ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH

HL Deb 16 May 1979 vol 400 cc30-120

Debate resumed on the Motion moved on Tuesday last by Lord Camoys—namely, That a humble Address be presented to Her Majesty as follows:

"Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."

2.48 p.m.

Lord PEART

My Lords, we have a forecast of what is to happen when we examine the Government's policy as outlined in the gracious Speech. Most of us have been electioneering and we all know the issues and differences involved. My side has been campaigning, but unfortunately we lost and must accept what has happened gracefully. There is now a new Government and today I shall probe that Government. I must make a short speech because there are many Members of your Lordships' House who wish to make a contribution. As I say, I want to probe the Government and to know what they really intend as regards the nationalised industries.

The gracious Speech says: Proposals will be brought forward to amend the Industry Act 1975 and to restrict the activities of the National Enterprise Board. Other proposals will reduce the extent of nationalised and State ownership and increase competition by providing offers of sale, including opportunities for employees to participate where appropriate". I am amazed that the Government are to adopt a doctrinal attitude, that they are seeking to destroy something which is working well. If noble Lords murmur, "No, no, no", I would invite them to go to our sales office and carefully read the annual report and accounts of the National Enterprise Board. After all, the men and women on that board, who are responsible for policy, are distinguished people. They include Alistair Frame, Joint Deputy Chairman and Chief Executive, Rio Tinto-Zinc Corporation; Mr. Gardiner, Chief Executive, Laird Group; Sir Leslie Murphy, formerly Deputy Chairman, Schroders Ltd.; Deputy Chairman Richard Morris, formerly Director of Courtaulds; and so on, plus two trade union leaders. That is a fine body and a fine organisation. It has already achieved a great deal. It is essential for the development of the regions, particularly the North of England, South Wales and Scotland. This board is important and it has delegated much of its responsibility for administration throughout the regions. It is there, providing a major service. Conservatives should read carefully what the Board has achieved and what its role is in, our economy.

As regards its achievement in 1978, its chairman states that: 1978 has been a year when we have begun to make significant progress towards our goals. It has been a year when we have been able to show by our deeds what contribution the NEB has to make to the industrial life of the nation". The chairman then continues and describes what has happened; he says that two major holdings were transferred to the National Enterprise Board by the Government at the outset— British Leyland Limited and Rolls-Royce. He says: there has been substantial progress by both of them in [what they call] the daunting tasks which they have faced ever since they came into public ownership". I shall not weary our colleagues with the details; they are there for everyone to see. Despite all its difficulties, the chairman says: The new Board of BL, which the NEB appointed at the end of 1977, has achieved a major reorganisation designed to improve the overall management of the company. In 1978 BL sold more British manufactured cars in the UK than any other company. It met its profit, return on capital and cash flow objectives. The morale of the distributor network has been improved and so has the consistency of production". I could go on: Rolls-Royce has had its best ever year in terms of sales". How can we criticise that? If noble Lords are really fair, they must realise that if they still adopt a doctrinal attitude, they are doing a disservice to an institution which plays a major part in our economy.

In addition, it is not long ago that we had a very important debate on micro-technology, dealing with ACARD. I shall deal with that later, and I should like to put some questions to the noble Lord when I deal with matters of science. However, again, the National Enterprise Board has been involved in that field—this most important field dealing with computers and micro-economics. The chairman of the NEB says: The evidence was that, left to itself, the private sector would not have secured an adequate place for the UK in this major technical and industrial revolution. The NEB is proving to be an instrument that is capable of working effectively with the managers and entrepreneurs upon whom success will ultimately depend and has found ways of motivating these people to achieve success". I remember defending that, and in that debate no Tory really attacked it. The chairman then mentions, The creation of INMOS (for standard chips and micro-processors), the setting up of NEXOS (for the office of the future) and the emerging role of INSAC (for the overseas exploitation of the UK's softwear skills)"— Here we shall obtain major markets in the world. The chairman of the NEB continues: We are the majority shareholder in one of the largest exporters of medical equipment and supplies in the UK". We are taking great initiatives in the Middle East. How can even Tories, who pretend to be doctrinal, object to that? This is a success story, and I hope that my party in both Houses will fight to retain it.

I should like to turn to another body, British Aerospace. Here I pay a tribute to the noble Lord, Lord Beswick. Again, noble Lords should go to our sales office and read the chairman's report. It says: This is a report of the first full year of British Aerospace as a single trading organisation. It is a year of consolidation, product progress and profitable results". If we read the financial results of British Aerospace, we can see that this is another success story. Let me take its sales and orders. The chairman's report states: This year's results, highlighted on pages 4 and 5 and detailed in the formal accounts, show sales at £894 million as against £860 million for 1977". That is important; it is a creditable increase. The chairman continues: The order book at the end of the year, defined as orders received but still to be fulfilled, amounted to £2,951 million, an increase of more than £650 million over the year. Of these orders, 69 per cent. were for export". The chairman goes on: Orders received towards the end of the year for Jaguar aircraft for India, Swingfire for the Arab Organisation for Industry and Sky Flash for Sweden, together with the go-ahead on the Jetstream 31 aircraft and the signing of an agreement with our Airbus Industrie partners, well illustrate this spread of activity". Again, noble Lords, and Ministers in particular, should carefully read what we are doing in the nationalised industries.

Again, I take the view that inevitably there must be State intervention. This is a mixed economy. I am not doctrinal; I have never been doctrinal in industry. I was director of a major company—FMC—and I always played my part. I gave great support to the agricultural industry, which was not nationalised. I was never doctrinal about handing out or giving subsidies (and I use that term in the best sense) to people who were in private enterprise—I hope that the noble Lord opposite who is trying to make a speech while sitting, will stand and make his contribution after I have finished.

Therefore, I turn to agriculture; after all, this is an important industry. Again, I believe that the State should be involved. I have read what the Conservatives propose to do. They mention the uplands, to give just one example. Their Manifesto states: The Uplands are an important part of our agriculture. Those who live and work there should enjoy a reasonable standard of life". Let me ask the Conservatives what they did when there was a major attempt to improve agriculture in our uplands, to improve the lot of the hill farmers and the men who produce some of our fine sheep products and hill cattle? Noble Lords must forgive me for being conceited about this, but I set up the Pennine Rural Development Board in an attempt to bring more capital to the hill farmers in order to develop roads leading to those farms, to provide more electricity and to give those farmers a status. I was always sympathetic because basically my constituency was a large rural area, comprised mainly of upland land. I was born, as were my grandparents going right back, in Weardale and my family were fell farmers. I always thought that they had a bad deal. I am glad the Conservatives have mentioned this, but when we had an opportunity to do something about it, what did they do? Perhaps I could briefly outline the history.

I set up the Pennine Rural Development Board. This was supported by the Country Landowners' Association; by the National Farmers' Union; by the agricultural workers' union. This was a body you could call a Quango. I shall come to Quangos in a minute. It was a Quango in the best sense. It was approved by all sides of the industry. I appointed a chairman, and I never thought of necessarily appointing a socialist chairman. I appointed a vice-chairman of the National Farmers' Union, a distinguished farm leader, Tom Cowan, who knew the area. There we were, all set to go forward with this great experiment. Then a Tory Government came in and, at a stroke, the Pennine Rural Development Board was destroyed by Mr. Prior, who is now a member of the Government.

I know that the noble Lord, Lord Soames, has a great interest in Europe. I remember going to Bavaria as a guest of Sepp Ertl, the German Minister of Agriculture. I went to his place. We had a conference in Bad Wisse. I remember seeing what he has done in Germany for the upland farmers: new roads, electrification, et cetera. The sort of thing we could have had in the North of England. The sort of thing we could have repeated even in Wales and other upland areas in the North of Scotland. I will say to the country that it was a Conservative Administration which, at a stroke, destroyed that. Today the farmers regret it and would like again to have a Pennine Rural Development Board in that area.

I believe that the farming community are an important sector in our economy. I am certain that the noble Lord, Lord Soames, will fight for their interests in the best sense. I have often been accused of being "too farmer", but I believe that we have good farming; we have a fine industry, an efficient industry which is second to none and which must make its contribution. I shall not go into detail today about the farming community in relation to European policy. All I am saying is that here are examples where something could be done and where a Government were doctrinal.

I give another small example, although the Pennine Rural Development Board was a major example which affected specifically my own constituency and parts of Southern Scotland. I refer to the State Management Scheme which had been set up in World War I. It was a successful scheme which worked well. It was a scheme of State management of a brewery, pubs, hotels, in a major area of the country which would have been advantageous to us as we develop our tourism in that part. What did the Conservatives do with that successful organisation? Again, at a stroke they destroyed it and put it up for auction. Many of the units were sold at cut down prices. It was a disgraceful affair, and the people of Cumberland know it. People who know that area must be ashamed of what the Conservatives did. There was another example. What I am pleading for the Government to do—pleading with my noble friend, who is now Leader of the House and who is an important man in the Government, pleading with the noble Lord, Lord Carrington, who is in the Government, pleading with those noble Lords, many of whom are in the Government—is not to be doctrinal. Please examine carefully what should be done.

Again, we have had attacks on socialist administration. I have here a book which was written by Mr. Philip Holland, Member of Parliament. It has the support of the Tory Central Office. He talks about Quangos. He takes the view that on these bodies which exist and are called Quangos appointments on solely political grounds should cease. He goes on to say: We [the Conservatives] reject the view that if these bodies are to continue to exist, then a future Conservative government should replace known Socialists with known Conservatives where possible. The new Quangos now act as powerful executive agencies: they patrol and extend the frontiers of the State. It should be no part of our task to recruit Conservatives for Labour's frontier force". We had a major debate on Quangos initiated by the noble Baroness, Lady Young. It was a very good debate, and she made a fine speech. Again in that debate the speeches of noble Lords who took part did not drip with the cynicism that is in this pamphlet by a Conservative Member of Parliament, who made a great fuss of this during the election campaign.

After all, the noble Lord himself is responsible for setting up Quangos. He knows the cereal authority is very important. He knows the Meat and Livestock Commission which, in a way, was the fruit of an inquiry he set up. Conservatives have set up many in their time. These bodies are so important. The Milk Marketing Board is a Quango. The National Seed Development Organisation, which was set up by the noble Lord, is a Quango. I could go on giving details of these important institutions which are so sensible when Governments wish them to be administered separately and probably efficiently, as they have been in many cases. I do not attack Quangos. I hope that we are not going to have this political battle about appointments. I have appointed Conservatives, Liberals, Socialists, and goodness knows what other people who may have no political prejudices. I hope that noble Lords will not accept the advice of one of their Back-Benchers on this matter.

I say to noble Lords that really here is an opportunity for noble Lords to use their influence. Let us recant a little, and let us realise that in an election time we make promises; but I hope that they will be very careful in their approach to some of these institutions which are performing such a major service. I was chairman of the Advisory Council for Applied Research and Development. That was one of my ministerial duties. I hope that the noble Lord is going to do that. This is a very good body. It is not a Quango; it is a departmental committee which is responsible for helping to focus attention on some of the spots in the field of science and applied science where we need more developments, more innovation. We have made reports on this, and I hope that the noble Lord will find it fruitful to keep this body in being and that it will not come under the axe of a Tory Administration.

I warn the Government that if they seek to destroy some of these great bodies like the National Enterprise Board, if they seek to destroy the effect of shipbuilding institutions, et cetera, and those bodies that I mentioned, they will harm develop- ment in those parts of Britain which I know so well. There really will still be what Disraeli said—and he was quoted yesterday—a two nation system, make no mistake about that. I remember in my own North how over years gone by we faced great difficulties in relation to coal, steel, mass unemployment on a terrible scale. Those days have gone, even though we still have large-scale unemployment which has to be conquered. All I am trying to argue is that our competitors are pouring money into areas like these. The Germans are doing it in the Ruhr. Even some of the developing countries, which were quoted in that debate on applied science, like Brazil, Taiwan and Korea, are bringing about a revolution, and their exports are competing with us in the markets of the world. I beg noble Lords opposite and Ministers not to be doctrinal. Here is an opportunity for them to spell it out in more detail. If they are doctrinal, we shall be very critical.

3.8 p.m.

Lord ROCHESTER

My Lords, since industry is the field in which my own experience lies, I hope that the House will permit me to contribute to the debate in that area, leaving my noble friend Lord Simon to talk later about matters in the broader economic field. I should like, first, to welcome the priority given in the gracious Speech to the objective of controlling inflation. If I cannot wholeheartedly extend that welcome to include the means proposed for achieving that objective—that is, the pursuit of firm monetary and fiscal policies—it is not because such policies seem to me to be without significance—quite the reverse—but rather that they will not, in my view, themselves provide the solution to this intractable problem.

I do not wish to sound too discouraging a note at the very start of the life of the new Government. We on these Benches sincerely wish the new Administration well in the daunting tasks that now confront them; but I am impenitent in the belief that the basic economic and industrial problems which now confront this country are so complex and deep-seated, and the measures needed to solve them are likely to provoke so much controversy and to prove so painful in their application that neither of the major parties will prove capable of solving them on their own. If anything, I feel reinforced in that view by the speech just made by the noble Lord, Lord Peart.

This applies particularly to the need to restructure large parts of British industry—for example, steel, shipbuilding and volume car production. It also has application to what is perhaps our main current problem—namely, that of long-term pay determination. However, on that particular matter, encouragement may be drawn from the signs that there is already a potential consensus among elements at least in all parties in the TUC and CBI on what I would call a sustainable incomes policy. Under it agreement could at least be reached on what amount the nation could afford each year by way of increases in wages and salaries, and that conclusion might be endorsed by Parliament as an integral part of the pay bargaining process in the private sector of industry.

There is no mention in the gracious Speech of pay policy in the public sector and in particular no mention is made of the Government's attitude to the Pay Comparability Commission which was set up by the previous Administration. As I made plain in the debate on the Address six months ago, I have for long felt that people employed in certain key occupations should have their pay determined by a single independent and permanently constituted body in which all parties repose confidence. That is partly to provide for that continuity of policy which, with the abolition or rejection of, first, the Prices and Incomes Board and then the Relativities Board, has in recent years been so conspicuously lacking.

When the Comparability Commission was set up a few months ago I thought it regrettable that no attempt appeared to be made by the Government of the day to consult with Opposition parties concerning the composition and terms of reference of that body or on the definition of comparability or other criteria on which its findings might be based. Perhaps no agreement would have been reached, but in my view the attempt should at least have been made. Now, all we can do is to suggest to the new Government that they should consult widely before determining the criteria they will use in fixing cash limits in the public sector, the future of the Comparability Commission and so on. Next, I wish to follow the noble Lord, Lord Peart, and largely to agree with him, in commenting on the proposals in the gracious Speech to amend the Industry Act 1975 and, particularly, to restrict the activities of the National Enterprise Board. That wording is no doubt deliberately used to leave the Government's options as far as possible open, at least for the time being. Presumably "restriction" does not mean outright abolition, a fate which earlier awaited the Industrial Reorganisation Corporation, but it could of course mean the elimination of all activities other than those for financing such companies as Rolls-Royce and British Leyland. In this instance also, we would advise full and early consultation with the chairman of the National Enterprise Board and, it may be, other interested parties, before final decisions are taken, for, in our view, there is a great deal to be said for the stability which an element of continuity and consensus in this matter would bring with it.

It is surely significant that every Government among the industralised nations has found that it needs the equivalent of a National Enterprise Board. In the case of this country, there are gaps in finance for new technologies, for small companies and for export initiatives, and these are all symptoms of a shortage of risk-takers that for the time being at least could be made good by the NEB. As Sir Leslie Murphy himself has made plain, to leave the board simply as a hospital would mean that it was called on too late. whereas one of the things it can now do is to rescue people before they are overwhelmed by their problems. The future of the titanium granule plant on Tees-side is only the latest of many such problems which have occurred in the past and will recur in the future, and I urge the Government to ponder very hard before they eventually decide the extent to which they will restrict the board's activities.

We have noted particularly in the gracious Speech the Government's intention to achieve a fair balance between the rights and duties of the trade union movement and we welcome the desire to encourage the wide participation of the great majority of members in the affairs of their unions. It was to be expected that, in the light of last winter's industrial disorder and of the Government's election pledges, legislation would be drafted to amend the law on picketing and the closed shop and to provide financial aid for postal ballots. On those points, I express the hope that the Government will make great efforts in their consultations with the trade unions to achieve the widest possible consensus before legislation is introduced, and indeed that they will consider the possibility of delaying the implementation of such legislation so that it takes effect only if and when the need for it under the new Administration has been demonstrated beyond doubt.

We note that no mention is made in the gracious Speech of the possible reduction in the amounts of benefit to be paid to the families of people who go on strike. I hope we are right in taking that as an indication of the Government's recognition that this is ground at which they would indeed be wise to look before they leap. My noble friend Lord Banks will have more to say on that subject in the debate tomorrow on those aspects of the gracious Speech which relate to home affairs.

Still on the subject of the rights and duties of trade unions, there is another requirement to which I have referred on a number of occasions in your Lordships' House but to which no reference is made in the gracious Speech. That is the need to find some agreed means of achieving throughout British industry the introduction and observance of negotiating procedures under which disputes concerning agreements that have already been entered into are settled by arbitration rather than by industrial action. I am delighted from these Benches to have the honour of being the first to congratulate the noble Lord, Lord Cockfield, upon his new appointment, and I hope that when he winds up he will be able to give an assurance that the introduction of effective disputes procedures is regarded by the Government as an urgent requirement.

Finally, once more I draw attention to the imperative need, as I see it, to reach a shared understanding that, although there is necessarily conflict in collective bargaining, it is at the same time essential to mark out an area of common ground with the aim of ensuring that employers and trade unions together fulfil the basic purpose of industry; namely, the production of wealth for the benefit of the whole community. Again, I hope that the Government will be able to assure us that they intend to give a clear lead in this direction, for it accords well with the philosophy set out in the gracious Speech: the creation of a climate in which commerce and industry can flourish; and in the co-operative creation of that climate we wish them well.

3.21 p.m.

The LORD PRESIDENT of THE COUNCIL (Lord Soames)

My Lords, perhaps the two noble Lords who have spoken will forgive me if I do not follow them in everything they have said, but I should like to take up a couple of points. The noble Lord, Lord Peart, referred—with some vehemence, I thought—to the NEB, the activities of which, as he rightly said, we wish to restrict. How far the Government will decide to restrict those activities, it is too early to tell. However, I wish to put it to him that the reason we wish to restrict those activities is that we would not wish to see an increase of nationalisation either by the front door or, indeed, by the back door of the NEB.

