrease supplementary benefit to any extent.

I must not speak for too long, my Lords, because in a moment I have an official appointment, but I shall be coming back in an hour. However, before concluding I should like to support what my noble friend Lord Gowrie said about the two nations. This is a tragedy. I know the North and the old, decaying industries there and the problems of over-manning. Of course one tries to keep people in employment. There is only one hope that I can see, but before I say what that is I should like to mention one point on which I do not agree with the Government. I refer to their cut—it is a very small cut—in the subsidy for working people who are offered jobs in another part of the country and have to move if they want the jobs. I do not think that the Government should make any cut in that subsidy because it is very difficult for a working man in, I suppose, his council house, to move to another area of the country to take up a job that is offered to him. I would ask the Government whether they could make that situation easier for working people. We need mobility of labour.

I think it was the noble Lord, Lord Cledwyn of Penrhos, who, in his excellent maiden speech, mentioned the micro-processor. The micro-electronic revolution can go either way, but I see it as light on the horizon. As we all know, the object economically of production is to create wealth, and the micro-processors will provide great wealth. But we must see that that wealth can be used to train people for other jobs, or even help them to become self-employed, to teach them various arts and crafts. If this development is handled with imagination, it may be the saviour of our unemployment problem.

As I have mentioned previously, I do not think that we ought to call the unemployed "unemployed ". I have always felt that we ought to call them a reserve labour force—

Several noble Lords: Territorials.

Viscount MASSEREENE and FERRARD

No, not territorials. I am all for having a Territorial Army, but not territorials in this sense. What I suggest is a more dignified name for the unemployed. I have spoken for too long, my Lords, and I have to rush, but I shall return in about an hour and I hope to hear more of your Lordships.

6.56 p.m.

Lord LEE of NEWTON

My Lords, it is always the custom in this House to congratulate maiden speakers, and I believe that today we are fully justified in doing just that. We have heard three maiden speakers, all of whom I thought were exceptional: I was very interested that my noble friend Lord Ross was afraid that he was becoming contentious. I have known him for 30 years and I do not think that he has ever made a speech that has been less contentious than his speech today. My noble friend Lord Cledwyn of Penrhos was typically Welsh in his appeal to our emotions. I have heard him, too, for many years, and I thought that he spoke exceptionally well, as did my friend (if I may call him that outside the parliamentary sense) the noble Lord, Lord Godber of Willington. He and I have exchanged views on many of the subjects that are debated in another place and in this House. I have enjoyed discussing matters with him, and I was very happy about the success he achieved today.

When the noble Earl opened for the other side I became very anxious over his Disraeli illustration of two nations. He seemed to be saying that in the North we must expect manufacturing industry to continue in a steep decline to which there was no answer, that therefore we must expect heavy, indeed heavier, unemployment, and that the salvation of the nation was to be found in the new service industries whose function would be to carry the rather reactionary North part of this island, still struggling to make a living out of manufacturing industry. If the noble Lord did not mean that, I hope he will correct it. Certainly that was my impression of what he was saying—

The Earl of GOWRIE

I am most grateful to the noble Lord for giving way. What I think I was trying to get at was that it was no longer in the power of the successful parts of the British economy to provide the tax base which could simultaneously pay for the large social services and service sector of the economy, that they needed a successful manufacturing base, but that this manufacturing base was in the steepest kind of decline, and I was very gloomy about its prospects for recovery.

Lord LEE of NEWTON

My Lords, I think that the noble Earl has almost confirmed my analysis of what he was saying. I hope that he will look at this matter again. I know that there were two nations at the General Election. If everyone had voted the way we did in the North, the present Government would not be in power. But if the two nations theme is to be an attitude of Government it would seem to me that they are saying that there is no further point in trying to expand some of the new industries in the development areas of the North. This is what they are saying now. I am thinking of the position of other industries, such as steel which is experiencing terrible problems at the moment. Indeed, that applies to every steel industry in the world. But if we are to cut it down to the minimum that we can at a time of world recession, what are we going to do when the recession goes and we demand the right to become competitive in world markets? I am also thinking of the engineering base. Forty per cent. of our exports are from the engineering industry, most of it in the North. Are we to dismiss such industries as industries of yesteryear which have no future? I hope that the Government will look again at that kind of problem.

It seems to me that at the moment the basic unity of this nation is at a lower ebb than I have known it for very many years. The decline in our economic position, which previously has been due to a relative failure to keep up with the pace of improvement in other manufacturing nations, has now reached the position in which our standards are actually declining in real terms, which makes the discussion about what we can afford in wage increases look rather hollow. I will come back to that point.

In the face of all this, one cannot find any glimmer of inspiration in the attitude of Her Majesty's Government, whose policies seem to me to be entirely negative and restrictive in the extreme. Not only is this defeatist in itself, but it is now producing a similar attitude in both sides of industry, especially in industries which are declining. I am not aware of the results of the discussion today at the NEDC, but the NEDC should of course now be producing ideas for industrial revival. Unless the Government speedily drop their almost laissez-faire attitude towards industry and begin to accept their own responsibilities in industrial matters, it will be very difficult to see what function the NEDC can in any case play in the future of this nation. The comparative failure to maintain sufficient production of wealth for both home consumption and exports is now a most disturbing feature indeed.

I think we are now approaching a period of far-reaching attack both on the provisions of the Welfare State itself and on the mixed economy which some of us played some part in trying to create. The excuse offered is the need to control the money supply and to finance the public sector borrowing requirement, but after seven months of that kind of monetary policy, which was of course presented to the electors as the answer to the nation's economic problems, we have seen inflation soar, we have seen growth rates at a minus and we have seen both interest rates and mortgage rates at an all-time high level—and there is the threat of yet more cuts in the pipeline. We had a Budget which was advertised as an instrument to reduce taxation. In fact, it has resulted in much heavier taxation for the vast majority of the British people, with VAT itself at an absurd level and large increases in rates to come.

So, in place of the very considerable real increase in living standards which was produced in 1978, we now face the certainty of a very considerable reduction. We have even reached the stage at which, in place of the promises of further decreases in direct taxation, we are getting hints both from the Chancellor and from the Financial Secretary, that we may be threatened in the future with increases in direct taxation itself. Even those members of the Government who are open to new ideas must be wondering how long they can continue to place their faith in Professor Friedman and the things that he has been advocating. Surely the time for an expansion of industrial wealth production, plus selective import controls and an agreed policy on incomes to replace policies which have so obviously failed to stimulate the economy, is now overdue.

To begin such a recovery I believe the Government should be working to achieve an atmosphere of co-operation in our industries. In fact, most of their recent activities, including the squalid plot to emasculate the NEB, have provoked exactly the opposite reactions, and it seems that. North of the Border, the Scottish Development Agency is in for roughly the same kind of treatment. These actions have not been provocative to the trade unions only. They constitute an insult to numbers of important employers, who have registered their displeasure in an appropriate manner. It seems to me that the Secretary of State is treating the NEB in a most disgraceful manner, especially when one considers the very real and very constructive work which that body has been able to accomplish. Up till now he has contented himself with demoting the NEB by taking Rolls-Royce, and probably Leyland, from them; but such scurvy treatment is bound to react against the vital work they were doing on tutanium, on the silicon chip, and on their ventures with INMOS and INSAC on the computer software programmes. How he can be so foolish as to put in jeopardy the kind of modernisation in which they were indulging at the very moment when we are facing great problems industrially, I just do not know; it begs description.

We have also seen the attack on the British National Oil Corporation, about which the noble Earl and I have spoken before. This was done at the behest of the private oil companies. Where that will end, we do not as yet know, but it fills one with apprehension. We have had the gamble with the shares of BP. Both these things have happened at the very time when the control of oil should be an absolute priority so far as this nation is concerned. One could continue on the same theme with reference to British Airways and other nationally-owned industries which have been foolish enough to reveal a tendency to make profits. One could understand some of this if it resulted in any advantageous effects to the nation, but it certainly does not.

Perhaps I could turn to a further theme about which the noble Earl and I have had discussions. I say this in the presence of Lord Scanlon, who we are very pleased to see in his place. The last Government created organisations to enable us to do what we could to produce far and away more skilled labour than we had had previously. Richard O'Brien did his work on his side; my noble friend the chairman in the engineering industries and I thought we were beginning to produce the kind of labour which will he essential in the years to come. I remember that in the old days we used to argue that the skilled labour employed the unskilled labour. Where are all the skilled people who have been produced in the last two or three years? Every industry that I know of which employs skilled labour is short of it. I will not go into all the details of it now, but every one of them is telling me that if only they could find more skilled labour they could increase their production enormously. Why do we not make some effort to discover what is happening?

My own feeling, for what it is worth, is that because of the diminution in differentials between skilled and unskilled, a lot of these people—they have not served apprenticeships, and that kind of thing; they are not of the engineering industry, but we were bringing them in—will not accept the responsibility, which is utterly inevitable if you are skilled labour, for the small differentials between that and, say, work on an assembly line in a car factory. Therefore, I think we really must begin to try to discover why all the work which has been put into this kind of development seems to be, not wasted but not giving us the results we require.

The other day Sir John Methven, Director of the CBI, was addressing a large assembly of CBI members, and the point of his address was to get them to educate their employees in the futility and the dangers of high incomes increases in a stagnant economy with high inflation; and, indeed, yesterday the Chancellor of the Exchequer was making the same speech to the BIF. At the very moment that Sir John Methven was making that speech one of the members of the executive of the CBI, Ford, was giving an increase of 22 per cent. It seems to me that Sir John had better start making another speech to the CBI, trying to educate them about what the results of that kind of thing are going to be. You could think of Leyland; but literally hundreds of other firms could not possibly compete with Ford on that basis.

We have been arguing today about incomes policies or collective bargaining. I have not yet heard anybody from the other side say a good word for an incomes policy, but what is the argument about at the moment? It is all about the failure of collective bargaining to keep within the limits that we can afford. Therefore, when noble Lords tell us that an incomes policy has not been a success, are they saying that collective bargaining has? Surely this is the corollary of the whole argument. Therefore, I hope that the noble Earl, when he comes to reply, will give us examples of the reasons why he still places so much faith in the capacity of collective bargaining to get us out of the problems he is complaining about.

As the House knows, I have never been an advocate of collective bargaining. I should like to be told by those who are informed, how we can run such a system with such a thing as the "going rate", to which my noble friend Lady Wootton referred. What we shall have to do nowadays, in the collective bargaining sense is to wait for the highest we can find and say, "Nothing short of that!" Ford which led the way in last year's collective bargaining—and we all know the results of it—is now leading the way again. How can those hundreds and thousands of firms which cannot possibly compete with Ford compete with the rate now established by what Ford has done? I am saying this. If we want collective bargaining, let us have collective bargaining. But that is not collective bargaining; it is the negation of collective bargaining. We have seen the efforts of the Clegg Commission on comparability. They have done a reasonable job. But is it not the case that comparability is the very negation of collective bargaining? It has nothing to do with the issue. Therefore, instead of producing what I might call a bastard type of collective bargaining, let us either have collective bargaining or not. At the moment we are being led very far from reality by it.

U-turns have been mentioned. The Prime Minister has been saying that there are not going to be any U-turns as far as she is concerned. I wonder whether the noble Lord is asserting now, as he was asserting six months ago, that there will not be a U-turn. I will help him on this. I happened to find a Hansard of 27th June 1972 in which I was asking the then Prime Minister one or two questions. I said: The Prime Minister was telling us about the period when the Labour Government were trying to contain inflation. Will he tell us whether he was trying to help it by leading his party 25 times through the Division Lobby in favour of all those who tried to break through the ceiling? Mr. Heath said: We have never accepted the principle of statutory control, and the right hon. gentleman's Administration abandoned it before they left office. We then saw the results of years of statutory control. The dam burst, and we have seen the consequences ever since That was the last time that he made any really convincing statement against an incomes policy. Shortly afterwards we all got the reverse of that argument; and we saw what happened.

I agree with what my noble friend has said and with my noble friend Lord Jacques. I ran an incomes policy for 12 months. It was a destructive incomes policy. We managed to get inflation down to 4 per cent. but it was destructive in the sense that it was one of those: "Thou shalt not" do this or do that; "Thou shalt not" exceed whatever it was. That is not the constructive type of incomes policy which my noble friend has written about in the past. We have to get to the stage where we do not have to witness (what was it?) £12,000 or £13,000 for the cameramen in ITA the other day, and similar figures for the compositors on The Times, while people with greater skills could not get half of that anywhere. I suppose that that is collective bargaining gone mad. If the money is there, grab it and if it is not, you cannot get it.

This is the reason why we must think again. I do not want the negative stuff that I had to indulge in. At this moment, the Government should be approaching the trade unions in a constructive sense. But what are they doing? They are introducing a clown of a Bill next week which will antagonise every trade unionist in Britain. Is that the way to get agreement on this. Not a chance! Why not drop it and say to the TUC, "That piece of paper you produced before the election, the contents of which we all agree—why not start from there? Is that still open for discussion and negotiation?" Do that and I will guarantee that the trade union movement will be quite constructive in their reply to it.

7.15 p.m.

Lord KALDOR

My Lords, I must first beg the indulgence of the House because I shall not be able to stay until the end of the debate. I am particularly sorry that I shall not hear the reply of the noble Earl. I was looking forward to it, but I shall read in it Hansard tomorrow. I have a long-standing engagement which I cannot break. I should like to join previous speakers in congratulating the three maiden speakers. So many nice things were said about those maiden speeches that perhaps I may be excused trying to find something new in that respect, and get on with my speech.

The most worrying aspect of the present Government's policy is not the lack of strategy but the lack of vision of Britain's economic future. The noble Earl this afternoon did nothing to allay one's fear that they have a lack of vision. Ministerial pronouncements from time to time go out of their way—like those of the Chancellor of the Exchequer—to emphasise that our situation is frighteningly bad; but they do it in a voice and manner that is intended to convey that the Government neither could nor would do anything about it. The performance of the economy is a matter for the economy and not a matter for the Government. The Government's job is to hold the ring, and holding the ring, so far as I can see—despite the noble Earl's more balanced presentation this afternoon—means simply controlling the money supply and letting everything else look after itself.

Winston Churchill once said that he was not willing to preside over the liquidation of the British Empire. I think that Her Majesty's present Ministers appear quite willing to preside over the liquidation of Britain as an industrial power. Indeed, they are determined to watch this process with folded hands and, for reasons that I shall explain, they are even inclined to try to accelerate the process if they can. The newspapers are filled with gloomy news of new factory closures every day and new redundancies. The latest plan is the contemplated cut in the steel industry's capacity from 25 million tons to 15 million tons, while, not long ago, the steel industry had plans to expand capacity to 30 million tons. This would mean a 40 per cent. cut in Britain's already grossly inadequate industrial base.

Steel production is the basis of everything. It is well known that it is the most reliable single measure of industrial power. It is also the most reliable in dicator of a country's capacity for defence, as Stalin discovered at an early stage and as the Germans found out in the course of the last war when they were out- manoeuvred by the Russians in the matter of ammunition. The present Government are keen on defence, but this aspect—how we are going to be weakened by this loss of capacity—does not seem to have occurred to them. I suppose they think that having cruise missiles in East Anglia will make everything else otiose and unnecessary; but for some of us who live in the area this prospect is pretty frightening.

The excuse for shutting down steel and shipbuilding plants and closing factories here and there—motor car factories, not to speak of minor things like toy factories—is always the same: there is not enough demand for their products and they are operating at a loss. Under a capitalist system, production is guided by profit. It cannot be emphasised too often that the profit criterion is only relevant for decision-making under conditions in which the resources released from the closure of unprofitable enterprises find a more profitable use elsewhere. Clearly, if the steel industry makes a loss and there is some other industry which could employ the steel workers at a profit, there is a presumption that their transfer from the one use to the other is a social benefit.

