THE NATION'S DIFFICULTIES AND OPPORTUNITIES

HL Deb 07 November 1979 vol 402 cc841-978

4.2 p.m.

Debate resumed.

Lord PEART

My Lords, now we turn to mundane matters. I should like first to address my remarks to the noble Lord who opened the debate. He said that he did not speak for the Government. All I can say is that he made a very good case for the Government and I remember listening to a very fine broadcast which be made on sound radio and thinking, "My goodness, Lord Thorneycroft is again like he used to be years ago when I first knew him in 1945—Captain Peter Thorneycroft who wrote a very fine pamphlet on development areas". I am afraid he has become a little more Right-Wing since then and I regret it. I do not think I have changed my stance at all. I am proud to be a member of the Labour Party and I am proud to say that I am a socialist, in the best sense.

I welcome this debate. The noble Lord is quite right; we need occasionally to have debates of this kind where there is no specific Motion but where we can discuss the broad strategy of Government policy, although I must admit that many of the points which have been raised by the noble Lord were covered in the debate which we had on the gracious Speech, which I thought was a good and effective debate.

I regret what the noble Lord said about unions. I think he has got it wrong. He is living in the world of fantasy. I know that he is now a distinguished businessman and has done much for the regions with one of his companies in the North-West, but I think he has got it wrong. I do not think we can blame every trade unionist for shifts to the Left or even shifts to the Right. Generally speaking the trade unionists that I meet in my party and at conference are reasonable men. Obviously in any organisation or any party one may get some unreasonable people, but broadly speaking the British trade union movement is sound at heart and I am not going to attack it as some of my own colleagues do sometimes. We had difficulties, of course. I believe that the long "winter of discontent" paved the way for the downfall of the Labour Government. It was not so much the Tory Party, although now I believe that the British people are beginning to see that they have the most reactionary Right-Wing Government that I have known since the war. That is not heaping abuse on the Government. In the last debate I was accused of being abusive. I am never abusive but I believe in arguing vigorously, as does the noble Lord. I do not think that abuse wins the day: you have to win it by argument and I believe that what one has to do is to show to the British people, in particular in a democratic community, that we have a good case without abuse.

I will not take too long because there are now approximately 30 speakers. The noble Lord set a good precedent in his opening speech and I propose to confine my remarks to about a quarter of an hour or probably less. Above all I want regional policies to succeed and I want to debate regional policy today. I believe that we are still living under a two nation system. I believe strongly what Disraeli said in his novel Sybil, that we have two nations. We still have two nations. We have different emphases here and there on the regions, to which I have referred so often. There are the problems of the North-West, the problems of the North-East, the problems of industrial Wales and the problems of Scotland.

Lord BLEASE

And the problems of Northern Ireland.

Lord PEART

Yes, my Lords, and the problems of Northern Ireland, as the noble Lord, Lord Blease, has quite rightly said. When I think of regional aid I think also of Ulster. So I argue that here we are still having virtually a two nation system and a most important policy which I feel is wanted is a good regional policy to revitalise these areas by attracting industry. This is something about which we are very proud. Over the years the Labour Government have given much more regional aid than successive Tory Governments and I have a whole list of figures here to prove it. I was glad to know what was said at the CBI the other day. I do not know whether noble Lords have read the speech of Sir Alastair Pilkington: I am sure he is not a supporter of the Labour Party, but he emphasised the importance of regional aid. It was not only what he said at that conference but I believe it was addressed to a wider audience.

I hope that there will be no slackening in this and I trust that whoever is winding up this debate tonight—I believe it is the noble Earl, Lord Gowrie—will return to this subject because I believe that aid has been cut. I know that the noble Viscount, Lord Trenchard, defended this well and he was kind enough to send me particulars and details, but I believe that regional aid has been affected and I get the feeling that the Tories in power arc not as enthusiastic as we were at that period. It is part of our national strategy to recreate wealth in these areas. After all the men and women of my old constituency, in the steelworks, the men and women of Durham and the miners and others in different parts of the region and the shipbuilders in Scotland, are the people who produce the wealth and they are the people who have to be helped. I hope noble Lords will read carefully what Sir Alastair Pilkington said at the CBI Conference.

Added to that, we not only have to see that we have proper distribution; we have to see also that we apply the right technology. I read today—or was it yesterday?—in the Financial Times, that the micro-electronic industry support programme which began with a £70 million budget has had its allocation cut by at least £15 million and possibly as much as £25 million. Goodness gracious! this country should be in the forefront of micro-technology. That is what the Labour Government did; that is what the National Enterprise Board did. That is what was announced by a Labour Minister in another place. Now we hear that there is to be an attack on this. I hope that the noble Earl will be able to reply on this matter.

I was very proud to serve as chairman of ACARD—the Advisory Council on Research and Development—which produced a very fine report for people to read carefully, as to what the problem was re the development of the chip processes. I asked the noble Lord, Lord Soames, in a debate what was to be the future of ACARD. I asked that because of the cutting down in many Civil Service departments of superfluous activity. I hope he can now tell me that he is not cutting down ACARD, and I hope he can probably tell me at some later stage in the debate—I do not want him necessarily to get up now—whether ACARD is still there or whether it has been thrown into the dustbin. I think that is important.

So I argue again about the regions: Why cut down on the roads?—as mentioned in the White Paper. We need good infrastructure, we need technology; roads are essential. I cannot understand the mentality of Tory politicians who produce such a document detailing the cuts that we see before us. The expenditure cuts are going to harm the regions. Not only that, but I believe, turning quickly to the social services, that they are going to harm the Health Service. My noble friend Lord Wells-Pestell, I thought, delivered one of the finest speeches that I have heard in this House for a long time on this very matter. He indicated how we want to care for the family and he indicated what were the dangers facing us.

I have here a lot of figures. I shall not weary the House by reciting all the figures, but let me take the social services. Here are some examples of the steps which some local authorities have been forced to consider: one borough reducing home-help, cutting the service by 5 per cent.; another metropolitan district in London imposing a minimum charge of £1 per week for the home-help service, which was previously free; another authority postponing the opening of a newly-built home for mentally handicapped children; another authority closing homes for the elderly, for children, and for people recovering from mental illness, and a day centre for the physically handicapped; delaying starting a new intermediate treatment scheme for juvenile offenders; another one imposing a reduction of £900,000 on the social services budget of £11.7 million, a cut of 7.7 per cent.; another authority forced to delay appointment of specialist social workers to promote foster care of children. These are figures provided in the Social Services Parliamentary Review. What a tragedy that some of these services should be cut or postponed in this way. So I say to noble Lords opposite, I still have a feeling that they never really believed in a comprehensive National Health Service. I have heard whispers of the possibility of the Health Service itself facing cuts in a big way. I hope that we can have a reply on this. I am proud of the National Health Service. I think it was one of the great achievements of the Labour Government and a great achievement of Aneurin Bevan, and his then Parliamentary Private Secretary is sitting here now. The Labour movement will always recognise that the Health Service must be comprehensive and must play a major part in our country's life and activity. Indeed, people in many other countries, even people in the United States, admire so much what we have created. And yet now, because of difficulties, we are to have cuts and we are to have blows at the Service itself. I hope the Government will think again.

Then, my Lords, what about education? Why attack there? The noble Lord mentioned the schools in London. I am very proud of some of the schools in London. I am very proud of the comprehensive school to which I sent my own boy, even though he passed the 11-plus exam when it was in existence. I am very proud that my family are connected with that school. I think the noble Lord will regret what he said. I do not think he should criticise schools unless he can really show in a broad general sense what he means.

Lord THORNEYCROFT

My Lords, I think the noble Lord may have slightly misunderstood me. I was not attacking the schools in London. I was saying that the Inner London Education Authority seemed to have a rather curious choice of schools.

Lord PEART

Actually, my Lords, ILEA has a fine record. I know the Tory Party in London are trying to destroy it and trying to bring in something different which will not work. I believe ILEA should be defended. Every local authority in London, even Conservative, accepts this. I think he should have been better briefed on this. I do not know who has advised him, probably Mrs. Thatcher's office. I think he has got it wrong. But there again we are still living in a strange society where we separate our children at an early age. I thought we were moving away from this. I speak as a former school-teacher who taught in a grammar school. I thought we were moving away from the tripartite system; we debated that on a previous occasion when the Bill was mentioned. I think noble Lords should really look further afield. We have got to create a democratic system in the best sense, where boys and girls of all abilities are able to mix within a unit. That is why Eton and Harrow are very good comprehensive schools, as I once said before. There is no problem of a dull child at Eton or Harrow; they get the right education; they also develop the high flyer. That is what a comprehensive school is and that is what I want for our children. I do not want the tripartite system. I want a system where a child can be given within that school unit the type of education suited to his capabilities. So I regret this attack on comprehensive schools and I regret the subsidisation of the direct grant schools. This is what we are opposing.

I have been told my time is up. So I conclude by saying that this debate is a very important debate. We believe that we shall fight you continually on education, on the cutting down of health services, and we will have no holds barred, in the best sense; we will be vigorous parliamentarians looking critically at the legislation which will flow from the Government, and indeed at the policies. As I said at the beginning, I think this Government are one of the most reactionary Governments I have ever known, and that is now accepted even by parts of the British Press. I do not know whether noble Lords read the Observer this weekend. I hope the noble Lord will read the editorial there. So it is for these reasons that we reject the viewpoint being adopted by the noble Lord who moved the Motion.

4.18 p.m.

Lord MACKIE of BENSHIE

My Lords, I will not enter into competition in deciding which of the noble Lords, Lord Peart or Lord Thorneycroft, is further to the Right. I am perfectly certain that they are both fairly conservative (with a small "c"), perhaps the noble Lord, Lord Peart, even more so. I think this debate is very apt. I think it is perfectly true to say that the Government are not only doing a balancing act on Rhodesia but that they are in an extremely difficult position, and they are tackling the problems in a fresh way. It is also true to say that the Labour Government in the period after the Lib/Lab pact did not really proceed to tackle anything, and we do need fresh thinking on the state of the nation. We wish the Government well in their efforts, which will not stop us criticising the detail as much as we think necessary.

Certainly it is true that a trade union cure for the evils of our economy is not possible. The last Government indeed tried to legislate in the way the trade unions wanted; in fact they went far too far in giving way to their demands, in the view of many people, in their own party as well as in others, and it simply did not work. You really cannot really cure a burst appendix by kissing it better. That we have got to take drastic action there is no doubt. Consider the oft-repeated figure, which cannot be repeated too often in my opinion, that making the same motor car by the same firm on the Continent and in Britain takes twice as long in Britain. It is a figure which cannot be ignored, and it is a result without any doubt of the attitude into which the whole country, particularly trade unionists through the trade union movement, has slipped.

Of course, I shall not attack trade unionists. This country is full of good men and good firms who can compete with anyone and who are doing so. But it is a fact that large sections of our economy are performing so badly that they are making our country a laughing stock in the world. Unions are not wicked, but such is the climate that is being created throughout this country that foolish, arrogant, wicked men can take advantage of trade union procedures and set up phoney picket lines which can do enormous harm. Because many people suddenly have the idea that anything a trade union does in a picket line is a form of holy writ, we are doing untold damage to our economy. Moreover, our attitude is keeping the working man of this country poor whereas his counterparts on the Continent and elsewhere, such as Hong Kong, Japan and Korea, are becoming richer and richer. We cannot dodge the issue.

I have just been on a visit to Hong Kong and China. It was most interesting. While in Hong Kong we were taken to see the new metro which has the horrible name, "Mass Transit System". However, it has opened three months ahead of schedule; the cost is below budget; and the take is above the estimated budget. By comparison let us consider, for example, Glasgow. Her Majesty opened a line there which the public will not be able to use for another few months because of disputes. The line extension to Heathrow was over a year overdue and the cost was astronomical. The same is true of the Victoria Line. When we compare that with Hong Kong we realise that there is something wrong with our system. We should also consider that at the end of the war Hong Kong had a population of 600,000. Its population has multiplied—be it five, six or seven times—and is now about 5 million, and they rehoused over 3½ million people. That is a fantastic achievement and something which we in this country should be considering and trying to emulate instead of our present panacea, which is the only word that can be used.

We then crossed the border to China. China is changing. The Chinese have been held back enormously by the Cultural Revolution and by the foolish ideas spread by an aging leader and the Gang of Four. We were told appalling things about that period and about factories where the Red Guards preached against production. They said that the people should not think I too much of production because that is a capitalist attitude. We were told about the teaching schools and hospitals where they had to accept students who were politically proper but who, in terms of their ability to take the course, were way below par. We went to see a music conservatoire which had been shut for seven years during the Cultural Revolution. We went to see a cotton printing factory where they had overcome the troubles by using the old-boy network.

The point that I am making is that China has revolted against the system. The turn round is complete and I have no doubt that members of the Labour Party will be most interested in the statement that I am about to read from the Official News Bulletin No. 11222 of Saturday, 6th October, 1979. This extract gives the National Congress instructions on agricultural policy. The relevant paragraph says: Economic organisations, at various levels of the people's communes must conscientiously implement the principle of, 'from each according to his ability, to each according to his worth '. I do not think that that is quite as the original, but it goes on: And shall give more pay for more work; no pay to anyone who does not work; and equal pay for equal work, irrespective of sex. It is imperative to work out payment in accordance with the amount and quality of work done, to establish the necessary system of reward and punishment, and firmly to overcome egalitarianism ". That is an extraordinary statement, but it shows that the Chinese are really determined to overcome the stagnation into which they have fallen due to their system. That is what we must do here. Our Government, of whom I do not wholly approve, have the job of changing attitudes. They must change attitudes in this country. We must stop fighting over the kill and arrange to kill more. Perhaps I have used an unfortunate metaphor and I should say that we should stop fighting over the cake and arrange to bake more.

However, we clearly must show that we require production and that we can distribute. This is a wonderful country in which to live. We get on extraordinarily well with each other—at least we do in Scotland; I do not know about England—but what we lack is simply the means to keep up our present standard. Of course we must make cuts, and of course they will hurt. Every cut will be fiercely opposed, I dare say, and I hope that the Government will listen to reason and will deploy reasonable arguments; but when they are beaten in argument I hope that they will accept it. It occurs to me that quite a case was made as regards overseas students. I hope that the Government will look carefully at regional aid. I agree with what the noble Lord, Lord Peart, said about that.

I hope, too, that the Government will, look at the way in which savings are deployed in this country at present. The day is long past when money fructified in the pockets of the people. I have never quite understood the meaning of "fructified", but it is a fine word and I understand that it means "multiplied". As a result of a long series of legislative acts concerning tax concessions for insurance, high personal taxation, and so on, money does not fructify in the pockets of the people—it goes into the pockets of the insurance companies. The institutions supply the capital for many of the changes and advances in this country. It does not always go the right way. It might be true to say that many of the property booms which did us no good in this country, really took place because the money was available in large quantities and it was a sure thing and better than manufacturing. That is the kind of attitude that must be changed. It is only by the success of the manufacturing industry that we can create wealth.

The Scottish Development Association (SDA)—I do not know about the NEB—has done a great deal of good. I must here declare an interest. It built a factory for my company in Perth and let it to us. We could not have expanded in that area without the availability of that capital in the form of a factory to let. I can give many examples in Scotland where the SDA has done a great deal of good. The Conservatives should not be frightened of it. If they back new ventures and they are successful, they can always sell the shares back at a profit—if they take shares. There is no reason why they should not do so as long as it is not a method of backdoor nationalisation. I ask them to look very carefully at this matter and to look at the good that has been done. We must have a system in this country which is fair and which is seen to be fair. We must encourage the strong and protect the weak. But in the protection of the weak, again we must watch legislation.

We have had a very unfortunate example of the working of the Redundancy Payments Act in the north-east of Scotland this year. In theory that Act is a fine thing, but in fact the factory of Lawsons which is a bacon factory, had to close down. Unilever wanted to close it; these big firms are not always as efficient as they think they are. A local cooperative and others wanted to take it over. The whole thing fell down because the workforce voted against the terms because, I am told, they could not bear the thought of passing up the lump sums which were due to them under the redundancy agreement. They would rather take a chance on getting another job than preserve this first-class and necessary adjunct to the bacon industry of the north of Scotland.

The Protection of Employment Act is a fine piece of legislation, but in my company the managing director and another busy director had to spend three days over a fatheaded appeal against dismissal, and in the end the dismissal was upheld. Three days of valuable production time was lost by these able people. If we are to change the attitude, it must be seen that to raise production will benefit everyone. I was glad that the CBI recently had a great deal to say about getting really close to our own workpeople. Of course the directors of a firm have far more in common and far more benefits to share with their workforce than they have with the trade union organisations, which seem totally unable to control their branches which have got out of control. The directors, shareholders and the workpeople have a common cause which should be clearly seen by everyone.

A great process of education must take place and the extension of the profit-sharing provisions introduced under the Lib-Lab agreement needs to be examined by the Government. Already well over 200 firms have taken the opportunity afforded by this very small Bill. Profit-sharing schemes play a large part, but genuine productivity deals, which reward weekly and monthly, are probably more effective. They must be genuine. Where such schemes exist, they must be explained with great clarity to those concerned.

If we are to survive, we must see the prospect of one Britain—not two Britains or several Britains—where the people work together. We do not want dull uniformity; we want a chance for all. We want taxes to be fair, to be low and to allow enterprise a chance. However, some taxes need to be adjusted in order to be seen to be fair. I do not see why capital gains tax, which should be indexed, should not be as high as the tax on income. Tax on labour and the sweat of the brow or the brain should not be higher than capital gains tax after indexation. The capital transfer taxes are good taxes, as long as income tax is low; because nothing does more good to the son of a rich man than for him to pay off a hefty capital transfer charge when he starts, instead of starting where his father left off. If we had more of this and the chance to do it, perhaps the sons of rich men might work a little harder instead of playing as much as some of them appear to do.

Lord DRUMALBYN

My Lords, will the noble Lord not add to that "and so long as inflation is low"?

Lord MACKIE of BENSHIE

My Lords, I was very careful to mention indexation. To make £1 million is good for the nation, but to be a millionaire is not necessarily so good for the nation. We do not want the sort of candy-floss millionaires who sprang up in the City during the periods of both the last Governments and who got this country a very bad name. I see that one of them has returned to this country. even though he crashed his enterprise, and owes a bank £17 million. According to Lady Olga Maitland in the Sunday Express he is back in a £1 million house in Chelsea and has returned because Mrs. Thatcher and the Conservative Government are in power. I hope and trust that the Conservative Government are not as welcoming to him as he is to them. But this is a symptom and the sort of thing we must get over—we are living in a world that may be tough, but it is a world that should be fair. I do not think that this will come about by popular acclaim. I think that foolish and selfish men, power-drunk and hungry, will oppose sensible measures.

In the winter ahead the Government will face great difficulties. The people of Britain may have to empty their own dustbins and put up with great hardships, but it must be shown that striking does not always pay. We must ensure that the built-in procedures to stop this sort of thing arc used. The Government must represent the vast majority of the people in order to do that and to stand the strain. I am not sure that this can be done entirely on a party basis. The Government will need allies and the confidence of the nation. I hope that they have the wisdom and the character to gain that confidence.

4.36 p.m.

Lord SOAMES

My Lords, once again we are deeply grateful to my noble friend Lord Thorneycroft for having initiated this debate. I am sure that there are few in your Lordships' House who have had more experience over the years than my noble friend in the matters that he has discussed, both in Government—and I remember the happy days when he and I sat next to each other in Cabinet and used to pass each other rude messages from time to time—and later in industry. My noble friend has a wide international as well as a national experience. We are grateful to him for originating this debate and for the excellent speech that he made.

The noble Lord, Lord Mackie of Benshie, made a very balanced speech, giving credit where credit was due. On the whole, I think we received more credit than attack. The noble Lord put us on notice that he would attack where he thought we were wrong, but I was fairly happy that the general thrust of his speech was that the Government were more or less on the right lines. I certainly agree with much of what he said and with his analysis of the problem. The noble Lord, Lord Peart, pinpointed two or three specific areas—the regions, the National Health Service, and education. He called ours the most reactionary Government Britain has ever had. I think that we are the most radical Government that this country has had since the war—I think that is a better description.

However, as I see it, my job this afternoon is to sketch out the picture—rather as my noble friend Lord Thorneycroft did—and to outline the context of policies within which the Government expect to be judged. On this occasion I do not want so much to go into the details of the policies themselves. We expect to be criticised. All Governments do, and they always will be and must be. But, I believe that criticism is sterile and unproductive unless there is some general agreement, some common ground, if you like, about objectives and about where we are trying to get. I believe that there is more common ground in the country than there has been for quite a long while. In that situation the criticisms have a context. They serve to identify and to highlight difficulties, and to help to overcome them.

Until just six months ago we on this side of the House were in Opposition for five years. We respect the role of Opposition and will be scrupulous in the way we deal with it. But we do not respect the kind of Opposition which professes that the world in which we have to earn our living is other than what it is. We are happy to argue, for instance, about the priorities we have determined in last week's White Paper on our expenditure plans. But it is a waste of our time and everyone else's time to argue with people who believe that wealth is a kind of Christmas tree which a Government only has to shake and then pick up all the presents and hand them out to the most deserving; or who do not make any connections between Government borrowing and spending, or taxation and spending or who believe that if Governments only stimulate enough demand there will be jobs and social services for all; or who choose to deny or ignore the paramount need for our industries to be competitive in world terms; or who believe that you can pay for a Welfare State just by taxing earned income at 80 per cent. or more.

The Leader of the Opposition—Mr. Callaghan, not the noble Lord opposite—lent his authority to that view only last week. So we must try and stake out a common ground about the really fearsome decline of this country's industrial capacity and just what that means for the Government's—for any Government's—tax and borrowing base; for their ability to provide services; for jobs; for the maintenance of a civilised, open and plural society, where people can steer a decent course between individual freedom and collective responsibilities—which is what I understand to be the fundamental of a mixed economy.

I am going to try and stake out the common ground, and the context in which I hope our policies will be judged. It is against this background that my noble friend Lord Gowrie, when he comes to wind up, will deal with the particular arguments and representations which your Lordships choose to make. Britain has two great problems, two central difficulties affecting everything we want her to be. There is the particular problem of the decline of our manufacturing capacity and competitiveness through low productivity. There is the general problem, affecting others as well as ourselves, of world recession fuelled by the steep rise in energy costs. In other words, we are operating in a malign international economic atmosphere.

Following the first round of oil price increases most of the industrialised democracies, including ourselves, reacted by overspending—or, if you prefer, reflating demand—while they tried to pretend to their electorates that the problem would go away. There has been the inevitable counter-reaction; a hard stamp on the brakes of money and credit; deflation. That is what we are seeing in the United States of America and elsewhere at the moment, and very unpleasant it will be for all of us. So it is against the background of a world recession that we have to tackle the chief difficulty: low output and our competitive decline, and that does not make it any easier.

If your Lordships are looking for the origins of cuts, or the source of threats to the Welfare State in the future, do not, I beg of you, look at these Benches. Look around and about you. Look at the goods that people buy with the money and credit available to them. Look at the names of the cars, of the television sets, of the household appliances that people buy, and consider where they come from. Look at the industrial items, the machine tools, the agricultural equipment, so much of the advanced electronic and automation marvels, and consider what they cost and where they come from. There is the source, there is the reason why no responsible Government can envisage at the present time the sort of expansion of public services which we would all like to see.

It is largely of course a supply problem; a failure on the part of our industry to compete adequately here at home, let alone in world markets. In the 1950s we were accustomed to living with a ratio of exports to imports of manufactured goods of the order of 3 to 1–3 of exports to 1 of imports. That ratio, coupled with the benefits that we derived from our invisible exports, enabled us to purchase the food and the raw materials that we needed. Now what is the ratio? It is just over 1 to 1. Perhaps 1.1 of exports to 1 of imports, and no higher than that, and that picture tells a sorry story.

Some people argue that we could fight the threat to our welfare system and our mixed economy imposed by our manufacturing decline by greater protection of our native industries, hoping thus to nurse them back to health. I am not talking here of the loony Left and their ideas, but of certain economic commentators like Mr. Wynne Godley and our own—I refer in the sense of this House's own not the Government's—Lord Kaldor. We are of course ready to review any particular problem cases where our industry may be unfairly hit. But in general it remains true that, even if it were possible to disregard our Treaty of Rome obligations, it would not be in our national interest to turn protectionist for we are ourselves an importing value-adding, exporting country.

We do very well, as the noble Lord, Lord Mackie of Benshie, said, in many areas, and I include of course out highly successful invisibles: the City's overseas earnings were indeed at a record level last year. Foreigners may not buy many of our motor-cars but they still buy our banking, insurance, and other services. We would be very vulnerable to retaliation. The wealth and tax base on which our public services depend would shrink even further. I am absolutely convinced that our supply-side and output problems would not be solved by sheltering existing industries; and I am equally convinced, for it is obvious, that the industries of the future will require larger markets than our domestic one for their development. Nor do I believe that an international beggar-my-neighbour policy is a sensible, or humane, or internationally acceptable approach to a recession.

So we are left with the job of putting our own house in order and continuing to use the European and wider councils of the world to communicate what we are trying to do and relate it to the needs and policies of others. However difficult it is to get our own sums right, that remains the only way to give ourselves the credibility and viability to co-operate with any real effectiveness with the other industrialised democracies, and to find our way through the recession, and by so doing to lighten the even heavier load on the poorer countries of the earth.

The front line in our strategy has to be industry and enterprise itself—the wealth creators. We are determined to strengthen incentives. We have already reduced the standard rate of direct tax to 30 pence in the pound. We would like to be able to do more, and I am sure we will when we can. We have already reduced the top rates of tax on earned income to 60 pence in the pound. It may affect relatively few people, but we believe that among them are people crucial to the welfare of our economy. We also believe that it is important psychologically, and if it affects relatively few people it is also comparatively cheap to do. The money lost is trifling, and has no relation to old people's homes, as Mr. Callaghan seemed to suggest—in direct contradiction, incidentally, to his own repeated and courageous insistence to the Labour Party of the counter-productive effects of high marginal rates, and the necessity for public spending to take a falling share of the nation's output.

Incentives are essential for revitalising the supply side of our economy, where everything starts. It is the supply side that has gone wrong, yet it is on the success of the supply side that the country in general depends, and so does the success of the Government's policies. We depend on it to get the wealth base, to get the tax base, to meet our responsibilities; the social services, the money we give to local authorities to supplement their tax base and pay for education and for their social services, the money we need for law and order and for our defence.

We cannot repeat this message too often. Governments of both parties have so far failed to get the message across that what we are able to offer in the way of services to the people depends essentially on the wealth that they themselves create, and that excessive pay rises claimed by people unrelated to production and wealth-creation must mean the erosion of among other things, public services.

The other side of the wage coin is, of course, employment. Wages rising faster than productivity inevitably result, sooner or later, in higher prices to customers, falling profits, less reinvestment, a less competitive position at home and abroad, greater vulnerability to import penetration; job after job is lost, people thrown on the mercy of what shrinking services a shrinking tax base could provide.

But if the front line has to be industry and enterprise, the Government's job is to provide a background in which the essential conditions for the creation of wealth are met. The most important condition for the creation of wealth is stable prices. So long as inflation is seen as an endemic problem in our islands there is not the confidence to put up money for investment prospects. People tend to prefer property or goods. It is to help to master inflation that the Govern ment turn their face against printing money to underwrite inflationary pay settlements and against excessive borrowing.

