§ 4.15 p.m.
§ Debate resumed.
§ Lord LEONARD
My Lords, the purpose of our debate is to call attention to the vital importance of the service sectors of British industry to the health of the economy. We have heard some criticism today. I shall begin my speech by repeating what a senator of the Upper House in the United States once said. He made the mistake of describing himself as a self-made man. He paid for that mistake when the following speaker told the Senate that he had also shown that he worshipped his creator. I shall not run that risk this afternoon! However, I shall have something to say about my own experience in British industry and about the changes and chances that not only brought me to your Lordships' House but also gave me the lifelong satisfaction of participating in this nation's industry, and in developing an industrial enterprise that has made, and is still making, a small but positive contribution to the national economy and to its international balance of payments.
Before I follow up the details, I should like to do two things. First, I should like to thank my noble friend Lord Parry for having set down this Motion for debate today. I should also like to point out that my speech in this debate is, in a very real sense, my maiden speech. Having had the signal honour of joining your Lordships with a seat on the then Government Front Bench, I had to accept, as I gladly did, the restrictions that went with it. Today, for the first time, I speak to my own brief. Frankly, I liked it better where I used to be. Both the briefing and the view of this House that I had from that side, suited me quite nicely! But finding myself where I am today, I shall endeavour to do my best.
1522 It pleases me to be able to say from this position, as a relatively free member of this House, how deeply I appreciated the exceptionally great help and guidance —might I say in my ageing immaturity—from the then Government leader, my noble friend Lord Peart, and, if she will allow me to say so, in particular from my noble friend Lady Llewelyn-Davies, together with her ministerial colleagues. Nor, I think, will this well-mannered House consider it presumptuous on my part if I thank those noble Lords, now sitting opposite, though no longer in Opposition, who, with countless others on my own side, worthy of government but not governing, also made me welcome.
I have heard today that the Welsh are dominant in this debate. Well, I shall have a few things to say about that. I am a landed immigrant. It was only 40 years ago, as a grown man, that I arrived in Britain. My own country, the socially and politically divided Ireland, could find no work for me. It had given me a precious heritage and a precious apprenticeship, but it could not, from its weakened industrial and economic base, ensure me a job, although I am pleased to say that that situation appears to have improved since I left.
As a worker skilled with hand and brain and trained to engineering at the work bench, I came here determined to work. In a sense, my story is the story of Ireland down the centuries. It explains some of the awful complexities that tear Ireland apart to this day. However, it has a place in this afternoon's debate only because it is an illustration of what happens when a socio-political economic system becomes decadent—where, although some wealth might accumulate, men still decay.
Many of the so-called problems—ethnic, racial and religious disharmony, and they are tragically real problems and I do not diminish them—would never have emerged at all as problems if the economy, the industry of the native land, could have geared itself to keep its people at work with the hope of providing them and those whom they loved with food, clothing, shelter and the leisure to develop as human beings. To achieve those things I came to England. I found work in the aircraft industry, which was then artificially stimulated by the demands of war. 1523 Your Lordships know how much that industry contributed to the saving of this great nation in the years that followed. I had a tiny hand in that, first in Liverpool and later in my adopted city of Cardiff, where there is a Welsh tinge, after all. I was also saved by heavy and light industrial expansion.
Over the years my role changed. I left the work bench, although only very gradually. Seeing changes taking place in the industry that I served, I found myself increasingly forced to play a different part in those changes. I became—although once I no more dreamed that I should ever apply the word than that I should be speaking here as a Member of this ancient House—an entrepreneur. My own business emerged from change and grew because I and those who worked for me saw that the only hope for the future lay not in trying to compete with the overgrown giants of heavy industry, who were themselves (although they did not know it) as endangered a species as the brontosaurus, but in specialising in those skills for which we were uniquely adapted and which in any case the giants did not have an interest in acquiring. We saw a living in the crumbs that fell from the rich man's table and as the major firms, failing to accept the lessons of history, paid off men, we took them on. The living was secure—it was even comfortable. I should say that the presence of representatives from the Treasury and my natural modesty as an Irishman prevent me from using the word "rich".
My main activities were the building of small furnaces and service to the larger industries—the manufacture of chemical plant for the larger industries; the servicing, which, in industry, is as important as the service industries of banking, shipping, tourism, although they are all important too. But the servicing in the engineering world is a means by which we in small and medium-sized businesses serve a purpose to industry, and I feel that the more of these small industries that are allowed to prosper in Great Britain, the better it will be for Britain.