However, in conditions like the present, where the alternative is not some other form of production but simply more unemployment, the true criterion of social benefit is not commercial profitability but the question of whether the resources employed make a net addition to the national output. This is a matter not of profit, but of value added by production, which comes to broadly the same as the sum of wages and profits generated by the activity. Even when profits are negative, value added can still be positive, because wages are included in it and not only profits. So long as value added is positive, and particularly when it is greater than the cost of maintaining the worker when unemployed, it is in the national interest that plants should not be closed down, however unprofitable they are. In the United States in 1932 all enterprises were operating at a loss. Fortunately, the extreme laissez faire philosophy did not hold sway and the United States survived. I feel, however, that Britain may not survive if the present monetarist and laissez faire doctrines remain in command much longer.

The Earl of GOWRIE

My Lords, would the noble Lord give way? I am most grateful to the noble Lord. Since he said he would not be here at the end of the debate, may I answer the substantial point that he has made? I find myself—as so often—in considerable agreement with the noble Lord. The essence of getting out of a moribund industry is to get into other real employment. The difficulties that the Government are in are that, until inflation is reduced, and until the claims of the public sector allow inflation to get down, we cannot, as it were, boost the smaller or new sector of the economy, including the advanced technologies, to take up that employment. We have argued that our first task must be to get the inflation down and then there is a chance for some of these new fertile fields to emerge which will take the new employment.

Lord KALDOR

My Lords, by uncanny foresight the noble Earl has anticipated exactly what I am going to say. The true rationale behind this policy—it is not as stupid as I make it appear—lies in the belief that it is only through a great deal more unemployment that inflation can be brought to a halt. Though official doctrine makes inflation solely a matter of money supply, or else solely a matter of the borrowing requirement, I believe this is only a facade. The causal chain, in which everybody—Government Members included—really believes, runs from cost increases of all kinds, whether they are due to rises of the oil price or rises of wages, to price increases and from price increases to further wage increases.

The belief in the efficacy of monetary controls resides not on any direct influence over prices, but on their supposed effect on unemployment. As unemployment rises, the bargaining power of trade unions diminishes and wage settlements become less inflationary. There must be some level of unemployment at which this bargaining power disappears altogether. It is then, and only then, that a policy of "squeezing inflation out of the system" can be successful. This, I take it, is what the strategy really is; it is obviously not what it is said to be.

However, there are several snags in this argument. I should like to enumerate them, in so far as time allows me. The first is that it presupposes that it is the money supply which determines the money demand for labour, and not the other way round. In a credit money economy, the money supply varies automatically with the volume of bank credit. As wages go up, the demand for bank credit goes up correspondingly, and the ability of firms to finance larger overdrafts also goes up because they are able to pass on higher costs with unchanged profit margins and out of the larger cash margins they can pay more interest. The Government or the central bank cannot prevent the money supply from going up, whatever they do, if costs and prices are rising. They can only hope to counteract it under our present banking rules—and I emphasise, "under our present banking rules"—by raising the rate of interest.

This is a very weak and unreliable weapon as indeed the events of the past six months have shown. As soon as the present Government came in they lowered the so-called monetary target by 1 per cent. and they increased the interest rate by 2 per cent. This did not prevent an acceleration of the wage inflation in the six months since they have been in office. It did not prevent an acceleration in the growth of the money supply (which the Chancellor was keen to acknowledge) and I am very sceptical whether a new 17 per cent. rate will be more effective than the 14 per cent. rate we had before. Any rise in the interest rate, in the same way as any rise in the oil price, directly adds to costs and through its effects on prices enhances the rate of increase of wages.

The other day when the noble Lord, Lord Cockfield, explained the new monetary measures to this House, he said: … an increase in the rate of interest is not inflationary … it is deflationary; it restricts credit and in this way it will ultimately bring down prices ".—[Official Report, 15/11/79; col. 1409.] In that, I should like to say he assumed in effect what he set out to prove. Any deflationary effect depends on the consequential reduction in the demand for bank credit; but any such tendency for the demand for credit to be reduced may be more than offset by the inflationary cost-raising effects—direct and indirect—of the rise in interest rate as such. If a 3 per cent. increase in the minimum lending rate leads directly and indirectly to a, say, 2 per cent. acceleration in the rate of inflation, the new 17 per cent. rate is no more restrictive (and may be less restrictive) than the 14 per cent. rate which preceded it.

But even if the Government succeeded, through a combination of monetary and fiscal measures—we hear more and more about fiscal measures and not just monetary measures— to deflate real demand and increase unemployment, it is very doubtful whether they will succeed in bringing inflation effectively to an end. They will play havoc in the process with the wage system. We see that now. Successful firms can give large wage increases; unsuccessful firms small increases. This is sometimes justified on the grounds that it is all right if you increase wages if they are covered by a rise in productivity.

There is no doctrine which is more fallacious than the idea that wages should be fashioned enterprise by enterprise, firm by firm, according to the value of output per worker. All it means is that inefficient enterprises are artificially sustained by their being able to pass on their inefficiency to their workers who get lower wages. You get a wage system which is increasingly out of line with any reasonable relativities and which cannot maintain itself. Therefore, the increasing unemployment road of bringing wage inflation to an end is one that is not, from a general economic point of view, likely to lead to happy results.

Lord HANKEY

My Lords, would the noble Lord give way? If wage bargaining is settled plant by plant, does it not encourage the workers and managements to try even harder in the inefficient plants to get the sort of productivity which will raise productivity and wages?

Lord KALDOR

My Lords, if the noble Lord thinks that the difference between the productivity at Ford and that at British Leyland is a matter of one lot of workers trying harder than the other, I think he ought to make some further study of the subject. I would particularly recommend him to study the Ryder Report, which shows that at British Leyland behind each worker there is £800 worth of capital and at Ford's there is £2,500 worth of capital. That makes a wholly different approach to it.

All previous investigations show that the so-called "trade-off" between inflation and unemployment exists but it is a very poor one. That is to say, it requires a hell of a lot of unemployment to bring about a moderate reduction in inflation. In the United States various expert agencies—any number—calculated this trade-off and it was found that a 10 per cent. reduction of real demand achieved by fiscal measures will reduce output by 9 per cent. and the rate of inflation by 1 per cent.

The OECD recently made an international study and came to a more favourable result. They found that you can buy one-half per cent. reduction in the rate of inflation for each 1 per cent. reduction in the GNP; that is to say, not a nine to one ratio but a two to one ratio. Even so, if you take the OECD figures, the 2 per cent. fall in GDP, which is officially forecast for next year, will bring down our rate of inflation by only 1 per cent.—from 17 per cent. to 16 per cent. or possibly from 20 per cent. to 19 per cent., according to where one starts. In either case it is nothing much to write home about. To bring down inflation to single figures by this method, let alone to eliminate it altogether, requires a fall in output of 20 per cent. or something of that order.

It is hardly conceivable that political pressures will allow the Government to proceed with the policy of raising unemployment to the required extent or that they could stick to that policy, even if attained, for any length of time. And then what next? What is to prevent the reappearance of inflation once the economy is reflated again?—or, as the noble Earl said earlier, if elections approach and old ideas are forgotten and new philosophies temporarily are in the air? A lot of industrial capacity will have disappeared and the economy will have been greatly weakened in the interim, without any lasting benefit in the matter of inflation.

Before Ministers proceed too far along this road, they should keep the awful example of Chile before them. There, after the fall of Allende, the so-called "Chicago boys" took control. The great Milton Friedman himself appeared on the scene to direct operations—and what happened? The rate of growth of the money supply was reduced from 570 per cent. in 1973 to 340 per cent. in 1974, to 260 per cent. in 1975, to 170 per cent in 1976 and 130 per cent. in 1977. But this did not succeed in moderating the growth of the money GNP or of the rise in prices, because—lo and behold!—no sooner did they succeed in bringing the growth of the money supply down, than the velocity of circulation money shot up, and inflation was greater with a lower rate of growth in the money supply than it was before. That went on for year after year until the last two years, when they have succeeded not in bringing down the rate of growth of the money supply, which still goes on merrily at the rate of 90 per cent. a year; they have managed to bring down the rate of growth of prices to 40 per cent., and I believe to 30 per cent. now. And how? By the method well tried by Fascist dictatorships. It is a kind of incomes policy. It is a prohibition of wage increases with concentration camps for those who disobey and, of course, the prohibition of trade union activity and so on. And so it was not monetarism that brought the Chilean inflation down from 500 per cent. to 50 per cent. After five years they had to go back to methods which bypass the price mechanism in order to make the thing work.

I am afraid I have spoken for a very long time. I wish to say only two things. I do hope that if we have a future it will be as a result of increased co-operation and not confrontation. I am very much afraid of our present Government's policies, not because they seek confrontation but because the crudity and the cruelty of their present methods make confrontation inevitable, even though they do not desire it. When they talk about the freedom of collective bargaining, what they mean is that we create so much unemployment that collective bargaining will not result in any wage increases because the wage-earners will not be in a position to ask for them. They will not be able to resist, to strike or oppose in any way. Is that not confrontation? Of course it is.

Lastly, in one of his colourful passages, the noble Earl referred to Japan and said how pleased the Japanese must be every time Britain has an election. Has he ever thought why the Japanese are not afraid when they have an election, instead of us, or why we are not pleased when the Japanese have an election? The Japanese have plenty of ways—some open and some concealed—to prevent an inrush of imports. It is the inrush of imports that creates the unemployment. Indeed, if I ask: in what way does a high interest rate policy contribute to the strategy of bringing down inflation through higher unemployment?—we must also explain why it causes higher unemployment. It is not because of the high interest rate or because of the money supply but because the high interest rates maintain the pound at an artificially high level and that encourages imports and discourages exports. It increases the ratio of money which people spend on imported goods relative to the ratio of output represented by exports against home consumption.

The Earl of GOWRIE

My Lords, if I may pick up that point, I am going to be a little bit Delphic; but I should like to say I am personally more confident of the Government's resisting formalised pay policies than I am of their ability to resist, by fair means or foul, some forms of import control.

7.39 p.m.

Lord NUGENT of GUILDFORD

My Lords, I should like to add my congratulations to the three noble Lords who have made such excellent maiden speeches. As none of the three of them is here, I will save your Lordships' time by not paying them special compliments; but I enjoyed listening to all of them. I should like to thank the noble Lord, Lord McCarthy, for giving us the opportunity to hold this extremely interesting debate. Every point of view has been expressed. If there is one thing we can agree on it must be that we simply do not know the answer. The very learned and interesting speech which was made by the noble Lord, Lord Kaldor, adds to the haze which hangs over the right way for a Government to determine their economic policy so that wage and salary settlements are not inflationary.

My own experience was in the water industry during the last five years—until last autumn. I should record that as a result of that experience I have considerable sympathy with the contention of the noble Lord, Lord McCarthy, that a statutory incomes policy has value. I was extremely fortunate with the trade union leaders with whom I had to deal, in both wage and salary settlements. We established a relationship of mutual trust and friendship and were able to negotiate successfully each year our salary and wage settlements within the set limits. Generally we were able to have a relationship which was productive and valuable for the nation, in that it provided water services at a reasonable level of cost. Therefore I have a good deal of sympathy with the contention that a statutory wages policy has value.

However, after I retired last autumn we had the winter of discontent when the Government statutory wages policy was destroyed. The classical pattern then unfolded itself and we had what has happened in the past. The result was that the settlements which were eventually reached were more than three times what the Government were aiming for. Once again we were back in the same cycle of inflation.

The major weakness of the policy, as I see it—and I say this with great cogency to the noble Lord, Lord McCarthy—is that if my experience was typical and went on year after year, then everybody should abide by it. But what happens when a statutory pay policy is destroyed is that the militant minority group which destroys it comes out the winner. Everybody says how clever they are because they have got more wages for themselves and their fellows than anybody else, and everybody else will benefit by it; what they have done is to set a precedent for more wages in the future.

As we all well know, however, the loser is the nation. As a result of higher inflation, more jobs are lost. That is the record of the last five years—indeed, not only the record of the last five years but of the last 15 years. The problem is that there is no direct relationship between the group which breaks the statutory pay policy and the damaging consequences for the nation as a whole. It is because of this record that I have no doubt at all that this Conservative Government are justified in trying a new policy. If we had tried to apply a statutory wages policy, following upon noble Lords opposite and their special relationship with the trade unions—their closest possible friendly alliance and their relationship in every kind of way—even if, with that to support them, they could not succeed, what chance in the world would we have had? Even if we had not thought something up before, I reckon that we have an obligation to think up a new policy now.

Well, we have done so. We have decided that the best thing is for Governments not to try to impose statutory policies. We have decided that the best thing is for there to be a general system of monetary control, of control over public spending, together with certain other aspects—fiscal aspects—to support that policy and that it should be left to the private and the public sectors to negotiate their own wage and salary settlements. This would have the benefit that where excessive settlements were made, which meant that jobs were lost, the workforce could see what were the direct consequences, while employers, in the private sector in particular, would see that they had lost profits and perhaps endangered the life of their business.

I shall try to make just one or two points, since the authority of the noble Lord, Lord Kaldor, on these economic matters is so great, about something which supports my noble friend's policy. The relationship between money supply and inflation seems to be well supported by the record which I saw published last week relating to M3 over the years 1968 to 1977—a 10 year period—and the Retail Price Index. M3 went up 191 per cent. and the Retail Price Index went up 194 per cent. Interestingly enough, the Retail Price Index went up in relation to the M3 two years later. This is not conclusive but it is a very strong indication that my noble friend is on the right lines.

If I may turn to how this is to be applied, I see it being applied differently in the private sector from the public sector. Although I successfully operated a statutory policy in the water industry, I have felt for a long time that the private sector is a different ball game. There is, practically speaking, no growth in British industry. But there is a very big variation between individual firms. I have to disagree, I am afraid, with the noble Lord, Lord Kaldor, on this point. I believe that the right place to negotiate is in the firm itself. I believe also that when firms are making good profits employers wish to give to their workforce a share in the good results they are getting. And the workforce would expect to get their share. This is very encouraging because it gives an incentive to increase production, to improve productivity, to create greater competition and to expand. This is good for everybody. I see that the noble Lord wishes to intervene.

Lord KALDOR

My Lords, I am very grateful to the noble Lord for giving way. What he has just said is, in my opinion, the true explanation of why inflation has become an endemic disease in capitalist societies. There are two contrary principles. An efficient firm—for instance, the price leader in industry, Ford—this year made a profit of £380 million. Therefore, it can well afford to pay £30 million to £40 million out of those profits in wage increases. Other firms, however, do not make that kind of productivity increase. On the other hand, there is a very strong tendency, which is much older than the trade unions, towards the comparability of workers in different occupations with the same degrees of skill and doing the same type of work. The tendency is that they should get the same wage. If one says that in firms which are exceptionally successful the wage earners should get correspondingly high wage increases, then it automatically follows that the average wage increase over the economy as a whole will exceed the average productivity increase, because the productivity increase of the successful firms is very much greater than the average. That is the whole trouble. In the competitive conditions of the 19th century, the Fords of this world could not afford to pay higher wages because they had to pass on their success in productivity to the consumer in the form of lower prices. In the modern system of oligopolies and monopolies this is not the case. That is why we have inflation which is endemic. But it was not endemic in the 19th century.

Lord NUGENT of GUILDFORD

My Lords, I have listened, as always, with attention to the noble Lord, but I am afraid that I just do not agree with him. Heaven knows! competition in the motor industry is terrific, especially from Japanese cars. If we take the alternative, which has been mentioned in this debate, of the Peugeot firm—which is now Chrysler—it has given only a 5 per cent. award and the workforce have accepted it, I think very wisely, because Peugeot knows that it is up against it. It simply has not got the wool on its back to pay a bigger increase. This is the reality of the situation.