The noble Lord, Lord Rochester, said that there was broad agreement for a formalised incomes policy, but certainly the TUC and the CBI have both turned their faces against any formalised incomes policy of the character which I understand his party would like to see. Therefore, I do not consider that there is a very profitable road to follow there, but I shall say more about pay later in my speech.

I feel very deeply that much of the nation still does not realise the underlying dangerous situation of our real economy, because North Sea oil has in effect masked the true pattern of our difficulties and maintained, after a small drop, the standard of living of the people as a whole. But without the £3,000 million a year income from the oil—and what that saves on our balance of payments—that standard of living would have fallen painfully by now and the employment situation would have been far worse.

I was in the Shetland Isles not long ago; went to look at Sullom Voe. I received a message from one of the local lads asking whether I would have a drink with him before I flew back to the mainland, and I gladly did. It seemed that previously everything had been leaving the Shetlands—people, and even sheep; the population had been diminishing fast. I said to him by way of conversation, "The oil must have revolutionised your life". He replied, "No, it hasn't. What it has done is to enable me to continue to live in the way to which I was accustomed hitherto". I feel that this is what too many people in this country think that North Sea oil is about, whereas we must put it to much better long-term use than that.

We shall certainly continue to press, as did the previous Government, for vigorous international action to help the world economy. This is a fundamental problem with which the last Government had to deal and with which we shall have to deal; it is a kind of built-in difficulty. But even if the world economy was in a much better position, we must still look after our own national economy; we must look to that. Our ability to cope with the problems of international origin is not helped by the weakened state of our domestic economy, for let us face it: the situation in British industry today on the whole is bleak. Manufacturing output was actually 3 per cent. lower in 1978 than it was in 1974. There was some recovery in output during 1978, but in many ways this highlighted our fundamental structural weakness, because 1978 was a year when consumer demand grew by more than 5 per cent., but our own manufacturing output increased by only 1 per cent. So of course there was a flood of imports.

Productivity and output per head lags far behind that in competitor countries and, as I said, last year's increased demand had to be met by imports. Last year the growth in unit labour costs was three times higher than that of our major competitors. Our share of world markets, which was almost 20 per cent. in 1955, is now only 9 per cent. Over the same period, West Germany's share, for example, rose from 15 per cent. to over 20 per cent. The slight increase at home of 1 per cent. in 1978 over 1977 was due largely to our very competitive prices based on the period when sterling was at its lowest before North Sea oil came to the rescue of the pound.

The profitability of manufacturing industry reflects the same somewhat gloomy state of affairs, I am afraid. The real rate of return of manufacturing companies was only about 4 per cent. in both 1977 and 1978. The productivity per man between 1973 and 1978, as was shown in the Bank of England Review of the first quarter of this year, rose by only a third of the figure for Italy, and I think that it was only about a sixth of the rise in West Germany.

We face major problems in industry which must be solved if this country is to survive when we no longer have North Sea oil—and it cannot last forever—and if 60 million people are to maintain themselves on these islands at anything like the standard of living to which they have grown accustomed and about which they have been taught by politicians, first of one party and then of another. They have come to expect the growth in their standard of living each year as being their right. We cannot possibly achieve this unless the underlying state of the economy is right and our productivity and our competitiveness can match that of those with whom we trade throughout the world.

We hope to start a fresh national debate on the reasons for our lack of competitive ability in large areas of our manufacturing enterprises. We intend to pursue right across the board the goal of greater incentives—greater incentives to work hard, greater incentives to encourage acceptance of responsibility, greater incentives to self-improvement and encouragement of skill. Above all, we intend to cut the burden of personal taxation, to make it possible for individuals to benefit from the results of their own efforts.

I would now turn to what is, I suppose, the Gordian knot of the British economy, which is pay. We are an advanced and still, in certain sectors, a highly successful economy; but the way in which we determine pay levels, the contradictions in our methods of pay bargaining, are strangling us. This more than anything makes it depressingly likely that the British worker will continue to produce less and continue to be paid less—a low wage, low productivity economy—than his European and American counterparts: paid less, that is, even before he has to negotiate our tax system in the marginal bands. Of course, I am not suggesting that monetary pay is the be all and end all of life, or that there are not innumerable advantages, in non-money terms, to living and working in Britain. Of course there are; but we want to keep it that way. Nevertheless, I profoundly believe that the persistent decline in our standards of living relative to our commercial competitors and diplomatic allies is bad. It is bad for morale at home and for our contribution to the peace and prosperity of the West abroad. Nor do I see the slightest evidence that the people of these islands are satisfied with their decline or content with these reduced possibilities. I know that professional economists argue that this has taken place over a long period of time. That may be so; but the fact is, I think, that there has been a sharp acceleration—and I think that in our hearts we are all aware of this—over the past decade, and I am convinced that people want to see a stop put to it. If we are to put a stop to it, we cannot avoid the issue of pay.

Incredible as it must seem, we are still in the middle of last year's (if I may put it that way) pay round. Because we have taken office in the middle of a pay round and are tied to a considerable degree by commitments made by the previous Administration, I cannot comment on individual settlements which are being, or are likely to be, made; but, as noble Lords will be aware, we have honoured our immediate commitments to the police and armed forces. Our inheritance is industrial stagnation, wage settlements averaging around 14 per cent., a rapidly rising money supply and a buoyant—all too buoyant—public sector borrowing requirement. That is not a dowry to guarantee much fun, even on the very brief honeymoon which Governments traditionally enjoy. What I can do is to outline briefly what we feel should be the right way forward on pay—and I should like to have a go.

The gracious Speech laid emphasis on responsible pay bargaining. "Responsible" is not a euphemism for moderation. One group's moderation can seem like another group's excessive pay settlement. "Responsible" means being aware of cause and effect in any economy. If you pay workers more than they profitably produce, or if, indeed, workers pay themselves more than they profitably produce, you will go bankrupt and business and employment will come to an end sooner or later. If you are a Government and you behave in the same way, then you are tempted, in order to avoid that situation, to inflate your currency, and, in turn, business and employment will eventually come to an end. The thing takes place a little later, but the effects are the same.

Now we have to start with the much talked about and much postponed educative process: cause and effect; consequences of one's actions. If you pay too much in the public sector, where the Government carry ultimate responsibility, and if you are not prepared to inflate—that is, to print or to borrow money—then with all the political or economic wisdom in the world you have only three options open to you. You can lay off workers, so that fewer workers are paid more; you can charge more for the services provided, either directly or through the tax system; or you can cut expenditure in some other part of the system and face, with everyone else, the consequences of so doing. That is common sense and common responsibility.

For more than 10 years now Governments have, often with the best intentions, masked cause and effect behind pay policies or concordats or contracts. Both major political parties have learned through the pain of electoral defeat the harsh lesson that the social and economic climate of Britain forbids a permanent and centralised determination of pay levels throughout all sectors of the economy, whether one tries to achieve this formally or informally, with or without recourse to law. At the moment we arc suffering, I submit, the worst of both worlds, as we see in the present pay round. The rigidity of the last Government's pay norm, and their attempts to impose it through the very employers whose negotiating position with unions they had so considerably weakened by legislation, mean that the going rate has settled several percentage points higher than it need have done if the Government had stuck to their own monetary targets, their own cash limits, but otherwise kept out of the picture. We have learned from our own mistakes, but I can assure your Lordships that we have also learned from the mistakes of the party opposite.

Our aim, then, is to have as much public discussion as possible and to make as much information available as we can. It is essential for employers and employees, the self-employed and the pensioner, the politicians and those who report them to be fully aware of the economic facts of life and how their individual decisions affect such realities. We believe that if people, with their innate common sense and responsibility, are given a chance to have a greater say in matters which affect them, they will act realistically and responsibly. If they do not, then goodness knows where we turn. That is why we shall look at ways of achieving a more concerted approach to economic management—a pay forum, if you like. That is why we want people to join trade unions, where it is appropriate to their employment, and, having joined, to make it easier for them to participate in collective decisions.

In wanting this, my Lords, we believe that we are in line with the wishes of the trade union leaders themselves. We are insistent only that the same principles of common sense and responsibility apply. That is why the implementation of our proposals for a selective and limited reform of industrial relations is one of our first priorities. I am sure that no one who experienced the industrial disputes of last winter will be in any doubt that some reform is necessary. We saw then how responsible collective bargaining had been undermined because of the power which rests in the hands of militant and unofficial groups, usually acting in defiance of their own trade union leaders. The purpose of our reforms is to ensure that where there is industrial power it is subject to the ordinary disciplines and fairness of our common law traditions.

I believe that there is very wide support among the British people, including the overwhelming majority of trade unionists, for our proposals to change the law on picketing and the closed shop and to encourage the use of secret ballots in union elections and in collective bargaining. We shall be consulting both sides of industry about the details of our legislative proposals, but no one should be in any doubt that we believe that legislation is needed in this Session of Parliament. The special role of trade unions in our society involves both power and responsibility. The special position which trade unions occupy under the law must bring with it its own obligations. The TUC recognised this when they issued their recent guidance on good practice in a number of important areas, including picketing and the closed shop, and we are on record as having welcomed such guidance. We must encourage the development of good practice, but we believe that the law has an important supportive role to play where good practice is not observed or is liable to be discouraged.

We have promised to hold full consultations. We want to act quickly, but we shall do so only when we have discussed our proposals with those who work in industry and have first-hand experience of the problems. We are not seeking to overturn our industrial relations system, but rather to strengthen it by tackling some of the abuses which threaten it. I believe we now have a chance to make such few, limited changes in the legislative framework for industrial relations as will at last take legislative controversy in this field out of British politics for several decades to come. We want enough limited changes in the law to ensure that we can forget about the law and get on with the job of earning our living as a country as well as that little surplus of leisure and security without which civilisation withers on the vine.

It would be unreasonable to pretend that these measures on pay and on industrial relations, the measures concerned with taxation and the new look at our manufacturing competitiveness are going to solve all the ills of the British economy. Our recovery will depend to a considerable degree on our ability to master inflation—and our inheritance in this respect is not an agreeable one. Not only have the Government taken over with inflation set on a rising trend—and already now into double figures—but also there are substantial inflationary pressures bottled up in the economy which will add to the difficulties in the months to come. It is inevitable.

We shall tackle this in two ways. In the first place, we intend to keep a firm grip on the rate of growth of the money supply; secondly, as an important contribution, we shall take action to reduce the scale of public borrowing. It is no use the Government asking the private sector to follow sound financial policies when the Government themselves do not do so. To allow excessive public borrowing in a regime of strict monetary discipline is a recipe for squeezing the private sector and, with it, our hopes for investment expansion and a reduction in unemployment. These are the main guidelines of the Government's economic strategy. We believe that they will result in a higher real wage which will be paid for by higher productivity in British industry.

There are many other areas, such as our plan for encouragement of small businesses, on which there has not been time to touch. Suffice it to say that we shall be following policies across a broad range with our sights set all the time on the central importance of restoring the dynamism and growth which has been so sadly lacking in recent years. No one expects us to guarantee success overnight. In large measure, it is a matter for individuals to see that the opportunities are seized and exploited. It is not the Government that can get the country out of its difficulties; what the Government can do is to provide a background against which the people themselves can get the country out of its difficulties. What we can and will do is to ensure that those opportunities exist and are worth exploiting. Above all, we intend to tilt the balance away from decline and stagnation towards success and the creation of wealth.

3.43 p.m.

Lord JACQUES

My Lords, I hope that without sounding presumptuous I may be allowed to congratulate noble Lords opposite on their appointments in Government—and especially those with whom I came into friendly conflict over the last five years. I hope that they will enjoy putting forward, and defending, the policies of their Government as much as I did. But I believe that, unfortunately for them, time will tell that they are fighting a lost cause. I thought that the last election brought out more than any other recent election the significant points of difference between the two main parties.

We Socialists believe that the interest of the community as a whole should be paramount; that these interests should take precedence over the selfishness of in- dividuals or of groups of individuals, whether those individuals be landlords or shareholders, salary earners or wage earners. We believe that the application of that principle is of paramount importance and should be accepted even though it might involve some little sacrifice of efficiency. There has been considerable progress made in the application of this principle in the post-war years. We have seen it applied in land use, we have seen it applied in rent control, in taxation, in the organisation of essential services like fuel, in the health service and, more recently, in education. I believe that the next few years will be nothing more than a pause, a pause for reflection; and that after that pause our people will see that that principle of the interest of the community has such great merit that they will support it wholeheartedly in subsequent general elections.

The things that I fear most in the policies of this Government are the consequences of their central economic policy. I could accept, at least in part, some of the things which are proposed on the periphery. Although I belong to a consumer cooperative movement and have done so all my life, I could accept a modest transfer of personal income tax to VAT, providing it was to be used to take thousands of our low-paid workers out of taxation. I would even accept it if it were used to increase personal allowances for income tax, although I know that the people who would benefit most would be those who pay the higher rates. Nevertheless, I would accept it because it would involve some element of incentive. But the temptation for the new Chancellor will be to use any money that he can raise on VAT to get rid of the higher rates of income tax because he can do that very cheaply and can get big headlines for doing it. But that would mean that the shoppers in the High Street would be paying for the tax relief of those who can best afford to pay.

The central policy of the Government rests heavily upon the control of money and credit. It has been put forward as a forward-looking policy. I submit that it is not only not forward-looking but is 50 years out of date. It is based upon two assumptions which in years gone by had some validity but which today are completely false. These are, first, the assumption that there is free trade. But we know from everyday observation that over large sections of our economy it is possible for trade unions to negotiate wage increases with companies and for those companies to increase prices to cover the cost almost immediately. That is not free competition; that is the use of monopoly power. Secondly, the central economic policy of the Government assumes that, as in the past, unemployment might inhibit applications for increased wages. It did that when workers were unorganised; it will not do it today. It is much more likely to give rise to militancy and to overmanning in the factories.

My Lords, I come now to a point where it might be felt that I am in some agreement with the Government. Five times during the post-war period we have had temporary incomes policies under both Conservative and Labour Governments. These policies have usually been hastily assembled and applied; they have usually been pretty rigid and have usually led to anomalies and discontent, and sometimes they have led to the floodgates being opened at the end of the period. I hope that we are at the end of that era. But I believe that if this country is ever going to have full employment without undue inflation, it has got to have a permanent incomes policy. I submit that the alternative to the Government's free-for-all is a permanent incomes policy.

I believe that we on this side of the House should in the next few years be giving all our attention, in consultation with the trade union movement, to devising a permanent and flexible incomes policy. I believe it is possible—I may be too optimistic—to do it along the following lines. First of all, I think that there should be a national body on which the Government, the trade unions and the employers are represented; but that body should not lay down any kind of norm. It should merely lay down guidelines for negotiators and conciliators. There should be free collective bargaining within strict limits. The limits should be that there should be two elements only for consideration in the negotiation and conciliation.

First, profitability and productivity. By that I mean past, present and future profits and productivity. Secondly, comparability of wages. By that I mean comparability within the industry and with other industries. Within the limits of those two elements—and those two only—there should be free collective bargaining, but on the understanding that if those who are party to the bargaining do not come to a conclusion, then there will be conciliation. At the end of a reasonable, agreed period, if the conciliator has not reached a conclusion and the parties have not reached agreement, then he will issue a report which will go to all the workers as well as the employers. Before strike action is taken there should be a ballot of those concerned. They will get the choice of whether or not they accept the report of the conciliator. I believe that a national incomes policy is absolutely essential; but it has to be tied up with the whole question of industrial relations and the avoidance of unnecessary strikes.

As an international trading nation we have to take note of certain factors which are affecting the pattern of international trade. They will affect us whether we like it or not. I should like to mention three factors which will affect the pattern of international trade. The first is the shortage of fuel and the increase in the price of oil. That has moved purchasing power; purchasing power has been shifted. As a result of the shift in purchasing power, employment in some industries and countries has been increased, and in other countries and other industries it has been decreased. That has already taken effect over the past few years; but it may affect us increasingly as fuel becomes more short in the next few years.

Secondly, there is the growth of manufacturing industry in developing countries. Here, as a Socialist, I have a real dilemma. I fervently believe that if there is a developing country, especially one which is a member of the Commonwealth and which, in the interests of its people, wishes to have a balanced economy, then even when it is against our interest we should help it and support it. We should do that because in the long run it will be beneficial to the Commonwealth. It will also be in the interests of international peace and that, in the long run, is in our interests.

On the other hand, I do not think that we should close our eyes to this problem, nor should we look at it with blinkers on. In some cases it is not all that it appears to be. I have in mind Hong Kong and South Korea. In both those cases what stands out most obviously is that American and European capital is exploiting cheap labour. The exploitation of child labour in those countries we would not have tolerated a hundred years ago. It is true of course that there is some benefit to the workers in the sense that, in spite of their long hours, in spite of their low pay, they are probably better off than they would have been had there not been that development. It is also true that consumers get some benefit; shoppers in this country get benefits from it. However, the greatest benefit goes to the entrepreneur who gets a much higher ratio of profit than would be the case if his investment was in America or Europe. The greatest disadvantage falls upon the workers in our manufacturing industries here at home; they are either out of work or are working short time as a consequence. Those are matters that we have to bear in mind.

A third factor which is affecting the pattern of international trade is the application of electronics. Reference has already been made to this matter. Unless we keep pace our decline will increase rather than decrease. As the noble Lord, Lord Soames, said, we have one advantage: North Sea oil. That is a God-sent advantage. Whereas in the past few years we have been importing equipment rather than exporting oil, we are now exporting oil rather than importing equipment. Where we are not exporting oil we are saving imports, which amounts to the same thing. We are now at the point of advantage and, in view of the revolution in industry which is taking place as a result of the application of electronics, we should be using that advantage to equip British industry. To face up to these problems we should be doing more and not less planning. We need our National Enterprise Board more than ever before. Instead of trying to restrict it and looking for ways of dismantling it, we should be encouraging it and using it so as it can make its contribution towards the re-equipment of British industry.

In conclusion, may I say that what I really fear is that the forces outside the control of the Government—and I have mentioned some of them—together with Government policy, which is out of keeping with the needs of our times, will give us unemployment on the scale of the 1930s. Having regard to our increased working population, that will number some 4 million people. Rabbie Burns said that toothache was the hell of all diseases. I believe that unemployment is the hell of all economic diseases. It is demoralising. The way in which it demoralises and the extent to which it demoralises depends very largely upon the character and environment of the individual; but it always demoralises. At one extreme you have the honest working man who feels that he is not wanted, that he has been put on the scrap heap far too early. He objects to the hand-out of what he regards as charity and, very often because of his experience, he is driven to the far Left or far Right of politics. I have seen it happen. At the other extreme you have the lazy chap or the chap who is inclined to be lazy and who by unemployment is encouraged to be lazy. He finds by experience that by making a little bit on the side to supplement his unemployment pay he can get along very nicely. That is equally demoralising.