During that time, the once famous and aggressively dominant Cardiff steel industry closed down; its workers became redundant. They had drawn their 1524 awards and only a massive and in some ways artificial crisis aid programme by the last Government—which I hope the Minister can assure us will be promoted by this Government—averted disaster. The noble Lord, Lord Parry, is right. In general we failed to accept the real truth of the decline of our heavy industry. We wrung our hands as it weakened, we tried to revive it as it died, but an industrial revolution like any other revolution is by its very definition a transitory thing; it is only a more radical stage of evolution. Britain's heavy industrial revolution was bound to end; the forces and energies that it released were bound to move elsewhere. Remember, though, that our light industrial contribution has been inmense and the world has benefited from it. I am not referring to the manufacture of polka dot lampshades, although they also have their place in industry.
How quickly some of the emerging countries have grasped those lessons that we failed to learn. What a salutary thing it is, as we have heard today, that Korea could become the first industrial economy based on the silicon chip. From now on Britain must service the industrial revolutions of others. Its future lies in the service industries and their invisible exports—banking, shipping, insurance, tourism and the services that engineering can apply to the larger organisations. It would be foolish of course to assume that heavy industry will totally disappear. It will not. Certain spheres will continue but many will be taken over by new world areas. Our light industry and small businesses, given the confidence of Government policies by taxation and other fiscal means that stimulate rather than burden it, has a mighty contribution yet to make to the high technology of the earth, where I consider we in Britain still hold a world lead.
Nowhere on that earth is there a self-made man. We might have lost our confidence these days about who created us and for what purpose, but we are creatures, none the less; we either adapt to our environment, accommodating ourselves within it, or measure up to the best in ourselves by dominating and taming it and that is what competing political ideologies should be about. In this apolitical debate let me finish by saying that I make my contribution as a transi- 1525 tory creature who will be eternally grateful for the chances and changes that his years of living in the United Kingdom have brought him.
§ 4.27 p.m.
§ Viscount MONTGOMERY of ALA-MEIN
My Lords, I should like to thank the noble Lord, Lord Parry, for introducing this subject this afternoon. Unfortunately I am unable to match his high flow of oratory, nor do I have any command of the musical Welsh words with which he is so familiar. It is difficult to follow the noble Lord, Lord Leonard, although we do share something in common, in that we are both sons of Ireland. I do not propose to commiserate with him that he is no longer on the Front Bench: it seems to me that he has great knowledge, particularly of the manufacturing industries, and is quite capable of doing his own homework, as he has shown us so capably this afternoon.
I earn my living entirely in the service sector but I propose to speak about the services of others whom I admire and respect and, in that sense, I want to take up some points already made by my noble friend Lord Polwarth concerning the importance of invisible earnings in our overseas trade figures. These arise from a variety of activities and it is of some significance that net private invisibles produced a surplus in 1978 of over £4,000 million. One major element is the interest, profit and dividends from our overseas investments. This has not grown very much in recent years, partly because of exchange control restrictions and limitations, and I strongly commend to Her Majesty's Government that the sound utilisation of the foreign exchange which will be made available from the proceeds of North Sea oil, should enable us to increase our direct investments overseas and therefore subsequently increase our overseas earnings.
Contrary to what is normally thought, the creation of overseas companies does not remove jobs from the British domestic scene; it frequently increases them, since the overseas subsidiaries require supplies of components and equipment which are invariably co-ordinated through the parent company. I could produce many examples of where direct visible exports have grown following the establishment of overseas operations. In fact, the noble 1526 Lord, Lord Parry, mentioned a very good example in the motor industry. The classic case is that in Brazil, where we would have been in a predominant position 15 years ago if we had taken advantage of what was on offer and not left it to our European competitors.
Many other major sources of invisible earnings have been mentioned, such as tourism, mentioned by most speakers, and this will undoubtedly be taken up by the noble Lord, Lord Ponsonby; shipping and aviation; and the multiplicity of services provided within the City of London, such as insurance, banking, commodity trading and all forms of brokerage. Like the noble Lord, Lord Polwarth, I should like to take the opportunity to pay tribute to the Committee on Invisible Exports, which has done an enormous amount of work in trying to clarify what exactly invisible exports are, how they work, and also in interpreting the statistics on trade which are published monthly by Her Majesty's Government and are often the subject of a great deal of confusion and arguments.
Among the many activities of the Committee on Invisible Exports has been that of the promotion of financial services available in the City of London. They have done this in many ways, not the least of which has been the organisation of seminars in emerging overseas financial centres, particularly in the developing world such as South-East Asia and Latin America. My noble friend Lord Polwarth mentioned that he had recently been to one in a rather more sophisticated area, but I think they have been particularly significant in the less sophisticated areas. The reason why these promotions have been so successful is that they have been very well run by the Committee, have had great impact, and have created an immediate demand for increased trade. Not only do these overseas promotions open up new opportunity areas, but they also strengthen existing business links with the City of London by creating an atmosphere of confidence in the variety of financial services which are available. By the same token, it is commendable that, despite all the problems that have surrounded sterling in recent years, London has remained the world's prime financial centre. It is significant that there are more US banks in London than there are in New York.
