Lords Sitting of 31 July 1980

Preamble
(Sitting in the Royal Gallery)
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Truro.

PUBLIC SERVICE EMPLOYMENT VACANCIES
Lord BOYD-CARPENTER: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government why the Manpower Services Commission in its publication MSC Manpower Review 1980 makes no mention either in relation to youth employment or otherwise of the vacancies in the armed and police forces, public transport and nursing, particulars of which appear in the Answer given to a Written Question on 7th July (col. 1010).
The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of Gowrie): My Lords, I am informed by the Manpower Services Commission that the Manpower Review 1980 was intended to set out the Commission's overall plans and programmes as embodied in its corporate plan and also to discuss broad issues of manpower policy in order to promote informed debate and better understanding of these issues. It did not, therefore, go into detail about vacancies in individual areas of employment, although it did include discussion of levels of vacancies, and the position for nurses was in fact included in some examples given.
Lord BOYD-CARPENTER: My Lords, in thanking my noble friend for that reply, may I ask whether he can assure the House that the Manpower Services Commission regards it as part of its duty to invite the attention of unemployed people, particularly young unemployed people, to the considerable number of vacancies for most excellent
1038
employment which were outlined in his earlier Answer to me?
The Earl of GOWRIE: My Lords, I am grateful to my noble friend. That is indeed an important part of the work of the Manpower Services Commission, Employment Services Division, known more widely as the Jobcentres. Vacancies are brought into attention, including those in the public service.
Lord DAVIES of LEEK: My Lords, is the noble Earl aware that—I think I am right—the Manpower Services Commission does not refer to manpower for the mining industry? In view of the Government's new Coal Bill and the hope that we are going to have prosperity, will he ensure that young men are encouraged to go into this manly job, which increases God's gift to man of strength and manliness? Will he ensure that young men are encouraged to go into the British mining industry?
The Earl of GOWRIE: My Lords, I understand that at the moment it is almost harder to get into the mining industry than it is to get into your Lordships' House. The demand is very considerable.
Lord DAVIES of LEEK: My Lords, I beg the Minister's pardon. We want to encourage training, and there are opportunities for training. Nobody can go immediately right into the coal face; training is absolutely necessary.
Lord ROCHESTER: My Lords, is the noble Earl aware that, as chairman of one of the Manpower Services Commission's district manpower committees, I have the greatest respect for the work being done by the Commission; think that it deserves and needs as much support as this House can give it; and warmly welcome the Government's promise to do more this autumn, under the agency of the Commission, by introducing measures to alleviate unemployment among young people? Will the Minister bear in mind particularly the possibility of extending the scheme for giving school-leavers work experience on employers' premises, both because of the relatively low net cost of that scheme, at only £14 per person per week, and because more than 60 per cent. of those so engaged later found employ

1039
ment of a more permanent kind, either with the same or with another employer?
The Earl of GOWRIE: My Lords, I am grateful for the comments of the noble Lord, Lord Rochester, on the work of the Manpower Services Commission, which I fully endorse. On the matter of the Youth Opportunities Programme—and that, of course, contains the work experience on employers' premises—we have in fact extended that programme by 20 per cent. in the last month.
Lord WALLACE of COSLANY: My Lords, is the Minister aware that the Question suggests that the best recruiting sergeant for the armed forces will be major unemployment?
The Earl of GOWRIE: My Lords, in spite of high levels of unemployment, I understand that recruitment is still somewhat below par, although there is an upward movement.

CRUISE MISSILES: "DOUBLE KEY" ACTIVATION
3.11 p.m.
Lord GLADWYN: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government why, seeing that the activation of cruise missiles in this country will be the result of a joint Anglo-American decision, they cannot agree to their being operated on the principle of the "double key".
The MINISTER of STATE, MINISTRY of DEFENCE (Lord Strathcona and Mount Royal): My Lords, the arrangements which will apply for control over the US ground-launched cruise missiles to be based in this country have operated satisfactorily for over 20 years. A "dual-key" system would entail the United Kingdom purchasing the cruise missile systems (except the war-heads) and providing the manpower to operate and maintain them. The Government do not believe that this would be a sensible use of defence resources.
Lord GLADWYN: My Lords, while thanking the noble Lord for that reply, may I ask whether the real question is not whether or not we have an effective veto on the firing of these missiles? This is really a more far-reaching question than that posed by present arrangements for the employment of certain nuclear missiles on aeroplanes by Americans in this country. Seeing that it is a more important question, and it should be firmly established whether or not we have a veto, could not the Government ask the Americans whether they would not in these circumstances give us the right to have a double key system, despite the fact that we are not going to purchase the missiles?
Lord STRATHCONA and MOUNT ROYAL: My Lords, it has been said many times that the matter of the control of these bases is a question of joint decision between the two Governments in the light of the circumstances prevailing at the time. The bases may not be used without such a joint decision. I do not know whether the noble Lord calls that a veto or not.

BBC WORLD SERVICE: RECEPTION
3.14 p.m.
Lord WHADDON: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what discussions they have had with the BBC regarding changes in the transmission of the World Service which would seriously prejudice reception in the United Kingdom.
The LORD CHANCELLOR (Lord Hailsham of Saint Marylebone): My Lords, discussions have taken place at a technical level between the BBC and Foreign and Commonwealth Office engineers on the replacement of the outdated transmitter at Crowborough with a new high-powered medium frequency transmitter at Orfordness. The purpose

1041
of the new installation is to improve the audibility of BBC External Services broadcasts in Western Europe.
Lord WHADDON: My Lords, while thanking the noble and learned Lord for that Answer, may I ask whether he is aware that a large and discriminating audience within the United Kingdom regard this service as the very best of the BBC broadcasts and resent their exclusion? Can he comment on the rumour that the main reason for having beamed broadcasts is not so much technical as to save money on artistes fees? Finally, will he use his good offices to persuade the BBC to moderate its indecent haste and wait until public reaction to these changes is properly understood?
The LORD CHANCELLOR: My Lords, I appreciate the tribute of the audience in this country to the overseas broadcasting services in English because I am one of the discriminating audience to which the noble Lord referred as, I imagine, are a number of other people in this House. I cannot comment on rumours, but I must point out to the noble Lord, whose enjoyment of the service I share, that the purpose of the external broadcasts is to broadcast externally. If, in fact, we were talking about the domestic services of the BBC, I do not think that it would be me answering the Question this afternoon, because those services are differently funded.
The Earl of SELKIRK: My Lords, should like to ask whether the proposals that are being made about Orfordness mean that the World Service will be heard in the North of England and in Scotland in future, particularly as we, I believe, pay for this. Moreover, is it not right that the best broadcasting news service should be available to everybody in this country?
The LORD CHANCELLOR: My Lords, I can only endorse what my noble friend says about the best broadcasting news service, but the domestic services of the BBC are a matter for the BBC. This afternoon we are talking about the external services for which the Foreign and Commonwealth Office is responsible. I cannot say what will be the audibility of the Orfordness transmitter—I am told I cannot, at any rate—
1042
until it is put up and tried out. There will be a degree of audibility in this country, but it is still part of the external services.
Lord ORR-EWING: My Lords, has my noble and learned friend observed that, when medium wave broadcasting stations are put up and their ranges are forecast, they are invariably very much greater in reality than they are forecast to be? Therefore, is it not likely that the Orfordness transmitter will be much more widely heard than is at present forecast? That has certainly occurred with local government medium wave broadcasts which now cover a very wide range and have very large audiences in those areas.
The LORD CHANCELLOR: My Lords, my noble friend knows so much more about this than I do. I only hope that he turns out to be right, because I should hate to be deprived of this service. There is a limiting factor which I should have mentioned in my reply to the noble Lord, Lord Whaddon. I think that there is a limitation based on the necessity under which the BBC is constrained not to interfere with the legitimate 463 metre band which some other countries use legitimately under international arrangements.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, while agreeing with the noble and learned Lord that we shall be sadly deprived if we cannot listen to this service, does he agree that the overriding importance is that the World Service should be heard all over the world? We urge the Foreign Office not to make economies in this direction. When every other country is stepping up this kind of service we should continue to step up ours even more than we have up to now.
The LORD CHANCELLOR: My Lords, I think that I agree with the noble Baroness, but I may be making a mistake about this because I am not operating on my own wavelength this afternoon! But I think that the Orfordness transmitter is designed primarily for Western Europe. I agree that the World Services are more widely intended.
Lord AIREDALE: My Lords, is it not highly desirable that the people of this country should be able to continue to remind themselves, by switching on their radio—as they can now—that the BBC, on their behalf, is doing this wonderful service to the world by broadcasting the truth about what is happening in this troubled world?
The LORD CHANCELLOR: My Lords, I am sure that this is desirable, but, speaking from where I stand, I can only repeat that the External Services are financed by the Foreign and Commonwealth Office for the purposes of our overall external services. I myself derive enormous advantages from listening to the External Services on more than one wave length. I regard it as very highly desirable that people should be able to do so, but I do not think that the Foreign and Commonwealth Office could be asked to provide that very valuable by-product.