Lord KALDOR

My Lords, it is inflationary.

Lord NUGENT of GUILDFORD

My Lords, what happens if the situation works out successfully is that the successful firm expands. Therefore, it is able to employ more. If other firms who are not so successful do not produce such a good product, or are unable to produce such a big volume and therefore do not make such good profits, eventually they will fold up. This is what happens all over the world and, whatever we might try to protect ourselves from in this country, we cannot protect ourselves from the rest of the world. I do not complain about that; I think one simply has to live with it, but I am perfectly certain that it is the right thing for employers to give their employees a share in their improved profits. This gives growth, it creates wealth and it is the only way in which we shall ever see increased employment.

I am very happy with this and I see from the CBI reports that there is this big range of settlements. I do not believe that what the noble Lord fears is right; that all others will be forced to follow. Incidentally, I would just make a small point. I hope that Ford of Great Britain realise that their parent company in America—which I do not doubt the noble Lord knows—have lost a billion pounds this year and may lose as much again or more next year, so I would hope that Ford of Great Britain will be a little careful to make sure that they have the resources to survive when their parent company is really in very great trouble indeed. They are stuck with enormous stocks of big cars. With fuel being very expensive and difficult to get now, people do not want these big cars. The noble Lord need not worry; the market works all right. So long as there is a free economy, the market will work and the firms will have to take their coats off or they will not be in business at all. But the fact is, both here and anywhere else now, that if too high a settlement is made the employer will suffer, because he will lose profits, he may put his business in danger and he will have to cut down. The workforce will understand that and evidently it is working. There are signs throughout the economy in the private sector that the realities of what we are living with are there and the workforce is therefore becoming willing to co-operate with the employers.

I commend the CBI for setting up this national insurance fund which will give weaker employers the strength to resist industrial action such as they experienced during the engineers' strike when a weak employer may give way and pay an award which he cannot afford, and then he is out of business. It is too early to judge, but I think it looks as though it may work. I believe the Government's fiscal policy of reducing taxation is also a help, and I think that the Government's industrial policy of which the noble Lord, Lord Lee of Newton, was so critical, will also help in restoring the balance between management and workforce.

In regard to the public sector, I think there are some problems. The Government are applying the same principle there and setting limits of expenditure for each public service and for each nationalised industry. Although the principle is the same, I do not think that the practical application can be the same. In theory in the public sector in a national economy where there is virtually no growth, there ought to be nil awards, but of course with inflation running at 17 per cent. there has to be an award—something between 17 per cent. and nothing—which will be acceptable, with the hope that gradually we shall get the 17 per cent. reduced. So in the public sector there should be regard paid to something mentioned by my noble friend Lord Orr-Ewing; when they are bargaining they should have regard to the certain benefits which there are in the public sector of index-linked pensions, which are very valuable, and the security of employment which is considerably more than it is in private industry.

We have only seen one major settlement so far which seems to be coming off, and that is coal—20 per cent. That is obviously much too high across the board, but coal always was a "one-off". I am only thankful that it looks as though the settlement is going to be made. Certain points which worry me and which I put to my noble friend are these. There are traditional links in the public utilities, nationalised industries and the public services, and significant changes in the relationships—the differentials—would be very difficult for the trade unions negotiating to accept. One must bear in mind that the trade union leaders negotiating in the public sector are working on what one might call interior lines. Each knows precisely what is happening in the negotiations with the other public services or public utilities. Indeed, one trade union leader may be negotiating in two or even more different industrial negotiations. So they know precisely what is happening, and unless the Government make a special case for some particular public service, as for instance the police force this summer or the fire service a year or two ago, that tends to be a going rate, of which the noble Baroness, Lady Wootton of Abinger, so disapproved, but nevertheless that does tend to be a going rate at which the whole range of services tends to aim.

I think my noble friend should address himself to this because it is a very real problem. How are the Government going to deal with it in a way which will give confidence to the very large numbers of men and women who are their employees?

Another problem which I see in the public sector is the operation of the trade commission on comparability, and my noble friend Lord Orr-Ewing also asked about this. How is this to be reconciled with the Government's general policy of financial control for each individual service or nationalised industry? How can significant changes in differentials be accommodated within the present financial stringency? Secondly, if changes are made, will they not disturb further relationships with even further repercussions? I think it really is a contradiction in terms to try to operate the Clegg comparability concept within the Government's existing policy.

So I conclude, my Lords. I believe that my noble friend and his right honourable friends in the other House are right to try a new policy, for the reasons I have given. It is tough to put on these financial controls, tough to make the cuts in public expenditure, although, as has been pointed out, they are less severe than those made by the Labour Government at the time when the IMF had moved in. Minimum lending rate at 17 per cent. is certainly tough to live with, but it is a weapon by which financial control can be established. I believe it will be painful but effective, and I hope it will not be on for too long. It will come down as soon as conditions allow, but I do believe that these policies, carried out over the next 12 months, will bring home the message to everybody in the country of what our position really is, that we really are up against it. We have had a frightening period of decline, and if this continues we simply shall not be earning our way in the world at all. This is the message we must get over, so that our people, who have the abilities—they have the "guts"; they have the ingenuity—will be prepared to take their coats off and really exert themselves. This would mean that we would check the decline, check the inflation, which would be reduced next year and within two or three years, as my noble friend said, we should be beginning to win back some of the markets we have lost, both at home and abroad. This would create new wealth, new jobs and with benefit to employers and employees.

I would just add that of course, the Government having settled this, success first depends on the employers giving the leadership to their workforce, communicating with them, telling them what is going on, how the firm is doing; and secondly on the trade unions putting the story over to their workforce and winning co-operation to try to get the sort of team spirit that one sees working well in many firms up and down the country. I trust that noble Lords opposite and my right honourable and honourable friends in the other House will give it a fair wind too, because success in this will be good for all of us.

7.59 p.m.

Lord MURRAY of GRAVESEND

My Lords, this has been mainly an economic debate. I am not an economist and in view of the trail of false assumptions from here to the Treasury and back again I am rather glad that I am not. In fact, I think that they all ought to shoot themselves. But if their aim is as accurate as their forecasts, they will all miss! One point, of course, is that since the end of the last war all Governments have had the difficulties of making wrong assumptions and having wrong forecasts. I think that is part—only part—of the problem we have today. What I am more concerned about is the fact that the Government have gone into this battle of dealing with inflation in a doctrinaire, dogmatic, and obsessive way. One of the things they made most play about in their Election Manifesto, on election platforms all over the country, and in television and radio broadcasts, was the qustion of the trade unions; giving the impression that the only problem Britain had to solve was the problem of dealing with the trade unions, and that everything else would flow from that. They had that well to the front in their Election Manifesto. In their first chapter, "Our five tasks ", they said that the first of their five tasks was to deal, in effect, with the trade union movement.

The second of the chapters in the Conservative Manifesto was, "Restoring the balance ". I do not know what they mean by that, but I know what is happening. Since the May election we have seen prices going through the roof. In the last eight months inflation has gone up from 10.3 per cent. to 17.2 per cent. On the Government's own forecast it will be going over 17.5 per cent. to something like 20 per cent. In the past eight months we have seen the average family paying £45 more for their food. The financial targets are not being reached in the nationalised industries. In the area of the country that I come from, the South-East, people are being put on the rack by this Government. I suggest to the Government that many of these people are the people who supported them during the last General Election campaign. If they would like to have a look at an electoral map they would see that there is not a Labour seat in the South-East of England.

The more recent announcement and problem concerns the question of mortgage rates, which are going up to 15 per cent. in January. On 6th January commuter fares from the South-East will be going up as well by something like 20 per cent. These people are finding real difficulties in having to face the problems that are partially being created by this Government. Over the whole range of people's expenditure there are increases; whether it is bus fares, telephone charges which are due to go up by something like 14½ per cent., postal charges which went up in August and are about to go up again in the New Year, or gas and electricity.

Prior to all this in that election campaign Mr. Pym was asked on "Panorama" what was going to happen to the Price Commission, because there had been rumours that if the Tories were elected they would do something about the Price Commission. On 29th April Mr. Pym said on "Panorama", "We have no commitment whatsoever to abolish the Price Commission ". Within 22 days of his saying that, in the other place Mr. John Nott, then responsible for trade, announced that the Price Commission was to be abolished.

One of the philosophies of this Government is obviously cash limits. I do not think that you can have cash limits without price limits. You cannot say to trade unionists—or indeed non-trade unionists, because they also ask for rises; it is not just trade unionists who go in to see the employer and ask for an increase; non-trade unionists ask for increases—" We are restricting. We are cutting in various directions. We are letting prices go up "without saying that you are going to do something about the price spiral. It is serious that people are finding these difficulties.

I am one of the Members of this House who happen to do the family shopping. I can see how prices are affected week by week. I can see the struggle that families on below average income, and pensioners, face week by week. The noble Earl, Lord Ferrers, earlier this week gave us a quotation; "Man cannot live by bread alone ". With large loaves costing up to 39½p each, it is difficult to afford to live by bread alone!

If this Government want to succeed in their policies, they must do something about prices and what is happening to prices. Everywhere we look in the field of prices not only are they going up but the Government are withdrawing certain subsidies and help that the lower paid, pensioners, and people on low incomes were getting. Things such as heating allowances, health charges, all affect them. The Government's policies are still not getting it right. Again one of the things they create a myth about is the question of scroungers on social security. The DHSS itself said that this was likely to have cost something like £3 million a year. There is no accurate way of assessing how much people fiddle on social security.

We do not hear so much about the fact that something like £340 million a year in benefits are not paid out because people do not claim them either because they are not always aware of the possibility of claiming certain benefits, or sometimes they take the view that it is charity and they do not want to know about it. The Civil Service now have another 450 people drafted in to check on social security scroungers. My noble friend Lord Underhill asked a Question this week about tax evasion and avoidance. Again it is like social security scroungers or unclaimed benefits, it is sometimes difficult to assess, but it is estimated that every year people get away with something like £11 billion by tax evasion. In those questions and replies this week nobody mentioned that ordinary working people have no way of tax avoidance on pay as you earn. There is no way you can avoid paying your tax.

Viscount MASSEREENE and FERRARD

My Lords, has the noble Lord heard the expression "moonlighters "? Would he not agree that there are probably 200,000 or 300,000 drawing the dole who in fact are earning a lot of money at other jobs three or four days a week and not declaring it? This has been my experience. I know quite a few who are doing that.

Lord MURRAY of GRAVESEND

My Lords, I do not know who the noble Viscount knows who is doing that. There may well be Peers in this House who are moonlighting; I do not know. This is one of the difficulties of assessing the whole matter. We know that there are moonlighters, but I reckon you would find it difficult to assess their earnings, on the basis of their cheating the Exchequer, at something like £11 billion a year. There are not many moonlighters who have tax havens in the Bermudas—at least, not in Gravesend.

One of the things this Government did was to make certain tax changes. As some of my noble friends have said, we like to applaud tax changes, but who have they benefited in the main? It is mainly those in the £20,000 a year bracket. Once you get below that figure you find that the indirect taxation takes out more as a proportion of your income. We cannot expect trade unionists, or the ordinary voters in this country, to accept some of the things that the Government are allowing to happen.

My noble friend Lord Lee spoke about the question of trade unions, of which he has great experience. This Government are obsessed about trade unions. They are obsessed about matters like picketing, trade unions such as the AUEW, and the closed shop. I hope when they are dealing with closed shop legislation that they look at some of the professions, as opposed to menial jobs, and deal with them. I think that trade unions take a responsible attitude. May I just read this quotation. It is about West Germany being a rich nation because of its profits. It says: But now a new survey of 152 German firms, manufacturers and marketing organisations, spells out the lesson in detail. Productivity, it says, ranges from 'good' to 'excellent'. Profits are also 'good' because 'excellent' labour relations are based on 'mutual trust' and 'above-average' wages. Eighty-six per cent. of the manufacturers had no official strikes for two years. The marketing organisations did better, were totally strike-free and very satisfied'. How different, you may be tempted to think, from the British experience". But that is the British experience. It was a survey carried out by a German organisation on German firms in Britain employing British workers. There is too much propaganda about the disruptive activities of trade unions and the way that they are supposedly the real stumbling block to Britain's prosperity.

The Conservative Party on the Front Bench opposite talks about the outcome of industrial disputes; industrial problems and higher wages, as sometimes causing unemployment. But it is not the workers who reap the benefits, who obtain higher wages who necessarily become unemployed. It may well be some other group. The problem which has arisen at Meccano in the North-West is not about a dispute: it is about people's changing tastes. It is as much a problem about the plastics revolution in this country as anything else. It has nothing to do with the disputes and the difficulties that a trade union might bring about. We shall find more and more in the 1980s that there will be more micro chip militancy rather than militancy about wages, salaries and money matters.

One of the things that I discovered when on the shop floor was that people become disturbed and worried when, after working for perhaps 30 or 40 years for an organisation, they find that overnight they do not have a job any more. They find that the loyalty which they have given to their employer over those years means nothing. I maintain that there is more loyalty on the shop floor in Britain than perhaps there is in some branchs of M15. Nevertheless, we must encourage that loyalty and not adopt the attitude of blaming all of our problems on to the trade unions.

I take the line which the noble Lord, Lord Lee of Newton, took. I think that the Government ought to be talking to the trade unions about the problems that face Britain and whether we can introduce some of the measures outlined in the recommendations of the Bullock Report. There is no reason whatever why the Conservative Government cannot have a social contract with the trade unions. There is no reason at all. I believe that the unions would be prepared to talk along those lines. Let us take as an example the National Health Service. Some of the problems which have been facing the National Health Service for the past year or so have more to do with the negotiating machinery, both nationally and locally, than with the bloody-mindedness of a particular shop steward. That is what we should be looking at; what we should be dealing with and the Government should be moving along those lines.

As a long-standing member of the Labour Party serving both in this House and the other place, I think that most areas of Government know my views on the Conservative Government's policies. Certainly I think that their policy as regards this matter is wrong and that they ought to think about it again. I hope that they will think about it and will change it—and the sooner the better.

8.14 p.m.

Lord CASTLE

My Lords, I have sat in the Chamber throughout this most interesting debate and as a result I find that I am a wiser man. Mark you, I am a little confused by the various panaceas which have been advanced, but I am full of information which I am sure time will help me to distill. I am particularly grateful to the three maiden speakers. Their speeches were, of course, of exceptional quality, as one would expect from three Members who have served their apprenticeships in another place. They gave us a very good impression of the clarity which that House, with the more contentious nature of its debates than we have here, bestows upon them.

I was particularly glad that the noble Lord, Lord Cledwyn of Penrhos, said that he was all in favour and would support the Government making a success. So do I. I am sure that that goes for every Member on this side of the House. We are dependent upon the industrial success of this nation. We are as anxious as any Member on the Cross-Benches or on the Government Benches to regain that sense of confidence with which the British nation was endowed.

It is strange that I have found the word "confidence" missing from this debate. I have torn up the prepared speech with which I was going to regale your Lordships because there is so much unanimity on the one matter that I was setting out to prove from newspaper cuttings, headlines, and the general gloom of the Press; namely, that there is a crisis which is a challenge to us all. To what is it due? I remember that during the Labour Government's periods of office the word "confidence" was frequently used. I thought that a fault in the leaders of my Party was that they had, in advance, under-estimated the need for confidence and they suffered for it. There were runs on the pound, and we all know about those. We all know that there were real crises in which the monetary system found itself at times, due to lack of confidence by those who had investments to make.