1527 I should like to turn to a smaller industry which is often overlooked as a source of overseas earnings. I would mention the work done by British consultants operating in some 140 countries overseas. British consultants include consulting engineers, architects and planners, management and economic consultants, surveyors, agricultural economists, geologists and many other highly specialised skills. The British Consultants Bureau, of which most of the major consulting businesses operating overseas are members, estimate that fees earned from overseas are now running at nearly £500 million a year. This is a very significant sum when one remembers that little money leaves Britain to offset the incoming fees, as foreign consulting firms earn practically nothing in the United Kingdom. There is also no import content, which is not the case in most manufactured goods.
The success of British consultants overseas is partly due to their technical excellence but also due to their worldwide reputation for impartiality of advice. Despite this impartiality there is no doubt that if a British consultant is appointed for a major overseas project, he opens the door to the possible supply of hardware, raw materials and equipment. British project contractors always know that when a British consultant is advising they are assured of fair treatment provided that they can match the bids of overseas competitors.
It is always difficult to quantify these things, and it is undoubtedly a matter of some conjecture, but it is thought that the capital value of overseas projects, principally in the developing world, in which private firms of British consultants are now involved, could well be of the order of £50,000 million and might well be more. The point is that, whatever the figure, British consultants are not only earning fees but also opening the door for British contractors and equipment suppliers to participate in overseas business which will generate vastly increased direct exports in the future.
There are many other sources of invisible exports, and there is really no limit to the amount of British technological skills that can be marketed abroad. I have merely, for the purposes of this debate, selected some samples of what is actually 1528 happening today to illustrate the opportunities that are available for Britain overseas. The service industries are an area of our national life that really does not require legislation. In fact, it thrives better without Government interference or support. But it does need an atmosphere of confidence, stability and encouragement.
§ 4.38 p.m.
§ Lord SELSDON
My Lords, I think one of the nice things about a debate of this kind is that it gives those of us on the Back-Benches here and opposite a chance to give advice to the Government, knowing full well that the Government, being a wise Government, will inevitably accept it! We have today a consensus of opinion. I would have been equally happy sitting on the Benches opposite because I agree with every single word noble Lords opposite have said. We are very grateful to the noble Lord, Lord Parry, for having once again raised the issue of service industries, but I think we are in danger of a bit of overkill. A few years ago nobody knew what invisible exports were. Now, because of the excellent work of the Committee on Invisible Exports and others, we are almost too well aware of what they are. They are brilliant; they are always in surplus. There has been a danger of decline. The point is made that when our restrictions on overseas investment were there we could forecast a decline in invisible earnings. But the Government have wisely relaxed the exchange control and hopefully that problem will be overcome.
I get the feeling that many people believe that service industries in the United Kingdom are a minority. We are still tainted with the Industrial Revolution and somehow a divisive element which believes that there is a blue-collar worker who manufactures and a white-collar worker who sits on his backside in an office all day and earns money for doing nothing. If we look at the statistics, which are often gently camouflaged to underemphasise the growth of the Civil Service, we find that a very high proportion of people indeed are employed in service industries. It is approximately half, according to the statistics in the Monthly Digest, of the total workforce of 22 million. But if we analyse the manufacturing industries as well we find that a 1529 very high proportion of people on the payroll are in fact performing a service function. My first question to my noble friend Lord Trefgarne is how many people are there in the United Kingdom actually working at making things on the shopfloor? There will, I hope, be a rustle of paper and he will come back with a fairly small figure. The noble Lord, Lord Peart, often used to pronounce on agriculture, saying that it was a major area, but failed to point out that under 400,000 are now working in it.
So, my first point as regards the contribution that service industries make to the health of the environment must concern employment. In that connection, I should like to give a gentle piece of advice to the Government: do not get caught up in the belief that by providing cheap finance and development grants to manufacturing industry in the United Kingdom you will increase employment. Manufacturing industry in this county is over-manned. For generations almost—not for years—we have become non-production orientated. A country like Korea is totally production orientated, as is a country like Italy. If we visited the factories of Europe we should find that those of Italy were probably the most modern, and very production orientated.
I would go so far as to say that we may have over-manning in British industry to the extent of about 2 million out of a total of 7 million. If one put in a consultant and told him to reinvest in the manufacturing capacity of British industry, he would reduce the labour force dramatically in that way, with all the howls and squeals that followed. Therefore, the job of Government must be not to slow down the loss of jobs in manufacturing industry but to go all out to compensate with increased jobs in the service industries.
I was brought up to believe that the Government have only three weapons: they may tax, they may spend and they may control by legislation. All Governments since I first knew about governments have done too much of all three. As a result, we have a situation where the individual—because that is what the United Kingdom is made up of: it is not made up of large organisations-loves to buck the system. The individual, of whatever walk of life, has therefore been stifled.