MIDDLE EAST: PEACE NEGOTIATIONS AND THE PLO
3.20 p.m.
Lord BARNBY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether, in view of the reported views of the Palestine Liberation Organisation that the state of Israel must be destroyed, they still support the inclusion of representatives of the Palestine Liberation Organisation as if they were representatives of an existing or established state in current negotiations.
The LORD CHANCELLOR: My Lords, in conformity with the statement of the European Council of 13th June, Her Majesty's Government believe that the Palestine Liberation Organisation should be associated with peace negotiations. Her Majesty's Government do not give the Palestine Liberation Organisation any official recognition or exclusive status, but consider that the degree of support which they enjoy among Palestinians is such that they cannot be ignored in the search for peace. One of the principles on which negotiations will need to be
1044
based is the right of all states including Israel to exist in security.
Lord BARNBY: My Lords, I should like to ask for your Lordships' indulgence because, in spite of the clarity of enunciation of the noble and learned Lord the Lord Chancellor, and owing to my partly worn-out hearing and the breakdown of the amplification arrangements, I probably failed to hear in totality the reply which the noble and learned Lord was good enough to give. I was a very humble officer and member of Allenby's British Army which liberated the whole of Palestine from the occupation of the Turks. Is it not possible that the Government's massive influence could be used to ensure that, before participation by the PLO, there should be renunciation of terrorism and its demand for the total elimination of the state of Israel?
The LORD CHANCELLOR: My Lords, if I was not fully audible to my noble friend I can only apologise. It must be my fault, although we are all operating under difficulties. I note with admiration my noble friend's association with Allenby's entry into Jerusalem as part of his army. I myself took a humble part in the late operations in the Middle East in the Second World War and came to know Jerusalem fairly well. Whether our influence is as massive as my noble friend supposes, I do not know. I only hope that it is more massive than either of us believes. But certainly, with the Venice declaration, we regard all violence as abominable and believe that it should be renounced as a precondition of peace. I do not think that in that direction I could go beyond the Venice declaration, but my noble friend can be absolutely sure that violence is as abhorrent to me as I know it is to him.
Lord BYERS: My Lords, does the noble and learned Lord realise that by insisting on the PLO having a place in the Middle East peace negotiations one is enhancing the status of an organisaton which is financed by Gaddafi and armed by the Russians, and that this will create even further tension in a very sensitive area of the Middle East and allow the Russians a spearhead on the frontiers of Israel?
The LORD CHANCELLOR: My Lords, I would go along with the noble Lord in admitting that the PLO is not my favourite body of people, but it has a certain amount of support in various international organisations, and, if what we want is a lasting peace, I think that it would be foolish to disregard the feelings of our friends who were assembled at Venice and who were unanimous on the points which I made in my original Answer.
Lord GEORGE-BROWN: My Lords, on a day when the state of Israel is most flagrantly defying the other equal part of Resolution 242 of the Security Council by annexing East Jerusalem and declaring Jerusalem to be the capital of Israel, may I ask the noble and learned Lord the Lord Chancellor and the Government to be careful that they phrase their replies to questions such as this in the spirit which enabled us to get Resolution 242 unanimously adopted by the Security Council, and keep that as a basis of a policy in the Middle East?
The LORD CHANCELLOR: My Lords, I thought that I was being rather careful and I hope that I have not departed from that. Obviously, internal legislation by Israel at the moment cannot alter the international legal position. That would not be possible purely by an internal legislative act. But, personally, I should prefer to say that Jerusalem remains a city which is holy in three world religions, all of which profess to be in favour of peace.
Lord CAMPBELL of CROY: My Lords, will my noble and learned friend agree that many television viewers will have welcomed the statement by my noble friend Lord Carrington on a midday programme on Sunday on two points of United Kingdom policy which recognised both the right of the state of Israel to exist and the reasonable rights of Palestinian refugees? Is not this a policy which is most likely to lead to a peaceful and stable settlement in the interests of the world and also in the interests of Britain?
The LORD CHANCELLOR: My Lords, I did not see the particular programme to which my noble friend refers,
1046
but I know that what he has just said reflects the view of my noble friend Lord Carrington, to whom he paid a generous but not unjustified tribute. I think that it is also an adequate reflection of what we think about the matter.
Lord GORONWY-ROBERTS: My Lords, I should like to put this point to the noble and learned Lord the Lord Chancellor. Is he aware that he is not only audible but credible on this matter? Is he aware that the balance to which my noble friend Lord George-Brown referred in Resolutions 242 and 338 is very well reflected in the original Answer which the noble and learned Lord gave to the Question asked this afternoon in that there is no question of the future integrity and security of Israel being placed in jeopardy by any discussions on an international level which may come about, as we hope, in the next few months, and no individual or organisation should come anywhere near such a conference unless it first totally abrogates the policy of the destruction of Israel?
The LORD CHANCELLOR: My Lords, when I find that the noble Lord, Lord Goronwy-Roberts, agrees with something I have said, I am reassured. I hope he is not disquieted if I tell him that I agree with what he has just said.
Lord JANNER: My Lords, may I ask the noble and learned Lord the Lord Chancellor how on earth can we possibly continue to give encouragement to the PLO, who within the last few weeks assassinated an important ambassador from Iran? They planned an attack on children and carried out the murder of a child and the injuring of a very large number of children in Belgium, and they sent Arafat, or Arafat went himself to Moscow, in order to carry out a decision which was made at the Damascus Conference, that they should join, as far as they possibly can, in strengthening the alliance with the USSR. What is the matter with us? Why are we nurturing an organisation which if a crisis ever does come—God forbid that it should—will be among the enemies of this country, of Europe and of the rest of the civilised world?
The LORD CHANCELLOR: My Lords, I should be sorry to think that I

1047
was nurturing anything of that kind. We in this House and people in most of the civilised world adhere to religious faiths to which all murder is abhorrent, and there is no murder which is more abhorrent than the murder of children. I would say without qualification that the deliberate murder of children defiles those who commit it, brings dishonour on the nation to which they belong and on the religion which they profess. I do not believe there is a single Member of this House who would not underwrite what I have just said.
Lord SHINWELL: My Lords, may I ask the noble and learned Lord the Lord Chancellor whether or not he would agree that nothing is to be gained either by criticising the PLO or by extending support to the PLO? As regards Resolution 242, would he not also agree that it is impossible to implement the content of the principles embodied in Resolution 242 until the Palestine Liberation Organisation and those associated with that organisation withdraw their repeated declaration that their essential purpose is to destroy the state of Israel?
The LORD CHANCELLOR: My Lords, the United Nations Organisation, not only by Resolution 242 but by the recognition of the state of Israel, recognises its right to exist, and no lasting peace could possibly be attained in the Middle East which was worth having for the civilised world which did not continue to acknowledge this right, which is indissoluble for any member of the United Nations Organisation. But one may, of course, differ as to means, and the attempt to make all organisations renounce unilateral action and recourse to violence is part, and I should have thought an indispensable part, of the search for peace, particularly for a nation like ourselves, who, as my noble friend reminded us in his original supplementary, has such an intimate and affectionate relationship with the land to which these questions relate.

BRITISH SHIPBUILDERS: FINANCES
Lord DENHAM: My Lords, with the leave of the House, at a convenient
1048
moment after four o'clock this afternoon my noble friend Lord Trenchard will repeat a Statement being made in another place on British Shipbuilders finances.

FINANCE (No. 2) BILL
3.35 p.m.
The MINISTER of STATE, TREASURY (Lord Cockfield): My Lords, I beg to move that this Bill be now read a second time. In doing so, perhaps I might start by saying that the financial privilege of another place has the incidental advantage that your Lordships are not required to examine this Bill in detail. It is a long and complex Bill, although not as long as the Housing Bill, which has recently occupied so much of your Lordships' time, and not as complex as some Finance Bills in the past have been. Nevertheless, if any of your Lordships wish to raise specific points on the Bill I shall be happy to deal with them when I come to reply to the debate.
The traditional approach to the national finances was for the Government's expenditure plans to be published, usually in January, although the date was variable, and for the Budget to be presented in March or April. This meant that Parliament was asked to agree in principle to plans for expenditure before it was known how that expenditure would be met or what level of taxation would be involved. This divorce between publication of expenditure plans and of the taxation measures needed to meet them also gave rise to the suspicion, which may or may not have been well founded, that in the past expenditure had been approved without any very clear idea how that expenditure was to be met.
There has, therefore, been pressure over the years that the plans for expenditure and taxation should be presented together so that they could be judged together. This year, for the first time, the public expenditure White Paper was published on Budget Day. This happy coincidence, as my right honourable friend the Chancellor of the Exchequer described it, was due mainly to the time needed to review expenditure plans fully. Nevertheless, it was a development on the lines frequently advocated in the past

1049
and it was welcomed by the Select Committee on the Treasury in their Second Report for the present Session. I hope your Lordships will have found it of assistance, too.
Perhaps I might turn from these technical matters to wider issues of economic policy. We made it clear in our election manifesto that the ills of the British economy were many and deep seated, and nothing short of a complete change in direction could put the economy right and set Britain back again on its feet. Such a complete change in direction will take time to effect the cure. We have made this clear repeatedly ever since we took office. Nor can a fundamental change of this kind be made at all easily. In the debate in your Lordships' House on 13th February I described the road ahead as a hard and stony one. And so it has proved.
During the long years of relative decline in the United Kingdom's economic performance, attitudes of mind and patterns of behaviour have been built up and have become entrenched. Inflationary expectations have been created. The view has grown and has taken deep root that people are entitled to an ever increasing standard of living without earning it through increased output and higher productivity. There is the ever present fear, particularly among organised workers, that if they are reasonable in their pay demands and pay proper regard to what their company or industry can afford to pay, some other group of workers will steal a march on them. All these attitudes must be changed. In an ideal world they could be changed overnight, but of course we do not live in an ideal world and we know that it will take time for the attitudes to change. That is why we recognise that it will equally take time for our policies to succeed: but succeed they will.
There are of course those who are opposed to change because they feel that the Government's will will falter and they will be allowed to slip back into the illusory comfort of the bad old ways. But the Government's will will not falter. There is no viable alternative to the Government's policies. We propose pressing ahead with them to success. As my right honourable friend the Prime Minister
1050
said on Tuesday in another place, there will be no U turns.
At the centre of our policy lies the battle against inflation: this requires strict control of the money supply and this in turn means that we must set strict limits to the level of Government expenditure and reduce the public sector borrowing requirement. I have explained the connection between these matters in your Lordships' House on a number of occasions and it is unnecessary for me to do so again.
One of the most important innovations in this year's Budget is the publication in the Financial Statement of the medium term financial strategy. The importance of the publication of such a strategy is two fold. First it underlines the Government's determination to pursue their policies to a successful conclusion. Secondly, it defines clearly what the objective is and enables progress towards that objective to be monitored. For the current year the target range for the growth in the money supply was set in the Budget at 7 per cent. to 11 per cent. By 1983–84 under the terms of the medium term strategy this will be reduced to 4 per cent. to 8 per cent. While of course there are time-lags to be taken into account and there is no precise one-for-one relationship between changes in the money supply and changes in the rate of inflation, nevertheless the implication of these figures for the future downward path in inflation is clear.
In the six months immediately before the election, the money supply grew at an annual rate of 13 per cent. The figures for banking June which were published on 17th July indicated that for the six months to this June the money supply was growing at a rate of just over 10 per cent. per annum. This represents real progress.
Progress on the monetary front has been matched by the reduction in the minimum lending rate which was announced on 3rd July. We realise the burden that high interest rates impose on businesses of all sizes and it is our firm intention, as I have said in your Lordships' House on a number of occasions, to reduce the rate of interest still further as progress is made in controlling the monetary aggregates and reducing inflation. But I think industry must also