Here of course is the direct connection with the public expenditure issue. We have to bring down the rate of inflation through control of the money supply and the consequent control ofGovernment borrowing. Even if a prices and incomes policy were on offer to this Government—and it is not on offer to us any more than it was to the last Government, as I argued in the debate on the gracious Speech—we would still have to control the money supply and control our own borrowing. We cannot expect private industry to submit to disciplines which we are not ourselves prepared to submit to. And "we" in this context have an enormous effect. We occupy not so much, I think, the commanding heights but the vast deeps of the economy, nearly half of the total—so we have to insist on the connection between pay and productivity in our own area. Industry would have every right to complain if we demanded that it should face the realities of pay bargaining alone while the Government were prepared to foot the bill for excessive increases in the public sector, or do so without making rapid compensations in the volume of services provided. The reality of public sector pay bargaining is that unjustified increases have to be paid for by fewer public sector jobs or reduced public services, or a combination of the two.

The strategy of last week's White Paper is to hold public spending at its present level, in volume terms, for the time being. The projected out-turn for the current year, 1979–80, and next year, 1980–81, is very close to the estimated out-turn of last year, 1978–79. And indeed, if we look back over the previous four years at the record of public spending, it rose fast. But what was the item that made it rise fast? It was the increased servicing of an increased debt. That was where there was the greatest rise by far—in the servicing of the debt in the four previous years. When translating volume into cash limits, we have made allowances for inflation. We have also allowed for an increase on present levels of unemployment, uncertain though forecasting in this area always is, particularly in view of the high number of vacancies that are on record at present.

In the whole social security area, therefore, planned expenditure for 1980–81 shows an increase in effect, and not a cut. I am not just thinking of the fact that there are likely to be additional people eligible. As I said earlier, we have allowed for an increase in unemployment. I am thinking, too, of this month's record uprating of pensions and other benefits, as well as the increase in child benefit premium for single parent families and the recently announced provision for assistance with fuel costs.

It is, I believe, a travesty to represent our efforts to contain the growth in public spending as a programme of "savage cuts" or an attack on our great public services. Let us be clear. The threat to the future development of our social services comes from the erosion of our wealth and tax base, or from pay claims that outstrip what the tax base is able to provide. It is utterly bogus for previous Ministers to claim otherwise—and here I exempt the noble Lord, Lord Peart, from this; he did not do so today. But others have described our reduction of Labour's planned expenditure, which was based on optimistic assumptions, both about high growth and low pay claims over the next two years, as an assault on the Welfare State, as if it were a machine for putting people out of work.

But I suggest that noble Lords opposite know every bit as well as we do that, had they been re-elected, the 2 to 3 per cent. growth that would be needed to finance the expansion which we have ended would not, in the real world, have materialised. Their own average rate in Government was, say, 1 per cent. during the four years. Nor would they have been able to tolerate politically, any more than the nation would have tolerated actually, the higher taxes, which would have resulted. The difference between their spending plans and ours is equal to the yield of an 8p increase in basic rate income tax. As I said at the beginning, we expect criticism, we expect opposition from able former Ministers and parliamentary colleagues. But we are entitled to require them to cost their criticisms every penny of the way.

My noble friend's Motion mentions the difficulties. I have not tried to shirk them and I have urged the Opposition not to do so either. But the Motion also mentions the opportunities. It may surprise your Lordships that I really believe that the opportunities outweigh the difficulties. And I am not just whistling in the dark or looking for a kindly light amid the encircling gloom. Thanks to the flow of North Sea oil, we are the first Government since the war who, in the seemingly endless quest for greater growth, greater output, and productivity in the British economy, are not liable to wake up one morning and find themselves unable to pay the import bills for food and raw materials, which was one of the nightmares my noble friend had when he was at the Treasury. There are disadvantages to operating a petro-currency, but here is a clear advantage.

The Government also have a secure parliamentary majority to tide us over what will undoubtedly be difficult times and hard decisions, decisions which the mass of the people are in their hearts expecting us to take. We have a formidable will to succeed, greater again perhaps than at any time since the war because the difficulties are greater. We are the first Government since the war to take seriously the message to put our own house in order first and tackle inflationary spending in our own hack yard. We cannot be called divisive. The policies we are pursuing enjoy continuity with those pursued by the last Government during the period of their greatest success: monetary discipline; cash limits; public spending restraint. It did not last very long.

But within this framework of order we have placed a clutch of necessary freedoms. We have ended the rigidities governing pay and price structures and investment decisions; judiciously, I hope, relaxed planning controls and licensing requirements; introduced legislation to increase competition; and as a measure looking far into the future, we have removed exchange controls so that we may look again to benefits to our balance of payments from investment abroad.

This is all the positive side of our difficult task and the way we seek to stimulate activity and enable opportunities to be taken. But, my Lords, freedom is precious. It must be cherished, and not abused. We must as a country be willing to accept the disciplines necessary to preserve it.

Among other things this means restoring our competitive position; it means coming to accept that increases in income have to be linked to production rather than to inflation levels. As the noble Lord, Lord Mackie of Benshie, said—and I so much agree with him—it is going to require a sea-change of attitudes in regard, among other things, to our working habits; and are we not already seeing hopeful signs in this regard?

My Lords, in spite of all our difficulties, we in this country are immensely fortunate. We have little excuse if we continue on downhill. We should have everything going for us. We have the inherent social stability still guaranteed by our constitutional arrangements and by our great institutions: Parliament; the Judiciary; the unions, our manufacturing and financial enterprises; our cultural and educational institutions. In a hungry world we have the most advanced and efficient agriculture of any industrial country except America. In a world starved of energy we sit on a mountain of coal, surrounded by a sea of oil. We should "have it made", as the Americans say. Or to put that less selfishly, we should be able to use those opportunities, that capacity, to play a more impressive and more spiritually rewarding role in the history of these last years of our brilliant, yet horrifying century. The Government have made a start in setting the scene for our country's very survival—for that is what it is about—and we mean to continue.

5.3 p.m.

Lord STEWART of FULHAM

My Lords, I ask indulgence for someone who addresses this honourable House for the first time. The subject that we are discussing does not readily lend itself to a non-controversial speech, and I fear that my own temperament is not much help to me in that direction, either. But I will begin by saying that I do indeed agree with the noble Lord, Lord Thorneycroft, that the nation now faces, on a remarkable scale, both opportunities and dangers, though I hope without offence to venture to suggest a little later that I think that with regard to some of them the Government's approach is not quite right. I agree also with what has been said on both sides of the House about the importance of productivity. Indeed, in my judgment this, rather than the rate of public expenditure, as the White Paper says, is at the heart of the matter, both long-term and short-term. If we can so arrange matters that an hour's work or a week's work will produce more wealth, then sooner or later we shall get all our other economic problems right. If we do not do that, we shall not get anything right—neither private incomes nor public services, nor defence, nor aid to other countries, and so on.

But it is not a simple process. Why do we not have higher productivity? It is not because we are not inventive. The noble Lord who opened the debate rightly said that we are an inventive nation. But we have this dread that every new invention can only mean unemployment for somebody. This was a point well made in a newspaper article not long ago by my noble friend Lady Wootton of Abinger. But this really is not so. If we can discover how to produce with less labour what we are now producing, there will he many options open to us. We could actually produce more of what we are producing; or if we are capable of moving labour from one industry to another—and that we shall have to do on a considerable scale—we can produce different kinds of things. We shall be in a stronger position to produce many things that we now have to buy from foreigners, or to produce things which foreigners will he willing to buy from us.

But of course all this depends on the labour force—men and women—being mobile, more mobile than it is today. That involves not only necessary arrangements for retraining, learning new skills, but also a willingness among the whole population to accept the idea of learning new skills. It involves accepting that in the future, unless we are going to be driven down into a stagnation of unemployment because we are inventive—which would be very silly indeed—there has to be a general acceptance that it is going to be normal for a man or woman in the course of working life to learn a new skill perhaps not once but twice, to have several different careers. If we do not get that right, I believe that in the end we shall not get anything right.

If one is to do that—this is what I really want to address myself to and invite the House to consider—what sort of things are necessary'? It is not in dispute that the good will of the trade union movement will be necessary. It is quite natural, indeed up to a point it is a duty, for any trade union leader in the face of a new invention, to ask himself, "What's the effect going to be on my members' jobs?" What I am saying is that he must also ask himself the question, "What's going to be the effect on the standard of life of all of us if we don't introduce new inventions?" But you have got to get this good will and the good will of the men he represents.

I wonder therefore whether the Government's approach to the trade union movement is really on the right lines. Instead of approaching it with critical and repressive legislation, ought there not to have been a bold invitation to consider the problems posed to the country by new invention, by the need for productivity, the need for greater mobility of labour? I was happy to see that there was one speech—I do not think that there was more than one—on these lines at the conference of the Confederation of British Industry. The noble Lord, Lord Thorneycroft, considered whether the Government were going too far or not far enough on trade union legislation. What worries me is that they may not be going in the right direction, or starting from the right premises.

There is something else that will be needed if we are to have this movement into a more mobile society. There has to be the readiness to encourage new inventions, to encourage the setting up of new firms, the creating sometimes of new industries. It seems a little surprising that in those circumstances the Government should want to curtail the activities of the National Enterprise Board. I should have thought that rather it was a case for expanding them and making them more imaginative.

If I understand rightly the view of the party opposite, it is that if you reduce the taxation level, particularly on those people who in the main own and control industry, this will so stimulate them that the invention, the new industries, the new firms, will pour forth and the productivity problem will solve itself—well, it will not solve itself, but it will be solved as a result of the incentive regarding lower tax. What worries me is that we tried this before, more than once, and it has not worked, as Mr. Edward Heath once lamented to employers.

By contrast, there was a period in our recent history where we made a great leap forward towards greater mobility. It was in the years immediately after the war, when we had to make a huge shift of man and woman power from making one kind of thing to making another, when we had to meet the challenge of regaining export markets. We did it very well. The noble Lord, Lord Soames, referred to the healthy state of our exports in the 1950s, and I am bound to say that we did it with a good deal of Government encouragement and direction, even; and we did it in an atmosphere of high, rather than low, taxation.

Then, another thing seems to me to be needed if we are to get the nation's general acceptance of a more mobile society, and that is connected with our education system. First, it cannot be a merely elite education. We want to get the mass of the population having a sensible understanding of the kind of society they are living in; and, as far as concerns that part of education which deals with learning a job, we shall not want narrowly vocational education to teach a person to do a job now which will be out of date in ten years' time, but the development among as many people as possible of a general quickness of mind, hand and eye. All this means, surely, a generalised (and I need not be ashamed of the word), a mass approach to education. I am doubtful, therefore, whether it is right for the Government now to pursue a policy of spending more on special education for a very limited number and less on the general education of the mass. I think they ought to reconsider that matter.

Finally, my Lords, I want to refer to something which I do not think has been referred to so far but which is in the White Paper and is certainly encompassed in the phrase "the dangers facing the nation." We have problems abroad, and there is provision in the White Paper for increased expenditure on defence. I believe that to be unavoidable if we are to fulfil our commitment to NATO. All the NATO countries are committed to increase their expenditure. The last Government accepted that; this Government must accept it. But when you decide to spend more on defence, is that not pre-eminently the time when you ought to say to the nation, "This is something where everybody makes sacrifices, and, if anything, those who are best off will have to make most sacrifices?" That is a fair proposition when what you are proposing is an increase in the national defences.

Is it right, therefore, for the Government to arrange the impact of income tax and VAT, and various charges which are going to be imposed on people, in a way which is actually going to make some of the richest people in the country better off and some of the poorer people in the country worse off? I should have thought that that was the wrong way round. When one was obliged to make the demand for greater expenditure on defence, it was to the richer people that traditionally one used to look for an example. Now, apparently, contemporaneously with higher expenditure on defence, those who are really well off are going to have their tax burden lowered, and it is mainly working people who have got to pay more. It is they who are being asked specifically to set the example. It looks to me as if the Government take the same view as Oscar Wilde's character, Lady Bracknell, who said: Really, if the working classes cannot set us a good example, I fail to see what is the use of them". I must not weary your Lordships' House further. I repeat that I am in agreement with the noble Lord who opened the debate that we face dangers and opportunities, and I am in agreement, I think, with many who feel the desperate importance of this question of productivity and mobility of labour. I merely suggest that there arc some topics—such as their attitude to the National Enterprise Board, to the trade unions, to education and to the burden of taxation—on which the Government may not have got their emphasis quite right.

5.14 p.m.

Lord BOYD-CARPENTER

My Lords, I must begin by offering an apology to your Lordships for the fact that a long-standing engagement, involving persons a great deal more eminent than myself, will mean that, unless the debate proceeds to the length which, on a pessimistic view, the number of speakers might suggest, it will probably not be possible for me to be present at the end of the debate; and I would apologise in particular to the noble Lords on the two Front Benches who will be winding up.

Having said that, my Lords, I have a very special pleasure, as he will know, in congratulating the noble Lord, Lord Stewart of Fulham, on his most impressive maiden speech. My Lords, I can claim that, with the possible exception of the noble and learned Lord the Lord Chancellor, I have been listening to, had my mind improved by and ventured to argue with the noble Lord for, I think, longer than anybody else in this House. When I first listened to that same clear, logical, incisive speech at the Oxford Union 50 years ago—and it has not changed a jot, my Lords, over the years—I had only one thought, and that is that it seemed to me so extraordinary that a man who spoke such good sense so well could possibly be a member of the Labour Party. Fifty years later, in a wildly changed world, that wonderment, having listened to his admirable speech this afternoon, is even stronger. But I think the whole House acknowledges that the noble Lord is a great reinforcement to our strength. No one, I think, is going to agree with many of the things I am about to say, but I think everyone will agree with me when I express the view that I hope he will illumine our minds and entertain us with similar speeches with great and increasing frequency. It was a joy to listen to him.

No one, of course, could have initiated this debate more appropriately than my noble friend Lord Thorneycroft, because nobody (with the exception, of course, of the Prime Minister herself) has a greater degree of responsibility for the fact that we are now sitting on this side of the House. Noble Lords opposite will have noticed with rueful admiration my noble friend's skill, courage and endurance as chairman of the Conservative Party organisation, and the great part that he played in securing the (to us, though not, of course, to them) highly satisfactory outcome of last May's election. I know the House will agree with me when I say that he introduced this debate with a most admirable speech, which gave great pleasure and set the scene for subsequent speeches with extraordinary clarity. None of us, of course, within the reasonable length of their own speech, can cover anything like all the grounds that are open on one of the widest-drafted Motions I think I have ever seen in this House; but I should like very much to welcome the start which the Government have made in the conduct of our affairs.

History is apt to repeat itself, and the bonfire of controls (to quote the father-in-law of the noble Lord the Leader of the House) which was set alight in 1951 has been repeated with similar arsonist activity by my noble friends and right honourable gentlemen in another place—and I welcome it. We have got rid of dividend control; we have gigot rid, as my noble friend the Leader of the House reminded us, of exchange control; and we are getting rid of the Price Commission and of price control. To noble Lords who are perhaps a little taken aback by the courage and determination of that approach, I would say there is reassurance to be got by studying what happened when we went over something like the same course in the early 1950s. The net result was a recovery and a revivification of the economy, an increase in activity, a fall in unemployment and a rise in standards of life; and in a number of years it became possible for the Prime Minister of the day to say with accuracy that we had never had it so good.

In this attack on excessive Government interference with the working of our economy we are not moving over uncharted ground. I think your Lordships can draw some reassurance from the fact that we have been there before, and when we were there before the medicine worked. Indeed, on that occasion we did something even more courageous, I think, than my noble friends are doing on this occasion. We abolished the food subsidies. Everybody protested that it would be disaster. I think that the noble Lord, Lord Peart, made rather the same sort of speech then as he made this afternoon. Everyone forecast disaster. But, on the contrary, we took full care that the poorest did not suffer by simultaneous increases in social services payments and, for the rest, relied on the general restoration of freedom for a general restoration of the economy—and it worked. And not only did it work in the interests of the economy, let me reassure noble friends, it did them no political harm. Within four years we had a general election and trebled our majority and, five years later, another, when we doubled it again. So the path of courage, as so often in our history, is not necessarily the path to unpopularity and defeat.

My noble friends themselves will be the first to say that there is an enormous amount still to do. Their attack on the levels of personal taxation carried a great deal of support but personal taxation in this country is still very high. There are individuals with high salaries and a modest tranche of investment income who still pay, on certain parts of their income, a tax rate of no less than 75 per cent. which, I think, in most countries of the world would be regarded as confiscatory. Therefore, I would say—although, as it was a maiden speech, I would not wish to enter into argument as I hope I may in the future with (I call him) my noble friend Lord Stewart of Fulham; it is a technical inaccuracy—that it is relevant, when one considers how the burden of taxation should be adjusted to pay for defence, to have in mind the point we are starting from. And the point we are starting from in our system of personal taxation is a system which, even now, taxes the highest earnings at rates well above the level ruling in our competitors.

So I hope that the Government will go on attacking the problems of taxation. They have not yet touched the scandal of capital gains tax in an inflationary age in which that tax is paid on sales which may not represent, in real terms, any gain at all. That, again is confiscatory. If capital gains tax is to remain—and personally I think it should remain for at any rate short-term speculative gains—a major part of our taxation system, I am sure that it is necessary to introduce either indexation or a formula which reduces it in relation to the number of years an asset has been held. Capital transfer tax has also been the ruin of many small businesses and has caused many people to leave homes that their families have occupied for generations. There is much more to be clone. In expressing to my noble friends gratitude for what they have done so far, I would express it in accordance with the traditional construction of the word "gratitude"—a lively anticipation of favours to come.

The abolition of exchange control, I am sure is right. Noble Lords on the Benches opposite know that it could have been done years ago. With the growing strength of sterling based on our oil revenues, it was absurd to retain this restriction. It hampered investment abroad, which is in the national interest, and it was based on the impossible hypothesis that somebody at the Bank of England would have a better idea as to whether a particular overseas investment was viable or not than the company or individual who studied the particular project with a view to making that investment. This was a plain fallacy. Although in my own experience I have no criticism of the Bank of England, which administered this control with intelligence and tolerance, in principle to restrict investment in this way did nobody any good and must, cumulatively, have done a great deal of harm. It is a good thing that has been got rid of.

I come inevitably to the so-called cuts. I use the word "so-called" because, although they involve some reduction in particular expenditures, in total they involve, as I understand it, the stabilisation of expenditure at the very high levels which noble Lords opposite had attained when they were in Government. Therefore, there does not seem very much justification for heat or emotion on this subject. The Leader of the Opposition, Mr. Callaghan, in the other place referred to the Government in this context as "vandals and hypocrites". We all have some sympathy with Mr. Callaghan over certain of his other problems and should not judge the violence of his language too harshly, but I am bound to say that the word "vandal" puzzled me. A vandal is someone who destroys or damages something which is sacred or beautiful. Nobody certainly, in this House, would think that was a very good or precise description of the British economy as the last Government left it behind. My only doubts are as to whether these so-called cuts are adequate.

Baroness BIRK

My Lords, I wonder whether I may interrupt the noble Lord since he has said he would be leaving early. I am rather puzzled as to why he refers to them as "so-called" cuts. If they are only "so-called" why are inroads being made into education, the social services and everything else? I can understand the argument in favour of cuts, but I do not understand the addition of the word "so-called".

Lord BOYD-CARPENTER

My Lords, I am sure that I owe the noble Baroness an apology. I tried to explain a moment ago why I used that expression. If I have failed to convey this clearly, I will attempt to do so again. I spelled out the fact that they will result in reduction of certain expenditures but that, overall, they will result in (and I recall that I used the expression) "the stabilisation of expenditure" at the level which the Government which she supported carried on. To describe such an overall financial operation as "cuts" without some qualifying adjective seems to me to be misleading and likely to confuse those people—and there may be some outside—who are not wholly aware of exactly what it is that is being done. I hope that I have made that clear to the noble Baroness.

Baroness BIRK

It is still not clear.

Lord BOYD-CARPENTER

My Lords, my doubt is whether the cuts go far enough and whether there ought not to be real cuts. The world economic situation is gloomy, there is a real need for reductions in the tax burden, and I wonder whether these cuts go as far as the economic situation justifies. Of course, I know the Government's problem. As I have told the House, I have been through this before. No Governments impose cuts if they can help it. It is unpleasant and an unpopular thing to do and naturally Governments seek to avoid it.

But even, I think, the noble Lord. Lord Peart, in spite of his speech this afternoon, is not really going to pretend—in this House at any rate—that there are no areas of Government expenditure where there is no waste. There must be a great deal of waste which good hard housekeeping by the Government, aided by the Public Accounts Committee in another place, can help to cut back. And the Government arc energetically pursuing this.

I should like to see them go a little further in monitoring these. Some of the subordinate bodies on whom cuts are imposed seem to me to be trying to be a little too clever. If given a reduction in expenditure as a target, there are many bodies that seem deliberately to offer the most popular and admirable of their activities as the potential sacrifice. The calculation is that there will be such an uproar that the Government will have to let them go on spending as much as they have been spending. In concrete terms, there are local authorities who promptly close some old people's homes, if told to cut expenditure by x per cent. They do no consider removing the director-general of recreation.

And it is not only local authorities; it would be unfair to leave it there. I see that my noble friend the Foreign Secretary is no longer here; but even the Foreign and Commonwealth Office has, I think in one respect, not altogether resisted temptation to similar conduct. They offered, in reply to the Treasury's demand for reduction in expenditure, a very substantial cut in the BBC's Overseas Service rather than a reduction in their posts and establishments overseas. I think this was unwise, though I fully understand and I have seen that kind of thing before. But it must be a mistake to cut out some of these language services, particularly the service in the French language. As your Lordships know, the French are on the whole bad linguists—or prefer to pretend to be—and a translation in French could be particularly valuable at this moment when, if I may suggest it, it might help them—using their own language—to Revenir à nos moutons "! There are other areas where the cuts could be made. I think with the abolition of exchange control foreign aid needs less. With no exchange control, viable projects in the developing countries will attract free private investment, and if they are not viable projects, it is probably better that they should not be backed at all. In that situation, of course private investment will only go where there is political stability. It is not a bad thing for the developing odd to see that countries—for example Kenya and Malawi—which have an admirable record of tolerance, of political stability, should gain in investments at the expense, if you like, of other countries which prefer to indulge in a more theatrical method of conducting their affairs. There are other areas where I hope that we will be told by the noble Earl who is to reply that further cuts can be made.

I want before I finish to touch on the most sensitive area of all: the position of the trade unions. Let me say at once that I am in no sense hostile to the trade unions. I can claim that the company of which I happen to be chairman, under my chairmanship for the first time recognised and entered into negotiation with the appropriate unions, and we have the most happy relations with them. But it is an indisputable fact that trade union power has grown and is excessive in this country. It is the lesson of history that when any body of people obtain excessive power there sets in the process of modifying their position and restoring the balance. It is not just an abstract question as to where power should reside; it is a highly practical question. I have already referred once in this House to Sir Nicholas Henderson's farewell despatch from Paris which I think is the locus classicus of an analysis of our country's present woes.

He is immensely revealing on this subject. He compares the position of our trade unions with those in France and Germany. He points out that in France and Germany the closed shop is contrary to the constitution, and illegal; that agreements between employers and workers are enforceable in the courts; that strikes do not take place when an agreement with the employer is still current. He says that his labour counsellor cannot recall a case in the past two years when a strike in France has been successful. He concludes with what I think is the most important part of his analysis: that the much weaker position of the unions in those countries has not resulted in their workers being overworked and victimised wage slaves; that indeed the converse is the case. I quote from the dispatch: The paradox of the British labour scene at the present time is that despite the contribution that our unions have made towards a better safety record in our factories, their influence and ready resort to strike pressures have not secured better general employment conditions than in France and Germany. Not only are real wages lower but hours of work are longer ". In other words, if one compares the way the organisation of trade unions and the law governing them operates among some of our principal competitors and ourselves, one is driven to the conclusion that it is we who are out of step and not they.

The noble Lord, Lord Pearl, said that this was the most reactionary Government of modern times. I agree with him if by "reaction" he means a reaction from failure, a reaction from discredited methods and a return to sanity and to reality. Time was overdue for such a reaction for us to get away from what the Chancellor of the Exchequer so rightly called the dream world, the world in which people think that the mere passage of time without any increase in productivity entitles one to increased remuneration—a world in which the mining union can put forward an enormous wage claim at the very moment that it has been demonstrated that the price of British coal is so uncompetitive that the British Steel Corporation is going abroad and paying for imports with all the added cost of transport.

It is because there was a subconscious but real feeling in the minds of the majority of our electors that we were living in an unreal world and things would not get better until cold reality returned, that my noble friends find themselves on the Benches on this side of the House. The greatest achievement—far more important than the measures they take—the greatest service to this country, will be simply to restore reality and make us all realise, as my noble friend Lord Soames said so well, that our standards of life, our individual standards, our social services, our power to defend ourselves, depend on our efficiency as earners in the world and on nothing else whatever.

5.37 p.m.

Lord HARRIS of HIGH CROSS

My Lords, in rising to address your Lordships' House for the first time, I am so bowed down by the great privilege and honour that I shall need all the customary indulgence you extend to maidens in distress. By way of all too inadequate preparation, I applied myself to reading your Lordships' proceedings in copies of Hansard. I must say that I found the results extremely impressive. Even the occasional irrelevancy is very telling. Last week the noble Baroness, Lady Phillips, countered a suggestion that your Lordships' House should be abolished (this emanated from another place, which sometimes seems like another world) with the proposal that there should be a referendum, and the referendum was to be on the question: "Which House will you have abolished?" If we can get people to read Hansard, I believe her optimism about the outcome might well be justified.

The trouble is that it all sets a standard that is rather intimidating to someone who has not served an apprenticeship elsewhere. There is a particular obstacle for the maiden speaker to try to circumvent the requirement to avoid—I hope it is "undue"—controversy, at least to avoid extreme provocation. This is very difficult indeed for a working economist. All my life it has been very difficult to find any words that an economist can utter that will be regarded as wholly uncontroversial, particularly if other economists are within earshot. After many years of being myself denounced as a self-confessed monetarist, I was rather glad the other day to think that things are getting better when I heard a BBC producer ask where he might find the last living Keynesian. I am afraid I pointed him hopefully in the direction of Cambridge. Now I see from the list of speakers that Nemesis might be about to descend upon my head. So, my Lords, you may judge my difficulty in coming before you in the unlikely guise of a maiden. I will endeavour, however, to steer clear of Standing Order 29—which I enjoyed reading—dating back to 1626. I shall endeavour to forbear from personal or sharp speech, though it may be more difficult on this occasion altogether to avoid what it calls "taxing references".

Since my Introduction in July the thought of making any kind of speech in this great assembly has, in the words of Gilbert and Sullivan's Lord Chancellor, when confronted with a different kind of maiden: robbed me of me rest ". It was only when I saw that the noble Lord, Lord Thorneycroft, had put down this Motion for Papers—which Papers I now discover he does not want anyway—that I though I should take the plunge.