1530 If we look at the effects of legislation over time, we find that legislation has killed off the initiative of people wishing to start a legal and open business. Because of the Employment Protection Act and all the other things that go with it, we realise that the individual who wishes to start a business in the United Kingdom will in fact want to start a service business. He does not have the capital to start a manufacturing business. It may be a maintenance and repair shop. It may be a painting business—repainting local authority houses and getting through twice the number of houses in a week that a local authority-employed organisation can get through.
Therefore, the Government have made a mistake in failing to recognise that the revitalisation of an economy comes from the individual who wishes to start and expand a business and then let it grow into a something bigger: today that would be the service business. Later, perhaps, a service organisation might come to the conculsion that if only it made the thing it serviced it would be able to make more money, and so the life cycle would expand. I came to that simple conclusion only through spending a great deal of time in the developing countries and being amazed that, when those countries that had extremist left-wing governments with totalitarian rule and all government spending, changed their attitude, the private sector began gradually to emerge. I had become conditioned with the idea that one must speak to government. Therefore, I would say to an overseas company or individual, "Let's talk to your Minister of Trade". They would all throw up their hands in horror and say, "No, he will only interfere and slow things down; it will take years to get things off the ground". I am not preaching laissez-faire capitalism or necessarily less government intervention. I am merely pointing out that if the Government are to use their weapons, they must encourage the individual to build and create a service industry and not follow the belief that service industries are the wrong things to be in.
The biggest growth area of the United Kingdom over the past few years has been the black economy which is totally service industry orientated. We have an interesting point of concern at present as regards the black service industries, because they 1531 are not necessarily companies, but individuals. They can get together. They are the people who originally built the motor industry in back garages and streets throughout the country, where with a lathe they turned out something and made a good car. The signs are present where suddenly one sees people making new cars and making money out of them. People make boats. A boat company has gone public today. Ship-building may be back in business. All those elements started with a service operation. It may have been a barrow in Petticoat Lane. However, if the Government were to take a strong look at the way in which corporation tax is levied at present, they would realise that there is nil taxation of larger organisations that have leasing capacities and a chance to use up their taxable profits, and appreciate what a burden rests upon the individual. Fortunately that burden has been lifted from the individual, but not yet as regards the small company, though we know that the Government have plans.
The contribution of service industries to exports is clear from the invisible export programme and the figures of the Committee on Invisible Exports. Equally, the point has been raised that investments abroad in fact increase visible exports. A factor that other Governments, or previous Governments, failed fully to recognise is that a very large proportion of British exports go to British subsidiaries abroad and that finance and trade are irrevocably linked, and investment and trade are linked. Thus, we should at present be going all out to encourage service industries in the United Kingdom—and maybe some manufacturing industries that felt that they could not compete in the local markets abroad without having a presence— to establish operations in partnership with companies or organisations in Third World countries.
When looking at the service industries, although one automatically has an inclination to attack the centre and to attack Quangos and Government organisations, we should not overlook the tremendous contribution that many Government agencies have made in the service industries, or in the service sector, to Third World countries—whether it has been through the Commonwealth Development 1532 Corporation, Crown Agents or even the arms of nationalised industries or Government Departments in the scientific field. All of those are areas which one needs to encourage.
I see no problem about the attitude to the City of London, financial services, tourism and so on. However, where I do see a weakness is in the failure to recognise that, in manufacturing industry, service, maintenance and service sectors could make a vital contribution to the economy. I should hate to pontificate on what attitudes might be, but I do not believe that the British worker—whatever status, life or salary he has—likes repetitive work. The time has come when working on the shop floor for repetitive industries is almost against the inclination of the British. That is borne out when one meets a man who works an automatic welder, bringing it up and down 300 times a day, and one asks him, "Will you knock me up a tool box?"—black economy. He then goes away with a chisel and a hammer. He thoroughly enjoys it and charges you virtually nothing or perhaps the company may charge you nothing. People want to get back to making things.
However, within that theory and the fear that the British work-force is nonproductive, we must recognise that a strange thing has happened over the past few years: skilled labour has emerged again in the form of craftsmen, stonemasons and carpenters. People at a young age become fed up with repetitive work and start a small business of their own. The other day I met a young stonemason working for the Department of the Environment. He received a minor ticking off for having carved his name and the date on, I think, a gargoyle that went up somewhere. He said, "Why not? It is as good a job as the original chap did, and he had his name on it!"
