ECONOMIC AND INDUSTRIAL POLICIES

HL Deb 16 April 1980 vol 408 cc284-379

3.9 p.m.

Lord PEART rose to move, That this House deplores the incompetence with which Her Majesty's Government are conducting their domestic policies which are resulting in increasing inflation, continuing industrial decline, deterioration in the balance of trade in manufactures, increasing unemployment, inability of industry to achieve necessary profitability and the erosion of the Welfare State. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. I remember a debate some time ago when we discussed the gracious Speech. There is now, I said then, a new Government and we in Opposition will probe that Government and will make certain that we get our point of view across, even if we may disagree. We will do it forcefully and we will seek to extract from the Government the views which are necessary in order that we can, I hope jointly, guide our efforts so that we improve the economy of our country.

So, I open this debate in that spirit again, and I remember very well that gracious Speech. We probed what the Government really intended to do, for example, in relation to the nationalised industries. In the gracious Speech, proposals were put forward by the Government to amend the Industry Act 1975 and to restrict the activities of the National Enterprise Board. Other proposals were announced which would reduce the extent of nationalised and State ownership and increase competition by providing offers of sale, including opportunities for employees to participate where appropriate.

We now know that the Government have produced their Industry Bill, which I believe is a reactionary document. That 1E1 has been very strongly attacked by former Ministers in another place. It will really harm industrial development. The National Enterprise Board is being attacked specifically, and Clause 1 amends Section 2 of the Industry Act, Section 2 of the Scottish Development Agency Act and Section 1 of the Welsh Development Agency Act. It provides that the National Enterprise Board shall cease to have the function of extending public ownership and provides that the National Enterprise Board and the Agencies shall cease to have the function of promoting industrial reorganisation and industrial democracy.

The clause gives a new function to the National Enterprise Board and to the Agencies of disposing of assets held by them in order to promote private ownership. I make no complaint. After all, the Tory Party has always attacked public ownership, although on some occasions it has approved of it. There are many such examples. Even distinguished persons and politicians like Harold Macmillan and Winston Churchill on many occasions paid tribute to the work of nationalised bodies. So, there are some people in the Tory Party who may still be converted by the facts. However, the Industry Bill which has now been presented will be disastrous and will, I believe, harm our industrial strategy. The Labour Government had a good record as regards this matter. I remember how often, when I was speaking from the other side of the House, we were attacked on our handling of the economy. However, many noble Lords accepted that our industrial strategy was right and that we were pursuing a course which would help to regenerate industry in this country.

I believe that industrial aid is important. However, I am sorry to say that one of the key Ministers in the Government concerned with industry, Sir Keith Joseph, last week announced substantial cuts in Government assistance to regional industrial development agencies. I want to stress that this is not just a matter which affects the Labour Party and the Conservative Party: it is something which affects our country, our industry. I think that The Times was quite right. I think that Sir Keith Joseph with his unusual views is entirely the wrong person to be concerned with British industry. I think that he is a menace to the progress of industry in this country and he has shown that over his attitude to the steel industry and to the men themselves.

I believe that this is a vital matter for an area which I used to represent the North-East. Cumbria, my native Durham and Northumberland have always had great problems as regards unemployment. For the North-East, where the North of England Development Council operates, the Government's policy means a loss in the first year of £145,000 in aid. At a time when the region is struggling for survival, that 40 per cent. represents a cut in Government assistance, and it can only cause great concern.

Every effort was made by the last Labour Government and previous Governments to promote regional aid, and that has to be paid for. So, any curtailment in the North-East programme can only reduce the chances of the NEDC in attracting new industry. Local authorities within the region are still ready to match every pound the Government are prepared to grant, recognising that the creation of jobs is the only answer to unemployment caused by declining traditional industries. So, the cuts mean that a recasting of the NEDC operation is inevitable.

I have mentioned the North-East, but this situation applies also to Scotland. I know that my noble friend from Scotland, the former Secretary of State, Lord Ross of Marnock, feels strongly about this and on every occasion defends the Scottish interest. I hope that those noble Lords who are from Scottish areas will support me on this matter, because I believe that Scotland needs essential aids just as the North-East does. My noble friend Lord Ross of Marnock has always pressed other Ministers on this matter. I am not revealing Cabinet secrets, but when in the Cabinet, he was a doughty defender of Scottish interests. I hope that noble Lords who believe in Scotland, as many of them here today do, and who are fair-minded about this, will approve of what he has done and the stand that he has taken. I hope that another noble Lord who was Secretary of State will also back me and those who want to provide aid for Scotland now at this very moment.

Wales has considerable problems caused partly by the crisis in the steel industry but also by recession, the coal industry and the closure of pits, just as has the North of England. So, the story which we see now unfolding is Tory inaction which is really leading to disaster in these great areas of our country. After all, the men and women of those areas are the people—apart from agriculture with which I shall deal later—involved in industry who produce the wealth of the nation. They are sometimes held in contempt by some people for wrong reasons. They are the salt of the earth and the men and women whom we should help now. They are the people who will put our country right, given the right leadership. I am afraid that the Government are not doing that.

I advise noble Lords to read very carefully the report of the National Enterprise Board. I said this nearly a year ago and only yesterday I obtained from our Vote Office a document dealing with the National Enterprise Board and what it is doing. This is a body which is being attacked by Tory Ministers. It is a body which helps us to get new aid in the regions. If noble Lords care to go to the Vote Office they will be able to see what the functions of this board have been, how it has steered industry into the right quarters and how it has opened up exports abroad. Yet here is a Government who wish to strangle something which is helping our industrial revival.

I cannot understand the noble Viscount, Lord Trenchard, whom I admire so much. I think that he is one of the successes of the Government, and I mean that. Indeed, I hope that I am not harming him by saying that. However, I knew him when he was interested in agriculture and he was always fair, courteous and able. I believe that he has carried those attributes here in the House. However, I hope that he will not be wooed by those people in the Tory Cabinet who wish to pursue policies which will inevitably create disasters in those regions which I have mentioned.

When we had this debate previously—the one to which I referred earlier when the noble Lord, Lord Soames, was responsible for the debate—I asked about a specific body called ACARD. ACARD is known to all of us. In fact, its pamphlets on the micro-chip industry and the new technology are vital to our industry. It was set up, I am glad to say, by a Labour Government. I played a part in it and chaired the meetings. It was a committee of distinguished scientists and industrialists and I noticed that tribute was paid to it last week in The Sunday Times and the Observer.

However, there was one thing missing. Those reports did not automatically go to the Cabinet, because, according to the person who wrote the article in The Sunday Times, there was no Minister responsible. In other words, no one was responsible for science in a Conservative Ministry. I want to ask this question. Will the Tory Government, in the interests of our country, because ACARD must succeed—this is a body which is doing tremendous work, but the fruits of its work will not be seen for quite a long time, so it must be encouraged—say what the status of ACARD is now? I should like an answer to this question; I put the same question to the noble Lord, Lord Soames. Is there a Minister who is responsible for that body, as I was when I was in the Cabinet?

As I have said, it is a body which is doing wonderful work. Indeed, noble Lords have only to go to the Vote Office to see six policy documents on research and development produced by this body. By getting businessmen and scientific people together is one of the only ways in which we can create a revival in our country and, above all, meet the challenge of the new technology. That is why it is a tragedy that the National Enterprise Board should be attacked and destroyed by a Conservative Government. The National Enterprise Board has done much to encourage the chips revolution and the development of micro-technology. Therefore, I hope that we can have an answer on that. I trust that there will be no attack on ACARD. I know that it could be called a body which is academic, but in the end it is linked with industry. I trust that the noble Viscount will give me an answer at some time, if not in this debate then perhaps he will write to me.

I understand that noble Lords in the Government are hoping to extend new industries in rural areas. I give every support to that. But I hope that the noble Viscount will realise that we already have a very fine organisation dealing with small industries in the countryside—a body presided over by my noble friend Lord Northfield. We had an excellent debate not very long ago on this matter because the EEC and other bodies are interested in it. I hope that when the Government talk about aid for small industrial developments, as they did in the Budget, they will seek to use this body which has done so much CoSIRA—and which deals so much with industries in rural areas. It operates in three broad ways. It already has an approved programme of 1,000 small workshops and factories at key points in all declining rural areas of England. The programme is a partnership in operation with local authorities, which assess their own requirements and show us what self-help will provide. I hope that CoSIRA, which has only a small staff of 300, will not be cut back.

A Labour Government would give much more aid to CoSIRA than a Conservative Government. I hope that the noble Viscount will try to right this, because it is so important for the rural areas. Here we can see how the Govern- ment must be prodded over and over again. They seek to destroy the industrial strategy which we pursued and which is right. They are not sympathetic to regional areas; they never have been. They are not sympathetic to trade unionists who lose jobs. There is a hostility and an arrogance which we occasionally see in certain Conservatives; I am not saying that every Conservative noble Lord or every Conservative Member of Parliament is arrogant, but generally their approach to ordinary men and women is not one that I like. I can remember working politically with the men of the North-East and being on a local authority; I can remember the difficulties which we faced in the very difficult pre-war period.

There are, of course, noble Lords who are sympathetic and who will see why there is a need to pursue policies which will help build up a workforce and which will help to make our industries competitive with those in Europe. Therefore, I am not being critical of every noble Lord. But I believe that as a party the Conservative Party is basically hostile to a good, active, trade union struggle. I know that that may sound harsh to some people, but I cannot forget my background.

Moreover, not only are the Government not properly encouraging, as they should, a healthy environment; they are now attacking the National Health Service, to give just one example. My noble friend Lord Bruce of Donington was PPS to a great Welshman, Aneurin Bevan, who will always be remembered not just for his brilliant oratory and for his work for the Labour movement, but for the fact that he pioneered the National Health Service. He had a battle. With whom? The BMA and its friends in the Conservative Party. I believe that the creation of the National Health Service was one of the greatest acts that the Government ever did. I believe that, for all its faults, the National Health Service is welcomed by the British people and is the admiration of many people in the world who know our social services.

Linked with this decline in industry, we have shocking cuts in the National Health Service, and increases in prescription charges which are disgraceful. I could go on quoting the cuts that have been made, including the closure of hospitals and places where some of our young doctors are being trained. All this is coming under Tory stringency and the Tory axe. It is no good the noble Lord, Lord Orr-Ewing, nodding his head; he knows that I am right. He says that he is not nodding his head. There is a Health Service with broken promises. The prescription charge, only just increased to 70p from 1st April, will be £1 from December; but there has been a staggering five-fold increase since the Conservatives took office, when the charge was only 20p. From 1st April 1981 dental charges, which are going up from £7 to £8, will have to be paid by young people between the ages of 16 and 21, who now receive free treatment. Those who remember Mrs. Thatcher's pre-election promise that the Conservative Party has no plans for new NHS charges", which she made at Beeston on 18th April 1979, will be interested to learn that a new charge of £2, with certain exemptions, is to be introduced for a sight test. So we can see how the Government are breaking their promises in a major field of activity. It also applies to housing and to many of our great services. Housing cuts will be considerable. I believe that rates will reach an all-time record when they are announced. So we shall see many more burdens affecting ordinary men and women.

Education has been mentioned in this House and I shall not go over our recent debate. I say only this to the Tory Party. We do not simply criticise the Tory Government because of school transport. I know that the Government got a bloody nose on that; they deserved it. Many of their own Members could not stomach what would happen to some of their supporters in the industrial areas. Now they are going to cut still further the field of education for our people. School meals and even school books are being cut. The Educational Publishers' Council reports cutbacks averaging 11 per cent. in local authority purchases of school books, and councils will be free to axe nursery education. I understand that when Oxfordshire Tories wanted to do this the Government were advised that nursery provision was an obligation under the Education Act 1944. Therefore, they have introduced a new clause scrapping the obligation.

Then we are to have the assisted places scheme, which I believe is a scandal. The Government have halved its initial cost in 1981–82, from £6 million to £3 million, but expenditure is still planned to rise to £55 million when the scheme is fully phased in. Here is a scheme which really is going to strike at the heart of the comprehensive school system, and indeed even the grammar schools. This is what the Conservatives are doing to the educational system.

May I say to the noble Lords that I really cannot understand them. Noble Lords opposite never shout for cuts in the private education system. I have never heard a noble Lord get up in this House and say, "If we are going to cut down for ordinary children, why should we not follow that precedent and deal also with the private sector?"—which probably can well afford to be cut down when compared to the schools we sometimes see in many parts of our rural areas which have large classes, and aided schools which do not give a proper education. So here we see that education, along with the National Health Service and housing, is falling under the axe of a Conservative Administration. I understand that even the fire services up and down the country are suffering from cuts in county council budgets. In London, for example, the GLC has taken 41 fire appliances off the road, and at least another 30 are perpetually under repair. This is a major service, and the firemen in that section are really concerned about what could happen.

Here we have a Government which will still pursue policies which, in the end, I believe, will harm considerably what we are trying to do. I have argued over and over again that Conservative Administrations always do this and always will. They seem to delight in seeking to destroy anything which smells of public service in the best sense. I believe that what they are doing is shocking, and I say to Tory Ministers it is really disgraceful. I know they do not like hard words, but I do not beat about the bush. I believe that what they are doing to our people in the field of social services and the services which are there before us is something that they will regret one day, because one day, inevitably, because of their policies, the British people will see that they made a mistake at the last General Election; and at the next General Election I believe they will be turned out for what they are doing to our people in relation to social security, education, and those other areas of activity I have mentioned.

I have always said that I must not speak long, because I once moved a Motion in this House that we should speak for only a quarter of an hour, and a Front Bench speaker for probably twenty minutes. I have kept to my promise. However, I believe that this debate will be regarded as an important debate. I know that the Tories are going to be attacked by my colleagues, and quite rightly. This is as it should be. Noble Lords are good at debating, and even though we may say hard things about our colleagues I hope they will take note of the seriousness of the argument that I have put forward. There is the industrial strategy side; the failure to respond; the desire to cut back the National Enterprise Board; the bringing in of a shocking new Bill which is going to prevent aid. Let us hope that even at this late hour Conservative Ministers, despite the Budget, will in their departments seek to reverse the trend which can only do harm to our country.

Moved, That this House deplores the incompetence with which Her Majesty's Government are conducting their domestic policies which are resulting in increasing inflation continuing industrial decline, deterioration in the balance of trade in manufactures, increasing unemployment, inability of industry to achieve necessary profitability and the erosion of the Welfare State.—(Lord Peart.)

3.34 p.m.

The MINISTER of STATE, MINISTRY of AGRICULTURE, FISHERIES and FOOD (Earl Ferrers)

My Lords, the noble Lord has, as we would have expected of him, given a good, robust, fighting political speech. One of the great pleasures of this House is that you can enjoy a speech of that nature and applaud it and appreciate it, even if you do not happen to agree with its contents. The noble Lord said that what the Government have done was shocking and disgraceful. I thought he was a bit extreme when he said that he thought that most Conservatives were arrogant and that he did not like their attitude towards people. If he looked back just a few months he would see that the electorate seemed to think that, despite the arrogance which the noble Lord attributes to us, they preferred the Conservative Party to the Labour Party.

The noble Lord made a bit of a field day of his Motion when he said that he deplores the incompetence with which Her Majesty's Government are conducting their domestic policies which are resulting in increasing inflation, continuing industrial decline, deterioration in the balance of trade in manufactures, increasing unemployment, inability of industry to achieve necessary profitability and the erosion of the Welfare State". He blamed the Government for just about everything except the weather. It was really a remarkable catalogue. He really reminded me rather of Long John Silver with an old cutlass in his hand taking a swipe at everything he could see.

Listening to the noble Lord you would not have thought that the Government had done one right thing since they took office. One would not have thought that 12 months ago they were sitting here, presumably taking long-range decisions. Not taking decisions that would last for just three months but taking decisions that would last for quite a long while. If they were not, one might ask what they were doing. If one is honest and fair—and indeed the noble Lord is both honest and fair—one knows that measures which a Government implement take months and sometimes years to work through the economy before they have the proper effect. When the economy faces difficulties the measures have to be unpleasant.

The noble Lord and his friends found this out when they were in Government, and when their Government were forced to go to the International Monetary Fund in order to avoid total economic disaster. The terms which the IMF imposed then on their Government included the very policies which we are now pursuing, and which the noble Lord has decried. They include the public spending cuts and strict control of the monetary supply. It took many months—it always does—before the medicine worked. But in the end it did. The noble Lord's medicine did work when they were in power, until at the last minute they saw an election coming and they let the ropes go, and again inflation took off. The medicine will work again. The only difference between this Government and the last Government is that we are determined to stick to the economic policies, which are the only effective cure, until the medicine does work. If only the last Government had stuck to what the IMF had prescribed, instead of producing an inflationary preelection boom, the situation would be very different today. Instead this Government—and the whole country—have got to go through the whole process yet again.

All I am saying to the noble Lord, Lord Peart, is that before, as he does in his Motion, he throws the book at us let him be perfectly aware that those who were responsible for guiding the country for five years must bear a large part of the responsibility for the position into which the country has been guided and from which we now have to extricate ourselves. When the noble Lord deplores the incompetence with which the Government are conducting their domestic policies, let me tell him that we have been having to take these hard decisions which they did not—or would not—take. We have had to cut the vast spending plans to get the priorities of need right, and to try to give the taxpayer and the ratepayer value for money. We have had to try to restore incentives by getting personal taxes down. We have had to insist on the need to adjust the size and efficiency of the steel industry to the realities of world markets; to begin the reform of an education system which was not giving the average child, let alone the bright child, a fair start in life; to honour our defence obligations to our allies, and to restore confidence abroad, not only in our currency but in Britain as an influence in the world. Nobody can say that that has not been done.

All these things we pledged ourselves to do, and with all of them we have made a start, and achieved a good measure of success. I know that some of the spending cuts have been hard. The noble Lord I think used the words "shocking" and "disgraceful". But there is simply no alternative to this if we are to bring inflation under control, and if we are going to realise the resources to create new jobs in industry. We live by trade. The only way in which a business can succeed is by making a profit.

The only way in which those employed in a business can be paid a reasonable wage, or indeed a wage at all, is if the business makes a profit. The only way in which we as a trading nation can exist—and we have to buy 50 per cent. of our food from abroad and import annually no less than £48,000 million worth of goods from abroad—is by selling goods abroad, and the only way in which we can sell goods abroad is to have enterprising, competitive, profitable businesses. The only way in which we can afford all the social benefits such as schools, hospitals, pensions and roads, which we all require, all of which are demandeurs of money, is in the end to have successful businesses which provide the income and provide the profit which can be taxed.

What makes a business successful? It is not the rules or the laws or the taxes. It is people—the managers, research workers, entrepreneurs—the workforce. The most important ingredient in any business, or in any country, is the people. It is their personality, their determination, their idiosyncracies and their character on which the success of a business, and a country, depends, and their ability to use those qualities. If one looks back over history one sees that only one thing made this country succeed—internationally, militarily, domestically or economically—and that is people and their character. Queen's Regulations never won a war; it was the soldiers led by the generals who won the wars. Bureaucracy has never made a profit; it is people who make the profit. Yet year after year as a nation we seem to have cocooned the initiative and enterprise of people with a web of restrictions and disincentives. Like a mycelium, they have crept into every crevice of our national and business life, too often sapping both energy and enterprise, and then having to be paid for.