The great majority of our people are honest working people who want to work for their living. I say to the Government: if as a result of your speculative economic policy you do cause great unemployment on the scale of the inter-war years, and if as a result of your financial policies you cause great hardship to our people who have the misfortune to be unemployed, you can expect a hell of a stormy passage from us on this side of the House; but if you succeed we will have the courage to compliment you.

4.1 p.m.

Lord HAWKE

My Lords, I certainly agree with some of the things that the noble Lord, Lord Jacques, said and I hope the Government will listen to his remarks about employment in Hong Kong and South Korea and, I would add, in other Far Eastern countries as well, because their industries are a positive menace to anything we have got in Europe. In the past I have sometimes noticed that a Government coming to power with a decent majority can go through a state of euphoria and then are apt to relapse into arrogance; but I do not think this Government are going to do that because they face such daunting problems, and at any rate we know that we have a Foreign Secretary in this House who will listen.

The Government themselves have very great difficulties on the financial and economic front and they are pledged to a number of moves which will cost an awful lot of money. It will be very important indeed for them to explore every possibility of economy to pay for these things. I hope that in the course of time it will be possible to lessen the burden of the National Debt, which is rapidly creeping up to something of the order of £8,000 million a year. The last Administration borrowed enormous sums of money at very high rates of interest. Of course, there always seems to be a resistance to any fall in the price of money. The pension funds love dear money; the insurance companies like it and as for the banks, whatever they may say, I have never met a trader who did not welcome high prices for his commodity.

It does seem a bit anomalous at times that Governments seem to take pride in the size of the reserves, so much of which are only deposits which are represented by corresponding liabilities, and they have to pay high rates of interest to attract them here and keep them here so that their very presence ensures that the Government are in a state of permanent tenterhooks lest they take to their wings and depart. I have no doubt that a great search will go on for economies in the working of Government departments, but I have some doubt whether they will yield very much fruit unless there is a basic simplification of what Governments are to do. All the time there is demand from all quarters and all political parties for Governments to interfere more, act more and inspect more, and it is a change of mentality that is wanted if there is to be any substantial decrease in the cost of administration.

The noble Lord, Lord Peart, was very intent on defending the world of Quangos. I would not venture very farinto that world, but I think that somebody should look at them to see which are really necessary. We always have to remember that we have been borrowing at a rate of anything between 10 per cent. and 15 per cent. to keep them alive, and that takes a little bit of justification. One gets a sort of feeling that some of these speciality bodies have a vested interest in creating work for themselves.

I do not know whether we can call the Comparability Commission a Quango, but I wonder at times how on earth they can possibly deal with the various bucks which are passed to them. How can you possibly compare the pay of a civil servant who virtually cannot be sacked and has an index-linked pension with that of somebody in the private sector who finds it only too easy to be sacked on a reorganisation or a takeover, very often at a most awkward time of life? In addition, the civil servant may be entitled to much longer holidays. How can you evaluate all these factors in terms of cash? The answer is that of course you cannot: you have to botch it. The Government Actuary has made a valiant effort to prove that the indexed pension is worth only a small percentage of the salary, but in doing so he has had to make such assumptions that most people will find the result very difficult to swallow. They would really prefer the judgment of the market, which is that you cannot buy an index-linked pension in the market anywhere for love or money. I think a great deal of the work of this body probably lies in comparing the incomparable.

Some Quangos doubtless do useful work without being vital, and I wonder whether some of that work could be turned over to voluntary bodies. We are a nation with enormous quantities of these voluntary bodies—bodies to propagate this or prohibit that—and if indeed fresh bodies are required I am perfectly certain that we have more busy-bodies per 1,000 of population than any other country in the world.

In recent years there has been in Whitehall a great vogue for statisticians and economists. These gentlemen are at their best in telling you what you should have done six months ago. They can tell you what connection you ought to catch at Crewe when you get there, but they cannot tell you how late your train is going to be in arriving at Crewe, and I am not even sure that they are always able to collect the right figures. As an example—and there has been some talk about this lately—we all know that, although output in this country is apparently stagnant, an increasing amount of work is being done by people for cash either in their spare time or as a definitive career. It is known colloquially as "making a bob or two". Anyone in London who has had reason to call in a plumber, an electrician or a carpenter knows that it amounts to considerably more than a bob or two, and I very much doubt whether the statisticians have the slightest idea of what the total output from these sources really amounts to; but I know it is very big indeed and it is increasing.

The present Government may say that if we reduce income tax this phenomenon will vanish. I do not believe it for a moment. Even if we reduce income tax to the liberal level of 20 per cent. I do not think it will disappear, because basically it springs from the fact that over the years Governments of all sorts—and Conservative Governments have been just as bad as Labour Governments—have imposed enormous taxes on the better off which, through inflation, have become more and more progressive. The result is that the people concerned have gone in for more and more sophisticated schemes of tax avoidance. When you get that up at the top, the people at the bottom do not have these schemes but they go in for the only alternative, which is pure, simple evasion. Be that as it may, the statisticians and the economists at any rate, have been fairly well discredited, and I am sure that a great many of them could depart from Whitehall.

I suggest to the Government that there is one area of what might be called avoidance which really needs studying; that is, the question of personal transport. More and more firms are providing their staff with cars at the firm's expense, very often with the running expenses thereof, ostensibly to do the firm's business but in practice to convey the user to his office. If anybody buys a season ticket for a bus or a railway train in order to get to his office, he cannot charge that against tax, so that in practice the taxpayer is subsidising the car commuter to avoid the form of transport for which the taxpayer ultimately pays the loss. The matter needs looking into with a view to providing that the season ticket holder, whether by bus or by train, can charge that amount against tax as expenses. I believe that there is a very anomalous and unfair position at the moment, and such a change would be extremely popular.

We live in a dream world if we think that we can get inflation down to 5 per cent. Our price level is only just now reflecting the rise in oil prices of 1974–75—it has just worked through. Oil and coal are not only a form of energy but are very important raw materials, and our price level depends very much on their cost. We have just now been faced with further rises from the oil countries, and the coal monopoly never lags far behind. Meanwhile, dozens of the poorer countries are sinking deeper and deeper into bankruptcy, as a result of these crippling oil bills. They can be kept afloat only by loans and gifts from other countries, which can he repaid only out of further loans and gifts. It is a vicious circle. I hope that it will be part of our foreign policy to put to the Arab world the effect of their monopoly exploitation, in the shape of world stagnation and the encouragement of revolution, and to remind them that they are not immune and their rulers would be wise to build up goodwill outside, in case they themselves have to cut and run for it. The parable of the unjust steward would not be amiss.

I cannot conclude without mentioning the gracious Speech. I should like to say that, though I am not a Liberal, I regret that there is no mention of electoral reform, for without such reform I feel that there is a danger of this country being taken over by Marxists, through a Marxist take-over of the Labour Party.

4.14 p.m.

Lord BALOGH

My Lords, your Lordships would not expect me to congratulate the serried ranks who are occupying ministerial posts in this Government. If I, as an economist, have one factor to console me, it is that it all looks very much like 1970. Social observers have many handicaps imposed upon them by the nature of their subject. None of them is as grave as our incapacity to undertake controlled experiments. History does not quite repeat itself, and the very fact that things past codetermine things future renders forecasts treacherous and lessons learned from the past often misleading. Eternal truths enunciated by the unwary, such as Sir Keith Joseph, first on the all-cure quality of floating exchanges and, more recently, on fixed and very high rates of exchange, have a tendency to collapse under the weight of events. In economics, a year seems an eternity.

But as I look at the Benches opposite the thought strikes me that we have here a déjá vu, and as perfect a repetition of the past as our imperfect lives can offer. Mrs. Thatcher, to me, seems very much like Mr. Heath mark 1, only perhaps more energetic. Her principal advisers, if not the very same men, are rather good animated copies from Tussauds—all good fighters in the cause of freedom for the well-to-do, and the devil take the hindmost à la Friedman. It will be fascinating to watch the monetarist experiment re-open; an experiment which my right honourable friend the ex-Chancellor pursued with such notable lack of success. We shall also bear witness to the education in economics of the pint pots from which quarts cannot be drawn, even by the Transport and General Workers Union or NUPE; the education in economics of current leaders, which might be as costly as the education of Mr. Jack Jones or Lord Scanlon in 1979. They all ought to have followed last winter the wise advice of the then Prime Minister, which they did not.

In Austria, there is a very good example to show what can be achieved. There is a permanent incomes policy and permanent institutions controlling and guiding it. Unemployment is below 3 per cent. and the growth of the national income, in real terms, is above that level, with inflation running at 2½ per cent. But, of course, there is a balanced policy. The restraint is not unilaterally imposed on workers, while their chairman gets away with an increment in yearly salary equivalent to a decade's earnings for the average manpower; nor do civil servants get 25 per cent. when the Government intend to keep the inflation rate below 10 per cent.; nor is militancy provoked by their selling shares of nationally owned companies on which a 50 per cent. capital gain is earned within a year.

I sympathise very much, especially on the analytical side, with what the noble Lord, Lord Soames, has said. His analysis of the world situation and of the British dangers is one which we can all accept. The difficulties arose at the end of his speech—which was, logically, perfectly satisfactory up to that point—when he suddenly spoke as if money supply and the PSBR could really make matters much better in controlling the economy. As my noble friend Lord Jacques explained, that type of policy can operate only through mass unemployment. It was good to hear some reaffirmation, from both the Labour and the Liberal Benches, of the fact that we need to have a permanent incomes policy. But if the view of the noble Lord, Lord Soames, is correct, that this is impossible in this country, then I foresee a great deal of trouble. As I said, we are confronted with a dangerous situation. The sheer bargaining muscle of our trade unions has been immensely strengthened by two things—a highish employment rate and no serious fluctuations such as those in 1929 or 1937. But at the same time there was a very sharp concentration of power on both sides of industry.

Industrial concentration enables cost increases to be shifted on to the consumers. Resistance against excessive wage claims crumbles, especially in the private sector where prolonged strikes might well mean bankruptcy. While the sheer borrowing power changed in favour of labour, the distribution of income and capital do not correspond to the new situation, and here is a contradiction and a source of danger almost unparalleled. I know that it is claimed that national income and wealth distribution has improved, and I know that a Royal Commission is burrowing away to show it. Unfortunately, they will never get to their aim. When we hear groans about the high level of taxation from the side opposite, we think of the perks which are never mentioned—the chauffeur-driven Rolls, the flats in London, the gourmand get-togethers, the business trips to Cap Martin. All this true income to the few represents costs of production to the many.

I have repeated more often, and over a lengthier peiod of time than I care to remember, that restraint on the part of the well-to-do is a precondition of restraint by the poorer. This we have not heard from the noble Lord, Lord Soames. We have heard about legislation but we have not heard about a balanced approach to the working classes of this country. Without consensus on incomes and a general social policy, we shall not get peace of mind and the will ever to master inflation. We shall continue to have social unrest such as we had last winter. We must have a permanent incomes policy firmly based on consent and handled by a single agency. So long as a multitude of agencies co-exist, each handling the salary of a single profession or of a single industry, we shall have leapfrogging inflation. The process will be exaggerated if the principle of comparability is accepted and introduced into the law. I am convinced that the neglect of these elementary lessons which ought to have been learnt between 1964 and 1970 was one of the most important reasons for the failure of the Labour Government in the election.

I do not wish to discuss in detail today the problems that arise if an attempt is made to control or manipulate the economy mainly or exclusively by monetary and fiscal policies, except to say that those methods depend on mass unemployment to keep inflation in check. Not for nothing have the OECD countries 16 million, or more, unemployed, since monetarism made its triumphal march through the treasuries and central banks of the industrialised world. We shall have ample opportunity to consider this when we discuss the Budget, and in any case it would be decent to await the first fruits of the teaching by the civil service of the incoming Ministers. I hope, however, that neither will be seduced or even influenced by some mechanical and very scientific-looking gadget as a criterion in the preparation of the Budget.

It is very satisfactory for Ministers to find a shelter from the heavy burden of the day-to-day analysis of complex situations. How much simpler it is to say that the money supply must be brought under control within target limits and that the PSBR should be cut. If the money supply has these wonderful powers, why not bring inflation totally under control? Why not have 5 per cent. as a target instead of 8 to 12 per cent.? And a 5 per cent. growth target is more legitimate than 9 to 13 per cent. The gracious Speech is typical of the inconsistencies of this approach. It promises simultaneously an increase in investment and a tight money policy. It hopes for confidence and believes in the reduction of taxation. Yet interest is payable whatever happens to profits. Taxes are paid only when a profit emerges.

The basic assumption of the new approach by our Government is false. Let me give your Lordships a warning example. It has been widely reported that a proportion of BP shares—crassly undervalued even at their peak and now very much further depreciated by these rumours—is to be sold to the market. This will diminish both the PSBR and the money supply, yet if the Government spend the money they receive for these assets in current expenditure the transaction will be highly inflationary, despite the fall in the PSBR. Incidentally, I very much hope that potential buyers will be warned that the shares will be secured back for the nation at not a penny above the price which they have given for them. It was Mr. Heath, not Mr. Callaghan or Mr. Wilson, who felt the exorbitant power of the supranational corporations and complained bitterly of their refusal to serve Britain first and foremost. Because of the present situation which we have created, this could not happen now.

Through my persistent questioning of the Ministers of the previous Conservative Government and through successful Motions, I have saved the country some money which would have accrued to foreign companies as profits and would have left Britain, mostly over the exchanges, thus imperilling the balance of payments. This has not been mentioned by the noble Lord, Lord Soames. It was because it was taxed that we got money, but 60 per cent. of the oil has been given away to foreigners.

I personally think that the system was insufficient from the beginning and that it ought to be thoroughly reformed. Unfortunately, our financial authorities were not up to an expert analysis of the requirements. Still, at long last, we got a reform accepted which will mitigate the worst shortcomings. If well handled, the revenue from oil should carry the main proposals of the Conservatives without increases in prices. It is to be hoped that the Government will cease their tactics in opposition of preferring foreign profits, if private, to national benefit, if public. They will be helped in this patriotic conversion by their natural instinct to lower their own taxes.

I very much hope that I shall be proved wrong and that the liberated British entrepreneurs will, like tigers, storm forth to perform miracles, and, guided by the invisible hand, will lift us up to achieve a wondrous transformation of the trends of the whole of the last 100-odd years. For myself, I foresee a consumer boom, eating up the windfall of oil and gas, further pressure on our international competitiveness and further class dissension—indeed, a boring repetition of our lamentable history.

4.30 p.m.

Lord LEE of NEWTON

My Lords, in the course of his speech the noble Lord, Lord Soames, told us of the great problems which the Government have inherited from their predecessors. This is the kind of thing one always expects to hear when power changes hands. I wish he had used a little more imagination in the kind of language he deployed. My noble friend Lord Shinwell will remember, as I do, the meeting, I think of the Parliament after the 1951 election, when we were told by the late Captain Cruikshank of the horrors that they had inherited. I thought he did it delightfully and I have had a soft spot in my heart for him ever since. He told us that when they reached their departments they found the cobwebs hanging from the candelabra. That really expresses it all, and I was rather disappointed that the noble Lord, Lord Soames, could not vie with that kind of language.

The more I study the contents of the gracious Speech the more I understand the precaution taken by the noble Earl, Lord Onslow, in coming armed to the teeth when undertaking the task of recommending its contents to us. The new Prime Minister has made it clear on a number of occasions that she is no admirer of consensus politics, and now indeed we have the proof of that in the content of the gracious Speech. It seems to me that the Prime Minister leaves no option to those of us on this side of the House but to respond in pretty well the same spirit. By their threatened attack (which my noble friend the Leader of the Opposition mentioned) on the National Enterprise Board and the Price Commission they repeat the follies of the Heath Government in abolishing the Industrial Reorganisation Corporation and the Prices and Incomes Board—follies which resulted in that Government having to spend the second half of their life in trying to reconstruct those bodies in all but name. They then turn their hand to emasculating the profitable sectors of the publicly owned industries by handing them back to private enterprise while leaving to the public the task of financing those industries which are not profitable. I remind them that the energy producing industries are either wholly or partly in the public sector and to cause grave unrest among them at this critical period for our energy supply would he an unmitigated disaster.

Is there not indeed a very deep cynicism in the content of that part of the gracious Speech when they tell us that there will he actions which will disrupt the conduct of those industries in the public sector at the very moment when the nefarious City exploits of Mr. Christopher Selmes have brought once more to light the unacceptable face of capitalism, without the Government giving the slighest intimation of any action to stop that kind of thing? Perhaps they are trying to lure Mr. Selmes back to Britain along with Mr. John Bloom and other whizz-kids, at the thought of some more easy pickings, but this time in the public sector. It seems to me that on the subject of Mr. Selmes they would do well to take advice from the chairman of their 1922 Committee.

I have no wish to dispute the fact that the Government are quite entitled to put into operation the economic measures which they advocated at the election and which were accepted by the southern half of the nation. Indeed, if they do there will be considerable inroads made into the advantages derived by large numbers of people from the provisions of the Welfare State. According to the break-down of priorities that I was reading in one or two of the opinion polls, the two most popular demands of very considerable numbers of the electors were reductions in income tax and the preservation of those welfare benefits which cost most, such as health, education, housing and so on. It is now the task of this Government to explain that they cannot have both and that those who have been paying little or no income tax are going to face a reduction in living standards in order that those who pay most may increase their living standards. Reductions in living standards will of course be even more pronounced if, when the Budget proposals are announced, VAT is increased in the sacred cause of substituting indirect for direct taxation.

These are simple illustrations of the effect of the decision to transfer resources from those who need them most to those whose needs are fewer. Nor do I believe that it is enough for the Prime Minister to speak as though she has made an original discovery when she argues that if we produce more wealth we can have higher living standards—a point which the noble Lord, Lord Soames, made today. To my recollection every Government since the War have been saying the same thing, and while of course living standards have improved I submit that there is nothing in the gracious Speech to suggest that the present Government have anything at all which will enable them to break records in the field of productivity and increasing wealth production.

The gracious Speech also mentions a fair balance of power and responsibility in the trade unions. Well, in due course we shall see what that means, but the relationship of the trade unions to the Labour Party was made into a prime issue during the campaign, the object of course being to pin on to the Labour Party the unpopularity which came from the strikes and the unrest of the winter. I give them the credit that their campaign succeeded. Even that was not without its humorous side. At one and the same time the present Prime Minister was informing us that many trade unionists were muggers and wreckers and that more of them than ever before were going to vote Tory.