I see room for hope. I think that this Government have taken some brave decisions. Their decision to cut expenditure across the board will, of course, worry us and everyone should fight for their own area and we should fight for tourism as well. Indeed, while I am dealing with tourism I should perhaps declare an interest. My own group—which was one of those that purchased Thomas Cook from the Government—finds that 1533 Thomas Cook is far more productive and successful as an independent organisation than it ever was under the Government. However, this Government have done something which previous Governments failed to do. At a stroke, they have passed the buck hack to the people. They have sought to create a climate and have said, "Get on with it; it is up to you". We should concentrate on the service area. I hope the people do not let the Government down.
§ 4.50 p.m.
§ Lord PONSONBY of SHULBREDE
My Lords, I am not quite sure what the etiquette of the House is about congratulating a noble Lord on his maiden speech from the Back-Benches, but certainly I should like to congratulate my noble friend Lord Leonard on his maiden speech from the Back-Benches. I am sure that all your Lordships appreciated the fact that on this occasion he had to do his own homework.
We are very grateful to my noble friend Lord Parry for introducing this short debate with typical Welsh fervour, and for drawing to your Lordships' attention the fact that our predominance as a major industrial nation is down and that we would be foolish to ignore the importance of the service sector. This has allowed the debate today to range very much more widely than my noble friend might have anticipated when he first tabled his Motion.
The facts are, of course, that employment in all sectors of manufacturing industry has fallen by about 1 per cent. a year over the past 10 years, and that from 8¼ million employees in 1968, it has dropped to about 7⅓ million in 1979, those being the most recent figures available; whereas employment in service industry is increasing. For example— and this is a most important part of service industry and one to which my noble friend Lord Parry referred—employment in the hotel and catering sector increased by about 2 per cent. a year from 1968, from 678,000 to 883,000 in 1977.
It was rightly pointed out by my noble friend Lord Parry that the creation of jobs in the service sector is much cheaper than it is in other sectors. I fear that that factor has been studiously ignored by successive Governments. In fact, this 1534 point was raised by the noble Lord, Lord Selsdon, in particular. The British Tourist Authority believes that about 1½ million of all jobs in this country are directly or indirectly dependent on tourism. This means that a sizeable number of jobs—for example, in the retailing ector of the service industry—are dependent on tourism; and, of course, that goes even wider in that many of the goods sold in the retail sector rely on being purchased by tourists.
It is interesting to note that employment in the retail sector has remained very static during the past 10 years, despite a number of labour-saving innovations in the retail trade. However, one sometimes wonders whether some of these innovations have gone too far. Certainly it might be said that there could be some correlation between lower staffing levels and the higher rate of shoplifting, and that an improvement in the quality of service could well lead to a decrease in shoplifting.
As has been pointed out, other sectors of the service industries—such as the financial services sector—have also shown substantial increases in employment over the past 10 years. Employment in this sector has increased by over 1 million. The services provided in this sector were dealt with by the noble Lord, Lord Polwarth, and by the noble Viscount, Lord Montgomery of Alamein. The noble Lord, Lord Rochester, urged that the Government should take more positive action to encourage growth in the service sector, and I believe that this should and must be very seriously considered by the Government.
However, a large part of the debate today has concentrated on the issue of tourism. I should like to dwell on this for a few minutes. We would be wrong to assume that as a nation we shall continue to attract an increasing share of world tourism. There is no doubt that world tourism will continue to increase, but the much more difficult question is whether or not our share of that world market will continue to increase. During the past decade we have certainly been fortunate and have succeeded in grabbing, if that is the right word, an increasing share of this trade. But whether or not that will continue is something about which we shall have to be on our toes.
1535 In many ways the tourist industry is a very fragile industry. My noble friend Lord Parry referred to the morale of travellers. The noble Viscount, Lord Montgomery, referred to the confidence of travellers. We should always remember that no tourist has to travel to Britain; he has a choice to make and the sort of welcome he can expect here will influence whether or not he decidesto make the trip. Therefore, there are a number of matters which may seem quite peripheral but which will have the effect of influencing that decision one way or the other.
Over the past few years I have been concerned about the fact that what we might think to be a fairly harmless headline in the British Press gets blown up when repeated abroad, in such a way that it can make people decide not to make a particular trip. Of course, the most notable example of that is when we had the three-day week some years ago. That had a very adverse effect on tourism. In that connection I have always liked the story told to me by one leading London hotelier. Apparently he received a telephone call from an American asking him which three days of the week his hotel was open.
More recently, industrial disputes, stories about litter, which were repeated in Der Spiegel earlier in the year, and stories about hotels being full, have all had their effect and have led to cancellations, and to people, for one reason or another, deciding not to come here. The Government must be very much on their guard over this. I know that the British Tourist Authority does what it can to counteract stories of this nature when they are repeated overseas. But in a sense we have a national characteristic of denigrating ourselves, which does not go hand in hand with the success of an industry such as the tourist industry.