I thought I should like to pay here and now a public tribute to the noble Lord for his resignation in 1958. It is difficult for people outside politics fully to understand the reluctance of Ministers to resign, whether from principle or from mere love of ease and pleasure; but evidently it is a rather rare condition. I think it was very memorable on that occasion that all three Treasury Ministers resigned together, though it might be controversial to mention the name of at least one of the other two ! Looking back, I think 1958 was a bit of a watershed. It certainly seemed to me at the time that these Ministers sacrificed office in a vain attempt to prevent Government spending from rising, which it has gone on doing remorselessly ever since, under Administrations of both parties. It was the last brave stand until 1979.

I turn to the White Paper, which starts from the proposition that public expenditure is at the heart of Britain's present economic difficulties. Very well, I am prepared to go along with that. It is now almost 100 years since a little known German economist called Adolf Wagner formulated the law of increasing Government activity or, as I prefer to call it, increasing Government spending—if only other economic laws had proved equally prophetic, my Lords! When he produced his law, Governments were commonly spending between 5 and 10 per cent. of national incomes in Western economies; and here today it has gone on rising to reach a rate of between 50 and 60 per cent. of national income. We can argue over the precise figures, but it is impossible to doubt the direction and velocity.

It is plainly not a progession that can continue much further, even if we wished that it should. Therefore, I am glad to bring your Lordships news that there are a growing number of economists around the world who no longer believe that Government spending on anything like this scale has much to do with the public interest or with the welfare of the neediest sections of society. Indeed, the massive increase in what is called "Government welfare spending" does not seem to be an obvious prescription for countries where average real incomes have risen as rapidly as they have in recent decades, even in poor old Britain. It is surely a paradox that, as family prosperity has risen, both main parties have competed in providing more and more central and local government spending and services on an indiscriminate—literally a free-for-all—basis, without charge and therefore necessarily without sufficient concern for widely varying needs and urgencies.

A humble market economist, if such there be, would predict that the multipli cation of so-called "free" services must end up by exerting a quite intolerable strain upon the Exchequer. The reason is perfectly simple. Citizens who voted for more Government services they thought free begin to vote for reduced taxes when the bills come home to roost in their pay packets and in their rate demands. The dilemma for this Government, as for the last one, is how to extricate itself and the voter who, by this time, has become thoroughly schizophrenic. All would like to have some of their taxes back, yet each logically wants to preserve the particular services that he values most. Everyone prefers to live well off the state, but as much as possible at somebody else's expense. All have a strong economic interest in becoming "free riders"; and that is the reason why there can never be a consensus within a party or between parties about where you can best cut "free" services.

I believe we must seek a more promising approach and I am going to quote a single sentence that provides a pointer. It does not come on this occasion from Adam Smith, but from the noble Lord, Lord Houghton of Sowerby, whom I am glad to see is with us at the present moment. In a prescient paper he wrote a few years ago, entitled, Paying for the Social Services, the noble Lord wrote as follows: While people would be willing to pay for better services for themselves, they may not he willing to pay more in taxes which may bear no relation to the services actually received ". I must hope for another occasion to urge the Government and noble Lords on the other side that this homely, common sense insight of the noble Lord, Lord Houghton, points to a more rational alternative than the present indiscriminate and necessarily arbitrary cuts. It would mean calmly and unemotionally examining how far we can raise charges on a wide range of so-called "free" services, so as to allow individuals to retain a great deal more of their own incomes and to choose where they will economise, where they will draw in their horns, and also to choose where they will preserve or even increase particular lines of expenditure for the benefit of themselves and their families.

Such an approach, I accept absolutely, depends on a comprehensive policy of minimum income support, preferably along the lines of a reverse or negative income tax; and that might be a task to challenge the versatile talents of the noble Lord, Lord Cockfield, who I have not seen about on this occasion. My Lords, I have done. I will only add that I hope that radical rethinking along such lines as these might find an echo in all parts of the House, although for some time perhaps a subdued echo; and I now brace my back for lofty chastisement.

5.48 p.m.

Lord KALDOR

My Lords, it is my pleasant duty to begin by congratulating the maiden speakers, of whom we have more today than on any previous occasion I can remember. I should like particularly to congratulate my noble friend Lord Stewart of Fulham on an admirably concise speech. In my view, he put his finger on some of the most important points which we on this side of the House see fundamentally differently from those on the other side. I should also like to congratulate the noble Lord, Lord Harris of High Cross, who, as an economist, stands at the very opposite end of the spectrum from myself. I think that in future there will be occasions when he will not be so restrained by tradition to be quit. so uncontroversial as he was today, but will express his views more forcefully and pointedly and will criticise anti-monetarists and Keynesians in a more radical manner. In any case, we welcome him as a Member of this House and I am sure we shall gain a great deal in the liveliness of debates by his presence.

I should like also to add, before I close this introductory and congratulatory section, my pleasure by anticipation that I am to be followed by another maiden speech from my noble friend Lord Lever of Manchester. I am sure he will surpass us all in wit, brilliance and amusement. I think he will add a note to the liveliness of this House which will distinguish the polite tone of our debates even more from that of another place. After saying all this—I have spent two minutes on congratulations—I must hurry on.

As noble Lords opposite know, we are not, on certain fundamental matters, divided, that this country is in a perilously difficult situation; that inflation is a terrible curse and it must somehow be brought to an end, and that our uncompetitiveness has brought us down a slippery slope where the gradient gets ever steeper. Where I differ fundamentally from the other side is in their beliefs of how to turn things around. This is what I wish to speak about. This is a wide-ranging debate, the terms were carefully so chosen that one can speak on almost anything, and I should like to spend my time on one aspect only—a detailed textual criticism of the first page of the White Paper on Expenditure Plans which the Government issued last week. I apologise to noble Lords for going into such detail on a few paragraphs, but I feel that this is the only way in which one can hope to carry conviction and to convince them that they suffer from numerous delusions.

When I first read this page I was so surprised that I said, "Here is a neo-Conservative Manifesto, a testament of faith in monetarism, which is something quite new and distinguishes the present Government from the traditional Conservative Party." It is something that could not have been written when either Winston Churchill or Harold Macmillan was Prime Minister, or when the noble Lord, Lord Butler, was Chancellor. It is a neo-Conservative Manifesto which calls to mind, at opposite extreme, the Communist Manifesto of Marx and Engels which is well over 100 years old. The very boldness and vagueness of its assertions make the two documents rather similar.

It is very disconcerting to those of us who are accustomed to the studied moderation and carefully guarded language of traditional State papers in this country. In fact, when I first read it the first thing that came to my mind was a well-known remark by a great historical figure of your Lordships' House, the third Marquess of Salisbury, who said about the Daily Mail that it was a paper written by office boys for office boys. Reading the first page and a half of this White Paper, I felt that he might have said almost the same about this new manifesto.

When carefully examined, this manifesto collapses into a series of non-sequiturs, interspersed with assertions which can easily be proved false by an examination of relevant statistics. Since the truth or falsehood of its basic assertions are absolutely critical to the success of the present Government's whole economic strategy, I hope I shall be forgiven if I deal with them at some length. I take my cue, in the same way as the preceding speaker, the noble Lord, Lord Harris of High Cross, did, from the opening sentence which reads: Public expenditure is at the heart of Britain's present economic difficulties ". This raises many questions. It does not say which aspect—whether it is its size, its rate of growth or its composition—they regard as critical. By saying that it is at the heart of Britain's difficulties, the implication is that public expenditure is something which peculiarly plagues Britain and does not plague ether countries. Indeed, the next paragraph insinuates, without actually saying so, that public expenditure was responsible for Britain's dismal economic performance.

It goes on: Over the past five years output has grown less than half as fast as it did over the previous 20 years, and a little over a third as fast as in other industrialised countries ". Economic historians would confirm, I think, that the same statement, or something very like to it, could be made about the Edwardian period, the first decade of this century. Perhaps public expenditure was responsible for that too—because it was too small rather than too large.

However, in the third paragraph the authors reveal that it is the growth of public expenditure rather than the size which they regard as the main cause of our difficulties. It runs: Over the years public spending has been increased on assumptions about economic growth which have not been achieved ". This statement is quite inconsistent with the table on page 9, which shows in line 13 that at constant prices total public expenditure fell over the last five years by no less than 2½ per cent. It has not been growing. The noble Lord, Lord Soames, referred in his speech to the rapidly growing burden of public debt, and to anticipate critics I should like to add that total public expenditure in line 13 is defined so as to exclude the service of the public debt. But even if you add that item to it (from line 6) it still remains true that public expenditure, including debt interest, fell by 1 per cent. between 1974–75 and 1979–80. Over the same period our national output, unsatisfactory though it was, had risen by between 6 and 7 per cent. So clearly, contrary to what th White Paper says, there has been an appreciable fall, and not a rise, in public expenditure both absolutely and even more, in relation to the national income.

It would be equally untrue to say that our public expenditure is large in comparison with other countries as a proportion of the GNP. In a recent book on Budgetary Policy, Ward and Neild have shown that our expenditure has been, and is, below the average of the 10 major European countries, and it remains below the average even if account is taken of our relatively low income per head and of the relationship of income per head to public expenditure in relation to the GNP. The manifesto is completely wrong on public expenditure, and all noble Lords opposite who believe it are wrong, because they just repeat to themselves certain slogans, and the more often they repeat them, the more strongly they believe them and the less they feel to be under the necessity to check their beliefs against the facts. They are equally wrong on taxation.

The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of Gowrie)

My Lords, while we are on this point, if noble Lords on this side of the House are so wrong in all these assumptions, why were these assumptions shared by the previous Government and why did they cut expenditure?

Lord KALDOR

My Lords, I was not responsible for the previous Government, at least not after 1976 when I resigned as an adviser to that Government. However, I do not believe that they said that our public expenditure is larger than that of other countries. I should like chapter and verse to be quoted before I could accept this statement.

Turning to taxation, the author of the White Paper could not have seen the December 1978 issue of Economic Trends. Page 98 of that issue shows that Britain was the only one of 17 leading countries in the world which had reduced the sum of taxes and social insurance contributions in relation to gross national product between 1970 and 1976 and that it had done so by three percentage points of GNP. If noble Lords do not believe me, they should turn to page 98 of Economic Trends for December 1978 which is an official publication of the CSO. All but two of the other 17 countries had increased their taxation in relation to GNP, some by as much as 12 percentage points.

Moreover, according to the evidence contained in this paper, in 1976, which is the latest year for which comparative figures are available, the United Kingdom occupied ninth place among the 17 countries. With a total burden of 40 per cent. of GNP it was bang in the middle between the upper extreme of Sweden, with 58 per cent., and the lower extreme of Japan, with 22 per cent. So we were the only country among the 17 which actually reduced taxation in relation to GNP, whereas all but two of the others increased it. We were right in the middle. So what justification has the White Paper for saying, increases in taxes have made inflationary pressures worse and reduced incentives ". If the writers of the White Paper had looked up their facts and studied them, they should have said the opposite. They should have said that a reduced burden of taxation lightened the inflationary pressure and improved incentives.

Lord MACKIE of BENSHIE

My Lords, could the noble Lord tell us where Britain stood in that table with regard to personal income tax?

Lord KALDOR

My Lords, I cannot tell the noble Lord now, but so far as personal income taxation is concerned I can assure him that we are by no means the most heavily taxed country. There are the three Scandinavian countries, and Holland, whose personal income tax is higher than ours. But that is not the point, nor is it according to the point made in the White Paper.

Let us turn to paragraph 4. This contains even bigger blunders. It says that to bring down the rate of inflation, it is essential to contain and reduce progressively the growth of the money supply. This means that Government borrowing must in turn be firmly controlled. It is a main determinant of monetary growth ". It is only an uneducated person, or a person who is not in the least familiar with the subject, who would not know that since 1970 there has ceased to be any correlation between the borrowing requirement and the change in the money supply. The facts are everywhere to be seen—in all kinds of official publications of both the Government and the Bank of England. It is true that a relationship existed until 1969 and I believe that I was the first economist to draw attention to it in an article which was published in 1970. Almost immediately afterwards, however, the relationship ceased to exist because the new Tory Government which came into office in 1970 abandoned the old system of credit control by means of credit ceilings and introduced a new system called "Competition and Credit Control". I can tell those noble Lords who are familiar with the technical jargon—noble Lords such as Lord Harris—that I calculated the correlation coefficients by computer at Cambridge and that it comes out exactly at zero. So much for saying that the borrowing requirement is the main determinant of the money supply. There is a zero correlation between the change in the money stock in the United Kingdom and the borrowing requirement.

Equally, it is only a person who is totally ignorant of monetary statistics who could believe that it was the excessive rate of growth in the money supply which was responsible for Britain's high rate of inflation over the last five years. Anybody who cares to look up the facts needs to go no further than that admirable storehouse of information, International Monetary Statistics published by the IMF. From that it can easily be discovered that the rate of growth of the money supply, in the broad and only significant definition (on which the Government, the Bank of England and everybody else concerned with this matter are agreed), namely, M3, clustered around 10 per cent. a year, at an almost identical rate for the last five years, 1973 to 1978 in four countries: Germany, Switzerland, Belgium and the United Kingdom. All four countries had the same rate of growth in the money supply. Yet the rate of inflation averaged no less than 15 per cent. in Britain over that five year period, but only 4½ per cent. in Switzerland, 4¾ per cent. in Germany and 9 per cent. in Belgium.

I think it is obvious from these figures that the growth in the money supply no more explains the high rate of inflation in the United Kingdom than it explains the exceptionally low inflation rates of Switzerland and Germany. Indeed, if one relates the money supply to the gross national income, Germany's money supply is twice as large as that of the United Kingdom. It is 67 per cent. of GNP as against our 34½ per cent., while Switzerland's money supply is nearer four times that of the United Kingdom. It is 125 per cent. of GNP against our 34 per cent. So monetarists please note that on their own chosen criteria the danger of inflation through excessive liquidity is greatest in Switzerland and Germany, while the United Kingdom ought to be the least vulnerable. Of course this is nonsense, but it is nonsense because monetarism is nonsense. It is not Germany and Switzerland which stand in real danger of a high rate of inflation, but this country.

In fact, the United Kingdom has by far the worst record and is in the most dangerous situation from the aspect of inflation, and the policies of the present Government are, I am afraid, more likely to speed up this process than to slow it down because they go so completely the wrong way about it. There is not a word about wages or a policy on wage settlements in the White Paper.

As far as output, employment and economic growth are concerned, the White Paper adopts a wholly fatalistic attitude. All it says is, that the prospects arc poor … both in this country and in the rest of the world ". This reminds one of a statement attributed to Neville Chamberlain during the great depression that the Government is no more capable of regulating the general demand for labour than it is of regulating the weather. After a long circle we now seem to have returned to the same point.

The philosophy underlying the present Government's policy is that wealth can be created only by the private sector, not by the public sector, that wealth can be created only by giving incentives for risk bearing and so on, and that Governments cannot create wealth. Indeed, they say that to plan for more public expenditure before the required output is available to support it would ensure that the growth of output does not take place ". The absurdity of this view is shown by the fact that this Government would be only too glad to see more motorways built if private enterprise built them—as is the case in France—but it nevertheless feels that the same economic circumstances compel reducing the road building programme by £200 million merely because this is produced by the public sector and not by the private sector. Why do they not hand it over to private enterprise and be done with it? Then they can say "Ah, the private sector has increased our wealth or output, so now we can be allowed to spend more money."

There are certain expenditures, like defence, which are exempt from that philosophy. I only wish that we were in the same situation on defence as we are under the Common Agricultural Policy. We pay a disproportionate share of the burden. We only have to look at the proportion of the defence expenditure of Germany, which is two-thirds of ours; of France, which is less than two-thirds of ours and of a number of other countries which is only one-half of ours, As a percentage of GNP there is no other country in Europe which has as high a proportion of defence expenditure as we have, with the exception of the United States.

As to the rest, there is one thing on which I agreed with the noble Lord, Lord Boyd-Carpenter, when he mentioned the "so-called" cuts. The White Paper is full of "so-called" cuts. They are not cuts at all; they are not cuts in services, provided they are treated as negative public expenditure, which is a concealed form of taxation, hypothetical taxation of the most regressive kind. When they say that the country can no longer afford to send children to school by bus it is not that the buses will stop—on the contrary they cannot stop because the schools are to be concentrated in bigger villages. It is simply that a charge is made for the transport of the children. There is no change in the use of resources, but only a regressive change in redistribution of taxation. The road to national salvation is sought by making higher prescription charges for the same makes of prescription ; by compelling higher payments for school meals and school milk and goodness knows what else besides. It is a plain cheat to call these cuts in public expenditure. It is not that the resources are transferred from one use to another. It is just a way of putting more burdens on the poor; and they are worse than general indirect taxes, because if you put VAT of 15 per cent. on clothes then everyone has to pay—not only the poor but also the rich. When you have private medicine along with public medicine and private education along with public education then you impose tax on the person who is not rich enough to have private education and private medicine whereas the person who is able to afford private education or medicine is wholly exempt.

I want to close my speech with one sentence, because I realise that I have spoken for a very long time. My Lords, I will conclude where I began, with a quotation. I began with the opening sentence of this neo-Conservative Manifesto. I think it is only fitting that I should end with the opening sentence of its counterpart, the Communist Manifesto, which runs: The history of mankind is a history of class struggles ". I cannot say that I ever believed in this, but the present White Paper makes me feel that there must be more to it than I had once thought.

6.15 p.m.

Lord LEVER of MANCHESTER

My Lords, the House must be increasingly fatigued by the cries of soi disant reluctant maidens. However, I must say that the arrangements of the House have won my instant admiration. The noble Lord, Lord Kaldor, was put on to precede me thus being enabled, with good heart, to congratulate me. I wonder whether a delayed appearance by the noble Lord, Lord Kaldor, would necessarily produce the same result, because Lord Kaldor and I have long been friends and worked together in the Treasury; but there were only intermittently those points where our views met in harmony. I am glad to say that today he included one of those points in his speech.

I, too, resent the semi-theological passion which has lately accrued as the bogies of monetary aggregates. I am not an expert in this kind of algebraical economics, but my own impression is that those countries which are most successful in combating inflation preach vigorously about the control of monetary aggregates but practise whatever is convenient. Those countries which fail to cope with their balance of payments and inflation problems are constrained by their creditors not only to preach monetary aggregates but actually to practice it, and that is far less convenient. I agree with the noble Lord, Lord Kaldor, that Germany and Switzerland have had monetary aggregates during a period of low inflation which do not appear to cohere with the uncritical enthusiasm of so many of the monetarists that I meet, but I claim no expertise in this area.

I also wish to express my gratitude to the noble Lord, Lord Thorneycroft, for this wide and stimulating debate, although as will appear I am going to concentrate on a very narrow part of the economic situation. I am grateful too to an old colleague in the House of Commons, the noble Lord, Lord Boyd-Carpenter, for refreshing my mind about those tragic events of 1958 when, for what now seems a derisory sum, Lord Thorneycroft resigned from the high office of Chancellor of the Exchequer. It seemed to me in itself to explain why resignations thereafter were less frequent; because the three Treasury Ministers could resign without much impact upon the then Prime Minister it was rather discouraging for those of us who held more modest positions to seek to emulate them.

The narrow area on which I am going to speak is that of the recent abolition of the remains of exchange control, and I hope the House will bear with me because so far it seems to me that a subject which my old Treasury experiences teach me should be largely devoid of party political excitement, has not yet been discussed without a great deal of party political excitement, at any rate in the other place. For when the Chancellor of the Exchequer announced the disposal of this residual exchange control he was, on the one hand, described as "a lickspittle of international capitalists", and, in the more approving sense, he was treated as the greatest liberator since Heracles struck the chains from Prometheus. Neither of those extreme views was well documented in the discussion, so far as Hansard has recorded it, and therefore, in my few minutes, constrained as I shall be from these excitements of party political hyperbole in relation to this matter by the conventions of a maiden speaker, I shall seek to examine what has been achieved, good or ill, in the abolition of these exchange controls.

It is of course no secret to Members of this House that the exchange control never existed until the war in 1939, but what is not so commonly remembered about this hangover from the wartime controls is that most of the exchange control of wartime has gone. The wartime exchange control was deliberately designed to put economic power into the hands of the Government by controlling all foreign sterling holdings, whether they were owned by United Kingdom residents or anybody else, in effect controlling all imports and exports, so as to give, rightly, priority to the prosecution of the war. Secondly, the exchange control was intended—whether or not this was desirable, I know not—to maintain the same rate of exchange rather artificially throughout the whole period of the war.

This power, of course, was sharply reduced by all Governments, stage by stage, after the war, very necessarily and rightly so. All that was abolished with so much elan and proclamation by the existing Chancellor of the Exchequer was a residual relic of those exchange controls. All the foreign holdings of sterling have long been exempt from control of any kind. Foreigners have been entirely free to do what they like with any external sterling that comes into their possession. The controls have had little or no relation to exports and imports. The only people controlled at all, and only very partially controlled, have been United Kingdom residents, and then only to a minor and not very rewarding extent.

So, since these exchange controls were effectively abolished before the recent announcement, we have to ask ourselves what good were they doing or what evil were they averting in that truncated form. I am very sympathetic to and conscious of the argument, especially in the trade union movement, that the final abolition of the exchange controls might in some way prejudice investment in our country. I have examined that very briefly, and although I understand the anxieties they feel, and especially in relation to the long industrial decline which is so frequently commented upon in the British industrial performance, we have to see whether the recent abolition of exchange controls really has the effect which causes them this anxiety.

The first thing that has to be noticed is that investment in this country depends upon the conjunction of three factors. First, there has to be profitable investment opportunity. I am not talking about State investment; I am talking about private investment, which is the only investment that is affected by these controls. There has to be a profitable investment opportunity. Secondly, there has to be the entrepreneurial skill and eagerness to exploit that opportunity. Thirdly, there has to be the investable funds to follow up those two essential ingredients.

Of those three crucial ingredients for heightened investment the one that has always been present in abundance has been investable funds. There has never been a shortage of investable funds. This has been established time and time again. Of course, it could be said that there are plenty of investable funds but our entrepreneurs are rather slack at searching out profitable investment opportunities. That is not true either. If anything, our investable funds are so pressing upon the market that their anxiety to find profitable outlet in our country often borders on credulity, and situations are chosen for investment which more hard-headed people on the Left of politics like myself would find it difficult to support. It is these barons, true blue contributors to the Tory Party's Central Office, which enables Lord Thorneycroft to be so well-informed when he addresses us, who all to readily give way to credulity.

So the great thing that has been wrong in our investment performance has been the lack of profitable opportunities, not the lack of investment funds. British investment abroad has never lost us investment here. On the contrary, if anything, it has added to investment here and added to the demand for our goods. That has all been established. I am not saying this because a Tory Chancellor brought in this measure. I was saying this throughout my years in Labour Government to anyone who was prepared to listen, including many of my colleagues, although not, apparently, all of them.

On the question of our long decline, I hope I may be allowed to say some blunt words without being too controversial. It is a relative decline. Our standard of life and production of wealth is higher today than ever in our history. But relative to the top performers we have done badly. The most notable and apt comparison with which we are rightly often challenged is Germany. It has always struck me as somewhat anomalous that those who never tire of contrasting the inadequacy of our performance with that of the German economy, whose performance we are asked to admire and seek to emulate, never mention the methods by which they achieved this. We have to be quite frank and say that the Germans could hardly wait after the war to get rid of exchange controls.

A noble Lord: They had Marshall Aid!

Lord LEVER of MANCHESTER

In fact, the Germans got rid of their exchange controls just as speedily as they could, and as a matter of fact the only capital controls they have at the present moment are to save them from the embarrassment of too great a flow of money inwards. Well, I hope that we shall find ourselves similarly embarrassed in the not too distant future. I must say, however, that the problem of ending our lack of investment, or lower peformance in investment, is a very grave one. I have to tell the House (a) that I do not know the answer, and (b) if I did I could not hope to explain it within the confines properly assigned to a maiden speech.

One thing I will say is not the answer is to compel British fund holders to hold their funds in Britain in the hope that in despair they will invest them where no profitable opportunity exists. And the second point on which there has to be greater consideration before we rush in is the belief that Britain's industrial decline can be halted by Government good intentions, Government power and Government cheque book alone. I am not saying that Government power and Government cheque book will not have a role from time to time, but it is naive and dangerous to believe that that is the deciscive role in the light of the painful lessons of recent years.

We have to be honest and face reality. Reality is neither Left Wing nor Right Wing; I would immediately say to anyone who criticises this view. The reality is that with the best intentions in the world, and with an enormous cheque book, we were worried about the decline, for example, of the motor industry. What happened? Did we reverse the decline or slow it up? On the contrary, unhappily, the mere recipe of Government intervention and Government genuine intentions, with learned and erudite officials to back it all up, resulted in an even swifter decline in the motor industry than in the previous years, made it in fact the most spectacular decline of a major industry, among many others in recent years, and very alarming too. Though I emphasise, especially to my noble friends, and for that matter to the other side, that anyone who for doctrinal reasons rules out the use of Government intervention or the use of public funds is as unjustified as anyone who believes that they are the automatic and simple remedy for the decline of industrial investment.

To return to and finish with the theme of exchange controls, one of the ways of getting more industrial investment is certainly not to coerce your citizens by exchange controls. That being so, we have to recognise that the only possible reason for retaining this residual relic of exchange control is to protect us from a run on sterling. Here again, anyone who knows the facts of this exchange control—and however wrong my views may be on other matters I have had some experience in this area—knows that the existing level of exchange control before the Chancellor acted was entirely futile to protect against a run on sterling. All it could do was to inhibit, veto, the marginal and relatively harmless expenditures of a few well-to-do citizens who go on holidays or who want to buy a house abroad, or the like. The great movement of funds came from sterling holders not within the control of the Government—from foreign sterling holders—and not a little of it from domestic sterling holders who cannot be controlled by exchange control.

In the modern world leads and lags dwarf the puny effects of the exchange control on the few harmless private spenders. If industry forms the view that the exchange rate will go down, it leads on its payments and lags on its receipts, and so does everyone else. The United States suffers that today without exchange control, and we suffered it with exchange control. So, it is not even a useful machinery for protecting against a run on sterling.

In those circumstances, we should all be glad to know that we have got rid of a relic from the last war that was serving no useful purpose either as regards investment or in protecting us from runs on sterling. At the risk of sounding fulsome I must briefly pay a tribute to a rare institution—an institution with power that seeks to give it up and is active and persistent, and indeed pertinacious, in seeking to give it up. I do not often see eye to eye with the Bank of England on all these matters, but I am glad to see the noble Lord, Lord O'Brien of Lothbury, in his place, because I remember how anxious and, incidentally, how right he was about 20 years ago to give this up because it was serving no useful purpose. It is remarkable that the noble Lord, Lord O'Brien, and his successor Gordon Richardson, possessed of this power, spent a great deal of time urging Governments to take it away from them. That, I am sorry to say, is a rare phenomenon in the exercise of public power and one that I think is worth a passing tribute.

In so far as there is a longer term danger from the currency situation for Britain, it does not arise from the abolition of these last pieces of puny and irrelevant exchange control. It arises from the desperately dangerous situation in the world monetary system, especially as it relates to financing deficits. I urge the Government—I do not want to go into technical detail—to recognise that the area which they must look to is the effect of all this on the banking system, and not the more popular targets for criticism.