1051
recognise that it has responsibilities—and indeed opportunities—of its own in this field. The job of management is to make profits, and, to the extent that adequate profits are made, companies do not need to borrow. The salvation of British industry lies not in Government intervention but in industry improving its own performance. In particular there is a massive job to be done in curbing cost increases and particularly increases in labour costs.
For the first time in two years, there has been a significant fall—of nearly one percentage point—in the rate of inflation. This was for June. For July—the figures for which will be published next month there will be a further fall, and a sizeable one, as the increase in VAT made last year comes out of the comparison. This underlines the point we made at the time that the increase in VAT produced a once-and-for-all increase in the rate of inflation, and so it will prove to be.
We have, therefore, had one reduction. We expect another in the rate of inflation. Of course one swallow does not make a summer, and nor do two, for that matter. Nevertheless, we must build on the achievements which have been made so far. We have at long last the opportunity of breaking inflationary expectations, which is so important in this field.
This is an opportunity we must not cast aside. If we succeed, and we are determined so to do, we shall have set our feet firmly on the path of a progressive decline in the rate of inflation.
While therefore there is progress to report on both the inflation front and the monetary front, the level of pay settlements and their consequential effect on employment remain a matter of real anxiety. The increasing emphasis we are now placing on this question does not in any way represent a change in policy or a change in our views as to the causes of inflation or of the way to deal with it. On the contrary, ever since we came into office we have stressed the importance of moderation in pay settlements and the need for settlements to be related to the company's or the industry's capacity to pay. We have consistently pointed to the dangers confronting both employers and employees if excessive pay settlements are
1052
demanded and employers concede them. Thus as long ago as 19th June of last year, a few weeks after we took office, I said in your Lordships' House:
"The employer who accepts an excessive pay settlement damages his own profits and puts the viability of his business at risk. The employee who insists on an excessive settlement damages the company for which he works and puts his own job in jeopardy".—[Official Report, 19/6/79; Col. 845.]
And so it has come to pass.
One takes no pleasure from one's own predictions in this field coming true. But it is important to recognise that, given the pattern of wage bargaining which has emerged, what has happened to output, to profits and to employment cannot be said to have been either unfore-seen or unexpected. It was, on the contrary, the inevitable consequence of unions pursuing particular wage bargaining objectives and of employers conceding the increases demanded.
There have of course been other factors at work, such as the world recession—itself exacerbated by the rise in the price of oil—which have contributed also to the fall in output and the rise in unemployment. But our position has been made a great deal worse than it otherwise would have been as a result of our loss in competitiveness resulting from our failure to restrain the rise in our labour costs. Other countries have not been so foolish.
There is clear evidence that, so far as employers are concerned, the gravity of the situation is now recognised. Not only have some settlements been negotiated at very much lower figures, but the leaders of British industry are now talking in terms of increases in single figures in the coming pay round. The decisions taken in relation to the pay of Members of Parliament and Ministers and of the people covered by the various bodies dealing with top salaries in the public sector have all indicated a like determination on the part of the Government that settlements on the scale of the past year should not and cannot be repeated. Equally, those responsible for wage bargaining on the union side need to recognise that until output begins to rise again and productivity increases, there can be no increase in wages in real terms; that any attempt to match the increase in the retail price index is impossible of achievement; that settlements must be related to capacity

1053
to pay, and that excessive settlements will result in further losses in output and increases in unemployment for their own members.
We are very fully conscious of the burden unemployment imposes not only on the economy as a whole but, even more importantly, on the individual in terms of financial hardship and of frustration, disappointment and stress. It is for this reason, and not for any assumed political advantage, that we stress the need for moderation in pay settlements. In times of high unemployment there will always he a place for special measures, such as the Youth Opportunities Programme, the Job Release Scheme and the Short-time Working Scheme to help individuals and particularly to put them in a position to take advantage of employment opportunities when they occur. But the main thrust of our policies must be directed to the longer-term, to rebuilding the British economy on a sound basis to enable an enduring expansion of output to take place and thus to provide employment opportunities for all of our people.
The first essential, as I have said, is to establish sound money which people can trust. Only in that way will longterm investment be possible, and only in that way can we devote our energies and resources to improving production instead of squandering them in dealing with the stresses and strains created by inflation. But while sound money provides the only secure foundation on which we can build, much more beside is needed. That is why our policies have been directed to providing both the environment and incentives which are essential if, once we are through the present transitional phase, industry can and will flourish and grow. Very substantial incentives were provided in our first Budget last year, when income tax at all levels was reduced. This year, despite the pressing financial difficulties we face, we have been able to go further, and our measures have been directed primarily to improving the conditions and climate under which business, and particularly smaller business, operates.
The new reliefs contained in the Finance Bill before your Lordships are directed primarily to small businesses, not least because this is from where much future growth will come. Thus, there is the new Venture Capital Scheme; the ending
1054
of certain restrictions affecting close companies; interest relief on borrowing to invest in close companies; the reduction in the rate of corporation tax on small companies; an increase in the VAT registration limits; and substantial improvements in retirement annuity relief. In addition, the 100 per cent. capital allowance will be given for the construction of small industrial buildings, and there are other improvements in industrial buildings allowances.
The Bill also contains provisions for the new enterprise zones, an imaginative experiment in injecting new life into what too often have been regarded as derelict areas. Seven enterprise zones have now been announced: in Northern Ireland, the inner area of Belfast; in Wales, in the Lower Swansea Valley; in Scotland, based on Clydebank; on Tyneside, parts of Newcastle and Gateshead; on Merseyside, Speke; in Greater Manchester, parts of the Salford docks area and the Trafford Park industrial estate; and in London's docklands, the Isle of Dogs. These enterprise zones have been greatly welcomed by the local authorities concerned. We think they have a real future and will point the way to where expansion can come in those very difficult areas.
But even in the present difficult year, our eyes have not been closed to wider considerations. The Bill also contains important provisions to help two particularly deserving sectors of our national life; namely, charities and the national heritage. I therefore commend the Bill to your Lordships, both because it contains important measures which are of value in their own right and because it is an integral part of the Government's strategy for putting the national economy back on a sound footing. My Lords, I beg to move.
Moved, That the Bill be read 2ª.—(Lord Cockfield.)
3.57 p.m.
Lord BESWICK: My Lords, we are grateful for the manner in which the noble Lord, Lord Cockficld, invited us to accept the Bill and especially I welcomed his absolution if we did not discuss the Bill in detail. The clarity and earnestness of his restatement of policy excited my genuine admiration, but I shall not follow him in

1055
close detail because I have some thoughts of my own to offer for consideration. I shall try to be constructive, for while I was away from the workings of West-minister for four years or so, I confess that I came to think very strongly that too much time and effort were spent in Parliament in proving the other fellow wrong rather than trying to identify the truth. That is a criticism one could make more forcefully against the other House, but one notes with hope the development of the Select Committee idea there and one watches with especial interest, in the context of our financial policy, the current proceedings of the Treasury and Civil Service Committee of the Commons.
Let us face it; many good and responsible citizens of this country are beginning to question whether the old party processes of parliamentary democracy, now practised in a minority of the world's countries, are as well fitted as we thought as a machinery of government in the modern world. The noble Lord said our problems were many and deep-seated, and indeed they are, and in this highly sensitive and integrated world they are, I often think, too complicated for any narrow doctrinal solution.
The Prime Minister has said that there is no simple miracle cure for unemployment, and I absolutely agree with her. But the trouble is that this Government came to office believing that they did have a miracle cure for our economic ills, and judging from all reports, and from what the noble Lord has just told us, for all the sad experience of real people outside, they still convince themselves that that policy will succeed, provided that we are prepared to wait long enough and suffer sufficiently long.
Of course we have had the token concessions of the enterprise zones, and I am especially pleased about the fact that the Government accepted the strong recommendations of the NEB about INMOS. They have announced the aid to Dunlop, but unannounced were other decisions not to help in other cases, which will more than offset the benefit of these mini U-turns.
The Government insist, and insist again, that they do not believe in intervention.
1056
The noble Lord himself has just repeated that. Yet they are in effect one of the most dramatically interventionist Governments of all time. The Government intervention with the MLR, the high exchange rates that follow largely from the high interest rates, cuts in public expenditure irrespective of the social and economic effects, are all forms of Government intervention. It is estimated that the increase in the MLR, the insisted increases in public utility prices, and the VAT increases alone caused a 6 per cent. to 8 per cent. increase in inflation; and that at a critical time in some of the wage negotiations.
Let me say at once that too often in our post-war efforts—and I have watched them now for many years—the efforts by Governments of all kinds to manage the economy have been ill-conceived. Too often it has been a question of an easy option. Too often it has been response to pressure groups of either organised workers or the organised employers. I accept that in more than one area of our daily life expectations were in excess of practical possibilities, as the noble Lord said, and we have looked to the Government or society to help when the problem really called for individual effort. I accept all that.
But to say that we have made mistakes in economic management, to say that there are lessons to be learned, is one thing. It is quite another to say now that as a society we give up the effort to manage our economy in a hopeful, positive and civilised way. Learning new techniques in social engineering may be difficult, but relying on the deflation of the 1930s and hoping that market forces will in some way rebuild our Britain is surely a doctrine of despair.
Market forces may well yield short-term profits in some areas, but that can mean—and the evidence before me suggests that it will mean—a shaky and a seedy society. Market forces mean that the Daily Herald gives way to the Sun newspaper and a "page 3" society. Market forces will seek to satisfy the lowest common denominator. The slick characters are the ones who prosper when the market forces have their full sway.
It has always seemed to me as a Christian that we should seek to strengthen what is

1057
good in society, as well as what is good in individual men. I was humbly impressed to read the other day that Pope John Paul had warned in Brazil:
"The persistence of injustice and its consequent menace to society exists when the distribution of goods is based only on the economic laws of growth and a bigger profit".
The point that I make is that market forces will not give us the sound foundations which society needs, and the evidence for that goes back to periods before the present Government took over. No one would be silly enough to say that the present Government alone are responsible for trends that have already developed. But those trends were largely encouraged by those market forces which the Government now say will be the mainspring of our economy.
In a lecture given to the Royal Society of Arts last January—the noble Baroness, Lady Seear, will have special reason to recognise this—Mr. Christian Schumacher said that in the decade to 1978 rather more than half—more than half—of the economic growth in the United Kingdom came from the services sector; not, his detailed study showed, from healthy sport and leisure, but from money-lending of one kind or another, from insurances, from legal services concerned with crime and gambling, from car maintenance, from private security services to combat crime and vandalism. I suppose that one might add—although I do not think that Mr. Schumacher mentioned it—the enormous and extravagant expenditure in advertising to persuade people to buy what they do not essentially need or cannot afford, except on credit. According to Mr. Schumacher, of the public service expenditure, 25 per cent. of the increase since 1970 had gone simply to pay interest charges on money that was already borrowed.
Here again deliberate Government policy is aggravating the most decadent features of the past decade. It is not only the amount of borrowing, but also the cost of borrowing that is so damaging. The noble Lord, Lord Cockfield, will not mind if I repeat the fact that all the money that the Government borrow this year—all £9,000 million of it—will go to pay interest on money already borrowed. Mr. Schumacher summed up in his lecture by saying this:
1058
"In short, most growth in the 1970s has been devoted to sustaining a deteriorating environment".
My Lords, the 1980s are less than a year old, but the trend that Mr. Schumacher identified is accelerating. According to the publication which the Treasury quaintly call the Economic Progress Report, after allowing for special factors, they say:
"… output of the chemicals industry in March and April together was about 4½ per cent. below the 1979 average, while output of textiles, leather and clothing fell 11 per cent. Output of the engineering and allied industries, which tends to lag behind a cyclical movement, was 2 per cent lower".
Those are the real wealth-producing elements in our economic life. Even more recent than the Treasury Report is the CBI survey, which says that 58 per cent. of companies expect to shed labour in the next few months, and 30 per cent. expect export orders to fall.
I know that it is becoming fashionable among certain economists to say that with North Sea oil we no longer need rely on other industries. We have a very long way to go before we can sit back and say that. I remember the late Dick Crossman saying to me that he had never been taught in a class larger than 12. We had great hopes then, fresh from winning the war, of giving every child the kind of opportunities that Dick Crossman had had. But now, with all the economic growth since 1945, we are talking not of reducing class sizes, but of declaring teachers redundant. So distorted are our priorities as I see them that we are proposing a fourth TV channel at the same time that we say that we cannot afford textbooks in the schools.
There was a time when Tory Ministers vied with Labour Ministers to claim a record number of houses built. We will remember Harold Macmillan and others, and figures of 300,000 and 400,000; they were bidding one against the other. Now we debate not how many houses we can build, but rather how we can sell them off.
I was amazed to see recently, in a footnote to a paper given by Sir Keith Joseph, that more houses were built in the second half of the 1930s than were built in the first half of the 1970s. That was bad enough. But this week I see that a Commons Select Committee report that