It was a fundamental recognition of this Government that if this country is to succeed as we all want it to, then it is the people who will make it succeed. This made the Government determined to do two things. The first was to encourage individuals to give of their best and to be responsible for their actions, and, secondly, to cut down bureaucracy. Neither of those are easy tasks, and both are long term. It is a question of altering minds and attitudes. That is why the first thing the Chancellor of the Exchequer did was to cut direct taxation right across the board—to give people the incentive to work and the right to retain more of what they had earned and to dispose of it how they will. Is that what the party opposite would condemn? One thing is certain: they would never have cut direct taxation. They could not have done so. If the Labour Government had carried out plans which they had intended to carry out when they left office, they would have had to increase income tax by at least 7p in the pound above what it was when they left. We have reduced the top rate of tax from 83p to 60p and the standard rate from 33p to 30p. I find that a cause for rejoicing, not condemnation, yet the noble Lord, Lord Peart, comes and censures us for it.

Several noble Lords: Hear, hear!

Earl FERRERS

It is interesting, my Lords, that, among others, the noble Baroness, Lady Llewelyn-Davies of Hastoe should say "Hear, hear"—that she finds it disagreeable to have direct taxes lowered. That will make a very interesting fact. But it is not easy to control bureaucracy. It feeds on itself and, if one is not careful, promotes itself. Yet, despite that, we have managed to secure a drop in the number of civil servants from 732,000 when we took office to 708,000 in January of this year, whereas the previous Administration had planned not to decrease the number but to increase it up to 748,000 by April of this year. Is that reduction something for which we should be condemned?

Inflation is at the heart of many, though, I agree, not all, of our problems, and it is the Government's first priority to tackle inflation and bring it down. It is not easy, especially when you are confronted with world-wide inflation and when since this Government took office last May the price of a barrel of oil has risen from 20 to 33 dollars. Inflation undermines everything economically, and then it destroys people by putting them out of work, debilitating their morale and altering their attitudes, standards and values.

One of the greatest contributors to inflation is and can be Government. When people, as the noble Lord, Lord Peart, did, demand more hospitals, a better health service, a better education service, better social security and higher pensions—all of which we want to seethe Government have to pay for it. But the Government do not have any money. Governments do not have money. I said this once to an audience and somebody roared with laughter. He thought it was the funniest thing he had ever heard. But it is a fact. Government get their money in one of two ways. The first is by raising taxes from people; from the profits of companies—and if there are no profits then there is no tax—or from income—and if there is no job there is no income and then no tax—or from indirect tax on such items as petrol, beer and spirits.

The second way is by borrowing money, and if the Government go to the market to borrow money—in other words, to borrow money from the people—they have to pay interest on that money. That they do either by raising more taxes or by borrowing more money to pay the interest. But when you borrow money you have to pay it back at the end of the borrowing period. And when Government pay it back, how do they pay it back? By borrowing an equal sum of money, probably at a higher rate of interest, in order to pay back the principal, and, as it is at a higher rate of interest, so the demands upon the economy become greater to satisfy the original borrowings.

It is dangerous and a vicious circle, one over which a private individual or businessman would throw up his hands in horror, and yet it is one which Governments, and we as a nation, seem to tolerate. It is not for nothing that it is called the "national debt". I wonder whether your Lordships know that in 1974 the Government's total borrowings were £40,000 million. In the five years during which the party opposite were in power, they borrowed a further £40,000 million. It had taken 300 years for this country to bring its borrowings up to £40,000 million, and the party of the noble Lord, Lord Peart, doubled the amount in five years. But, when we say "This cannot go on. The burden is crippling us. It is part of the cause of our trouble. It has to stop", the noble Lord has the effrontery to censure us.

If Government expenditure is to be cut, it will hurt. Nobody has ever denied that. A Welfare State, with all the benefits which that brings, can exist only if we can afford it, and it can exist only to the extent that we can afford it. What we have to do is to ensure that it exists for those who need it. The noble Lord, Lord Peart, condemned the cuts which he said were being undertaken in the social security programme, but that programme costs £20,000 million per year. It accounts for about a quarter of all public expenditure and it costs each household about £1,000 per year. It expanded by 50 per cent. when the national wealth grew by only 15 per cent. If we are looking for cuts in public expenditure, it is inevitable that this programme must take some share of the economies, and those economies must fall on those areas which are most able to bear them.

When the noble Lord, Lord Peart, refers to the inability of industry to achieve the necessary profitability, I wonder whether I may remind him of what the Government of which he was a distinguished Member did to the agriculture industry when they were in office. I see the noble Lord looking horrified. He was a very distinguished Minister of Agriculture. He was not the Minister the whole time, but he was a Cabinet Minister and therefore presumably took some share of the responsibility. What they did was this. In order to try to protect the cost of living from rising they let the green pound get out of alignment by 20 per cent. for a period of three years, and it even rose to a height of 45 per cent. They thereby denied to British farmers the prices which their European counterparts were receiving, and they thereby knowingly deprived agriculture of the funds for investment.

One result of this—and I shall give the noble Lord an instance of one result—was that the pig industry has been crippled. The United Kingdom pig breeding herd dropped by nearly 20 per cent. since 1973, while the breeding herds in Denmark, Germany and the Netherlands rose by 16 per cent., 23 per cent. and 39 per cent. respectively, and this—

Lord PEART

My Lords, will the noble Earl give way? He mentioned the pig industry. The first thing I obtained from the Community on my first visit there was a big pig subsidy of over £30 million for our pig producers. That is on the record.

Earl FERRERS

Well, that is fine; but it is a pity that the noble Lord did not manage to get some other things straighter. The noble Lord's Government had this deliberate policy. What happened to the cost of food, which he was trying to protect? It went up by 120 per cent,. and farm incomes fell in real terms by 38 per cent. We thought it intolerable to deny British farmers the same price as other European farmers, and we undertook to devalue the green pound during the lifetime of a Parliament. In fact we achieved this within nine months. There is nothing in that to be censured about.

For years this country has not given of its best, and we all know it. There is nothing wrong with the people. We have all the initiative, flair, business acumen, the will to work and the determination to succeed that any country can want. The character of the British people is our greatest single asset. What is wrong is our organisation. For too long Government have numbed and nannied, and this Government want to get out of the hair of people. We want to set the conditions within which people can give of their best. It is businessmen who run businesses best—not Government and not civil servants. It is employers and employees who must negotiate together over wage settlements. It is not for Governments to determine the wages in other people's industries. It is for employers and employees and trade unions to work together for the success of their business, each contributing his or her own particular skill.

No one can afford to be selfish. No one has the right to be selfish—although we all have the ability to be selfish. We are all inextricably bound up with, and dependent on, each other, whether we like it or not. Life is not long enough for a perpetual, or indeed periodical, battle between "them" and "us", when "them" is dependent on "us", and "us" is dependent on "them". And, my Lords, who are "them" and "us"? So often it may be management and employees; sometimes it is management and trade unions; sometimes it is trade unions and trade unions; sometimes it is public bodies and private individuals; sometimes it is Government and governed. Always it is British against British.

When one looks back, not with nostalgia, to 40 years ago, to the devastation which faced this country, it seems inconceivable that collectively we could let a situation develop where the British could find themselves so often pitched against the British in selfish cause, instead of being linked together in common cause against a common enemy, whether that enemy was an international aggressor, as it then was, or whether it is international competition, inflation or recession, as it now is.

If one looks at the tragedy of the last steel strike, one asks, who were the winners of it? The British Steel Corporation?—they lost £130 million over the strike, and the effects on future orders may be even more serious. Hardly a win there. The strikers?—the average steel worker lost about £1,400 in gross wages. Hardly a win there. The trade unions?—it cost the principal trade union apparently about £2 million in picketing and publicity costs. Hardly a win there. The taxpayers?—it cost them more than £9 million in social security payments to strikers' families. No win there. That was the toll of disaster for something which no one wanted and from which no one benefited, other than our overseas competitors.

The only glimmer of light that may have come out of this is that the Government did not get involved, and throughout the dispute—

Several noble Lords: Oh, oh!

Earl FERRERS

Well, my Lords, I find it very odd that the noble Lord thinks that that is funny. What did he expect the Government to do?—to get involved? Throughout the dispute people asked, "What are the Government going to do?", as if by some magic wand the Government could alter, or resolve, a situation which was not theirs. Too often in the past people have turned to Governments of all political complexions, and asked, and even demanded, that the Government should solve problems which are not the responsibility of the Government. Too often solutions have been sought and made in a glare of publicity in Downing Street.

This Government intend to leave responsibility in the hands of those who are responsible. It is the job of management and employees to negotiate a proper settlement, in the full knowledge that excessive wage increases not only add to inflation, but also, by placing increased burdens upon the business, create the unemployment of some of the very people who are supposed to benefit from the increase.

In all walks of life we must accept that one's own job is dependent on the jobs of others, and that the jobs of others depend upon the work which one does oneself. And when people decide, however good the reason, not to avail themselves of the jobs which they have, and by so doing put at risk the jobs of others, and possibly the viability of their own and other firms, then it is only fair to assume that they should have made at least some provision for such an eventuality, and that they should not turn to Government to provide all the financial support.

We have on occasion witnessed a situation where people earn more by being out of work than by working, where the earnings of those who are working are taxed to provide bigger incomes for those who are not working. This is a crazy situation, which no one can justify, and which is fundamentally unfair. If it is for trying to take action against that kind of situation, that the noble Lord, Lord Peart, accuses us in his Motion of eroding the Welfare State, then most people will say, so far as that particular aspect of the Welfare State is concerned, "So be it—and high time too!"

We are going through a difficult time, and I have tried to indicate to your Lordships the strategy which this Government are adopting which is to give back to the people, as best they can, the responsibility for decisions, and for the effects of their decisions, which is rightly theirs. This is not achieved overnight. When a patient is suffering from a fever, it is necessary to give him a cure. The cure is often unpleasant. We are providing the cure. There comes a time when after the administration of the cure, the patient is in the position of having both the fever and the cure, and suffers from both. That is the situation in which we find ourselves at the moment.

We have suffered for over two decades from the march of the bureaucrats, from incomes policies, statutory and voluntary, phases 1, 2 and 3, pay pauses, controls, Government involvement, stop-goes—the lot. None of them has worked. Manufacturing output is now lower than it was in 1973. Yet one ingredient—the ability of the British people—is as good as ever. That is why we want to give them the opportunity to give of their best, and feel free to do so, for the benefit of themselves and their country.

It will not be easy. We will meet with criticism—and the noble Lord, Lord Peart, has promised us some criticism today. But we have made a start, and a Government who in 11 months have, among other things, made the biggest ever cuts in personal taxes, who last year made the biggest ever increase in pensions and social security benefits, who have taken special steps to help the disabled, war widows and one-parent families, who have produced an imaginative scheme to provide help for the really needy with their fuel costs, and who are planning to help council house tenants to become home owners—that Government deserve support and encouragement. And if the noble Lord, Lord Peart, seeks to divide the House this evening, all I would say to him is that I would hope that the House will reject his Motion entirely, as being irrelevant, inaccurate and unconstructive.

Lord McCARTHY

My Lords, before the noble Earl resumes his seat, does he not agree that what is disagreeable, and what we on the Opposition Benches find unacceptable, is not that the Government have cut taxes, but that they have cut direct taxes? In order to do so they have raised indirect taxes, with the result that the rate of increase in the retail price index has doubled in 12 months.

Earl FERRERS

My Lords, it is a fundamental fact of this Government's approach to life that individual taxation was too high. Of course that is the case, and that is why we have lowered it. Other taxes may have to go up, but the reason for any rise goes back to the borrowings of the Labour Government during their term of office.

4 p.m.

Baroness SEEAR

My Lords, we might almost be in another place—and how right the noble Earl, Lord Ferrers, was to say a moment ago that we were suffering from a cure. That is the summary of a good deal of the content of the speech of the noble Lord, Lord Peart. In the Motion which is before us, Lord Peart seems to imply that there is nothing which the present Government are doing of which he approves. If we on these Benches speak in support of the Motion, and if ultimately we pursue the Labour Opposition into the Lobbies, as may well be the case, let it not be thought that we are giving wholehearted or indeed anything but the most qualified support either to this Motion or to the remarks of the noble Lord, Lord Peart.

Implicit in Lord Peart's speech was the implication that under the Labour Government everything was progressing in the right direction, and that if all had been left to them all would be well. The fact is that this country is suffering from a long-term and serious disease—a disease so serious that this kind of party politics across the House is singularly out of place. It is also true that the position of the country relative to other Western countries has fallen deplorably in the past 20 years, from being one of the best off among Western countries to being one of the poorest. During the period of which I speak Labour were in power for 11 years and the Conservative for nines years. Therefore, the honours are even.

If it is said that it is easy for a Liberal to say these things because in none of those 20 years did we have any power—except for a short period of influence under the Lib-Lab pact during which things got markedly better—noble Lords have it in their power to see that we do get more influence. If noble Lords on either side of the House are prepared to do something to alter the totally undemocratic system by which the Government are brought into power and by which Governments with only a minority of votes are in a position to govern, if they are prepared to change that situation we will willingly take the challenge to see whether we can do better. My Lords, we could scarcely do worse.

Therefore, in giving very qualified support to this Motion, we are in no way suggesting that the way in which the Labour Party conducted the affairs of the country has done anything to cure the deep-seated problems from which we suffer. The noble Lord, Lord Kaldor, who will be addressing the House a little later, no doubt will tell us—he has told us before, but that makes it no less true that the troubles of this country go back a very long way indeed and require fundamental changes of a painful kind to get us back into a position in which we can begin to afford the kind of Welfare State and standards of living we would all like to have.

As the noble Earl, Lord Ferrers, said, it is ridiculous to go on borrowing to the point at which far too high a percentage of the national income is being devoted simply to paying interest on the debt, let alone to paying back the original debt. We recognise that much of the action which the Government are taking is to be deplored, but we also recognise that the policies put forward by the Labour Government provided no cure. The nonsense of spending more and more as productivity levels barely increased at all is surely a nonsense that even a tyro could understand.

Therefore, although to a large extent we take the view "a plague on both your houses", we say that in one respect at least we support what the present Government are trying to do. It must be right to give priority to the control of inflation. Inflation at the level at which it is running today, up to nearly 20 per cent., is a canker of the most evil kind, not only economically but also politically and socially. If it continues, it will destroy the very fabric of society and the nature of political democracy. Therefore, not only for economic reasons are the Government right to put their full weight behind the fight against inflation. Only by controlling inflation can there be any decent democratic future for this country and for the people who will live here in future.

Our quarrel with the Government is not so much in what they are trying to do in the control of inflation, but in the methods and attitudes which they are adopting. They are devoted to the idea that the control of money supply is the essential—almost exclusive—weapon that can be relied upon overwhelmingly to deal with our problems. The control of money supply, and with it inevitably the very high interests rates, is an instrument on which the Government rely, in our view, to a totally excessive extent. We believe that there should be a multi-pronged approach to this extremely complex problem. We believe that the control of inflation will not be met just by the use of this one instrument. I know that there are other methods which the Government could adopt, but to a large extent they are relying on the control of money supply, in the belief that if one gets the money supply under control, the other problems will fall into position.

Why are we so critical of this blunt instrument? We are critical for a number of reasons. First, the Government believe that if they control the money supply this in itself will control the level of pay. The argument, as I take it, is that because of the shortage of money employers will not be able to afford to pay high wage increases, and that the market forces between labour and those who control pay in industry will operate in such a way that the control of money supply indirectly will control the level of pay. I believe that is a fallacy. It is a fallacy to trust market forces in pay negotiations because there is no real market there. On the side of labour one is dealing with colossal monopoly power which is not subject to market forces. Unless the Government recognise that and have some other policy to deal with pay, rather than relying solely on money supply and its influence on an employer's capacity to pay, one will not get pay under control by the use of this instrument. That is what is now happening. It must be apparent to the Government as they see pay increases rising, and as they themselves have had to admit by agreeing to huge inflationary pay increases in the public sector, that the control of money supply by itself will not deal with this important, though not exclusive, element in the creation of inflation, namely, excessive pay settlements.

It is not true to think that the level of pay claims will be moderated by rising unemployment. No doubt that is the way in which the Government think the argument will run. But the fact of the matter is that when the trade unions are negotiating pay claims, they are negotiating on behalf of those members who are in work, not on behalf of the people who are not in work. It is a harsh thing to say, but it is true, that the level of unemploy- ment does not in fact limit the pressure for pay increases, because it is those who are in employment who determine what the pay increases are going to be; and the fact that there are key areas in industry in which the bargaining power of labour is such that, be the money supply position what it may, be the unemployment level what it may, they are still able to push up pay, and so long as that is true reliance on the money supply to control the level of pay will simply fail.

My Lords, the second reason why we are concerned about this over-reliance on money supply is this. We are not saying, let me emphasise, that we do not consider there should be a reasonable attempt to limit the supply of money. Of course, we recognise that that is so. It is the over-reliance on the instrument that we are criticising. There is, my Lords, a very grave danger that the combination of the limitation on the money supply, high interest rates and the high value of sterling is going to leave behind an industrial desert, and that there will be a number of companies going out of business. There are already a growing number of companies going out business, and once companies have gone out of business it is not going to be so very easy to bring them back. It may well be that these are not the companies which ought to he going out of business in terms of the long-run economic future of the country, and that it is not those that really ought to disappear which will do so, but those which are affected by what happen to be the transitory conditions of the present time, which will hit certain industries and certain enterprises very hard indeed. It is a very crude selection of those which ought to go in relation to those which ought to stay. There are many people in this country today who are sympathetic to what the Government are trying to do but who share this fear that the price which is going to be paid as a result of applying this method will be too high for the middle-run health of the economy, let alone for its long-run health.

My Lords, the third reason why we are unhappy about the way the Government are using the money supply as the instrument for fighting inflation is that there is no indication (it may be that it is in the minds of Ministers, but there is no indication that comes over to Opposition parties or to people in general) that the Government are being selective in that they have a plan in which they will use selective methods to restructure industry in this country. I said at the beginning that we suffer from deep-seated industrial disease. We do. We have many industries in this country for which there is no middle-run or long-run future. We need a switch to high technology industry, to high added-value industry and to industry which can make a real contribution to conservation. That is the pattern of industry, the structure, that we want in this country for the future. Unfortunately, we are weighed down with low value-added industries in which, sooner or later, the competition coming from the middle-income countries, which are growing at an enormous rate and with great success, will make it impossible for us to hold our own unless we move quickly towards the new technology.

One of the most encouraging things—and do not let us forget it—is that the Trade Union Congress itself has come out, in a most encouraging publication, in full support for seizing the opportunities of the new technology. Of course, it means harsh changes; but this is the way in which the Government ought to be taking steps to ensure, not only that we conquer inflation, which in a sense is a negative objective, but that we are seen to be making steps towards an industrial structure for which, in the middle-run and long-run, there is a real future, and which holds a promise of being able to give people, both in the public and in the private sector, the sort of standards which we all seek.

My Lords, I believe that there are people on the Government Benches who want to do this. I can only say that the lead has not been given to show people in this country, first, that it is necessary to make these changes; secondly, that in making these changes there is real hope; thirdly, that the changes will be painful but they will be worth while; and, fourthly, that where it creates pain the Government are prepared to take all the steps they can to alleviate that pain. But that it is economy, sacrifice, with a clearly defined purpose—that is what is not coming over. We are not told the reason for it; where the Government are leading us; why this is necessary.