I found myself wondering whether there was a hidden connection between the two points. I hope that it had nothing to do with the emergence of Mr. Pete Murray as an adviser to the Tory trade unionists. Perhaps they were trying to pass him off as the other Mr. Murray, but I would not know about that. In any event the Prime Minister was obviously quite justified in claiming that large numbers of trade unionists would vote Tory, and I think this party has the job of examining why. It was certainly not because of any fall in living standards during 1978. With wage increases and tax reductions it was a year in which living standards increased enormously—something like 6.3 per cent. Indeed it appears that the average wage increases were about 14 per cent. so there was no noticeable restriction on advances. But of course all this was happening while Ministers were still proclaiming that they were insisting upon a 5 per cent. ceiling. Whether people believed it or not I do not know, but certainly it was not happening.

On the other hand, both the Tories and the TUC were preaching a return to free collective bargaining with no Government interference, so despite the fact that for years every indication was that the majority of people, including trade unionists, had pronounced in favour of incomes policies and against a free-for-all, once the nation was offered by a potential Government what they took to be far greater advances than the figure quoted by Ministers, they jumped at it. This Government have now to live with that position or disillusion millions of those who believed them.

The irony of the events of last winter is that with the breakdown of incomes policy—and I agree so much with what my noble friend Lord Jacques was saying on this subject—the very collective bargaining which the Tories, led by Mrs. Thatcher, had been advocating reduced the nation to sheer chaos, while they blamed the Government whose policy they had done so much to defeat. They got away with it, and they have now inherited the inflation which inevitably must follow the defeat of the incomes policy.

The remarkable thing about last winter's developments is that those unions which are by their very nature industrially powerful behaved very reasonably indeed. One has in mind the settlements which the NUM and the railwaymen made; local agreements in engineering and by the power workers: all those things of which people were fearful passed without any disturbance at all. But the comparatively new phenomenon with which we were confronted was that organisations with little or no industrial power, and indeed the majority of whose members are part-time workers, were sufficiently ill-advised to believe that they could achieve their aims by the kind of activity we saw instead of placing their reliance on incomes policy.

Why are they low-paid workers? They are low-paid workers because they have not got the power to demand decent living standards. That being the case, for them to opt to go back to collective bargaining is to opt to remain low-paid workers. This is quite inevitable. But there was a sad reaction to their feelings of frustration in that they then decided that if they had not got the industrial power they would be diverted to mounting a quite deliberate attack on the public. It was a type of activity which did more to bring about the election of the present Government than anything that Saatchi & Saatchi or any member of the Government could do. Of course the media jumped at it with both hands and exaggerated it for all they were worth. It has also brought feelings of anger and despair to large numbers of men and women who have given a great deal of their lives to building the most responsible trade union movement that the world has ever known.

I was pleased to note that in his speech at Blackpool to the Civil Service Union on 11th May—after the election, I hope people will notice—Mr. Len Murray followed up the TUC agreement with the last Government by saying that the TUC was committed to bringing in guidelines on the conduct of disputes, union organisations, the closed shop and so on. He was then arguing against attempts to introduce legislation to regulate industrial relations. He was pleading for consultation before decisions were made. Now we read in the Queen's Speech that the Government are definitely going to introduce legislation no matter what Mr. Murray or any other member of the TUC has to say. What is the good of discussion if the die is already cast? I suppose that if then there are discussions which break down it is to blame the TUC anyway for the breakdown.

On this subject I see words in the Speech that I do not understand. Perhaps somebody from the opposite Front Bench will tell us what is meant by encouraging wider participation of the great majority of members in the affairs of their unions". I think I know the union rule books of practically every union in Britain. I defy anybody on that Bench to show me where there is any restriction whatever on any member of any union from taking as wide a part as he wishes in the affairs of his union. I just do not understand what that kind of nonsense is about.

To look to the future, I think it would be a great mistake for all of us to believe that the methods that were used by some strikers last winter are a sort of one-off job which cannot be repeated. I think they are a new development in the collective bargaining process which in varying degrees will continue from those who, while having little industrial power, insist upon opposing incomes policy. They include very many of the so-called white collar unions, such as the air controllers, who set out to ruin people's holidays. I recall that, when they began it, the chairman of their strike committee was an official of the Conservative trade unions. I believe we on this side must watch this development. We are seeing an increase in the number of unions which have no allegiance whatever to the Labour Party—they are certainly not affiliated—the teachers, the civil servants and so on. And yet the same tactics of trying to pin on the Labour Party all the problems of unrest in industry will continue.

It must be made abundantly clear that, with the rise of unions which have no possible relationship with us, we certainly cannot control their activities and we want nothing whatever to do with the backwash of the things they do. The revolt of the middle class, as well as the manual workers, who use the breakdown of their union power from the official leadership to the localities, is something which is not conducive to finding solutions under the ideas of collective bargaining. There are thousands of agreements being made every day which are not within the compass of the trade unions themselves. How in heaven's name do you correlate all this? How do you find a way in which any Government can in fact plan the economy as a whole when they have not a clue as to how that portion of the national income which will go on incomes is being subdivided.

If the Government really want to tackle the industrial problems we all have, why not start with the pay relationships between the low paid and the highly skilled who are concerned about their differentials? It is a huge problem that needs a great deal of thought. It has nothing to do with the puny nonsense talked about in the Queen's Speech. There is the problem of the size of the manufacturing sector, which is now in decline. The noble Lord, Lord Soames, said a lot about this. What type and what size of manufacturing sector do we need? What efforts are to be made? We are told that public expenditure is too high. Are the Government going to attack the enormous sums now being used to bring more and more trained people to the use of our manufacturing sector? Quite frankly, if that is to be the type of saving they are going to make, the manufacturing sector will decline to a smaller and smaller proportion. What are they going to do about that kind of problem?

There is the problem which has arisen recently in the North-East. We have the National Enterprise Board going into partnership to produce titanium, a vital ingredient of the manufacturing sector. What are they going to do about it? If they are going to emasculate the NEB, who will take over from them in enterprises of that kind? These, then, are the real problems of the manufacturing sector. There is the effect of the coming of the silicon chip and its influence on jobs and on the training of people for new processes. If they really want to talk about the problems of the manufacturing sector why are these problems not being tackled in the hope of being resolved? I see that Mr. Prior was saying that there is no scope for a decrease in the working week. Good heavens! what is innovation of this type about? What is the point of substituting machines for men if men are to be expected to work the same number of hours? I hope that, instead of the rather futile nonsense which is mentioned in the gracious Speech the Government will begin to examine some of those problems which are now almost at a critical stage. For, on those and related problems, the gracious Speech reveals a marked poverty of thought which bodes ill for the future.

4.50 p.m.

Lord HASTINGS

My Lords, while I was listening to the opening remarks of the noble Lord, Lord Peart, in which he made a strong plea for a non-doctrinal approach on the part of the new Government, I could not help thinking how much better it would be, how much for the greater benefit of the greater number, if the affairs of this nation were conducted in the atmosphere of your Lordships' House. However, having dismissed that possibility as a Utopian dream, I rather wondered why the noble Lord had not addressed his remarks to his own Party during the past five years. I know that the recent Prime Minister, Mr. Callaghan, has set out to prove that he is a great unifier of the nation and that the Conservative Party is of a singularly divisive character. Nevertheless, in my memory I cannot think of any other Government which have succeeded in actually dividing one trade union against another, in dividing individual members of the same trade union against each other and in dividing the skilled trade union members against the unskilled.

I wish to make just two points in connection with the remarks in the gracious Speech about the reform of trade unions. I shall dwell on that matter very briefly because we have just heard a long and knowledgeable speech entirely about trade union reforms. I speak in this connection as someone not involved either with manufacturing industry or with trade union organisation, except as regards agriculture which is an entirely different field of operation. I speak rather as an ordinary voter, and the ordinary voters in the recent general election decided quite definitely that they wanted something done about trade union reform.

The first point that I should like to make is that the gracious Speech merely says that the Government will seek to provide for financial aid for postal ballots". I should like to point out that there are two forms of ballot, only one of which was mentioned by the noble Lord, Lord Jacques—namely, a ballot before going on strike. However, the other ballot is the one that takes place in connection with holding office in a trade union. It seems to me, as an outside observer, that the Government, with the type of overall majority which they have and with the expression of the will of the people who voted in the general election for something positive to be done, should really make a secret postal ballot for the holding of office in trade unions a statutory obligation. We know that there are trade union leaders who have been elected by a very small minority—as low, I believe, as 10 or even 5 per cent. of those taking part. How can a man then carry the authority he needs or carry credibility in the nation if he is so unrepresentative of the majority of trade unionists? I believe that there would be a great strengthening of the trade unions if there were a statutory ballot for the holding of offices. That would be to the benefit of the unions and their members as a whole. If that were to happen then in my view many of the other reforms would be unnecessary because other changes would follow in due course.

Secondly, the noble Lord, Lord Lee of Newton, asked what was meant by "participation" in union affairs. It seems to me that there is an omission in the gracious Speech because no mention is made of participation in the businesses in which the trade union members are employed. Within the past year or so we have seen the publication of the Bullock Report which did not seem to meet with the overall approval of any political party, the TUC or the CBI. However, I imagine that there must be some good in it. I believe that we should be thinking along the lines of further union participation in business affairs. If the new Government are to introduce trade union reforms, I have no doubt that, despite the recent conciliatory remarks of Mr. Callaghan, there will be a great deal of opposition from the Labour Party and a great deal of opposition from some of the union leaders. It is imperative that we should bring in reforms which are not only fair and reasonable in our view, but which are seen to be fair and reasonable from the point of view of the general public and in particular trade union members.

In any law reforming trade unions, with or without agreement, I should like to see another statutory obligation concerning the setting up of at least advisory councils in businesses, along the model that pertains in West Germany. I do not want to see responsibility for management or workers on the board—which I believe is not acceptable either to management or to trade unions—but, there should be advisory councils where matters can be discussed, new ideas put forward and explanations made. That is at least a step in the right direction of partnership. For goodness sake, let us get rid of the terrible attitude of "them" and "us", which is fermented, unfortunately, in some circles which I need not name by a minority of people, whether politicians or militant trade unionists. It is a terrible situation, and until we get away from the attitude of "them" and "us" I do not see any future for the prosperity of industry in this country. Therefore, I should like to suggest that if we bring in these reforms—and I have suggested going even a bit further than the Government have said that they would go—and make it a statutory obligation for there to be ballots for office, let us balance that with statutory advisory councils in industry where a spirit of partnership can be built up.

We can carry the matter even a little further. I do not think that this can be done by law, but I do not see why improvements cannot be made as regards sharing schemes, which are already in force in some businesses, by actually sharing profits as well. I do not mean a piece of paper on which one gets a small return annually or which one can cash in: I mean cash, because that is what counts. If we can do that balancing act I believe that we can put forward reforms for the benefit of unions and industry as a whole.

That leads me to the next matter about which I should like to talk, namely, agriculture, which of course will particularly interest the noble Lord, Lord Peart, and the noble Lord the Leader of the House, both of whom, as we heard in the friendly exchanges yesterday, were previously Ministers of Agriculture. In fact, the first speech that I ever made on the Front Bench in this House concerned the introduction of the Agricultural Estimates, and I spoke on behalf of the noble Lord, Lord Soames, when he was Minister of Agriculture in another place. He did me the honour to sit on the steps of the Throne—at least I hope that it was an honour—to hear what I was saying on his behalf. Perhaps he did so in a supervisory capacity.

At any rate, be that as it may, quite recently the Agricultural Workers' Union has let it be known that it is to put forward a claim for a basic wage rate of £100 a week, which, of course, is just over twice the present basic rate. I am sorry to say that that was accompanied by the usual remarks (which are repeated every year) about the meanness of the farmers and that it is entirely their fault that they do not pay higher wages. As a farmer on some scale myself, 1 happen to believe that the skill of the agricultural worker is at least equal to that of workers in the car manufacturing industry in this country, and in some cases is considerably higher. I do not see why they should not be as well paid. Yet, when I read in one of the nation's newspapers not long ago a schedule of the wage structure in this country divided into four categories, and found that the miners, the teachers and a few others were in the top category and the agricultural workers were in the bottom category, I am hound to say to the farmers that I thought it absolutely disgraceful. I should love to pay my men what they want. I think that they are worth it, but they should not blame me or my fellow farmers for not doing so, because ever since the war all Governments have followed a cheap food policy.

We speak of consumer subsidies to the farmers, but, in fact, they have always been subsidies to the consumers in order to keep food cheap. It makes political sense because over 90 per cent. of our population live in urban areas, and that is where the votes lie. However, when we joined Europe we immediately ran into trouble because food there is very much more expensive. In spite of inflation, we still have relatively cheap food here compared to the cost of food on the Continent. I suppose that in due course the cost of food here must rise to the level of that on the Continent. Until we abandon the cheap food policy—and admittedly this must be done gradually, over a period not of one Government but of two, which means a decade—I do not see how the agricultural workers will be paid the sort of wages which they should be paid.

I remember nine or even 10 years ago a debate on agriculture in this House when it was pointed out that, whereas the average real income had risen by 25 per cent. since the war, that of the farmer had risen by only 8 per cent. The situation has improved since then, but in real terms it is nowhere near the average rate of improvement, even now. Until it is, we cannot pay the agricultural worker what he is worth. I believe that that is wrong; it is a shame.

Agriculture is a subject which must be studied by the Government, who made only a very few remarks on agriculture in the gracious Speech. They said the usual thing which farmers are used to hearing. They said that the agricultural industries must have an opportunity to make their full contribution to the economy, and to compete on fair terms, which I imagine is more a reference to Europe and the difficulties in the European Economic Community. However, during the course of this Government I should like to see a real study in depth of the long-term future of agriculture, including its capital structure, land ownership and taxation of all sorts. In agriculture there is such confusion over subsidies and rebates; they vary; they go up and down and no one knows where he stands. There is also capital transfer tax, and in the area of forestry in particular I hope that legislation will be amended to what it was before. It is a wonder that private owners plant trees at all nowadays, but some—because, thank goodness, they like trees—still do. However, there is this long-term problem which needs studying in depth.

If, for example, the Labour Party had won the last election, it might have sought to introduce its proposed wealth tax. I do not know whether it had sorted out how that tax would have applied to agriculture. It is hard to believe that it had done so because it would have altered the entire structure, not only of land ownership but also of agricultural production, and I think disastrously. However, the situation is bad enough because of taxation, in particular capital transfer tax. If in the long-term it is decided that it is wrong, economically or morally, that there should still be large landowners but it is decided that there should be owner-occupiers owning up to a limited number of acres—say, up to 1,000 acres and no more, but noble Lords can take whatever figure they like—we still have to work out our capital transfer tax and what will happen in the future, because we cannot build up only to destroy.

Agriculture is an entirely separate subject. It has never been studied in depth by any Government since the war. I plead with this Government to make such a study in depth and to introduce legislation which will enable the farming community to increase its production and make the necessary contribution which it should make. The Government can do that during their term of office, but I ask them to consider the future of the whole of the agricultural industry, for I believe that in the second half of the 1980s we shall have to tackle the future capital structure and ownership of the land, coupled with the abolition of a cheap food policy and the proper payment to agricultural workers, putting them in the top category where they belong, together with the miners and car workers, for we cannot live without food.

5.6 p.m.

Lord KALDOR

My Lords, as a loyal supporter of the Labour Party, I cannot say that I welcome the outcome of this election. However, I can say that I have mixed feelings about it. After struggling manfully for years with urgent day-to-day problems and emergencies, with accelerating inflation—which they inherited from the previous Government on account of that Government's threshold agreements which had to be honoured—with the sudden onset of the oil crisis, the world recession, the sudden fall in the pound and so on, the outgoing Government were, as time went on, progressively less able to formulate a coherent long-term strategy for national survival. They certainly did not say how they were going to arrest or reverse the de-industrialisation of this country if they were returned to office. It is difficult to say what they would have done if they had been returned with a strong majority. In order to formulate and agree upon new policies the Party badly needs a period in opposition for recuperation and reflection.

On the other hand, one can hardly be happy with the alternative of having a Government with a strong majority committed to a strategy based on the strongly ideological orientation of the present leadership of the Conservative Party, if one is convinced, as I am, that that particular strategy is wholly misguided and that its pursuit will make our situation a great deal worse and not better than would have been the case if we had just drifted on with no strategy at all.

However, looking at the matter from an even longer-term point of view, I can also see positive advantages in the present outcome, for it provides a unique opportunity to settle for good the great philosophical issue which has plagued our political life and our economic progress for well over 100 years. I refer to the philosophy of laissez-faire. Despite its French name, it is a philosophy which is almost entirely British in origin. It owes its success to the English Utilitarians like Jeremy Bentham, who was the real father of the Manchester School and whose general rule, in his own words, was that: "Nothing ought to be done or attempted by Government"; or, to take another of its fathers, to Herbert Spencer, who in 1851 published a book with the intriguing title State Education is Self-Defeating, and 30 years later published another book called Man versus the State. This philosophy has frequently been condemned and pronounced dead and buried. It was condemned by the Conservative economist Cairnes as early as 1870 in his famous inaugural lecture. It was condemned a generation later in the early 1920s by a Liberal economist, Keynes, and the authors of the Yellow Book. But, in spite of all this, it is now bursting into life again embraced by a Tory Party, which historically always opposed it. It was opposed by Shaftesbury at the beginning of the 19th century, by Benjamin Disraeli, and by Joseph Chamberlain, to mention only a few of the leading Tory statesmen. Like true converts, the new Tories propound the creed with the fervour and vitality of a new religion, and in total oblivion of its dismal past record.

I confess that I can think of few historical situations in which the rigid application of the principles of the free market and the suppression of State interference would he less appropriate than in present-day Britain. Our industrial future is in serious jeopardy, and we arc in acute danger that the century-long period of our relative decline—a decline relative to other industrial nations who started much behind us and then surpassed us—is about to turn into an absolute decline with falling production, employment, and falling real income year after year, and with all the stresses this is bound to cause to our social fabric and to the whole of our institutional heritage. Indeed, if it had not been for the godsend of North Sea oil we would be in that miserable state already. I was glad to hear this afternoon that the Leader of the House confirmed that this is indeed their view, and not just ours.