1059
the planned total of house building by 1985 will be 500,000 down on even the 1977 target.
What sort of society is this? When every teacher has a secure job with adequate equipment; when we no longer have to debate in this House the plight of the homeless; when we can afford to pay our nurses a proper salary; when every home in the land has its own bath, then, conceivably, the need for a new, positive policy to sustain and encourage wealth-producing industries will become less urgent. Meanwhile, the need is urgent in all conscience, and I should like to indicate what, in my view, that need requires. I would say (I hope in a nice sort of way) that it requires a different attitude from Her Majesty's Government. It means a recognition that they may not have a monopoly of the truth. It means giving up this obsession with monetary controls. It means accepting the fact that increasing the volume of goods—essential and saleable goods, certainly—is a more constructive way of fighting inflation than simply reducing the volume of money.
Some of us remember Montagu Norman's imperious precedent when he, too, saw salvation in deflation; and I was greatly intrigued to read a quotation given in an article reprinted in the Economic Journal in March 1971, by my noble friend Lord Kaldor. The quotation came from an internal Treasury minute in 1925 by Winston Churchill, who said of Sir Montagu Norman:
"The Governor shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed".
Sir Winston went on to say that the Governor may be right, but
"… if so it is one of the most sombre conclusions ever reached".
Sir Winston's view was:
"I would rather see Finance less proud and Industry more content".
As Lord Kaldor commented in that 1971 paper, we have had over 50 years' experience in economic theory since Sir Winston wrote that minute and I, for one, refuse to believe that we cannot now evolve a financial mechanism that encourages and does not cripple productive industry. Of course, I agree that we
1060
cannot print money, as was done in the Barber era, but it can be shown that a contracting economy involves printing money also. I see that in the calendar year of 1979 as compared with 1978, more money was in fact printed; and possibly the noble Lord will say what happens when we have declining revenue, on the one hand, and increasing expenditure on social security, on the other. What then happens to the PSBR? Moreover, my Lords, now that the corset control is ended and we are back with the Barber scheme of 1971 of Competition and Credit control, we might well remember the credit expansion and the printing of money which took place then —not to satisfy a booming industry but to service the property speculators. I would ask the noble Lord: What protection is there now against a similar speculative fever developing?
When, the other day, I raised the question of the damage which many claim is being done to industry by high interest rates and an artificially high exchange rate, the noble Lord doggedly read out the brief that all the trouble was due to the wretched foreigner and the equally wretched British worker. Of course we in Britain must do better. As one noble Lord opposite said, restrictive practices are bad, but operating at half-capacity puts up unit costs much more than most restrictive practices; and anyone who says that present exchange rates with present interest charges pose no threat to British exports, despite what has been achieved against that policy up to the present time, is, I suggest, carrying party loyalty beyond the call of duty.
In this matter of interest rates I am not asking for just a little U-turn with another 1 per cent. reduction. I believe we need something much more radical than that. I believe there are more sophisticated ways and means of controlling credit. But those foreign competitors to whom the noble Lord referred often have Government help with interest charges; and I understand that interest-free loans are available for their exporters. A colleague of mine in British Aerospace, with as good an export record as anyone in this country, drew up a scheme for an organisation similar to the ECGD, but with the responsibility and the means for ensuring adequate finance at reduced rates for appropriate export contracts.

1061
A Government determined to tackle the present situation would carefully examine a scheme of that kind.
There is another area of our affairs in which, I suggest, the Government's philosophy of a free-for-all within their monetarist rule is probably mistaken; namely, that covered by wages, salaries and incomes. Here, surely, economics and equity alike call for a positive and an overt, not a covert, Government incomes policy. Most of us would agree—I certainly do—that total incomes cannot be allowed to outpace the total national product without leading to trouble. I would agree that the Government's deflationary squeeze is already having some effect on settlements. But it is not an effect which can be squared with any sense of fair play or of civilised priorities, or, indeed, of sound economics.
We noted in the House the other day the 14 per cent. BBC settlement compared with the ITV two-year agreement of 45 per cent. plus. The press report of 500 young people, some with degrees, queueing up for eight £32 a week jobs attracted much attention. Some may look at that as evidence that the monetarist free-for-all is working. But in the Daily Telegraph in which I read that report I also read, two columns away, that ITN had accepted a deal which gave cameramen £13,000 to £20,000 a year. Elsewhere, a newspaper was offering 24 per cent. in response to a 30 per cent. claim; while at The Times they were claiming 35.2 per cent. Conceivably, we may have a society in which the unemployed can afford to stay at home and read The Times and look at television, but I doubt whether it is going to be a very stable society; and. maybe, with the benefits of North Sea oil some people will be able to do rather better than others.
One is able to quote these disproportionately high figures because the claims are openly argued by responsible trade unions, but I suspect that behind that trend which Christian Schumacher spoke about, and in the same areas of which he spoke, there are less publicised increases which make a cynical mockery of the 14 per cent. for nurses or similar figures for engineers in hard-pressed engineering companies. Incredibly, this morning there is a press report that the Bank of England —which, as the noble Lord himself has
1062
said, and has repeated today, has argued so forcefully for pay restraint—has shown their faith in restraint by their agreement to a pay increase averaging 24 per cent. It is 24 per cent. average, so some conceivably get rather more. How does the noble Lord square that with his declaration of restraint? Is it not possible for us to try again for some fairer agreement on the incomes front?
I should like to say something, if I may, about the PSBR. The noble Lord repeated his belief that control of borrowing was necessary; but would he not agree that, although we understand what he said, it is difficult to identify the evidence and the supporters for his policy? I read very carefully what the Wilson Committee had to say. I failed to see support there. I gather that even Mr. Friedman disapproved, and we shall await with interest what the Select Committee have to say. May I suggest that we should test the PSBR figures not by their size but for their purpose. It should not be a matter of how much but for what, that should determine whether we agree with the borrowing requirement. Of course, borrowing to sustain inflated bureaucracies is wrong. Administrative inefficiencies like the new structure for the National Health Service or the top-heavy structure of local government—both, incidentally, the product of Conservative Governments —certainly ought to be tackled. Borrowing to support wasteful administration is one thing; but to lump in with that the expenditure of money intended for productive investment, and on which a proper return can be expected, is a different matter.
Nothing angered or frustrated so deeply the chairmen of essential and profitable publicly-owned enterprises than to have their proposed investment offensively denounced as a drain on national resources while investment in a probably much less essential private company was hailed as a triumph for the economy. I would ask again that the PSBR be scrutinised in future less for its size and more for its purpose.
I referred to publicly-owned industries and I hope that we might have one day in this House a full, unprejudiced and constructive debate on the constitution of these organisations, their relation to government and the role they play in our

1063
economy. This afternoon I would say only this. Some countries like the USA do not like public enterprise and do not set up publicly-owned industries; some countries like, say, France set them up and support them. Only in Britain do we set them up and forthwith seek to demoralise them with criticism, usually inaccurate, mostly unfair and always damaging to the national effort. Let us not undervalue the contribution of public enterprise, of public spirit and public service. Most of the great achievements of British history have come from the public spirit and patriotic pride—the spirit that motivated our noble friend Lord Hunt and his team when they mastered Everest. It has a far greater potential for good than fashionable market forces.
My Lords, I have tried to suggest that, given goodwill, we could together find a more hopeful means of employing our human and material resources; of encouraging our productive investment on a much larger scale than the enterprise zones and a new attempt at an agreed, permanent, not temporary, incomes policy. We shall, as practice requires, give this Finance Bill a Second Reading. Before we see another Finance Bill, is it too much to hope that we shall all pay heed to what Sir Winston Churchill said 55 years ago, and seek to ensure that our policies may then leave the moneylenders less proud and the real wealth producers more content?

BRITISH SHIPBUILDERS: FINANCES
The MINISTER of STATE, DEPARTMENT of INDUSTRY (Viscount Trenchard): My Lords, if it is convenient to the House, I will now repeat a Statement made this afternoon by my right honourable friend in the other place on British Shipbuilders' finances. The Statement is as follows.
"With permission, Mr. Speaker, I wish to make a Statement on British Shipbuilders' finances.
"Last July I informed the House of the framework of the Government's support behind British Shipbuilders' efforts to achieve viability within the
1064
financial limits set. British Shipbuilders' report and accounts which were being published yesterday and which I have laid before the House, show the position for the last financial year. British Shipbuilders have kept within their external financial limit of £250 million; but have exceeded slightly the trading loss limit of £100 million, after crediting intervention fund assistance. There are, in addition, extraordinary losses of £42 million relating to restructuring.
"For the current financial year, British Shipbuilders have an external financial limit of £120 million. In February, the corporation warned me that British Shipbuilders might need to exceed their external financial limit by some £20 million, but in view of the uncertainties, it was agreed that a further review of the corporation's cash needs should be carried out as soon as the situation had clarified. At the end of May, the corporation advised me that their forecast cash requirement for this year had risen to £187 million.
"Some part of the increase in their cash needs is due to causes outside the direct control of the corporation, such as the steel strike; but, like the private sector, British Shipbuilders have to be able to react to the unexpected. We are not satisfied that sufficient action and economies have yet been taken by British Shipbuilders to reduce the rate of loss in merchant shipbuilding, ship-repair and marine engine building, and generally to curtail expenditure and increase efficiency, and to raise funds through such measures as disposals.
"I have asked the new chairman to examine all possible ways of staying within the limit of £120 million and to report to me on the options for reducing British Shipbuilders' cash requirements for both this year and next. I have also stressed the importance of staying within this year's loss limit. Without corrective action there is a risk that their cash requirements for next year would also remain unacceptably high. The chairman has already reported to me that he sees scope for savings in administration.
"We are unable to consider British Shipbuilders' financial requirements until the chairman has completed this