However, for all the reasons that I have given, I can, as a member of the Labour Party and of the former Government, welcome the end of this exchange control which has served no useful purpose, and the abolition of which could be a considerable encouragement to a great trading, insurance and banking nation like our own.

6.34 p.m.

Lord COBBOLD

My Lords, we have listened to three admirable maiden speeches today and it falls to me to congratulate in particular the noble Lord, Lord Lever of Manchester. I think that in any event I should have enjoyed his speech very much, but I enjoyed it perhaps more because he spoke about subjects in which I have a very considerable interest. It so happens that in 1939 I spent a great deal of time putting on the exchange controls and throughout the 1950s, as he rightly said, we spent a great deal of time in getting rid of most of them. It would be very foolish for me to say to the noble Lord, Lord Lever, that the House will look forward to hearing from him more often. That appears to be a more than obvious self-evident fact.

My purpose in intervening in this debate is only to stress one point and to draw on my experience in the 1950s, when I carried some responsibilities for these matters. I propose to talk—and I am sorry to say that I propose to talk rather gloomily—about inflation. I make no apology for making once again the "central bank" speech which will be very well known to the noble Lord, Lord O'Brien, and to ex-Chancellors of the Exchequer who have heard me make it very often. Indeed, I make no apology if only because rather to my surprise inflation has not been mentioned often in the debate this afternoon.

Throughout the 1950s, when inflation was running at what seems today minimal figures, I and various others who sit in your Lordships' House today, made a great many speeches warning of the dangers of progressive inflation. It is a fairly dull subject and on the whole the speeches fell on deaf ears and were generally regarded as a routine form of central banking and economists' mumbo-jumbo. The very clear recollection which I have comes from my discussions during the 1950s with my colleagues in other central banks around the world. Some, like the Federal Reserve and the Bank of Canada, had the same difficulties as we did in getting across the message about the danger of inflation. We were almost envious of others, especially perhaps the West German Central Bank, which only had to mention the word "inflation" and everybody leapt immediately to attention and action. I can perhaps make the point best by quoting some words from a speech which I made to the Canada Club in April 1959. I emphasise that I said this 20 years ago. The extract begins: Obviously the dangers of inflation are more easily understood in those countries which have known complete collapse of a paper currency: in those countries the bogey is familiar, and a call to defend the currency has a real personal meaning to every citizen. In other countries (it is happily the case both in the United Kingdom and Canada) no collapse of the currency has been known: such gradual decrease in the value of money"— I repeat that I am talking about 20 years ago— as has taken place has brought benefit to some and suffering to others—it has not been seen in the stark terms of complete loss of savings, social upheaval and insolvency of the State. It has to be proved over the next few decades that paper currencies, and indebtedness expressed in terms of paper currency, can, by the will of democracy and with the support of democracy, retain public confidence as a store of value. This will require an ever wider understanding of the problem by the peoples of our countries, and a continued willingness to accept the disciplines without which the objective cannot be won". I repeat that that was said 20 years ago.

In the last few years we have seen the beginnings of a wider appreciation in this country of what real inflation means. But there is still much to be done in bringing full realisation home to the public. Inflation is a bit like alcohol. A little alcohol makes most people feel good—quite a bit of it, over quite a long period, makes a lot of people feel good. So does inflation. But, it is not always easy to realise, or at any rate to realise in time, that if it gets out of hand, the one will destroy the body politic as the other will destroy the physical body. Nor is it always easy, in either case, to accept the necessary disciplines to prevent that from happening.

Both Administrations in recent years have set the attack on inflation as a primary objective. But every time that there have been signs of a check, inflation has moved up again to higher levels. There are very different views which have been forcefully put forward, and will again be forcefully put forward in this debate, about the right or wrong ways of pressing the attack home. There is, however, a view common to most people on all sides of this House, and increasingly accepted by the country as a whole, that inflation is the prime enemy and that the attack on it must have the highest priority. I hope that the debate in your Lordships' House today may help in some measure to make the dangers of failure to deal with inflation still more widely understood and increase the willingness of the public to accept the disciplines which will surely be needed if failure is to be avoided.

6.40 p.m.

Lord IRVING of DARTFORD

My Lords, a maiden speech is perhaps a suitable occasion in a debate as wide as this for a newcomer from another place to make his views about your Lordships' House clear. I was very disappointed to be so unceremoniously and painfully dismissed from another place during the May election. When it happens to one twice in 10 years, there is no greater test for a democrat. Nevertheless, I was very pleased to come to your Lordships' House because I have always taken the view that it does a useful job, and a very good job indeed, as regards European legislation. In time I hope to make a modest contribution to that work. I have never wanted your Lordships' House to have more power than it has at present. Nor have I at any time wished it to make a real challenge to the elected House. I do not do so now. I do not wish it to be abolished; nor do I wish it to be elected because I believe that inevitable conflict will arise between the two Chambers.

Eighteen months ago I led a delegation to Australia which included two Members of your Lordships' House—the noble Countess, the Countess of Loudoun, and the newly-ennobled Baroness, Lady Skrimshire of Quarter. During that time we saw the bitterness that conflict between the two chambers had left in Australia. I should not like to see that take place in the United Kingdom. The great majority of our people take the view that this House is part of our history, and generally they respect the wide range of distinction and knowledge that your Lordships bring to debate. Once this ceased to be true, due to abolition or election, the bitterest controvesy would arise and many people would join in it. I submit that there are many more better things to do than to become involved in the time-consuming and destructive exercise that this would involve.

Leaving that subject, I should like to make a more parochial plea to the Government. One of the casualties of the last two or three years, because of our economic difficulties, has been the road programme. Although we have built some very fine roads in many parts of the country, one part of the country that has been totally neglected is the road to the South-East—the road to the garden of England, the gateway to Europe. I am sure that those noble Lords who use that road will agree that it is absolutely appalling. There is an increase in delay, frustration and wear and tear, and it now takes about two hours to do the 20-mile journey up from the South-East. It reflects no credit on anyone, and I should like to urge the Minister to use his good offices to obtain a speedy improvement in this road before the traffic snarls up entirely.

I want to make another cry from the heart. For nearly 30 years I have been a member of a local authority. I believe that a healthy system of local government is essential to a sound democracy. I wish that more parliamentarians were involved in this kind of work. However, at present I am the chairman of a finance committee which is wrestling with the problem of trying to interpret the intentions of the Government in respect of local authorities. Local authorities face an impossible task. In my local authority our calculations show that in order to meet increased wages and salaries, comparability payments and such payments as interest charges, which we could not take into account nine months ago, there must be at least a 30 per cent. increase in the rates. That is after we have made serious attempts at cuts and, indeed, after we have for two years frozen many appointments. I hope that the Secretary of State will bear in mind that local authorities have been squeezed for the last two or three years, that many of them have run down their balances, and that there is little fat left.

I should like to make one other point clear. I believe in a mixed economy, because I believe that that is the best way of ensuring freedom of choice and efficiency. I believe in the need to make British industry profitable and I believe in the need for Government to create the environment in which this can happen. I am certain that we need a closer understanding, both between Parliament and industry, and between the two sides of industry. Two or three years ago a number of us co-operated to establish the Industry and Parliament Trust which has been at work for the last three years. The first 20 or 30 fellows have nearly completed the task to which they committed themselves of attaching themselves to and working in industry for 25 days. I believe this has been completed to the mutual satisfaction of both the members themselves and, indeed, of industry. I hope that perhaps some of your Lordships may have an opportunity to take part in a similar exercise in the future.

However, our present situation is very serious. The economic facts are grim. We have an economy which has consistently been unable to compete in world markets. It is common ground that, although we disagree with the extent, there is a need to hold back expenditure, and we agree that the money supply is an important element in any Government's policy. But the Government themselves have withdrawn from the control of prices and profits and, indeed, from wage bargaining. I do not believe that that can continue because I am certain that the Government must become involved in the industries which they control. In setting the cash limits they will, in fact, be setting the going rate for industries outside those which they control. I do not believe that we can do without a wages policy. I am certain that sooner or later the Government will have to return to a wages policy, which I hope will be a voluntary one.

In the meantime I hope that the Government will seek to secure the closest cooperation with the trade union movement, because it is particularly important at this time. We face a new industrial revolution based on the technology of the micro-processor, which will alter beyond recognition so many of the industries upon which national wealth and employment prospects depend. In the last 10 years Japan has spent something like £500 million on micro-processors, while the United States has stimulated its industry through enormous defence and space exploration expenditure. France and West Germany have been investing at the rate of about £60 million per annum.

Until recently our programme has been very slight indeed. In its second report which the Advisory Council on Applied Research and Development presented to the Cabinet Office yesterday it says: We are in great danger of being left a long way behind in the application of programmable automation and robotics". The new technology presents us with a dilemma. If we do not invest, we shall never be able to compete in world markets. If we use the new technology, we shall find that we need fewer people. One or two people like Arthur Little believe that many new jobs will be created, but they are very few in number. But the Think Tank and the Manpower Services Commission do not believe this at all. Professor Freeman said in his J. D. Bernal Memorial lecture last year: Developments in the micro-electronics industry are far more important than developments in aircraft, cars, steel, chemicals and in any other industrial sector because micro-electronics is a new 'heartland' technology". Sir James Hamilton, the Permanent Secretary to the Department of Education and Science, this morning said that this was the most important new technology since the Industrial Revolution, although he did point to a number of other new developments. Mr. Ray Curnow and Professor Ian Barron of INMOS have talked of "a tidal wave of electronics" which will sweep through existing industries destroying some of them completely.

Information technology will affect 95 per cent. of the economy. Derek Roberts, the Managing Director of Plessey micro-systems division, believes that the electronics revolution will fairly swiftly lead to organisational investment and manpower changes in practically all established industries. The computer and telecommunications merger will be the first, and this will lead to a catastrophic loss of jobs.

I believe that we have a time-scale of about five years—10 years at the most. But the effects will be considerable. It will almost inevitably mean that, if we are to get more efficient and simplified production, we shall use more resources, and therefore we are concerned not just with the conservation of oil, but we must be concerned with the conservation ofmany other raw materials. It will require a new approach to our education system in terms of training and retraining. People and institutions will need to adapt to more extensive work sharing and a new relationship between work and leisure. It will require an increase in research and the search for alternate materials.

I believe that there should be a minister charged with the special responsibility of co-ordinating all these matters. Whether this is to be a threat or a promise of better things to come, whether it is to be a danger or an opportunity, will depend on the degree of co-operation between management and workers in securing the enormous adjustments which are involved. I believe that the British people are capable of achieving that co-operation.

It is in times of difficulties—difficulties like the present—when we should have faith in ourselves and the courage to plan for the future. I hope that the Government and all others concerned will act positively on the lines of the new report so as to enable all our people to enjoy the benefits, and a better life than ever before. The prizes are great, and although the hour is late I believe that the future is still in our hands if we, as a nation, are prepared to act sensibly, act together, and act in time.

6.52 p.m.

Lord NUGENT OF GUILDFORD

My Lords, it falls to me to have the privilege and pleasure of congratulating the noble Lord, Lord Irving of Dartford, on his maiden speech, which your Lordships obviously enjoyed very much in its highly constructive vein. It must have been a relief to your Lordships to know that there are some distinguished Members of the House of Commons who really wish the House of Lords to continue in existence. Of course, the noble Lord occupied an important position in the House as Deputy Speaker and Chairman of Ways and Means. I was interested to see in his wide-ranging career of public service that one of his jobs had been to help with raising the finance for the University of Kent. Here I can sympathise with him because I was chairman of the appeal for the University of Surrey, so he and I must put our heads together and console each other on what must have been many difficulties in the past. We all look forward to hearing the noble Lord, Lord Irving, often in the future, and hope that he enjoys our company as much as I know we shall enjoy his.

May I start by thanking my noble friend Lord Thorneycroft on making this debate possible. He must have been pleased to hear the felicitous reference by the noble Lord, Lord Harris of High Cross, to the events of 1958 as, as he put it, the last brave stand against excessive public expenditure. I am bound to say that at that time I was a junior Minister in the Government and it seemed to me to cause quite a stir when the Chancellor of the Exchequer and all the Treasury Ministers resigned together. It is true that at the time it was classified officially as only a little local trouble, but the rest of us thought that it was very considerable. It must be good for my noble friend to be taking part with this Government today who are trying once again to stem the tide.

This debate starts from the point where we took over, as the White Paper describes, this record of the past five years of accelerating decline, national debt doubled, the pound sterling losing half its value, and the great enemy, of course, of inflation—to which the noble Lord, Lord Cobbold, so authoritatively referred—for ever working away and damaging everything. At the same time let us not forget that unemployment doubled. That is something that matters to all of us. We do not hear so much about that now. GNP slightly rising, but let us face it, only saved by the incredible bonus of North Sea oil. In fact, the output of our factories, as we know, is down on what it was five years ago.

This record of accelerating decline—and it is that acceleration which is such an anxiety to, I am sure, noble Lords on all sides of the House; heaven knows we have been accustomed to decline except in the 1950s—is really worrying. This has been achieved by a Government which has tried. And let me give personal credit to the former Prime Minister, Mr. Callaghan, for striving to keep the wage award level last winter to 5 per cent. My word, he strived hard in the interests of controlling that inflation which is at the bottom of it all. But at the end of five years of all the best intentions and enormously high spending by the Labour Government, here we are in Britain worse off and less competitive than any of our neighbours. I believe we are even about to be passed by Italy, which I hear is going to be ahead of us next year.

This is the background of the White Paper, and it is only right and proper that this Government should be making a complete change. This is what we were elected to do. This was in our election manifesto, and so this is what we are now doing. The basis of the change is to put top priority on the creation of new wealth, which must come from private business. The start of this was of course in the Budget with the reduction of personal taxation to a very considerable measure, and then this to be followed by the restraint of public spending which we have before us today.

Let me make the point, because it needs making and making again throughout the debate, that the measure of the cuts is really not all that dramatic. I hope that noble Lords opposite, and indeed members of Her Majesty's Opposition generally, are not going to exaggerate this, because they are in fact no more than stabilising expenditure at the level they were themselves spending. In terms of public presentation this is no more than half the cut which the Labour Government imposed in 1976–77 as a result of the IMF conditions, when of course they had the support of the Conservative Opposition of the day. The Labour attack as the noble Lord, Lord Peart, presented it, which pitched in particularly to our cuts in the education service and the National Health Service, is not a serious contribution to the debate unless it can present a viable alternative to the path we are treading. Perhaps they can. I hope they are able to.

Unless we can reverse the present trend of decline, even the existing levels of social services will not be able to be maintained. The whole thrust of the Government's policy is to increasing growth in the private sector, which alone can create the new wealth, the new jobs, the higher living standards we all want. I firmly believe that the reduction in income tax is the basic step to encourage employers and employees alike. It makes men running their own businesses able to earn a better profit, and therefore they have a greater incentive and can develop their businesses and make savings. This is good for everybody. If it makes them richer at the same time, well this is something which is going to benefit the whole community in the end.

One aspect of this policy must be that the rich man is not to be seen as somebody to be persecuted. He is valuable to us. He is not an enemy of society. He is not to be squeezed by the Chancellor of the Exchequer until he howls with anguish. For what does he do?—he goes. We all know about the brain drain. It is increasing and nobody knows its dimensions, and one of the more galling aspects of it is that the big fish get out whenever they want to. They move their money about the world without the slightest difficulty. The smaller ones get caught, and thus we all suffer.

Top talent today is in an international market, and men and women can move about and have a bigger part of their earnings left to them, so they feel they are better rewarded. I am not speaking just about the spectacular people, the sportsmen and "show biz" people, because it runs right through the professional and industrial world. We cannot afford to lose these wealth-creaters. We must make this place attractive for them to live in and to come hack to. I had contact with one such person the other day when canvassing for my Conservative Party. Somewhere in my neighbourhood I asked a man whether he would make a subscription to the party. He was obviously extremely wealthy—his large house and everything about it indicated that he was rich—and he obviously moved about a lot, and where his main residence was I do not know. In any event, his reply to me was, "Why do you think I should give money to your party, which has put out of office the Labour Party, when I was making so much money as a result of their mistakes?" I hope noble Lords will take the message, though I make it as a joke, that persecuting the rich simply impoverishes everyone.

I turn briefly to industrial relations, because this is part of what the Government are doing, and they have my support. It is necessary to redress the balance between trade unions and management, including individual workers, and I hope noble Lords opposite, Labour politicians generally and trade union leaders, will recognise that industry and commerce are not a battlefield for political power. Management must have a certain measure of authority if it is to function efficiently. It has a function to perform; it must take decisions and give leadership. If it is weakened by the labour force having too much of the power, it will become inefficient in its function and then we all suffer. We shall have other debates on this subject when measures are produced by the Government, so more about this subject later.

These are only the bare bones of political policies, and we must now ask, what response will the nation give? Everything depends on that. I would accept something the economists have not said today; namely, that all the economic moguls predict this recession deepening. Therefore, there is only one thing which can change the present economic trend in our national life, particularly against a trend of world recession, and that is a change of heart by us as a nation. This I believe is possible, and I was glad to hear the noble Lord, Lord Mackie of Benshie, saying so; and others have said it.

What we need to get over to the nation is that there is no trick of Government policy, of financial arrangements, which will give us a soft option. Government can only spend money which the nation produces. Government can of course create short-term money, but unless that is covered by extra production from our factories and offices, inevitably there will have to be more borrowing, more taxation, higher inflation and the same cycle of decline to which we are all too accustomed. Let us face the fact that over the years Governments, perhaps all Governments, have been all too ready to create the impression that they can manage the money of the nation in such a way that they can provide what is wanted. Maybe this belief stems from past days of our Imperial greatness when we really were a rich nation; but we are certainly not today and we have only what we earn. I therefore hope that the Opposition attack will not encourage the great trade unions this winter, especially in the public sector, to make excessive wage claims, because that would exacerbate the situation and make greater difficulty in controlling the money supply and getting inflation under control.

There are, however, a few encouraging signs, perhaps the odd straw in the wind. There was the poll by the British Leyland labour force; about one-third of all the workforce in the engineering industry continued to work during the strike; and there has been the Talbot settlement—the employers are of course French, and the employees knew they would not get more than 5½ per cent., so they settled for that. Those are just a few straws, and they are certainly nothing like enough to show that the message has got over; but I believe that more will follow so long as the Government stand fast and management plays its part too. Management has been making a lot of sense at its conference this week because basically what is needed in every factory and workplace is teamwork between management and workforce. Only by getting that team work, and the Government creating conditions in which that work can take place harmoniously, shall we get the extra production we want.

The precedents for making a recovery of this kind are not encouraging, but we have one which is very near us and we can take a great deal of comfort from it, namely, that of our neighbours in France. I can remember well 25 years ago motoring across France and having a conversation with a friend on how France could recover. Everything was going downhill, Governments w alked in and out of office, Ministers were unknown and the whole country was in a state of continuous decline, with endless industrial troubles and production falling. There seemed to be no hope whatsoever, yet look at France today; it is booming with prosperity. That was achieved by one man with courage and vision, General de Gaulle, who gave leadership with immense skill and trenendous courage—my word! he ran into opposition, people trying to kill him, but he survived—who led his country through to prosperity. France is now enjoying prosperity she has never known before, all done in the space of 25 years.

There is an example for us, and I do not think there is anyone in Britain who would not say, "What a Frenchman can do, I can jolly well do better!" We here in Britain today have a leader with courage and vision, and she has my support. The Prime Minister is giving us a policy which starts us on this road to recovery, which I believe will win a response from our people as a whole, and which will carry us through so that we will deploy the great strength, ingenuity and enterprise which we as a nation have, so that our standard of living could be rising again, with better social services and the whole of our lives made a great deal better. I warmly support the Motion.

7.8 p.m.

Lord JACQUES

My Lords, I join with previous speakers in congratulating the four maiden speakers, and this is one occasion when we can say sincerely that we hope to hear from them very often in the future. It is accepted that this country is one of the poorest members of the European Economic Community. It is also true that we suffer from some of the disadvantages which inevitably overtake a pioneer, but our resources, both human and material, are such, especially our resources of energy and our experience of manufacture, that we should be one of the richest members of the Community; and we could be one of the richest if we could find a way of co-operating and working together rather than spending our resources fighting each other. That is putting it bluntly, but I believe that it is the core of the trouble.

I also believe that unfortunately we are further from reaching that position than we have been at any time in the post-war period. We now have an entrenched Right Wing Government locked in a combat of will power with a strong trade union movement, and there could never be a less propitious time for that to happen because it is against the background of a very sombre international situation. It is having, and it is going to have, tragic effects upon our economy.

I would direct the attention of the House to the work of a number of independent economists who represent a comprehensive cross-section of private and public industry, finance, and public administration. They are pooling together their knowledge and experience for the purposes of making forecasting more accurate, and they are using the Treasury computer forecasting model. Their last report—they are to report quarterly—was published in full in the Guardian of 15th October, 1979, and any figures that I use will be taken entirely from that report.

In a free-for-all organised workers can be expected to seek to maintain, and where possible to increase, their standard of living. The threat that we will not print the money has no effect whatever in the short run, and in the long run the effect is uncertain and is minimal. It is much more likely that the workers would com mend their trade union leaders for having tried to maintain or increase their standard of living, and then blame the Government for any unemployment, even though some of it was consequential. Let us have no doubt about it—that will be the reaction of the workers.

The threat that we will not print the money is of course a bit of political shorthand. In practice the control of the quantity and the velocity of circulation of money and credit is both uncertain and difficult. The principal instrument in the control of money is the rate of interest. A high rate of interest strengthens sterling. That in turn makes exports dear and imports cheap, which in effect means that foreign competition is used to inhibit the increases of prices by home producers; and that is what is happening at the present time.

But, my Lords, the effect upon wages is minimal, and the effect upon wage applications is minimal for the simple reason that so often one man's increase in wages is another man's unemployment. It is only when the two things affect the same man that there is any relationship whatever that has any meaning. In consequence it is expected that despite the strict monetary policy of the Government, earnings will rise by a further 16 per cent. in 1980 and a further 14 per cent. in 1981. In the meantime the effect upon the economy is, and is going to be, devasting. For example, it is expected that in the next two years the gross domestic product will decline by 9 per cent. compared with the peak of 1978—a decline of 9 per cent. from 1978, in a period of two years.

It takes time to adjust to this decline in output. First of all overheads continue as before. Secondly, manning continues if not indefinitely, certainly for a period, and overmanning can be expensive. But of course in the end there is a shake-out and there is unemployment. It is expected that because of this fall in the GDP in the next two years there will be a gradual shake-out and unemployment will rise to 2.5 million by mid-1981. Many of these 2.5 million will be people who have never worked, and at the other end there will be many who will never work again. It is a very sad prospect.

In the meantime the proceeds of North Sea oil are being used not to help our economy, but to fuel the economies of Germany, France, Japan and the other countries from whom we are importing goods. They are getting the benefit of the proceeds from the North Sea oil—not our economy. But even after using the North Sea oil proceeds to pay for imports, it is estimated that in the present year we shall have a deficit on current account of £3,000 million. It is further estimated that this deficit will be £3,500 million in 1980, and it will be 1981 before it becomes less than £1,000 million.

That is the devastating effect upon our economy that we can receive from present policies in the next two years. In the meantime the effect upon inflation is expected to be negligible. It is anticipated that inflation will rise to a peak of 19 per cent. in the spring of next year. This is pretty generally accepted, even by the Government themselves, I think. From then onwards it will decline, but in 1981 it is likely to be in the region of 13 per cent. In the meantime, the high rate of interest is attracting money into short-term uses, and consequently we have less long-term investment in the private sector. It is estimated that investment in the private sector will decline by 5 per cent. in 1980, and by another 4 per cent. in 1981. That is a sorry picture, and that is the picture we have to look forward to for the next two years.

I would accept that monetary policy is an essential element in the control of the economy, but I do not accept that inflation can be controlled by it alone. I believe that to try to control it by monetary policy alone is leading us to disaster. Even if we could cure inflation by the control of the money supply alone, it would take a very long time, and because it would take a long time the damage to the economy would be great and the bitterness left behind would be deep.

Britain can be a prosperous country, but not with free-for-all, but with a conscious and deliberate attempt to cooperate, involving restraint not only by trade unionists but by all concerned. Now I am not calling for a rigid, temperate incomes policy. That is inappropriate, I believe, but as I indicated when I spoke in the debate on the Queen's Speech, I consider that we should have a permanent, but flexible, policy.

I believe that we should have a national body, on which the trade unions, employers and Government are represented, which lays down, not a norm but guidelines to be followed by negotiators and conciliators. I also believe that there should be an attempt to get both sides of industry to agree that before they take industrial action they will negotiate; that if they fail in their negotiations they will be prepared to conciliate; that at the end of the conciliation period (which should be relatively short; it should not be a delaying device) the conciliator should report, and that report should be circulated to all concerned; and that there should be a ballot before there is a strike.

My Lords, you cannot get that from the trade union movement without being prepared to pay some price for it, but it is worth a considerable price because it is the key to the situation. You will get better industrial relations in this country, and you will get more confidence, more investment and greater productivity. It is the key. It is more important than a reduction in taxation. I have always taken that view, and I still take it.

The Earl of GOWRIE

My Lords, would the noble Lord be so kind as to allow me to interrupt him? I am most grateful. Would he not agree, though, that those who are in the trade union movement and who, like the noble Lord and myself, wish to see improved industrial relations are the same people who are calling, and have been calling, for reduced taxation?

Lord JACQUES

My Lords, I did not want to deal with the subject of taxation, but I mentioned it so I think I must answer the question. As I said when I spoke in the debate on the Queen's Speech—and this was before the Budget—I would accept a moderate transfer from direct to indirect taxation; but, of course, I regard what happened in the Budget as an immoderate transfer. I believed there was a case for a moderate transfer.

But, my Lords, the price has got to be paid. It is inevitable that trade unionists will say, "What about prices and profits?" They said that to a Labour Government, and they would say that to any Government. I am not saying that we should go back and have all the paraphernalia of price and profit control that we have had in the last few years, put I think there are changes which could be made which would go at least some part of the way. For example, I think we ought to change corporation tax. I believe that, when dealing with corporation tax, the profits assessed should be related to the value of the assets employed in the business, and that the tax should be graduated. In that way high profits, excessive profits, would be subject to a higher rate of tax. Many noble Lords on the other side of the House will put up their hands and say, "This is quite impossible", but that is the kind of price you will have to pay if you want to win the confidence and support of trade unionists—and, my Lords, I suggest that it is a price that will be well worth paying.

7.24 p.m.

Lord SELSDON

My Lords, I have just realised that if the pattern of previous speakers were repeated I would be in the very privileged position of congratulating the noble Lord, Lord Jacques, upon a maiden speech. It has indeed been a great pleasure to listen to maiden speeches of this sort, and to have the assurance that the House of Lords has, I suppose, a peerless or a glorious future! But in speaking today I recall advice that Lloyd George once gave to Harold Macmillan after Harold Macmillan's maiden speech. He called him up to his room and he said, "When you speak from the Back-Benches, make one point and make it as many times as you like. It is only when you are Prime Minister that you may have the luxury of making two".