Let us not have this kind of bickering in your Lordships' House. We need the changes that I have been trying to describe. We need this kind of leadership. In my view, we need far more of a consensus approach to these problems; they are far too serious for party bickering. But we need a positive emphasis on why the change has to be, and how it is going to be brought about. I believe there is a promised land, but the Government are not giving us any evidence, are not convincing the country, that they know how to lead us there.

4.17 p.m.

Lord LEE of NEWTON

My Lords, many of the criticisms we have of this Government are contained in the Motion which my noble friend has moved, but one of the criticisms which is not set out in that Motion is that, while many of us have been trying for a long time to modernise industrial relationships, trying to get both the trade unions and the employers to set up a system of negotiation appropriate to the last few years of the 20th century, all this has been made impossible by the policies which the present Government have brought to bear. Indeed, our anxieties on a very wide variety of these vital issues are contained in the Motion; and, in so far as they have been answered at all, the reply has of course been the usual one about the need to control inflation. I join the noble Baroness, Lady Seear, in saying that of course this is one of the major problems that has to be faced; but I submit that you cannot defeat inflation merely by a policy of savage deflation allied to the resurrection of a type of laissez faire capitalism and the devil take the hindmost. It cannot be defeated by measures which almost erode the very fabric of our society—a tax on the sick and on the unemployed and a cutting back on local government housing and education.

In any event—and I pose the question to the Government Front Bench—when will these policies begin to show the results which they are supposed to achieve? We are now almost 12 months and two Budgets past the date when they were going to prove effective, and the record to date is one of large-scale increases in the rate of inflation, which is still rising. I think our present position could be summed up in this way. Within a contracting economy, with a 20 per cent. level of inflation, we are paying ourselves 20 per cent. increases in incomes, our industrial base is rapidly eroding and we have an over-valued exchange rate which is making many of our products quite uncompetitive, while a 17 per cent. minimum lending rate makes industrial modernisation extremely difficult and expensive. In consequence of these things we have now reached, probably for the first time since the first industrial revolution, a stage at which imports of manufactured goods have passed our exports of those goods. I think that the noble Viscount, Lord Trenchard, a week or so ago said that last year, without the revenues from our oil, the balance of payments would have been some £10,000 million in deficit. When pointing to these facts, one hears the comforting answer that we will restore much of the balance through the service industries. I should like to think that this is true, but may I ask this? Which are the service industries which are going to achieve this desirable end? I know that tourism has been influential in this degree. It has brought huge benefits in foreign currencies and so on, but I think that last year it began to show signs of decline. Indeed, as far as the service industries as a whole are concerned, last year the invisibles were at a lower ebb than they were the previous year and have been for some time.

I have mentioned the erosion of the manufacturing industries: I ask again: what do the Government intend to do to reverse this trend? I heard the noble Earl, Lord Ferrers, and the noble Baroness, Lady Seear, say that some of them cannot be viable. Which are they? Which are the manufacturing industries on which we can expand and can modernise? Up till now one hears bland assumptions that the manufacturing industries are on the way out and the service industries will compensate. I do not believe it and I want answers from the Government as to which they have in mind. Throughout a great many of the industrial areas in this country there are growing fears that we are heading rapidly towards the position of 1931–32. Indeed, if one believes the Cambridge economists, we are going to be there within a few years from now. We know, and have known for a long time, the problem of Northern Ireland in this respect; but now we have reached the position where Wales, Scotland, the North-East and the North-West are parts which are approaching crisis point. If things go wrong with British Leyland—and I hope to God that they do not!—the West Midlands will be as badly placed as the other areas I have mentioned. I come from Merseyside where well-known firms are either closing down or dismissing considerable numbers of employees almost every day that one hears the local radio, watches TV or reads the local Press.

The Government contribution has been to cut down on the development areas and the intermediate areas, which is having a most detrimental effect on job opportunities. In consequence long-term unemployment is on the increase as a percentage of total unemployment and the lists of vacancies grow less every time they are issued. If one examines the vacancies which are available, most of them are for skilled jobs; and, again, the Government contribution has been to cut back on the monies available for the Manpower Services Commission with its vital retraining function. In this situation we are entitled to ask whether the Government really believe that an upturn in world trade would bring unemployment in this country down to acceptable levels or whether it would merely increase the volume of imports as a artificially high exchange rate functions against us—and those imports are what are causing our industry to continue to wither.

The noble Earl, Lord Ferrers, mentioned steel and what happened during the strike. After the strike, which I believe had no need to take place at all if the Government had done their job, we are now in a very dangerous situation. We are still cutting back on levels of production in steel, which presupposes either a considerable fall in demand for steel by our home consuming industries or that the Government are anticipating an increase in the volume of imports from other countries. It has to be one or the other.

We shall then be told that this is because our steel industry is not competitive. How are we to believe that a steel industry with two of its major plants, at Llanwern and Port Talbot, working at 50 per cent. of capacity can be competitive with imported steel? Many of the managers in the steel industry are very disturbed at the degree of cutting back that is going on. They have been consulting with Ministers as well as with the BSC. Mr. Robert Muir, the secretary of the Steel Managers' Association says: Our representatives were brushed aside without a moment's consideration, far less for any reasoned objections. But what if we are right? The organisation maintains that the BSC could become profitable at around its present level of output of 17 million tons of crude steel per year". This is not merely the ranting of politicians. These are the facts laid down by the people representing high management in the BSC; and apparently the Government are not interested in their representations.

The noble Earl, Lord Ferrers, posed a question during his speech. He asked us who were the winners in the steel strike. It so happens that The Times anticipated his request for information. The Times leading article of April 2nd 1980 said: The outcome of the steel strike is the most significant success that the Government has had in the domestic field since it took office. It is a success achieved by a resolute refusal to act Later in the same article, it went on: But the result should not be interpreted on either side as a crude victory for industrial machismo. The cost to the industry and the country has been too great for that". According, to an influential and friendly commentator, therefore, not only have the Government's most significant success been achieved by masterly inertia but the cost to industry and the country has been too great for the Government to congratulate themselves on the outcome. A few more Government successes like that and a patient will be gone anyway.

In fact, the picture of increased payments in the public sector—and I remind noble Lords that the steel union got 16 per cent. anyway—is one of sheer unadulterated chaos. If you work in such industries as coalmining, water supply, electricity supply and teaching, 20 per cent. plus is the going rate. In other industries, like steel, the Government would rather see a very great threat of shortages resulting in a vast increase in unemployment rather than permit the level which other industries are getting. The reply that we get when we talk about what should have been done on steel is that this was in the interests of the taxpayer. I pose another question—I am full of questions today. Who but the taxpayer is now going to pay for the quite unnecessary losses that we are incurring in the steel industry? Can we be told what policies the Government have in mind to bring down our import bill and encourage the purchase of home produced goods instead?

Under normal conditions, I have not been an advocate of general import controls, but it seems to me that the argument used by Mr. John Nott in reply to the TUC, that such action encourages British industry to remain uncompetitive, ignores the fact that many other countries are using such controls extensively even where their industries are competitive. I should have thought that that makes the argument for selective import controls very strong indeed. The case was well stated by Mr. Victor Keegan in his Guardian article on 24th March last. He quoted the fact that earlier in March the French Government blocked British Airways' application to launch what they called a "Channel hopper" between London and Paris for £20 fare. That was an obvious protectionist measure in order to shield Air France at a time when France is defying a court order and blocking imports of British lamb.

Mr. Keegan also pointed out that while we are opening up our telecommunications market to other countries, Germany had actually announced that public sector bodies should only purchase telecommunications equipment designed and manufactured in Germany. After pointing out how ridiculous it is to allow a 60 per cent. penetration of our home car market by foreign cars, he pointed to the fact that France has told the Japanese that they can have only 3 per cent. of the French market, while Italy keeps them out by allowing one Japanese car in for every Italian car sold in Japan—and there are not many of those!

We have recently seen the trouble in the artificial fibre industry, where apparently we are being flooded by American imports based on the fact that they are getting cheap oil. There is a certain irony in the fact that one of our major industries is being undermined by that kind of import while we are self-sufficient in oil. It is time we began to look at how we use these things. No Government which are concerned about the uncompetitive position of our industry can afford to minimise investment in the micro-electronics developments which are now an ever-increasing feature of industrial life. This was mentioned by the noble Baroness, Lady Seear—and I agree with what she said.

There is, of course, a great deal of speculation as to the effects of these developments on employment levels. The trade unions throughout Europe—including our own TUC—are arguing that significant reductions in the working week with longer holidays are now necessary to prevent considerable increases in unemployment in consequence of the uses of this new revolution. There is, of course, a different point of view being stressed by some employers' associations, including, I believe, the CBI. But whichever of these views one takes, one thing is certain: we cannot afford to neglect them, and we cannot afford to believe that we can do without the introduction of these new ventures. We cannot afford to allow ourselves to become dependent on the imports of them from other countries. A recent NEDC report criticises the Government for cutting public support to a level well below that to which the last Government committed themselves. In particular, the report refers to the microchip, because of the vital role this plays in the regeneration of our industries. May I be told by the noble Viscount, when he comes to reply, whether the Government will agree, in the light of inflation, to restore their support to at least the levels agreed by the last Government?

I do not wish to weary the House by quoting a lot of figures, but it seems to me from what figures are available that we are now being left badly behind. The Government's action in cutting down the activities of the National Enterprise Board—referred to by my noble friend Lord Peart—is really a most remarkable performance. The National Enterprise Board was doing an absolutely outstanding job of work in this particular field, and to cut down their activities now is sheer masochism at its very worst.

These restrictive policies are based on the belief that our rate of public spending is too high and must be cut back. The noble Earl, Lord Ferrers, gave us that story all over again today. According to the EEC Commission's annual report, the share of national income going to general Government expenditure is lower in this country than in any other EEC country. Our level was quoted in 1979 as 42.8 per cent. against 46.4 per cent. in West Germany and France and 58.3 per cent. in Holland. Yet we complain despite that that their industries are competitive and our's are not.

The noble Lord, Lord Cockfield—I thought he would be speaking today—told us at col. 1363 of Hansard on 2nd April: And it has been the excessive level of the PSBR which contributed so much in recent years to an excessive rate of growth in the money supply and hence in the rate of inflation". Of course the money supply must not get out of hand; but to become obsessed with this, and to use it as the only vehicle for dismembering as much of the Welfare State as possible is a self-defeating objective as working people seek to avoid such attacks on their living standards. In his anxiety to discount the forecasts of the economists such as the Cambridge Group, the noble Lord, Lord Cockfield, gave us a lesson in elementary economics which finished up with a flight into higher mathematics which revealed to us all that two and two make four. I thought at that particular point he was about to overthrow Professor Friedman in favour of Einstein. Apparently that was a hope that was not to be fulfilled. I am getting fond of The Times and I commend to Ministers the contents of an article on the subject in yesterday's issue by Sir Bryan Hopkin. I am sure that we agree that Sir Bryan has an outstanding record in advising Governments. He showed the connection between the policies being adopted by the Government and the inevitability of a rising level of unemployment.

I mentioned earlier the problems of the increases that we are paying ourselves over and above the wealth that we are creating. It is not the first time that I have referred to this; probably it will not be the last. This is one of the reasons for the high inflation that we are discussing. It would be ridiculous to try to dodge the issue. I long since began my advocacy of a permanent incomes policy to replace the principle—if that is the right word—of Middle Eastern bazaar haggling which is passed off these days as free collective bargaining and which has now achieved the complete contradiction in terms of including in free collective bargaining a "going rate" and "comparability studies". I do not see how one can combine the two things.

Both the present Prime Minister, the Secretary of State for Industry and the Chancellor have made it clear that they are not going to relax their severe squeeze on the money supply to accommodate large payment increases, and that the consequences will be an increase in the numbers of unemployed. The fact that in very many instances it is not those who receive the large increases who become unemployed does not seem to trouble them in the least.

The Government's attitude to the problem consists of repeated statements that incomes policies have failed. Both the noble Lord, Lord Cockfield, and today the noble Earl, Lord Ferrers, have told us that. They proceed to make equally loud lamentations about the disastrous results of free collective bargaining. May I suggest that it is becoming time that they decided that two negatives do not produce a positive. They are relying on the theory that heavy unemployment limits the power of workers to demand large increases. But, my Lords, there are now 1½ million people out of work. The Government tell us that the level of increases is running at 20 per cent. Might one ask what level of unemployment they have determined as being the correct one at which their theories are going to begin to work? Are the Government going to wait for even higher unemployment, plus Mr. Prior's misnamed Employment Bill and Mrs. Thatcher's threat of sterner measures yet to come, to have the desired effect on incomes? Surely no thinking person would deny that there are stern and very anxious days ahead. A more sensitive and progressive Government would have done everything possible to get all sections of the nation to combine in a common effort to surmount those problems. This one has simply divided the nation deeply and it is worthy only of our condemnation.

4.41 p.m.

Viscount ECCLES

My Lords, it is only a very short time ago that the noble Lord, Lord Byers, introduced a good debate on the Budget strategy. I must say I thought that in that debate first things were put first and we had some extraordinarily good speeches. My noble friends Lord Cockfield and Lord Thorneycroft deployed the case for the Government's policies with a lucidity and effectiveness which does not leave very much for anyone who, like myself, is a great supporter of the Chancellor of the Exchequer, to say. But I was surprised that today, when I had thought that the Opposition were going to do very much better, because they must have been dissatisfied, I suppose, with what happened a fortnight ago, the noble Lord, Lord Peart, although he put the word "inflation" into his Motion, never mentioned it in his speech. He never mentioned the borrowing requirement. One might think from listening to the noble Lord's speech that we had no financial problems in this country. The noble Baroness, Lady Seear, who said some very good things with which I agree, said that inflation was far and away the most important problem facing us. She went on to say that she did not believe that total reliance on monetary policy would achieve the victory over inflation that we all want: but it is not fair to say that the Conservative Party is relying only on monetary policy. Our view is very clearly, if I understand my noble friends aright, that one must first conquer inflation before any of the things that we want to do can be safely done.

What is extraordinary about Labour Party speakers is that they will not answer the question: "If Government expenditure and Government borrowing are not to be reduced, how then can inflation be defeated?" I think I may be slightly unfair, perhaps, to the noble Lord, Lord Lee of Newton, and even to the noble Lord, Lord Balogh, as regards their speeches, because they did suggest that an incomes policy of national extent might be an alternative to the Chancellor's monetary policy. But that was precisely the policy on which the last Labour Government staked their fortune—only to find it sabotaged by their best friends.

Lord LEE of NEWTON

My Lords, would the noble Viscount give way? He tells us that things were going all right with the incomes policy until it was sabotaged. Is not the inference from that that if the incomes policy had kept on there would have been no problem?

Viscount ECCLES

My Lords, I am afraid I cannot agree with the noble Lord. The fact of the matter is that, as the noble Lord, Lord Balogh, said quite rightly, an incomes policy of the type he was advocating requires a bargain with the trade unions. I agree; but in the event the trade union leaders did not, and very probably could not, deliver their side of the bargain and they destroyed a Government which had been financed by the subscriptions of their own members. It is quite natural that a Conservative Administration should take note of that goal kicked against their own side, especially as we have no financial dependence on the unions.

The fact is that the Labour Party failed, and the country unmistakably said they wanted a change. There was a general feeling at the time that they wanted a really radical change; and that sort of turning-point has occurred quite often in our history. I believe this to be another turning-point. If I might take your Lordships back a long way to show what I mean, in Tudor times agriculture was the central objective which the Government chose to protect. Later, in the 18th-century there was colonial expansion, followed by free trade in the 19th century. Then the gold standard was the sacred cow and between the wars unemployment assumed the first place, to be followed by nationalisation and a debilitating dose of Socialism. Now it has to be inflation. Governments have to choose a central objective around which they form all their other policies, bending and shaping them to try to achieve their central objective.

Lord BALOGH

My Lords, does the noble Viscount think that the British people accepted in the election that the way in which inflation is to be fought is not a civilised manner by bargaining, but by atrocious increases in unemployment?

Viscount ECCLES

My Lords, the British people at the Election first and foremost wanted to get rid of the Socialists. Secondly, they thought that other leadership was necessary and they saw in Mrs. Thatcher someone who knew her own mind and whom they thought would stick to it. Of course, to defeat inflation will take time and many rough and unpopular actions, and I do not wonder that the Labour Party is shocked at such a painful change in policy. After all, it is very different from what they were doing. Their policy was to distribute money we had not earned and to cover the deficit by doubling the national debt. We think that cannot go on, but I quite agree with the noble Baroness, Lady Seear—I see she is no longer in her place—that the novelty of changing the central objective of a Government in the way that we are doing is difficult to put across to the public.

I should like, if I may, to say a word or two about communicating with the public on a subject as difficult as that we are trying to deal with now. Sir Winston Churchill used to tell his young colleagues that, the ear of the public is very small and rarely able to listen to more than one large idea at a time". Therefore, it is important, if we are going to defeat inflation, that we should be able to simplify what is a very complicated monetary operation: that is, to find a way of symbolising what the battle and the victory mean to everybody. In this respect, the art of politics differs little from the art of the painter. The artist invites his public to view the landscape from his chosen angle, and he selects only one or two significant features.

In our previous debate, my noble friend Lord Cockfield, surveying with a masterly eye the Government's strategy, bid us consider the public sector borrowing requirement as the most significant feature. The noble Lord, Lord Newton, reminded us of that in his speech. My noble friend told us that the increase in the borrowing requirement, during the time of the Labour Government, had been a great influence on increasing the money supply, and it was this increase in the money supply which had made possible excessive wage and salary awards, leading directly to a rising rate of inflation. Therefore, if we want to see prices steady again, the Government must borrow much less. That means either cutting expenditure or raising taxes.

From what Mr. Callaghan said in another place yesterday—I must say that I thought it extraordinarily significant— the Labour Party is against all cuts in Government expenditure. Evidently, they believe that we can spend our way out of inflation. That is palpable nonsense. But in any case where would the money come from, if we tried not only to spend our way out of inflation but to do the many things which have been advocated this afternoon from the other side? To raise billions more by taxation would undermine whatever confidence still exists in our industry, and to raise equal or even larger sums on the market, if it were possible, would do the same. So that my noble friend's logic was unanswerable.

However, I am not at all sure that the PSBR is the right symbol to choose. I question the selection for this reason. Nowadays we are all borrowers. When I first had a bank account, my father told me that to run an overdraft was morally wrong. That was in 1922. My children now think me extraordinarily foolish not to have borrowed large sums to buy works of art, which would have appreciated in value many times. What about credit cards? My father would have called them passports to the infernal regions, but nowadays the very best people walk about with wallets stuffed with these temptations to overspend. It is not very easy, with those changed attitudes, to make the PSBR the villain of the piece.

So, thinking of communicating with the public, I would select the interest rate as the most significant target in our financial strategy. The interest rate hurts almost everybody, and everybody should know that the Chancellor is determined to cut Government spending, for the express purpose of bringing the interest rate down. Why is it as high as it is? Noble Lords opposite really must accept that it is because the spending decisions of the Labour Government, and the excessive awards in incomes in the public sector, pushed the borrowing requirement to a height where it was more and more difficult to get the money that was necessary.