1065
assessment. Should the Government then decide, after consultation with the commission, to advance additional funds, this would involve a winter supplementary estimate, and, if needed before then, would be provided by a repayable advance from the contingencies fund. I shall report to the House again later this year.
"Mr. Speaker, the market for both shipbuilding and shiprepair remains difficult. The number of merchant ship orders placed with British Shipbuilders over recent months has been welcome; nevertheless, as the new chairman warned on the first day of his appointment, those orders are not sufficient to ensure viability. Nearly every order has been taken at the maximum permissible subsidy level. While there has been notable cooperation between management and unions in meeting the difficulties of the past year—and I would like to pay tribute to that co-operation--there is still a very great deal that needs doing, particularly in improving productivity, if the industry is to achieve the levels of competitiveness essential for a secure future."
My Lords, that is the end of the Statement.
4.28 p.m.
Lord BRUCE of DONINGTON: My Lords, the House will be grateful to the noble Lord for having repeated the Statement made in another place. I am bound to say that the speed with which this Satement was made after the publication of the accounts is really hardly fair either to the Members of the other place or to the Members of your Lordships' House. The accounts of British Shipbuilders to which this Statement refers became available in the Printed Paper Office only this morning; moreover we on this side of the House were unaware until well after lunch that such a Statement was going to be made. This hardly gives time to be able to study the Minister's Statement against the background of the information that ought to be available for people to pass comment upon it. I myself speak as a chartered accountant. I would not advise on a statement which refers to accounts unless I had adequate opportunity of examining the accounts
1066
that the statements referred to. I therefore trust that in the future when the Government feel constrained to make Statements which involve the examination of accounts and other documents, at least courtesy should be shown and regard to the convenience of Members of your Lordships' House—and the same considerations apply in another place—to enable full and adequate study to be made.
Regarding the Statement, one is slightly reassured by the fact that the rather sour nature of its contents is to some extent mitigated by the mention that, should the Government decide that some further aid is necessary, a winter Supplementary Estimate would have to be made. Many of us are a little worried about the Statement:
"We are not satisfied that sufficient action and economies have yet been taken by BS to reduce … expenditure and increase efficiency, and to raise funds through such measures as disposals".
Who is "we"? Who is not satisfied? Is it the noble Viscount's right honourable friend the Minister for Industry who is not satisfied? On what grounds is he not satisfied? I doubt whether there is sufficient in the existing Statement to give any confidence in any judgment that he might reach upon this matter.
The House has only recently spent many days in unscrambling the National Health Service organisation that he perpetrated on the country; and the country as a whole is only now recovering in part from the damage that his decisions did on the whole of British Steel during last year. We therefore venture to query the competence of the Secretary of State to arrive at any judgment.
We note that the noble Viscount appreciates that there has been notable co-operation between management and unions in meeting the difficulties of the past year. That is very good. What has the noble Viscount to say about the increased costs that British Shipbuilders have incurred due to the delay by the Ministry of Defence in putting orders with British Shipbuilders that have been phased for earlier dates? That involved them in very considerable extra labour cost. Is the noble Viscount aware that they, like so many other industries, have suffered very severely from the increase in electricity charges and are likely to do so the more?—an increase that has been dictated by the Government themselves.

1067
There have been difficulties and the Government's suggestion is their usual one. They say that the shipbuilding industry needs to improve productivity. They also emphasise once again the need to increase in competitiveness. Will the noble Viscount give consideration to providing to the House particulars of how much capital has been exported from the United Kingdom both before exchange control and after the abolition of exchange control during this Government's period of office? What movement of capital has taken place to other countries such as Brazil and Korea for investment in competing shipyards by British capital operating at far lower cost? Will the noble Viscount give the House some particulars of that when he finds it convenient? Finally, will he bear in mind and emphasise to the country that if all British shipowners purchased their requirements from British shipyards the turnover of British shipyards would multiply two and a half times?
4.34 p.m.
Viscount SIMON: My Lords, from these Benches I should also like to thank the noble Viscount for repeating this Statement. As the noble Lord, Lord Bruce of Donington, said, it is rather difficult to make intelligent comments on it when one has had so little time to look at the report. None of us can have been surprised at the difficulties which British Shipbuilders have had in keeping within their cash limits. This is one of the great difficulties about the cash limits system. A figure is arranged, I suppose before the beginning of the year, and long before the year ends any figures that may have been forecast are bound to be wrong because of inflation and other matters of that kind, quite apart from the special difficulty that arose over the steel strike.
I do not think that a statement that the corporation is in danger of running beyond its cash limits is one that causes us surprise. I am delighted to know that the matter has been tackled vigorously. We are also in some difficulty in making a comment at this stage when the new chairman has been in office for less than a month. One would probably have a much more useful discussion—and I hope we shall have
1068
an opportunity for one—when the Minister makes a Statement later in the year and we can see how things are going.
There are two things in the report (which I have read very briefly) to which I should like to draw attention. One is something to which the noble Lord, Lord Bruce, may have been referring. On page 11 the chairman reports that there were gaps in the programme of some of the yards due to lengthy approval times for contractual negotiations. I am not sure to what that refers; but I hope it does not mean that when British Shipbuilders are negotiating with a purchaser that there is somebody in the Government interfering with those negotiations and saying: "No, you must not do this or that". I hope that is not implied; if so, I should have thought that this was a very bad way to run the industry.
My second comment relates to industrial relations. I was very pleased to read the good report of the improved industrial relations in this previously very difficult industry. All concerned should be congratulated upon that. I have one small technical point on this: the Act required that there should be a report on the industrial relations in the annual report, which I took to mean the annual report of the directors. It is actually made in the chairman's statement. It could be thought—and I hope that the noble Viscount will be able to confirm that I am wrong in my suggestion—that this was the view of the chairman and was not necessarily shared, let us say, by the members of the board who come from the trade unions. I hope that he will be able to put my mind at rest about that.
One other final, tiny point is that towards the end of the Statement the noble Viscount said that the Government would have to decide about additional funds after consultation with the Commission. I was defeated as to who the Commission are, or is it a misprint for "corporation"?
4.39 p.m.
Viscount TRENCHARD: My Lords, I thank the noble Lords for their comments. I understand their difficulty in not being able to comment in depth on the report and accounts when they were published only yesterday. If I, in my comparative

1069
ignorance, have the procedures of the House right, I do not think that this would be the occasion for a far and deep-ranging debate on the subject; but we have not done it just to inconvenience noble Lords, for obvious reasons. The Recess is coming, and the accounts were to be published around this time of the year in any event. As the noble Viscount, Lord Simon, said, the Statement makes very clear that there will be a further occasion later in the year which will perhaps, as he suggested, be a better one for a fuller discussion.
The noble Lord, Lord Bruce, picked up the phrase which we have used in this Statement and indeed in the Statement on British Stecl, that we were "not yet satisfied". When one has losses of the size which I shall mention in a moment and when one decides, either at the end of a tour of duty or at any other time, to appoint a new chairman, I think it is natural that one asks him to look at the size of the figures concerned and to look into all the possible headings which we all know exist. That is what we have done and I think we have a duty to do it, particularly as in two years the bill to public funds and the taxpayer will be approximately £370 million in public dividend capital and £60 million under the home credit scheme.
I think, touching on the point raised first by the noble Viscount, Lord Simon, that changed circumstances—and there are changed circumstances in the world economic situation, in the shipbuilding world and in Britain—call for revision of plans, and there is not a business in the country that has not had to re-examine its plans. This would have been inevitable under any policy or in any conditions. As a businessman for most of my life, from time to time I have complained of the need to make budgets which would be certain to be inappropriate for the conditions we found in front of us, particularly as more and more one had to do it on a five-year as well as on an annual basis. But there is no other way to direct a business prudently and, when conditions do seriously change, there is inevitably a need to look at everything again. That has not yet been done in the case of British Shipbuilders.
I do beg the noble Lord, Lord Bruce, perhaps beeause he has now done it so
1070
often, to resist the temptation to criticise my right honourable friend the Secretary of State for Industry in a nearly personal way. My right honourable friend has perhaps faced up to these hugely escalating bills in relation to nationalised industries to a greater extent and in a more courageous way than any of his predecessors.
The question of defence orders was raised by the noble Lord hut, in the time available for replying to comments on a Statement, I shall not go into detail except to say that the level of naval orders placed in the last financial year was 22 per cent. higher than in the previous year and the degree of change in ordering in different circumstances was very small.
I have dealt with one of the points raised by the noble Viscount, Lord Simon. On the page 11 point, I am sure we do not mean the form of intervention which he feared. With regard to industrial relations, I am quite sure that the Chairman's statement reflects the view of the whole board, and indeed the view of most other people with knowledge of this industry—in other words, the co-operation has been steadily improving over several years and, in spite of appallingly difficult conditions, it is continuing.
The reference to "the Commission" is actually to the European Commission. As your Lordships will know, both the Fourth Directive and the proposed Fifth Directive bear on the overall amount of aid given to shipbuilding in various different forms, both on a European basis and on a national basis, which have to be brought into account.
I shall not follow the noble Lord, Lord Bruce, into his questions about the outflow of British capital generally, because I think that would be more appropriate for another time. As regards his suggestion, if I understood him correctly, that if all British shipowners bought British ships the volume built in British yards would go up two-and-a-half times, I have not those figures with me at the moment. I have had them on a previous occasion, and if my recollection is correct—if I am wrong I will apologise—on the last occasion when we were debating this topic in your Lordships' House they showed that the majority of British shipping companies' orders are still placed

1071
in home yards. However, I may be out of date on that factor. Clearly, it could never be all. In the world shipbuilding scene as it now is, it must be clear that we shall not he the best constructors of every kind of ship that there is; but certainly our endeavours to promote the possible competitiveness of British Shipbuilders are designed to get a higher proportion of British ships built in British yards, and every encouragement will be given in that direction.

FINANCE BILL
Debate resumed.
4.47 p.m.
Baroness SEEAR: My Lords, I should like to begin by saying how much I agree with the sentiments expressed by the noble Lord, Lord Beswick, when he said that the problems facing this country are far too serious and far too complex to be solved by the application of what are very largely out-of-date dogmas. If we are going to get anywhere on all sides of this House, progress has to come from a rejection of the over-simplification of dogmas, however dear those dogmas happen to be to the hearts of Members in all parts of this House. In the same spirit, the noble Lord he said that what was needed today was the getting together of those with the greatest ability and goodwill, those with the greatest knowledge and insight in the country, in an attempt to find solutions to the overwhelmingly difficult problems that face us. It is surely one of the great merits and advantages of your Lordships' House that I think we find it, with perhaps a few rare exceptions, rather difficult to keep the party adversarial game going. We are at our most natural best when we are being least partisan; and if there were no other reason for keeping your Lordships' House in existence, it would be desirable to have it as a counterpart to the dogfights which take place in another place.
In that spirit, I should like to say that there are many aspects of the Government's policy which we do in fact support and on which we can congratulate them. However, it will not surprise the noble Lord the Minister to hear that this is not going to be the sole burden of my theme.
1072
On a technical point—since the noble Lord the Minister began on a technical point also—I should like to say that we very much welcome the bringing together of the Budget and the Estimates of Expenditure. It really is a nonsense of the first order —and now that this change has been brought about it seems quite extraordinary that it should not have been done decades ago—that we should consider separately the raising of the money and the spending of it. If any of us did that in our private lives, our overdrafts would be much larger than they are at the present time.
I do not propose to say anything—and I am greatly relieved that I do not have to say anything—in detail about the content of the Budget. It is not the function of your Lordships' House and it relieves us of an extremely laborious and taxing duty. There is, however, just one point which I should like to make, if only to get it on the record. Some time back I accused the Government's predecessors of being bewitched by the RPI. The RP1 has its place in public life, and it is a useful measure of what is happening, but to govern one's policies by an excessive veneration of the RPI does not seem to me to be statesmanship of the highest order; nor is it compatible with what I think all sides agree is, perhaps, the Government's major virtue, which is their courage.
Why, then, did the Government falter when they had an opportunity of increasing the taxes on drink and tobacco—although I am not a smoker, I will not say I am as fond as anybody else of the other half of that pattern of expenditure but I have absolutely no objection to it—and fail even to bring those taxes into line with the increase in inflation? They have not even indexed the taxes on drink and tobacco, because, we believe, it would have increased the RPI. Yet, surely, when we see where taxes have fallen instead, in order to bring in the revenue, it was an act of quite uncharacteristic cowardice to fail to do that. So I urge the Government next time round to treat those duties in the way in which they surely deserve to be treated, and save the burden on taxpayers in other directions.
Having said that, I want to make some other points about where we give full support to the Government's policies. First, the Government are right in saying