Judging by the rate at which our industrial situation is worsening, the revenue from the North Sea, which will go on increasing for some years, will only postpone the evil day by a few years—by five years at most. There is a steady stream of factory closures, of industrial areas becoming derelict, of whole industries disappearing in front of our eyes: the motor cycle industry, where we were leading world exports 10 years ago, has gone completely; the motor-car industry, which is still one of our major industries, is disappearing fast, while others are kept alive only with the aid of large-scale Government subsidies.

The noble Lord, Lord Soames, said that he is well aware of the fact that this process of decline has gone on for a long time, but he thought that in the last 10 years there was an acceleration. I am sorry that he is not here now to hear what I have to say. Indeed there was an acceleration—and some of us predicted it—as the ineluctable consequence of Britain joining the Common Market in the industrial conditions we were in as against the industrial situation of the other Common Market countries. If Lord Soames wishes to have evidence of that, I shall be only too pleased to send him all my papers published in 1970 and 1971 in which I predicted the "negative" dynamic effects of membership in the form of a decline of British industry, and what has actually happened has fully borne out one's expectations.

Now we have Sir Keith Joseph—he has not spoken yet as Minister of Industry—and if he is true to his beliefs (and I am sure he is true to his beliefs, he is an honourable man and of deep convictions) he will do all he can to stop the subsidies, to close down and sell all the loss-making enterprises. But what I am sure he fails to see is that the net result of all this activity will make us more, and not less, vulnerable to foreign competition. It will make us less, and not more, able to protect ourselves in case of a national emergency. It will make the shrinkage of our output and income, and the misery of regional decay and mass unemployment greater and not less than it would be otherwise. That misery will be no less acute for its being concentrated in peripheral areas; in Scotland, in the North of England, in Northern Ireland, in Wales and in Cornwall. Those of us who are fortunate enough to live in the South-East—close to Europe—will be relatively shielded from it, and thus not Sufficiently aware of what will be going on in the rest of the country.

The fundamental error of free market philosophy resides in the notion that profit is the true and the only relevant criterion for deciding whether a particular form of economic activity is of benefit to the nation. It is only under highly abstract and unreal assumptions that commercial profit or loss can be treated as any certain indicator of social gain or loss. The main assumption of thesis —which is manifestly not true in our Present circumstances—is that the labour and other resources which are released by the cessation of a loss-making activity have a more profitable alternative employment waiting for them. However, if closing down an aero-engine factory (I use this for the sake of example) like Rolls-Royce does not lead to the re-employment of its many skilled workers and technicians in other more efficient factories but at best to their emigration to some foreign country; if the cessation of shipbuilding on the Clyde means only that fewer ships will be built but that nothing else will be produced instead, in these circumstances the application of the profit criterion is not a road to salvation; it is a road to ruin.

It has become so fashionable to run down our nationalised industries as a result of the chorus of ceaseless derogation by the media that it requires an act of courage to speak up in their favour. Whatever may be said against State enterprises on account of excessive bureaucracy, and so on, pales into insignificance in comparison with the merit of State enterprises in having kept up (until recent years, at any rate) a large flow of capital investment as a result of which their capacity was modernised, their efficiency improved, and the basic industries were brought up to date, something which could never have been achieved under private enterprise. Could anyone seriously contend that our coal industry would be superior today if it had not been nationalised—or the electricity industry, or the gas industry, or the railways, or the steel industry?

Between 1880 and 1930—a period of 50 years—excluding the war years hardly any new money was sunk into the coal industry or the iron and steel industry, and very little money—in comparison to Germany, not to speak of the United States—was put into the new technology industries which arose out of the invention of electricity, the motor car, heavy machinery, synthetic dye-stuffs and other chemicals.

The Earl of ONSLOW

My Lords, is it not a fact that at present the nationalised gas industry is a distributive industry and that most of the gas is got out of the North Sea by private enterprise?

Lord KALDOR

It may be a distributive industry, my Lords, but that does not seem to make any material difference to the point I was making.

The Earl of ONSLOW

One is nationalised and the other is private. That is the difference I am making, my Lords.

Lord KALDOR

My Lords, I fail to appreciate the point the noble Earl is making, but I shall be glad to correspond with him on the subject. Whether it is a distributive or productive industry, I am saying that it would not have been as efficient as it is, and as it is acknowledged to be by technical experts who regard it as the result of long-term overall planning combined with a readiness to sink large sums of money into the industry. That readiness has been lacking in the private sector because of the need for the approval of the Stock Exchange which means that it must make a large profit in a short period to justify itself.

I was saying that very little money was invested in those years. Instead, vast sums were invested abroad. In some years during the Edwardian period, when home investment in manufacturing industry was almost zero, no less than 10 per cent. of our national income was invested abroad. I would remind the noble Earl, Lord Onslow, that in those days there were incentives galore. However much present Ministers may try to revive incentives through tax reductions, they can never hope to achieve the Victorian or Edwardian peaks in fiscal incentives, when income tax was not progressive and it was seven old pence in the pound or 3 per cent. instead of the present 33 per cent. Yet with all those incentives, the economy was stagnating. If people think we will now see miracles as a result of cutting income tax by, say 3p or 6p in the pound, I can regretfully prophesy that it is more likely to make no difference whatever.

I have no doubt that without nationalisation we should have had the same situation after World War II as we had for 40 years before World War I and throughout a larger part of the inter-war years, and if one thinks that the period after World War 11 was a bad situation, I can only say that in the opinion of all economic historians who have studied this matter seriously, the 20 years of the 1950s and 1960s showed more rapid economic progress and more rapid growth of productivity than any comparable 20 years in previous British history. That that was due not just to a reflection of a world trend is shown by the fact that while it was true of Britain it was not true of Germany or the United States; in other words, their post-war record of productivity was not higher than what they had achieved in the previous periods. It was true in our case, and it is only in the last 10 years that our economic progress has broken down, for the reasons I mentioned.

Contrary to the general presumption, investing less in some industries does not mean that we shall be investing more in others. So far as the United Kingdom is concerned, it may merely mean less investment all round. For a more appropriate diagnosis of our basic troubles, 1 would refer to a new study on the economic growth performance of the United Kingdom which has just been published in the staff papers of the International Monetary Fund, an institution not noted for irresponsible, radical, Left-Wing views. The author of the study, after an exhaustive examination of the causes of Britain's comparative failure in the post-1945 period, concludes: In the United Kingdom, there has been a relatively greater flow of capital resources [in the private sector] into lagging industrial sectors such as textiles, food and beverages and relatively less into the more dynamic export-oriented heavy and science-based industries. Accordingly, United Kingdom industry has not been able to take full advantage of the marked upswing in world trade in manufactures over the post-war period. This tendency has manifested itself in a loss of export market shares and rising import penetration, which in turn have led to periodic balance of payments constraints on the growth of output. It is possible that in certain industries the shortage of complementary factor inputs, such as skilled manpower at the technician and engineer levels, together with inefficient management, may have contributed also to depressing output returns on new capital formation". In the light of that, can there really be much doubt about whether our prime requirement now is more laissez-faire or the very opposite—more Government planning and more Government support for industrial investment?

5.27 p.m.

Lord HEWLETT

My Lords, the noble Lord, Lord Kaldor, has made out that this new Government are no other than pure laissez-faire and devil take the hindmost; but he knows better than that —he must know better than that—and so must all noble Lords in this House. We have a mixed economy and we shall keep a mixed economy. What we shall do is to shift some of the emphasis, and that will be an extremely good thing. I am sorry to be rather direct about this, but, frankly, the Opposition have taken a direct line and they had better have a direct riposte. Their Benches contain in their numbers today some of the architects of Britain's poor industrial performance. The very poor economic advice given to the then Prime Minister, Sir Harold Wilson, gave Britain a shocking record in the last period of Socialist Government. The statistics show it and we in industry know it.

The noble Lord, Lord Hastings, referred to the undesirability of the continuance of the "us" and "them" syndrome. That was my theme in my maiden speech in your Lordships' House in 1972. How right he is now and, I say with respect, how wrong it is for certain Opposition Peers to be so blindly partisan today. What has happened in the intervening period? There has been a general election and the will of the people has been expressed, so perhaps a little more modesty on the part of the Opposition in hearing what they did wrong in the eyes of the electorate would be appropriate.

Lord KALDOR

My Lords, I began my speech by concentrating on the failures of the last Government—for not having a strategy for national survival—and I do not think I could have made myself plainer than that. I said I did not know what they would have done had they been returned to office and whether they would have had any long-term strategy. I also said it was their decision to join the Common Market which had been responsible more than any other factor for the very much speedier decline of British industry and for the de-industrialisation of the 1970s.

Lord HEWLETT

My Lords, I take the noble Lord's apology for the outgoing Government's failure; I accept it in good part. I do not agree with him about the Common Market, but I hope that I shall be allowed to develop my own speech for a few moments.

I think that the Opposition Benches at least ought to stop trying to fight the battles of the 1930s, or even of the early 1970s, because, after all, we arc now only six months off 1980. In a totally uncharacteristic speech the noble Lord, Lord Lee of Newton, threw down a strong challenge on union meetings. He referred to it as being nonsense to try to encourage more active participation by union members in their union affairs. I say to the noble Lord, "Come off it!" On all sides of the House we know perfectly well that there have been many union meetings called late at night, in inconvenient locations, at which the bullyboys have come into their own, and as a result militants have taken over branches of a union. I say to the noble Lord, shake not your head; I too come from Lancashire, and I know what day of the week it is in these kind of matters.

My suggestion to management and industry is simply this: why not make time and location available for union meetings in business time on business premises? Obviously there would not have to be unlimited time, otherwise nothing but talking would be done, but a fair and reasonable amount of time should be made available for union meetings. The four or five unions which there happen to be in the company in which I am in charge hold meetings in company time. They have good union attendance, and as a result our industrial relations record is but two disputes in just under 90 years—not too shabby. I think that those kind of union meetings could be allowed, and I would encourage management to do that.

Now I turn to another point. What about what the noble Lord said about the emasculation of the NEB? He really must refer to the gracious Speech and not to figments of the imagination. What we are suggesting is that, Proposals will be brought forward to amend the Industry Act 1975 and to restrict the activities of the National Enterprise Board". That is intended to prevent the board expanding to the extraordinary extent which we witnessed just before the dissolution, when in the other place millions and millions of pounds were, so to speak, voted on the nod for the extension of NEB activities. The noble Lord the Leader of the House said that he did not like the concept of back-door nationalisation and, frankly, nor do most of the people of this country, and again on this matter they made their views known on polling day.

How warmly I welcome the contents of the gracious Speech from the Throne. How strongly I congratulate the Government upon the speedy and confident manner in which they have handled the situation in the first intance; it really is rather like a breath of fresh air. When I was speaking in numerous marginal seats in the North West of England during the general election campaign what was significant was the obvious desire for something better than the turgid, restrictive socialist approach of the past 15 years, barring, that is, the short interlude of Mr. Heath's Government. During that interlude Mr. Heath and his Chancellor of the Exchequer, Mr. Barber (now the noble Lord, Lord Barber) did all they could to encourage investment and expansion, but for reasons that we all know the response of industry was poor and the result was disappointing.

Then there were justifiable fears of the effects of the actions of OPEC in 1973 and of the mounting union antipathy to the Government, leading in fact to the downfall of Mr. Heath's Administration. That simply must not be allowed to occur again, and I think that all sides have learnt much in the past five years. Certainly Britain could not possibly stand another such terrible period, and there is no reason why the country should have to do so. The high proportion of trade union members who must have voted for this Government demonstrates that militant and aggressive trade union leadership is not in accord with the wish of the vast majority of union members, or of the rest of the public, too. This evening a Press report indicates just such a feeling expressed by a union representative, as noble Lords will see if they look at the first news article on the front page of the Evening Standard.

What we need in Britain is a period of stability; in fact the conditions in which enterprise—I do not mean only private enterprise, but all enterprise—can prosper. It is, I submit, one of the principal duties of Government—to see that such conditions are created and maintained, and the whole tone of the gracious Speech is directed to this end.

I am sorry that the Leader of the Opposition has temporarily withdrawn from the Front Bench, because I must say that in a most intense and excited speech, which was most uncharacteristic of the way in which he led the House right up to polling day, he became tremendously upset about the possible future of the National Enterprise Board. He said that expanding the work of the National Enterprise Board was needed in the North and the North-West of England. But, my Lords, 1 am sorry—we do not need an extension of the National Enterprise Board. Instead, we need what I mentioned earlier: conditions in which industry, agriculture and commerce can prosper. That is not achieved by sending in more cohorts and more money from Government to try to administer the affairs of British business. Do not believe it, my Lords. What we want is not an extension of the work of the National Enterprise Board, but—

Lord HATCH of LUSBY

Will the noble Lord allow me to intervene? I am very grateful to him. Would he apply the argument which he is now advancing to the House to the manufacture of titanium on Tees-side, which has been rejected by—

Lord HEWLETT

That point was mentioned earlier and I intend to reply to it a little later in my speech; but if I do not, no doubt the noble Lord will call my attention to it. It must be remembered that I am just a common or garden Back-Bencher; I am not replying for Her Majesty's Government.

The noble Lord the Leader of the Opposition referred to the Pennine Rural Development Board which he set up, and he proclaimed that it was a great success. Yet in the next breath he said that it never got off the ground. Well, if that was never proved, though he thought that it was going to be a great success, what have he and other noble Lords been doing for the past five years in Government? They could have instituted the Pennine Rural Development Board and much else had they wished; but no, it was not worthy of that, yet it made a bull point of the Opposition speech this afternoon. Attack is always the best form of defence. I say to noble Lords opposite, "Your political, industrial and economic record while in office was appalling, and so of course you are going to lambast this side of the House as much as you can before we have even had time to sit down and take our places"—

Several noble Lords:Oh!

Lord HEWLETT

I knew that this would upset noble Lords, but they must take it because they have been giving it. We must not barrack in this House; I am sure that that is certainly against Standing Orders.

Now I turn to Quangos—yes, good old Quangos. In recent years far too many individuals have been appointed to positions in which they have not been answerable to Parliament, nor to the electorate. There have been far too many jobs for the boys, and for too many jobs have gone to the same individual, and we know, on all sides of the House, that that is not good democratic government. A healthy reduction in the number of Quangos was very much in the minds of the British people when they voted in the way they did on polling day. I believe that this brief authority extended to people who are not answerable to the proper democratic order of the Houses of Parliament and to the electorate should be drastically reduced. I do not say that this should apply to all of them, but I say to noble Lords opposite, "Many of your political advisers and PR men are for the chop." I am sorry, but they should be for the chop. They should not have been there in the first place, and noble Lords opposite know it. I also say to them, "Well, you can take it or leave it."

The Leader of the Opposition said that in elections we all make promises. By Jove! we do, my Lords. What is to happen here is that the promises we have made will be carried out resolutely. The party opposite—and I wish the Leader of the Opposition was present—do not have a monopoly of caring for the North. I am becoming a little tired of this argument being trotted out in relation to Workington onwards. There are other places in the North. There are conurbations such as Greater Manchester and Merseyside, as well as the great industrial area of Lancashire, which swung a considerable amount on polling day, though not so much as the rest of the country. I have spent 30 years actively in industry and politics up there.

I do not claim a monopoly any more than would the noble Lord, Lord Peart. But I agree with him on one point: yes, two nations are being developed; but not two nations along the lines of which we were perhaps thinking. The two nations are along the lines of the very point made by the noble Lord, Lord Kaldor; namely, that there is increasing wealth and power coming to the metropolis and the South-East of England, but decreasing power and influence in the North and North-West. In the time I have been in industry, ever since the war, practically every headquarters of every major decision-making enterprise has been shifted from where it was in Merseyside or Manchester to London. No wonder people in the North are beginning to resent the extreme centres of power here and the lack of response to the requirements of the North! I see the noble Lord, Lord Bowden, sitting opposite me. I dare say he would subscribe to this view, for indeed we spoke about it together on radio and television only a few months ago.

My advice to Her Majesty's present Government, or to any other Government who may succeed them, is: do not forget that, as in Italy, where Milan and Turin actually make the money even though Rome may administer it, so a tremendous amount of the wealth of this nation is created in Birmingham, Manchester, Liverpool, the North-East, Wales and so forth, and the feeling of not belonging is very clear in people's minds. Decisions are being made here at the centre with very little regard being paid, perhaps, to the effects locally. I recall that, speaking in your Lordships' House at the time of the major crisis, I referred to the plight of the folk in Greater Manchester. I make no apology for referring to it again, because I could not get a response from the party opposite when they were in Government, your Lordships may recall. I protested, but I received no reply.

The circumstances in Greater Manchester at the beginning of this year were: no petrol, no lorries, no buses, no water, no sewerage and no opportunity to bury the dead. It seemed to me that, in the South, more interest existed in the fact that the trains were running late into Charing Cross, or not at all to Waterloo. My Lords, I am deadly serious. We in your Lordships' House had better take a little more notice of the feelings outside the periphery, north of Watford, because that, honestly, is where the wealth is very largely being created. I am not speaking of the invisible earnings of the City, for which I have the highest respect: I am talking about industrial, creative wealth. So let this new Government not give scant interest to those parts of the nation. Let them take a keen and active interest in the development of free enterprise and a mixed economy in these other parts of Britain.

If I refer to the titanium question, I would only say that I am in the chemical industry and I know full well the requirements and needs of titanium. I do not know—because, as I have said already, I am a Back-Bencher—the detail of the position of titanium in relation to the National Enterprise Board. It is no use the noble Lords opposite getting cross with me; I am not answering for the Government. I know only my side of the chemical industry, and in a few moments I will give your Lordships so much about that that your Lordships will ask for mercy; so do not press me any more. If I may say so, the erstwhile Government party, which lost the general election, paid the price of neglect as far as concerns the opportunity to create the conditions favourable to investment and wealth creation. I am sorry, but they deserved to lose. What they could not do was poll their own strength. No matter what the noble Lord, Lord Lee of Newton, says, they could not get their own members out. I was round in all the marginal seats, and saw the attitude perfectly clearly. It was not an enormous swing to Conservatism or free enterprise: it was disillusionment with the then Government of the day.