My Lords, I propose to make two points. They are not new points, but points I have made before. Inspired by the noble Lord the Leader of the House, who spoke of industry and enterprise, I am going to be sufficiently enterprising to try to pass a message to the octopus of Government through the mediation of that honest broker of wit and wisdom, the noble Earl, Lord Gowrie. To him I would say that I should like to give him some advice, and if, through the chain of the octopus of Government, he can pass it back to the Mekon, I shall be very grateful to him.

The two points I seek to raise—and there are many one could choose—are, first, international, and, secondly, domes tic. The Government of the day have taken steps which innumerable collective bodies urged them to take. They have been surprised, when they have taken these steps, that many of them have not been warmly received, whether it be a reduction in Government spending, a reduction in taxation or a removal of exchange control. Often the support that they would have anticipated they would get from the historic and traditional Conservatives has not been forthcoming. I do not believe that the reason is because there is not such support, for the Government have done almost everything one could have hoped they would do; but perhaps they have failed to recognise that if you wish to change the course of a river or reverse its flow, or stop a water wheel, there has to be the elapse of a period of time. It is only the great American nation which ever succeeded in making one river run backwards—the Chicago River.

My Lords, the French have a lovely saying. I think I would lead into it by pointing out that, recently, we who are not in Government—the private sector, or even large public sector bodies—have come to rely too much upon Government to lead us. We blame Government when things go wrong. Suddenly Government turn round and say, "You must lead us". The French say, "On ne doit pas mettre le chariot avant le boeuf". The Government have caught us all by surprise. They have perhaps done too much too quickly. I do not think they have done too much, but it may be that they have done it too quickly, and may be the great British people in the private sector are not yet ready to accept the trust and the glory the Government are willing to bestow upon them.

This leads me to try to draw some conclusions as to what might happen as a result of the Government's current policies. First, their restriction of spending. We are, whichever way we look, moving towards the father and mother of all recessions, unless certain things happen. There is to be a world recession. A reduction in Government spending reduces demand, in the United Kingdom perhaps to a far greater extent than one would have anticipated because of the high level of Government spending. That reduction in demand reduces the incentive to invest, and thus industry steadily becomes more and more out-dated.

At the same time, we are faced with a world recession which could, among OECD or developed countries, reduce demand abroad; and, not wishing in any way to propound the themes of Keynes, I think there is a case, when we are planning to reduce our consumption abroad at a greater rate than world recession might force upon us, for seeing whether there are opportunities around the world where the demand for British goods and services could be increased. I submit that there are. There is going to be no real growth in the developed world, but there will be growth in the developing world. In order to benefit from that growth in the developing world, industry needs the support of Government. This may not be necessarily large volumes of financial support, but to remove the BBC French service when we really ought to be going all out to sell in French West Africa, to reduce aid at a time when little bits of aid can give the British an entry into a project or contract which otherwise might be denied to us, is in my view wrong.

I think that if the Government were to give more consideration to the potential of these Third World countries and to their desire to industrialise, we might be able to some extent to compensate for the reductions in expenditure at home, and thus not fall too far behind our major industrial competitors. Because we have the situation where recession is coming, and our own Government action—the right action—of reducing expenditure will accelerate the rate at which that recession hits us, and will delay our ability to recover when the world moves out of it.

Further, my Lords, in many of these Third World countries, particularly in the Commonwealth, there is an overwhelming amount of goodwill towards the British. It may be so in Africa—and the goodwill towards us in Africa will grow markedly if my right honourable friend the Foreign Secretary is successful in his negotiations, as we hope and believe he will be. We have a situation where Government across the board are cutting expenditure. This is right; but I hope they are perhaps cutting more than they would wish and may be thereby in a position to reinforce certain sectors at a later date. I come back to the question of the need for aid linked with trade to support and encourage development in the Third World. We do not need large amounts of money, but we need to recognise that the Government should be active.

My second point is a domestic one. It relates to taxation. My right honourable friend the Chancellor of the Exchequer cut taxation. I think (and world opinion is) that he did right. He removed exchange controls; and he did right on that so long as there may be a stable pound. But the policies of the Government will take a long time to work. Thus, we need from the Government a strong assurance that they intend to be in power for the next 10 years. Without that assurance, people may be concerned about the stop-go of economic policies. Having reversed the flow of the river, unless the next Government, if they are not a Conservative Government, wish to do the same thing, we will all have wasted our time. But, at home, the Government say to the people: "We have given you a free hand. We have given you tax reductions which should provide incentives." My Lords, these tax reductions will not provide incentives. Most people believe that they are entitled to a fair rate of taxation and have been so entitled for a long time. Therefore, they think that the position is now about right; so that it is not necessarily an incentive for the future.

We forget that the bulk of the people in this country who are to regenerate and revitalise industry are not in the organisations which might be described by the collective nouns; the trade union movement, the CBI, the large corporations or in Government. They are the people who wish to start building their own businesses. Thus, I ask the Government to give immediate attention not to increase or reduce the level of tax but to shift the emphasis of tax; that is, let us examine who pays tax. Industry is not very profitable at the moment. At the CBI conference someone said that the real profitability is only 3 per cent. The Government wish to encourage profitability and then to receive revenue from that profitability by taxing profits.

At the moment the situation is extraordinarily unfair where the leading 500 companies in the United Kingdom pay an average rate of tax well below the corporation tax that is stated; and yet they complain about it. Whereas the man in the medium-sized business, with no ability to take into account all the concessions made by the Government to offset his taxes or defer them, is faced with a high level of tax. It is true, too, that tax from companies has been relatively low in terms of the total tax take. It is under 20 per cent. I think that it was only under the stewardship of the noble Viscount, Lord Amory, that the amount of taxation paid by individuals fell.

I am not arguing about income tax on people who are employed by large bodies and corporations. I am arguing in favour of a move to remove taxation totally, or to reduce it effectively, from people who are struggling to start their own businesses and who are faced with high interest rates and all the difficulties that go with that situation. At the moment more people wish to start businesses than at any time in the last 10 years. That, I believe, is a direct result of the Government's action. But they are faced with difficulties. They start a business, they build it and after they have made a profit, after the first year or so, their accountant says, "You are going to have to pay some tax. Why not buy a new car or a new van?" They usually answer, "We like our old car; we would rather put the money into the business". But, because of the high level of corporation tax, they are advised that they should do something to offset their taxes. They have not generally paid themselves big salaries and perhaps they wish to pay a dividend. It is often a husband-and-wife business. Then they must pay a high level of taxation, even at the reduced rates, on the dividends that they pay.

There is a strange thing about people who start and own their businesses. They actually wish to put money back in the business. We spend all our lives encouraging the large organisations to put their money into expansion and we make rules and regulations to encourage them to do so; but the individual has a wish to build his own business. We suffer from too many collective nouns, too many big bodies. I looked up, before making my speech—and I always deliberately leave my notes at home—the Latin for the collective noun for a gaggle of geese; but I could not find it in the Library. Nor could I find an English-Greek or English-Latin dictionary. It may be that some noble Lord after I have sat down can advise me. But it is a problem of collectivism.

I would urge the Government to pursue the course on which I have tried to set them. Perhaps the next Budget could make a major attempt, probably to reduce the overall level of corporation tax but to encourage the large corporations to be more profitable and to pay more tax, and to encourage the smaller companies to pay nil or less tax provided they plough the money back into the business. Those are simply my two points. I thought that I would "have a go" at my noble friend Lord Gowrie, because private enterprise has some ability. So I thought that in this speech I would give him due notice that I propose to use all the resources, although limited, available to rile to take up those two issues at greater length; hoping, therefore, that if eminent men—far more so than I could hope to be—were to write to give advice to the Government, they would gain support from the Government, particularly bearing in mind the words of my noble friend Lord Thorneycroft, who said that the Government are willing and eager to accept outside advice. I hope that they will accept mine.

7.37 p.m.

Lord MURRAY of GRAVESEND

My Lords, I should like first to add my congratulations to the four maiden speakers, the noble Lord, Lord Harris of High Cross, and three of my former colleagues in the House of Commons: the noble Lord, Lord Stewart of Fulham, with whom I served in the European Parliament; the noble Lord, Lord Irving, who is a neighbour of mine in North Kent and the noble Lord, Lord Lever. Lord Lever and I have something still in common after all this time out of the House of Commons. It is that he still makes erudite speeches on finance and I still cannot understand them.

My Lords, I think the problem with this debate is the fact that it is very cynical—as, I believe, the Conservative Party were very cynical during the last General Election. I do not necessarily want to fight the last General Election over again; particularly in view of the fact that we lost it. Nevertheless, I

should like to point out one or two things where I think the Conservative Party were dishonest—and I use the word advisedly. And not only were they in this category but the Daily Mail and other national newspapers fell into that category.

They are saying now, "We have a mandate for this. It was in our manifesto." We have to allow for the fact that the electorate sometimes take politicians at their word. But I do not think that the electorate were quite aware of what these cuts were intended to be and where the cuts were going to take place. Everybody thinks that public expenditure is wasted public expenditure unless it is spent in the area in which they are involved. Everybody wants there to be cuts; but if the cuts affect them, they say that it is not wasted public expenditure. We must be aware of that. Nevertheless I do not think that the public were fully informed by the Conservative Party of what exactly was going to happen.

I say this in the knowledge of what the Daily Mail printed at the end of April—which was known as "Labour's dirty dozen" which was a denial by the Daily Mail which they said came from the Conservative Central Office. Recently they were taken to the Press Council on this matter. I think that the Press Council behaved disgracefully in this matter in reply to the allegations made against them. But, having said that, there were 12 statements which they claimed the Labour Party had made and which the Conservative Party had categorically denied as being true. One of them, the most sensitive one, was the question of prescription charges. The Labour Party said that the Conservative Party would be raising prescription and health charges. Not only did Mrs. Thatcher deny this, which is fair enough—or the Conservative Party with Mrs. Thatcher—and Mrs. Thatcher nailed her colours to the mast, but when she did this I am assuming that she meant it.

What have we had? Not just one increase in prescription charges but two within 12 months of them taking office. Whether the Daily, Mail says that is one of Labour's dirty dozen or not is another matter; but I think that the Conservative Party ought to be fully aware that that was a lie when they denied it and they have in fact increased the charges subsequently.

Regarding value added tax, our Prime Minister at that time, Jim Callaghan, said that the Conservative Party would be doubling VAT. To be fair to the Conservative Party, they did not double VAT. They took it from 8 per cent. to 15 per cent., and, even though I am not an Einstein, realise that there is 1 per cent. difference. Nevertheless, it was a denial and it would take a smart mathematician to say that that is not almost double. I think that they misled the British public in this direction.

The selling off of various parts of British industry was again denied. Do not just take my denial, look at the Daily Mail for 26th April, and see on this House's own check-list where those denials have been abrogated. They are intending to sell off parts of British industry, which they denied; and also consider the health and prescription charges and VAT.

That is not just unfortunate for the Conservative Party, but it is unfortunate for politicians generally. People then say: "You are all the same; we cannot believe politicians". It raises cynicism about politicians from everybody. The Conservative Party has a lot to answer for. The recent cuts are measures that hit the poorest, those least able to protect themselves in our community. Just look through them again on the check-list, things like school meals. The Minister in the other House responsible for education in his speech on Monday said that there are children who "flog" their free school meal tickets. I would have thought that, with the attitude of this Government, they were in favour of entrepreneurs. Those who "flog" off meal tickets are a minimal number, so do we have to cut school meals because somebody has done that?

School milk and school transport charges are things that affect the hardest hit in our community anyway. Those who get the tax cuts from the Chancellor's recent Budget in our community are not affected by the question of school buses or school meals. Those that do not get a tax cut because they are earning too little are the ones who have to suffer, and they have to suffer with the increase of from 8 per cent. to 15 per cent. in VAT. Again it is hitting those in the poverty trap.

The Government's recent Education Bill (No. 2) they say is going to give a wider choice to children. The Government know that is not true. They know that there are schools known as "sink" schools to which people do not want to send their children, but they are going to be forced to do so because the Government will not close the school down and enlarge another school.

I am sorry that the noble Lord, Lord Thorneycroft, is not in his place because I shall attack him slightly. He attacked the ILEA, he attacked Lambeth Council and various other councils, all Labour councils. He did not attack Kent County Council, who are responsible for the education of my children and are I think one of the least progressive councils in the country. That is where we ought to be looking. If we are talking about one nation, one society, let us cover the whole of our nation and society rather than just individual labour councils that he was prepared to attack. When we are in the midst of all these cuts and we are talking about sharing out among all of us, they decide that they are going to have special places for bright children, that they are going to spend by the middle of the 1980s, I presume—certainly they have denied that it will be very soon—something like £70 million on this scheme for 15,000 children, and we are told that everybody else has to cut. Those in the poorer authorities, or those who have average children, are not the ones who are going to get the benefit. If we are going to spread our resources, if we have to believe what the Conservative Party and the Government say, we have to share the responsibilities and hardships if we are going to have these problems.

Just after the General Election campaign, when Sir Geoffrey Howe made his post-Budget speech on how great a Budget it was for all of us, he started talking on 12th June about giving everybody some real incentive again to show those people, managers, doctors, skilled workers and even pop stars who are going to work abroad that it is worth while coming back to Britain to stay here. If "pop stars". means Tom Jones and Engelbert Humperdinck, I am not all that keen. Nevertheless, thought that Freddy Laker would have had air charters by the dozen fetching all these people hack.

One of the reasons that a lot of people go abroad is in many cases they get overpaid. Pop stars go to the United States because they can earn more than in Britain. It is nothing to do with tax. They can appear for a week in Las Vegas or on a coast-to-coast hook-up that earns them much more. It is kidding people to say that the taxation system is causing problems, and causing people to leave the country. For doctors in the United States it is not a question of taxation; but the make-up of their health service, practitioners and specialists means that they earn hundreds of thousands of dollars. It is nothing to do with how much they are taxed. It is basically how much they can and do earn. People have been misled in this direction.

We have had almost every speaker from the Conservative Benches attacking in one way or another the trade unions. They seem to think that trade unionists are some little group, 50 people or something, without accepting that it is half of our working population that they are talking about. It is this continual attempt to divide one half of the working population from the other. If one accepts that it is a half of our working population, it is acceptable that it is half of our population involved with trade unionists whether they are the husbands, wives, or children of trade unionists. There is this constant division. The CBI, in their conference this week, were making some most primitive speeches about the closed shop. If they want to legislate on the closed shop, that is fair enough. I hope that when they are legislating on the closed shop, they will look at some of the professions like lawyers and doctors who operate a pretty fair closed shop, a pretty decent closed shop. You try and operate in those professions without being a member of what is their appropriate trade union. I am a trade unionist and I have been an active one all my life and I wish that I received their fees. This is one of the points about this division, dividing one from the other.

If we want to talk about the closed shop—and the Conservatives are very keen on this—I should like to see in any legislation that they bring in—and all the noises they and the CBI are making are moving towards legislation—some method devised so that if somebody does not want to pay their union dues and get involved in trade unions, then they do not get the benefits of that trade union activity. It is not fair that people should give their contribution to a trade union and they fight, work and, indeed, go on strike to get their rights, and then they find that somebody who has not contributed, not taken any part, gets the same benefits. It is all right for the Conservative Party and anti-trade unionists to attack trade unionists. But, in my view—and I have no doubt that it will be contradicted—trade unionists have played the major part in altering conditions in British industry in terms of pay and holiday entitlement. However, what happens is that most of the non-trade union industry follows on the coat-tails of the benefits that trade unionists receive.

Neither management or the CBI have been criticised in this debate—it has all been "Britain's problems are the result of trade union activity". I think the Conservative Party have to look at the divisiveness they are creating. Another area where the Prime Minister is creating divisiveness is in foreign affairs. She has been named "Iron Lady" by the Soviet Union and she seems to want to live up to that tradition. She seems to be wanting to create troubles and arguments between the Soviet Union and the People's Republic of China. I do not know what she thinks that will achieve, but this is again part of the divisive approach which the Conservative Party has in regard to not only problems in this country but foreign affairs. Indeed, if she wants to use an element of propaganda against the Soviet Union or against communism I am surprised that they have cut the BBC's External Services. It seems to me that the weapon of propaganda by the human voice, whether to Greece, France or Italy, is very powerful. It is very interesting to me that she makes these very aggressive speeches—and I have no doubt that Mr. Brezhnev and one or two others rarely get a wink of sleep at night over all this—but then, on the other hand, cuts down the External Services of the BBC, which I think have made a valuable contribution.

The noble Lord, Lord Peart, said that we were again getting the two-nation syndrome. I think that is absolutely right. If you look at the nation, you see a nation which is divided politically. We have in the South of England, for instance, 160-odd constituencies, of which only 12 are Labour and the rest Conservative or Liberal. I do not think that is good for democracy. Certainly I want to see a change, because there are only 12 Labour seats. Having said that, the sort of policies now being dreamed up by the Conservative Party will continue this division of the nation not only between the North and South but between trade unionists and non-trade unionists.

The noble Lord, Lord Soames—I think it was he—mentioned that foreigners do not buy our cars any more. Looking in the Lords' car park, it seems there are not many noble Lords who buy them; and I think you have to say that people ought to be supporting our car-makers because they are telling everybody else to support British industry. I think this Government have to make a realistic reappraisal of their present policies and certainly a realistic reappraisal of the White Paper, and come back to the people of Britain and say: "We have thought again and we are going to change it".

7.53 p.m.

Lord SPENS

My Lords, I should like to join in congratulating our maiden speakers today and in particular to support the noble Lord, Lord Irving of Dartford, both in his plea for better roads to the South-East, and also in what he said about the technological revolution brought about by micro-electronics which is now upon us. In a debate in June, I predicted that unemployment would rise to some 3 million by 1984—and I believe that the noble Lord would have supported me in that prediction—unless something very drastic is done very quickly. I said then I did not believe that ordinary market forces would solve this problem, however freed from Government controls they may have become. This needs a speedy but thorough review of the alternatives that are available. Your Lordships may remember that I rather stuck my neck out and suggested that a partial and temporary solution might be to persuade married women not to take paid employment. Such persuasion, of course, would have to be financial.

As unemployment increases there will be large numbers of people receiving sizeable redundancy payments, and it must be the Government's intention to encourage these people to invest their new capital in some form of business which will allow them to make use of the skills they have learnt and practised in their former employment. So every encouragement must be given to these people to set up small businesses of their own. There are a lot of obstacles still in the way of small businesses. There are still far too many restrictions in the Employment Protection Acts. There are too many planning restrictions which will prevent people from working in and from their own homes, which I think is very important in these days of need to conserve energy. I hope we shall see more relaxation in those fields, but it must be made quickly in this Session; next Session may be too late.

The problem facing anyone who decides to start up his own business must be this Ought he or she to become self-employed, alone or in partnership, or ought he or she to start up a small company? The latter is expensive and requires the use of experts to keep the books and prepare annual returns to the Registrar of Companies. Why should directors' and auditors' reports have to be filed annually in such detail for new and very small businesses? That all costs money which would be far better employed as working capital. The owners of the company will not be able to benefit from the profits earned until dividends can be declared. But the great advantage of a company is that the directors can pay themselves salaries charged against tax and, in particular, can protect themselves through their National Insurance contributions for unemployment benefit if the company should collapse.

Becoming self-employed also has its snags, the most important one perhaps being that the owner is no longer protected for unemployment benefit: nor can he or she charge out his or her work against tax. When a self-employed person does make a profit he or she faces various tax assessments, and the noble Lord, Lord Selsdon, dealt with most of those very eloquently. I should like to add one more, and that is the Class IV National Insurance contribution. That, my Lords, I think is an iniquitous tax on the self-employed. I tried, through the Printed Paper Office, to get hold of a copy of NP 18 of 1979, which describes this tax. They told me they have not any. However, I did find one in the Library and had it photo-copied. That gives the reason for this tax. I say it is a tax and not an insurance contribution, because the persons who pay it obtain no additional benefit whatsoever from paying that Class IV contribution. The reason, according to this pamphlet, is: …to ensure that the self-employed as a whole pay a fair share of the cost of pensions and other National Insurance Benefits without the lower earners amongst them having to pay excessively high flat rate Class II contributions". So what in effect is happening is that those self-employed who are making a bit of a success of their business are carrying the can for their not-so-successful competitors.

The tax starts at a profit of over £2,250 which, converted to wages—your Lordships must remember that the self-employed cannot charge against tax any drawings that they take—works out at just less than £44 a week. On a profit of £4,000 in the year, which works out at about £76 a week, a self-employed person would have to pay £87.50 in this tax, as well as having to pay the normal income tax on that profit—a profit which includes the full cost of his or her own labour. Surely, this is a tax which ought to be abolished at once.

Another snag, which affects both small companies and the self-employed, is value added tax. The present threshold for compulsory registration for VAT is a turnover of £10,000 per annum—turnover, not profit. No small business is going to earn very much for the company or the self-employed person with a turnover of that amount. Even a turnover of £75,000 a year is not going to earn more than something between £4,000 and £5,000 net profit. So that nearly every new small business is going to have to cope with value added tax.

I make a very small living out of looking after the VAT and income tax returns of a few small businesses, and I want to say this. The people who come to me do not have a clue as to how they should cope with VAT. They throw all their papers at me and leave me to organise what should be done. A business with a turnover of about £70,000 a year—that is, a corner shop—will probably have something like 1,200 receipts which must be recorded for VAT, and of course the returns have to be filled in fairly promptly once every quarter.

The report of the Customs and Excise for 1977–78 gave us some very significant figures on VAT and its collection. The net revenue raised by the tax was £4,234 million, raised from 1,274,000 traders. Of these, 881,000 traders had a turnover of less than £50,000 per annum and contributed between them only £190 million. Another 178,000 traders had turnovers between £50,000 and £100,000 per annum, and contributed another £140 million between them. So that more than I million traders out of the 1¼ million—that is, five-sixths of the traders in 1977–78—had turnovers of less than £100,000 and contributed between them less than 8 per cent. of the total net receipts.

Here, surely, is an area where the noble Lord, Lord Thorneycroft, could put in his cutters. Raise the threshold of VAT to £100,000 and five-sixths of those registered for VAT will disappear, leaving about a quarter of a million who will earn and return nearly £4,000 million. I believe that that, too, is something that should be done, and done quickly. So I ask the Government to give further help to small businesses in three areas—simplify the procedures for small companies; abolish the Class IV National Insurance contribution; and raise the VAT threshold to £100,000.

8.5 p.m.

Lord CASTLE

My Lords, one of the advantages of being a later intervener in this debate is that at least one has the pleasure of congratulating three old colleagues, and I hope one new friend, on their maiden speeches. With my three old colleagues and comrades—"comrades" is a word that I am not ashamed to use, even in this House—I have shared platforms from Muswell Hill Broadway to the Parliament of Europe. I have a particular regard for my leader in Europe, my noble friend Lord Stewart, who I believe, with others, is bound to make a very valuable contribution to the discussions in this House.

I also want to congratulate the Conservative Party on their good sense in staging a debate of this kind, because I cannot believe, despite his distinction, that the mover of this debate was entirely acting without consultation with his old colleagues. It has, of course, been a liberal education in economics, and I use the word in the plural because we have had so many economics and economists, both professional and amateur, and I shall understand a little of what some of them said when I read the Official Report tomorrow morning. I do not mean to follow them into the labyrinth of economic theory, because it is much more important to reiterate some of the things which have been said in this debate, and which deserve an answer from the Government spokesman who will be replying.

As we all know, the noble Earl, Lord Gowrie, is well equipped to defend his own case on this, and I want particularly to direct his attention to one or two points which were mentioned earlier. But, more especially, I want to ask him whether there are any inconsistencies which we can expect from the Government, because up till now the basis of our complaint must be that the Government have been consistent in attempting in office to do what they promised in the Conservative Manifesto at the election. I am very sincere in saying that, because I believe that honesty in politics does pay, and it was not complete honesty which sent the Conservative Party to the Benches opposite. We, on our part, believe that the planned diversion of resources, which, by and large, was explicitly spelled out in the Election Manifesto, amounted to turning the governmental back on the time-honoured analyses of Beveridge and of Keynes, whose gospel had received almost general acceptance in most strata of our society. Properly interpreted, I believe that that is what was said in the White Paper last week. Beveridge is over; Keynes is over. We have different values now with which to establish ourselves—hence these proposals.

At the General Election, "So what?" said the electorate when on all sides the Labour Party pointed out the disasters, as they saw them, which would happen when the new philosophy of what is called "Thatcherism" was applied. Numbed, as we believe, by rising prices and rising unemployment, the British electorate committed the offence which has enabled us to present the charge sheet of the misdoings of this Government. The date on that charge sheet is not the date of the White Paper but the date of the election. Far be it from me to deplore in this assembly how the other House got its majority, but one is shocked, when one examines the White Paper, by the intentions of the Party opposite. One is shocked at how much the White Paper differs in some particulars from what was advocated by the Conservative Party leadership during April.

I have said, that, by and large, the Government are fulfilling their promises—to the great disadvantage, I think, of this country's industrial health and economic future. There are three matters to which attention was drawn earlier in the debate, and I believe that some justification ought to be vouchsafed to us by the Front Bench opposite. To cut matters short, may I mention that the dismal three which seem to me to flag the retreat from the caring State are, first, the threat of still further increases in prescription charges; second, the curtailment of funds for school meals and transport services and, third, the abandonment of the Ministry of Overseas Development to the Foreign Office, about which such misgivings were so rightly expressed yesterday by your Lordships.

These three proposals share the same disagreeable nature of attempting to save national money at the expense of those least able to repair the injuries that they will receive and also of being wholly obscured during the propaganda of the last election. The White Paper proposals regarding prescription charges justify the fears of the great Aneurin Bevan when he fathered the National Health Scheme: that no matter how small the initial charge you impose for any of its services, you dislodge a pebble which will quickly start an avalanche. We have seen that he was right, because of the other threats that there are to impair the free nature of the service. It is said, in effect, that we are now to pay 14 times as much as was originally imposed at the beginning of the service. No amount of inflation can justify such an imposition.

The second indictment upon which the Government must stand alone in the dock is that of attempting to save £240 million on kids' meals and school buses. To my mind, this is both inhuman and socially unwise. It is hard for the more fortunate members of this House to realise what a fundamental change was brought about by the school bus and free school meals, especially in the British countryside.

May I impose upon your Lordships a personal memory. When I was first at school, aged five, in the village of Sunning-well near Oxford, I remember, without fully comprehending it at the time, how astonished I was, while sitting in the class damp through rain but at least fed upon lovingly prepared sandwiches, that other children—such was the poverty in those days—were sitting wet and unfed while learning lists of the rivers of Africa and the Kings of England and that at lunch time they should sit around me hoping that if there was something disagreeable to my palate in the sandwiches I would share them. Memories like that make socialists. I am unashamed that when I went hack to Sunningwell as a Labour Candidate in a by-election and stood against the late Airey Neave, people came up to me and said, "Thank God that things have changed since those days, Ted". How much I agree with them. This is why I feel angry that there should be a new attempt to put back the clock.

The third matter I want to mention is the micro-chip. The House deserves a full explanation from the Government regarding their default. We are all acquainted with what was said earlier this week in the Financial Times. There is no doubt whatever that this industry, upon which we place so much reliance in our attempt to regain our industrial health, has been very scurvily treated on account of the Government's doctrinaire adherence to their belief that handouts should not be given to industry.