1073
that the first overriding job is to bring down inflation. Inflation has haunted us for decades and if we do not stop it now it will get progressively worse—there can be no question about that—and we have great sympathy with many of the things that the Government are trying to do in order to curtail inflation. Secondly, we agree that it is urgently necessary to tackle the root causes of the disease, and not to deal with symptoms. The temptation always is to deal with symptoms. to get a short-term pay-off, and then hope that it will be your successors who have to deal with the longterm illness from which the economy suffers. The Government are attempting—not always in ways with which we would agree—to get at the heart of the matter, and not to deal simply with symptoms. For that they must have the support of anybody who really is convinced that the necessity now is to stop the long downward slide which has been the story of the economy of this country.
I should like also to say that we reaffirm —and here I am having no compromise with a modification of doctrine or, if you prefer, of dogma—our support of rejection of import controls. Surely, this comes appropriately from the Liberal Benches. It is tempting to respond and the pressures are rising on the Government all round to introduce import controls. Many economists of high standing in this country are saying that it is the way out. To us, it would be a disastrous surrender, a short-term solution, which would only make the long-term position more serious. It would disguise the seriousness of the problems which face us. It would make it more difficult for manufacturers to resist claims from trade unions, if they were operating behind tariff walls which were keeping out our competitors.
There is just one reservation to this resistance to import controls, and that is where it can genuinely be established that our competitors, bringing imports into this country, are themselves breaking the rules. I do not think the answer to competitors who break the rules is to break the rules ourselves. The answer, surely, is to explore and publicise and press for action to see that the rules are kept. This makes plain what, surely, should in any case be self-evident, that the economic problems—they are not economic crises; they are far too long-term for
1074
crises—that we face today are international problems, which require international action and international understanding, and they cannot be dealt with on a purely national level.
However, having said that, surely the mere fact that we recognise that the problems are international, and within the international framework, means that they require EEC policies to deal with them. The implication of that, surely, is that national policies must have an element, at any rate, of intervention, because there is no point whatsoever in attempting to deal on an international scale with economic problems, if Governments, having agreed on some international approach, do not turn to their own countries and implement those policies at the national level. That must require some degree of intervention or, at least, an acceptance of the need for intervention, unless the international agreement simply amounts to an agreement to do nothing, which would hardly be a fruitful outcome.
On the question of attempting to root out breaches on imports where our competitors are breaking the rules, are we really using sufficiently the machinery that exists inside the EEC, in order to deal with breaches of this kind? Are we using our Members of the European Parliament, who ought to be extremely active in taking action and in raising issues where questions of this kind are concerned? Are we in this House, and are Members in another place, in sufficiently close touch with the MEPs so that they can be active in seeing that questions of this kind are publicised, and in pressing to get action taken? This is surely one of the functions of MEPs, one of the functions of Strasbourg, and I doubt whether we are making sufficient use of the opportunities that exist. That is a far better way, surely, than caving in to the strong pressures for import controls.
But there is no doubt—and those who travel around the country must be aware of this—that in recent months the clamour for import controls has been rising, even from people who in previous months, or even a year ago, would have opposed such policies. If we do not concede import controls—and I sincerely hope that the Government have no intention so to do—then we must try to find other ways to

1075
relieve the pressure, particularly on those industries which are in the export market, and which are the industries most seriously hit at the present time.
I suppose there can be nobody in your Lordships' House who has not met somebody in industry in the last month or two and been told that since about four months ago the position has deteriorated very rapidly indeed, and that there is an anxiety which will get greater if the present position persists. The demand—when not for import controls—is for some adjustment of the sterling rate. Surely the best way to assist industry, while resisting import controls, is to reduce the MLR. A reduction in the MLR would surely be followed by some adjustment of the sterling rate. The high level of interest payments is one important element in the maintenance of sterling—and this has come out quite clearly from the Finance Committee in another place—at a level which is far beyond what its rate ought to be in realistic terms. I know that the Government have already brought the MLR down a point, and I also know that they have said repeatedly that they would like to bring it down further. Is there not an opportunity here to attempt to get a reduction of the MLR—if you like, as part of a bargain with employers and trade unions?
How I wish, by common agreement, that we could abandon the phrase "U-turn", once and for all: that the Government would be willing to hold discussions with the unions and the employers and to put it to them that a reduction in the MLR would be possible and practical if the Government could be assured of a reasonable curtailment of pay claims. They could always say that if pay claims rose above that reasonable level then the MLR would have to rise again. It is possible to trade off a reduction in MLR against control over pay. It is something over which the Government, at the end of the day, have the upper hand. They can always raise MLR if they wish so to do.
One hopes that the Government will not turn down this idea simply because it could be seen to be a U-turn. We have got to have agreement and understanding between the employers and the trade unions. Discussion about these matters is not corporatism. The Government
1076
have control at the end of the day. It is simply sensible management and getting the collaboration of the people upon whom you have to rely for the proper implementation of your policies. It is not a U-turn; it is simply a sensible adjustment to changing circumstances. That is a proper line for any Government to take. This would give tremendous relief to a great deal of industry. It would have the double effect of the ability to borrow money more cheaply and of some downward modification of the level of sterling.
In addition to modification of the MLR, the further criticism of Government policy that I would want to make, and that we on these Benches would want to make, is the Government's obsession with the PSBR. Of course we have to have control over the money supply if we are to fulfil the overriding policy of curtailing inflation, and to that policy, as I have said, we on these Benches give full support. However, we do not believe that that means an indiscriminate restriction upon expenditure.
There is an enormous difference, surely, between expenditure on matters which are wasteful, for which there is no future, and expenditure which is in fact a reduction of current loss and an investment for the future. There is a tremendous difference between paying out money endlessly to prop up a building which is inevitably going to fall down—I am not referring to the room across the Prince's Chamber—and mending a leak in a roof which, if you do not mend it, is going to have a deleterious effect on the value of the property for years to come. There is a tremendous difference between stopping a binge which never ought to have started—and in this country there have been plenty of binges which never ought to have started—and buying the seed corn without which you cannot possibly have a harvest and with which you can hope to reap a good harvest. It is that distinction which we are urging on the Government.
May I identify those things which will cut current loss, that will help us to build for the future and that we ought to risk spending money on. Let me deal with the encouragement of high technology. We are very glad that the Government have at last decided to back Inmos, but

1077
they very nearly missed the bus on high technology. Wherever one goes in industrial quarters, one is told—and there seems to be widespread agreement about this—that whatever the cost may be and whatever the price in terms of employment may be of the introduction of high technology, failure to do so is going to be far more disastrous. Therefore the need for the Government to spend money on what is an essential investment surely cannot be challenged. The alarming thing is that the Government hesitated for so long.
Again the Government say, and we believe them, that they want to encourage small businesses. All the evidence is that the biggest difficulty of all for small businesses is obtaining premises. There should be expenditure on the provision of premises. As well as helping the construction industry, it would make premises available in many parts of the country for people who are anxious and able to set up businesses and who would do so successfully. That, surely, is the sort of expenditure for which the Government can strain the PSBR.
Finally, I turn to the expenditure on people, upon whom at the end of the day it all rests, The most hideous aspect of the present decline is what it is doing to young people who are now leaving school. Everybody wrings their hands about this and says how deplorable it is. I know that the Government, through the MSC, have been spending money, but they have been curtailing the money which they have been spending. Surely there is room here for adventurous expenditure. On the one hand, we have youngsters coming out of school who are not getting jobs, while on the other we have youngsters coming out of school who are not getting jobs and who may never get jobs because they lack any kind of skill or qualification. All the evidence suggests that whatever happens in terms of an uplift in the trade cycle or a restructuring of industry, the future for the unskilled is bleak indeed. Can we not implore the Government to put money into the training of school-leavers?
I should like to suggest, as I have done before—this is a personal suggestion, not one which comes from my party or from the committee of your Lordships' House with which I am associated—that
1078
employers should be encouraged to take on two school-leavers for every job, and that for half of each day each youngster should be given training and further education. We should then reduce the numbers of youngsters who have nothing to sell in the labour market except physical strength and time because the market for people so ill-equipped will continue to be bleak, whatever happens to the economy as a whole. We in this country have the poorest record in the provision of vocational training. Now is the time to invest in the people upon whom the whole of the future depends.
The noble Lord, Lord Beswick, deplored the way in which money was spent as a result of market forces. I should like to suggest to the noble Lord that here he is looking at a symptom and not at the main cause. If the market forces lead to a very poor distribution of expenditure, it is because a great many people in this country choose that kind of expenditure. This is a measure of how we have failed to invest in people.
5.8 p.m.
Lord MARSHALL of LEEDS: My Lords, first may I crave the indulgence of your Lordships' House? I must confess to some disappointment that my noble friend Lord Cockfield totally omitted reference to Clause 9 of the Bill, the definition of Scotch whisky and Irish whiskey. Not that I am a connoisseur, just a satisfied user! To be serious, your Lordships would, I think, expect me, with my background, associated as it has been with the larger provincial cities—the great conurbations as well as London —to have something to say about the vital innovation concerning enterprise zones announced by the Chancellor in his Budget speech.
The tax proposals of this Bill relating to the zones are, I think, important: first, 100 per cent. capital allowances for income and corporation tax purposes for industrial and commercial buildings for 10 years after designation and, secondly, exemption from development land tax for disposals of land within 10 years of designation. On top of this, we are to expect a relaxed and speedier planning régime and exemption from rates for industrial and commercial buildings —not insignificant relaxations. These factors are the key to