However, today that is not so much a problem as another area of confidence which has only in the last stages of this debate had attention drawn to it. I am referring to the confidence that the Government must somehow create among trade unionists. Like it or not, the Conservative Party in its more recent developments has not inspired confidence among the trade unions, and that is very damaging.

Even today we all know that the trade union movement has been having discussions with the Treasury and the CBI. They have been talking about a number of matters upon which there is grave divergence—possibly the new trade union Bill which we know is to be published in the next few days. On very few points in that Bill will there be unanimity. In fact, I am sure that the representatives of the trade unions will come away from that conference convinced that this Government "have it in" for them. One proposal that we know will be made concerns further restrictions on picketing. Pickets will be allowed to play the game, but only at home. One cannot take a bus load of fellow workers on a day off to picket for their trade in another town.

I have been a member of my appropriate union, the National Union of Journalists, ever since I entered a newspaper office. During recent months that union has been asking its members throughout the country to go to Nottingham and picket there. Why? Because a grave injustice has been done to 30 or so members of the union who were not re-employed after having indulged in an official strike. Am I to be deprived of the privilege which all trade unionists have always claimed, of going shoulder to shoulder with the men who have been victimised in that way? That is one proposal. We have heard that further proposals are being discussed today about the way in which wrongful dismissal will operate, but it seems that they are all to the disadvantage of the working people. We cannot possibly expect the working people of this country to have any faith unless the Conservative Government change their attitude on this matter.

During the debate today, on which took some notes, I was particularly struck by what the very pleasant, erudite and urbane noble Earl, Lord De La Warr, said. He said that Conservatives are pledged to change the balance of union power. We know that it will not be to their advantage and, if that is so, he would agree with that interpretation. The noble Earl continued: The Government have set the scene for a new attack on wage increases ". What confidence can we hope to build up in the industrial population with statements of that kind?

So it is unfortunate that that is the kind of climate which the Government have created. I do not attribute these thoughts to the individual Members of the Government, but it is the collective attitude of the Government. Unfortunately, I have to blame the climate which the Government have created for the recent disturbances at British Leyland. I shall not carry even the whole of my side in this House with me in my interpretation of the rights and wrongs of that dispute. We must not forget that British Leyland is a company in which we all have a very big shareholding. It is a national industry of great concern to every one of us and it is dependent on a loyal labour force and on an imaginative management. Lately British Leyland has been through a rough time, but a short time ago there was a ray of hope for it when the general manager and chairman went to his workforce and presented his ideas for the further development, the strategy and expansion, of the company. Those ideas involved large sacrifices on the part of the workforce, the closing of some factories and the redundancy of thousands of men. But by an extraordinary majority the persuasiveness of the chairman's argument won support. Of course, there was joy in most observers' homes at that result.

It was a shocking affront to the goodwill which one thought was emerging that immediately afterwards there was the sacking of the most prominent trade unionist on the staff, a Communist. To use that word always prejudices an assembly of this kind against the man. Yes, he was the chosen spokesman of thousands of his fellow workers. It does not matter to me what his political views were if they were for the benefit of the firm and his fellow workmen. Noble Lords may doubt whether they were for the benefit of the firm. I am grateful to the Guardian for this week having published in full the pamphlet which drew the ire of the management upon him. It was the work of an obviously well-versed man who could present a case extremely reasonably and with very cogent argument; it was the kind of contribution to a discussion which I believe most managements would have welcomed as showing a complete identification with the purposes of the firm. It is an alternative structure, an alternative strategy. Who is to say that because a vote has been taken there shall be silence thereafter among all the partners?—for that is how working people are now supposed to be regarded.

I believe that to call for discussion to cease in that way, once the vote had been taken, savours of what is called democratic centralism. The Communist creed is that you discuss in full among yourselves, but having reached agreement everybody is expected to cover up their disagreements. I am sure that the management of British Leyland would hate that description to be applied to their action. However, I believe that some protest must be made in this House as well as in other fora. At this time of our development in industry and of our knowledge of how human beings can be stimulated to better contributions, it is a condemnation of the management. Until I hear differently—and we know that there will be a root and branch examination of that problem—I think it only right that the Government themselves should take pains not to blacken that man, and not to offend the unions still further by taking any drastic action against him.

As I said, I have torn up the speech that I wanted to make, but at least the point must be made that there are more aspects to that case than at present we have had a chance to digest. I must attribute the general attitude of the management to the climate which has been created by this Government's dealings with the trade unions.

Viscount HANWORTH

My Lords, will the noble Lord agree, first, that one of our problems is that the shop stewards appear to be wholly unrepresentative of the opinions of the workers and, secondly, that the unions are totally unable to take any action whatever against a situation and against shop stewards where this situation pertains?

Lord CASTLE

My Lords, I do not think that the shop stewards are as unrepresentative as all that. As noble Lords will remember, when this man was sacked thousands of men came out to protest about his sacking. Rightly or wrongly, that is what they did. The reason why they did not stay out for long can be found in other industries, for example, the mining industry, where they used to have what were called "pressing weeks "before Christmas. Then everyone worked full out in order to get a Christmas bonus. I believe that that is why a large number of those chaps did not stay out longer.

Viscount HANWORTH My Lords, exceptionally, I should like to ask the noble Lord one further question. Does he realise that the Communists, unable to get seats in Parliament, have infiltrated to a great degree the trades unions at shop floor level, and that their policy is undoubtedly to destroy our industry before anything else?

Lord CASTLE

Well, my Lords, I have known a great many repentant Communists who are now members of the Labour Party, and jolly good and loyal members, but never once have I heard them agree with the analysis of their position which the noble Lord suggests. I do not believe they are out to destroy British industry. I cannot accept that. It does not coincide at all with my experience in the newspaper industry.

8.31 p.m.

Lord GAINFORD

My Lords, first of all I have the threefold pleasure of congratulating our three maiden speakers today. I cannot add much more, except to say that obviously with their great experience they will lack no encouragement to take part in many a debate in your Lordships' House.

The subject I wish to talk about for a few minutes this evening is not that of economics. I have taken up a phrase in the text of the Motion moved by the noble Lord, Lord McCarthy—" unacceptably high levels of unemployment ". I wish to speak about trying to help reduce unemployment because I am becoming involved in that very business myself. I must declare an interest. In fact I am just about to start work in a large employment agency, Drake Personnel, a subsidiary of Drake International, which is Canada based but has branches in North America, Europe, South Africa, Australia and New Zealand. The work of such an employment agency is not just the basic problem of finding someone a job or helping a company to fill a vacancy. It requires considerable research, and many clients seeking work obviously have difficulty in finding something.

With the Government's policy, the expenditure cuts which unfortunately have to occur, it is quite likely that someone is going to lose a job, and often where a person has been working for a long time on some particular work it will be quite difficult for them to find something of a similar nature. Therefore, in order to find work he also has to tap his unknown resources. I say "his" but of course it applies also to "her "; women are just as likely to be involved. That is where I am involved in the work I am going to do. A person needs work; some economic necessity has forced him out of work and he has to come in as a client. First, he is going to fill up a form, and in due course he will be given an interview, which may be the first of many interviews.

The idea is that if that person finds somewhere where he can be used, quite often he is helped by being given a temporary job in order that while he is working and earning he may be able to find something better in the long run. The work I am speaking of is being done by people in the private sector. I know there are many facilities for the unemployed, and both Labour and Conservative Governments can claim credit for the security there is now in being able to register as unemployed. I see my noble friend Lord Massereene and Ferrard here; I rather liked that phrase he used about unemployed, the "reserve labour force ". It certainly takes the sting out of a derogatory phrase.

Our client has his interview. He is then eventually encouraged to try to find something that might suit him, though not with total confidence that he really will fill the bill, because there is also the other side, the company with whom he is to work; they want a vacancy filled and they want a man who will fill the bill well. The firm I am going to work with gives a guarantee that if the company wants a new employee and that new employee does not fill the bill they will find a replacement free of charge. These employment agencies provide their facilities and fees have to be charged. In fact, the sooner someone is back at work the better.

I have heard mention of people who are almost happier to be on unemployment benefit. It is an unfortunate fallacy in this country that it is really more economic to be out of work than employed. Criticism is thrown at this Government about the cuts. Changes have to be made and I believe that this Government are doing what they believe to be absolutely best. Other Governments do what they think is best. We on this side are doing it this way, and we regret when stringent policies have to be put into force. If we are going to make our country really great there must be changes somewhere and people must be prepared to make them. I know the feeling, "Yes, we agree very much with changes", but, like a song I knew about 20 years ago, "It has got to be somebody else, not me."

I also want to speak on the valuable contribution to be made to this country's economy by what might be termed the mature worker. It is ironic that as a result of medical science and all the facilities for treatment under the National Health Service people are able to live and be active far longer, but when they are getting to about the age of 60 they seem almost to be regarded as ready for the proverbial putting out to grass, or on the shelf. Yet they could be healthy and energetic enough to enjoy in an active way all the wisdom and experience they have gained. The mature worker is likely to be on a pension; he has probably worked for many years in one job and left it under a redundancy scheme and got a pension. He may still need to earn money because of the unfortunate fluctuations in the economy and because money does not buy as much as it might do. He wants not only to get extra income but also he likes to work just for the pleasure of working. He could enter a company and fill some useful job. Nowadays I do not think there is any such thing as a menial job. I wonder whether any of your Lordships have noticed in an office, when a clerk has left the firm's employment, how people suddenly realise how many jobs he was doing—all sorts of little jobs that nobody else seems able to do—and his absence is noted rather with regret. The mature person will not be a threat to other employees' promotion or advancement.

Having spoken about changes, I can tell your Lordships of another organisation which is helping people to work. Last year I left the GLC under a voluntary redundancy scheme but I had the disappointment, my boats having been burned, that the job I had expected to go into failed and I suddenly realised that I was going to have to find something new. I was almost given some help by the National Executive Register, a Government body which used to be known as the Appointments Office. Its London branch is a very nice office in Hyde Park and it was suggested that I take a course at Longridge Park in Kent. The only slight disadvantage was that it had to be residential, although I was prepared to go in for it. However, in the intervening period I found a job as an insurance salesman. It was an interesting experience and I learnt much about savings, security and matters connected with tax concessions.

The noble Lord, Lord Castle, used a phrase about people lacking confidence in regard to investments. That leads me to say that another reason why I support my Government's policy is because their economic plans encourage people to save. During my short time in the insurance world I was shown how savings can be effected through various forms of insurance policies. In the insurance world one does not just pay a premium and have one's life insured for a certain sum in case one drops down dead. There are many ways in which to save money over a short or long period; or one can invest money, and if one does not want to worry about investments by way of stocks and shares, one can put one's money into special bonds and have a regular income, or cash in the bonds whenever one wants to, and life insurance is thrown in as well.

However, selling life insurance and prying into people's private affairs, and in particular their finances, was not really my cup of tea and, looking further afield, my attention was drawn to a notice about an organisation called 40-plus Career Development Centre and I began studying there in my spare time. This organisation is partially private, a non-profit making organisation which receives grants both from Her Majesty's Government and a number of top companies in industry. It is a way of teaching people how to market and tap perhaps previously unknown resources, and it has the additional advantage that, although most of the clients there are unemployed, they are made to feel they are employed. They have an office to go to where one is encouraged to adopt the view that one is going to work, and having instruction there is rather like going to work. Each person helps the other; for example, an aspirant for a job appears before a mock board made up of one's friends and questions are fired at one, so preparing one for the coming interview for the new employment.

I have only really just touched on this subject and I must apologise if what I have said may seem irrelevant to the matters being discussed. I feel it has indirect importance because of the changes that must now come as a result of the policies that are being put forward. However, when there is a debate in your Lordships' House on matters directly connected with employment I shall look forward to putting further information before the House. In the meantime I wish to express my hope and continued support for this Government and their policies.

8.46 p.m.

Lord HOUGHTON of SOWERBY

My Lords, however much I try to compress my subsequent remarks I feel I must spare a moment to say what pleasure I got, and I am sure all your Lordships did, from the three maiden speeches we heard this afternoon. All three noble Lords some of us knew well as colleagues in another place and there are two coincidences about the three of them. One is that two of them—the noble Lord, Lord Godber of Willington, and my noble friend Lord Ross—served with me on a three-man inquiry appointed by the then Prime Minister, Mr. Callaghan, into the security of Cabinet documents. That was an interesting exercise; we found a few loopholes and we believe we closed them up, and your Lordships may have noticed that leaks have been fewer of late.

Lord HARMAR-NICHOLLS

I have not noticed that, my Lords.

Lord HOUGHTON of SOWERBY

Then, my Lords, my noble friend Lord Cledwyn of Penrhos succeeded me as chairman of the Parliamentary Labour Party. I know the ordeals of that office, especially when Labour are in Government It is easier when they are in opposition—

The Earl of GOWRIE

Hear, hear!

Lord HOUGHTON of SOWERBY

—and my noble friend was in the chair throughout the period of the last Parliament, so all three are my friends and former colleagues. I would only say about Lord Ross that he had a high reputation in the other place of being the scourge of the Government of the day. I think we got only the faintest glimpse of his capacity for invective this afternoon; I hope we shall hear more of it, even in your Lordships' House.

I welcome the opportunity of coming in late in this debate, after most of the powder and shot has been fired, because it enables me to make a more general review of what is my obsession, which is the inadequacy and failure of our institutional equipment for the tasks that Government, Parliament and the nation have to discharge. Mine will be a more or less non-partisan speech; there is no point in haranguing the Government at this hour—for one thing there are not enough of them present—but I must admire the diligence of the noble Earl, Lord Gowrie, who has sat through this long day with only the briefest respite, and I am sure we are all grateful to him for that.

I begin with the manifesto. My noble friend Lord Murray of Gravesend read out the indictment of the present Government's manifesto and related some of its pledges to what they have already failed or declined to do. Having sat on the manifesto drafting committee of the Labour Party on more than one occasion, I must say that I regard it an as unsatisfactory and even dangerous feature of modern electoral practice. Noble Lords will have noticed from reading the newspapers that the Labour Party is in some turmoil about the manifesto—not the last one but the next one—and there is some dispute as to who should draft it and who, if anyone, should have a veto over its more contentious passages.

Manifestoes are all very well so long as you do not get elected. The party that gets elected will assuredly add to the catalogue of the failure and follies of Governments who try to rule by an obsolete book. Conditions at home and in the world are changing too rapidly and too dramatically for election promises which are incubated in the past to be of any particular value. I believe that Parliament has lost some of its authority because of the failure of those in it to keep faith with the electorate in the way they are entitled to expect. The power which the barons wrested from the Crown, and which was subsequently wrenched from your Lordships' House by the elected Commons, has now passed into the hands of other and extra-Parliamentary institutions.

And I am very much concerned with institutions; they are, if you like, my obsession. Combinations of workers and of industrial management, financial institutions, local authorities, State-owned enterprises, even our vast bureaucracy, are now loudly telling Parliament and the Government what they will not stand for. The talk is here, but much of the power is there. Large-scale changes in social, industrial, and fiscal policies have been promised in plenty in the past in party manifestoes. Sometimes they have never been begun. Other times they have been begun and abandoned, sometimes in the same Parliament, frequently in the next, and millions of pounds have been thrown away. An enormous effort has been wasted over the past 15 years in several large administrative departments on abortive schemes of reform and change. One is the Department of Health and Social Security and another is the Inland Revenue. Elaborate, costly preparations were made in both departments for schemes that were contemplated, believed to be imminent, but which in the end were abandoned. It took 16 years of half measures and of alternating departmental and parliamentary construction and demolition before we finally settled on a stable and agreed new scheme of National Insurance. And the record on the taxation front is even worse.