Another aspect of the fragility of the tourist industry—it was brought to my attention today—is underlined by the fact that the recent petrol shortages have led to a 30 per cent. decline in admissions to stately homes over the past few months. This is a level which can throw the economies of those tourist attractions into complete disarray if continued for any length of time. Over the years there has been continual pressure from certain 1536 quarters on the Government to introduce a tourist tax. I hope that the Government will continue to resist those pressures. It is often forgotten that tourists already pay a substantial amount in taxation. In 1978 —250 million was paid in taxes by tourists. In fact, a large amount of that tax was in the form of VAT charges on hotels, restaurants and the like. Therefore, it will be quite clear that one of the side effects of this year's Budget, with the increase in VAT to 15 per cent., will be that in 1980 tourists are likely to pay in the region of £500 million in taxes. I should have thought that any thought of any additional taxation should he forgotten, particularly as we should remember that we are competing in a world market and that unless the quality and price of the goods which we have to offer are competitive with other countries, with their venues, we will in fact not get a lot of the business.
My noble friend Lord Parry has spoken of the question of hotel prices. It is certainly true that there are high hotel prices in London and that we are, with regard to the top 20 hotels, one of the most expensive tourist venues in Europe. Hoteliers have to be very much on their mettle to ensure that we do not price ourselves out of this sector of the market.
I also hope that the Government will continue to press forward—because this is another important aspect—on the various price marking orders issued by the last Government to ensure that tourists, whether overseas or home tourists, are aware of the prices they are paying for goods. As the noble Lord will know, price marking orders were introduced for the display of prices for ice-creams; orders have been introduced for the display of prices of hotel beds; and further orders are to be introduced concerning certain aspects of restaurant prices. Inevitably, one gets many complaints about overcharging, but it is important, when a tourist is asking for a particular service, that he knows the bargain which he is making, and he knows the price which he has been asked to pay.
I was glad to hear my noble friend Lord Parry of the Wales Tourist Board say that London is not just a gateway to the provinces but is a major reason why people visit them, and that he underlined the fact that more hotels are required in 1537 London. I can assure him that that factor is not forgotten. Indeed people are very much aware that there will become a sizeable need in four or five years' time for additional hotel beds in London.
The final point that I should like to mention—and which the noble Lord, Lord Polwarth, mentioned—concerns the cut in grants to the tourist authorities. The noble Lord, Lord Polwarth, was concerned that these should be properly applied. I am sure one would agree with that. What one would be concerned about is to see that while there is every support for cutting a grant which will cut any fat out of a particular organisation, it should not be so extensive as to damage the work being done by the tourist boards. I hope that the Government will ensure that before these cuts are implemented they will be able to check and have full knowledge of the effects of these cuts.
I have, perhaps inevitably, during the latter part of my remarks concentrated on the question of the tourist industry side of the service industry as a whole, but we must acknowledge that this is becoming increasingly vital to our national economy, and that ignoring the importance of the service sector is something we do at our peril.
§ 5.4 p.m.
§ Lord TREFGARNE
My Lords, every noble Lord has said, quite rightly, how grateful we are to the noble Lord, Lord Parry, for introducing this important, not to say vital, matter this afternoon. I should like in the course of my own remarks to refer to some of the points raised. Before doing so, I must congratulate the noble Lord on his recent appointment to the chair of the Wales Tourist Board, to which he referred, and also thank him for his kind references to me at the beginning of his remarks.
I remember the noble Lord so well when he was seconding the Motion to the humble Address which was proposed so eloquently on that occasion by the noble Lord, Lord Ponsonby, and I remember my noble friend Lord Carrington, then Leader of the Opposition, wondering whether Abraham Lincoln had joined the Labour Party. However improbable that may sound, the noble Lord will doubtless now see to it that Wales remains as great a tourist attraction as the late 1538 American President still is, sitting slumped in his stone chair in Washington. I can think of no one better than the noble Lord to bring tourists and holidaymakers flocking to the Principality.
Our service industries are, of course, legion. If I may be permitted a brief incursion into party politics, I am bound to say that I contrast sharply the helpful attitude of noble Lords sitting on the Opposition side of the House today with the actions of some of their predecessors in years past. Your Lordships may recall the dreaded selective employment tax, which was aimed directly against the service sector of industry, which I think was then a dirty phrase in the minds of some of their then noble friends, and I fear served only to fuel inflation and quite failed in its primary task.
Tourism has been the principal topic of the debate this afternoon. I can assure your Lordships that the Government fully recognise the value of this industry, and are considering whether any changes need to be made in the way they give assistance to the industry. Last year there were a record 12.6 million visits by overseas visitors to Britain. Earnings were also up. From overseas residents the total, excluding fares, was £2,502 million; a rise of nearly 3 per cent. on the previous year. The net balance, after allowing, for expenditure by British residents going abroad, was £954 million. It is quite plain therefore that tourism must be one of our most important invisible exports.