The Leader of this House, the noble Lord, Lord Soames, was so right when he said that, clearly, it is only North Sea oil which at the present time is bolstering our national income to the point that, in the short run, we can maintain our present standard of living. But, as I mentioned earlier in my speech, those self-same dangers of 1973–74 are still with us. One of my business colleagues who has just returned from the United States has reported to me as follows—and, if I may, I will quote from his telex, because I have not yet had the chance to see him as I was here with the rest of your Lordships at the opening of Parliament yesterday by Her gracious Majesty the Queen. This is his report: Supply of aromatic chemicals. The key to the problem is the United States Government's policy on energy and on environmental protection and in particular how these impinge on the gasoline market. Its environmental protection policy has been directed towards reducing contamination of the atmosphere as a result of (1) discharge of unburnt petroleum products and (2) discharge of lead present in gasoline as an octane improver. Under current legislation all new cars have to be fitted with catalytic after-burners which preclude the use of leaded petrol, since the lead will poison the catalyst. In order to maintain the octane performance it has been necessary to add a substantial quantity of toluene to the gasoline as substitute for the tetraethyl lead. The situation is, of course, gradually becoming worse because the demand for unleaded petrol is steadily increasing as older cars are phased out and the proportion of new cars unable to burn leaded gasoline increases. It is likely to get dramatically worse if the prospective United States legislation governing the lead content comes into force in October this year as planned. Under this new legislation, the lead content of leaded gasoline will be reduced by two-thirds, making still more demands on the toluene availability. In fact, there simply will not be enough toluene in the world to meet the demand. Toluene is not a particularly important feedstock in the manufacture of aromatic chemicals. Its greatest use is as a solvent but it is a prime raw material for the production of benzene by dealkylation and, of course, benzene is the major intermediate for a vast range of aromatic chemicals such as phenol and aniline". Our lives would be very different indeed if there were not adequate supplies of both phenol and aniline for this country.

My Lords, if I may continue: The United States has traditionally been long in aromatics and has maintained a big export business with Europe and the rest of the world. These exports are now rapidly drying up. There would therefore appear to be a double squeeze in terms of the situation in Europe. First of all the general redirection of aromatic chemicals into gasoline is likely to affect the availability in the United States of downstream aromatic products and at the same time exports of basic aromatic building blocks such as benzene are likely to be greatly diminished. We have seen a steady increase in the price of aromatic products in Europe but, probably because no one wishes to set off a round of panic buying and overstocking such as we experienced in 1974, it would seem that the real position is not being properly disclosed. Apart from planning the short term business programmes in terms of material available, allocations and so on, the longer term situation must have a bearing on investment decisions [in Britain], and while there is clearly a dilemma to be faced between the risks of initiating panic buying and the uncertainties of not knowing the true situation, surely on balance a mature consideration of the problem, with the basic facts being made available, is the only sensible approach". The major producers of aromatic chemicals should keep supplies out of the hands, yes, of the speculators and merchant houses, to ensure that there is not the panic buying and the stocking up as in 1974, and that we come up with a fair and open allocation system to keep British industry going and much able to cope with this critical situation. I think your Lordships will realise that I am speaking rather seriously as a result, not only of Iran but of policies developed by the United States Government, which theoretically are in the very best interests of all the electorate but which practically may he to the severe disadvantage of the self-same people they are meant to benefit.

If I may revert to the gracious Speech for one moment, reductions in personal taxation should help increase productivity, encourage harder work and increase risk-bearing. Our country's very success depends on a shift of emphasis in favour of the individual. How much industry will welcome a reduction in legislation and in Government and State interference! It has been an unwarrantable burden, particularly on the medium and smaller sized enterprises. In many cases it has been counter-productive, as we said from the Benches opposite when we were in opposition, thinking in terms of the Employment Protection Act, which has in fact inhibited employment and has not benefited those it sought to benefit.

I hope that Her Majesty's new Government will give great care and thought to whatever propositions are brought up in respect of industry and employment. The Price Commission's departure from the scheme is welcome news, indeed. Yes, it is! The market itself, with intense overseas and home competition, will see to it that excessive profits cannot be made. I have given an ample illustration in my report from the United States. Industry's problem today is to get a proper return on investment. Without that, we shall not be able to invest further in the future and create wealth for this country.

My Lords, all my opponents keep disappearing from this Chamber. The noble Lord, Lord Jacques, spoke of the Socialist principle of benefits for all. There is no monopoly of that in the Socialist Party any more than in the Conservative Party. We want benefits for all. All that we differ about is the way of getting there.

Lord ELWYN-JONES

My Lords, if the noble Lord goes on long enough, maybe those who "disappeared" will come back again.

Lord HEWLETT

My Lords, if I may reply to the noble and learned Lord who was formerly on the Woolsack, I have given way to every interruption in the true spirit of democracy. What can I do?

It is by the individual's effort that wealth will be created. My objection to socialism is that it creates no wealth whatever. It is just an inefficient and wasteful redistributor of wealth. It is, frankly, anti- or, at least, counter-productive on the shop floor as much as in the board room. The noble Lord, Lord Jacques, spoke of the abuse of monopoly power. I find it thrilling of the Opposition to speak of the abuse of monopoly power and yet to defend nationalised industries. When there is time, one day, we must hear how they explain this apparent paradox. The worst abuses of monopoly powers are exercised by the nationalised industries, and in some cases by other organs of Government. Ten years ago, of the total gross national product of this country 40 per cent. went to central and local government and the nationalised service industries; five years ago it was 50 per cent.; and, last year, more than 60 per cent. of everything created in Britain went to central and local government and the nationalised service industries. That is the answer to the noble Lords, Lord Kaldor, Lord Balogh and Lord Lee, and the whole cohort—and I nearly said something very different. That is the answer. You have interfered too much. That is why you are in Opposition. Long may you remain there!

As for the final touch in the noble Lord, Lord Jacques, saying what trouble there would be if we have high unemployment, that is rich coming from a Government which had the all-time peacetime record of unemployment as they leave office—barring the 1929–1931 period of Labour misrule. It is no wonder that the party opposite is on the attack. If I were in their position, I should be so, too. It is much the best form of defence. There is only one problem: you cannot defend the indefensible. Your record, my Lords, on that side of the House, is appalling. The electorate know it. You lost many of your traditional supporters on polling day. I suggest that on your side of the House, there should he a degree of graciousness to this side. Let the new team have a fair chance to do far better.

Lord HATCH of LUSBY

My Lords, before the noble Lord sits down, may l as a fellow Northerner ask him to answer my question? One does not have to he a member of the Government to follow the line of one's own argument. As I understood it, the noble Lord said that the North does not want the National Enterprise Board. Does that include Tees-side where the NEB is prepared to produce titanium, which is vital to this country, and where private enterprise is not?

Lord HEWLETT

My Lords, with respect, I did not say that the North and the North-West do not need the NEB. I said that they do not need an extension of the work of that Board. That is a big difference. I must ask the noble Lord—and I am sure that Hansard, as always, will be correct—to take the point that I said "extension". We have not spoken of the abolition of the NEB. The Front Bench will make this clear; but the NEB could not go on expanding at the rate it was expanding because it was distorting the economy completely. In my opinion, it is for free enterprise and the nationalised industries to earn sufficient wealth to keep this country's position competitive abroad. One can only do that by conditions created in which we can prosper and not by free hand-outs, Government subsidies, aids and supports of all descriptions.

Lord TAYLOR of BLACKBURN

My Lords, may I ask the noble Lord whether he would agree to an extension of the NEB in the North-West?

Lord HEWLETT

My Lords, I do not think we need an extension of the the NEB in the North-West. I am not asking for certain of the schemes presently being undertaken (which may be of value and without which certain industries may fail) to be ceased. Not at all. But I feel that we do not need an extension; we do not need constantly to be propping up industries. The duty of Government is to create the conditions in which industry, agriculture and commerce can prosper. Whatever Government are in power, if they can do that there will be no need for the National Enterprise Board.

5.55 p.m.

Lord WEDDERBURN of CHARLTON

My Lords, it is always interesting, if difficult, to follow the noble Lord, Lord Hewlett, and to hear yet again the case against socialism as appalling and indefensible—which I last remember hearing when we both spoke in the Cambridge Union in 1949. I would wish to address your Lordships on a rather narrower canvas in welcoming that part of the gracious Speech which states: Legislation will be introduced to amend company law". This is an objective which I welcome greatly. Essentially, I wish to touch upon four aspects of company law reform in saying, first, that few areas of law could be more important than the law which governs the small and medium businesses and the vast and growing concentrations of capital which are now of giant and often transnational character. I hope to illustrate to your Lordships that this is not merely a technical subject. Most proposals of a technical kind for company law reform will not excite partisan or party passions. I take it as a token of the Government's serious intention to operate more than superficially upon the body of British company law that the Prime Minister has seen fit to appoint as Secretary of State for Trade the right honourable gentleman Mr. John Nott, who is undoubtedly one of the most energetic Ministers that the Government are likely to have and who will bring to his task assuredly the enthusiasm to be expected of an ex-officer of the Gurkhas and one who should be encouraged to wield his kukri surgically and to good effect on that body of law.

As to the first of the four points, in the short term there is the need to meet the requirements of the second and fourth Directives of the European Commission the second Directive of 1976 concerning the formation, classification, subscription and maintenance of capital and payments of dividends in regard to companies, and the fourth Directive of 1978 about company accounts. No doubt the Government will be greatly assisted in this task by the commercial and legal knowledge which can be brought to bear on the subject in your Lordships' House. I will confine myself on the first point to one comment upon the two forthcoming Bills necessary to bring British law into conformity with these European Directives. Whatever the other merits of the Directives, the second Directive of 1976 illustrates the absurdities which can be forced into British law from Brussels if the United Kingdom Government are not sufficiently vigilant with the Commission. On this point, all the earlier Governments have to take some part of the blame.

The Directive requires us to introduce into the definition of a public company an obligation to have a stated minimum of share capital. While we continue with our present structure of company law and the type of capital market in which it works—one, for example, where we do not have "no par value shares"—the introduction of a minimum nominal capital, which may make sense in Germany and France, makes no sense here and is quite unnecessary. I would urge the Government to take particular care in respect of the other draft Directive which is forthcoming on the harmonisation of company law, and not merely the draft Directive on harmonisation of company law but the draft Community statute on the "European company". It is said that this is now going to be taken very seriously by the Commission and pushed into Community law in the 1980s. The important point in the European company is that it is not only equally at home in every jurisdiction of the member-States of the Community, but also that it would establish, as the text now stands, an apparent but totally illusory workers' participation. If that statute is made Community law, as it now stands, the provisions of British law on companies and industrial democracy will be automatically overridden.

As my second heading, it is to be hoped that the Government can find time for a codification of British company law. Company law today derives from a very large number of statutes: The Registration of Business Names Act 1916; the Companies Act 1948; the Prevention of Fraud (Investments) Act 1958; the Protection of Depositors Act 1963; the Stock Transfer Act 1963; the Companies Act 1967; the Companies (Floating Charges and Receivers) (Scotland) Act 1972; parts of the European Communities Act 1972; parts of the Fair Trading Act 1973; the Stock Exchange (Completion of Bargains) Act 1976; the Insolvency Act 1976; and the Companies Act 1976. In addition, there are countless regulations and a mass of case law.

It is time to relieve practitioners, let alone laymen, of the task of finding their way through this veritable maze of company law and then through the taxation statutes which surround it. The case for rapid codification after the enactment of the two Bills needed to implement the European Directives is overwhelming and should be a matter of priority for the Department of Trade. After all, they have plenty of spare manpower now. Those who were put on to the good work of preparing measures on industrial democracy can now be seconded to codification of company law. The day will come when they will be needed again; but no doubt for a few years they must be put on to something else. It may well be that parts of the judicial case law cannot be codified. The valiant attempt of the department to codify, in Clause 44 of the 1978 Bill, the fiduciary duties of directors, may indicate that some areas of the judge-made law cannot be included in a codification; but at least the statutes could be swept up into a consolidating net in order that a practitioner and layman can find one code of company law.

My third heading, however, points to the fact that codification is not enough. Despite the constant legislative activity of the past 30 years, there still remain proposals made by the Jenkins Committee in 1962, and even by the Cohen Committee of 1945, which have still not been enacted. Many of these are technical adjustments of company law to meet modern requirements. Politicians know very well that there are few votes to be won or lost in reforming such delightful but arcane principles about the rights of shareholders, known to company lawyers as the rule in Foss v. Harbottle. Any politician or civil servant will tell you, as it is always put today, that company law reform is not "a sexy subject" which excites the electorate.

However, there are other areas of rather greater social importance. Some appeared in the 1978 Bill. It will be a challenge to the Government—now they are a Government—to see how many of these they incorporate into their reforms. Insider dealing—at long last the majority of city opinion appears to accept the control of such dealings, after a long 20 years of argument—should be made something in the nature at least of an offence. A further control of warehousing and nominee shareholdings; a proper system of disclosure and control of many other dealings between directors and controlling shareholders and their companies; and new laws on corporate conglomerate groups. All these are needed urgently.

Only yesterday, as the noble Lord, Lord Lee of Newton, has pointed out from these Benches, there was published the report of two distinguished inspectors appointed under the Companies Act 1948 to investigate the Ferguson and General Investments or Dowgate Company and CST Investments Limited, an affair which, on reading the report your Lordships will find, involved malpractices concerning many millions of pounds. In Chapter 32 of their 372 page report they make 12 minimal proposals showing how the law is now quite inadequate to control the kind of abuses which they revealed. As they point out, it is not even compulsory at the moment for the leading character in a story of outrageous malpractice to appear before the inspectors who are appointed to unravel the plot. As the inspectors put it in the report: Mr. Selmes has chosen not to give evidence before us save to a very limited degree through a solicitor ‖". My Lords, that is an absurd situation. Of course the inspectors are right in proposing that they should have power to demand testimony by relevant persons; and of course they are right that, if necessary, those persons should be brought back to Britain by extradition; and of course they are right that these persons should be examinable on oath, if necessary in court, for the purposes of such an investigation. They are right in their 11 other proposals too, and I trust that the Government will incorporate them in their measures. This report brings me to my fourth heading. There is now, I submit to your Lordships' House, an unanswerable case for the establishment by statute in the next few years of an administrative agency to administer, enforce and consider reforms of our company law. The case for a Companies Commission, let me be clear, is not based on any mistaken premise that the majority of British companies are improperly managed. They are not. However, the case for a Companies Commission (which, rumour has it, is not being taken very seriously by the committee appointed under the chairmanship of Sir Harold Wilson, two years ago; a rumour which it is devoutly to be hoped is quite untrue) must be met by any Government within the next few years which is serious about the reform of company law.

It is true that the self-regulatory agencies of the City have accomplished a great deal to enforce reasonable commercial ethics upon errant companies and errant businessmen. The Stock Exchange; the Issuing Houses Association; the Accepting Houses Committee; the British Insurance Association; the Institute of Chartered Accounttants; some but not all of the Merchant Banks; above all, of course, the City Panel on Takeovers and Mergers; and the fledgling Council for the Securities Industry have all played their part in this effort. But they are not enough.

As the panel said in the statement approved by its own appeal committee of 24th March 1976 in the Ashbourne Investments case, which it said occupied the attention of the City Panel for almost two years: The case illustrates … the fact that the panel's effectiveness and the degree of support it may expect as a voluntary body are related to the extent to which it is dealing with persons who are willing to comply with a voluntary system and who wish to have continuing access to the facilities of the City". The panel, it is true, added its belief that the advantages of a non-statutory informal body still outweighed those of a regulatory agency. That was three years ago, and I submit that if it were right then even, it is not right today. As the noble Lord, Lord Shawcross, in his capacity as chairman of the panel, said in 1974: The City code… does not seek to have the force of law". There is no reason why the self-regulatory agencies should not continue their work. But voluntary agencies are weekly and monthly being shown to be inadequate by themselves. There is an urgent need that their work should be co-ordinated and supplemented by an independent companies commission, established by statute in the interests of the community as a whole.

Let me repeat so as not to be unclear on the point: the vast majority of companies in Britain are managed honourably. But the exceptions to that rule have become too numerous for complacency. This need for greater control is more and more evident. The very names of the past 18 years tell the story: the Jasper Report; Cadco; the saga of Haw Par; SUITS; the House of Fraser; Lonrho; London and County Securities; the Peachey case; the "Hungarian Circle"., and countless others, not to speak of the yet unresolved allegations of "slush funds" operated by national and transnational corporations; and not even to whisper—and this is a point to be savoured—the names that regularly appear on the City page of Private Eye. Before noble Lords opposite laugh too much at that point, it is one page of that particular journal which has cost the proprietors almost nothing in libel damages since the journal was created. It is compulsory reading for most students of company law today.

Is there a single Member of your Lordships' House who does not believe that if these scandals over a period of 20 years had arisen in the British trade union movement, that the British trade union movement would not have been subjected to savage legislation? Of course it would. And it is time that complacency on this matter ended, under whatever Government. I was critical of my own party on this matter when it was in office. It is time for action. To the unhappy scars on the face of the private sector system of our economy the report was yesterday added as yet another ugly and unacceptable feature. In the course of the takeover battle involving Grendon Trust—I shall keep your Lordships only a moment more but I wish to make it quite clear how appalling this case was—the inspectors found that the leading character, Mr. Selmes (mentioned earlier in your Lordships' House), who organised the malpractices, said to a Grendon director: "I have looked after your chairman ". The chairman—and I have notified him by letter and telephone as a matter of courtesy that I would say this—was the noble Duke, the Duke of St. Albans, who was found in yesterday's report secretly to have sold his shares in consequence of what the inspectors found to be an allegedly "improper inducement". The point is that that allegation of an improper inducement to the noble Duke in regard to his actions as Grendon chairman was brought to the attention of the Takeover Panel hack in 1973. But as the inspectors record on page 146 of their report, the Panel decided "in fairness" to the noble Duke to "make no reference at all" to this evidence in its report. The Panel said nothing about it: that is a very good illustration of the unsatisfactory limitations of the Panel—limitations which one can understand if one turns again to page 146 of their report, because on that page will be found the chairman's explanation of why the Panel did not go into the matter. It was said that the Panel—here I quote: has not got the advantage of being able to demand discovery of documents and the like so that its exercises in interrogation are necessarily of a very limited character". That was six years ago. How long do we have to wait before we have a body which can demand discovery rapidly of documents and which can insist rapidly on ferreting out the truth of company frauds?