The swing of the political pendulum and the failure of successive Governments to understand the problems of large-scale administration have left our system of personal and corporate taxation in a mess. The chairman of the Board of Inland Revenue has recently been reiterating his persistent warnings about the whole system sagging under terrific weight of complex detail. No wonder that 50,000 or 60,000 clerical officers are employed in the Inland Revenue on pay-as-you-earn. Little time is left, so the chairman has recently said publicly, for decisions to be taken about using the new technology if any plans for reform of the tax structure are to have any meaning before 1988–89. Meanwhile, over 20 million pay-as-you-earn coding notices are written by hand today, just as they were 35 years ago.

The morale of the public sector is low, and I believe that this is because they feel that their vital interests in fair pay and efficiency have been knocked about by changes in government and by political policies. They feel to be under the threat of political prejudice and exposed to unjustified public abuse. I think that the chief problem of the Government at the present moment is how to gain the confidence and the support of the people. I am not as optimistic about this as is the noble Earl, Lord Gowrie. I do not think that the signs yet stimulate this feeling of wanting to meet and to support the Government and get behind their policies. Their own adherents, it seems to me, are worried, sceptical, and subdued. Few people, even in the Conservative Party, are loudly proclaiming their confidence in what the Government are doing. They are waiting and seeing, and they are anxious. It may be that they must have more patience, but patience is very difficult at a time when there are visible signs of decline.

We shall not get very far by partisan measures. I do not think that the short, sharp, shock treatment in politics is likely to be effective. What is remarkable about our electoral and parliamentary system is how unpopular a Government can become so soon after being elected, especially if they stumble blindly on with their manifesto. There are some very bitter diatribes being uttered against the Government up and down the country at the present time. Demonstrations called "Campaign against the cuts" are leading to very violent speeches and threats which I think are disturbing. A large section of those who are protesting think that the trade unions should mobilise industrial action against the Government. Indeed, some are talking about organising a public strike in order to pull down the Government. This may be wild talk, but it is dangerous talk. It is the beginnings of the renewal of the great crisis of 1926. When does industrial action become a challenge to our parliamentary and democratic system?

At this hour I am not going to take up the time of the House in reading a few extracts from speeches that I have read in the Press recently. Unfortunately under our present electoral system—and this is another bee in my bonnet—it is very difficult indeed for a Government to withstand criticism when their claim to have a mandate rests on such a slender foundation.

There are two main institutions of power in the land today: one is Parliament, and the other is the trade unions. Both are run on 19th century lines; both are unfitted for the role of modern government in a perilous world. Too little interest is shown by those engaged in these two big institutions to inquire into their suitability and adequacy for what they have to do. Neither Parliament nor the trade union movement seem to have any clear concept of their respective roles at the present time. They share responsibility for the survival of over 50 million people whose expectations in life, leisure and pleasure cannot possibly be fulfilled in any measurable time ahead. The world is on the march and we are not even marking time.

I feel that there is a lack of concern in quarters where there should he concern about our institutional equipment. I think that the trade unions, for example, should be asked to talk more about themselves. All they seem to tell us is what they want, what they demand. What do they think is their place in the power structure of the country today? I was a trade union secretary for over 30 years and I was on the General Council of the TUC for 10 years. I do not have to approach Congress House in a spirit of humble reverence. I think that the trade union movement, being so powerful, being so great, should expect to be debated, discussed and criticised, and they should be invited themselves to contribute to that debate.

I once told Harold Wilson that if ever again the Queen sent for him and asked him to form a Government, he should do so only on condition that some members of the General Council of the TUC accepted Life Peerages, came into your Lordships' House and were able to take part in our debates on the same basis as the bishops. That was not a joke; it was, I thought, a suitable reform of the House of Lords—the Lords Spiritual, Temporal and Industrial. Why do the trade unions say so much about their basic rights, and why do they react so violently about them, when they say so little about their new dimension of power without constitutional responsibility?

There is another point about Parliament. In 1971 Mr. Heath made the mistake of introducing a Bill about trade unions. It was all very well when he thought about it, but it was an act of folly when he came to do it in 1971; and I think the present Government are in danger of committing the same kind of mistake. Manifesto policies are conceived in one set of conditions, in one mood, which is entirely different when those promises come to be implemented. No single-party Government in these days can succeed in their task without the consent, if not indeed the active support, of the great mass of the people. That is why Governments of both parties, however extreme their approach to policies and politics when they came in, have tended to move to the centre; and, as my noble friend Lord Ross said in his delightful speech when quoting from Reginald Maudling, all Governments tend to get pushed into the centre before they can get the consensus that they seek. I hope that this Government will not spend very long in getting there. The sooner the Government move towards being a national Government the sooner they can stop hawking our alleged poverty around the capitals of Europe. As the only oil-rich industrial nation in Western Europe, our performance and our behaviour hardly give cause for pride.

But that the present Government's policies may not be fair is of secondary importance to me. What we want is for them to be effective. What is the matter with us all? Why is it that we are in this invidious position in the world today? Has Britain run out of time? Is history going to close upon us, as it has done upon other great peoples in the past? Is there no vision left in our political leadership? Are we just a lot of squalid consumers wanting the next thing, and then more of it? Or, have we no feeling about the world in which we are living; no nobility about our concept of the society and the life that we should like to live? Are we on a slide towards becoming an inward-looking, self-pitying and selfish remnant of our not inglorious past? There is no reality behind the Government's mandate under our present electoral system. They do not possess a mandate. They must win it; they must set out to gain it; they must set out to justify it—and there is little time to be lost, in my judgment, in doing so.

9.4 p.m.

Lord MOTTISTONE

My Lords, it is, I am sure, a great debt that we owe to the noble Lord, Lord McCarthy. I am extremely sorry that he has been promoted to the Front Bench. It used to be my pleasure to joust with him at the bottom end of the list of speakers, like now, before he was so elevated. I regret to say that my late arrival meant that I missed not only his speech but also that of two of the maiden speakers, the noble Lord, Lord Ross, and my noble friend Lord Godber of Willington, for which I deeply apologise. But I was privileged to arrive in the middle of the speech of the noble Lord, Lord Cledwyn of Penrhos, which I thought was a remarkably moderate speech. It is almost presumptious to comment upon it, with his great parliamentary experience, but I think that he was skilful in putting across a very contentious view without apparently being contentious. I am sure we shall all benefit from hearing him in the future.

There have been many speeches—I shall trust not to be too long—and there are many that one could pick up and comment upon. I feel that I should hang my speech on that of the noble Lord, Lord Jacques, who I am delighted to see has come back into the Chamber, because he started his speech by saying that with business experience—and I hope I am not misquoting him—one must monitor the objectives and watch for the side-effects. I thought that perhaps that is really what we all need to do and I thought that perhaps one might have a quick look, first, at monitoring the objectives in relation to the last Labour Government, during the course of whose period in office manufacturing output went down, being lower at the end of it than it was at the beginning. Industrial output exceeded 1973 levels only because of North Sea oil.

Lord JACQUES

My Lords, would the noble Lord excuse my interrupting him? Does that not apply to every post-war Government?

Lord MOTTISTONE

I would not have thought so, my Lords, not since 1945. But, still, taking inflation, the RPI has risen by 110 per cent. in the last five years, and the inflation rate has been rising, in the recent past, since October 1978. To take another factor—an objective, perhaps, that one might look at—let us consider living standards. Overall, during the past five years, the net income of the average family man remained stagnant. Finally, perhaps, we might look at unemployment which, at 1.3 million in April this year, was more than twice as high as in February 1974 and the unemployment figure for each month since August 1975 has been over a million. So much for the objectives and how they have been achieved during the past five years.

I think that perhaps one might start to call in question the basic policies of noble Lords opposite. And I am not sure whether the theories upon which their policies are based do not themselves require a long and stringent look. I would suggest to noble Lords opposite that, perhaps over the last 50 years, we have been working our way gradually to the sort of decline which the noble Lord, Lord Houghton of Sowcrby, put to us in what I thought was a splendid speech. It is a privilege to follow the noble Lord, Lord Houghton of Sowerby—except when he is talking about animals. On this particular occasion it is a particular privilege because so much of what he said posed questions to which I do not think any of us knows the answers but questions that we all have to ask.

If I might move on to the side effects which the noble Lord, Lord Jacques, called upon us to watch, I would mention to your Lordships some side effects which require particular watching. First, I would suggest to the noble Lord, Lord Houghton of Sowerby, that the power which rests in the trade unions and in the work force at large undoubtedly is there but nobody knows how to use it to the proper benefit of the country as a whole. When it is used in a clumsy manner, we all suffer quite disastrously and quite un- necessarily. By that I do not mean through strikes which affect the general public, but through the sort of things which happened, for instance, last winter and which were caused entirely (if you like) by the mismanagement of the last Government. I am sorry they were landed in that position; and it was difficult for them; but whatever the cause—and that is not what I want to dwell on—the effects were disastrous.

As a result of last winter's strikes, the export capability of this country suffered a devasting blow from which, 11 months later, we have still not recovered. And it is highly questionable that in many areas we ever will recover. We have to look around and find export opportunities for other products and get going with them. This is because sonic of the areas in which our export market has been destroyed are probably never again recoverable. I am quite certain that the people on strike last winter had no concept of what would be caused in this respect by their doing a little secondary picketing round the docks, no concept of how terribly vulnerable we are and how terribly fragile is our prosperity in the overseas markets.

My Lords, we have to export to live. This brings me to another side effect. The point is that for all sorts of reasons and, in many cases, with the best intentions, the sort of policies that noble Lords opposite have been promoting over the last 15 years or so have caused people not to see that, particularly in the manufacturing industries, effective, successful and continuing—and I stress the word "continuing"—production is absolutely vital to the success and survival of this country. The priorities have got muddled. We must produce and we must export in order to survive and in order to have the wherewithal to do all the spendid things which noble Lords opposite are so first-class in promoting and thinking about for the benefit of all our citizens in this splendid country.

It is absolutely vital to get the priorities right. This is the importance of considering the side effects, because I think that noble Lords opposite are obsessed with benefits rather than obligations, with rights rather than duties. And the people who support them—and many in the country, including people who support the party on this side of the House—have got muddled, have lost their way and lost their priorities. That is really a most important side effect which I trust my noble friends on this side of the House will try, and persist in trying, to put straight. I think that, so far as they have gone, they have worked on the right lines. I hope desperately that they will continue on the same lines.

I do not believe that a lot of the accusations that have been made at us at this particular stage of affairs are wholly justified. Some of them must be; I have not heard many of them, I am afraid. However, the fact is that, at this point of the game, after only just over six months in office, my noble friends have not really had time to sort out the totally different circumstances which they were handed by their predecessors. And how could they?

My next point is one of waste. I believe that, apart from production, we really must collectively try to tackle the problem of waste. One of the best books in my opinion that has been written in recent months—if not years—is Your Disobedient Servant by a Mr. Chapman who disclosed the appalling waste that went on in the Department of the Environment. We all know also of appalling waste in local government. This waste is caused by the fact that the people who operate in non-productive organisations do not have the discipline of the market to control them and are therefore unable to set a yardstick at how effective their particular operations are going to be. They do not have to worry whether they are making enough money in the short range to pay for what they are trying to do. Without that discipline, as close as it can be, I am afraid that we shall find that enormous resources in this country as a whole are being constantly wasted almost day by day. So I think that is anothet side effect of the philosophies to which noble Lords opposite subscribed.

If I may turn now to unemployment—and, my Lords, I shall not keep you much longer—a remarkable survey has been conducted by the Association of Independent Businesses showing that there are marked shortages in skilled labour—think most people know that—but almost as many in semi-skilled and un- skilled labour. This is at the same time as we have the very large and, we all agree, extremely unwelcome and worrying unemployment situation. One wonders why there are the shortages of the semi-skilled and unskilled. Regarding the skilled, perhaps the right people are not trained; perhaps people are not prepared to move from one part of the country to the other; perhaps it is not easy for them to do it because local authorities do not have a flexible enough housing system. There are all sorts of things that might explain the shortage of skilled labour; but the semi-skilled and unskilled labour shortages strike me as particularly interesting. It is a fact that there is a shortage of this labour.

In some cases you might think that they could be replaced by young people. One of the things that this survey turned up—and I have carried out a supplementary survey of my own which confirms it—is that young people are very difficult for small businesses to employ these days. They seem to approach work as though they were doing a favour to the employer to turn up at all. They are extremely difficult to discipline and therefore require supervision which small firms cannot afford. They do not expect to be paid less than the people who are very experienced and have been employed for many years.

I am not putting that at the door of the noble Lords opposite; all of us in the past 30 years have encouraged young people in varying ways to be more obstreperous than is good for them. By "good for them" I do not mean in the old-fashioned way, I mean good for them in the fact that it is now turning them into people who are finding it difficult to get a job. This is disastrous. Young people are the ones who ought to be given every opportunity to start off with a job but they are not being properly trained for it. They are not being given the right ideas by their schools and parents. That is an extremely important point.

Also under this heading of unemployment is the question of the black economy—which was mentioned earlier—and absenteeism. There is no doubt about it that this is thriving and well. It is very unfortunate from many points of view. It certainly does all sorts of damage to the figures about unemployment; it does a lot of damage to the people who want to collect tax money from other people. It has set up a thriving supplementary economy alongside the orthodox one which we all see and for which the figures are presented to us. I think this is a direct consequence of a policy of overtaxing not the wealthy, but of overtaxing the poor, in order to pay for the sorts of things which people would like to pay for, but have not thought out whether they can really do so.

I think the problem of the black economy is going to be with us for some time: it will take some time a'going. It is most unfortunate that it should exist, because it demonstrates a sense of lawlessness in a country that hitherto has been extremely lawful. Finally, my Lords, I would agree with the noble Lord, Lord Cledwyn, in that I have great faith in the British people. I have great faith that they can learn that sustained output in industries of all sizes is the only basis on which we can climb back to prosperity.

9.21 p.m.

Lord UNDERHILL

My Lords, I share the views of a number of my noble friends that the present Government cannot be held responsible for all our present ills. However, what are happening now are the consequences of some of the Government's actions. Even at this late hour, I must indicate a number of points in order to come to one rather important point.

The Government went ahead with their policy of reduction of taxes, and all of us, of course, love to see a reduction of taxes; but they did so by doubling VAT and by a policy of drastic public spending cuts. It is now generally agreed that anyone earning less than £10,000 a year—that is more than double the average wage—will be worse off after the tax cuts, if one takes account of the doubling of VAT, the other price rises and the drastic increase in mortgage interest repayments. Everyone can see the effect of the doubling of VAT. They can see that when they go out to buy things; they can see that day by day. That hits worst the most needy of our people—many who do not pay income tax but who have to pay VAT. Now we are to move into a 15 per cent. mortgage interest, a direct result of the Government's policy of a minimum lending rate of 17 per cent.

Not a great deal has been said in this debate about mortgage interest payments. These will have an appalling effect on many families, particularly the young marrieds with young children. Like most of your Lordships, I have children—two sons and a daughter, all married and away. I know the problem that my daughter is going to face. She measured every single penny of her income with her husband, a young teacher, when they decided to purchase their own house. How will they pay £25 extra a month on only a £10,000 mortgage? In the London and South-East area there will be at least £20,000 mortgages, which is £50 a month. This is on top of VAT, on top of price rises, with other increases in the offing. Gas charges going up 20 per cent. in the offing. Rail charges up by 20 per cent. are in the offing; and, as someone has said, London Transport charges are to go up as well.

The Government are rightly concerned with the trend in the economy and the forecast of the economy. To a great extent, that is a consequence of the Government's own policies. Let me just list them: increased VAT and increased charges and prices; increase in mortgage interest; increase in council house rents; increase in energy charges; increase in travel costs; increase in prescription charges; threatened increases in the charges for school meals, school travel and milk, in many, many areas of the country, as a result of the Government's general line of economy cuts. Rate increases are to come in 1980.