It is difficult to be precise about jobs created directly, or indirectly, through tourism, but I note the figures mentioned by the noble Lord, Lord Ponsonby. There can be no doubt that a large number of people, not only in the hotel and catering industry but in shops, transport services, museums and other tourist attractions, and indeed in manufacturing, as the noble Lord indicated, depend to a greater or a less degree on tourist custom for their livelihood.
There has been speculation recently about possible shortages of hotel accommodation. I would not dispute that more tourists will mean more people arriving late without a reservation at peak times of demand, and they might experience difficulty in getting accommodation. But happily we have the tourist informa- 1539 tion centres, which even now are helping people in this predicament. May I mention the position in London specifically. There is a growing concern that if the number of visitors to Britain continue to increase, even if not at the phenomenal rates of the past few years, London as a major attraction will need more hotels to accommodate them. It has been predicted that by 1990 London will need some 20,000 new hotel rooms, but the high cost of land and construction in the central boroughs is a deterrent, and hotel companies prefer at present to refurbish and upgrade existing stock. However, we are pleased to hear that the GLC is exploring possibilities of hotel investment, and I understand that dockland in particular is being considered as a possible site in this regard.
May I now turn to the tax implications in the hotel industry. Your Lordships may know that in response to pleas from the industry provision was made in the 1978 Finance Act for an initial allowance of 20 per cent. of capital investment in buildings, and an annual writing down allowance of 4 per cent. for hotels which meet certain requirements. This is estimated to be worth £15 million to the industry in a year. Hotels have always qualified for the 100 per cent. allowance for investment in plant and equipment. The Department of Trade has received representations from various bodies urging more liberal coverage. Decisions on further allowances for the industry are of course for my right honourable friend the Chancellor of the Exchequer, but I should say now that, although the Government are actively looking for ways of reducing public expenditure, we will consider carefully any suggestions for using existing resources more effectively.
Tourism is an industry in which small businesses are very important, and I am pleased to say that in the Budget the Chancellor outlined proposals to help such small businesses, and thereby the tourism industry, by raising the threshold for corporation tax and the reduction to 60 per cent. in the rate of development land tax, both of which are worthwhile measures. They should, we believe, encourage further investments in this important sector.
Despite the Government's concern for the tourism industry, it is true that 1540 tourism along with other programmes will have to contribute to the reductions the Government are making in public expenditure generally this year. The cuts, though small, may mean that some of the planned growth of the activities may have to be curtailed, but the allocation is still an increase in real terms over last year's provision. I know the boards are seeking to do all they can to increase revenue, for instance by the sale of publications and joint efforts with the trade, but I should say that we have not yet decided whether any further detailed changes need to be made.
The noble Lord, Lord Ponsonby of Shulbrede, referred to the possibility of a tourist tax. There are some who say, "Let us tax tourists"; and if the industry as a whole thought that such a proposal would be useful, the Government would be prepared to examine it closely. But the tourist industry is so varied, and such a proposal would raise practical difficulties of collection. We must not forget, too, that tourists already pay VAT, now 15 per cent. as Lord Ponsonby reminded us, on many of the things they buy here, as well as liquor, tobacco and petrol taxes; and I would certainly underline the point he made that last year tourists contributed £250 million to the Exchequer in this way, and will certainly be contributing much more than that this year, although I would not want to put a precise figure on it in the way the noble Lord did.
§ Lord TREFGARNE
I think the noble Lord was very wise, my Lords. The appointment of a Minister for Tourism has also been suggested. That is a matter for the Prime Minister, but at present ministerial responsibility for tourism rests with my right honourable friend the Secretary of State for Trade, who ensures that the subject gets the necessary hearing in Cabinet as the need arises. He is assisted of course by my honourable friend the Parliamentary Under-Secretary, who has special responsibilities for tourism.
The system works successfully with the support of the statutory boards and non-statutory regional boards, who carry a 1541 great deal of the day-to-day responsibility for tourism in Britain. A separate Ministry would employ more bureaucracy, to which this Government are opposed, and I do not think therefore there is a real case for a Minister for Tourism at the present time.
The noble Lord, Lord Ponsonby, also referred to the question of the petrol shortage and it is right that I should say something about that. We are aware that considerable alarm has been shown by the tourist industry, especially in the resort areas, at the cancellation of bookings, evidently because of people's fears that they will be unable to obtain petrol. Undoubtedly the supply situation varies from place to place, but most fears are probably unfounded. As my right honourable friend the Secretary of State for Energy announced in another place, the oil companies have been asked to ensure a more even and effective distribution, and this should help to dispel rumours and ease anxieties which may have caused some holidaymakers to change their plans. There is a shortfall in actual oil supplies to the United Kingdom; on average this is about 5 per cent. below the increased level on which people were counting. Clearly, it is important that everyone should economise and, provided they do so, there should be no need for anyone to miss their holidays.