The Ferguson and General scandals will no doubt soon be swept under the carpet like the rest, but there are exceptions. Let me repeat it. Only today the new chairman of the merchant bank involved in the affair—and let me be quite clear that the affair occurred lone before he became chairman—is quoted in the Daily Telegraph as saying this about the Grendon affair: We really want to play this down now. This sort of thing doesn't do us any good and most of the people involved are now gone". Of course they have gone. They have passed on. But, if history is not to be reversed by some curious quirk, they will be replaced by others. Indeed, one wonders what has happened to people like Dectective-Sergeant Lilley. Your Lordships may not know his name but if your Lordships read the Evening Standard of 7th June 1978, you will find the gentleman described as one of the "Fraud Squad's most experienced officers "—a veteran of fraud company investigation. In his speech to the International Professional Security Assocition in 1978 on 7th June, he said that London had become "a paradise for fraudsmen", that company frauds were a "cancer growing with each decade", with more than £280 million at risk, to his knowledge, in London in 1977. That was the opinion of a veteran and most experienced officer in the Fraud Squad. Workers have been mentioned in the debate, but workers who see their jobs being whittled away by the removal of State aid, and who see what is euphemistically called on the other side of the Chamber "the restriction of the National Enterprise Board", will not forgive and will not forget when they see the wealth created by their hands and by the sweat of their brows being taken by those who wish to filch the money that ought to belong even to their companies.

There is a final reason, perhaps less controversial, which may do something to make my speech a little acceptable to noble Lords opposite—there is a final reason why it is imperative to establish a companies commission, which can sink its teeth rapidly into the fly-by-night financial huckster as much as into the more comfortable manipulator of corporate pyramids. The reason lies in the enforcement of company law, which today, is unbelievably fragmented. We have as enforcement agencies the Department of Trade and inspectors appointed by that Department, legal actions by creditors, liquidators or shareholders, the Official Receiver, the Director of Public Prosecutions and the police Fraud Squad, not to speak of special machinery in particular areas such as banking and insurance. We must have a co-ordinating agency—preferably not the Department of Trade, but if it cannot be a commission then surely it must be the Department of Trade—for enforcing company law: not a large bureaucracy like the Securities and Exchange Commission of the United States but, as Doctor Tom Hadden has put it in his recent book Company Law and Capitalism—an author whom I can assure your Lordships is no revolutionary— the need is for the much smaller investigatory and enforcement organisation which has been developed around the office of the Attorney General in most Canadian jurisdictions". I commend these Canadian experiments to the Government, and indeed I have no doubt they are already aware of them. We need a companies commission and we need it soon. Of course it will be called a Quango, but, as the noble Lord, Lord Hawke, suggested that Quangos have to look for work to do, I suggest that this would be a small Quango that would not have to look for work at all. At this stage of our social transition, the double function of company law is to provide an opportunity for companies in the private sector to work efficiently and not to entrammel them with unnecessary regulations, but it is also to deal firmly with the exceptions that I have described.

The noble Lord, Lord Soames, earlier talked of his Party's proposals on trade union law as based upon "common sense and responsibility". We shall no doubt see about that when those proposals come before your Lordships' House and I hope, if I may say so without offence, that they will be discussed on a different basis from what the noble Lord, Lord Hewlett, referred to as, what we all know about bully boys". What is sauce for the goose is sauce for the gander. If social responsibility is to be demanded in some new way by legislation on the trade unions, then the enforcement of social responsibility upon the minority of those in charge of companies must surely follow. What is needed is a Government which will face, as indeed no Government have faced, the essential question put in Professor Gower's book on the principles of modern company law: what should be the conditions on which the State permits incorporation with limited liability by mere registration? That is the essential question, and any Government that fail to approach it in their approach to company law reform will have failed in their national duty.

Lord HEWLETT

My Lords, I wonder whether the noble Lord would be kind enough to grant me this indulgence: would he not agree that perhaps the brief extract that he gave from my remarks was a little unfortunate? My reference to bully boys was purely in regard to the abuse on a small scale, in individual union branches perhaps, and unfair procedures. Just as I concede that there are bad things about managements in certain cases, so he must surely agree that there is on occasions an abuse of power in small branches of unions in particular cases.

Lord WEDDERBURN of CHARLTON

My Lords, if the noble Lord will supply me with details of cases of bully boys bullying anyone, I shall no doubt join him in criticising them.

6.19 p.m.

Viscount SIMON

My Lords, 1 hope the noble Lord, Lord Wedderburn of Charlton, will forgive me if I do not follow the very interesting points he has raised in his powerful speech. There are two main reasons why I do not attempt to do so: the first is that I do not know nearly enough about the subject, and the second is that of course the Government's proposals for company law reform are not before us and we do not know what it is that the Government will do. I am sure that when their proposals come here we shall find there are many noble Lords in this House who will be able to contribute to a serious debate on the subject.

The proposals in Her Majesty's gracious Speech to Parliament yesterday have to some extent already been amplified by the Prime Minister in another place. But much of the agenda for this long Session necessarily remains still in outline only. I make no complaint about that. In fact, I should have been even more alarmed than I am if, after less than a fortnight in office, the Government had come forward with detailed plans of all the legislative proposals that they are going to lay before us.

They have, of course, a clear commitment to reduce the burden of income tax, and for the details of this we must naturally await the Budget. But when the time comes, although the influence of your Lordships' House in this field is necessarily restricted, we shall wish to consider very carefully whether the manner in which they propose that relief should be distributed as between the different income levels is an equitable distribution, and, further, whether the means by which the shortfall in revenue is made up—whether it be by alternative taxes or by cuts in expenditure—will impose unfair burdens upon lower income groups. All these things must wait until the Budget.

The Government claim that reducing the burden of income tax will restore incentives and will encourage efficiency. I take leave to doubt whether such relatively small reductions as are possible in present circumstances will achieve much in these directions. I think that the noble Lord, Lord Kaldor, made rather the same point. Indeed, I am not sure that I understand the connection between tax restrictions and efficiency. As regards incentives, the Prime Minister said yesterday in another place—your Lordships will find this in column 78 of yesterday's Commons Hansard— People have preferred to reduce their tax bills by working less hard than to increase their earnings by working harder". If the right honourable Lady said that, she must know that perhaps some people have done this.

But I should like, if I may, respectfully, to ask noble Lords opposite, many of whom have worked with distinction in many fields: Has this been your reaction to increases in income tax? When it last went up, did you slack off, because if you did not why should we assume that others are differently motivated? If we are concerned, as we all are, with the standard of living of ourselves and of our families, surely our proper reaction when faced with increased costs, whether they arise from tax or from anything else, should be to work harder.

I wonder how many of your Lordships saw a programme on television some months ago, where they were investigating the reactions in the United States to the inflation which was beginning to bite rather heavily there. It was very interesting. They stopped people in the streets, as they are apt to do. There was quite a mixed gathering of people—shopfloor workers, office workers, executives and others—and in nearly every case, when they finally came to the question "What are you going to do about it?", they rather shrugged their shoulders and said" We shall just have to work harder". I only wish that that kind of reaction could be obtained from the people of this country.

I know that there are some anomalies in the tax system, especially in relation to social service benefits and the so-called poverty trap, and I hope that the Government will propose to iron these out, in which I am sure they will have the support of all quarters of the House. But apart from those few special cases, is it not a fact that an increase in gross pay always means an increase in take-home pay? I should have thought that if people were worried about a falling standard of living, they would be motivated by that thought.

No, my Lords, to my mind, if the aim is to restore personal incentives, a wide extension of profit-sharing schemes—in which, of course, managers as well as shop floor and office workers would be included—would have a far greater effect and would work much faster. I believe that when I had to be out of the Chamber for a few minutes the noble Lord, Lord Hastings, made a comment in this sense and I warmly support him. If such an extension of profit-sharing schemes were to be accompanied by a real effort to establish what I might call a family feeling in every business enterprise—the kind of thing that the noble Lord, Lord Hewlett, spoke about—the result could be remarkable. I am sure he will agree that this is something not to be achieved merely by formal means, but by a genuine desire on the part of those in charge to stimulate and cultivate a common interest in the prosperity of the enterprise.

May I turn briefly to two other matters? Here, I am afraid, I disagree with the noble Lord, Lord Hewlett, with all his long experience of business in the North. The proposed abolition of the Price Commission at this moment seems to me a grave mistake. It may not have worked as well as some people hoped it would, but is not it, or something like it, an essential part of any programme to encourage moderation in wage negotiations? Noble Lords opposite may call it "cosmetic", which seems to have become a rude word, but until inflation is finally crushed the need to show that there is in existence—whether or not it has to be used on some occasion—a means to control prices is, I suggest, a psychological necessity. The Prime Minister asserted yesterday—your Lordships will find this in column 79 of the Commons Hansard—that the Price Commission had, destroyed jobs and new investment as well as imposing extra burdens on industry". Quite frankly, without more details, I should not accept that as a balanced statement. But if there are defects in the operation of the Commission, then let them be remedied. The other matter to which I should like to refer is the proposal in the gracious Speech to, reduce the extent of nationalised and State ownership and increase competition by providing offers of sale". The noble Lord, Lord Peart, made some reference to this in his opening speech. The sentence seems to me a rather incomplete one, but I assume it to mean offers to sell profitable parts of nationalised industries, because, obviously, unprofitable parts would be unsaleable. From these Benches, we have regularly opposed recent extensions of nationalisation, but that does not mean that we are in favour of chopping and changing, with all the upheaval that this involves, both in administration and among employees. I believe that it would do great harm to the nationalised industries, which, as has already been said, have an important part to play in the economy of the country, if they were constantly being chopped and changed about. I hope that the Government will have further thoughts about this. After all, to hive off profitable parts of the business, and leave the nationalised industries with socially necessary but unprofitable parts, seems to me crazy. If the intention is that the unprofitable parts should then be allowed to die, then of course the social consequences of that have to be faced and dealt with in some way.

Finally—I did not mean to speak for too long—I was very interested as a Liberal in hearing the views of the noble Lord, Lord Jacques, about incomes policy, and he appeared to have support from the noble Lord, Lord Balogh, as well. I should very much like to know at some time what the Government think about that, but I recognise that it is too soon after the election for the Government to take a suggestion of that kind seriously at this stage. But perhaps, when the noble Lord, Lord Bruce of Donington, winds up for the Opposition, he would like to tell the House whether that is the general policy of the Labour Party these days.

6.29 p.m.

Lord BRUCE of DONINGTON

My Lords, if I may have the leave of the House to make a purely personal matter clear, I should like to say that when I was a Member of another place—a young politican, somewhat inexperienced—it was always my ambition one day to speak from the Front Bench. I little thought at that time that such an opportunity would be given to me for the first time in your Lordships' House. Therefore, I have to ask for the indulgence of the House on this occasion, which is my maiden speech at the Box. In the course of the remarks which I shall venture to address to the House I shall endeavour, within the limitations that my temperament places upon me, to be as non-controversial as possible, bearing in mind the extremely controversial terms in which some of the contributions have been couched.

At one time it seemed to me that some of the speeches that were made were hot from the hustings and that in fact they may have been due to noble Lords mislaying their notes. However, I am encouraged by the somewhat dulcet tones in which the noble Lord, Lord Hewlett, addressed us to pursue this entirely non-controversial tone. I should like to assure the noble Lord at the outset, so that we do not have to be further reminded of it, that we on these Benches are already aware that our party lost the election.

In approaching the whole question of the gracious Speech and looking at it from an economic aspect, I was tempted to pay the utmost attention to those parts of it which, it seemed to me, were basic to the carrying out of the policy of the party opposite. We are all citizens of a great country, and it is our duty, as the loyal Opposition, to give such constructive help as we can to the newly-formed Government in the carrying out of policies for which they have received the decisive support of the electorate as a whole. I trust, therefore, that my interpretation of the gracious Speech and of the policies contained therein will enable Her Majesty's Government both to take heed of the points that I shall venture to make and also possibly to take seriously some of the warnings that I may feel constrained, on behalf of my party, to give to them in following the path that they have chosen.

It seems to me that the basic concept which has now been adopted, aside from free competition to which reference has already been made, rests very substantially on two things: the need to cut direct taxation and the need to contain and, indeed, to reduce public expenditure. It was with those two canons firmly in mind that I examined the gracious Speech and divided it, in so far as fiscal matters were concerned, into two distinct sections, since this is the way in which I, as an accountant, am accustomed to looking at these matters.

First, I looked at those sections of the gracious Speech that meant either that the Government would deliberately pay out more or would deliberately receive less by way of taxation. I have called those the debits. Then I looked at the items on the credit side—in other words, at the sources of their revenue and also at the sources of their savings. It yields some very interesting results. On going through the gracious Speech, one finds that the pay of Servicemen is to be increased. That has been done. One finds also that the pay of the police is to be increased, and that has been done. That is a mere £160 million. I am not disputing its necessity. This is the policy of the Government.

I observe from today's Press, although it is not mentioned in specific monetary terms in the gracious Speech, that over the next five years some £2,000 million extra will be spent on modernising our forces. Well, that amounts, if one averages it out—I am not saying that it will be spent evenly over the period—to another £400 million. Then one finds that a minor amount of finance will be spent upon aid for postal ballots, that there will be increases in pensions, war pensions and other social security benefits and that provision is to be made for assistance to less well-off parents for the education of their children in non-maintained schools. These are very admirable objectives which the party opposite has full electoral authority to institute. The Government also propose to reduce the burden of direct taxation.

This is going to add up to a fairly formidable total debit. Therefore, if one has any regard for the national accounts, one has to say to oneself, "What provision does the gracious Speech contain for the financing of these benefits?" We find that parts of the nationalised industries are going to be offered for sale. That will yield something. At the local authority end—which is ultimately dependent, of course, to a very large extent on central Government finance—there will be the sale of council houses. I do not know whether orthodox business principles apply these days on the Government Benches but I was always taught, perhaps wrongly, that it really was not a good thing to treat the realised value of saleable assets as part of one's normal income. This is a good business canon which I have no reason to believe anybody would dissent from. According to the gracious Speech, therefore, part of the revenue is obviously going to come from the realisation, doubtless at knock-down prices, of assets. This is not a frightfully sound way, if I may say so at the beginning, of conducting the nation's affairs.

If I may turn to another point in the gracious Speech, I find that there is going to be an avoidance of waste. I do not think that anybody would dissent from that proposition. May I, in the friendliest possible spirit, offer Her Majesty's Government some suggestions as to where they might conceivably begin. They will doubtless remember the institution of the new local government scheme under Mr. Heath, in the latter stages of his Government, which resulted in a grossly inflated bureaucracy at the highest levels. Doubtless they will wish, in the spirit of contrition, of which I am sure the noble Lord, Lord Hewlett, would approve, to admit their own error and retrace their own steps, for the benefit of the country as a whole. So we hope, indeed, that there may be significant savings in that particular section.

There are other sections, too, in which there has been an inflation of bureaucracy: for example, Sir Keith Joseph's reforms of the National Health Service under the last Conservative Government. The Leader of the House will recall that Sir Keith Joseph took the somewhat unusual step of bringing in an American firm of consultants to advise him as to how the National Health Service should be reorganised. Well, we know how it has been reorganised, do we not? We know that administrators, very often in high places, have proliferated throughout the whole Service, to a point where the administrators outnumber those who are actually pursuing the work for which our hospitals are designed.

May I respectfully suggest to noble Lords that perhaps they might care to recall their American firm of consultants and ask them for advice as to the unscrambling of the wholly unwieldy admin- istrative structure that they as a Tory Government inflicted upon the country. Or, perhaps, to be a little more patriotic about it, may I commend to them the possible use of the organisation and methods division of the Treasury. After all, that is a domestic concern which contains many fine brains and it might do the job far more cheaply than the re-engagement of the American consultants who were previously employed.

Those are the only three items in the gracious Speech which so far promise any credits—any new sources of revenue—save one, and that is the Common Agricultural Policy. I observed with some pleasure that in the gracious Speech the Government will press for a fairer pattern of budgetary and resource transfers in the European Economic Community. Here is promising territory because at the present time, after all receipts, we are contributing net into the Community budget over £1,000 million a year. We have a Government now that believe in economies in public expenditure. Surely this is an item which they can get down to immediately.

I was somewhat dismayed to read in the Daily Telegraph that the new Chancellor of the Exchequer expressed astonishment at this figure, which means of course that he had not realised that this figure existed. We are all reasonable men and I would suggest to your Lordships that in any language £1,000 million—and some put it as high as £1,500 million—is a figure to which we ought, as businessmen and as administrators, to pay some attention. But the Chancellor of the Exchequer expressed astonishment. I always understood that shadow Chancellors had access to all published documents, in the same way as any private Member. Why should he express astonishment when these figures have been quite openly disclosed for the last four years? I will give the reference numbers: there is page 9 of Cmnd. 6721, Part 2, of February 1977; page 8 of Cmnd. 7049, vol. 2, of January 1978, and page 39 of Cmnd. 7439 of January 1979. Are we to assume that our new Chancellor of the Exchequer advised his party on the formulation of public policy, particularly fiscal policy, while he himself was in ignorance of the net contribution of the United Kingdom to Community funds?

Lord SOAMES

My Lords, will the noble Lord allow me to intervene for a moment because he has drawn me to my feet against my wishes, although as in a way this is a maiden speech perhaps I should not do it. The noble Lord is making a great deal of the word "astonishment": I think the astonishment expressed by my right honourable friend the Chancellor of the Exchequer was that this matter had not been dealt with by the party opposite while they were in power.

Baroness LLEWELYN-DAVIES of HASTOE

That is not what he said at all, my Lords.

Lord BRUCE of DONINGTON

Oh no, my Lords, that is not at all what the Chancellor said, and indeed the noble Lord, Lord Carrington, who made an observation on the same occasion, admitted to a similar degree of what I will term "uninformedness" when he was interviewed on the subject. He said: "I do not know what the figures are, but whatever the figures are it only lends credence to what I believe is a fact, that our contribution is disproportionate". I should have thought that this matter could have received far more vigorous attention than this. It will be in the recollection of your Lordships' House that I pointed out this question over two years ago round about this time of the year, and indeed the facts have not been unknown. The facts have been published in The Times. The whole trouble is that until now the Conservative Party have pretended that this did not exist and they have now suddenly been confronted with the facts. So we shall sincerely hope that they will tackle this matter.

They are going to have difficulties and this is where the warning that I have to give has point. As the noble Lord, Lord Soames, will know perfectly well, the Common Agricultural Policy, which is responsible for the bulk of this deficit—this is beyond any dispute—is out of control. Even though the agricultural price this year is not increased in respect of items in structural surplus, it will still grow and nobody can stop it unless it is changed. The noble Lord knows just as well as I do that the words which are in the Press today, concerning the position taken up by the French and the Belgian Governments, are one reason why it cannot happen without the unanimity of all the members of the Council; and as he knows, France and Belgium have already gone on record as advocating price increases during the current year.

So from this side of the House we wish our new agricultural Minister or the new Minister dealing with EEC affairs— Mr.Walker—and of course the noble Lord, Lord Carrington, well, and we promise them that in any endeavours that they make in this direction we shall endeavour to sustain them; but they had perhaps better forget now their entirely unjust and unworthy denunciations of Mr. John Silkin, who fought precisely for these matters in order that the British taxpayer should not have to pay any more.