Your Lordships will be well aware that in November last the minimum lending rate was raised to 17 per cent., simply because the Government could not cover the monthly borrowing requirement, without offering more to lenders who had had their fill. The consequence of that is a rise in mortgage rates which eats into the purchasing power of countless families. Let them realise that they are paying for the Labour Government's extravagance. I am told that if Labour had been reelected and had stuck to their manifesto, the PSBR would now be over £14 billion a year. No one knows where that money would have come from and, as my noble friend Lord Ferrers said, we would have been back in the hands of the International Monetary Fund in a month or two.

Lord RAGLAN

My Lords, may I intervene for a moment? Is it really true that this high MLR is a consequence of the Labour Government's policies? If it is, why are the United States in exactly the same position with rather higher interest rates?

Viscount ECCLES

My Lords, that is quite an interesting subject. I happened to be in the United States when this great rise in interest rates occurred, and it foxed a good many of them. But the normal explanation was that property values had increased so sharply that everyone who was getting a hit short of money went and borrowed against the increased property values. This, being simultaneous with the squeeze of the Governor of the Federal Reserve Bank, produced the higher rate. That is what the New York Banks said and, so far as I know, it is probably right.

Lord RAGLAN

My Lords, has the same thing been happening here?

Viscount ECCLES

I do not think so, my Lords. I really do not know. I thought that private borrowings from the joint stock banks here had not shown the kind of astronomic rise which they showed in the United States. The noble Lord may know better than me.

In conclusion—I do not want to keep the House too long—granted that no major unforeseen difficulties arise, the Budget strategy will work and will bring down the interest rate. Industry will then be encouraged to expand and new firms to start. Purchasing power will be released to those who are now paying high rates and instalment credit will, I suppose, be cheaper. A fall in rates will probably see some hot money withdrawn from our market—the noble Lord, Lord Kaldor, knows much more about markets than I do—which will cause some weakness in the sterling exchange, and all these things will be good for employment. Unless this happens, it is no good any noble Lord on this side or the other side asking the Government to spend more money. There is no more money to spend.

I hope that the Government will make the interest rate the front runner in their public explanation of why restraints and economies will benefit everybody. The Labour Party have no credible alternative to the policy that we are pursuing. They talk about the evil consequences of inflation, but they have not got the will, much less a policy, for dealing with its causes. The Prime Minister and her colleagues have a hard year ahead of them, but they have the satisfaction of knowing that they are trying to do what is right. We should support them to the very best of our ability.

4.59 p.m.

Lord KALDOR

My Lords, the publication in this year's Red Book of the long-awaited economic plan by the Government, called "Medium Term Economic Strategy", provides an opportunity to review the competence with which the Government conduct their affairs in terms of their own chosen objectives. This Red Book is an extraordinary document. It contains bold assertions, logical non sequiturs and tautologies masquerading as empirical laws, which will provide rich source material to teachers of economics and examiners for many years to come.

The Government's objective, as we all know, is to bring down the rate of inflation. This is uncontroversial. What is new is that, in their view, this requires, a progressive reduction in the growth of the money stock". This is the new emphasis, to which they add in the same paragraph that they will, pursue policies necessary to achieve this aim". Why say that? Why not just say that from now on they will issue less and less new money each year?

If the increase in the money supply is the cause of inflation, as Ministers constantly proclaim that it is, surely this implies that the money supply is something that can be directly controlled, in the same way as VAT, or income tax or the size of the armed forces. If it is not, if it is something that can be influenced only indirectly, through the use of other instruments, then the rise in the so-called money supply is at best a measure of inflation and not the cause of it.

When the noble Lord, Lord Cockfield, told the House the other day—and I am sorry that I was not able to be here—that the money supply was the critical factor in the level of inflation", he was saying in effect no more than a doctor who says that, "body temperature is a critical factor in health". If a man suffers from disease—say, malaria—it is correct to say, within limits, that the extent of his fever is an indication of the seriousness of his illness. And some doctors may use body temperature as a "proxy variable" for the cause of the disease. If a man suffers from severe malaria and he is to be cured very gradually in four years—and not quite, even then—it may be convenient for a doctor to draw up a temperature chart, such as that shown for the expected growth of the money stock in Table 5 of the Red Book. He could plan for a temperature zone of 102 to 104 degrees in 1980–81, 101 to 103 degrees in 1981–82, and so on until the patient's temperature was nearly normal in 1983–84. But a "proxy variable" is not the same thing as an instrumental variable. You cannot cure malaria by bringing down the temperature, even though your temperature will necessarily come down if and when malaria is cured.

Anybody who has studied the joint Treasury-Bank of England consultative document on monetary control which came out recently must be clear about this. There is no pretence in that document (bar the extraneous Introduction of which the less said the better) either of being able to control the money supply directly, or that any such control, even if successful, would itself cure inflation. On the contrary; paragraph 1.4 of the document says that the very adoption of a monetary target tends to accelerate monetary growth and push up interest rates above what they would be.

The true instrumental variables, as this document makes clear, are fiscal policy and interest rate policy. These influence the level of expenditures of consumers and businesses and, through them, the public's demand to hold liquid assets, cash and bank deposits.

These are the same instruments as those of Keynesian policies of demand management. What has changed are not the instruments of control but the objectives. The present monetarist economic management aims at regulating effective demand, not for the sake of full employment, but rather the opposite: in order to secure a certain maximum rate of growth in total expenditures or in total incomes—the two come to the same—or, if I may use a technical term, in the rate of growth of the money GNP. This is the real target. The growth in the money stock—whether you choose one definition, another, or a third—is only a proxy, and not a very good proxy, because, as experience of recent years has shown, the rise in the money national income consistently exceeded by 20, 30 or even 50 per cent. the growth of the money stock.

The rate of growth of the total money income, though it may be a true target, is not the same thing, of course, as what we or the public generally understand as inflation. Inflation is something that relates to the rate of increase in prices or in the cost of living. The rise in prices depends on the rise in costs, the costs of material and the costs of labour, and these can be influenced by the instruments of fiscal and monetary policy, meaning restrictive fiscal measures and higher interest rates, only in an irregular and highly uncertain manner. Restrictive fiscal measures, particularly when they imply higher taxes and higher charges, may have a perverse effect by causing an acceleration of wage inflation—as indeed happened last year.

The Government can, and do, make sure by their policies that the aggregate demand for labour be reduced, and goes on falling, and that wage earners shall be punished for asking for too much.

But this in itself may be unavailing in the light of what Professor Hicks called, in a felicitous phrase, "real wage resistance", by which he meant the workers' demand for compensation for the rise in living costs through an increase in money earnings. Hence, in order to succeed, it is not enough for the Government to reduce effective demand and thereby induce a slump in production and employment. They must break "real wage resistance", and this is the crucial factor in their whole strategy.

In order to bring down inflation, as the noble Lord, Lord Cockfield, I am sure will agree (because I read his speech of last week), pay settlements must be consistently lower than the prevailing rate of increase in prices and must be lower not only for one year but for a whole number of years in succession. Since "real wage resistance" is enhanced by this process, as well as being abated by the Government's policies, it is impossible to predict the outcome.

"Real wage resistance" is no doubt abated by reducing the workers' ability to resist.

This Government orchestrated a whole gamut of policies in order to reduce "real wage resistance". The cuts in employment pay, the cuts in benefits to strikers' families, the rise in numerous charges, of gas and electricity prices, of rents, of rates, and the contemplated tax on food, all serve this end, as well as the policy, to which my noble friend referred, of resistance to wage claims in the public sector as in steel, which has been claimed by some as a great victory. On the other hand, the militancy of the unions is bound to be enhanced as well by what they feel is a deliberate process by the Government of reducing their standard of living. One cannot reckon on the same cost-unconscious resistance to wage pressures in the private sector as in the public sector. In the public sector, Sir Keith Joseph may be willing to pay any price to get a victory in a strike, but in the private sector firms will not resist if it is too costly. Some of the policies of the Government—for example, the unfortunate idea of raising gas and electricity prices by 10 per cent. more than the rate of inflation, whatever the rate of inflation is—acts as a built-in accelerator of inflation in much the same way as OPEC acts as a world-inflation accelerator.

The cost of living will always rise more than in proportion to the rise in labour and material costs. In the ensuing tug of war between the trade unions and the Government—the one trying to reduce real wages and the other trying to prevent this from happening—it may well turn out, contrary to the expectations of all noble Lords opposite, that the road to 1984 will show a continuous acceleration of inflation and not a steady abatement. It may well turn out that we shall be made poorer and poorer and, at the same time, face ever faster inflation and fail to get benefit of ever slower inflation, for the sake of which we were asked to endure this self-inflicted poverty.

Before I finish with the subject of monetarism, I should like to take this opportunity of replying to the specific criticisms of my previous contentions by the noble Lord, Lord Cockfield—who I am glad is here at the moment—and also the noble Lord, Lord Harris of High Cross, who I am glad, is also present to hear it. The noble Lord, Lord Cockfield, made three main points. The first was that I had ignored the all-important time lag of two years between the rise in the money stock and the resultant inflation. The second is that I took no account of the changes of velocity of circulation; and the third point was that my selection of countries (to quote his own words) was "narrow and unrepresentative".

On the first point, I wish to assert boldly that the two year time lag is an invention; it has no basis in fact. The figures quoted by the noble Lord, Lord Harris of High Cross may have looked very impressive but they are an incidental consequence of two wholly unrelated events which dominate the two series from which his figures were drawn. The one was the introduction of Competition and Credit Control by the Bank of England in 1971 and the other was the outbreak of the Arab-Israeli war in 1973 which led to a four-fold rise in oil prices and also, in this country, to a wholly artificial and unnecessary wage explosion on account of the Heath threshhold agreements, the terms of which were drawn up before the Yom Kippur war supervened. Unless the noble Lords, Lord Cockfield, and Lord Harris, can present us with some causal link between the gesture of the Bank of England in 1971 and the Arab War in 1973, I shall continue to believe in what statistics show for the United Kingdom for other periods as well as for all other countries; that is, that the closest fit between the money series and the income series is found, not when there is a two-year time lag, or a one-year time lag, but when no time lag is assumed.

On the second point, I can only say that the change in the velocity of circulation automatically eliminates all discrepancies between changes in the money stock and the change in the national income. The quantity theory of money is thereby reduced to pure tautology, since "velocity" is defined—as I am sure the noble Lord, Lord Harris of High Cross, knows—as the reciprocal of the ratio of the money stock to income. Sharper minds than even those of the two noble Lords, such as that of the great Professor Milton Friedman, are of course aware of this, and for that reason have always insisted that it is the stability of the velocity of circulation, both as between different countries and as between different times, which is the ultimate proof of the causal role of money in inflation. To quote Professor Friedman's own words from the Lloyds Bank Review of October 1970 If the relation between money and income is a supply response, as Professor Kaldor asserts"— he was replying to me; that is how I come into it— how would he explain the existence of essentially the same relation between money and income for the U.K. after the Second World War as before the First World War, for the U.K. as well as the U.S., Yugoslavia, Greece, Israel, India, Japan, Korea, Chile and Brazil? The answer, of course, is that I could not explain it. Nor could he. For the relationship between money and income for all these countries is not at all the same. In fact, they could not be more different, as your Lordships will see when you look at the figures. Professor Friedman, as on some other well-known occasions into the details of which I do not wish to enter, invented the facts to clinch an argument, and relied on his reputation as an expert for being taken on trust without anyone bothering to check the figures.

The fact remains that in Switzerland four times as much money is chasing goods as it does in Britain; in Italy, Japan and Israel nearly three times as much; and in West Germany twice as much.

None of this is in the least consistent with the monetarist doctrine, as indeed Milton Friedman—though not perhaps the noble Lord, Lord Cockfield—would have been the first to acknowledge.

On the third point raised by the noble Lord, Lord Cockfield, I agree that my original selection of countries was narrow but not that it was unrepresentative. I have now extended my researches to cover a much wider group of 10 leading countries and, as I could hardly ask your Lordships to listen to any more figures from me on this subject, I have done something else. I have placed a copy of a summary of my results in the Library and asked the Librarian to show it to any of your Lordships who would care to look at it. I think you will find them pretty conclusive both as regards the first and the second criticisms of Lord Cockfield.

If the Government's economic strategy is thus no different from a perverse or inverted Keynesian strategy, their underlying philosophy—which is ultimately far more important—is no different from an inverted form of Marxism. The doctrine of Marx was that under the capitalist system, capital exploits labour; it appropriates as profits the surplus value which should belong to the labourer. Her Majesty's present advisers are equally convinced (and just as wrongly) that in the kind of capitalist system which developed in post-Keynes, post-Beveridge Britain, the situation is the very opposite. It is labour which exploits capital—too much of the surplus value is appropriated in wages and too little is left for profits. If Britain is to get out of the present mess (so runs this argument) this situation must be reversed, or at least the balance must be redressed. And it can be redressed only in making Britain more like Hong Kong and less like the proletarian dictatorship which some people imagine it to be.

I am conviced that those who hold these views have a fundamentally false approach to our problems. There are countries in the world which are quite unlike Hong Kong and quite unlike Soviet Russia, and which have made a remarkable success since the War of the kind of economic and social system which Keynes and Beveridge were dreaming about for post-war Britain.

I am thinking of France, for example, whose pre-War economy showed much the same symptoms of decadence, and was beset by much the same kind of difficulties as Britain is now: the mutual antagonism, or even hatred, between the managerial class and the working class; large-scale unemployment, obsolete and decaying industries, stagnant production, endless recriminations and a much diminished loyalty to the interests of the nation as a whole. There were many Frenchmen (like Main) who thought it more important to defeat Blum and to teach the French workers a lesson than to defeat Hitler. After the War a great cooperative effort on all sides, long-range central planning by the Government, combined with the nationalisation of all major banks and insurance companies that was a very important feature—made it possible to invest and to modernise industries on a very large scale and to achieve over several decades very fast growth rates leading to a state of general prosperity (France is not so very far my Lords, and you can go and see for yourselves) that is widely spread among the community, and which is in sad contrast to ours.

Those who know anything about France and about the way French industries, particularly nationalised industries, are managed would not say that Britain's failures are to be laid at the door of the trade unions and the workers generally and not to the failures of leadership and management. France is run by technocrats. Men like Marcel Boitieux, the head of Electricité de France, or Pierre Dreyfus, who built up the nationalised Renault Company into the largest and most successful motor car producer in Europe, have no equivalents in this country; and even if they did, the system would never allow them to get there. I am sure they would not be included in the confidential list of the "Great and the Good" which the Civil Service keeps for the use of Ministers and from which all such top appointments are selected. Until we get a fundamental change at the top, we shall never succeed. Bringing the working classes to their knees—which is the real raison d'être of monetary targets and all that goes with them—will only make things worse. This is a lesson that is not easily learned. It took the French a full-scale military defeat and four years of Nazi occupation to learn it.

5.22 p.m.

Lord JACQUES

My Lords, I will not try to follow my noble friend. I find it astonishing that a Government which are so committed to supporting the family should propose a child allowance of 45p less than the index-value, and at one and the same time allow the bankers to retain what the Chancellor himself described as a "windfall", which has nothing whatever to do with either efficiency or enterprise. That will rebound back upon the Government themselves. In the same way as night follows day high profits are followed by demands for high wages and salaries. Wages and salaries are increasing at a tremendous rate in the financial sector and that will give a new basis for comparison elsewhere, and consequently it will feed inflation.

The Government's strategy is failing and will continue to fail because it is based on a number of assumptions which are either wholly or substantially invalid. First, there is the assumption of free competition. We all know from the most casual day-to-day observations that it is possible for a trade union or a combination of trade unions to negotiate a substantial wage increase, and for the company or companies concerned to pass that on to consumers by increasing prices. That is not free competition; that is the exercise of monopoly power. The only place where we have a great element of free competition is at the international level. There we have some element of free competition, certainly more than we have internally. What is the position there? Despite North Sea oil we have a huge deficit on our current account.

Secondly, there is the assumption, which was referred to by my noble friend Lord Lee of Newton, that unemployment will inhibit wage demands. Well, it would at one time, when the workers were not organised, when the play was upon the individual. But now, when the workers are organised, unemployment is much more likely to create militancy and lead to overmanning. And of course, in the kind of society in which we live, one man's increase in wages can be another man's increase in unemployment.

Then there is the assumption, which is held not only by the Government but by almost everybody on the other side of the House, that our public expenditure is excessive. As my noble friend Lord Lee of Newton pointed out, the latest Annual Economic Review by the Commission of the European Community points out that the proportion of our national income which is devoted to general Government expenditure is lower than in any EEC country. In our case it is 43 per cent.; in the case of France and Germany it is 46 per cent.; in the case of the Netherlands it is as high as 58 per cent. But, what is worse, we are neglecting public investment. The same report points out that our public investment as a proportion of our GDP is less than that in any other country in the Community. It further points out that the average for the Community is 4.5 per cent. whereas, our public expenditure is only 3 per cent. of our GDP.

Our Government are not satisfied with that. These figures refer to last year. Our miserably low figure of public investment last year is now being reduced by a further £554 million in 1980–81. Who suffers for that? In the short run it is the private sector, which is the main contractor for this expenditure, which will suffer. In the medium term and the long term it is the community which will suffer, with less expenditure on hospitals, on schools, roads and railways, on harbours and airports, which is what public investment is about. We will suffer in the medium and the long term as compared with other countries. They are so far ahead of us in the amount that they are investing in the future that if we are not the poorest country in Europe this Government are certainly going to make us so within a very short time.

I should like to say just a few words on education. In the next few years we are going to see a substantial change in the number of 5- to 16 year-olds attending school. There is going to be a substantial decline such as we have never seen before in the number of 5- to 16 year-olds going to school. That gives us an opportunity. We will have accommodation available which we can use for nursery education at one end and for training for industry at the other end. So we have got an opportunity with a minimum of expenditure. But what is happening? Let us take nursery education. Next year there will be 40,000 fewer children in nursery schools than there were in the previous year. That is the way in which we are taking advantage of the circumstances which are coming up.

When the right honourable lady the Prime Minister was at the Department of Education there was a fierce campaign on her part for nursery education. In her White Paper of 1972 she figured that by 1981 there would be 90 per cent. of the four year-olds in nursery schools and 50 per cent. of the 3 year-olds in nursery schools. But what is the position? This Government contemplate that by 1982 the figure will be only 35 per cent. We are not awake to the changes and the possibilities that are coming as a result of the change in the birth rate.

Let us consider the assumption that, when incomes and wage demands are too high, we can claw back—all one has to do is increase the cost of electricity, gas, prescriptions and so on. That, my friends, is nonsense. It occurs only for one year, because the charges for those services go into the retail price index and increase the retail price index, and in subsequent years wages are based upon that index. So, we do not claw back effectively: all we do is delay for one year.

Let us look at the high interest rates and what they are doing. They are crippling industry and in particular the small firm. It is well known that the small firm is generally overstretched. It may be quite solvent, but it usually has cash-flow troubles because it is trying to walk before it can crawl. High interest rates play the devil with that kind of firm. Consequently, if the high interest rates continue, many will find it necessary either to go bankrupt or to sell to larger companies at knockdown prices. The present Government are supposed to foster the small firm. They are not fostering it with their present financial policy.