In conclusion, may I thank the proposer of the Motion, and, I assume, those people who bear responsibility for it on the Government Front Bench for having, as they will have seen, completely united what was supposed to be a disunited party. We are utterly and completely united in our condemnation of at least those three matters which I have raised and, I believe, of the Government's general strategy as revealed in the White Paper.

8.19 p.m.

Earl DE LA WARR

My Lords, I should like to thank the noble Lord, Lord Thorneycroft, for giving us the opportunity to have this debate at such an opportune moment. We have been enabled to have a wide-ranging discussion about the difficulties and opportunities facing this country, and we have been enabled to listen to a brilliant exposition by the noble Lord, Lord Soames, on what the Government are doing and the philosophies that lie behind their policies.

We have had a chance to see something of what lies on both sides of the watershed which it seems to me that this country is approaching: On the one side a resurgence in productivity and a return to an increase in prosperity, and on the other side the possibility of massive unemployment and a real fall in our standard of living. A frightening situation? Yes, it is, and it is enormously to the credit of this Government that they are not hesitating to tell the country in the starkest terms of the economic and social perils that beset us all. It is essential that they should go on doing so, particularly if things get worse, and worse I fear they will get. Simple statements are needed about productivity and the results of failing to improve it; warnings about the damage of paying ourselves more than we can afford and the terrible dangers of inflation ; the vital part that profits play in reinvestment; the effect of strikes upon the maintenance of people's jobs. These are simple lessons, my Lords, but ones which I believe are still very far from being accepted, or indeed understood, by millions of people in this country and I have to say, with reluctance and with regret, that it is not unnatural that this should be so because seldom, if ever, are these lessons taught by the trade union leaders and seldom, if ever, by the Labour Party.

I have just come back from the CBI conference in Birmingham, and a most encouraging conference it was. Noble Lords may have seen in the media some of the more dramatic parts, but the significance of the conference lay in its whole mood and it is about that that I want to say a few words tonight. There was a mood of intense gratitude that at last we had a Government that was engaged in setting industry free. There was a mood of certainty that the new policies would be further developed and, moreover, that they would be adhered to. Certainly there was no euphoria. Indeed, there was what I would describe as almost a "hair shirt" mood among some who felt and admitted that too often in the past management had abrogated its functions to the Government on the one hand, and to the unions on the other. I was glad to hear the noble Lord, Lord Nugent of Guildford, refer to that.

The need for more direct communication between management and their staff was a message that came through with a bell-like clarity. I was glad to hear the noble Lord, Lord Mackie of Benshie, refer to that earlier in the debate. To be sure, there was a determination that industry and Government between them should set about redressing the balance between management and the unions; but let me emphasise—and emphasise very strongly—that there was no call for confrontation. The word "confrontation" was never used, nor was any speech made in which there was any sign that this was the feeling that existed. It was a call for the strengthening of the hand of management.

The reception of the CBI initiative in setting up a strike fund was seen—and in my opinion rightly seen—as an imaginative move by industry to help itself, and this again was something that ran through the conference. But very evident was the view that the Government had a vital part to play in redressing the balance of power. The voting on the need for agreements to be legally binding, the vote against the closed shop (which took place rather to the dismay of the platform), were both manifestations of this view, and speaker after speaker spoke of the affront to personal freedom implied by the closed shop. I believe that there was a feeling—and the noble Lord, Lord Thorneycroft, referred to this—among the delegates that possibly the CBI was not advising the Government to be as strong as they, the delegates, would have wished. This came through very clearly, and I hope that my right honourable friend the Secretary of State for Employment will take considerable note of what was said at that conference.

Because it was my intention to give your Lordships the general spirit of things, in summing up the attitude of the conference not to itself but to the Government, I think I can do no better than to quote very briefly from a speech of one senior delegate as he summed up at the end of one of the sessions of the day. He said: Let our message to the Government be this. You have made a start sorting out our taxation system. Keep at it. Make it worth while to invest, to take risks, to expand and to work hard. Keep spelling out the economic facts of life because it will help us to communicate that information to our workforce. You have shown this country and the world that we have a Government of courage and spirit, that puts heart into us all. We will not like everything you do—no one will—but above all stand firm on the essentials, and bit by bit you will bring back that essential ingredient to prosperity—confidence in ourselves and in our country ". I hope that noble Lords will take very special heart in the way that that great body of industralists reacted to the policies and the leadership which they perceived they were getting from this Government.

In conclusion, my Lords, I would say just this: I believe—and I hope I am not to be accused of being too pessimistic—that this country is indeed in fearful danger at this moment, and I believe that it is up to all of us to put it to rights. It will not be done overnight; the way will be long and the way will be hard. Nor can it be done by the Government alone. But I am convinced that under the leadership of our great Prime Minister and her courageous Government it can and, in the end, it will be done.

8.31 p.m.

Lord UNDERHILL

My Lords, as a comparative newcomer to your Lordships' House, I, too, would like to express warm appreciation of the four speeches from the four noble Lords who made their first speeches here this afternoon. I am certain that their collective experience and knowledge is going to be very helpful to the deliberations of this House. May I also thank Lord Thorneycroft for opening this debate, and, not being unfair to him, say that I thoroughly enjoyed his rumbustious speech, which I am certain, again without being unfair, was directed outside this Chamber as well as to those within it.

The noble Lord, Lord Soames, referred to the lack of emphasis and the lack of serious attention given to the importance of production and to the realities of the situation. I am certain that criticism cannot be levelled at any of the speeches during this debate today. And in case there is any innuendo in his remarks, reference to the Labour Party manifestoes of 1974 and 1979 will make it quite clear that the attention of the nation was drawn to the seriousness of the situation, and the Labour Government itself took very stern measures, often very unpopular even with our own supporters.

The noble Lord, Lord Soames, also referred to consumers' choice and listed various imports that come in. I will not weary your Lordships by going through them, except to say that in the case of most of the things he referred to it is possible to get British made articles, and I hope all your Lordships will ask about those when purchasing anything. My mind goes back to the loss of the motor cycle industry, where we led the world, and yet management—and it can only be management—allowed the motor-cycle industry to slip completely from British hands, which I think is a thorough disgrace and tragedy for this country. There appears to be general agreement, which I am pleased to note, in criticism of the failure to invest adequately in manufacturing industries. But what I am concerned about is that the Government seem to be leaving this question to hope that there will be improved investment. I would like the Government, seeing that they shy away from intervention, to say how they will help to ensure that the tax reliefs go to investment in our manufacturing industries. We have in mind that on past occasions investment has gone into property speculation and into get-rich-quick candy-floss activities. What will the Government be doing to ensure that that does not happen on this occasion?

Referring to the tax cuts, the Government have announced their intention to appoint 600 additional inspectors to check social security abuses. We are told this will save £50 million. I am certain all your Lordships would wish to end any abuse, but surely all abuses. I would ask the noble Earl who is to reply if he would please tell the House what plans the Government have, if any, to deal with tax evasion and tax avoidance, which the authorities tell us run up to some £700 million a year, many times more than the social security cheating. While on the point, I am sure all your Lordships will not wish any check on social security abuses to be at the expense of hitting those who genuinely are entitled to benefits. They must be not given the feeling that they are unworthy in applying for benefits.

May I remind your Lordships that it is clear that millions will gain little or nothing from the tax reliefs. I would like to draw attention to the speech of the farmworkers' leader over the weekend. He explained that after allowing for tax cuts a family with two children at school in a rural area will be £9 a week worse off due to the doubling of VAT, the extra cost of school travel and school meals, the absence of school milk, and other public service cuts. And, of course, we are heading for a 17 per cent. inflation rate, double the rate when the Labour Government went out of office. Of course we can exhort, but of course people will expect and ask for wage settlements to cope with rising living costs. It is not much use the Government advising workers in nationalised industries and working for local councils that wage increases must be kept down otherwise they will exercise financial control. It is no use doing that while other people are allowed to go ahead, some with complete encouragement and support of the Government.

In view of a remark made, I think by the noble Lord, Lord Soames, I would ask how do you estimate the productivity of a nurse, how do you estimate the productivity of most of the council workers? Yet productivity was made a point in this debate. The Government have elected to follow the path of market forces. They cannot divorce wages from market forces if that is what they want. I speak as one who is in favour of incomes policy; I believe it will have to come. But you cannot divorce rising costs from the demands for increased wages. That is why co-operation with the trade unions is so vital and essential. There must not be any suggestion of confrontation. That would be the way to economic disaster.

May I echo what my noble friend Lord Murray said. I have been a trade unionist for 47 years, and we trade unionists also have a conscience; we have a conscience about people who will take benefits and not contribute towards getting those benefits. Therefore, conscience must work two ways. The Government must bring the unions into consultation, genuine consultation ; it will not be sufficient, as one union general secretary said at the Labour Party conference, to be summoned in to a Minister and told in a few minutes what the Government's decision is. That is not consultation. I am pleased to learn the Government share my view. There must be genuine consultation. The workers of this country have a right to be consulted about their future and the future of their families. That is why there is so much anger and anxiety and worry in areas of closures.

The noble Lord, Lord Boyd-Carpenter, referred to the excessive power of the unions. Well, there is the excessive power of industrial concerns which can close down whole factories without any consultation with the workers. There is this great concern, which one can understand, of the workers in Shotton and in Corby, where we may be heading for 30 per cent. unemployment. It is not much use saying that the workers must go elsewhere to find jobs. If you have got a house and nobody wants to buy it because there is 30 per cent. unemployment you are in a real mess. I think these are things the Government have to consider. That is what the Social Contract was all about. There was cynicism about the Social Contract, but that is what it was all about. To millions of workers the social wage is a supplement to the wage which they draw in their pay packet. That point must be considered.

We have referred to the necessity for increased production and I think that we all agree that that is vital. But what we have not heard from the Government is exactly how they propose to achieve it. Again there appears to be a hope. Is Britain to put the clock back? Is Britain to be one of the few industrialised nations that put on one side Government intervention? Countries which have better production than we have; higher wages than we have: and greater investment in manufacturing industries, nevertheless follow the line of governmental intervention. I was pleased to note that, even at the CBI conference this weekend, concern was expressed that the Government are possibly going too far as regards the absence of governmental intervention.

The Labour Party accepts that we are in a mixed economy. Of course there must be an efficient and developing private sector. There must be adequate investment and the Government must help to achieve that objective. Equally, there must be a thriving and efficient public sector. Most of the publicly-owned industries are essential to the well-being of this country and without them industry would not function. Why do the Government give the impression that they dislike public industry? Nothing is ordained that things must be produced by private industry. It is a matter of judgment as to whether certain things are best done privately or publicly. No one would think of giving the police forces over to the private security firms. There are many matters which are best left to the public industries to handle.

A number of speakers have referred to the fear of recession. What troubles me—and I am certain that it troubles many of your Lordships—is that many people speak as if we have to wait for the recession and can do nothing about it. I am sufficiently old-fashioned to believe that something can be done about it, but it will require Government activity, Government intervention. I hope, on the grounds of ideological conviction, that the Government will not reject that path.

8.43 p.m.

Lord VERNON

My Lords, we are reaching the end of this debate and I think that I have listened to nearly all the speeches, including the excellent contributions from our four maiden speakers. The debate has certainly given a wide scope for noble Lords opposite to criticise the Government, and indeed it is their duty to do so—at least, it is their duty to do so provided the criticism is constructive. It is on that particular issue that I have been somewhat disappointed by their contributions. They have given us rather the same recipe as before, and we know that that recipe is one of failure.

The noble Lord, Lord Jacques, to whom I always listen with great attention, suggested that there should be much closer co-operation between the Government and trade unions; that they should work together, and that there should be an incomes policy and so on. But the last Labour Government tried very hard to work with the trade unions. What happened?—it was the trade unions that would not work with the Government and they were finally responsible for the Government's defeat at the election. It does not seem to me that the omens for close-working with the trade unions are very good, unless the trade unions are pepared to modernise their attitudes.

There has also been an element of hypocrisy in the criticism, because we all know that the Labour Party, if it had been returned to office, would have cut or made substantial economies in public expenditure; that has been admitted by the former Chancellor of the Exchequer, Mr. Healey. I only hope that some of the speeches that we have heard today are not a prelude to the same Opposition tactics which eventually brought down the Heath Government in 1974. They did the country no good then, and, in the long term, I do not believe that they did the Labour Party any good either. By stoking the fires of inflation it made their task in Government infinitely more difficult.

We have heard a great deal about the unfairness of the cuts. None of us likes the cuts, and I for one would have wished them to be more selective. For example, the decision to cut the external services of the BBC seems to me incredibly shortsighted and ill-advised. I hope that it will, in due course, be revoked.

The noble Lord, Lord Lever of Manchester, in his interesting maiden speech, referred to the abolition of exchange controls. In the short debate which took place in your Lordships' House last week on that subject, we were informed by the Minister that there would be a saving of £14 million as a result of this measure. The noble Lord, Lord Bruce of Donington, who was speaking from the Opposition Front Bench, described that saving as derisory. I think that that says a little about the attitude of the party opposite. Fourteen million pounds may not be worth what it was some years ago, but it is still a substantial sum with which many useful things can be done.

Reverting to the cuts in general, one must look at them in the context of the Government's philosophy as a whole—a philosophy which may be disliked by the Labour Party, but for which the country voted decisively at the general election last May. That philosophy has two prongs. On the one hand, we must strengthen our defences within NATO, in the light of the enormous Russian military and naval build-up which has taken place over the last few years. I was very glad that the noble Lord, Lord Stewart of Fulham, endorsed the Government's decision to increase defence expenditure by 3 per cent. That will cost money; indeed, money which could otherwise have gone towards reducing the cuts on the social services. However, it is surely money well spent if it will help deter the Russians from their offensive attitude towards Western Europe and a possible attack on Western Europe. I believe that it will help to deter them. We all want disarmament and a reduction—indeed the elimination—of nuclear missiles. But it must be fair and genuine disarmament, which the Russians have so far been unwilling to negotiate. We are much more likely to achieve a successful negotiation if we do so from a position of strength.

The second prong of the Government's philosophy is to create more wealth by increasing dramatically our industrial productivity and efficiency so that we can once again compete effectively with the rest of the industrialised world. That matter has been referred to obviously by the noble Lord, Lord Thorneycroft, in opening, and by many other noble Lords. The Government's whole policy is geared to that end. What is the alternative? We know that under years of Labour administration, British productivity as compared with that of other countries went down and down and, as a nation, we became poorer and poorer. Are noble Lords opposite really suggesting that we should continue on that road? If they are, it is incomprehensible.

The present Government are trying a new approach. None of us knows whether it will work and whether the measures that they are taking will succeed. But we must all hope that they will, and I should have thought that they should at least be given the benefit of the doubt. If they do succeed and if British industry can be revived and again become competitive in world markets—and as a small over-populated island in the midst of a ruthless world we must be competitive to survive—we shall have the resources available to improve the social services, to give more generously in overseas aid to those countries which are less fortunately placed than ourselves, and to do all the other countless things which are so necessary here at home, and which we all want to see.

The theory advanced by many in the Labour Party that the Tories are out to grind down the faces of the poor would be laughable if it was not so malevolent. After all, the present Government would not be in office now if a large number of the less affluent members of society had not voted for them. The British people are not fools, and they are beginning to realise that the lot of the average man and woman will not be improved until the wealth has been created to pay for these improvements. That is what Government policy seeks to do, and I believe that it behoves all of us to give them a fair wind in the attempt.

8.52 p.m.

Viscount SIMON

My Lords, it is now a good many hours since the noble Lord, Lord Thorneycroft, rose to invite us to debate this Motion which, as has already been remarked, covers a very wide field. In the interests of brevity I want to make only a few observations, as a result of which your Lordships may find my remarks a little disjointed, but I hope I shall be forgiven for that. I want to take up a point made by the noble Lord, Lord Vernon. He is, of course, a supporter of the Government, but he very rightly said that he hoped that their policies would succeed. I am not a supporter of the Government, but I also hope that their policies will succeed and I hope that many noble Lords on this side of the House think the same way, because whether we like it or not they are the Government, the responsibility is theirs, and we must earnestly hope that they will succeed because the penalty of failure would be so serious for all of us.

That does not mean that we shall not critisise their policies. That is the duty of Opposition parties; and we, too, are an Opposition party. However, I do not want anyone to think that we want the Government to fail, and I hope that there is no one in the Labour Party who believes that their failure would be good for the Labour Party, for the situation is too serious for us to take that sort of view. I do not think that there is any point in saying any more about the difficulties we face and the opportunities before us. They have been well set out and argued, and I generally agree.

As regards the opportunities, I thought that the noble Lord, Lord Thorneycroft, was a little less than explicit but that gap was tilled to some extent by the noble Lord the Leader of the House. Therefore, I shall concern myself with the policies of Her Majesty's Government for dealing with these situations. First, I want to say something about the cuts. I do not want to argue whether they are cuts or stabilisations, or how they appear in any White Paper or Statement. What concerns people in the country is the effect that the Government's action has on them. It they are not to receive something which they used to receive, or if they have to pay more for something they used to receive, to them that is a cut.

Like my noble friend Lady Seear, who commented on the Statement when it was made last week, I feel very strongly that the cuts show insufficient discrimination. I recognise that it must be very much easier to impose a cut across the board. For one thing, I suppose it stops so many arguments in the Cabinet between Ministers, all of whom want to support the expenditure of their own departments. However, I believe that it is an abdication of the responsibility of Government to set priorities and to justify those priorities to Parliament.

My noble friend referred in particular to the question of the local authorities. As some noble Lords may remember, she raised the question whether the wise virgins would be penalised as much as those who had been foolish. I would rather use the analogy of the good husbands—are the authorities which have carefully husbanded their resources to be subjected to the same cuts as the authorities which have been profligate? In answer to my noble friend's comments on the Statement the noble Earl, Lord Gowrie, indicated that this was being locked into, and I hope that tonight he will be able to confirm that something will be done to ensure that there is protection for people who have been, as I say, careful in the husbanding of their resources.

There is also, of course, the question of education. I must repeat the comment that my noble friend, Lady Seear made on this and which I thoroughly endorse. It seems to me that of all our services education should be given the highest priority because. if the young people miss out on education, it is something from which they will never recover. I know that it is common for people on the Government side to say, "What is it that you are suggesting?" I should like to stick my neck out a little and put forward some things that could be considered to be of relatively lower priority. I begin with one that may shock your Lordships. I should have thought that it is much more important to maintain the education of our children than it is to preserve the lives of old people in hospitals. I think that I am entitled to say that because I am an old person myself. These are very difficult matters. Of course, we want to do all these things, but if we cannot, we must ask the Government to assess priorities.

Turning to more simpler matters, I believe that all new capital expenditure could be postponed for a year or two. I know that we urgently need new schools and hospitals and new prisons; sometimes we may even need new town halls, although I should have thought that that was less likely. Surely, if we have lived under the conditions that we have for some years, to postpone that for a year or two until we get our finances straight would not impose an undue burden upon people.

What about the maintenance of roads? I believe that the noble Lords, Lord Underhill and Lord Murray of Gravesend, referred to roads, although they were speaking of new roads. I am thinking merely of normal maintenance. On the tape today it was said that the Automobile Association had pointed out that some of the damage to roads by weather last year would not be repaired for several years. It is a pity, but I do not think the country will come to grief because of that. I think that one might have to put up with that for a year or two. Although I recognise that it is a difficult problem, because deferred maintenance can be very expensive, I do not suggest that this is something that would be done for a long time; rather, a slowing up of the maintenance programme on roads should I think be given fairly low priority.

I have notes here which I can almost throw away. I was going to talk about unemployment, but the splendid maiden speech of the noble Lord, Lord Stewart of Fulham, said exactly what I wanted to say. I was astonished at how close it was to the notes I have before me, so shall save your Lordships' time and ask noble Lords to read the speech of the noble Lord, Lord Stewart, in Hansard tomorrow, if they did not hear it. It was a splendid speech and I was a little surprised that he had the same line of thought as I did about the necessity for training, mobility, and so on.

Now I come to the question of encouraging business. Here I was very interested to hear the noble Lord, Lord Peart, speak of the importance of developing regional policies. As your Lordships know, this is something which we on these Benches are keen about, and I hope that this is something about which the Government will be able to give us some encouragement. On the general question of encouraging business, I have never been of the opinion that cuts in personal taxation would be a stimulus for investment. I do not think they have been. If there is a small stimulus it is, I suggest, completely outweighed by rising interest rates.

In another maiden speech the noble Lord, Lord Lever of Manchester, spoke very clearly about the conditions which encourage investment. I think he agreed that lowering personal taxation had very little to do with it. I hope that the Government will be able to help on the matter raised by the noble Lord, Lord Selsdon, and I think by the noble Lord, Lord Spens, about taxation on small businesses, because it is important. This is very difficult, but it would make an enormous difference to small businesses. It is those small businesses which very often, if they go well, turn into big businesses. It would make a great difference to them if something could be done about taxation on the lines that the two noble Lords suggested.

One other point on the encouragement of investment was put to me by a friend the other day. He said, "How can anybody be encouraged to invest here when they are always seeing on the television, or hearing on the radio, or reading in the newspapers, about strikes and trouble?" I recognise first that we have a free Press, and we do not interfere with it; secondly, that strikes, trouble and riots are news, and that successful businesses that are doing very well are not news. They may be news once a year when the annual meeting is held, but that is only in the Financial Times, which most people do not often read. The suggestion my friend made to me is something which the Government obviously cannot act on because they are not supposed to control the Press or the radio, but perhaps they could just say a word in the right quarters, that if these unfortunately rather frequent reports could occasionally be balanced with some indication about the far greater extent to which business is going on without these troubles, it would do good to the people and would encourage them—or rather not discourage them to the extent that they are discouraged nowadays.

I have tried to be brief, but finally I come to this: I listened with great interest to what the noble Lord, Lord Thorneycroft, said about building bridges. I listened also to the noble Lord the Leader of the House and was a little surprised when he said he thought that the present Government's policies could not be called divisive. I will accept of course that he does not intend them to be, but they seem to me to have that sort of effect on a great many people.

I believe that the Government's most important task—and it would be the task of any other Government in power at this moment in our history—is to unite the country in facing the difficulties that we are facing. I ask myself, "Can they, and are they, really trying to do that?" The noble Lord the Leader of the House said that he thought that there was much more common ground than sometimes appeared to be the case. I am all for that. If there is common ground let us get to it, because I am a little worried about the image which appears to be growing around the Prime Minister, of her as a strong woman. I do not much like strong women—or strong men. I am not sexist about this. I do not know whether it is the image that she wants or whether it is being imposed upon her by the Press, but I do not find much joy out of her shaking her fist at the Russians or at the trade unions; and I think she does sometimes shake her fists at the trade union.

I thought that the great mistake of the Heath Government when they came in was that before bringing in their Industrial Relations Bill they did not really try to get the Trade Union Congress, or the trade union movement, among whom there were many people who recognised that things were not absolutely right and proper or as they should be, to come and talk to them about how it could be done. No doubt there will be discussions, but discussions under duress really get one nowhere.

The Earl of GOWRIE

My Lords, I wonder whether the noble Viscount would allow me to intervene? I am most grateful to him. I am not going to go over the ground covered by the Heath Government, but I can say that my department, my Secretary of State, has been prepared to consult, and indeed has consulted, at every single step of the way, but the unions have made their position clear, that they are opposed to any legislation of any kind in this field. We have made our position clear, that we think that some limited legislation is necessary, but there must come a point in consultation when it is recognised that there are real differences.

Viscount SIMON

My Lords, I was going to say that in the earlier days I felt that Mr. Prior was being much more—what shall I say?—not flexible, but at any rate agreeable to the trades unions, but that he had become rather sterile. The noble Earl says that this is simply because the trade unions turned him down flat, and I can understand that. It is an annoying thing to happen. At any rate, the point I want to make in conclusion is that I believe that the secret of successful democracy is not forcing measures through with the aid of a majority in Parliament but really trying, before the measures are prepared, to get as near a consensus as is possible, even between two parties which take different views. If the Government felt that that was something they could move towards, then I certainly hope that the Labour Party—and I am fairly sure that the Liberal Party would be prepared to move also—would be prepared to try to find a consensus on these things. That has the added advantage that once you have your legislation, if it is with a reasonable consensus, then you have a reasonable hope that it will not be turned out next time there is a change of Government.

9.8 p.m.

Lord ROBERTHALL

My Lords, the debate has already gone on rather a long time and I hope to be brief, although one always finds on rising to one's feet that one tends to speak rather longer than anticipated. I wish to say at the beginning how adorned the debate has been by the extremely good maiden speeches, and I am sorry that time will not permit me to say anything about, especially, the speeches of the noble Lord, Lord Harris of High Cross, and the noble Lord, Lord Lever of Manchester—I much enjoyed Lord Lever's speech—but perhaps I can say a little about Lord Stewart's speech.

The debate began with the noble Lord, Lord Thorneycroft, to whom we are grateful, outlining the gloomy state of the country—the high unemployment, high inflation, low production and low exports—and the noble Lord, Lord Soames, underlined that in calling attention to what to me is the most dangerous and difficult of all the problems at present, and that is the extent of import penetration; that sums up our troubles. Our economic troubles are mainly I think in two places, that of inflation and that of low growth, and I will comment briefly on both. As everyone knows, the biggest change in our whole system of recent years has been the growth of trade union power, and that is partly because of changes in the law and partly I think by the escalation of wages, which has forced a number of unions which would not have thought about industrial action into it to protect themselves, and one must sympathise with them; we can all look down our noses at postal workers, hospital workers, firemen and civil servants, but what can they do? The unions which we used to think were stronger get a big increase, and because the State will not protect them, they have to stick up for themselves; but in the process they too have learned that they have this great power.

The noble Lord, Lord Boyd-Carpenter, said he thought that when people got too much power events would intervene and take it away. I am not sure I altogether agree with that optimistic view; I do not see the Russians, for instance, taking away the power now enjoyed by the Communist Party. But the present position of the unions is extraordinary in one way. Everybody in the State who gets power in his hands uses it for its own benefit, and you cannot blame them for that. The difficulty about the present situation is that in my view trade union power is exercised not for the benefit of the workers but against them.

Almost everybody will agree—I think even Lord Harris considers that this has something to do with it—that the main trouble about inflation is the high wage claims so far in excess of productivity and that these are enforced by trade union power. The first one in the round gets an increase. How does he get it? He gets it at the cost of all the others who have to pay a little more for his product. Then the next one comes in, he strikes a little against the first but mostly against the mass—and so it goes on. In the end who will the postmen, civil servants and firemen strike against? It is not the employers. They go on just the same; they will get their little bit back from the first people in the round.

Equally, low productivity, which in my view stems to a very large extent indeed from the wide prevalence of restrictive practices. The point has been made time and again in the debate that we will not get a higher social product and more expansion unless we get more productivity, yet—of course this does not apply to all unions—you only have to read the papers on any day to get a collection of accounts of disruptions; unions will not have a plant closed—why do you close a plant if not to make better use of the labour?—and soon.