In case there is a bit of a hypocritical attitude about it may I say that the representatives of the party opposite in the European Parliament in October last had a chance to do what Her Majesty's Government at the moment profess that they want to do. Amendments were tabled in October 1978 which sought to reduce by some 500 million the 1,500 million European units of account spent on storage. These were supported by British Socialists, by some Germans and by some Italians. Perhaps I should say to the House—and 1 have the records—that except for two, that is to say, Sir Derek Walker-Smith and Mr. Fletcher-Cooke, the entire Tory delegation, including its leader, Mr. John Scott-Hopkins, voted down our proposals to reduce the expenditure on storage and thus cost the country an extra £70 million. So I hope these points may be borne in mind as and when the Government opposite begin to get the feel of events.

The only other source to make up the deficit to finance the extra Government expenditure they are making, the tax reliefs that they propose—and, of course, unofficially there is reported some extra revenue from North Sea oil although that has not yet been confirmed by the Government—is an increase in indirect taxation. The Party opposite has, of course, a mandate. But what it has not got from the electorate is a mandate to increase indirect taxation—no mandate whatsoever. This is what the Conservative Manifesto says: We shall cut income tax at all levels to reward hard work, responsibility and success, and simplify taxes like VAT". Well, of course, it would simplify it to make it 10 per cent. instead of 8 per cent. It is rather easier to do it mathematically. Perhaps that could go through in the new Budget under the guise of simplification. Or, of course, 20 per cent. would be simplifying it because you only have to divide by five rather than contort yourself doing the 8 per cent. sum. So perhaps we will get an increase of VAT under the guise of simplification. All I should like to say, as indeed the House can confirm, is that there is no mention in the gracious Speech of any intention to increase value added tax. Indeed, of course, according to the Election Manifesto there is no mandate for it at all. So bearing in mind that the Government have to have money to carry on their business, and they are already committed to increased expenditure all round, with comparatively minor economies, it will be interesting for us to see how they make up the deficit.

There is another source, of course, and I am emboldened to mention this by some remarks that fell from the lips of the noble Earl who seconded the Motion for the Address—the noble Earl, Lord Onslow— who referred to direct taxation on corporations. On this matter the Conservative Manifesto of 1979 is singularly silent. There is no mention of it in the gracious Speech. There seems to be a conspiracy of silence about it. Is it in mind, or if it is not in mind may I put it in the mind of Her Majesty's Government that a considerable increase in corporate taxation is highly desirable, that in point of fact, as against the nominal rate of 52 per cent. corporation tax which is supposed to be paid by larger companies with larger turnovers, the figure actually materialises at something nearer 26 or 27 per cent.

It is quite true that there should be a shift from direct taxation on individuals. Indeed Mr. Healey had plans, as he has already outlined, to do precisely that. But surely the best way of doing it, rather than doing something for which there is no mandate, is to transfer the burden to corporations, who are in fact bearing less than their due share of tax and have done so ever since the reliefs that were accorded them by the Heath Government of 1972; you had 100 per cent. depreciation on all new plant and machinery and new capital plants have been a charge against profits ever since. He bitterly complained afterwards, which only goes to show that you cannot have incentives for companies as distinct from individuals, or disincentives. He complained in August 1972 that, in spite of all the aids his Chancellor had given them, British industry was still not investing, because apparently there was no climate to invest.

So in considering the whole vexed question of taxation, upon which the Government's fortunes seem so much to depend, may we respectfully suggest to them that these matters have their attention, particularly bearing in mind that the total tax and social security burden borne in Great Britain is still significantly less than the same total in the remainder of Europe despite what anybody else may say. These are all matters on which there will be much thought and we hope some revision of thought. Power brings responsibility, and responsibility brings, one hopes, a good deal of argument and disputation as to the correct priorities to be adopted. So it is all going to depend on incentives.

One of the most disappointing features about the whole approach of Her Majesty's Government to incentives is that, despite the qualification given to it by the noble Lord, Lord Soames, which qualification does not seem to be universally shared by his Administration, the real appeal of the Conservative Party for the revival of the nation's fortunes seems to be, "Grab all you can as quickly as you can". The appeal is a material one. People will not respond unless the incentives have the character of more this, more that and more the other. This is the gamble. We have to concede, and on these Benches do concede, that it is possible that you might conceivably be right, in a social climate in which acquisitiveness for the sake of acquisitiveness is advertised and blared out by the Press media, by the broadcasting media, to a point where the whole be-all and end-all of life as presented to our citizens is concentrated on nothing else but acquiring more and more material goods, either for their alleged comfort or to keep up with the Jones's. It is very dangerous, however, to rely on this incentive because you might conceivably be wrong.

There are other values. There are, for example, the incentives which arise from more and more direct involvement in work, direct involvement in the whole social organism of the workplace itself, a growing interest and permanent involvement in the actual work you are doing and its enjoyment. There is such a thing as ensuring the maximum use of people's abilities. Most people do not like to work in a way whereby their personal abilities are not fully used; this is important, as is the incentive of opportunities for more creative leisure, which is also a vital factor of incentive if there is to be recovery in our country. Our business has got to be to create the social climate within which this can happen. The social climate does not of necessity depend purely on financial gain. It depends on getting a spirit of co-operation among our people. It all depends on this. As one gathered from the very excellent speech of my noble friend Lord Wedderburn, at times when we tend to be critical of people of whom we disapprove we should remember that there are beams in somebody else's eye that ought to be paid attention to as well.

My Lords, with those sentiments in mind, and trusting that I have not exceeded the decent bounds of controversy on this my first occasion from the Box, I say, as indeed my Leader in the Commons did, that we welcome Her Majesty's Government here on short tenure but we do not feel that they are going to become a permanent institution.

7 p.m.

The MINISTER of STATE, TREASURY (Lord Cockfield)

My Lords, during the last two years there have been a number of debates in your Lordships' House on economic affairs, productivity, innovation and other apsects of our economic life and fortune. Those debates have been of a uniformly high standard and have contributed to public enlightenment and to a deeper understanding of the issues involved. Today's debate has followed in that tradition. So many points have been raised that I hope I may be forgiven if I speak at somewhat greater length than I had originally intended.

I was particularly interested in the speech of the noble Lord, Lord Peart, who seemed to think that by describing our policies as doctrinal that relieved him of the necessity of examining those policies on their merits. His speech reminded me of the old legal adage: No case—abuse plaintiff's attorney. If, of course, the noble Lord regards a profound belief in the freedom of the individual, a profound belief in individual enterprise and initiative, a profound belief that the powers and functions of the State have grown excessively and ought to be reduced—if he regards all those things as doctrinal then we are happy to plead guilty to the charge.

At the other end of the debate I was particularly glad to hear that we have the wholehearted support of the noble Lord, Lord Bruce of Donington, in the steps we propose taking to reduce bureaucracy and to cut out waste in Government expenditure. We shall remember that pledge of support. I was fascinated by the attempt of the noble Lord to deliver his own Budget speech—something which in the real world we shall mercifully be preserved from. I am afraid that all I can say to him is that he will need to possess himself in patience until 12th June.

A number of noble Lords raised the question of the National Enterprise Board. As my noble friend the Leader of the House said, we are opposed to further nationalistion whether by the front door or the back. We recognise that certain of the companies presently held by the NEB—for example, ICL and Brown Boveri Kent—have in themselves been extremely successful. However, I see no reason to suppose that they would not perform equally well, if not better, under wholly private sector ownership.

I think that it is as well that I should remind your Lordships, as indeed my noble friend Lord Hewlett did, that our Manifesto commitment was: To amend the 1975 Industry Act and restrict the powers of the NEB". We are now considering how best to implement that policy. We recognise that circumstances may arise where assistance from Government is needed. Perhaps I may quote what my right honourable friend the Prime Minister said last week in Perth: We accept that Government has a duty to mitigate the effect of industrial change. While we see no benefit in pouring vast sums of taxpayers' money into firms or industries which have no future or which lack the will to adapt to the new demand of their customers, we will certainly not turn a blind eye to industries which need assistance to overcome the problems of transition. We will be prepared to help them along the way, as long as there is a real prospect of success". A number of noble Lords—

Viscount SIMON

My Lords, before the noble Lord leaves the question of the NEB I should like to raise one small point. He said that the proposals were to restrict the "powers" of the National Enterprise Board. That seems to me a little different from what is said in the gracious Speech; namely, to restrict the "activities" of the NEB. I wonder whether there is any difference in meaning?

Lord COCKFIELD

My Lords, I do not think that one can really separate the activities of the various parts. I cannot see that there is any substantial difference, or indeed any difference, between what was contained in the Manifesto and what was said in the gracious Speech. I went on to say that we are now considering how best to implement those policies.

I should like to turn to what was said both by the noble Lord, Lord Peart, and other noble Lords about what, in these days, are referred to as Quangos. We recognise that many of these boards and organisations make an important contribution to our national life. But our priorities are clear. We said in our Manifesto: We will see that Parliament and no other body stands at the centre of the nation's life and decisions and we will seek to make it effective in its job of controlling the Executive". We firmly intend to review the nature and operation of Quangos in the light of that commitment.

The noble Lord, Lord Rochester, asked me about disputes procedures. Good procedures have existed for many years which allow for arbitration as a precursor to industrial action. For several decades Governments and both sides of industry have recognised the importance of such agreements. Indeed, in recent years Governments of both parties, directly through the Department of Employment and indirectly through the creation of ACAS, have recognised this and provided an advisory service to industry to put across the message. Of course, no procedure creates of itself industrial peace. That depends on the industrial climate and the open-mindedness of both sides of industry.

There was also a great deal of talk about incomes policies and a number of noble Lords called for permanent incomes policies—in particular, the noble Lord, Lord Rochester, the noble Lord, Lord Jacques, and the noble Lord, Lord Balogh. I do not think that a winding-up speech is the occasion for going into the philosophy of centralised or governmental controls over wage bargaining and wage levels. But I am bound to say that it does sound odd to us to hear these appeals for permanent incomes policies coming from supporters of a Government who increased the trade unions' bargaining muscle on the one hand while constantly repeating that no pay policy would ever stick that did not have the consent of the unions on the other. The unions made a sharp reply to the Government's 5 per cent. norm last winter and we shall suffer the consequences for a long time. The truth is, as my noble friend the Leader of the House said in his speech, that centralised pay controls are simply not "on" at present, whichever Government are in power and whatever the pros and cons of the arguments concerning them.

I must also say that we refuse to be castigated by the noble Lord, Lord Jacques, as a generator of unemployment when the noble Lord himself served in a Government which increased unemployment during their period of office by over 130 per cent. I do not lay all the blame on the Labour Government for that record, but I lay enough of it not to take the noble Lord's strictures too seriously.

On the question of unemployment, the noble Lord, Lord Balogh, suggested that a tight monetary policy would raise unemployment. The Government are, indeed, pledged to keep a firm hold on the money supply, but it is quite wrong to suggest that unemployment would be reduced by a lax monetary policy. On the contrary, only if inflation is brought under control can we hope to achieve a reduction in unemployment. We have consistently made it clear that a responsible monetary policy will have a major part to play in the battle against inflation that lies ahead.

I was grateful to the noble Viscount, Lord Simon, for his comment in relation to company law, a point which was also raised by the noble Lord, Lord Wedderburn of Charlton. A Companies Bill will be introduced after the Whitsun Recess, and this will make provision for the changes in our legislation necessary in order to implement the EEC's Second Directive on company law. Further legislation to amend company law will be necessary next year, and a number of additional measures of company law reform will be included in this later Bill. As the noble Viscount said, these Bills will provide the right opportunity for debating these important issues.

I should now like to turn to the general question of the state of the economy. There can be no doubt at all about the seriousness of the situation which we face. This point was rightly stressed by my noble friend the Leader of the House. On the basis of the policies followed hitherto, the prospects for British industry, both in the immediate future and in the longer-term, are far from encouraging. Manufacturing output is lower now than it was in 1974; output per head is not much higher than it was then and it is hardly increasing at all. With output static, increased imports met much of the demand caused by the upturn in consumption last year. The profitability of manufacturing industry is low. Employment in manufacturing is, indeed, now about 7 per cent. lower than it was in 1973. Industry is simply not creating enough new jobs to make any real impact on the present level of unemployment, let alone absorb the large number of extra workers who will come into the labour force within the next few years. That is the measure of the problem which faces us as a result of what has happened over the last five years.

I know that it has become commonplace to claim—as, indeed, the noble Lord, Lord Kaldor, has done both today and on other occasions—that the industrial decline of this country has been going on for 100 years or more. Like so many examples of commonplace wisdom, that is neither universally true nor true in respect of all times within this period. Thus, in so far as comparisons are available, the inter-war years showed a remarkable recovery by the United Kingdom, with productivity growths exceeding those of most other industrialised economies to a pronounced extent. In terms of real gross national product per head, the United Kingdom was passed only by the United States in the pre-World War II years. But of more immediate relevance is the fact that in the period 1951 to 1964—the 13 golden years of Conservative Government—our national income rose by an average of more than 3 per cent. per annum. In the years 1970 to 1973 it rose by 3.6 per cent. per annum. In sharp contrast, in the last five years the rate of growth has been a dismal 1 per cent. per annum.

Of course, there has been no shortage of alibis; indeed, the production of alibis has been one of the few areas of outstanding growth in the manufacturing sector in the last few years. For example, there is much talk of the oil crisis of 1973, and that argument was repeated today. But that did not prevent Western Germany achieving a growth rate over these last five years two and a half times greater than we did; or the United States achieving a growth rate more than three times our own; or France nearly four times, or Japan five times. None of these countries had the benefit of North Sea oil, as we did.

Lord KALDOR

My Lords, perhaps the noble Lord will allow me to ask a question. Will he agree that the great difference between the periods in which we did well and the periods in which we did badly related to our net exports?— that is to say, the periods when we did well in the inter-war years and after the war were when our imports were kept down either by high protection or by import controls, which the Conservative Government re-introduced in 1951 and which continued until the end of that decade. Will he also agree that, equally, the performance of Germany and France in relation to us is largely explicable in terms of the differences in the trends of their exports in relation to our output and to world trade, and in their declining import penetration when our import penetration had risen beyond all bounds?

Lord COCKFIELD

My Lords, I think that the noble Lord's intervention can be answered very simply indeed. The major difference was that the periods of high growth were periods of Conservative Government and the periods of low growth were periods of Labour Government.

Of course, the past is essentially a matter of history and it is relevant to our present problems only in so far as we can learn and profit from it. What we are really and deeply concerned with is not the past but the future. If there is one lesson that we can and must learn from the past in order to apply it to the future, it is that for most of the last 15 years—that is, since 1964—we have been marching up the wrong road: growing state involvement in industry, growing intervention in the economy, excessive Government expenditure and excessive taxation.

Earlier this month the people of this country decided that this had got to stop, that we must follow a new path which will help and not discourage; which will strike off the shackles not rivet them on; which will be a broad highway to progress, not a path to decline. We do not underestimate the immensity of the problems, but we have the policies to deal with them; those policies are set out in our Manifesto, and many of them have already been included in the gracious Speech. Action has already been taken in a number of important fields. The next major step forward will come when my right honourable friend the Chancellor of the Exchequer opens his Budget, which he will be doing on 12th June.

The most urgent problem facing the country is that of inflation, which was clearly on a rising trend before the election. This we shall tackle, and tackle resolutely, by following sound fiscal and monetary policies. Sound money is the foundation of a stable society and the only base on which prosperity can be built. But even if, as we intend, a proper fiscal and monetary discipline is re-established, the basic problem which still faces this country is that we do not produce enough. We do not produce enough because our productivity is too low. Our productivity is too low because we do not use our productive resources efficiently enough. We do not use our resources efficiently enough because neither management nor workers—sometimes one, sometimes the other and sometimes both—do not have the willingness, the determination or the incentive to do so. We do not create enough new businesses, and as a result we are failing to create the genuine and productive new jobs which we need. This is the result of an inadequate level of profits, excessive taxation and discouragement due to Government restrictions and regulations. None of these things can be cured overnight, but they can never be cured at all unless the Government take the lead and create the right atmosphere in which people can themselves tackle these problems and cure them. Let us never forget that Government is the servant of the people and not their master.

Our principal objective must be to reverse the decline which has occurred in the private sector. Our proposals in the field of direct taxation are specifically designed for this purpose. They will provide incentives which have been absent for so long. Incentive is not just a question of making sure that the rewards for an extra hour's or extra day's work are sufficient; it is also a matter of ensuring that it is worthwhile for individuals to improve themselves through education or apprenticeships, of encouraging people to work for promotion, and of helping management to take on extra responsibility. Without a sufficient framework of incentives we have no hope of spurring individual effort and initiative, and on this our economic recovery depends.

The erosion of differentials through taxation has been a potent source of grievance, has harmed output and productivity, and has created industrial strife. Our policy, therefore, rests upon the twin pillars of providing incentives and removing discouragements. The success of such a policy depends—and we would not attempt to burke this issue—upon the reaction of management, of workers, of investors, of savers, and indeed of all sections of the community.

When I read economics many years ago—I never had the good fortune of being a pupil of the noble Lord, Lord Kaldor, but I was a pupil both of the noble Lord, Lord Robbins, and of Professor Hayek—it was often debated whether economics was an art or a science. It is certainly not a science in the exact sense of mathematics, physics, or chemistry, but it is a science of human behaviour. Human behaviour, not always, but most of the time, is rational. People can see where their best interests lie and they tend to follow the course which is most to their advantage. There is no reason to suppose that people will not react reasonably and sensibly, and to their own advantage and to the advantage of the community as a whole, to the policies we propose, and there is every reason to suppose that they will react reasonably and sensibly. Indeed, the decisive rejection by the people of this country of the Labour Government and of the policies they followed over the last five years is the clearest possible evidence that people do understand these matters, and that, however long it may take them, they do take the right decisions.

None of us in your Lordships' House doubts the spirit of the British people. None of us on these Benches doubts that the ills of the economy can be cured. None of us doubts that the people will respond favourably—not necessarily in what they may say but certainly in what they do—to the policies we propose. When at the end of the lifetime of this Parliament we look back our only surprise will be that it took so long to start out on the right road.

Lord DENHAM

My Lords, on behalf of my noble and learned friend the Lord Chancellor, I beg to move that this debate be now adjourned.

Moved, That the debate be now adjourned.—(Lord Denham.)

On Question, Motion agreed to, and debate adjourned accordingly.