The volume of goods and services available is equally as important as the amount of money that is available when it comes to deciding inflation. If we are to increase our productivity, then the surest way of doing so is by increasing our investment. However, with high interest rates we are inhibiting investment. If they continue they will cripple our industries. Moreover, our interest rates are maintaining the pound sterling at a value in excess of its internal value.

Consequently, our exports are dear and our imports are cheap, with devastating effects upon our current account balance and upon the base of our manufacturing industry. Those are the results of Government policy.

However, there is one more fallacy, one more false assumption to which I should like to refer. There is the assumption that it is possible to ignore the trade union movement: that all we have to do is to allow free collective bargaining and forget the trade union movement. That is not on—"things ain't what they used to be". Nowadays it is the moral duty of any Government to have close contact with the trade union movement because of its strength and its influence. It is for any Government, in having that close contact, to use their influence to get wages determined by profitability and productivity on the one hand, and by skill, responsibility, dirt, danger and other such matters on the other hand; and to try to get the movement to avoid wages being determined by ability to disrupt the economy and to inconvenience the public. If the unions are to be persuaded, it can only be done by public opinion. The Government must lead that public opinion, and they should be on as friendly and as close terms as possible with the trade union movement.

What we have not realized—certainly the Government have not realised it—is that during the post-war period there have been fundamental changes in our institutions in the economic scene. There has been a strong tendency by both employers and employees to develop monopoly powers. As a result of those developments it is absolutely essential that we should have a permanent, but flexible, incomes policy. With such a policy, this country can be one of the richest in Europe; without it, it will continue to be one of the poorest. That is the nub of the problem. I do not care what the colour of the Government is. Unless they are prepared to seize that problem, they will not succeed in bringing Britain around to where it should be.

Viscount MASSEREENE and FERRARD

My Lords, before the noble Lord, Lord Jacques, sits down, I should like to ask whether he would agree that the high exchange rate is due not only to high interest rates, but to our income from oil? That makes the situation difficult. It is not entirely due to high interest rates.

Lord KALDOR

My Lords, with respect—

Lord JACQUES

My Lords, in my view the interest rate is the greatest factor. I think that we shall probably find that out shortly because the interest rate will probably come down, and then we shall see a change in the rate of the pound.

Lord KALDOR

My Lords, would my noble friend Lord Jacques agree—

Earl FERRERS

My Lords, with respect, I think that the noble Lord, Lord Jacques, was asked a question at the end of his speech. This is not a Committee stage and I think that it would be right for the noble Lord, Lord Harris of High Cross, to continue.

5.37 p.m.

Lord HARRIS of HIGH CROSS

My Lords, it was no doubt somewhat foolhardy for me to think of emerging from the no-man's-land of the Cross-Benches to intervene in what I thought would be a fair old party political dogfight. Indeed, I thought, until the noble Lord, Lord Kaldor, spoke, that the argument was conducted with all of the usual decorum that marks debates in your Lordships' House. The noble Lord certainly injected a great amount of vigour, passion and invention into your Lordships' proceedings. We shall look forward to looking at his latest submission in the Library and coming back to trying to sort out some of his difficulties in understanding the monetary propositions in forthcoming debates.

There are great difficulties in measuring in a consistent way the monetary magnitudes and there are very great difficulties and subtleties in comparing their operation from one country to another. It will not do to try to dismiss these substantial propositions that are basic long-term historical trends and truisms by picking up some statistics from different countries and bouncing them around in that way.

Reverting to the Motion on the Order Paper, no doubt the words of Adam Smith come more readily to me than to some noble Lords. But, when I first read the Motion with its talk about deploring the incompetence of Her Majesty's Government, I thought of a forerunner of the noble Lord, Lord Peart, who in the 18th century was apparently deploring the performance of the Government of the day in somewhat similar terms and said in Adam Smith's hearing, These Whig dogs will he the ruin of the nation", to which Adam Smith in his rather phlegmatic way said, Sir, there is a deal of ruin in a nation". It seems to me that when the noble Lord, Lord Peart, in his Motion at any rate, talks about deploring incompetence, he would have to agree that there has been a deal of incompetence in the performance of all recent Governments in the matter of economic policy which he puts forward. It would be more convincing, to me at any rate on the Cross-Benches, if, when he pointed his accusing finger at the Government, he was more ready to acknowledge the unwitting contribution that he and his own colleagues had made to the long-familiar ills which this Motion lists before us.

I am in some agreement with the noble Baroness, Lady Seear, because it seems to me that it ought at least to be common ground between all of us in this House that our problem is compounded of two quite distinct elements. I do not want to follow the noble Lord, Lord Kaldor, in his medical analogies too far, but it seems to me that, first, there is a longterm structural ailment of relative economic decline. This is notably indicated by poor productivity of labour, that is seen especially in the old staple industries, where, I think significantly, the dear old, antique British trade unions have become most strongly and stubbornly entrenched. That is a long-term structural problem, and on that matter I agree at least with the noble Lord, Lord Kaldor, though we disagree somewhat in our diagnoses. We may even agree that it has some relationship to class, but whereas the noble Lord has frequently said that this decline owes something to the objective facts and frictions of class, it is often seen by me, watching the party dogfight, as owing a lot more to the stimulation and stirring up of subjective class sentiments.

But it has been the attempt to escape from this long-term secular, chronic weakness by monetary stimulus that has added a second and acute problem, which is the disease of inflation. The problem is that these two afflictions of secular decline and inflation call for conflicting remedies. To enliven the economic performance would call for expansion—the attempt to galvanise effort, enterprise and investment, about which the noble Lord, Lord Jacques, spoke—substantially by reducing taxation, particularly on earnings, whether wage earnings, salary earnings or even earnings from investment.

On the other hand, to subdue the fever of inflation requires a curb on total spending. The only way to advance on both fronts, stimulating output and curbing total spending, might be for the Government to make much more far-reaching cuts in public spending than have so far been possible, so that at the same time they could reduce taxing and borrowing and avoid excessive printing of money.

As the noble Viscount, Lord Eccles, said in his most eloquent speech, the Government have correctly given priority to their battle against inflation. In doing so, they are broadly confronted with two choices. The first is shock treatment. I noticed from some recent writings of the noble Lord, Lord Kaldor, that, for purposes of exposition at any rate, he is now in something of an unholy alliance with the Nobel Laureate, Professor Hayek, in saying that shock treatment might be the best way to put monetary policy to the test. The alternative to shock treatment is the more Fabian approach preferred by Professor Milton Friedman—the Fabian approach that the Government have chosen—which relies upon the inevitability of gradualness in monetary prudence.

It seems to me that it is perfectly clear that the noble Lord, Lord Kaldor, is right in this matter, that shock treatment could work if we stopped any printing of money. But in that event it would work only by concentrating all the necessary adjustments in wages, contracts and incomes into a very short period indeed. For the nation to tolerate that degree of shock would require a rather larger amount of consensus between the two sides in politics than alas! exists. Actually, it would require nothing more, in my view, than that the Labour Party in Opposition should continue to affirm the truths on which it acted when in power, when Mr. Healey, after 1974 and despite the oil crisis about which we heard from the noble Lord, Lord Kaldor, got the inflation rate inherited from the previous Conservative Government down from 25 per cent. towards single figures over that period.

Therefore, I think that the Chancellor is right in concentrating on his monetary policy over a period, and I congratulate him on the monetary plan of trying to phase-down inflation over a three- or four-year term. That seems to me to he correct. My only concern is that he should aim at the lower end of his targets as he goes along, so that by about 1982 he is on a monetary expansion of around 5 per cent. rather than his range of 5 per cent. to 8 per cent. or 9 per cent., because it is what happens to monetary policy in 1982 that may determine what happens to inflation in that most portentious year of 1984.

The noble Earl, Lord Ferrers, and others have lamented the rise in the national debt, the cost of servicing it, and the level of rates of interest. I do not know whether in a debate of this kind I am allowed to offer what I think is a constructive suggestion or contribution. But I shall suggest that the reforming Chancellor of the Exchequer might consider a further innovation to add to those which he has already introduced. It is the issuing of indexed bonds. It seems to me that if we share his confidence that over a period the rate of inflation will be brought down, it is clear that the rates of interest will also decline with a reduction of the borrowing requirement. In that case all the more should we see the folly of continuing to issue long-term Government stock at 15 per cent. interest, which will have to go on being paid when inflation has abated.

As an all-party gesture, I should like to suggest that he might take a leaf out of Dr. Dalton's book. If noble Lords will cast their minds back to the post-war years, they will remember that Dr. Dalton introduced a 2½ per cent. bond. Let the Chancellor issue a 2½ per cent. bond, but let him tie its value in future years to some appropriate index of prices, and then let him offer those bonds to open competitive tender. There is no difficulty in predicting that they would move to a substantial premium. If the Government succeed in bringing down inflation against the expectations of the noble Lord, Lord Kaldor, and others, indexed bonds would save taxpayers from financing debt at high interest rates in the years ahead. Where Dr. Dalton's bonds slumped to 20 devalued pounds per £100 of original 1947 value, Sir Geoffrey's new bonds would, in my view, not merely retain their full value, but would involve a diminishing cost to Government as inflation is brought down. So in place of what became known as "Dalton's Duds", Sir Geoffrey Howe's new bonds might win him fame and becoming immortality as "Geoffrey's Gems"!

5.47 p.m.

Lord DAVIES of LEEK

My Lords, we are grateful to the noble Lord, Lord Harris of High Cross, and I hope that he will pop in a little more often to give us a few of his talks and some of his authoritative information. We may not agree with all of it but certainly, if I may say so without sounding pompous, the idea of an indexed bond, and the way in which he approached his speech today, were valuable to the House.

Today we are debating and asking questions about the fact that we deplore the incompetence of Her Majesty's Government. Have the Government been incompetent, and can we show—and spike down a point—where they have been incompetent? That is pretty easy to do as we go along. The conducting of their domestic policy is resulting in increasing information, which is inflation. On the medical side it is information, but on the economic side it is inflation. There is no doubt that that has taken place since the Government have come to power. I found that out this weekend, when I had to tax a couple of cars, when I had to pay my water rates and my ordinary rates. I discovered a marvellous economic point—that although my income tax is to be reduced a little, I am paying a hell of a lot more for my water rate, my local rates, my petrol and my cars. Life is becoming more difficult day by day. I am losing weight daily as a result of this Government I being in power.

The other point is the continual industrial decline. I could bring up masses of figures. My noble friend Lord Lee has brought up the figures and so have others, so it would now be a redundant factor to reiterate those figures which we all know about concerning the industrial decline and the increase in unemployment. We have discussed many times before the deterioration in the balance of trade. We must remember that we are living in a world of old machines. We had 289 steam engines before the rest of the world had any. I think we are still using those 289 the way that industry is going! I have seen shipbuilding in Japan, Korea, the Far East and places where they have the benefit of the use of modern machinery, but we in Britain are not realising what we are competing against. You get the silly idea that the Far East is living on a handful of rice. Nothing could be further from the truth these days. We had better kill that ancient idea of the great bloated influence of Great Britain alone. There is a deterioration in the balance of our trade in manufactures.

Through the brilliance of the market at home in insurance, in shipping, our invisible exports are holding their own, and we can be grateful to the businessmen and the people who understand the international system of commodity working that we are doing something there to get a balance in our payments. The great economic fact is that so far as sale of manufactures and goods overseas is concerned, for 200 years we in Britain have never been able to balance our actual exports with actual imports. Without the invisible trade of insurance, tourism, et cetera, we would never have had a balance in our trade.

The strange thing is that I have just entertained five Americans today. Having bought them a cheap drink I very tenderly passed around and said, "What do you feel about Britain today?". They said, "It is much dearer than New York. Your theatres are more expensive to go into. Staying in your hotels is a rip-off". The greediness of people is not helping this Government or any Opposition in the real greediness of making the maximum out of tourism in this country and taking them for a ride. In other words, it is true that there must be a change whichever side of this House we are sitting today. Unless there is a change of heart in our people, in their attitude to buying and selling and the entertainment of overseas visitors, we can easily destroy the tourist industry, which earns us more than our motor-car exports. That is a point that you might put above a party point at the moment.

Now let me come to the noble Earl, Lord Ferrers. He was saying that he has reduced my income tax a little. So he has. But look at the increase in local rates! I have had my rates bill, and I looked at what it is now and I know what it is going to be next year, and I know what is happening to me with the increase in value added tax. Let us be honest about this; it is these things, despite the little that I have had taken off my tax, that enable the Government to make massive tax reductions for people in higher income brackets.

In the Guardian today Simon Hoggart reports on the lady, Mrs. Thatcher, who is making history—let us be fair to her. After her first year of office his first assessment is that her style of government is an "intensely personal style". This is to be expected. But by the use of a vulgar street phrase, which I will not use, he implies in the Guardian that she creates a "sudden terror" around the people who are near her. Unfortunately—or I would say fortunately—she displays a cleverness that she likes to be acknowledged. One of her Cabinet allegedly said, "She has made up her mind before she discusses anything". Now that is a clever ploy. But one thing that is demonstrably clear is that the lady is a very able and clever woman, but she lacks what Solomon asked for, wisdom, and that comes long before cleverness in the gamut of man's real achievements. All this gives this lady difficulty with the so-called Tory "wets" in the Tory Cabinet. I hope that some "wets" will be around; which really means men and women of ability in the party who have the courage to criticise leadership when criticism is needed. Thank goodness we had quite a lot of it at one time when I was chairman of the Bevanite group many years ago.

To quote Hoggart again on the TV appearance—now, no leader of a party should do this—she said that Jim Prior, whom I am very fond of as an able Member of the party opposite, "was very, very sorry indeed" for having expressed the views to industrial journalists that it would be a very good idea if Sir Charles Villiers were to go. Certain lessons must be learned even in this great Conservative Party, which is one of the great parties of British history. Prime Ministers are not expected to criticise Cabinet colleagues on television. Loyalty is a two-way stretch. Nevertheless, despite this, one must be fair to her and say that she is, more than most Prime Ministers of the past, making herself available to Back-Benchers.

You might ask what has this to do with the resolutions we are talking about today. It has very much to do with them. We are in this trouble very much because of sycophantic following, before discussion, of the United States of America's policies. Those of us who have been around America during presidential elections must beware that great nations like this, or European nations, are not drawn into the hysterical atmosphere that is created during elections in the United States. It has an effect on this country, because you are suddenly talking as though a nuclear rearmament is as easy as possible to the tune of £6,000 million. What is the meaning of all the economic discussions we have had, all the algebra and the calculus of economics, when they leave out that we are going to spend £6,000 million on rearmament? We shall be in a bigger jam than ever.

You say, "What do you want? Complete pacificism?" No, I am not taking that position at all. I want us to look at the realities. The realities in the final analysis are that we shall come to what I call the axiom of the acquisitive society, which has not yet learned how to achieve full employment without either preparing for war or being in a war. That is the history of 100 years of modern society. War, colonial activity, has always been able to export a revolution. Mankind must find the answer to this, or in the nuclear age all our talk is simply pillars of cloud.

Now I think I shall cut out 10 more minutes of what would have been a pretty good speech. I have been speaking for 10 minutes, and 15 minutes is long enough. The truth is that there is a danger—this is the fact—of a new right-turn that we thought we had destroyed in British politics. I am afraid of it. I would not like to see a white collared fascism. Now do not let anybody think that I am accusing the party opposite of that. I am not. I would not think of doing it. But if we are not careful, and are driven into the miserable aspect of 3 million unemployed, it could happen. I will now say something else. As a young man struggling for scholarships I saw in Wales the miners—fine lads who went to the sixth form of the grammar school with me—standing derelict on street corners, with IQs that were as good as any in the Mensa class.

I put this forward now for all of us on both sides of the House to learn. It is that the young men and teenagers of today will not put up with the misery of mass unemployment that we put up with 40 or 50 years ago. The warning is there with the motor-cycle youths and the people we had trouble with the other day in Bristol. They want something, and at the very time when they are wanting it, what are we doing? We are cutting grants to universities, cutting scholarships and cutting rural education. That right turn must be changed.

Many have paid tribute to the noble Lord, Lord Carrington, and I join in those tributes. I hope the noble Lord will have as much success in the foreign field—and we need it—as he had with Zimbabwe. Although I could, I will not develop that argument because I said I would stop after speaking for 15 minutes. I hope he will have the opportunity to play an important part in our general relationship. I do not want to wander into the subject of foreign policy—we will debate that on another occasion—but I thought it was stupid for the United States to tell a great nation like Russia, "Get out of Afghanistan by day 28 or else". Or else what? Blow up the world? That is why we want men with diplomatic ability, the sort of ability shown by the noble Lord, Lord Carrington, when he was working in the African situation. That is an honest tribute to the party opposite. We must find an answer to this problem or, as I said, today's debate will just have been bubbles.

When we ask questions about the success or otherwise of this Government's policies they tell us they are succeeding, but how can we be sure of that when, for example, the Manpower Research Group of the University of Warwick have said that unemployment is rising and will rise to between 2.7 and 3.3 million by 1985?

My final point—noble Lords will be pleased to hear that—follows from what the noble Lord, Lord Underhill, said. We are calling people scroungers, but what are the facts? Tax fiddles cost this nation £3,750 million a year. The average family could be paid about £6 a week more were it not for the massive scale of tax fiddling that goes on in Britain. It goes on unchecked, or it would do were it not for the checking that is done by the members of the Civil and Public Services Association. However, at the very time when such checks are so important, the Government are cutting the staff of the Inland Revenue by about 5,000. If we could save £3,750 million a year by maintaining the staff of the overworked Inland Revenue, it would be worth it to the nation, and there cannot be the slighest doubt about that. These facts do not come just from me. They are facts supplied by the Inland Revenue's Civil Service union and the inspectors themselves. Rather than making a commotion about scroungers who are unemployed, we should be working in real depth to try to solve this problem of tax fiddling. I said I would speak for 15 minutes. The figure 15 appears on the clock and noble Lords have listened to me for long enough.

6.4 p.m.

Lord BOWDEN

My Lords, it will be difficult for me to follow that speech by my noble friend Lord Davies of Leek, and at the outset I want to return to the original Motion. We are criticising the Government and I wish to criticise them, as I have on previous occasions in this House, not so much for their failure to cure inflation, which will be an extraordinarily difficult thing to do anyway, but for their failure to cope with some of what one might call the by-products of inflation which have of themselves been extraordinarily dangerous to the community at large. In fact, I have often thought that some of the remedies have had effects far worse than the disease. I ant reminded that when King Charles II was dying his doctors bled him, blistered him, gave him purgatives, applied leeches to him and kept him awake all night. In the end the poor man complained that he was too long a time dying, and one can understand why he was anxious to be gone once his doctors really got at him. I have often felt that some of the actions of the present Government in dealing with inflation have been just as unhelpful.

Regarding the curtailment of public spending, this seems to be a splendid idea, but then one thinks how it works. I referred on the last occasion when I spoke in your Lordships' House to the appalling decay of the infrastructure of much of the North-West, which I know a lot better than I know London; the decay of the roads, the decay of the sewers, the decay of the water supply, the decay of the electricity network and the decay of the aqua system underground which works in conjunction with the reservoirs. This decay is going on all the time, but meanwhile there are unemployed civil engineers who could mend these antique remnants of our culture of 100 years ago.