I, along with my other noble friends, will not say one thing now which we did not say when there was a Labour Government. Of course huge wage claims could result in more difficulties unless they are matched by a great increase in production. But why are these large wage claims being put forward? The Government have said that their policy is to set the economy free and to rely upon market forces. How can the Government claim that they can do that yet not expect to see the market forces at play in wage claims?

The Government reduced taxes. To the ordinary man in the street, reduced taxes have helped the better off. The Government have adopted policies which, so far as the man in the street can see, have led to a rise in the cost of living. Now the Government express surprise that in order to safeguard their own standard of living, workers have put in substantial wage claims. The Government appear to encourage high wages in private industry but they appear to thraten consequences if similar wage claims are made by those in the public services and in the nationalised industries.

My noble friend Lord Lee of Newton said that the Government were being provocative. Not just their words but their actions, which I have listed, are provocative to the great mass of workers. In my view, the Government must change their policies and their outlook. Whether noble Lords opposite like it or not, the trade unions are here. There are 12 million trade unionists. Unless there is co-operation with the trade unionists, no Government in this country will succeed. There must be a change of outlook on the part of the Government. Various speeches which have been made by Government spokesmen have not helped. The atmosphere has been poisoned. I share the view of my noble friends that we do not want the Government to go down in disaster, because the nation will go down in disaster with them. But the Government must change their attitude if they expect to gain the co-operation of the workers for some of their policies. I stated in a previous debate that the social wage—all these other things to which one can refer—is as important to a worker when he comes to make a wage claim as the claim itself. That must be recognised quite clearly by the Government.

All noble Lords will, I am sure, agree that unemployment is too high. I do not believe, and would never suggest, that the Government are following a policy of deliberately increasing unemployment. But we hear day by day of factory closures. These are not lust statistics. We speak about trimming the workforce. What it means is chucking a few thousand people out on the dole and their families suffering. This is often covered by a nice phrase. They are called human tragedies. How much co-operation and how much consultation has there been with the workers before those closures have taken place? What steps have the Government taken to try to prevent them? As the noble Lord, Lord Ross, emphasised, many of these closures take place in areas of the highest unemployment. So we add to the misery in those areas. The Government are curtailing the work of the Manpower Services Commission—

The Earl of GOWRIE

No, my Lords.

Lord UNDERHILL

—which has had so much success in providing job opportunities and training. I hope it is not true, but I see in today's newspaper that the Government are even planning to close down 10 or more of the centres for training in new skills. Because of the new techniques which are being developed, one would have thought that these are the very centres that ought to be kept going—in fact, even added to.

The Government insist that they will continue to rely on market forces, and they appear to abhor governmental intervention. On this side of the House we have often been accused of being doctrinaire. I think one can say quite clearly that the Government's adherence to this laissez-faire policy—leave it to market forces and all will be right—is a most doctrinaire policy and a dangerous one to follow at the present time. This is an attitude completely contrary to what most of the industrialised nations are following. Most of them—and they are not socialist—recognise the vital necessity of Government intervention and Government assistance.

Perhaps I may just put one or two pertinent points. Where would Rolls-Royce be today but for the intervention by a Conservative Government when they took it into public ownership? Where would the last remaining section of our computer industry be but for the Labour Government intervening and taking it over? Where would the machine tools of Alan Herbert be if the Government had not taken action? Many of these vital industries have been saved only as a result of Government action.

I have one or two more questions. What happens if companies need finance and cannot secure the necessary loans, or cannot pay the 17 per cent. or more that may be requested?—and it has been pointed out that it may be more than 17 per cent. Will the Government just say "Market forces, laissez-faire, let them go to the wall ", or will they do something about it? How do we ensure that the necessary investment is going into the right places? Reference was made to the back-up in overseas care industries compared with that in Britain. This is one of our troubles. If one looks at the countries which are competing with us one sees that their back-up is 3, 4, 5, or 6 times more per worker than it is in this country. This cannot be blamed on Socialist policies; it has been happening over decades.

The Earl of GOWRIE

My Lords, would the noble Lord be kind enough to give way? Is he not aware of the immense sums of public money which, under both Governments, have been put into British Leyland; and does he think that has been enormously successful in that particular industry?

Lord UNDERHILL

My Lords, one could go into the whole policy of British Leyland and one cannot just blame the workers. Of course Government money has been put into British Leyland, and without it British Leyland would have gone. I worked for 13 years in Birmingham and I know that without British Leyland not just British Leyland would suffer but the whole of the industrial West Midlands would have suffered. Therefore I am glad that Governments have put money into British Leyland. But there is still not the back-up of equipment and modern technology in British industry as compared with other countries, and that is where we have failed in our investment programme. How will that be dealt with—merely by a policy of leave it alone to market forces?

Lord MOTTISTONE

My Lords, is the noble Lord suggesting that the investment should all be done by the Government, or that they should encourage private industry to do their own investment?

Lord UNDERHILL

My Lords, I am not suggesting that, but I should like to echo what others of my noble friends have said. That was one reason for the existence of the National Enterprise Board. That is why we want to see boards such as the Scottish Development Agency succeed; why we want the Welsh Development Agency to succeed. And whether my Front Bench agree or not, I am one who believes that there must be a certain amount of Government intervention to ensure that investment goes in the right places.

Lord MOTTISTONE

My Lords, would the noble Lord not agree that perhaps Government investment on the whole has not been very successful?

Lord UNDERHILL

Nobody is going to assure the nation that the present situation is the responsibility solely of a few years of Labour Government. Private enterprise has failed to deliver the goods. We believe in a mixed economy, and I should love to hear what I have not heard in the short time that I have been in this House—and this is why I will pay a tribute to the need to have an effective private industry: I should like to hear Government Ministers agree with the need to have effective publicly-owned industries as well as private industries.

Viscount MASSEREENE AND FERRARD

My Lords, if I might interrupt, would the noble Lord not agree that one of the reasons why British Leyland makes such a bad comparison with the foreign manufacturers in Germany and France is because of their strike record? There have been more strikes in this year than at any time since the General Strike of 1926. Is that not the responsibility of the unions? Of course it is!

Lord UNDERHILL

My Lords, I did say that one can be provocative.

Viscount MASSEREENE and FERRARD

The noble Lord is being provocative.

Lord UNDERHILL

It is always difficult when one is giving facts and information to be told that one is provocative. Unless we solve why there are strikes, we shall not get out of this situation. May I in conclusion, because time is getting on, refer to the public expenditure cuts. Of course we all support cutting out waste. I do not know the attitude of my Front Bench on this. I am not an economist. I left school when I was 14. I joined the Labour Party early in 1930, during the period when we were going up to 3 million unemployed. I know what I, as a young man, used to say then; that a time of recession is not the time when you put more people out of work and add to the problems.

I do not know how we will find that it will benefit the nation by dispensing with the jobs of teachers, home helps, health service workers, kitchen staff, firemen and clerical workers. It would lead to an increased payment of public expenditure on unemployment benefit, on supplementary benefits in many cases, and a loss of tax revenue. It has always seemed to me that at a time of recession one needs to be looking at constructive, not wasteful, works. You have not only to encourage production, because production without demand is useless. Therefore, demand and production have to go together. I believe that one can go far too far in cuts on public expenditure.

I will finish with this word. The EEC Commission issued figures in July last which showed that while central and local government expenditure is just under 57 per cent. of gross domestic product in the Netherlands, it is only 43 per cent. in Britain. In fact, the sheer public spending in relation to national output in this country is the lowest of all the EEC countries. We ought to keep that in mind when talking about public spending.

I ought to close now, and the last point I would make is that I do not believe that we shall get out of this mess unless we have a degree of planning using bodies like the NEB. In my view there has to be planning, and the policy by the Government of seemingly adopting a laissez-faire attitude will not work, and they will find themselves compelled to follow upon this path of planning our resources.

9.38 p.m.

Lord ROCHESTER

My Lords, it seems a long time since we began. From these Benches I should like first to join other noble Lords in congratulating the three noble Lords who have made their maiden speeches in this House this afternoon. They have all come to us with a fine record from another place, and we hope that their counsel will be made as freely available to us now in this House.

I suppose it was inevitable that under our present system of adverserial politics the Motion that we have been debating today should have been framed in terms critical of the failure of the party now in power to deal effectively with problems of inflation, pay and employment. I was glad at least that the noble Lord, Lord McCarthy, in his opening speech did not seek to exculpate altogether the last Government for our present troubles. Indeed, in the light of the events of last winter it seems to me that there is no evidence to suggest that under a Labour Administration the pay claims of trade unions would have been moderated to accord with our lamentable failure to improve productivity.

The Motion refers to "fair policies". The trouble about the word "fair" is that it means different things to different people. The question always arises: who is to be arbiter of what is fair? In so far as fairness is equated with equality I cannot subscribe to it, although I am very much in favour of a levelling up process which, for example, brings the employment conditions of weekly wage earners more closely into line with those of monthly salaried staff and affords the opportunity to more people to hold shares in firms. But I do not think that the pursuit of equality, apart perhaps from equality of opportunity, will help to solve our problems. Indeed, as was said earlier in the debate, in recent years erosions of differentials for responsibility and for skill have contributed largely, in my view, to our industrial decline.

On the other hand, inasmuch as fairness means that increases in pay should not depend so much as they now do on muscle power, I am all for it. One or two Government Ministers have argued that, if some strong-armed group insists on an excessive pay increase, then the job security of that group will be threatened. That, alas! is not how things work out in practice. For it is often other groups of workers, the weak and the old, who in fact suffer.

The events of the last 12 months, under both Labour and Conservative Governments, have strengthened my conviction that our basic economic and industrial problems are now so deep-seated and intractable, and the measures needed to solve them will prove so painful and controversial, that neither of the major parties will be able, single handed, to deal with them successfully. I believe that this can be done only when elements in all parties are prepared to come together to tackle them.

Perhaps this is the moment for me to say how much I appreciated what the noble Lord, Lord Houghton of Sowerby, had to say at one point in his speech about the failings of our electoral system in this regard. For the moment, however, we have a Conservative Government and it has a clear majority over all other Parties. It seems to me that we should give to it what support we can. Therefore, I should like to say that I share with them the belief that we should not go on consuming so much more than we produce, thus burdening our children with more and more debts that we incur but which they will have to repay.

The fact is that today any party in Government would have to insist on painful economies, although from these Benches we would certainly have preferred that there should be a more selective approach to them. For example, we have expressed reservations about the way in which their application has been decreed, in what has seemed to us such an indiscriminate way in their effect on education and on regional aid. I was interested in what the noble Lord, Lord Ross, and the noble Lord, Lord Cledwyn of Penrhos, had to say on this point and have every sympathy with them. In saying that, I do not forget from my industrial experience how, when costs have to be reduced, the misery that is shared across the board seems somehow thereby to become more generally acceptable.

In my view the two problems that need most urgently to be tackled are those of inflation and low productivity. They are inextricably intertwined and they feed on each other. The Government's firm determination is said to be to squeeze inflation out of the system, but to my way of thinking the present increases in mimimum lending rate to 17 per cent. and in the mortgage rate to 15 per cent. have proved pretty damaging, not least, as the noble Lord, Lord Jacques, was saying, in their effect on small businesses.

I am convinced that there is, in fact, A Better Way; your Lordships will remember that that was the title of a paper written last winter by 12 of our more moderate, if I may use that word, trade union leaders. At about the same time, there were publications by the CBI; even the Conservative Party, in what I regard as their more enlightened days in 1977, produced the booklet entitled, The Right Approach. It seems to me that documents of this kind could even now provide us with some common ground on which we could together stand.

That is why I greatly welcome what the Chancellor of the Exchequer had to say in another place on 29th November at column 1313. He said: The Government … want by all available means, to foster an understanding of economic reality by promoting a wider discussion of economic objectives and remedies. We attach importance, therefore, to the work of the National Economic Development Council ". Referring to a meeting of that council today at which he was to take the chair, he said that the whole of the proceedings were to be devoted to a discussion of economic prospects and policies. In that way, there is surely a better chance of devising policies and even of establishing patterns of behaviour that are both more effective in combating inflation and fairer in the sense that they command the support of a better informed general public and a higher proportion of the general public.

I have come to believe that low productivity is the most serious of our economic and industrial problems because it lies at the root of most of the others. I was interested in what the noble Lord, Lord Orr-Ewing, had to say on this point. In the problem of low productivity, I include the problem inflation which, in my view, largely springs from it. What is more, at a time when we are entering a general world recession this problem of low productivity is likely to prove the most intractable of all, for our need as a trading nation to remain internationally competitive means that in general new opportunities will have to follow, and they cannot precede an improvement in productivity.

Therefore, in my view the key question is how we are to obtain a sufficiently general understanding of the effects on the national economy of pay increases that are not matched by improvements in productivity. I believe that the best way is through activities which are, so far as possible, sponsored jointly by employers and trade unions and which are aimed at the needs for society at large to gain, and particularly for management and employee representatives to share, an understanding of how a business is actually run and of the relationship between productivity, profits, prices, pay and employment. But that is a daunting task.

The manager of a large works, which has a good record of industrial relations and performance, has invited me to visit him in the next few days. In his factory they have done a great deal to try to gain the understanding of employees about how their particular business is run and about the way in which the wealth that is there created is used for the benefit of the whole community. But this works manager feels frustrated because he thinks that the efforts of management in that direction are soon reversed by trade union policy. He sees the need for a smaller workforce for high productivity and security of employment. But trade union policy seems to him to be to employ more people for fewer hours and with lower productivity while at the same time seeking wages that are related to high productivity. Indeed, he thinks—and I suggest that his opinion deserves our respect in that he is in the position of a battalion commander in the front line of industry and we are really some distance behind him—that unless some minimal agreement can be reached at national level between employers and trade unions on this basic problem the polarisation of attitudes will mean that there can be no escape from periodic disruption.

I had not intended to say this, but perhaps here I may support what it was I understood the noble Lord, Lord Houghton of Sowerby, to say on the general question of trade union power a little time ago. I thought it was appropri- ate that it was he, as a former trade union leader, who should have said it, but I would like to be quick in my support of what it was I understood him to say. He was saying in so many words that he would like to hear more about trade union responsibilities and less about trade union rights. I would suggest that one question that very much needs to be answered is this question. In circumstances where trade unions are able to make such considerable claims on the wealth of the nation, what is it that they are prepared to do to help in adding to that wealth?—for I believe that to be a most crucial question.

There are differing views, and they have been expressed today on all these points, but whatever our views I suggest we should be prepared to submit them to general examination both nationally and on the shop floor. I do not see how the problem of low productivity is going to be solved in this country unless we have the co-operation of trade unions in the same way as other countries in Western Europe have contrived to obtain that co-operation. So I very much hope that we may have that, and I hope also that the Government for their part will make increasing use of the National Economic Development Council, particularly in trying to see that in future there is not such a grave disparity as now exists between improvements in pay and increases in productivity. In conclusion, so that I leave no doubts in your Lordships' minds as to my meaning, may I end by saying that in my view the pursuit of some consensus in these matters is not to be decried as some woolly compromise but should be viewed as the only realistic alternative to this country's continuing decline. We shall have to come to this one day, my Lords, so the sooner the better.

9.54 p.m.