1079
securing and promoting a revival of stale and stagnant inner city areas and to providing conditions in which new businesses, including what we have come to know as small businesses, will be allowed to originate and flourish, where employment can be generated and new jobs provided.
On Tuesday last the Prime Minister announced seven enterprise zones, and I am not at all disappointed that not a single one of those zones is to be in my own county of Yorkshire. Your Lordships would hardly expect me to admit that Government either needed to, or indeed was qualified to, urge enterprise on the hard-working Yorkshire folk. So this Bill takes a significant step forward in tackling the problems of the urban wastelands that have hitherto proved so intractable. But allied to that concept is the fact that we have general provisions designed to encourage and assist small firms. I shall not go into that because my noble friend Lord Cockfield has mentioned a lot of them: capital allowances on construction, venture capital, reduction in small companies' rate of corporation tax, relaxation in retirement annuity relief qualifications, and so on.
Financial institutions and banks have a major part to play. They have to be more prepared to back small businesses and I hope that they, the banks and financial institutions, will do that by backing the judgment of their local managers, whose recommendations, based on local knowledge and experience of what things look like on the ground, are likely to be significantly more accurate than a view taken from the head office of the bank in the City of London.
These concepts contained in the Bill have been given qualified support by those custodians of the planning scene, the Town and Country Planning Association—I think seven out of 10. The CBI have welcomed the Government's plans, perhaps in less qualified terms, but I saw in The Times of this morning that Professor Mackay of the Heriot-Watt University has marked down the whole exercise to something like "Gamma minus query minus", on the grounds that there will not he any significant inducement to manufacturing industry in the enterprise zones.
1080
I very much hope that the locations which have been chosen with an eye to their being centraes of development which, with the "ripple" effect or, as it is now called, the "knock-on" effect, will be of maximum benefit to a wider area. I hope that all this will happen, so that each zone will achieve both the maximum input to the Government's national economic policies and the necessary impetus to encourage the wider regeneration of housing, of shopping, of soclal facilities in each relevant sub-region.
Is it not strange that for a highly civilised nation, famed for its inventiveness, these areas are—and have historically been—the biggest challenge and the hardest nut to crack? Can we not as a nation respond to those challenges with courage and with determination and transform them into our greatest opportunities? In regard to this Bill, I congratulate the Government; I also congratulate my noble friend Lord Cockfield for the way in which he has moved the Second Reading in your Lordships' House this afternoon.
5.15 p.m.
Lord BALOGH: My Lords, it is a very great privilege to congratulate the noble Lord, Lord Marshall of Leeds, on an extremely interesting, constructive and non-controversial speech. I hope that in future he will really reveal his true self and then we shall cross swords. But I shall always remember this occasion of his first speech, which really shows his profound knowledge of regional matters, which in these difficult days are obviously in the forefront of our interest.
I turn now to more mundane and less agreeable matters. We have before us a Finance Bill which has already become totally irrelevant in helping the country out of the dreadful situation into which it has been precipitated. Even the Government are admitting that unemployment is affecting us far more severely than was at first expected and over a much wider area, and the deterioration in the so-called "prosperous triangle" is really remarkable. Estimates of revenues and expenditure, on the basis of which the measures before us have been planned—and of course the medium-term plans—are by now obsolescent. The

1081
complacent satisfaction which is so evident in the Prime Minister's speeches on the lessening of the curse of inflation neglects the price at which it has been bought, as we on this side of the House have said, in the unemployment and the slump of an inter-war severity, thus ending the period of prosperity initiated and maintained since the end of the war.
The Prime Minister has blamed most, if not all, of our grievous economic ills on the oil price rise and the world depression which she has attributed to the former. A closer look reveals the emptiness of these excuses. The oil price crisis represents a transfer of no more than 2 to 3 per cent. of the national income of the OECD countries from the West to the Middle East. This is but one year's normal increase in the national income of those countries. Given good will and intelligence it should have been dealt with quite easily as a disagreeable incident, but no more. It was the multiplier effect of the monetarist policies adopted in all OECD Western industrialised countries trying to eliminate a deficit which was unrequitable, which inflicted deflation and slump on each other.
It is this insensate combination of policies, of a cumulative restriction with the rate of interest soaring to usury hcights, which caused the major setback from which we are now increasingly suffering. Its effect was that in a situation of world penury and misery the West is shamefully keeping some 20 per cent. of its productive powers in desperate idleness. Industries are closing down, especially in this country; our manufacturing output is still below the previous peak of 1973, uniquely in the industrialised world. No other country of major importance has so bad a record. As bankruptcies mount the equity base is undermined and we might at any moment be running into a crisis of confidence. This was the process which converted the setback of 1929 into the catastrophe of 1931–33. The colossal balances of the oil states have no counterpart in sufficiently large international safety nets and the orthodoxy flourishing now all over the world prevents a timely intervention.
Mrs. Thatcher's eager contribution to this collapse was, especially in Venice, notable. Her advice to the unemployed to migrate from one place of high un-
1082
employment, where they have connections, to another place with a lower but still high unemployment where they know no one and can turn to no one—and I know what that feels like; I was in that position in 1930—reminds one of the advocacy of another famous lady of high and pernicious influence to the starving peasants of France to eat cake if they had no bread.
She and her Ministers insist that there will be no re-consideration of policies, no U-turn. Yet there is no doubt that some changes are being forced on the Government. Just as Mr. Heath Mark I had to go to the succour of Rolls-Royce, we have seen, as was predictable and was predicted, further help given to ailing industries by the Government. An inverted J-turn, not quite a U-turn, has appeared. Its shorter end will elongate itself into projects such as Inmos, and the half-turn will be followed by a straight backward retreat alas, too late, too little.
Other signs of the lessening of monetarist influence are the increasingly insistent exhortations to the working class to show restraint in wage bargaining. This does not include, of course, highly placed officials and others who grab what they can. Unemployment and appeals to patriotism are not in the monetarist instruction book. They show a loss of faith. The money supply should do the job unaided. We were told it would. It did not. If workers have to be persuaded into moderation, where is the sufficiency of the control of the money supply as a basis on which to manage the economy and attain full employment and greater efficiency?
I have so often spoken in this House of the changes in the structure of the world economy which renders the use of policy instruments fashioned for situations totally different from our own so very dangerous. In an oligopoly the sort of policies which the Government are pursuing are not healers; they are killers. The incapacity to see the problem and to understand its importance has been shown very well by Professor Hayek's letter in The Times, in which he agreed with Professor Friedman that "there ain't no thing like cost inflation". He should come here for a longer visit. As The Times so aptly pointed out, we are entering untested waters. In the 1930s Hitler rose on this sort of misery and the decline of Europe was sealed.

1083
The Prime Minister has been demanding higher productivity, and so of course has her true follower, the Minister present. She does not seem to realise that falling output will result automatically in the decline of productivity because overhead costs cannot be cut as production slides. Nor does she seem aware that the rise in the rate of sterling reduces our productivity in terms of foreign currencies. The Minister does not either. The "uncapping" of sterling—that is to say the discontinuation of the bank's intervention to keep sterling at a level which safeguards our competitive power—has increased costs, except of imports, but they are a minor item. Otherwise the effects of an appreciation of the currency are exactly the same as those of high wage bargains. While the pound appreciated by 50 per cent. against the dollar, the Japanese yen fell by some 25 to 30 per cent.
Does Mrs. Thatcher not recognise her handiwork in the Japanese having overtaken in our own market the only British motor car producer left? It is the Governor and the Chancellor between them who, more than anybody else, are responsible for our present plight. If the gossip columns of the quality papers can be trusted, the Prime Minister's blessing is the essential overriding influence. All this is the direct result of the primitive but insensate belief that any and every increase in the money supply, however defined and however undefinable, is inflationary.
Insidious voices have been heard proclaiming that the North Sea wealth can only be enjoyed if we sacrifice our manufactures. What pernicious nonsense! We have already squandered that wealth on foreign imports. Our current balance of international payments, far from having a surplus, is barely in balance, despite the oil, having suffered vast deficits. The oil and gas will run out in a couple of scores of years. The loss of manufacture means unemployment and social disarray: yet we are already menaced with that curse by the increase in potential manpower. No doubt the present figures mean less than those of the inter-war period, but in alienation, loss of dignity and actual hardship unemployment now is exactly the same pernicious influence on national existence as it was in the inter-war period. It is per se intolerable.
1084
The noble Minister enunciated the other day that the market forces in the foreign exchange cannot be resisted. One must point out that they were resisted in the old gold exchange standard period over 200 years quite successfully. One must point out that they can be accommodated by the central banks. Equally fallacious is the argument that keeping sterling down would be inflationary because it would swell the money supply. What nonsense! The torrent of foreign money streaming in does not increase demand by a penny. It represents official oil balances accruing to the Arabs and speculative funds belonging to the rest of the world. Does the Minister really think that an increase in those balances, not in the active balances, would cause an increased consumption of Stilton cheese or the purchase of Rolls-Royces? They would join the reserves which are already here. They will be inert and, from the point of view of effective demand, totally irrelevant. Incidentally, the policy now carried out not only ruins our competitiveness but also causes a net increase of our debt to foreigners. A more insane combination of measures could hardly be imagined.
My analysis suggests that we must put our foreign exchange system in order. That is, first of all, prevent capital movements and extraordinary revenues from pushing the exchange rate to ruinous levels. There are various methods by which this can be accomplished. Countries could insulate as much as possible their internal economic systems, by either double-tier interest rates, by which the foreigners get very much less than the internal rate. Governments could be given powers to impose tax on this, as has been done in Germany. Finally, on the French example, one could introduce for foreign capital a "financial" currency which could be made freely floating while the fluctuations of the "commercial" sterling could be controlled.
The second problem which must be dealt with is the restoration of our industrial viability. This will be by no means easy after decades of insufficient investment and especially insufficient investment in high technology industry. A group of my friends in Cambridge advocated, to the horror of the conventional people, the introduction of a uniform tariff. Alternatively, one could, on Latin

1085
American example, introduce a double currency by which imports of primary food and raw materials were dealt with on a higher, and manufactures on a lower, rate of exchange. This would protect the price of essentials but enable the pursuit of a sensible industrial reconstruction policy.
Personally I do not believe this is sufficient. Uniform measures would be in order if the present situation were to represent a balance apart from the exchange rate. This is by no means the case. Some industries need help, and, even more, need supervision, more than others. I do not believe that the modern oligopolistic price system can he trusted with being both a sufficiently elastic and sufficiently compelling force to keep markets in order. We must have a system of tariffs or quotas which is suited to the industrial need and capacity of the industry protected. Few of my colleagues will agree with me. But, then, they did not agree with my negative analysis of the Bretton Woods arrangements or reparations or the need for more direct controls if we are to succeed in creating not merely a more compassionate but also a more efficient economic system.
The defence of the present policy is that it is a necessary accompaniment to the attempt to "squeeze" inflation out of the system. Sir Alan Neal, in one of the wittiest letters ever printed by The Times has pointed out the fallacies which are at the bottom of the metaphor and has shown that, if stripped of fallacies, what it meant is an attempt to cut public and private spending so as to obtain income bargains nearer to the increase in real income. I wish to go a bit further and coin a new metaphor which gives a more accurate picture of the present policy. That policy could be said to be like squeezing a sponge in a bath. No sooner does the pressure on the sponge ease then it once more fills with water. No sooner is inflation "squeezed" and expansion restarted on a "sound" basis —according to the present Government—then the bitterness caused by the previous unemployment will revive higher wage demands and the squeeze will have to be restored. This is the way Marxists thought of the economy and it is somewhat ironical, if it were not so tragic, to see the present Government justifying Marx and
1086
creating a permanent labour reserve army. This policy amply merits the censure Motion in another place.
I must confess however that the resolutions to be submitted to the TUC conference fill me with equal or even greater anguish. I have crossed swords on this question with the publicity officers of the TUC since 1943: like the Bourbons and the present Government, they too have learned nothing and forgotten nothing. They did not lead; they encouraged demands which twice alienated the majority of voters with catastrophic results for the country. Yet that deceptive and deceiving notion of free collective bargaining still haunts us. At that point Mrs. Thatcher and Sir Keith totally agree with Mr. Moss Evans and Mr. Alan Fisher. In this House, too, there has been chatter about the failure of incomes policies. But what about the failures of not having one? In an increasing number of countries people are willing to learn. Are we to continue to decline because of incapacity to understand the modern world?
5.35 p.m.
Lord ROBBINS: My Lords, I should like to begin by congratulating the noble Lord, Lord Marshall of Leeds, on his speech and in particular on his lucid appraisal of the detail of one of the most important features of the Finance Bill which we are nominally gathered together here to discuss. But, following the example of other speakers, I would prefer —following the tradition which used to prevail before we got into the habit of passing the Finance Bill without debate—to take the opportunity, as other speakers have done, of surveying the wider horizons of the present state of the economy.
Various conflicting opinions have been expressed, but I would suggest that on one matter we are all agreed; namely, that the present economic situation is not a happy one. I would conjecture that no one in this House regards the present levels of inflation and unemployment as being anything but very grave. Our problem is to diagnose the causes and to appraise the policies for dealing with them.
The first point that I should like to emphasise is the unique aspect of the