What are we going to do about it? The present Government's policy, as I understand it, is to adopt mainly fiscal and monetary policy, and like the noble Viscount, Lord Simon, I hope very much they succeed, but I suppose those who know me and my long advocacy of incomes policy will know that I feel grave doubts about the use of monetary and fiscal policy, at any rate as the primary instrument, partly because monetary policy is a much blunter weapon than its advocates think it is, and of course we do not know how long it will go on, and one cannot help feeling afraid lest there will be a great deal of social and industrial unrest and disturbance.

What is the alternative? I suppose that temperamentally I incline to the view put forward by the noble Lord, Lord Stewart of Fulham. I think that he gave an admirable account of the need for productivity. He made the best speech of the debate about productivity. But, at the end, he said he thought that we must go more gently in our aproach to the unions. Of course there is an obvious answer to this; it was given by the noble Lord, Lord Vernon. One sees it if one looks back at our history since 1944 (over the last 35 years) that began with the coalition White Paper—the coalition White Paper, mind you!—on full employment. That stressed very strongly the need for both restraint in wages and the end of restrictive practices and that sort of thing. Since then almost all Chancellors of the Exchequer have made similar statements in their Budget speeches. Perhaps the noble Lord, Lord Thorneycroft, did not mention it, but I expect that I slipped a bit in all the same about the need for restraint on wages and for an increase in productivity.

There have been any number of statements on behalf of various parties. I was thinking to myself, what is the policy of trade unions, and I found this document that I have here. It is the joint statement by the TUC and the Government made in February of this year entitled The Economy, the Government and Trade Union Responsibilities. I expect that everyone has forgotten about it by now. It is an admirable document. There is only one statement in it which I think is disingenuous, and that is that experience showed that legalistic intervention in the conduct of industrial relations is harmful ". They ought to have added to that, unless it is for the benefit of the unions ". I say this because I think we all know that the unions are as much against the taking away of any of their present privileges as they are in favour of having more if they can get them. Well, that is by the way.

I return to the two points that I mentioned, thinking particularly now about inflation. This White Paper is full of admirable statements about being against inflation. It says: we must set ourselves the task of aligning our inflation rate to that of our main overseas competitors, and that means getting our annual rate, within three years from now, down below 5 per cent. and holding it there.… The TUC…is as committed to reducing inflation as to any other of the policies adopted by Congress…". And so on. That is all fine stuff, but what has happened? As the noble Lord, Lord Vernon, pointed out, the trade unions then kicked the Government in the teeth. That was why they lost the election, I do not doubt—because of the transport workers.

Coming back to productivity, there is an admirable statement about demarcation disputes, but anyone who heard the short debate on Monday about Hunterston will know how much we are still troubled by them. There are lots of good statements about productivity: we firmly believe in the adaptability and skills of our people which will be a principal factor in determining our economic fortunes "— adaptability, mind you!

One fundamental factor is the need to increase productivity—of both capital and labour ". But what has happened to that? I doubt that our growth is now even 1 per cent. a year, which is the figure that someone has mentioned.

The fact is that in this sphere things are getting worse and worse. Why is it? It is because at present the TUC is not able to deliver the goods. It can sign marvellous statements such as this. I suppose that most of the leaders of the TUC feel as we all do about this, but they cannot get the troops to march, or perhaps to refrain from marching. The only suggestion that I have to make in this field is that, if there are any more discussions of this sort—which I think is the way that we ought to move—they must be much more in the form of tough bargaining, saying, "All right, you want us to do this. We want you to do that. Can you carry it out?"

After the Social Contract was announced I said in this House that I thought it was a mistake to give everything away at the beginning, in the hope that the other side would deliver—and how right I was! So it seems to me that either we are going to go ahead and have a great deal of industrial difficulty or we are going to have to try once more to tread this long and weary path, along which we have so far had no results at all. But it will not do any good unless the TUC itself can say what it is able to do, and whether it can or cannot implement policies which it appears to agree are desirable.

9.21 p.m.

Lord BROOKS of TREMORFA

My Lords, as one who made his maiden speech only a fortnight ago, I feel somewhat presumptuous in congratulating my noble friends Lord Stewart of Fulham, Lord Lever of Manchester and Lord Irving of Dartford, and, of course, the noble Lord, Lord Harris of High Cross, because all these noble Lords have achieved great distinction in public life, certainly far greater distinction than I myself ever hope to achieve. I was particularly intrigued by the speech of Lord Harris and the speech which immediately followed it, that of my noble friend Lord Kaldor, most of which I understood; but, as one who gave up his study of the dismal science at A-level for the sake of his own sanity, I look forward to the future exchanges, which I am sure we shall all enjoy, between Lord Harris and Lord Kaldor.

Last Thursday I asked the noble Earl, Lord Gowrie, whether the Government had any plans to protect the vulnerable against those local authorities which could not be relied upon to implement the Government cuts in a humane manner. I am bound to say to the noble Earl, with the greatest respect, that I found his answer wholly unconvincing—not surprisingly; there was, I suppose, no other answer he could give, because, as the White Paper tells us, the Government have no direct control over local government spending. So I am able to say to your Lordships that, having listened to almost every word in this debate—and it has gone on for many hours—I shall, I think, not be repeating anything that has been said earlier. However, before I begin may I say that when I saw the list of speakers—I think there are 28 names on the list, which is just about the number of obstacles that the horses have to encounter in the Grand National—and found myself 25th on that list, I had some idea what those poor animals must be thinking as they set off on that 4½-mile journey.

My Lords, where will these cuts fall? Instead of living in dreamland, as some of the speakers opposite appear to have been doing, I wonder whether they have seen the document (I am sure they have, because it was produced for the benefit of the Government) by the Association of County Councils and the recommendations in that document to the Government as to where they felt cuts could be made. Indeed, the document is styled: Statutory obligations on local authorities which might be abolished in favour of discretionary powers ". I was a member of the ACC for a number of years, and when I read those words they struck fear in my heart, because in the ACC I dealt with the Conservatives and, believe me, they are the most hardhearted bunch of freebooters I have ever encountered in my political life. I am sure the noble Earl, Lord Gowrie, will never forgive me for saying so, but I find him and his colleagues on the Front Bench opposite somewhat civilised, and if I could be assured that these cuts were going to be implemented by the Government Front Bench then perhaps I would not have the fears that I have.

Let me tell your Lordships exactly what happens in real life. What I am going to say could be referred to as anecdotal evidence, but I assure your Lordships that it is what happens out in the field. I am a relatively newcomer to local government so that I was able to view it with a somewhat more subjective view than many of my colleagues who had spent a great many distinguished years of public service in local government. In 1971 or 1972, just after I arrived in local government, I attended a meeting of the board of governors of my local comprehensive school. We were having a debate on truancy. To my surprise, I was told that even some of our more academically bright children were playing truant. It did not seem right to me. I should have thought that academically bright children like to go to school, that they enjoy their lessons. I discovered that they had to go to other schools for their sixth form education.

We won the election following local government reorganisation—a rather unusual thing in my part of the world; but we did. I made some inquiries and I found that there were only four schools which did not have sixth forms. And where do you think they were? Without exception, all were in the working-class areas—all of them, on the council estates and in the working-class areas. We put that right immediately.

I give that illustration to your Lordships to give an indication where these cuts are going to fall. Indeed, let me spell out some of the suggestions that the ACC has made to the Government. They want standards laid down for school buildings and playing fields to be scrapped so that cheaper buildings and smaller playing fields can be provided; they want permission sought for charges to be levied for nursery education, for borrowing of library books and refuse disposal facilities They want the statutory school age to be restricted, the starting age to be six years and the leaving age to be 15. They want to stop new regulations for the protection of old people's homes under the 1971 Fire Precautions Act, to relax the fire protection controls on hotels and to charge for advice on fire prevention matters. They want also to scrap the duty to provide services under Section 2 of the Chronically Sick and Disabled Persons Act, and they want to remove the duty of liaison between the health services and the social services. They want freedom to cut the pocket money allowed to residents of old people's homes; they want to cut back on social work reports to the courts and on community homes with education; and they want to reduce public participation requirements in planning. I could read the whole document and it would take an hour. But the warning signs are there. If the Government have no direct control over local government—and I am not suggesting for a moment that they should—the Government's eyes should be open to what is actually going to happen.

If I may continue with some more of this anecdotal evidence, many years ago (or perhaps not so many) in the early 1960s I read Galbraith's The Affluent Society, which was a book received with a great deal of praise but also with a great deal of criticism from his fellow economists; largely, I think, because Galbraith was one of those rare economists who can write in terms that ordinary people can understand. I think that he was giving the mystery away; and that was probably why he was attacked by his fellow-economists, or certain of them. In that book he wrote somewhere that there was more socialism in America than in any other country in the Western World; but it was socialism for the rich. He went on to illustrate how it was the more affluent in the American society who benefited most from public expenditure and here. I am just about to give one or two illustrations.

As a result of remembering that comment of Galbraith, I set in train a simple exercise and asked a team of brilliant researchers to discover who benefited from the money that we were spending—a simple enough exercise. Although I have some notes, I have not all the detailed evidence with me. I assure your Lordships that my memory is excellent. We discovered that with the transport supplementary grant which the county was giving to the district transport undertaking in the three affluent areas that were picked out the population was getting £700 per thousand of the population. In the working class areas—the areas where the public transport was most used—it was something like £180 per thousand of the population. We discovered that there was a greater turnover of teachers in the poorer areas than the more affluent areas; we found that by all the poverty indicators the poorer areas were benefiting least from public expenditure.

Governments very rarely have the opportunity to sit back and think about these very serious problems. One of the charges which can be made against the Government, and which can be made to stick, is what they have done is not necessarily wrong—although we think it is—but they have acted too hastily. They have not sat down and thought about the consequences of their actions. Sometimes I think to myself that what is happening is that the poor people of Scotland, Wales, and the North of England are being punished for voting Labour. One of the previous speakers said that many ordinary people voted Conservative. If one looks at a map in class terms—if we have to use them—it is clear that the basic working class loyalties to the Labour Party are as strong as ever they were.

Many of my trade union colleagues agree with me that what happened was this: many, many trade unionists said: "We want more money". They said to the Labour Government: "You are not going to give it to us; she has promised us more so we are going to vote for her". I think my noble friend Lord Murray of Gravesend read out the list of denials that were made during the General Election. So in many respects the Government were elected, if not on a false prospectus, certainly in many areas by the statements of the present Prime Minister and her colleagues which misled the people.

The areas to which I have referred in the United Kingdom, in Scotland, the North of England and in Wales depend so much on public expenditure. This figure staggered me somewhat: 60 per cent. of the people working in Wales rely on public expenditure for their jobs. That is not because we are necessarily beggars, because we are not. It so happens that many of the publicly-owned industries and utilities—

The Earl of GOWRIE

My Lords, I am most grateful to the noble Lord; this might save time later on. Is the noble Lord aware that, whatever the rights and wrongs of the way that we are proceeding, public expenditure in this country has this year been increased on the expenditure of last year, when the Government which the noble Lord supports were in power. We must stop consistently misleading ourselves and others with talk of reductions in public expenditure. Public expenditure this year—many of my noble friends think regrettably—has been increased on last year.

Lord BROOKS of TREMORFA

My Lords, I am grateful to the noble Earl, but I did say earlier that the indictment of the Government's policies is the speed at which they have arrived at them. The noble Earl seems to be implying in his intervention that nobody has been affected and that there are no cuts. If that is so, what on earth have local government been engaged upon in the last few months? I see the noble Earl wants to intervene again. I have given way once. I think I should be allowed to make my point. The fact is that in my county alone £2.3 million has been cut from current expenditure, from present plans which were arrived at over six months ago. The impression that the noble Earl is trying to give is that there are no cuts. If there are no cuts, what on earth have we got a White Paper for?

The Earl of GOWRIE

I am sorry to intervene my Lords, but I did not say there were no cuts. I am saying that public expenditure has increased over the last year. That is a different matter. We can have an argument about where the public expenditure distribution falls, and that is quite right: but the noble Lord was giving the clear impression that public expenditure is falling. It is not; it is rising.

Lord KALDOR

Not according to your own comments in the White Paper.

Lord SOAMES

Order! my Lords: one at a time.

Lord BROOKS of TREMORFA

My Lords, in any case I should have thought that the burden of my message is not so much that there are going to be cuts in Government expenditure but that there are poor wretches on whom these cuts are going to fall. That is what I was getting at. One noble Lord in this debate said that he did not want to finish on a pessimistic note. Neither do I. Somebody wrote somewhere that each nation has its secret collective dread. In America it is Communism; in France it is revolution; in Germany it is inflation and in Britain it is unemployment.

My right honourable friend the Leader of the Opposition in another place, James Callaghan, said the other night that the deferential society has gone—it has left us. My Lords, it has. Young people will not put up with what their parents put up with in the 'thirties. We have this underlying secret dread ; it is there. And I want to say this to many of your Lordships, and particularly to the noble Lord, Lord Boyd-Carpenter, who I am sorry was unable to stay: If he and those who have been attacking the trade unions understood how deep th ehistory of those years goes into people who are living and working today, they would also understand that they cannot erase froj their minds some of the things that were done for them.

I have not one ounce of personal bitterness about my experiences, but I will say that there were many years in the 'thirties when I never saw my father; he was away looking for work. That was the experience of so many people who, as I say, are still alive and still working. This secret dread is there. If unemployment grows to the level that the Government are complacently anticipating, coupled with the twin evil of Germany's secret dread, inflation, what kind of prospect is there for us? I think the complacency with which this Government are approaching our economic problems whatever the merits of the means they are using to attempt to solve them, is something that must be condemned.

My Lords, it has been a long day and I shall take no more time. I think I have already taken too long. I am grateful for the opportunity of speaking in this debate, and I hope that more wide-ranging Motions of this sort are put to us in order that we can express our views in the way they have been expressed today.

9.40 p.m.

Lord MOTTISTONE

My Lords, it really is a most interesting opportunity to follow the noble Lord, Lords Brooks of Tremorfa, which I have not had the privilege of doing before, because it seems to me that he absolutely epitomises in his own speeches, and so do other noble Lords opposite, the difficulties that my noble friend Lord Thorneycroft asked us to look at. The difficulties are that noble Lords opposite, and their supporters outside this place, do not seem to be able to learn from past experience; do not seem to be able to realise that the way in which they attempted to run this country when they provided the Government, during the last 35 years, has not worked. It is as simple as that. Every time they have tried with the very best of intentions. I shall always credit them with good intentions, and I shall not add any other points to that. But the fact is that it is extremely difficult to run everything, if you do not have the resources.

It is all very well grumbling, "There is not enough of this and that in the way of money for the local authorities and, therefore, there has to be a cut "; and," Is it a cut, or is it as my noble friend Lord Boyd-Carpenter said, a so-called cut "? That is not the point. The point is that we do not have the resources and we do not have them because, as a country, we have not been earning the money. And we have not been earning the money because people have been misled—perhaps "misled" is the correct word—into thinking that you can get money without having to work for it. The key to the matter is productivity. I am sorry, my Lords, but we do not have the money. The reason for not having the money is another matter. The point is that we do not have the money for doing the kind of things that noble Lords opposite wanted to do. I do not blame them for wanting to do them, but we just do not have the money.

It is not the least bit surprising that my noble friends on the Front Bench have had to do what they have done. There are several of us who would say that they have not done enough, and I think that the country will suffer therefrom. But be that as it may, the difficulty is that people are not prepared to change their attitudes, notwithstanding the fact that all the evidence shows that they should. This is very hard for the country, because the country is suffering and there are many people—people such as those the noble Lord, Lord Brooks of Tremorfa, has been talking about—who are in the local areas around the country and who perhaps do not fully understand what either Party is trying to say to them.

They are the people who are being misled. They are the people who are thinking that, somehow, if you take certain kinds of actions you will get certain kinds of results. For example, you may think that if you take industrial action you and your mates will improve your standard of living and that everything will be better than it was before. On the whole, that is not the case and has not been in the last 30 years. It is tragic that people should be so misled, and I am very sorry that noble Lords opposite—and there are not many left—should have this fixation about the kind of arguments that they have been putting forward. This is extremely important—Hooray! The noble Lord, Lord Murray, has come to join us.

Lord MURRAY of GRAVESEND

There are not so many noble Lords over there, either.

Lord MOTTISTONE

But the most important difficulty that we have as a country, forgetting the Government, is the fact that the message of the past that has been drummed home to us by fact—also, if you like, by the IMF and by other kinds of bodies—has not been hoisted in by noble Lords opposite. That is the difficulty. The opportunity is there, if only we can get latched on to the need for this country—for every country, for that matter—to give a free rein to freedom and enterprise. That is the key to success. If we endeavour, so far as is possible, to give individuals throughout the country freedom to get on, freedom to develop and freedom to use their bright ideas, and the opportunity to use their enterprise, then the country as a whole will prosper. It is only in that way that the country will prosper. It is all very well for learned—" learned" is not the word because "learned" is applied to certain sorts of Lords; it is all very well for Lords who are well versed in economics to shake their heads. The fact of the matter is that one needs to talk about people rather than about figures. People respond to different sorts of pressures.

Another point which might be worth mentioning in passing is this. The noble Lord, Lord Underhill, spoke earlier about the wickedness of tax evasion. I support him entirely. Tax evasion demonstrates itself in many ways, but I am sure that the noble Lord was thinking of it in terms of the beastly capitalists who are evading tax. The noble Lord may put it that way, but one of the great worries at the moment is what people have called the black economy.

I heard only two days ago of a company that has a 12 per cent. absenteeism rate. Companies are now beginning to find that people work a rota. For instance, three chaps will work a rota between them. Two of them will come in on a particular day, while the third will be absent "moonlighting"; he will be engaged in some activity on which he does not pay any tax. The others will get overtime because they are covering for him. Later on they all shift round one; and they take it in turns to do that. Noble Lords opposite may laugh, but this is the way in which people react to excessive intervention in their lives by what they see as the great "they"—which includes all of us and the people in Whitehall.

As anybody who has ever had anything to do with fighting in wars will know, people who find that the pressures of officialdom are more than they can stand discover ways of getting round it. I do not blame people who "moonlight" or who evade taxes of the sort I am speaking about, because they are oppressed by central Government mechanisms which they find oppressive. However, the fact of the matter is that when this sort of thing happens you cannot put it right by increasing the amount of pressure, by getting more money out of the ordinary citizen in order to pay for more types of local government expenditure, or whatever it may he. There is a limit to what people can stand.

My noble friends have tried to take the first faltering steps towards putting that sort of thing right. It may be that they have not done it well enough. It may be that the immediate effects do not look nice to certain kinds of people. However, the fact is that they are working in the right sort of direction. They are trying to give the opportunity—I come back to Lord Thorneycroft's Motion—to the rest of us to get on and earn the money which the country needs so that the welfare, which the country also needs, can be paid for. It must go forward like this. My noble friends must be given every encouragement. They must not be subjected to carping criticism from people who do not seem to be able to learn from their past mistakes.

Lord KALDOR

My Lords, before the noble Lord sits down may I ask him one question. He thinks that provided we return to the 19th century, provided government is driven back and the Welfare State abolished, provided everybody is after himself, with the maximum rein given to free competition, this country will return to a prosperous condition. Does the noble Lord realise that that period, the late Victorian period and the period preceding the First World War—when there were all the incentives in the world, there was no progressive taxation, no unemployment benefit, nothing—were more depressed?

Lord MOTTISTONE

My Lords, perhaps I may answer the noble Lord, Lord Kaldor. If I may say so, he is making another speech rather than asking me a question. I can certainly answer his question. I am looking forwards, not backwards; I am not looking to put this country back to the 19th century. I am looking forward to an environment in which we can develop forwards. The fact of the matter is that the experiments we have made—and I have supported many of them—in order to try to sort out our problems during the last 50 years have not all worked.

Everybody would agree that some parts of the Welfare State are absolutely essential and nobody would quarrel with them, but the fact of the matter is that the basic over-control from the centre has been carried too far; it does not work, it does not produce the right results and it does not get the right reactions from the individuals whom it is supposed to benefit. Let us forget the 19th century and, for Gods' sake!, let us forget the first three-quarters of this century. Let us look forwards rather than backwards and let us for Heaven's sake get ourselves going and give ourselves the opportunity. En this country we have all sorts of skills, interests, and energy. Give us the chance to do this, but do not tell us that we only have to respond to what Auntie Government sitting in Whitehall tells us to do. That is disaster.

9.52 p.m.

Baroness BIRK

My Lords, one of the most attractive features in this debate initiated by the noble Lord, Lord Thorneycroft, has been the four outstanding maiden speeches that we have had. Other noble Lords who have been in the House longer than I have will know whether this has been so on other occasions, but I should have thought that this occasion was probably unique. My very old friend the noble Lord, Lord Lever of Manchester, gave us a brilliant dissertation on exchange controls which has made me decide that perhaps I will not mention them again (because I do not quite agree with him about it), and also on general Government policy. My noble friend Lord Stewart of Fulham without a single note made a most felicitous speech. I had the feeling that if it had not been a maiden speech he might have taken rather a harder line, certainly on the question of the education cuts. My noble friend Lord Irving of Dartford concentrated particularly on the micro-chip industry and what was happening there, and it was so interesting that one did not have to go through the formality of offering empty thanks. The noble Lord, Lord Harris of High Cross, made an extremely witty speech. His economic feelings showed, of course, but we know them and, since his recreation is conjuring and devising spells against over-government, we shall evidently hear quite a lot from him about that in the future.

I want to deal with the Paper that came out last week, Government Expenditure Plans 1980–81. I do not mind whether people continue to call them the so-called cuts or a particular sort of tax. I really wonder where some of the Members opposite have been during this last week; to whom they have been talking and who they have met. The noble Lord the Leader of the House expressed the hope that we would not look at it as a programme of savage cuts. The noble Viscount, Lord Simon, was much more to the point when he pointed out how divisive it was. If one is speaking to people outside and not necessarily to people who support the Labour Party, there is tremendous concern and anxiety about this, and also about the indiscriminate nature of the cuts. This broad brush approach has ended in what it may not have been intended to be a brutality and cruelty in approach but, frankly, I find it absolutely amazing.

The Government are in fact, in trying to face the 'eighties, pulling us back to the 'thirties; although I think my noble friend Lord Kaldor, who many years ago tried to teach me economic theory at the London School of Economics, said "back to the 19th century". Acknowledgment of economic realities which dictate the need to slim down expenditure and excise waste does not disguise the enormous philosophic gap between the Labour Party and the Conservatives. The Budget and now this White Paper have rolled back the carefully constructed carpet of social development with a complacency that I really find tragic, and I am not here making any political digs; I just find it quite amazing.

My noble friends Lord Peart, Lord Murray and Lord Castle, and I think it was the noble Lord, Lord Selsdon, on the other side, mentioned the cuts in education. Apart from all the humane reasons against the way this is being done, as was mentioned in a Question earlier today £3,000 to £5,000 fees will now be paid by overseas students, except students from Europe; incidentally we stand alone in fee charging, with the exception of Belgium which only charges in the case of medical students. This is an investment for the future and when we are talking about investment in this country we are not only talking about money or machinery, we really are talking about human beings as well, and among them are the children. I am not going to expand any further on education because so many of my noble friends have dealt with it so well.

The housing cuts, which the White Paper says reflect change in local authorities' priorities, mean less housing. We have also heard, from the Prime Minister yesterday, that it is very unlikely that the Government will be able to help with the likely increase in mortgage rates. The housing situation, it seems to me, will probably get worse, certainly for those who are less well off rather than for those who are better off.

We have had a considerable amount of discussion with regard to health, and my noble friend Lord Peart made a great many telling points on that and discussed our anxieties. They say more money is being put into the Health Service, while at the same time wards are being closed and hospitals are on the brink at the moment; the anxiety in the professional services and among people, many of whom have no particular love for the Labour Party, needs to be heard, and then noble Lords opposite would know what the real response to this is. With inflation at 17 per cent. and possibly getting higher, it is quite impossible to say that there will not be a short-fall, and until we know what the cash limits are going to be it may mean that there will be further cuts.

In the social services, another area which my noble friends have touched on with considerable feeling as well as practical knowledge, the White Paper says the Government want to develop policies which help people to help themselves and others by collaboration with the voluntary sector. I am a great supporter, not just theoretically but in practice, of the voluntary sector: but with all the goodwill in the world there is a very severe limit to what volunteers can do without skilled social workers today, when there is so much specialisation and very much more sophisticated treatment and help to people, and also without resources and without local authority grants.

To what extent will the pinched authority feel that it can make grants to voluntary bodies when it cannot even carry out its own work? It is pie in the sky. Again, with the increase of the over-75s in our population by more than 2 per cent. per year—the projection for 1996 is something like 3 per cent. to 4 per cent.—more and not less residential care is needed; more and not fewer home helps are needed; and more visits and more mobile meals are needed. At present, there are long queues for old people's residential care, and that takes in voluntary homes as well as local authority and central government homes. Once again there is not only a human aspect, hut an economic one as well. The decline in services for the elderly will not only reduce their quality of life, which is had enough, but will put more pressure on the health services. Surely that is an extremely foolish economy.

Similarly, families with problems, and children tipping over into delinquency will suffer, and the savings will almost certainly mean more criminal activity. So, a great deal of the law and order expenditure will be robbing social services "Peter", on the one hand, to pay penal services "Paul on the other. What a Monty Python's Circus this is! If we add to that the Government's expected 300,000 increase in unemployment—that is not a true figure as it does not include the school-leavers who are a very important and sensitive section of the unemployed—what do we get? We get a cut-down in preventive action and increased unemployment and unemployment benefits, which will not be covered by the social security cuts. Or, are these benefits—I do not know—hovering in the social wings waiting for the next Government chop?

In our debate last week on the family and the Government's policy, it was most extraordinary that there was the Sherlock Holmes' dog that did not bark in the night. In other words, there was a debate on the family, a matter about which the Government and the Members who support the Government are always talking, and to which they attach great importance. However, only one Back-Bencher spoke in support of the Government. When our side of the House were in Government and I was a Minister, I know that certainly our Back-Benchers were not slow in coming forward and telling Ministers where they thought the Government were going wrong. Sometimes it was rather annoying, but often it was very helpful because it strengthened one's own arm if one was not always in agreement with one's more senior colleagues about aspects of policy. However, it was quite amazing and to me it seemed to show—I do not say a lack of interest because I do not think that that applies to the individuals—a lack of communal compassion and real concern about what is being done, even if the people doing it felt that they had to do so.

There is another strange anomaly which threads its way through the Government's expenditure plans. We have the first woman Prime Minister that this country has ever had. Yet this package will make women's lives much harder. Let us take as an example the nursery schools. Who will the cut-back in the nursery schools hit?—the children and their working mothers. Restrictions on school meals will add to the stress of mothers as well as detracting from their children's wellbeing. Who will the 70p prescription charges harm most?—they will harm the wives and mothers of the family, the type of women who, before the creation of the National Health Service, were always the last to go to their doctors because they had to pay. Who will some of the other severe social cuts hit?—mothers of disabled or handicapped children and daughters of frail elderly parents, usually mothers who are widows.