Lord WALLACE of COSLANY

My Lords, we have had a somewhat extensive but extremely useful debate. My pleasant duty, first of all, being, shall we say, the last of the speakers before the "big shots" wind up, is to congratulate the three maiden speakers, Lord Godber of Willington, an old colleague in the other place, and my good friends Lord Cledwyn and Lord Ross. We have here three expert people drafted into the service of the House and I think the House will welcome them all. I am gratified because it is two Labour and one Conservative. By a pleasant coincidence, my noble friend Lord Cledwyn chose to make his maiden speech today. I say that because in May 1971 in another place he supported my Private Member's Motion on consumer protection which was carried against the then Conservative Government. Unfortunately, as it was a Private Member's Motion, they said it could not be implemented.

For me, the debate today is in some ways history repeating itself. In 1970 a Conservative Government came to power and dismantled their predecessor's consumer protection measures. Prices went up, particularly of basic foods. Today, with another Conservative Government in power, the situation is far worse, with its effects not confined to low wage areas, but spreading to all except well-off families, and for the rest of my speech I want to talk about the people I know, the people I live with and those whose lives I share—members of the ordinary working classes.

The Prime Minister before, during and since the general election stated that her party's policy was that people should have more of their own money to spend and to spend it as they wished. Despite cuts in income tax—which, let us face it, voters fell for—the great majority of people face a rapidly worsening position financially whether they live in rented property or are proud eventual property-owners with mortgages. This latter section, the main source of Tory votes in suburban areas and the South-East, are, in my opinion, the worst hit. The doubling of VAT has had a marked effect on the prices of consumer goods—some 4 per cent. increase, I understand, in the Retail Price Index—but in addition food prices are continuing to increase, now almost on a weekly basis, and the same is true of other essential commodities such as toilet rolls, soap and washing powders. The list seems never ending.

I, too, am a practical shopper; another noble Lord who spoke in the debate said he did the shopping. On Friday, I shall, with my wife, be doing the weekly shopping; in the week I do it myself. Weekend shopping, in my experience, is once again becoming a nightmare. We are told to shop around. Tell that to the mother with a child in a pushchair or to the elderly pensioner. It is easy to tell people what to do when you have others to do it for you. The main losers as a result of Government policy are home buyers and those with large families. Their outlook is not good in view of the projected increases which have been mentioned—20 per cent. increase in gas, 20 to 25 per cent. increase in rail fares, and in the South-East region and the London suburbs there will be 25 per cent. bus and Tube increases.

Viscount MASSEREENE and FERRARD

They are nationalised, my Lords.

Lord WALLACE of COSLANY

Maybe, my Lords, but the Government have subsidised rail fares in the past. School meal prices, where such facilities exist, will double to 55p, and if noble Lords opposite do not like what I am saying they will have to listen because I am speaking from practical experience of ordinary people who have suffered already after six months of Conservative Administration. Rents and rates are bound to show big increases. I read on the tape a report that the Manufactured Foods Association reckon that manufactured food prices will be up 20 per cent. next year. For a Government pledged to reduce inflation they seem to be doing their best to increase it.

Of course I accept, as other speakers on this side have said, that international factors including the Common Market have had an effect in part, but the Government must shoulder considerable blame for the effects of their own policies so far. The Government have placed much emphasis on the need for competition and choice, but they are cutting off protection and information to the consumer. The abolishing of the Price Commission and the enforced ending of grants for consumer advice centres and local price surveys are cases in point.

Last week the noble Lord, Lord Trefgarne, said the Government would consult bodies such as the Townswomen's Guild—an excellent body, I accept. But this is just window dressing. What Her Majesty's Government should do is set up an organisation for consumer protection with powers to scrutinise and check prices of essential goods and services. For practical purposes, and to ensure practical experience, membership should include representative housewives, for it is the housewife who has to fill and carry the shopping basket, who has to budget for the family and, what is more, who has to nag the husband to get a wage increase because of rising prices. That is a cause of much of our industrial troubles and trade union pressure for higher wages. This starts in the home. The strain is greatest on mothers with young families who ideally should remain at home to look after the children, but many have to seek part-time work.

More and more families facing increasing food costs want to grow as much as they possibly can themselves. The Government should help such a worthy objective, but indications are that measures likely to be taken on local government finance will mean many local authorities selling allotment land and putting in steep increases in allotment rents. At this time we should encourage expansion in this field of home grown food to help the nation's economy.

The sweeping further increases in rail fares are placing an intolerable burden on people who live in suburban areas and who are employed in city areas such as London. The majority have to face increased mortgage repayments. Successive Chancellors have turned down tax relief on expenses of travel to places of employment. The situation is now desperate, and there must be either tax relief or greater subsidies on fares. It is bad enough to travel in crowded trains, as I know full well, but further increases in fares will be the last straw for many people.

Now I come to the subject of mortgages and the main point that I want to make. I live in a heavily mortgaged area; most of the houses are mortgaged. As a result of Government monetary policy, interest on mortgage payments is to reach a record 15 per cent. in spite of Tory election pledges. Many couples will have to apply for extended repayment, which will probably extend the mortgage almost to a lifetime. And let us face it, once it is extended it is very difficult to get it reduced again. In addition, they are facing further rates increases and rising costs of property maintenance, even on a do-it-yourself basis.

I live in the Sidcup constituency of the right honourable Edward Heath. There the local paper estimates that young Sidcup families will have to find more than £40 a month extra to keep a roof over their heads. Two-bedroom houses which prewar cost between £450 and £600 freehold are now fetching £20,000 to £25,000. In this area, as in many others, rented property, council or private, is extremely scarce. The enforced sale of council houses would only make the situation worse by increasing the scarcity of rented property and the pressure for mortgage grants. In many cases, young couples are forced to take out a mortgage to buy a house and they are able to keep up their mortgage payments only by both of them going to work. Apart from their increasing financial problems—mortgages, fares and prices—two major worries haunt them: unemployment and, let us face it, the advent of a child, which, unfortunately, in circumstances like that, could be an economic disaster. My Lords, these are factors making for the possible breakdown of a marriage.

Married couples with children of school age also have their problems with increasing costs, but let us look at the families where the children are grown up, earning and, presumably, off hand. Young people fall in love and want to marry. A happy situation for parents? Not so in many cases. With rented property not available and with no hope of council housing, there is no option but to purchase if a mortgage can be obtained and if repayments can be afforded. With the inflated price of houses, a considerable deposit is usually required, and parents help where they can. Houses have to be furnished, and, today, even with only the bare essentials, two rooms and a kitchen would cost well over £1,000. So it is cash or the "never-never "hire-purchase, which means starting married life with a load of debt—not a start that I or any other parent would recommend. One young couple I know are getting engaged soon, and love's young dream means the young lady, after a daytime job, taking on evening work as a cleaner, while the young man banks on plenty of overtime in a desperate attempt to get sufficient money together. One admires the courage and idealism of such young couples, but is it necessary that they should be forced into such a situation? Taking on an extra job also means the denial of an opportunity to someone else who is unemployed.

We as a nation face a worsening economic situation. To overcome our problems the nation must be united in its effort. Sacrifices must be equally shared, with the least well-off protected. It would appear that the Government's approach is that people are born equal but some are more equal than others. On this basis, we are increasingly becoming a divided nation, the "haves" and the "have-nots", who happen to be in the majority. In all sincerity I warn the Government not to proceed further on the path they are following, but to change course somewhat and unite the people of Britain in a common effort. Otherwise, my Lords, the result will be disaster; and, what is more unfortunate, it will cause grave social unrest, the consequences of which none of us dares to contemplate.

Viscount MASSEREENE and FERRARD

My Lords, before the noble Lord sits down, might I ask him whether he would not agree that the scarcity of rented accommodation is due to the absurdity of the Socialist Rent Act?

Lord WALLACE of COSLANY

My Lords, the Rent Act may be looked at, but the point is that in many areas council houses are not being built. In many Tory-controlled areas housing estates are extremely few, and, therefore, there is very little opportunity to get a house. Perhaps the noble Viscount himself lives in a council house, and will understand.

10.8 p.m.

The Earl of GOWRIE

My Lords, I look forward to having tea with the noble Lord, Lord Wallace of Coslany, in the council house of my noble friend Lord Massereene and Ferrard. I think the last speech (if I may quickly start with that) was an extremely eloquent and moving diatribe against the social evils of inflation. The central contradiction to it, in our contention, of course, is that we are trying to cure inflation. I think, too, that it is perhaps a little hard of the noble Lord, Lord Wallace of Coslany, whose speech I enjoyed—it was a moving speech, as I said—and who served in a Government which increased prices by 110 per cent. in their five-year period of office, to predict such dire social consequences for the painful attempts to cure inflation by this Government, which, after six months in office, have increased them overall by 3½ per cent. over the rate inherited. But obviously we are on trial, there is no doubt about that; but we really should be having this debate, in my contention—and I find it an interesting and educative debate—probably around the end of 1983.

My Lords, I want to go reasonably fast and deal with as many points as I can, because this has been a very long debate. I do not know about monetary controls, but I am beginning to wonder whether we should not perhaps impose some disciplines on ourselves in terms of verbal controls. I am not calling for a Speaker in your Lordships' House but we are slowly approaching a point where, it seems to me, our debates become so long that some of their initial impetus and tension gets lost. That is in no sense to criticise the tail-end speeches, which I thought were quite exceptional.

I want to start off, as your Lordships may imagine, by congratulating the "maidens ". Normally one does that and then says, "Well, the maiden speeches are out of the way; I need not deal with them further ". But they were so good, as we would expect coming from three former Cabinet Ministers, that I shall have to deal with them and I shall come to them in time. The noble Lord, Lord McCarthy, made the speech we would expect. I had a trial run at a conference at Harrogate when he and I addressed personnel management. We had tonight an extremely eloquent, informed and analytic speech about incomes policy.

I have to say that if I looked upon this debate as being a sort of "Match of the Day "between the monetarists, wherever they are on this side of the House, and the incomes policy men, I would award perhaps the laurels for analytic performance to the incomes policy men. But the central difficulty we have in this debate is that that is somewhat unreal because a formalised and statutory, or in some way enforceable, incomes policy is not the policy of the official Opposition. I am delighted that this debate should be used as an inter-Labour Party seminar while they discuss its merits. But it is not their policy and therefore it is somewhat extravagant of them to castigate the Government for not having one. I said in my speech that all Governments would have a pay policy if they could afford to pay for it, which was as pithy a way as I could think of, of putting what I think to be the central difficulty, which is: what are the other forms of trade-off to which the incomes policy can give rise?

I would draw your Lordships' attention to the really remarkable maiden speech of my noble friend Lord Godber, who is experienced in incomes policies and who, like other members of the previous Conservative Government, has had day-to-day experience of administering them, and who says that any consensus of this kind should have been available over the last 15 years. It has not proved to be; and now we may have to give another route the benefit of the doubt.

Coming to the speech of the noble Lord, Lord McCarthy, he said—and the noble Lord, Lord Wallace of Coslany, echoed him—that the taxpayers in general were worse off as a result of the Budget. It is true that the VAT increase added some 3½ per cent. to the Retail Price Index. I would say to the noble Lord that he consistently makes too much of that index—no doubt because he is intimately involved in wage bargaining and that makes great play with it. But my objection to the Retail Price Index—and I accept that it is a norm which bargainers use—is that it has been nonsensical since the OPEC price rises of 1973–74 because it contains energy costs within it.

It is not so much that we need to change it in respect of tax indices, although these are a helpful comparator and I welcome the Government's attempts there; but we should try to isolate energy costs, over which no Government or industry in this country has any control, from the Retail Price Index. The RPI also contains items of expenditure which are entirely voluntary and of which Governments of all parties disapprove, items like tobacco and alcohol; so that I think that, as an indicator of inflation, there are limitations to the RPI.

Different people give different emphasis to different parts of counter-inflation policy. It is true that the central plank of the Government's policy is to bring fiscal and monetary policy into line; but we give great emphasis to the effects of stabilising—and I repeat it—public expenditure. We are determined progressively to stabilise public spending at the approximate levels of the previous year. Excessive public expenditure means either an increase in the money supply and hence an increase in inflation, or it means increased taxes and that the private sector, from which growth will ultimately have to come, is pushed on one side. It also means that central and local government—this is the point I want to emphasise most in my speech—are competing with the private sector and particularly the small business and new business sectors we are now squeezing for credit.

That is the trouble that high interest rates cause for the small business sector. They will fall as inflation comes down and then the expansion and incentives—the dynamic, more positive parts of the Government's budgetary package—will in our contention pick up. Noble Lords may be sceptical. They will have to wait and see. There is no conceivable time-scale of counter-inflation policies run by central Government other than an entire and immediate wage freeze that could work in a six months' time span.

As I said, I think that the central weakness of the speeches of the noble Lord, Lord McCarthy, of the noble Baroness, Lady Seear, the noble Lords, Lord Jacques and Lord Lee of Newton, was that they were pleas for permanent incomes policies for which we have consistently argued that, whatever their merits, there does not exist in this industrial and political economy at the moment the necessary measure of consent. When noble Lords tell us: "Go out and get that consent ", that is another matter: that is a consistent point. It is fair for us to say the same thing to them because they have not the consent either for such policies.

Now I come to the maiden speech of the noble Lord, Lord Ross of Marnock. If the noble Lord's maiden speech was uncontroversial, I for one can barely wait for his controversial performances. He asked me a number of questions, and particularly what was happening to regional policy. The main purpose of the Government's regional industrial policy is to encourage investment in those parts of the country which suffer from higher unemployment and a weaker economic structure. I must say at this juncture to the noble Lord, Lord Underhill, that to think that there is some kind of bean feast of laissez-faire is incredible to Ministers who are reeling under the costs of our regional aid policies and who, with very great difficulty, are keeping them in being and even strengthening them.

Since the mid'60s the share of national investment taken by the development areas has significantly increased. In the present economic climate regional aids have lost much of their cost effectiveness through being spread too widely. I was rather amazed—if I may engage in a little controversy with the noble Lord—that the noble Lord, Lord Ross, suggests that the area around Aberdeen, which we found as being earmarked as an area in need of some kind of development aid when we came into office, should continue to be eligible for such aid. Our analysis is that this is one of the richest places in the whole of Europe.

The noble Lord asked me about an area where I have special ministerial responsibility: the programmes for young people. He implied that they were being cut. That is not the case. There was an expansion in this year in the YOP programmes. The expansion was not as great as the expansion planned by the last Government. But then, as my noble friend Lord Orr-Ewing and others have pointed out, the last Government were assuming a rate of growth in the economy—from where it arrived no one knew—of 3 per cent. I would also make the point to him about small business, which I made earlier. We recognise the minimum lending rate penalties on small businesses. That is a necessary and painful part of getting inflation down. But once it is down the interest rates will decrease as well.

My noble friend Lord De La Warr was more generous when he said that we needed a little longer than six months to show substantial results. He used a particularly good phrase which I should like to repeat. He said that we were looking in the wage bargaining sector for a discipline which is more akin to self-discipline than the discipline that comes from waiting up on the Government diktat". We do not feel—I could not conceivably have put that better—that Government diktat has been spectacularly successful in the pay bargaining field. We shall have to look to other ways. I have already mentioned my noble friend Lord Godber: his maiden speech was one of the best I have ever heard in your Lordships' House. My noble friend said he had no brief from the Government to make our case for us; but may I ask his permission to use his speech in place of most of the briefs that I have.

I welcome the support from the Cross-Benches of the noble Lord, Lord Hankey, and his understanding of the time-scales involved. He talked about recreating the private rented sector with, of course, adequate and protective controls. I am all for that, because I think it is good—and I am sure he would agree with me—for the endemic problem of mobility in our economy.

I should like briefly to return to the speech of the noble Lord, Lord Wallace of Coslany. While there was nothing specious about its heartrending and moving qualities, nevertheless it is interesting that he was talking in the context of Sidcup—again a very prosperous part of the country, where there are very substantial vacancies in employment. It seems to me that we who live—as I do, like the noble Lord—in South East England are really much too reluctant to move to other areas which have very great need of skills, where housing is a great deal cheaper and where mobility would improve the economy as a whole.