So much for tourism. I turn to some of the other matters, of no less importance, that were raised by other noble Lords. The noble Lord, Lord Polwarth, and others, in particular the noble Lord, Lord Rochester, and the noble Viscount, Lord Montgomery of Alamein, mentioned the question of banking and its associated activities. The City's financial institutions earned us a net surplus of about £1,750 million in 1977. After insurance, the largest component of that surplus was banking; our banks earned us over £300 million net in 1977 from a great variety of sources. All the indications are that this sector, which has an excellent record of innovation to meet the requirements of overseas customers, will continue to make a substantial contribution to the balance of payments.
I know that one area in which the banks say the Government could help them is a further relaxation of exchange controls to 1542 allow them to lend sterling to finance third country trade. As the Chancellor said in the Budget, the Government intend to dismantle exchange controls progressively and will certainly consider that possibility. Before passing from banking, perhaps I may pay tribute to its representatives on the Committee on Invisible Exports and indeed all the committee, at least two of whom arc in your Lordships' House tonight. Since its establishment in 1967, its members have worked hard to improve our performance and ensure that the invisible account surplus is consolidated and improved.
On the matter of the invisible account surplus, I draw your Lordships' attention to some rather interesting figures; Lord Parry particularly mentioned the general improvement in our balance of trade position over the years. Some think that this has been due solely to an increase in the invisible figure. Although the invisible figures have gone up as well as down in recent years, I think, the truth really is that without in any way wishing to decry the efforts of our invisible export earners, the steady and substantial improvement in our balance of payments over the years has been due to a decline in the deficit on the visible trade balance. For example, I have in front of me the figures for 1978, where the current balance was a surplus of £443 million, the visible account was in deficit to the tune of £1,175 million, and the invisible account was in surplus to the amount of £1,618 million: that was actually a decline on the invisible surplus from 1977.
Perhaps I may touch on the insurance industry, which several noble Lords properly raised. The Government fully recognise the importance of the contribution made by insurance—that is, by insurance companies, Lloyds and brokers to the invisible trade balance and the functioning of the economy. In 1977, insurance accounted for over half the overseas earnings of United Kingdom financial institutions, with a contribution of £909 million, 14 per cent. higher than in 1976. Our domestic economy benefits through the supply of services and by a strong and internationally highly competitive United Kingdom insurance industry, but I should sound a word of warning. This does not mean that all is smooth sailing. The insurance industry continued to face in 1978 an excess of 1543 capacity over demand, which depressed premiums in certain markets, and the continued high level of claims creates problems particularly in liability business. Difficulties also arise from the protectionist tendencies in some parts of the world and, furthermore, genuine competition is increasing world-wide. These factors lend importance to the prospects of an expanding insurance market in the EEC, and here the Government are playing a positive part in the Brussels discussions to harmonise the insurance requirements of Member countries which should facilitate the operation of our insurers in the Common Market.
The question of shipping was dealt with at great length in a debate in your Lordships' House just last week and I do not think it would be appropriate for me to go into that in too much depth tonight. However, I shall, on an allied point, take up a matter which Lord Ponsonby mentioned about the balance of payments from civil aviation. The United Kingdom is a net exporter of air transport; that is to say, our airlines' net earnings abroad exceed foreign airlines' net earnings from United Kingdom residents. The figures for 1977 were £336 million and £92 million in those two respects. The civil aviation account in the balance of payments consistently shows a surplus; for example, it was £116 million in 1975, £241 million in 1976, and £244 million in 1977. That is not necessarily the same as the shipping industry, which has not actually maintained the same surplus over the years. Of course aviation is not exempt from cyclical fluctuation of profits, but its financial results are more stable than those of the shipping industry.
My Lords, we have had a magnificent debate. The House is greatly indebted to the noble Lord, Lord Parry, for raising this most important matter. It could perhaps have been a topic for a full day's debate. Nevertheless, your Lordships have done the subject more than justice in the limited time available. I hope that the many expert contributions will be widely read; they certainly will be in the Government.
§ 5.21 p.m.
§ Lord PARRY
My Lords, the House will be as grateful as I am to the noble 1544 Lord who has just spoken from the Front Bench for his full and thoughtful answers to some of the questions raised and for the dimension that he has added to our debate. I should like to take just a second or two to say that I feel that all who have spoken—and I thank them—would join me in saying how much I admired the contribution of the noble Lord, Lord Selsdon, delivered totally without notes, in the ancient tradition of the House. I want to congratulate him, and I look forward to hearing him in the not far distant future speaking from a position alongside some of his colleagues on the Front Bench. My Lords, I ask leave to withdraw the Motion standing in my name on the Order Paper.
§ Motion for Papers, by leave, withdrawn.