The debate last week was splendidly opened by my noble friend Lord Wells-Pestell who raised some points which he had read in the Guardian. The noble Baroness, Lady Young, when replying referred to him asking: … whether the Government intended, as the Guardian leaks suggest, to… abolish maternity and death grants; delay women's pensions until 65 among some other things which apply not only to women but to men as well. On his her answer was: On all those matters I can only tell him that reports have recently appeared in the Press that the Secretary of State for Social Services is considering whether to achieve the necessary cuts in public expenditure by one or more of a range of options. The responsible Ministers have to explore the whole range of theoretical possibilities for savings, to assess what is involved."—[Official Report, 24/10/79; col. 173.] We do not know what the next lot of cuts will involve when the cash estimates are being worked out. This, together with sex discrimination against British wives with foreign husbands, which arose earlier today, makes up a real anti-feminist package. Therefore, women have had a very bad deal out of a package from a Government which is headed by a woman. It seems a pity, does it not?

A great deal has been said about taxation and it has been examined pretty thoroughly. We have said one thing and the Government, on the whole, have said something else. But what worries me is that the Government's priorities are so bizarre. For a long time the Government's war cry has been to cut taxation, and so it was when they were in Opposition. To cut taxation is perfectly all right if, first, you make it equitable and, secondly, you can do it without having the results too heavily weighted on the side of indirect taxation. For instance, we should certainly have had to raise VAT, but the Government raised it to 15 per cent. which was not expected and was not in the Conservatives' Manifesto for the last election, so people did not vote for a 15 per cent. rate of VAT.

It is the less well-off who are worse off and the better-off who are even better off. The taxation reductions cost around £4.5 million. Noble Lords opposite have asked, what would we have done? One thing we would not have done was to cut taxation in that way and to that extent. In any case massive cuts in income tax will not produce increased growth, as the Government have acknowledged.

So what do we see today? After six months of this Government—and I shall be fair and say that that is a comparatively short time, but during that time they have been very active—there is no sign of an incentive motivation. This is worrying for the country, not simply because we have a Conservative Government. In fact, business confidence is falling, as the report published by the CBI a few weeks ago pointed out. In addition, industrial production is falling, investment is falling, the pound is falling, inflation is rising and many small businessmen face bankruptcy due to tight monetary policies.

On my way to the House today I heard on the radio that more support is being given to small businessmen by the Government. In mentioning small businessmen, I must point out that it was my noble friend Lord Lever of Manchester who, during the last Labour Government, was responsible for initiating the schemes and getting help and action under way for small businesses. I believe that the noble Lord, Lord Selsdon, raised this matter. On exchange controls—a piece of ice on which I tread very warily—I would rather support the view that we should relax controls. The total removal of such controls worries me rather, despite my noble friend's brilliant exposition.

I think we would have cut defence and certainly not increased it—I believe that my noble friend Lord Kaldor is right over that. It is disproportionate, in the same way as our contribution to the Common Market—and here I speak as a pro-Common Marketeer—is quite out of proportion to our resources and compared with what other people are paying. It is depressing to see in the White Paper that the sum put in for the EEC contribution is £1,000 million when we are all hoping that that will be brought down quite considerably, and that the Prime Minister will manage to do that.

At a time of recession, and certainly not forgetting the world recession which has been mentioned by many noble Lords, we could find another billion pounds on the borrowing requirement and in that way save some of the cuts. This is something over which there is often disagreement, but there is certainly a view today—and even in the Government's own party—that that is one of the viable alternatives. Cutting down the Manpower Services Commission and ending the short-term employment subsidy and job release scheme seems to me extraordinary with rising unemployment. The noble Earl shakes his head, but this is what paragraph 24 says: The provision for 1980–81 for measures operated by the Manpower Services Commission is held broadly at the reduced level for 1979–80. No provision is made for the extension of the Small Firms Employment Subsidy, the Job Release Scheme, or the Temporary Short-Time Working Scheme which are due to close for applications in March 1980. The statutory short-time working scheme proposed by the previous Government has been dropped. I do not know whether the noble Earl saw last week's Spectator, which is not a periodical which supports the Labour Party. It says: The removal of subsidies received from the Manpower Services Commission provides two albeit small examples of an unthinking meanness on the part of government which is also directly contrary to Conservative principles of self-sufficiency. At this time of night I shall not go into it any further, but they give some interesting examples of a workshop for offenders which is going to lose its subsidy, and also a number of Asians in Leicestershire who have been receiving a subsidy to enable them to grow vegetables and herbs in greenhouses which they are then able to sell. This is an excellent example of private enterprise that is going by the board altogether because it is evidently in the wrong area. Work for unemployed is surely more productive than greater expenditure on law and order—about which the Government have really made a song and dance—when so many young people are out of work, idle, and disenchanted. I think my noble friends have pointed out that this is the time when vandalism and crime breaks out. What more do you need than having them unemployed—even though these alternatives may have been stopgaps—to make them more anti-social?

A great deal has been said about over-manning. Of course over-manning is not justified. I would be the first to agree that there must be room for cutting down staffs. There must be room for eliminating waste. I know that there is. But the reorganisation of local government, the reorganisation of the National Health Service enacted by the last Conservative Government, gave birth to brigades of bureaucrats. It set up structures which did this very thing. In fact, when we were in Government I personally was in favour of starting again: of throwing out these reorganisation Acts and having a simpler and more economic system. We have been either chivvied by some for not making cuts, or told by other noble Lords that we did make cuts. We did make cuts and imposed cash limits, this is true. But what we did not do, and what we could never do from this side of the House, is to slash the human services in what I can only call a clumsy, callous, indiscriminate manner, which has also not been very well thought out. Everybody will have to go back to the drawing board, if they are going to continue with this policy, and think it out further.

As has been said, inflation really is public enemy No. 1. In six months it has risen from 8 per cent. to around 17 per cent.—certainly not the time to abolish the Price Commission, which the Tories insisted on doing almost immediately on their arrival in office and which we strongly opposed and still oppose. The whole question of productivity, which is the essential card in the economic pack, has become quite a circular argument and, as my noble friend Lord Jacques said, Britain could be a prosperous country, but not if there is a free-for-all. I am anxious not to delay the House further. We have the problem of management and trade unions and the whole problem of how one gets productivity; and whereas we all bemoan the lack of it I do not think anybody has come up with a miracle way of achieving it.

These financial slashes, cuts or whatever one calls them, will take the quality out of our lives and environment at a time when the Labour Government were enhancing it—too slowly for my taste, but not for that of the Treasury. I support the noble Lord, Lord Selsdon, and others who criticised the proposed £2 million off the BBC external services. There seems to have been such stupidity and pettiness over this whole matter, which makes me say that so many of these things have not been well thought out. Originally the cut was to be £4 million; then it was dropped to £2.7 million, and now we are given to understand that it may be worked out in a different way.

The resurrection and aesthetic improvement of inner urban areas will decline so that the decaying teeth of dereliction in our cities will remain. In their struggle with the mainstream of physical existence, I fear that authorities will cut down the cultural nourishment which feeds our eyes, ears and souls—the arts, libraries and museums. In sacrificing the quality of life, historic buildings, conservation areas and town schemes will, I feel, not be exempt. Again, strong central support is necessary to encourage local authorities to spend money. This is an area I know personally, where many local authorities have been starting to take an interest, realising that they can find other uses for old buildings and at the same time enhance their towns and cities. There is no mention of this in the White Paper. Perhaps the noble Earl will write to me about it. I am also concerned by how much the figure for the arts, libraries and museums will be reduced by their contribution to the National Heritage Fund—this is in the White Paper—since this is a new departure as the Land Fund came from the Treasury and not off the arts budget. Perhaps the Minister will write to me on those two points.

There is a case for making public expenditure efficient but there is no case for this vicious and retrograde reduction in vital services. Underlying it all I feel there is a fundamental dislike of public expenditure except in those areas where even the most conservative of Conservative Governments cannot do a U-turn. The Government's expenditure plans cannot, I am afraid, be seen as a short-term economic expedient but, rather, as I fear, a deep and dangerous assault on our social and national values.

10.19 p.m.

The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of Gowrie)

My Lords, in order to save public expenditure, would your Lordships please fasten your seat belts because I am going to go rather fast as I am sure you are all anxious to get the lights turned off and go home. I certainly agree with the noble Baroness, Lady Birk, that the most distinctive feature of our debate has been the quality of the maiden speeches. It is the convention here to be very effusive about maiden speeches, but I have never heard four better ones in a batch; it was remarkable.

We welcome of course the arrival in this House of the noble Lord, Lord Lever of Manchester, not least because since his appearance we tend to win the bridge game. I remember that when the noble Lord was a mere Privy Councillor he wandered into this House and was not aware that it was on the steps of the Throne that he was supposed to sit and he started meandering in towards this part of the Chamber. Your Lordships, ever vigilant for any breaches of procedure, shouted "Order!" at him, but I shouted, "Not yet". I am glad I was in the right on that occasion.

The noble Lord, Lord Harris of High Cross, gave us a pure breath of air in his analysis. Certainly some of the countervailing emphases in economics have changed slightly in recent years, perhaps out of ideology, perhaps because they have been forced upon Governments in this country. But it is rather pleasant to us to experience in the noble Lord, Lord Harris, the clear ear of someone who thinks that people do want extra wages, and that if they get extra wages, they may indeed be prepared to pay for some of their services directly.

In the speech of the noble Lord, Lord Stewart of Fulham, we heard his exceptional and famous clarity, and we hope that he will address us very often. He perhaps strayed a little into the area of controversy for a maiden speech, but we acquit him of that because I think it was the noble Lord, Lord Lever, who revised the standing rule and said that the violent expression of antipathetic views, or something like that, is not allowed in a maiden speech, but a certain amount of controversy is. In the voice of the noble Lord, Lord Irving of Dartford, we heard the Labour Party—if I may put it this way—at its best: rational, compassionate, but also spending some attention to the costing of whatever rationality or compassion it requires from the economy.

As I have said, I shall have to deal with the individual questions as fast as I can, but not so fast that I do not pay tribute to my noble friend Lord Thorneycroft, not only for his contribution in giving me the rather nervous and doubtful honour of addressing your Lordships at 10.20 in the evening but also of course for the fact that his is really a remarkable public career. The steps taken by my noble friend in 1958 have now made him a very considerable intellectual hero in all sections of the Conservative Party. This is really remarkable, and we are glad to pay our tribute to him.

The noble Lord, Lord Peart—and for brevity's sake may I include in these remarks some of the issues put to me by the noble Lord, Lord Castle—spoke about regional aid being cut, and about what the position is. The position is, of course, that this Government are maintaining the very massive intervention in all sectors of the economy on a regional basis that has been relative consensus between the parties since the war. Now whether we are right to do so only the development over the next few years will tell. Nevertheless our analysis is that the participation of Government in what my noble friend Lord Soames called the vasty deeps of the economy now being over 50 per cent. means that a massive or unthinking withdrawal is simply not to be contemplated.

Where there is a difference is in the emphasis on the regions. The last Government's regional aid was dispersed over 43 per cent. of the population. Aberdeen, which I had the honour to visit last week, and which must be one of the most prosperous places in the whole of Europe, let alone in the world, was covered by some of the last Government's regional development programmes. So we are trying to concentrate on the areas of real unemployment and need, and we are doing this by population.

What else we can do—and this covers a number of points that have been raised in the debate—depends of course on the reversal of our industrial decline, which in our estimation requires stabilisation of public sector expenditure until we can reverse the decline of wealth-creating sectors which we inherited, and which in previous times no doubt we bear our own responsibility for creating. I think that the real difference between ourselves and the other side of the House is not on the issues of compassion or public expenditure, but simply on how you increase the wealth in order to increase the tax base, in order to maintain and expand these services. I consider that the wisest words that I heard on this came from my noble friend Lord Soames when he said that we are entitled to ask the Opposition to cost their criticisms every penny of the way. We expect the criticisms, but we expect them to be costed.

My Lords, the noble Lord, Lord Peart, the noble Lord, Lord Castle, and others put to me questions about cuts in education. We are trying to save £280 million over 1978–79 and 1980–81. We have found that we can save £250 million of these £280 million, the overwhelming majority, through school meals, school milk and transport. I have no doubt that noble Lords opposite cherish very dearly school meals and free transport and milk, and I do not cast any doubts on their motives for doing so. Nevertheless, it seems to me that we are at least right to ask ourselves whether it is the major function of the great education service to be involved in catering and transport to that degree. I should have thought that that was, or should be, relatively uncontroversial. We have decided that the emphasis of expenditure should be on what education is fundamentally designed to do.

As to the question of spending in the National Health Service I think I can do no more than repeat the words of my right honourable friend the Secretary of State for Social Services. He said: Spending in the NHS in the coming year, as I have repeatedly promised, will remain at the previously planned level. Here again is a stabilisation rather than a cuts programme. He went on: Though there has been a tight squeeze this year because of cash limits and the economic situation, the planned volume of spending for next year is in line with last year's White Paper, that is a 3 per cent. increase over the latest estimate for this year.

Lord PEART

My Lords, I am sorry to interrupt so late, but, very quickly, on school transport, it is essential in the rural areas. How are the children to get to school? They will probably have to go about six miles by bus. This is the pattern in the rural areas.

The Earl of GOWRIE

My Lords, there is no doubt that it is essential. The question is, Who pays for it? That is what is being discussed. No one is arguing that it is not essential. We are saying that we think that the public can make a greater contribution in that area in order to preserve the services elsewhere. As part of the reduction the Government are seeking in local spending generally, it is unavoidable, of course, that there has to be some curtailment of expenditure in the personal social services. Yet, despite this, as I said in an intervention when the noble Lord, Lord Brooks, was speaking, social security expenditure will in fact rise by about 1 per cent., £230 million, in the next financial year; and that point was covered by my noble friend Lord Soames.

My Lords, remarks were made about prescription charges. I certainly would regret the increase of any charges to the public. Ideally, one would like not to preside over charges of any kind whatsoever, but I would point out that, in real terms, prescription charges are only about 2 or 3 per cent. up on their level in 1971; and, again, our analysis is that people are perfectly able and willing to bear them.

Lord MURRAY of GRAVESEND

But, my Lords, why did not the Government say this during the election campaign? There was an absolute denial by Mrs. Thatcher that she would increase prescription charges. Now we find they are being increased twice within 12 months of the election of a Conservative Government. That is what is so disreputable about the whole thing.

The Earl of GOWRIE

My Lords, I must say I cast very grave doubts on whether my right honourable friend made any such forward commitment in the context which the noble Lord has mentioned. The other thing I would point out to the noble Lord is that I am here to speak for the Government. I am not talking about what was said in a totally different context in an election campaign. If my right honourable friend made a remark which the noble Lord contests or which he thinks was unfair or out of court, I suggest he writes to her. He will get a very rapid reply.

The noble Lord, Lord Castle, I think raised the prescription charge issue, school meals and transport, with which I have tried to deal. As to the question of merging overseas development into the Foreign Office, I think it is a little cynical to be so critical of it or to assume that aid would fall consistently. As my noble friend Lord Soames said in his remarks, the provision of aid that we can make to other countries obviously has an influence on getting down our rate of inflation and on our being able to expand our services, including that one. I do not think that that kind of amalgamation is necessarily as gloomy as the noble Lord allowed.

The noble Lord, Lord Mackie of Benshie, and my noble friend Lord Boyd-Carpenter, as well as the noble Lord, Lord Roberthall, really gave the message that I would like to underline on the trade unions issues. I do not think it was fair to say that there were attacks from this side of the House on trades union affairs. What we were trying to point out to the union movement is that whatever has gone wrong, wherever the fault lies, whether with the Government, with the management or with the unions, the brutal fact is that workers in this country, who are more protected in law and have more powerful bodies to protect and look after their interests than in any other country in the Western industrial world, are, in fact, worse off And this share of wealth (if you like) is decreasing rather than increasing. That is something that we feel may have something to do with the balance of power between management and the unions. I must say that all the information and research that we have done and all the information that we have suggests that this view is shared by an overwhelming majority of trades union members themselves, including many of those who do not support us politically.

I agree with the points made by the noble Lord, Lord Stewart of Fulham, in his excellent maiden speech, about mobility. It is a great worry; and we in the Department of Employment are looking for ways of improving it. But we do not think, with great respect, that the housing policies of the outgoing Administration were burning incentives to mobility. The noble Lord said that he thought there was a provocative element—and I recognise that he tried to be uncontroversial—about the upper rates of tax; although I still think that 60 per cent. is pretty high, I would say to him that the standard rate went down as well.

On the curtailment of the National Enterprise Board, again we have no doctrinaire objection to Governments funding programmes in the public sector or in industry. As my noble friend said, we are involved in over 50 per cent. of the economy. It is a question of choosing the most efficient location and of trying to find what we can afford. The noble Lord, Lord Harris of High Cross, I have already mentioned. His message was that we should not always confuse Governments with the people they govern. Often, there are conflicts of interest between them.

The noble Lord, Lord Kaldor, gave a fascinating speech. He said privately to me—and I hope he will forgive me for mentioning this—that perhaps he should have sent it to me a little earlier so that we could see what exactly he was asking us to do. If I got his points aright, he said he was critical of the fact that the White Paper says public expenditure growth is the cause of inflation. It also shows that the public expenditure planning fell by 2½ per cent. between 1974–75 and 1978–79. The White Paper says that high taxation and high Government borrowing fuelled inflation. I acknowledge that. I would have thought it a reasonably unexceptional statement. I would only add to Lord Kaldor's figures that the inflation was also lower last year than in 1974–75. It was half the level of 1974 and one-third of that of 1975.

One of the reasons we believe that it was lower is because the last Administration courageously undertook not merely a stabilising exercise in public expenditure but the largest cut in one year in public expenditure—one of £4,000 million—that has happened since the war. We think they were on the right lines then and, in fairness to us, so do many of their outgoing Treasury Ministers. There has been evidence to this effect from Mr. Healey, from the noble Lord, Lord Lever, and from Mr. Joel Barnett. Also, we might put Lord Kaldor's question upside down. Does he think that greatly increased public expenditure and increased taxation would he a recipe for the kind of revival that we all want?

Lord KALDOR

My Lords, I am grateful to the noble Earl for giving way. He did not mention that the last Government brought down the rate of inflation from 25 per cent. to 7 per cent. very largely as a result of incomes policy and nothing to do with cuts of Government expenditure, some of which happened as a result of the initiative of the International Monetary Fund, as he knows.

The Earl of GOWRIE

Perhaps I could intervene and deal with that, my Lords. I know that that is the noble Lord's view; but it is not universally shared by the outgoing Administration. It has been of very great interest to me that the outgoing Administration—the Opposition now—is moving towards becoming a party which wants to give its experience and weight to incomes policies; and, if I may say so with every deference and humility, I think that is a wise and right move for the Labour Party to take. I have always argued that incomes policies are only workable if there is a massive degree of consent for them. It is also fair to say that this consent towards incomes policies does not exist in the present economy. It is not, as my noble friend said, on offer to this Government, and that might be because this Government is a Conservative Government. In fact, it was not on offer to the last Government, either.

I suggest—again with all humility—that the expenditure programmes and monetary controls which the last Government introduced under the wing of the IMF, if you like, my Lords, or to their courageous benefit, if you prefer to put it that way, did the trick much more effectively. The difficulty about incomes policies is in a sense that they depend on a permanent political coalition on pay issues. Until that is achieved, I do not think they have a chance. To quote the old First World War joke: "If you know of a better hole, go to it". But, at the moment, we are trying to maintain continuity with the previous Government's more effective efforts to get down the rate of inflation.

The noble Lord, Lord Irving of Dartford, talked about road improvements in Kent. As one who had the privilege of living in Kent for some years, I share that view. He said that was a need to hold back expenditure, and money supply is important for any Government. But he then moved on to the same incomes policy point. I repeat that this would have more conviction if noble Lords opposite and the Opposition party in another place would tell us how they are going to obtain consent in this economy for a permanent incomes policy.

My noble friend Lord Nugent of Guildford made the point that the cuts which are being contemplated as a result of our stabilising public expenditure, and having to increase it in our judgment in certain key areas, such as defence and law and order, are not even 50 per cent. of the 1976 cuts of the Labour Government. I am not criticising them for making those cuts; I am saying that the association of savage cuts with this Government may or may not prove to be an effective piece of political propaganda; but I hope that noble Lords opposite are wise enough not to start believing it as anything other than propaganda.

The noble Lord, Lord Jacques, mentioned the incomes policy point, and I think that I have dealt with that. What I would say about social services—in which he has a long and distinguished interest—is that the provision of social services next year depends to a very large degree on what happens in the wage round this year. If I may say this with respect to the noble Baroness, Lady Birk, she did not, when talking about where we were focusing our stabilising or reductions of expenditure, mention the wage factor in this equation. If people, let us say, in local government wish to take 70 per cent. or more of the rate support grant monies given by any Government—given by the Government of which she was a distinguished member, and a member in local government areas—in terms of wages, that leaves, obviously, much less for certain kinds of services. No one has worked out how one can distribute money in terms of wages and services simultaneously.

I would warn noble Lords, on my own side as well as opposite, that if local government expenditure continues to be absorbed by wages at the rate which has applied recently, because it is quite clear that there is not public or political tolerance for great rises in local taxation, the only way in which these wages can be met is by the reduction of services.

The noble Lord, Lord Murray of Gravesend, made a good roustabout political speech, much of which I enjoyed, and especially the bit where he said he was not fighting the last election over again. There will be many occasions for me, as a Minister concerned with employment, to return to him on the question of union legislation and our union proposals. He must not consider that the Daily Mail is the voice of the Conservative Party. There are many different emphases in the Conservative Party and, in fact, if we are swapping stories about journalism, one of the things that surprised and pleased me was that the most complimentary write-up of the Prime Minister's closing speech at the Tory Party Conference came in fact from the Guardian and was written by Mr. Peter Jenkins.

The noble Lords, Lord Spens and Lord Castle, mentioned micro-electronics. That, I think, is too vast a subject for me to go into now, but I would say I am personally very involved in this in our department. I hope we shall not take the fact that the noble Lord, Lord Spens, initiated an interesting debate earlier in the Government's tenure of office as meaning that we shall not hear some more. My department is bringing out a major study which was initiated by the last Government and, seeing that it is published, I can tell you that it is not nearly so gloomy about employment prospects as some of the remarks we have heard here this afternoon.

The noble Lord, Lord Spells, mentioned taxation issues in regard to small businesses. My noble friend Lord Selsdon talked about corporation tax issues. I would just say to the noble Lord, Lord Selsdon, that of course inflation is an enormous form of tax on business; and if one can get down the rate of inflation, that is surely the way one can ease taxation on business. One must, as it were, mentally—if we still have not an economy developed enough to do this actually—index companies' profits, if they are to have any real meaning.

I am grateful to my noble friend Lord De La Warr for bringing us a message from the CBI Conference in Birmingham. It did not escape him, nor will it escape the rest of the House, that the CBI want us to go a great deal further on the closed shop than we are at present proposing. We will, of course, listen to what they have to say, but our instinct is that we wish to proceed at the same rate as we are suggesting in our Manifesto. We would not outlaw the closed shop, which many industrialists accept as being a way of continuing good industrial relations in this country, but we want to protect people who suffer as a result of its abuse. In that, we seem to be very near to the trade unions' own suggestions to the outgoing Government, though I acknowledge they would not like to see it enshrined in legislation. We think that is essential.

The noble Lord, Lord Underhill, was critical of management in respect of the loss of the motor-cycle industry. I think management was reasonably good in domestic terms, but what has gone wrong since the war is that the domestic market, as my noble friend Lord Soames pointed out, has not been enough to maintain the very costly high technology investment that modern industries need. In a sense, it is certainly management's and not the workers' fault that world markets in the motor-cycle industry were not picked up. I would agree with him there. He talked about failure to invest in manufacturing industry. I would point out to him the remarks made by the noble Lord, Lord Lever—I apologise for continuing to praise him in this way—namely, that there s no difficulty in getting money for invest- ment in this economy; the difficulty is to find profitable ventures for the money to grow in.

Coming to the remarks of the noble Lord, Lord Vernon, he said the philosophy of our Manifesto was broadly expected and accepted by the electorate, and I certainly do not disagree with that. He also pointed out that Mr. Healey and outgoing Ministers would have had to make cuts in their expenditure as well; and I endorse that also.

The noble Viscount, Lord Simon, echoed the question put to me the other day by the noble Baroness, Lady Seear—a Liberal Party view. It is certainly the case that we must take measures in order to see that local authorities who try to retract their spending are not penalised against local authorities who do not. My right honourable friend the Secretary of State for the Environment will be making an announcement to that effect quite shortly.

The noble Lord, Lord Brooks, asked me how the Government would ensure that the vulnerable do not suffer, because the Government cannot impose their own priorities on local government. He made the case forcefully, but slightly weakened it, if I may say so, by saying that he did not want the Government, or any Government, to tell local authorities exactly what they should do. But as the White Paper recognises, individual local authorities—as I am sure he would agree—must have freedom to decide how best they should achieve savings in the light of local needs and conditions, and I would add to that local lobbying and local pressures.

I think the task which we have set local government must be kept in some perspective. The authorities in England and Wales have been asked to reduce their current expenditure by 2½ per cent. over the two-year period from now to 1981. Two and a half per cent. is what we are asking to come off there. But the key, as I said earlier, is wages. If local government cannot resist wages, then they may have to cut services. I think, therefore, that it has been a very useful debate. The difficulty to us of the contributions from the other side is not a wide philosophical gulf, but that we feel that those points should really have been addressed to outgoing Ministers, who have suffered some of the same difficulties and problems as we do; and we want them to cost their criticisms as they make them.

To deal, finally and rapidly, with the points made to me by the noble Baroness, Lady Birk, I will of course write to her about the arts issue. As I understand it—and I say this provisionally—the arts have come off quite well exactly because of the presence of the Heritage Fund. But I think that even she would agree that in a general atmosphere of expenditure stabilisation the arts could not expect to be exempt altogether.

She put to me some points which particularly affect my department. Again, it is dull at this stage of the evening to swap figures, but the youth opportunities programme, of which I am in charge, and which has an excellent record for putting young people who are difficult to employ, and who are not getting employment, into real employment has, in fact, been expanded again and not cut. I regret, too, that the selective temporary employment programme, STEP, has had to be focused on the areas of greatest need. But the noble Baroness's Government, which set up STEP, designed it to deal with the long-term unemployed. Many of the STEP schemes that are going—and we regret this—are in areas with very small pockets indeed of longterm unemployed, and we are concentrating them in Merseyside and other places where long-term unemployed can be found.

We are trying to get back, if you like, to reality. Perhaps it is our fault—I do not know. Nevertheless, there seems to be a gap between the two sides of the House in this debate as to what is ideology and what is reality. I personally am not enormously interested in ideology. I rather like spending other people's money; it is one of the most enjoyable functions of a Minister's life. But I recognise that that money has to be earned. I also recognise that the only future for the kind of great public services which we admire in this country is that the wealth and tax basis, as my noble friend said, should increase; and until we can get it to increase we have no chances at all in this direction.

10.49 p.m.

Lord THORNEYCROFT

My Lords, it is some seven hours since I moved the Motion which has been the ostensible basis of the debate, and I think I have listened to almost all of the speeches in the debate. If it had done nothing else than provide an opportunity for the noble Lord, Lord Lever of Manchester, to say in public what we always suspected he said to his colleagues in private, it would still, I think, have been well worth while. However, it did much more than that. I feel it has been a valuable debate and that the Motion has perhaps served its purpose. Therefore I ask for leave to withdraw it.

Motion for Papers, by leave, withdrawn.