I have often felt that the Government never do their sums properly. When one works out the cost of mending, say, the sewers, drains or water supply, one must include in the calculation, if one is to do it properly, the fact that the men who might be doing it will no longer be drawing the dole, that the machinery they will be employing will no longer be rusting away, that the gravel pits which are now standing idle will be being worked, and that limestone will be being burnt in the Peak of Derbyshire to provide the cement. In other words, the difference between the apparent cost of the work and the true cost to the community is probably very slight, but the benefits which accrue are very great. Any sensible Government trying to economise on public expenditure might try to work out what is the best buy, and I suspect that the best buy is often the crude, perhaps rather unexciting, renewal of the vitally important infrastructure of a great deal of our industrial community.

The great civil engineering firms recently visited the Secretary of State, Mr. Heseltine, and found that he was willing to cut even more from their estimates than had previously been done, and we must remember that these great firms have no other employer than the Government; so when the Government cut expenditure, they cut capital works of enormous importance and allow the cost of not doing the work to be borne by the men who might have done it, as well as the people who suffer from the increasing decay of the various parts of the structure on which they ultimately depend.

Here is a case for a different type of calculation than the Government, any Government, have ever undertaken, and I believe that attempts to suggest that we are saving money while these various things are fast getting worse are grossly misleading because of the way in which the calculations are done. I beg the Government to contemplate the idea of working out the true total cost to the community of these various works instead simply of saying that total expenditure is being cut. It may turn out that it is costing us more money not to do the work and then have to do it when it gets worse.

My second point is that the accountants have recently announced that they are to introduce their latest exposure document as a regular system of accounting, and on the basis that calculations are done allowing appropriately for the effects of inflation, the consequences for industrial profits as announced are quite extraordinary. For a very long time most of our industry has announced profits 50 per cent. more than it has actually earned, if the companies concerned made appropriate allowance for renewing their various machine tools and all the other equipment in their factories. Last month I came across a particular account, which several of your Lordships may have seen, for a firm which announced two sets of figures. On the one basis of the historic cost which it had hitherto had to use it made a profit of £16½ million, and on the other basis, making what it felt to be an appropriate allowance for the effects of inflation on its operations, it lost £4½ million. That is an absolutely astonishing change, and the question which the Government must earnestly ask themselves is, what is to be done, and how are we to cope with the fact that a very large profit is being converted into a fairly substantial loss as a result of a change in the method of accounting which reveals for the first time what has actually happened to the firm.

I have discussed this matter with your Lordships many times. It is a very complicated matter, but it becomes very relevant because about a week ago the accountants finally announced the system that they are to use. The question I pose to the Government is this. Is it possible that we have habitually and for many years been charging firms on the basis of profits that they have not earned, making them distribute their assets in the form of dividend as well as taxes? Furthermore, is it not possible that for the last 20 years we have had a capital levy which in effect may be the prime cause of what we call the English disease?

How can any industry anywhere survive if it is always being made to pay out taxes and dividends which it has not earned? The money can come only from capital. Therefore, I say, as I said to the noble Lord, Lord Cockfield, when he last replied on behalf of the Government in regard to a similar topic, we have had a capital levy—an enormous one—and it seems to me that this of itself may be one of the principal causes of our industrial decline.

A few moments ago I spoke to your Lordships about the problems of the civil engineering industry. I should now like to show to your Lordships another aspect of the interaction between the two themes that I have just mentioned. I refer to the question of a shortage of moneys in the building societies. The building societies are getting in only about half as much money as they want, and they could distribute much more even than they are now being asked for. But for many years the building societies have in effect been engaged in transmitting purchasing power from the hands of the people who lent the money to the building societies, into the hands of the people who borrowed it from them. Anyone who lends money to a building society right now watches the real purchasing power of the money that he puts in gradually disappear. At the same time people who borrow money from the building society expect as a matter of course to see the value of the house that they buy with it increase very significantly.

This is properly said to be caused by inflation, but it is not simply caused by inflation; it is caused by a combination of inflation, which we cannot cure, and inflexible and ridiculous Treasury rules, which we could cure. The noble Lord, Lord Harris of High Cross, put the matter quite simply. He asked, why is it not possible for the Government to issue bonds at about 2½ or 3 per cent., guaranteed against inflation? The building societies could perfectly well borrow money at about 4 per cent., plus some part of the increase in the equity of the value of the houses which are built with their loans. I am quite sure that if they did that, they should be able to borrow all the money that they want. This is the point that the noble Lord, Lord Harris, made a few moments ago.

Similarly, people who borrowed money from the building societies would then have to contract to pay back not only a fixed-rate mortgage, but also some part of the increase in the equity of the house. If this were done, not only would money come into the building societies, but the total initial cost to the man who took out the mortgage would be very dramatically reduced, perhaps to about half what it is today.

Your Lordships might ask why has this not been done. The building societies are perfectly aware of the idea—they have been for years—but they run into flat opposition from the Treasury which points out, for example, that anyone who lends money to a building society in this way, and then gets some increase because of the increase in the value of the house which is bought with the loan, would be subject to capital gains tax. Furthermore, any contract to allow for the increase in the actual value of the mortgage as the value of the house increases would be ultra vires, for other obscure fiscal reasons.

So apparently we are to allow the building industry to collapse because of the obduracy of the Treasury and its refusal to cope with the fact that inflation is here, at least for the time being, and must be survived, while on the other hand we are to allow a large part of the main civil contracting industry to disappear because in working out the costs of the work that they are to undertake, we do not allow for the cost of not doing it or of the increased cost when it ultimately is done. After all, no one would indefinitely defer painting a house on the grounds that he would save money thereby, if he realised that the house would fall down if it were not painted sooner or later. This is substantially the situation which we have got ourselves into in the building trade.

So I believe that much of our problem is in fact man-made, in the sense that it is made by the Treasury and by the Department of Inland Revenue; yet we need not suffer from it. Although at this moment we cannot say how we can cure inflation instantaneously, I believe that we ought to work harder on the problem of coping with inflation until we can cure it.

That really is all that I ought to say, but I must not sit down without making one further observation, relating to the appalling effect on the whole educational system of the financial cuts which are being imposed upon it. I shall mention just one of the many points on which I could elaborate. When I was in Manchester I had a constant succession of civil engineers who came to my institution from countries all over the world. For example, one such engineer, whom I know very well, became the doyen of engineers in Malaysia and built a great many of the public works in that country. He wrote to me and said: I came to England and got a degree, and my sons did, too, but no one else will be able to do that". He added: What you don't realise is how much work has been steered in the way of English contractors by people who have graduated in England and gone back to their own countries, full of affection for England". I wrote to Sir Keith Joseph about this situation, and he demanded that I should quantify it. But, my Lords, if I attempted to quantify it, some wretched civil servant in, say, Malaysia would undoubtedly be jailed for it, because the only reason by which one can say that influence is brought to bear in favour of this country is that there is something over and above what I call the crude calculation of total cost in the contract. For very many years we have been enormously fortunate in that there was a time when our civil engineers went out and did work in what used to be the Colonies. Then the time came when they were the ex-Colonies, and we exploited the affection with which senior civil servants regarded this country. My own institution used to educate the engineers, much as the London School of Economics educated the politicians.

I remember once, at a conference in Moscow, that the director of the University of Moscow said that We in Russia go to enormous lengths to get students to come here from all parts of the world. We give them scholarships, we go and select them, and we do all we can to help them when they are here. We have in my institution students from 63 countries". I said: In Manchester we do nothing. We let students come if they want to, and we have students from 62 countries right now". It will be dreadful if we destroy what has long been one of our most important assets in an attempt to save money. The word "university" is sometimes taken to imply that an institution is universal in its range of interests. That is not so. The original definition of a mediaeval institution of higher learning was that it accepted students from all parts of Europe, which was the whole known world in those days. The universality of such a body is in the origin of the students rather than in the discipline which it teaches. It will do infinite harm to some of our most famous and best-established institutions if we attempt to keep out all students, other than those who can pay the extraordinarily high fees which are being demanded. It is ridiculous to ask the student to come to this country and pay a fee of £3,500 when he can go to France, Germany or Holland for practically nothing or to the United States for a quite small fee. The cost to this country in the long term may be very great indeed. It is unfair to accuse an academic of being ineffective if he takes the view that such matters cannot by their very nature be quantified.

The Government are confronted with the most appalling task, but they are making their own problem very much worse by their failure to grasp the fact that the effects of attempts at curing inflation may be far worse than even the inflation itself. Inflation of itself does not reduce the amount of iron in the earth; it does not reduce the efficiency of the mines or the steelworks; but the effects of attempting to cure inflation can make it impossible for them to work. I believe that the Government should think again about their technique for surviving inflation lest we be destroyed in attempting to save ourselves.

6.22 p.m.

Lord MISHCON

My Lords, it is customary in certain circumstances to thank a noble Lord who tables a Motion for having done so. I can well understand that noble Lords on the Government Benches did not want to commence their speeches by adopting that custom. However, I wish to thank my noble friend Lord Peart for having tabled this Motion and for the speech which he made in support of it. With the charm that makes him so popular a figure in this House, the noble Earl, Lord Ferrers, referred to your Lordships' House as being a very civilised place in which one can enjoy speeches even if one does not agree with them, a place in which speeches are accepted with intelligence and courtesy despite their possibly vitriolic political content.

Although I accept that statement, I should like the noble Earl to realise, as I am sure he and his friends recognise, that this Motion has been tabled with great seriousness. Because this has been a quiet debate, it does not mean that Opposition Peers regard the contents of this Motion as other than extremely serious. The Motion voices, in the view of the Opposition, the feeling which is being expressed by a great number of people who voted in the election to which the noble Earl referred. Many people are now taking a different view in regard to the votes which they cast at that time.

The Motion details a number of matters, and with your Lordships' permission I shall repeat them because, so far, no noble Lord on the Government side of the House has denied the truth of any of the matters complained of as a result of the Government's policy. I am not saying that the Government have done other than deny the charge of incompetence which is said to lead to these results, but I am sure the House will agree that the Motion sets out an astonishing collection of events.

The Motion decries the fact that Her Majesty's Government's policy has resulted in "increasing inflation". We all know that inflation has disastrously increased, and is increasing still further even in accordance with the Government's forecasts. The Motion refers to … continuing industrial decline, deterioration in the balance of trade in manufactures …". Indeed, the Government have forecast a decline in productivity and a drop in manufactured products of 3 per cent., to be followed by 4 per cent., and to be followed by possibly even greater percentages.

The Motion then refers to "increasing unemployment". I pause there for a moment, because it is impossible within the period of time which your Lordships' patience will tolerate at the end of a debate to seize on more than one subject and to do it justice. I wish in a moment or two to deal with the question of young people of this generation who are the lifeblood of the future of our nation and what they are being offered as the direct result of Government policy. I say categorically and without offence, but with every sincerity, that a Government who deliberately set out to create and increase unemployment are carrying out a wicked, inhuman policy. I shall seek to enlarge on that statement because of the disastrous effect of such a policy.

The Motion refers to the inability of industry to achieve necessary profitability". The friends of noble Lords opposite and indeed the friends of noble Lords on this side of the House who are leaders in industry in this country complain day by day of the high interest charges and the difficulties that face them over exports because of the rising value of the pound. The Government are producing policies which, it is said, are intended to bring back the sick patient to health—a metaphor which has been used often in this debate. At present the leaders of industry see no signs of a cure. Indeed, they themselves are feeling pretty sick because they are having to lay off workers whom they do not want to lay off and are having to create redundancies which they do not wish to create. That element must be considered.

The Motion ends by referring to … the erosion of the Welfare State". I need not pause for more than one second to elaborate on that matter, because we all know that the Welfare State has indeed been eroded. If everything that is detailed in the Motion is right, it surely deserves to succeed if we go to the beginning of the Motion which deals with an allegation that it is the Govern- ment's wrong policies, namely, their incompetence in dealing with the dangers that confronts us—and there is no doubt about those dangers—which have brought about these results. What an accumulation of results there has been.

I said that I intended to concentrate on the issue of unemployment. I do not wish to quote from speeches made by Members of my party in another place or from any speech that has been made in this House from the Opposition Benches. If I wanted to quote from any speech at all in that context, I should take the speech which was made by my noble friend Lord Lee of Newton. But in the course of that speech he referred, merely in passing, to an article which appeared in The Times yesterday. It was not written by a Labour spokesman or by a Liberal spokesman. It was written, in fact, by a distinguished servant of this country, Sir Bryan Hopkin, who headed the Government Economic Service and who was Chief Economic Adviser to the Treasury from 1974 to 1977. The article is headed: Is the Government blundering around in the dark? With your Lordships' permission, I will quote just one part of that article: … the Government has embarked on a policy of making unemployment high enough, for long enough, to break down the present scale of wage and salary increases and in this way eventually get the rate of inflation down and so change inflationary expectations. The first thing that needs to be said is that if this is indeed the policy it would be better if it would be stated frankly to the public. The second is to recognize that nobody"— and he underlines the word "nobody"— knows how much unemployment will be required to achieve any defined deceleration of inflation, nor how long it will go on. The knowledge to enable one to work out a balance of the costs and benefits of the policy simply does not exist. The Government is blundering about in the dark, …". I pause there, my Lords. This is not a Labour Party spokesman, I repeat; not a Liberal Party spokesman. This not a political diatribe, not a piece of street corner oratory; but the considered judgment of a distinguished servant of this country who specialised in the advice that he gave to the Treasury. He says: The Government is blundering about in the dark", and he goes on to say, for all its stance of firm and informed purpose. It is a matter of judgment what the costs in high interest rates and unemployment of a given benefit will be. My judgment is that if the policy continues to be operated as it is at present the costs will be heavy and prolonged". I turn from there to recollections of a debate in your Lordships' House which lasted for a day and a night. It was the education debate. I remember so well that the noble Baroness, Lady Young, almost made light—and I want to use the word "almost" with emphasis, because I wish to be fair—of the various economies that might have to be made in regard to the children in our schools who will he (if I may use the popular phrase) the generation of tomorrow upon whom this country will rely. She said that there would be economies, and she said that if the transport charges went through—and, as we know, they did not—then she imagined that there would not be any economies which might have disastrously to come in regard to the quality of teaching in our schools.

Again, I look—and this is no more than a couple of days ago—at the Sunday Times, and at what was said by their education correspondent. The Sunday Times I am reading from is the edition of 13th April: Warwickshire, for example, is chopping 295 teachers' posts, though falling rolls justify a cut of under 100. The result, in some primary schools, will be classes of up to 35 that combine two or even three different age groups. Northamptonshire, which already has one of the worst primary pupil-teacher ratios in England, will suffer a further decline, giving it one teacher to every 25 children. Manchester currently has one of the best ratios—one to 20.4—but this will decline to one to 22 by 1982 … Buckinghamshire, Bedfordshire, Ealing and Coventry are among the other authorities that are making significant cuts in pupil-teacher ratios. It's going to be exceedingly difficult for schools to maintain the curriculum', said Roy Harding, Buckinghamshire's chief education officer. 'It may not be possible to keep up standards. There will be problems in providing remedial courses. Some secondary schools may not be able to offer a second foreign language'. Even where cuts are purely for falling rolls, the loss of specialist teachers may seriously affect a school's curriculum". Then, under the heading "Books", he says: Widespread reductions in schools' allowances for books and equipment are considered even more serious by most teachers, coming on top of five years of austerity. In one Northamptonshire secondary school, a recent parent-teacher survey found that, in some first-year and second-year classes, up to 10 children were sharing one science textbook". That is the generation to come, upon whom we shall rely for scientific and technological knowledge, skills and jobs. In a Bristol comprehensive, the geography department cannot afford to buy set textbooks for a new A-level course, and maths, physics and biology are all struggling with out-of-date books". I could go on, but I promise to spare your Lordships any more quotations except that, in order to avoid any criticism that may come later that this is the result of the transport charges vote being lost in your Lordships Committee, perhaps I may point out that at the end of the article it is made perfectly clear that all these economics that I have mentioned were decided upon, and according to the education authorities had to be decided upon, when they thought that transport charges were in fact going to he made.

In terms of unemployment for young people leaving the schools, now deprived of many of the essential ingredients of education, we face an unemployment figure of 2 million, to become 2½ million, of which figure it is estimated that between a quarter of a million and something like 400,000, I believe, may well be young people leaving school. I say this, and then I sit down. If this is the policy of Her Majesty's Government in order to make the nation state, which is sick, and undoubtedly sick, well again, then all that they are doing is killing off in a most cruel manner, an inhuman manner, the best of our youngsters' chances, the best of our people, and they are pursuing a policy which deserves, not only to be criticised but to be condemned in your Lordships' House tonight.

6.39 p.m.

Lord ROCHESTER

My Lords, we are coming to the end of this debate, and the questions which are uppermost in my mind are these: Has it been justified? What purpose has it served? And what practical benefits will it bring? I should like to go along with the noble Lord, Lord Mishcon, in some of the things he has said about it, but I honestly cannot. I do not feel that there has been much justification for it, nor that it will prove to have served any very useful purpose. It must be the fourth or fifth debate on the present Government's economic and industrial policies that we have had since they came to power. Each time we seem to cover much the same ground and end in as much disagreement as when we began. The only difference this time, it seems to me, is that the debate is not on a Motion for Papers but on what amounts to a vote of censure on the Government, the outcome of which is predictable if only in view of the large, inbuilt Conservative majority in this House. We on these Benches will feel obliged to vote with the Opposition because of the number of points on which, as my noble friend Lady Seear, has said, we are in disagreement with the Government; but I shall take no pleasure in so doing, and certainly it will not be because I think that a Labour Government, were they now in power would be performing any more competently than the present Government.

When I read the terms of this Motion, my first reaction was: Who is talking? Surely, any disinterested observer of our proceedings would now expect that, in deploring the incompetence of the Government, the Labour Party would have credible policies to put forward designed to reduce inflation, to arrest industrial decline, to increase employment and business profitability and so on. Yet no such constructive approach is apparent from the terms of this Motion and, on several crucial questions, divided as the Labour Party is as between trade unions, the National Executive Committee and the Parliamentary Party, I am not sure at all what its policies really are. For example, we heard something today about incomes policy. I pay tribute to the noble Lord, Lord Lee of Newton, and to the noble Lord, Lord Jacques. Their views on this matter have been consistent over the years; but it can hardly be said on the matter that the Opposition speak with one voice. Similarly, we have heard of the need for a co-operative approach to our problems. But when, just over a year ago, we were in a state of near chaos in our public services and the Labour Government were implored by people on all sides of the House to consult with other parties about our predicament, there was then no willingness to adopt a co-operative political approach to our problems. Moreover, if the Labour Party is judged by recent performance—and there can be no better test than that—when they left office they left a residue of greatly increased unemployment and the prospect of higher inflation to follow.

As to the erosion of the Welfare State, it was again the noble Lord, Lord Lee of Newton, who, in our debate in January 1979, at the time of the lorry drivers' strike, went to the heart of the matter when in his forthright way he said that nowadays we are faced with demands on national resources that did not even exist; and that it was on that issue that the price of defeat was the virtual ending of the Welfare State. How true that was! It was in that same speech that the noble Lord advocated compulsory arbitration as the best solution in such circumstances. I noticed that the noble Viscount, Lord Amory, in a more recent debate, that introduced by the noble Lord, Lord Kaldor, only two months ago in this House, returned to the same theme when he expressed his strong belief that we shall never get wage negotiations on a fair and satisfactory basis until the principle of freely-accepted and binding arbitration is once more restored to repute and to acceptance.