I come to the third and last maiden: that of the noble Lord, Lord Cledwyn. He said that we must temper the wind to the shorn lamb. I have an enormous brief about the continuing and indeed expanded special programmes for protection in a period of high unemployment from the Manpower Services Commission but I hope that at this hour he will take my figures on trust. He may, of course, continue in his role here to grill me about them either by written or oral Questions any time he likes. He mentioned the case of Shotton. It is, of course, deeply depressing for Governments when industries go out of business. Apart from anything else, they pay a lot of benefit and they lose a lot of taxes: I perfectly take that point. We do not, however, feel that it is cost-effective to support that which is insupportable in industrial terms. We are seeing some evidence at Shotton and elsewhere that some of the social tensions engendered by large-scale redundancies have been mitigated by the redundancy payment system. That, I imagine, is at least some consolation to the people involved.

The noble Lord raised a very important point which other noble Lords have also raised, which is how to attract suitable new industry into the regions, and also the question of the greater investment in industry the fewer people in employment. This is critical. If he will do me the honour of looking at the text of my speech in Hansard tomorrow, he will see that my emphasis on high technology, low manning and high investment is in the old big productive industries; but it is in the smaller industries that we would look for the employment to be taken up. We have very interesting evidence from the United States that well over half of new jobs in the United States are taken up in the smaller sector every year. This is the kind of atmosphere we are hoping to encourage. The noble Lord asked me questions about investment over the next 12 months and about export performance. I am reluctant to forecast off the cuff and, if I may, I will write to him about those.

My noble friend Lord Orr-Ewing said that we were paying, as I have mentioned, for the PSBR assumptions of growth of the previous Government, and I think the noble Lord, Lord McCarthy, tacitly admitted that. Both my noble friend and my noble friend Lord Nugent raised points about Clegg and comparability. The Government have encouraged the comparability commission to find methods of working to ensure that it makes proper comparisons of all aspects of remuneration, holidays and other conditions of service as well as pay; and of course these are important.

The Commission itself looked critically at comparative pension provisions. We have asked the Commission to check their comparisons against differences in the supply of labour in the public and private sectors. I confess that I share some of the worries about the high indexed public service pensions. As to its compatibility with our cash limit or monetary or dear credit system, there is no obligation on the Government to fund pay increases based on comparability studies, other than the undertakings we gave to the undertakings of the previous Government.

If the full amount of the comparability increase cannot be afforded, then it will not be funded. In the case of the awards already made by the Comparability Commission, the Government decided not to fund to the full extent the increases recommended by the Commission but to look for some savings. But, broadly, we accept the principle that the public and the private sector have, to some degree, to take account of each other and march hand in hand.

This brings me fairly naturally to the remarkable speech of the noble Baroness, Lady Wootton of Abinger. I acquit the noble Baroness of all the uncomfortable and unpleasant things she said about the Government because she, like some of us in your Lordships' House, has been consistent for years in her approach to virtually statutory permanent incomes controls. That is not, as I say, the position of the official Opposition. Of course, I agree with the noble Baroness that public expenditure as such is not iniquitous. It is iniquitous to us only if it is competing, as it is now, with the private or wealth producing sector—and I include under that, as I did in my speech, the producing bits of the public sector—and competing under terms by which the producing sectors cannot win. That is part of our problem at the moment.

I would point out to the noble Baroness some recent remarks of Mr. Joel Barnett. I am sorry to keep quoting him, but he seems to be so eminently sensible a figure. He said that if we are to maintain decent public services—" and I ", he said, "want to see that as much as any of my friends" —" we must recognise that there is a limit to how much money will be made available." If wages go up by 20, 25 or 30 per cent.—quite apart from its unfairness—there will be less available for the public services which we desperately want to see improved.

The real argument about cuts relates to the amount of wages which are liable to be claimed by those who are administering the public services. Something will have to give. Even the noble Lord, Lord Jacques, said that we could not be blamed for everything. He again has the merit of consistency, in that ever since he left the last Government the noble Lord has argued for a permanent and enforceable incomes policy.

Many of your Lordships utter rather conservative—even, dare I say it—rather reactionary opinions, using the impeccable tones of liberalism. My noble friend Lord Massereene and Ferrard often makes shrewd and empirical statements based upon experience and observation, although usually in the pure, lucid tones of uncompromising reaction. My noble friend asked me about mobility and employment transfer schemes. Under ETS, people who are unemployed or who are threatened with redundancy can be given cash to help them to move to take up work beyond daily travelling distance. That programme is continuing. There are various rules relating to moves from assisted and non-assisted areas, but generally they are financially more favourable to those people who are moving from assisted areas.

The noble Lord, Lord Murray of Gravesend, and the noble Lord, Lord Houghton of Sowerby, had things to say about our manifesto, but from rather different perspectives. I am not quite sure whether I agree about the tyranny of the manifesto. In my view, we were rather circumspect this time when drawing it up. We were well aware of the circumstances in which we would find ourselves. May I quote one sentence. We said: Any further Government which sets out honestly to reduce inflation and taxation will have to make substantial economies, and there should be no doubt about our intention to do so ". The noble Lord, Lord Murray of Gravesend, said that the Government should talk to the trade unions about the Bullock Report.

Although it is usually a bad habit, may I quote from a speech which I made to those engaged in the wage bargaining process from the managerial side. I said: The collective bargaining table could and should once again become the forum for informed exchanges about the total needs of a company. The wage claims should be put into the perspective of total company development. Pay negotiations should stop being regarded as a visit from the bailiffs, and there should be sensible discussions about the contribution that could be made towards financing the wage settlement and enhancing company prosperity so that everyone can agree that there will be more where that came from in future years, too ". In short, we think that by returning economic reality to the collective bargaining system we are encouraging responsibility—and I agree that free collective bargaining without attention to economic reality is a jungle—and encouraging the kind of participation that the noble Lord would see.

My noble friend Lord Gainford told us that he was about to enter into employment in a private employment agency, and we all wish him well. I am glad here to be able to pat private employment agencies on the back because they are not popular with the unions and the last Government did not encourage them much. In our view, they do a good job; they are not in competition with the Manpower Services Commission, but they are complementary and I am glad to pay tribute to their work.

I have already mentioned the speech of the noble Lord, Lord Houghton of Sower-by. If it is not embarrassing for him to hear it from me, I have always had two heroes in the Labour movement—the noble Lord himself and Mr. Bob Mellish, and nothing that he said today has altered my view. I agree with him that the point of our policies is not to be popular but to be effective. We are going to be effective. We are going to get the inflation down to 5 or 6 per cent. and then output up, and when we have done that we shall go to the country.

The noble Lord, Lord Underhill, asked me a question about curtailing the work of the MSC in skillcentres and the like. The MSC has had an enormous expansion in recent years, because as the last Government became anxious about employment they threw money at the MSC. Many of the ways in which the MSC utilised this money have been highly successful and we have encouraged them and extended them. But, inevitably, there have been places where there has not been the take-up to the programmes or the particular training organisations or skillcentres that was originally hoped, and that is where we are looking for economies. Nothing has been announced yet and I cannot say anything further on it tonight.

The noble Lord, Lord Rochester, made helpful remarks about the NEDC. We are very committed to that organisation and, indeed, we have talked from time to time about extending its role. If I may now speak briefly for myself rather than for the Government, the only thing that I would be reluctant to do would be to turn NEDC into a full-scale forum where entrenched or political positions had to be taken. It seems to me absolutely necessary to keep its function as a method of communication.

The noble Lord mentioned the effects of public spending cuts on education. I agree that we have some communication difficulties here. When we are looking at cuts in the education services, we should try to put them to the public directly, and perhaps in the form of a question. I suggest the question would go like this: Do you think that such a large proportion of the educational budget should go on school meals? Is that compatible with a healthy teaching profession? At least we could get a communication or a debate going there.

Lord PEART

My Lords, to argue about school meals—probably if he was at a private school he would have them in the normal way.

The Earl of GOWRIE

My Lords, I am not sure what point the noble Lord is making, but I certainly was not referring to the private sector. What they charge for school meals is, of course, entirely up to them. As a serious point, and I think the noble Lord should attend to it seriously, I am saying that part of the debate on public expenditure in this country should concern itself with what proportion of the educational budget should be spent on meals and what proportion should be spent on education, and I cannot see that that should inflame the noble Lord the Leader of the Opposition.

I want now to come to an end. Perhaps the thing that stung me most was a remark from the noble Lord, Lord Kaldor, when he said that we have no vision; that we were sitting on our hands. It stung me because it rang true to this degree; that when your overriding objective is a negative one, which is to reduce the rate of inflation, it is difficult for your positive or visionary or exciting policies to come to the fore. But we have them; they are there, and in our contention they will activate themselves when the rate of inflation has been brought down. We reject the concept that the Government can regulate the economy by adjusting the level of demand and thereby automatically producing growth. Governments of all complexions have tried this and it has not worked. The weakness of our economy lies on the supply side and it is deficiencies there which must be overcome. We by ourselves cannot create higher and more efficient production which will give scope for more employment, but we can create the conditions for healthy growth. That we do by firm fiscal and monetary policies aimed at reducing inflation and by controlling growth of money, restraining the growth of public spending, and reducing the burden of taxes.

When that is achieved our tax cuts will improve incentives, and we have already ended the rigidities governing pay and price structures and investment decisions, relaxed planning controls and various types of licensing requirements. All this, we believe, is the positive side to the coin; our way to stimulate activity and enable opportunities to be taken. As I said at the beginning, the painful road of reducing inflation is the first one, and we cannot go down the other road until we have trodden it first.

10.36 p.m.

Lord McCARTHY

My Lords, we have listened to 24 speakers once and two speakers twice. It seems to me that we have covered every possible facet of the subject, and several facets which have nothing to do with the subject. I do not intend to delay the House for more than a third of the time of the noble Earl. I want to concentrate on what he said, but I should like briefly to reply to two points made by other speakers. The noble Lord, Lord Orr-Ewing, and the noble Lord, Lord Godber, asked if I was attacking this Government or the last Government. The answer is that I was attacking both Governments if both Governments deserved it. I believe it is the beginning of political wisdom to admit one's own side's mistakes, and then go on and attack the other side.

The noble Earl, Lord De La Warr, and the noble Lord, Lord Orr-Ewing, said that it was not fair for us to suggest on this side of the House that control of the money supply was the only objective of the Government. I do not say it is the only objective of the Government. I say that they give it priority over the expansion of investment, the growth of the economy, the exchange rate, stability, employment creation, and so on. I was glad to hear the noble Earl, Lord Gowrie, more or less say that in his final speech. He said that they were going to do these other things when they got the level of inflation down, and then when they got it down to 5 per cent. they were going to go to the country. I would remind him that we have five-year Parliaments. We were not saying that it was the only objective; we were saying that it was the only objective they were doing anything about. That is the point.

I should like to turn to the points raised in the speech of the noble Earl and to further points he raised, especially when he asked me questions. He said at one stage that he still believes that there is a 10-year correlation between the RPI—at least I take it it is the RPI; I take it that it can be used for that—and M3. Of course if there is this 10-year correlation there is an even greater correlation, I believe, if you take 231 years six months. There is a magnificent correlation between the RPI and M3 if you go back far enough. The trouble is the further back you go the longer is the policy period required for it to do any good. If you said that the correlation is over 10 years, then it will take you 10 years of driving down the money supply to have an impact on inflation. Even Milton Friedman only said 2½ years, so I think he is getting a bit far there.

Secondly, the noble Earl said that the Government were not responsible for the recent increases in inflation because they should not really be recorded in the Retail Price Index.

The Earl of GOWRIE

My Lords, that is not what I said. I expressed scepticism. I accepted it as a norm because people got used to it. I expressed considerable scepticism about the value of the Retail Price Index as an analytical weapon, particularly because it happens to include energy costs.

Lord McCARTHY

My Lords, with respect, that is what the noble Earl said just now. When he was speaking first of all he said that the trouble with the Retail Price Index was that if it included those increases in the index which arise out of the Budget, for example the 3 or 4 per cent. increase as a result of VAT, this is unfair because it is working its way through the economy.

The Earl of GOWRIE

My Lords, for one year.

Lord McCARTHY

My Lords, very well; it is working its way through the economy for one year. There are two answers to that. The first is that people have to pay it in that one year. One cannot go along to the man and say: "I am not paying it because it is working its way through ". While it is working its way through one must pay it. The second answer is that of course it does not work its way through because it generates other cost increases and other changes. That point has been made repeatedly on this side of the House. As a result of the increases which have been introduced in VAT; the increases which have been introduced as a result of cuts in the public sector and increases in rates, which are also coming through; and as a result of increases in mortgage charges which are coming through, we shall see a general and continuing increase in the Retail Price Index.

In that context I should like to ask the noble Earl whether he still wants to say, as I asked him in the course of his speech, that there will he a reduction in the Retail Price Index as a result of the working through of this once-for-all VAT increase at the end of 1980. I should have thought that, with regard to what is happening to wages and the wage explosion and what is happening to prices at this time, it would be extremely hazardous of the Government to tell us that they still believe that the Retail Price Index will work through these VAT increases and then come down by the end of 1980. Indeed, I think that we shall have to ask a formal Question for Written Answer along those lines.

The final point that I should like to raise is this. The noble Earl has asked me—and we have been asked on the other side several times—whether we believe in a permanent incomes policy. Indeed, I have been asked whether the Labour Party believes in a permanent incomes policy. I prefer to put it in the following way. It is not a question of whether one believes in a permanent incomes policy, whatever that might mean; it is a question of how long we think we can escape an incomes policy. Just as the noble Earl tells us that he would not mind an incomes policy if he could get one, I say that I would not mind doing without an incomes policy if I thought that we could do without one. It is not that anyone wants a permanent incomes policy or would commit himself to a permanent incomes policy; it is that the record of the past indicates that it is very difficult to escape an incomes policy.

The Government themselves have accepted, of course, that they must have an incomes policy for the public sector. They have an incomes policy for the public sector. They must have a policy for the public sector. They would be very irresponsible if they were saying to bargainers in the public sector: "You can charge anything you like ". In fact, built into its own cash limits are implied policies for pay throughout the public sector. In that area where they are directly responsible for pay—for example, in the industrial Civil Service and in the non-industrial Civil Service—it will be Members of this House who will be negotiating with the Civil Service unions. So, of course, they will have a policy for pay in the public sector and, if the noble Earl likes the word, a "permanent" policy for pay in the public sector.

We are wondering how long, if that is the case, we can escape having a continuing policy for pay in the private sector. There is a very simple reason which, at this time of night, I shall give very briefly. The Government have continued the Clegg Commission, and I support them in that. The main point about the creation of the Standing Commission on Pay Comparability was that we would bring in all the other commissions on comparability, including the Civil Service Pay Research Unit. I hope that that, together with the doctors' pay review body, will come in soon.

While there is the comparability commission, and while there is comparability as a central principle of pay in the public sector, pay in the public sector by one degree removed will be governed by pay in the private sector. Therefore, if one has a responsibility for pay in the public sector, one must have some concern for the level of pay in the private sector, and that, if for no other reason, is why one cannot escape for long having an incomes policy for both the public and the private sector. Otherwise, as the noble Lord, Lord Kaldor, has said, one is driven, as the Government have been driven, as we tried to point out tonight, into the paradox of trying to reduce prices by driving up prices. That only works after one has created such a level of unemployment that all the other objectives of one's policies are no longer credible in themselves.

We have nothing more to say. I thank the House for a good debate. I thank all the speakers and I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.