We are still a long way from that happy state; but, as I have said before (if remember rightly, with some support from the noble Viscount, Lord Trenchard) I should like to see a start made by the Government of the day seeking to initiate discussions with representatives of employers and trade unions aimed at encouraging the establishment and observance of negotiating procedures throughout British industry, under which disputes which concerned agreements that had already been entered into are settled by arbitration instead of by industrial action. I should be grateful, if when the noble Viscount replies to this debate, he would say whether he retains sympathy with that objective and, if so, whether there is any prospect of the Government making any moves in that direction.

My Lords, on a number of points we agree with the Government objectives, and particularly, as my noble friend Lady Seear has already said, in the priority that they are giving to the need to reduce the rate of inflation. We cannot continue indefinitely through borrowing to consume so much more than we produce, thus obliging our children to repay debts that we have incurred. For this reason we accept that there is a need to reduce public expenditure; although in some cases we are troubled by the pace at which the Government are proceeding and also by the absence, as we see it, of sufficient discrimination in the means employed, and, indeed, not employed, to effect economies. Here perhaps I should like to say how much I agreed with the noble Lord, Lord Bowden, in what he said just now about the effects of reduction in Government expenditure on the recruitment of students from overseas, and how much, in material terms alone, this country has to lose (as I see it) from that approach.

I will mention only one other example—and that because it has been taken up by two or three speakers—and it concerns the steel industry. I, and, I think, my noble friends, will agree that there is a need for some restructuring of the steel industry. What is more, I feel that the changes that are now required would be a good deal less painful if the process had been started by the last Government. Now, however, there is a heavy price to be paid in lost jobs, particularly in areas of high unemployment, and the Government therefore bear a heavy responsibility to see that the necessary adjustments are made at a pace that does not produce intolerable social upheavals. The trouble is that it is the people at the bottom of the pile, and particularly those who are young and already deprived, who in the end are going to be most hurt by the unemployment that will ensue. It is on this count that I hope very much that the Government will learn the lesson of recent events in Bristol, and not least in the matter of the resources they are prepared to use in the next few years to help, for example, the ethnic minorities in our inner city areas. To that extent, at least, I go along with what the noble Lord, Lord Mishcon, had to say just now.

What concerns us on these Benches more than anything else about the Government's domestic policies is that, as a nation, we are continuing to pay ourselves vastly more than we can afford, not merely in increases in wages and salaries but in the elimination of jobs that such increases inexorably will bring in their train. On a number of occasions, I have spoken of the urgent need to establish agreed, long-term procedures designed to influence the general level of pay settlements, and also for discussion in some appropriate forum involving representatives of Government, employers and trade unions from which a wider public understanding can be gained of the effect on the economy of pay rises that are not matched by corresponding improvements in productivity.

When last I raised these points, in the debate which the noble Lord, Lord Kaldor, introduced two months ago, it was the noble Lord, Lord Cockfield, who said that we already had the National Economic Development Council and the Government seriously doubted whether there was room for the creation of an additional body. The difficulty about using the NEDC for this purpose is that its deliberations are not publicised sufficiently widely to have the educative effect that is required. On that occasion, too, the noble Lord, Lord Cockfield, said that the other partners in the NEDC were understandably suspicious of the usefulness of such discussions, and if progress was to be made then it would have to be made slowly.

My understanding is that the CBI and at least elements in the trade union movement are still anxious to proceed down that road, both in an educative way and procedurally, to the best of my knowledge. For example, the CBI wishes to shorten the period of the annual pay round, reduce the number of bargaining units in industry so they relate more closely to common interest groups, and arrange for pay claims in the public sector to be dealt with at the end of the pay round so that settlements take account of those in the private sector which have to be dealt with in accordance with competitive market pressures. The fact that there are difficulties in the way does not seem to me at least to be an adequate reason for not trying to make headway. When the noble Viscount replies to the debate perhaps he would be kind enough to say whether the Government are at least prepared to make some move in this direction.

As to the practical benefits that today's debate will bring, I fear that it will contribute little to the solution of our problems again, because the Motion before us has been couched in negative terms concerned solely with what is thought by the Opposition to be wrong Government policies without at any point re- cognising the difficulties that would now confront any Government bearing the responsibilities of office. Here I very much agree with what the noble Lord, Lord Harris of High Cross, had to say.

For my part, I continue to feel that in default of any change in our electoral system we will not solve our problems until all the political parties are prepared to come together to confront them. Even now, there is however one proposition on which it may be that there will be a measure of agreement in the House: that relates to the urgent need to improve our relatively low productivity, if only because as a trading, nation and at a time when we are moving into deep recession, worldwide, our need to remain competitive internationally means that new job opportunities will have in general to follow and cannot precede such an improvement. I was glad to see the validation of this proposition in practice earlier this week. It is only about 15 years ago that Sir Arnold Weinstock was vilified for the strong action that he took in reducing overmanning in the General Electric Company. It is good to see that productivity in that company has now improved to the point where, in the face of stiff competition from France and Germany, an export order has been landed which will have the effect of safeguarding hundreds of jobs for years ahead.

I think that I have spoken for long enough. I end by saying that it is only possible in this House for us to talk and pass legislation—often, I fear, with inadequate knowledge of what actually goes on in the real business world. At least in what we say, and the way in which we legislate, I hope we may be guided by the principle that we should do all we can to help those in the front line of industry to fulfil its basic purpose; namely, the efficient production of goods and services for the benefit of the whole community.

Baroness GAITSKELL

My Lords, before the noble Lord sits down, may I ask him, after his rather deflationary speech, criticising in undertones and overtones the Government and the Opposition, whether he has a miracle cure for all our ills? Has the Liberal Party a miracle cure? Only a party which has a miracle cure at the moment can afford to be quite so superior as the noble Lord was just now.

Lord ROCHESTER

My Lords, I hope that the noble Baroness does not really think me to be so arrogant a person as she seems to be making out. The distinctive point about the Liberal Party policy—which may not amount to a miracle, but which is sorely needed, as I tried to indicate—resides in this point: our problems are now so deep-seated and intractable that neither of the major parties will be able single-handed to solve them, and it is only when we are prepared to come together that we shall have a hope of doing so.

Lord DAVIES of LEEK

My Lords, is the noble Lord aware—

Several noble Lords: Order!

Lord DAVIES of LEEK

My Lords, I am perfectly in order. Regarding the superior attitude—and I am looking at the Liberal debate—there was only one concrete suggestion and that was profit sharing. I am glad that the noble Lord has now qualified it. He took a very "uppity" hand by saying we had nothing to suggest.

Lord ROCHESTER

My Lords, I am obliged to the noble Lord for that compliment.

6.58 p.m.

Lord McCARTHY

My Lords, despite the feelings on the part of the noble Lord, Lord Rochester, that this has not been a very original debate, and that we seem to have been going over much the same ground, I have rather enjoyed it. I have also enjoyed the spread of the speeches which I found extremely interesting. There will be 13 speakers in this debate, eight supporters of the Motion of the Leader of the Opposition, two Members from the Liberal Party, and one Cross-Bencher. We are going to have three supporters of the Government two of whom are Ministers. So if we could decide on the basis of the voices on this Motion tonight I would have no doubt about the result.

At this late stage I should like to do three things. First, to seek to try to narrow the area of the dispute between us. I always try to do that in order to explore the real differences. Secondly, to consider, as it has come up this afternoon, the Government's defence to the remaining charges which constitute the difference between us. Thirdly, to say why we consider on this side of the House that, given all the possible defences that have been put forward, the charge stands.

I cannot do better than begin by asking the House to remember something which the noble Lord, Lord Cockfield, said in the debate on 2nd April. I quote his words from column 1361 of the Official Report: One only has to cast one's mind back to the winter of 1978–79 to see the appalling evils that inflation produces in our society: industrial strife and disruption; falling output; soaring imports; excessive wage demands … These were the fruits of an inflationary society. Our point is that in respect of all those measures the situation has got disastrously worse since this Government came to office. I do not see why there should be any debate between us about these facts. I would go so far as to say that there is nothing in this Motion with which any reasonable Member of this House—and we are all reasonable Members—could disagree, at least after the word "in" in the second line. There has been increasing inflation. There has been continuing industrial decline. There has been a deterioration in the balance of trade in manufactures. There has been increasing unemployment and an inability of industry to achieve the necessary productivity. The only issue in debate is: Has there been an erosion of the Welfare State? That is a perfectly reasonable issue that we can debate. The difference between us is not whether inflation has doubled since the last election—we all know that it has. It is whether there will be a continuing rise. The Government admit that inflation will rise at least until the middle of next year. It is not whether there has been increasing unemployment—the highest since 1926. It is not whether there has been increasing industrial decline and falling profitability. The CBI says this. It is not whether the balance of trade has got worse. The Government say this. But they also say that it is not their fault and that it is going to be all right really. But of course, there is a narrow argument between us about whether or not the Government policies have eroded the Welfare State.

But we have not had much of a defence so far from the other side of the House about what the Government have done to the Welfare State, although I am quite prepared to admit that there have been increases, in volume terms, in planned expenditure. There have been improvements in health service spending. There have been attempts to index certain social security payments in the Budget. Of course, they have not been fully indexed, if you take into account what is going to happen to the retail price index. Nevertheless, there have been plans to spend more money. On the other hand, if you take into account the real cuts in certain aspects of Government expenditure, plus the real cuts in the value of unemployment benefit, invalidity benefit and sick pay, and if you take into account the fact that the figures in the cash limits in respect of inflation next year are, on the Government's own estimate, likely to be greatly exceeded by the volume movement in the retail price index, then I would say that the social services are bound to be squeezed in real terms in the next 12 months. Therefore, we have proved our point that there has been an erosion in the Welfare State.

In answer to all this the Government, so far as I understand what they say, have three sorts of reply. The first is what I might term "the riposte international"; the second is "the riposte socialist"; and the third is: "Wait and see"; or "It will never get well, if you pick it" or "Leave it alone; it is all coming right some time". I should like to spend a little time on each answer because I want to try to narrow the area of difference between us.

I do not think that anybody on this side of the House wants to deny that the international situation in which the Government took office was an extremely difficult one. It is the international economic recession which since 1974 has been responsible, more than any other single factor, for the increase in unemployment; and unless there is a general economic recovery across the board, the chances are that not only in this country, but in other countries as well, the level of unemployment will continue to rise. This country is uncompetitive in the Western World, and generally all this happened long before this Government came to office; it also happened long before the previous Government came to office. We have discussed these matters before in this House. So it is the case that this Government face a very difficult international situation.

All these and many other factors which noble Lords have discussed and accepted are a reasonable reply to part of the argument, but they are not a total reply, because in many ways particular aspects of this Government's policy have made the situation worse. For example, in what I thought was a fantastic speech made during the Budget debate in another place, the Member for Leeds North-East said—and I should like to ask the noble Lord the spokesman for the Government whether he agrees—that it had ceased to be the policy of this Government to influence the exchange rate. He said that Governments should not try to control exchange rates any more.

Therefore, if it is the case that the present high rate of sterling, which has been partly caused by the Government policy in respect of the minimum lending rate, is making the present international position of this country more difficult, this Government say there is nothing to be done about it, because they have given up any attempt to control the exchange rate. I suggest that the logical alternative for that perhaps it is coming—would be for the Government to propose that we should go back on to gold standard, perhaps at the pre-war parity.

But there are many ways in which, we say that certain things the Government have done have made it more difficult for this country to compete internationally. After all, it is this Government which intend to cut aid to industry by 50 per cent. in the next four years. It is this Government which plan for no increase in the GNP next year. It is this Government which have abolished the small business subsidy and cut regional development expenditure. Therefore, in all kinds of ways this Government can be indicted with having made our international problems, especially in terms of our competitiveness significantly worse than they were when they took office.

The second reply the Government make is that these are difficulties they have inherited; and this has been very evident in speeches made from that side of the House. We on this side have said in previous debates, and also other speakers have said in another place, for example, the Member for Heywood and Royton—that mistakes occurred during the last Government. Over-optimistic assumptions were made, for example, about public expenditure and the rate of growth in the economy and, most significantly and most importantly to my mind, it has been said that the previous Labour Government seriously over-estimated the extent to which they could control the level of wage settlements. Serious and significant mistakes were made—all Governments make mistakes. I only hope that since confession is good for the soul, and it is coming from this side of the House, similar confessions will come from the other side when the noble Viscount rises to reply.

But the question we have to ask ourselves is whether any of this justifies or explains what this Government have been doing with the economy since taking office and, in particular, whether it justifies and explains what the Government have been doing with the economy since the previous Budget. My submission will be that in fact the more the Government argue and seek to develop the point that they faced a very serious and dangerous economic position, the more they stand condemned in terms of what they did in the Budget last year.

Let us look very briefly at what the Government did. After the noble Lord, Lord Peart, sat down, we were asked from the other side of the House: Where is the economic argument of the Opposition? It is based upon what the Government have been doing to the British economy in the last 12 months. Essentially, these things were done. The Government raised the minimum lending rate. The Government planned to cut the PSBR. The Government shifted from direct taxation to indirect taxation. Those are the three main things that were done in the last Budget. The first question that I should like to ask the Minister who is to reply is, "Put your hand on your heart, my Lord. Would you do it again? If you would do it again, for God's sake why didn't you do it again this year?"

These measures were supposed to do three things. Raising the minimum lending rate was supposed to terrify the trade unions and reduce the level of pay settlements. Cutting the PSBR was supposed to release resources for the private sector which would expand, and the motivating force to produce that expansion was the shift from direct to indirect taxation. This—in a phrase which is very familiar to those of us who listen to the speeches of the present Secretary of State for Industry would release the animal spirits of British entrepreneurs. "Animal spirits of entrepreneurs" is a misquotation from Adam Smith. It is astonishing how many misquotations from Adam Smith the Secretary of State for Industry makes. But that is what was supposed to have happened.

This policy would have been all right on two assumptions: first, if nothing else happened; and, secondly, if what was required had happened in the right order. If, first, we had had a reduction in the level of pay settlements; if, secondly, we had had a release of resources for the private sector and if, thirdly, in that order there had been an upsurge of animal spirits. The trouble is that the Government committed two simple fallacies—not economic, but philosophical fallacies. These are not from Adam Smith; they are back in Popper—another author frequently quoted by the Secretary of State for Industry.

The first fallacy is the mono-causal fallacy. The assumption that social events are controlled by single levers, such as the money supply or the minimum lending rate so that you can operate on these single levers and things will happen as you wish. The second fallacy may be termed the tendency law confusion. The belief that in social events you can produce cause and effect. That in social events a stimulus produces a given reaction like one of Hume's billiard balls.

In fact, what happened was that other things happened. There is no mono-causal phenomenon. What happened was that things did not occur in the right order. The minimum lending rate had no perceptible effect, and has, as yet, had no perceptible effect, on pay expectations. Pay expectations have been affected by increases in the retail price index. At the same time the cut in the PSBR was very significantly delayed, largely due to the fact that the Government continued the Standing Commission on Pay Comparability, so that it is going to produce a 25 per cent. pay movement next year. The tax cuts sucked in imports, partly because the minimum lending rate was kept up for a long time, and, not surprisingly, there was no galvanisation of the entrepreneurs.

As I have said, it is interesting to see what the Government did next. If things had gone right last year, then the Chancellor this year would have maintained the mixture as before. He would have cut direct taxes again and raised indirect taxes to compensate. Or maybe he would not have had to raise indirect taxes at all and could have lowered the minimum lending rate. But if the Chancellor had seriously believed that things were fundamentally right but they had not yet come completely right and that what was needed was more time, then he would have cut direct taxes, increased indirect taxes and, maybe, raised the minimum lending rate to speed up the process.

In fact, the Chancellor did neither of these. We had what, in very broad terms, was a standstill Budget. So the central element left in the Government's policy which is supposed to bring about a different situation from the situation of the past 12 months and which is supposed, alone and unaided, to take out of the British economy the 100 per cent. increase in the rate of inflation which the Government's policies have created, is a reduction in the PSBR. A cut in the PSBR is to produce this change. This will produce a massive reduction in the rate of inflation.

It is the worst case of over-promotion since Caligula made his horse a consul. How can one believe that the PSBR can play a role of this size and significance in the drama of the British economy? The PSBR is not Hamlet in the British economy. The PSBR is not Othello. It is not Lear. It is not even the fool in Lear. The PSBR is, in terms of the role which it can play in the British economy the fool in Timon of Athens. Yet this Government give it every role in the play.

Therefore, we have to look at the real forces of inflation. They are, of course, the forces which produced the increase in the retail price index which this Government largely brought about by their policies. You can look at the estimates of different surveys and studies. The ITEM group say that the Government are responsible for three-quarters of the rise in the RPI. Other people say that they are responsible for two-thirds of the rise. But, certainly, they are responsible for the great bulk of it. So I say once again, and I hope that I shall get an answer, "Looking back over 12 months, would you do it again, and, if you would do it again, why didn't you do it in this Budget? Why didn't we have the mixture as before?"

I suggest that it was because the Government have come to their senses, because the Government realise what the real forces of inflation are, and they do not know what to do about them. I do not say that the Government want inflation, but they do not know how to avoid it. That is the problem of the Government.

So that the retail price index continues to stand at about 20 per cent. and will continue to rise. It may fall a little when the effects of the Government's indirect taxation policies work their way through, but there are many other factors working in a different direction, some of them in the Budget, some of them as a result of local authority expenditure, and many of them the result of the policy of reducing PSBR. Because if you insist on a tight PSBR, and if you force the nationalised industries to raise their prices in order to pay for current investment, then, of course, that will shove up the RPI even further, I also have to say that, in my opinion. the effect of wage inflation on the retail price index has not yet really begun to work its way in.

Curiously enough, the way in which the economy actually works is that when entrepreneurs believe that the level of wage settlements is rising, or is about to rise, they do not raise their prices immediately, because, on the whole, prices are contractual and cannot rise until between six and 12 months after the increase in costs. What they do is to borrow money, which causes the PSBR to rise and causes the money supply to rise, and monetarists say that that is what is causing inflation!

What is actually causing inflation is the fact that the expectations in respect of pay settlements are beginning to rise. My fear is that this will happen again next year. I seriously hope that this will not be the case. I seriously hope that there will be a significant fall in the level of pay settlements, certainly in the private sector; because we have already been told, by no less a person than the Chancellor, that in the public sector the going rate will be about 25 per cent. I should again like to ask the Minister who is to reply: If that is the case, what does the level of settlements have to be in the private sector next year to reach the Government's targets—a 16½ per cent. movement in the RPI by the fourth quarter of 1980, and a 13½ per cent. movement in the RPI by the second quarter of 1981? And I have another question to be going on with. If the Chancellor is wrong about what happens to the pay movements in the private sector, and if they are half as high again as the figures that he did not put in the Red Book, what will be the result of that on the retail price index? When are the Government going to realise that you cannot fight inflation by raising prices? That is the fundamental policy of this Government—they fight inflation by raising prices.

Finally, we shall be asked what is the alternative? I suggest that your Lordships have had a comprehensive account from the noble Lord, Lord Kaldor, of what could be an alternative. Of course, some of it is his personal view, but I would not demur from a great deal of it. We have also had a similar account of what could be another possible alternative from the noble Baroness, Lady Seear, who said that what she would suggest is a "multi-pronged approach". I am sorry that the noble Baroness is not in her place. What she proposed comes very close to what the Labour Party would support in what we would call a balanced" economic policy. That is to say, we would argue that you can have, and you can afford, a higher PSBR than this Government will accept. You can have a higher growth rate than this Government accept, and a lower minimum lending rate, if you are prepared to put two different and additional elements into your policy mix.

Of course, you must have control over the money supply. You should also maintain control over the size of the public sector borrowing requirement. But I wonder whether the Government have got control over the PSBR at the moment. However, you have to put two additional elements into your policy. First, you have to have a policy for prices. It is no good abolishing the Price Commission and then relying on the PSBR. Secondly, you must have a policy for incomes. I have argued with noble Lords opposite—and the last time I argued I argued with the noble Earl, Lord Gowrie—what is involved in an incomes policy. I do not want to detain the House with further details tonight. But I have argued that the successes of three and a half years of the last Labour Government's incomes policy far exceed the successes any other Governments have had during the post-war period in their exchange rate policies, or in their monetary policies, or in their fiscal and other policies. But, as I have said, it is only in the realm of incomes policies that we are expected to achieve perfection.

So we shall continue to ask for a balanced approach. We shall continue to ask for a Government which has a range of policies—none of them perfect, none of them working all the time, but all of them trying all the time. All this Government are relying upon now is a reduced PSBR and an irrelevant Employment Bill. The aim of that Employment Bill, as the noble Lord, Lord Kaldor, rightly said, is to assault real wage resistance. That was his way of putting it. My way of putting it is that the Government are trying to break the power of the trade union movement. Because we believe that is no way to run a country, we ask this House to vote with us tonight.

7.23 p.m.

Viscount TRENCHARD

My Lords, I still find myself a novice in winding up debates of this nature and I shall probably learn that one ought to stick to one's original brief. But I am not going to do so. I have listened to all the contributions to the debate with extreme interest. Various squiggles are written on a piece of paper. Therefore I may be a little less fluent, but I hope that I shall be able to answer a few more of the points which have been made. I am going to concentrate on the industrial aspects, not only because they are the ones for which I am partly responsibile but also because, due to the debate of two weeks ago, and to other debates, my noble friend Lord Cockfield has dealt with a great many of the points which were so well dealt with by my right honourable friend the Chancellor of the Exchequer in his Budget speech on the financial aspects. I am also going to try to avoid too much duplication of education debates. Much as I should like to do so, I am not going to follow noble Lords opposite into regional policy, except to say that this is an area which I know something about. I am more than satisfied personally that we have been able to effect major economies and to keep, within the resources available, a thoroughly effective regional policy to help the areas of greatest need.

The noble Lord the Leader of the Opposition paid me a personal compliment when he began his speech. Perhaps I could return it by saying that I think both he and a number of his friends are very courageous men. They are courageous to put down a Motion, as my noble friend the acting Leader of the House has said, which blames us for everything except the weather. They are courageous to put it down in April 1980 after we took office in May 1979 and to headline all the points where the policies of the previous Administration have produced failure—the opposite to success. That is why we are starting out on a new tack.

It is not, as the noble Lord the Leader of the Opposition declared it to be, a reactionary tack. It is a tack that has lifted the standards of living in other countries to more than double that of ours—and is still doing so. It is a different tack but it is a modern tack. It is a tack which has been proved in the past to be successful in this country and is still being proved to be successful in the most successful countries of the world. I shall return later to the history of our industrial decline for one reason only; namely, to try to get a little more clear the industrial reasons. In that context, I shall say a few more things about other countries.

May I start by taking the point mentioned by many noble Lords opposite: that this Administration has increased inflation. The noble Lord, Lord McCarthy, said that we have doubled inflation. We have acknowledged more than once both in this House and in the other place that the shift from personal direct taxation to indirect taxation was inevitably bound to put up the RPI but that this was necessary in order to produce the offsetting tax incentives and to bring our tax structure more into line with those successful competitor countries which have been outpacing us but which once were far behind us.

We have not doubled the rate of inflation. It is true that on a year-on-year basis the figure in May 1979 was 10.3 per cent. In June—bearing in mind that the Budget steps did not even begin to take place until July—it was already 11.4 per cent. It was on an increasing trend. While there are limits to the validity of taking a six-month basis and annualising it, nevertheless, in May it was already 13.7 per cent. and in June 1979 it was already 15.7 per cent.

Let me, if I may, quote the right honourable gentleman the Chancellor of the Exchequer of the previous Administration in Hansard of 25th January 1979, col. 754. He said: Let us assume, for example, as some pessimistic forecasters in the City are already beginning to predict, that the increase in the nation's earnings in the current pay round is as high as 15 per cent.—an outturn that some people seem to contemplate with equanimity as a reasonable one, because it is roughly the same as the outturn last year. They are quite wrong if they think that is reasonable. The most obvious and inevitable consequence of this assumption coming true would be that the year-on-year increase in the rate of inflation would move into double figures in the summer of this year"— that is, 1979— and would probably reach about 13 per cent. by the end of the year. So we would be back, on inflation, to where we were in 1976. We would have lost all the ground we have gained in the fight against inflation in the last three years". That is more or less exactly what the wages round turned out to be, and as a consequence inflation was increasing, as the previous Chancellor of the Exchequer predicted—and increasing extremely fast. We have added four percentage points or thereabouts between the taxation changes and the necessary moves on the green pound which my right honourable friend mentioned, in order to give our farmers a more fair and competitive opportunity.

On top of that we have had material increases of the highest order of any in recent years. Fuel in sterling—and, as we have heard, sterling is strong—has gone up by 92 per cent. in the 12 months ending March this year. Raw materials therefore, including fuel, have gone up by 37 per cent. With those situations, part of them inherited but part of them due to international situations over which nobody has control, the rate of inflation was bound to rise a little beyond the percentage points we have added, before indeed we can begin to see our measures to contain it start to work.

We do not believe that the control of the money supply is a single weapon, the only weapon, which needs to be used in order to control inflation, let alone to put this whole problem right. However we do believe that there are many things which Governments can do, and there are even more things which they cannot do. They can control the money supply, they can affect taxes, incentives and the like; they can affect laws and the balance of bargaining positions between trade unions and managements, a subject to which I shall return later.

They cannot, except in one or two glaringly obvious areas, such as the development of nuclear energy, and to a degree where we are continuing commitments to help in very obvious, necessary all-pervasive developments like microelectronics—they cannot forecast which parts of industry are the ones which will succeed, nor can they produce that success. They can only produce conditions in which that success is much more likely; and which firms in what industries will succeed is a highly unpredictable affair.

But we are not on a one method cure. We regard the money supply as a prerequisite to the control of inflation—an essential pre-requisite. In choosing malaria as an example, I do not think that the noble Lord, Lord Kaldor, chose the right example. I believe that he would have done better to choose obesity. If you do not control the food supply to a patient who is suffering from obesity, the obesity will get substantially worse, and that is the point which noble Lords on this side have been trying to make about money supply. Under both Administrations over the last two decades, money supply has not been correct and the obesity has increased. My right honourable friend the Secretary of State for Industry uses the term "monetary incontinence", which I believe to be also a correct term and the more I work with the right honourable gentleman (since his name has been mentioned personally in this debate) the more times I am infuriated; but I am infuriated by his appalling habit of being intensely accurate! We have seen recent examples of this in relation to his realism and his determination not to print money or to put the Government in a position to print money in order to settle the steel dispute.

I have said that the money supply is not our sole measure. Within the Government's province the cutting of Government expenditure is that much more important and I shall return to it and to the international comparisons a little later. Our whole range of policies—abolition of controls, encouragement through the tax system and through the non-operation of an incomes policy, which has proved to erode differentials whenever it has been applied—is designed to create conditions in which the human qualities of this country (and they are great still) will be used to reproduce growth and to try to catch up with those countries which have passed us.

Remarks were made which I hope, on reflection, noble Lords will feel were not helpful. There is nothing in the Government's philosophy which resembles our "determination to break workers' ability to resist"—which was one phrase I noted. There is nothing in our philosophy deliberately to create unemployment in order to do this kind of thing. We are trying to return to realism. If inflation continues on a permanent basis—leaving out the argument of ups and downs in the short term—more and more people will be priced out of jobs, as indeed they have been under the previous Administration when unemployment doubled. For that reason we wish to have no more unemployment at all and wish realism could really spread throughout the length and breadth of this country. If we could achieve the kind of productivity rates that exist on the Continent—leaving on one side America, with its huge market—and could achieve them now we could with no difficulty overcome the problems of the strong pound and the interest rates and could now be regaining shares of markets. This realism is spreading and I shall come to some optimistic signs at the end of my remarks.

To return to history for a moment, we have to differentiate totally between the very long-term industrial decline and the short-term decline of the last two decades. We had the Industrial Revolution first. There was a slow and inevitable decline which had to follow, having an enormous share of world markets. I will go through the shares of world markets as estimated since 1880, when we had 40 per cent. of world markets; in 1913 we had 29 per cent.; in 1938 we had 22 per cent.; in 1955 we had 19.9 per cent. Then the story starts, but before telling that story let me point out that since we had the Industrial Revolution first, since America with its great resources had been catching up and indeed overtaking us in productivity, we were bound to lose shares of the world market during that period.

Between the wars we actually improved our productivity, as the noble Lord, Lord Kaldor, has mentioned on more than one occasion, at a faster rate than almost all the rest of our industrial competitors. That was between 1925 and 1937, and that did not coincide with import controls, which were only introduced in 1932. Your Lordships will remember that the last figure I mentioned was for 1955, when we had 19.9 per cent. share of the world market. In 1974 it was down to 8.8. per cent. I deliberately take 1974 so as not to be partisan. It has moved up a point in value since then, partly based on the price competitivity of the very weak pound in 1976, and partly now based on the value method of arriving at the statistics which has benefited from the strong pound.

Why did this happen and why is this short term quite different and much more serious than the long term? It is because our market system, which has raised the standards of living of Germany, Japan, the United States and other countries to levels well beyond our own, has been completely clobbered with taxes which produce disincentives, with controls, including price control—which had effects which I will mention in a moment—with the perpetual incomes policy which eroded differentials and I do not know how any democratic country can apply an incomes policy without that likelihood of occurrence—with the balance of bargaining power tilted too far against our management and in favour of the immoderate elements (which are not the majority) in the trade union movement. For all these reasons we have clobbered the private enterprise system.

This Government believe in harnessing all the brains in the country. They do not believe in clobbering the market and private industry and then introducing Government agencies and expanding them as a panacea for all ills. We are not destroying the NEB, as the noble Lord, Lord Peart, suggested. We are intending to regenerate the private sector, to maximise the private sector, gradually to decrease the role of the NEB. But we have a vigorous NEB, in good condition and it is going well.

My Lords, perhaps I may give a quotation which I have just received in relation to France. It is not really a quotation; it is a note and a document which was much quoted by the noble Lord, Lord Kaldor, in the debate today. I want to point out that while their economy has many factors, they believe in personal incentives to a very high degree, and the inequality of their earnings is vastly greater than in this country. Their threshold on tax for the single person was £2,455 against our £1,165 and for the married person £3,240 against our £1,815, that is broadly speaking, double. Their starting rate tax was 10.8 per cent. for single people and 72 per cent. for those married, against ours which is now 30 per cent., that is, about one-third. Their top rate, like ours, is 60 per cent. I think we should take more of a leaf out of successful countries' books.

Of course many of them, Germany and Japan particularly, built up their industrial strength under a degree of individual protection. There was sympathy for the countries whose economies had been ruined during the war. At that stage international trade arrangements had not reached the sophisticated form they have now, and they protected their individual industries at the growth period, which was then sensible for them. It is not sensible for us now. With our manufactured exports still running at £3,200 million a month; this is more than our manufactured imports. It would not be sensible for us, nor is it open to us under international trading arrangements as they now exist. We do, however, believe in the most open but the most fair trading system that we can achieve through those international arrangements, and within those obligations we shall vigorously prosecute the idea of ensuring that we give British industry the fairest trading opportunity we can.

My Lords, I do not want to detain your Lordships longer. I just want to return to the question of the erosion of the Welfare State, which is mentioned in the Motion, and to the question of cuts in Government expenditure, which is obviously connected with it. I want to say that the control of public expenditure in this country and the reduction of it is necessary because we cannot afford the levels we have. With GDPs which are less than half that in Germany, for instance, with our shares of markets still as poor as they are, and with our wealth-creating sector absolutely stagnant, we simply cannot afford more. We cannot afford more because the profitability of our industry is lower by far than that of all other countries; our standard of living is lower; our tax take is thus lower. The only way of finding the extra money would be on the lines that my noble friend the acting Leader of the House outlined, of borrowing yet more. Until we can get the wealth-creating sector really growing again there simply is not the money to spend on the social and welfare parts of our life, which are so vital, to a greater extent than in the Government's plans outlined in the Budget.

Given time our public expenditure cuts will work and will affect the public sector borrowing requirements, and they will affect interest rates. I admit that there are many other factors which affect the connection between those items, but given time those things will work and interest rates will come down. Caring and compassionate policies in a bankrupt State are really worth less than nothing. We have to give priority to getting on with this new task, building the foundations for recovery. Time is necessary for a new tack to work. The Japanese have been on a policy of heavy incentives for 30 years under a Government which has emphasised the kind of policies that we now emphasise. If such a course had been undertaken in this country we would be talking about a work ethic in Britain.

I can assure the noble Lord the Leader of the Opposition that it is not the intention of the Government to do anything to ACARD. As opposed to it reporting to him as it used to at one stage, it now reports to the Prime Minister, who gets the reports personally, I suspect possibly even faster than the noble Lord suggested. I should like to thank the noble Lord, Lord Harris, for his interesting comments on indexed bonds, which I will make sure my colleagues look at with great care.

My Lords, I fail to understand the decision, if it is a decision, of the Liberal Party in the House to vote against the Government on this Motion. Almost everything that the noble Baroness, Lady Seear, said, and the noble Lord, Lord Rochester, said, criticised, at least in a ratio of two or three to one, the policies of the past Administration compared with our own. They must know that one year is a quite inadequate length of time for a new tack—with many of the policies which they have advocated for years involved—possibly to have time to work. I do not know whether they still want to hold on to the Lib/Lab pact which perhaps prolonged the life of the Labour Government, and thus allowed a further decline

of this country to take place before we could start to introduce new policies which have been successful in the past in this country, and which are continuing to be successful and raise standards of living. We might have started those policies earlier. I trust that they might reconsider their decision and vote according to the comments that they have made, rather than in the opposite direction.

Lord PEART

My Lords, we have reached the end of a long debate and we have had a rather long wind-up speech. I shall not comment upon the matter, except to say that I was so pleased that my noble friend Lord McCarthy made such a fine speech which was recognised by the "Hear, hears!" of the whole House. I think that we should come to a decision, and therefore I shall press the Motion to a Division.

7.52 p.m.

On Question, Whether the said Motion shall be agreed to?

Their Lordships divided: Contents, 61; Not-Contents, 98.

CONTENTS
Aylestone, L.	Hale, L.	Pitt of Hampstead, L.
Bacon, B.	Hatch of Lusby, L.	Ponsonby of Shulbrede, L.
Balogh, L.	Houghton of Sowerby, L.	Ritchie-Calder, L.
Banks, L.	Hutchinson of Lullington, L.	Rochester, L.
Birk, B.	Jacques, L.	Ross of Marnock, L.
Blyton, L.	Janner, L.	Seear, B.
Boston of Faversham, L.	Jeger, B.	Sefton of Garston, L.
Brockway, L.	Kaldor, L.	Stewart of Alvechurch, B.
Brooks of Tremorfa, L.	Kilbracken, L.	Stewart of Fulham, L.
Bruce of Donington, L.	Leatherland, L.	Stone, L.
Burton of Coventry, B.	Lee of Newton, L.	Strabolgi, L.
Cledwyn of Penrhos, L.	Leonard, L.	Strauss, L.
Cooper of Stockton Heath, L.	Llewelyn-Davies of Hastoe, B. [Teller.]	Taylor of Mansfield, L.
Cudlipp, L.		Underhill, L.
David, B.	McCarthy, L.	Wade, L.
Davies of Leek, L.	Maelor, L.	Wallace of Coslany, L.
Donaldson of Kingsbridge, L.	Mishcon, L.	Walston, L.
Gaitskell, B.	Ogmore, L.	Wedderburn of Charlton, L.
Galpern, L.	Oram, L.	Wells-Pestell, L. [Teller.]
Gardiner, L.	Peart, L.	White, B.
Goronwy-Roberts, L.	Phillips, B.
NOT-CONTENTS
Airey of Abingdon, B.	Belstead, L.	Cockfield, L.
Allerton, L.	Boyd of Merton, V.	Cork and Orrery, E.
Amherst of Hackney, L.	Bradford, E.	Craigmyle, L.
Ampthill, L.	Brookeborough, V.	Cranbrook, E.
Avon, E.	Campbell of Croy, L.	Crathorne, L.
Bathurst, E.	Cathcart, E.	Cullen of Ashbourne, L.
Bellwin, L.	Clifford of Chudleigh, L.	Daventry, V.
De La Warr, E.	Home of the Hirsel, L.	Robbins, L.
Denham, L. [Teller.]	Hornsby-Smith, B.	Rochdale, V.
Denman, L.	Hylton-Foster, B.	St. Just, L.
Drumalbyn, L.	Keyes, L.	Saint Oswald, L.
Dudley, B.	Kinross, L.	Salisbury, M.
Eccles, V.	Lauderdale, E.	Sandford, L.
Elliot of Harwood, B.	Long, V.	Sandys, L. [Teller.]
Faithfull, B.	Lyell, L.	Selkirk, E.
Falkland, V.	McFadzean, L.	Selsdon, L.
Falmouth, V.	Macleod of Borve, B.	Sempill, Ly.
Ferrers, E.	Mancroft, L.	Sharpies, B.
Fortescue, E.	Mansfield, E.	Skelmersdale, L.
Gage, V.	Massereene and Ferrard, V.	Somers, L.
Gainford, L.	Mills, V.	Spens, L.
Galloway, E.	Montogomery of Alamein, V.	Strathcarron, L.
Gisborough, L.	Morris, L.	Strathclyde, L.
Glendevon, L.	Mottistone, L.	Sudeley, L.
Glenkinglas, L.	Mowbray and Stourton, L.	Swinfen, L.
Godber of Willington, L.	Northchurch, B.	Tranmire, L.
Greenway, L.	Nugent of Guildford, L.	Trenchard, V.
Hailsham of Saint Marylebone, L. (L. Chancellor.)	O'Neill of the Maine, L.	Tweeddale, M.
	Onslow, E.	Vaux of Harrowden, L.
Hanworth, V.	Orkney, E.	Vickers, B.
Harris of High Cross, L.	Rawlinson of Ewell, L.	Vivian, L.
Harvington, L.	Redmayne, L.	Westbury, L.
Henley, L.	Reigate, L.	Wynford, L.

Returned from the Commons with the Lords amendments to certain Commons amendments agreed to; with certain other Commons amendments not insisted on and the Lords amendments in lieu thereof agreed to; and with the Lords consequential amendment to the Bill agreed to.