1087
situation. Again and again in recent months—and even in speeches which have been delivered in your Lordships' House this afternoon—we have heard comparisons with the 'thirties. I submit, in all deference, that those comparisons can be seriously misleading. I agree that in the 'thirties unemployment and excess capacity were at a disquieting level. To that extent I regard the comparison as valid. But in other respects I regard it as totally wrong.
In the 'thirties we were confronted with deflation, in the sense that here, and still more in America, we were confronted with the positive contraction of aggregate expenditure. Now, in this country and elsewhere, we are confronted with inflation and that complicates the situation enormously. In the 'thirties the appropriate remedy—and I say with regret that in those days I did not realise it—was to shovel out expenditure liberally. The result of rearmament expenditure showed that the unemployment of those years could be speedily corrected. However, our present position, shovelling out more expenditure than is being shovelled out at the moment, increases the dangers of inflation. Although an increasing rate of inflation might give a temporary stimulus to the economy, it must certainly make things worse in the long run.
How have we got into this pickle? I hope that we should agree at this stage of time that the responsibility for inflation must be laid at the door of both parties which have dominated government in the last 20 years. I hope that this is common agreement. But when an attempt is made to slow down the rate of inflation, which is what is now being attempted, the damage done by earlier inflation is revealed. Hyper-inflations apart, which have sometimes led to the substitution of a new money with all the distributional injustice and suffering that that involves, I cannot remember a single occasion in economic history when a reduction of the rate of inflation—and that is the problem which confronts us—has not been accompanied by some economic depression.
After all, with all respect to what has been said—and said perhaps rightly—about the impact of the distribution of gains from oil, that is one of the reasons for the prevalence of recession in the
1088
industrial world at present. Others, too, as well as ourselves are not content to see the value of money reduced year by year. The trouble is that our own inflation is greater than it is elsewhere among most industrial countries.
Perhaps I may digress from these wide observations. Our difficulties are enhanced by the local position as regards the rate of exchange. North Sea oil is intrinsically an incomparable advantage. Who in his senses would deny it? But prosperity in this respect tends to act on the exchange rate, partly because oil is valuable ill itself and will be in the near future, at any rate, and partly because the rest of the world regards the oil as valuable. Hence—and not only for this reason—other export industries are confronted with greater difficulties.
This would have happened if any local discovery had given us this sort of advantage. It would even have happened under the gold standard. Gold would have flowed in, and unless it were hoarded or invested abroad, it would have tended to increase money incomes and the costs of export industries not enjoying the new advantage. I think that it is incontestable that, if it were not for this mixed benefit of the oil and the appraisal of our future abroad, the external value of the pound would be considerably lower. I shall return to that again in a moment.
However, I wish to return to the crucial question of inflation and unemployment. I wish especially to go back to the position at the beginning of the so-called winter of discontent. I wonder whether anyone on any side of the House would deny that if Mr. Callaghan as Prime Minister had had his way and the increase of incomes had been restrained to a comparatively low average, we should certainly be in a better position than we are at the present time. There is no doubt at all that the increased borrowing, which has given rise to increased inflation, is in some measure due to increases of costs which followed the failure to observe Mr. Callaghan's wishes.
This failure has suggested to some people that the remedy is a tighter and more comprehensive incomes policy. This suggestion has been made by the noble Lord who has just preceded me in this debate.

1089
I respect that view. I respect those Members of the Opposition who have propounded it in spite of intense unpopularity in their own party. But I confess that to me the lesson of the winter of discontent is somewhat otherwise. The lesson is surely partly that overall and crude incomes policies will not work. They may work for a time; they did work for a brief period under the chancellorship of Mr. Healey. But eventually the difficulties and anomalies that they breed cause an explosion and then matters are worse than they were before.
Therefore, if for the time being we dismiss the possibility of our difficulties being solved by this particular policy, this leaves us with monetary and fiscal policy, which prompts me to say a few words about monetarism. Let me say what I have said very often in this House, that I am not a monetarist in the pejorative sense of the word. I have said again and again in this House that I believe in both monetary and fiscal policy, and I do not believe in going into the fight against inflation with one arm tied behind my back.
But some people use monetarism as a mere term of abuse. Some people in this House whom I greatly respect seem to have got monetarism so much on their minds that when anything conceivable goes wrong they stigmatise it in these terms. Surely, from a technical point of view, monetarism simply argues that if the volume of money is not kept in touch with estimates of the increase of production there is danger of inflation; and if a certain limit is placed on the increase of the volume of money then it is most improbable that in the end inflation will get out of hand. I learned this, not from the appropriate great friend of mine, Milton Friedman, but from an equally great friend of mine when I was a student, the late Lord Dalton, who used to contrast the behaviour of the money supply in relation to possible inflation to swinging a golf ball around by elastic procured from some other ball. Other influences might cause the swing to be greater, but in the end there would be a limit if nothing were done to increase the length of the string.
I myself prefer to choose as my target —alas, unattainable at the present time—some stabilisation of aggregate expenditure, but control of the increase of money
1090
is, in my judgment, an essential constituent of the pursuit of that wider target, the stabilisation of the aggregate of expenditure. The question is: is this being done as effectively as is compatible with the prime interest of policy, the reduction of inflation? Here I am conscious that for years I have been outside the charmed circle which would enable me to presume to speak as anything but an amateur in this connection. But as an amateur I do venture to ventilate, diffidently, one or two doubts. The prime method chosen for the control of the credit base is the use of interest rates. Use of interest rates for that purpose was hallowed in the distant past and certainly has worked successfully on more than one occasion. But I confess that in the end, even taking into account all the difficulties of defining the supply of money—and the difficulties are technically very great—I do wonder whether the problem is not better tackled directly.
I am not sure about this, but I feel that there are certain disadvantages about methods which are a direct attraction to hot money from overseas, which certainly is not particularly wanted at the moment. Further questions arise in my mind—again, I speak as a diffident amateur—relating to interest rates. Long securities are being issued now on terms which are at once very expensive for the Government in money terms and yet yield negative real rates of interest. I wonder whether human ingenuity has been exhausted in this connection, whether we might not experiment with a proposal which was put forward by Lord Keynes in rather different circumstances in the late 'twenties: experiment with the issue of long-term bonds guaranteed a very low positive real rate of interest. But I ventilate these suggestions only to be corrected by experts. I will not weary your Lordships any longer with such matters.
I come back to employment and incomes policy. I said earlier on that, although I respected the motives behind the recommendation of overall incomes policy, I could not regard them as a remedy for present troubles. I should like, therefore, to guard against misunderstanding in this connection. I should be very loath to have it thought that I call in question for a moment the absolute necessity for the Government to have in mind what they

1091
can afford as employer in the public sector. After all, as employer they are the ultimate source of funds, and an employer, be he public or private, who goes into the labour market without forming some idea of what he can afford is in for some nasty surprises. Therefore, I fully endorse the attention which the present Government are giving to this matter nowadays. The mythology of the bottomless purse of public enterprise dies hard, and I agree with the noble Lord, Lord Cockfield, that a good many of our present difficulties are due to what has happened in this respect in the past.
I conclude with a challenge to the critics of the Government. I am far from arguing that everything the present Government have done is perfect. But, listening to the critics, I do ask myself the question: in the peculiar conjunction of high inflation and high unemployment do they or do they not adhere to the warning issued by Mr. Callaghan, when he was Prime Minister, that one cannot spend oneself out of this sort of depression? If they do pay heed to that warning, then I submit that there is scope for friendly discussion among all of us who take an interest in these matters. If they do not, I do wonder what they would recommend beyond pure opportunism, and I should be very sorry indeed to form the conclusion that that is the opinion of the majority of critics of the Government.
6 p.m.
Lord ALPORT: My Lords, if this afternoon I speak from the Earls' Bench it is not because of some sudden and unexpected advancement in the order of nobility; it is merely to avoid the uncomfortable constriction of space in the Bench behind. I should like, if I may, to join other noble Lords in congratulating the noble Lord, Lord Marshall of Leeds, on his admirable maiden speech. Lord Marshall comes to this House with a great reputation in local government in his county and the North. I think it is probable that as, as I see, the Committee stage of the Local Government, Planning and Land (No. 2) Bill is likely to be held the first four days after we return in October, he will have plenty of opportunity of giving your Lordships the advantage of his experience, no doubt in a more controversial tone than the one he adopted
1092
in the speech we had the pleasure of listening to earlier this afternoon.
Like the noble Lord, Lord Robbins, I should like to take this opportunity of making a few observations of a general nature with regard to the present situation and the present policy of Her Majesty's Government. I think we have had 13 debates on this theme during the last 15 months of the present Session, but the fact is that before we go on Recess this gives us one more opportunity of giving such advice as we feel appropriate. We have listened, particularly in the speech of the noble Lord, Lord Robbins, to some very valuable advice indeed.
I must make it clear from the start that, while there are many individual measures which the Government have initiated and with which I wholeheartedly agree, I feel a growing sense of disquiet at what I conceive to be the underlyiing attitude of certain of Her Majesty's Ministers with regard to economic and financial policy. The old Tory Party, which I joined in the 1930s when many of my contemporaries were attracted elsewhere, was the party which believed that the Government that we supported at Westminster had a dual role. First, it had a duty to protect and foster the viability of British industry and agriculture against unfair competition from foreigners, and to do so in the interests of the employment of our people and the general wellbeing of those who invested in the development of agriculture and industry combined. Secondly, the Government had a responsibility for reflecting the social conscience of the nation, which realised increasingly during those years the consequences which unemployment, bad housing, ill-health and economic insecurity inflicted on what we would today describe as the under-privileged section of our community.
I remember as a company commander in a ballalion of the Royal Welch Fusiliers how many of the young men who were drafted to it in 1940 had never had a job. I swore, and many of us did likewise, that when we all came home that must never happen again. I accept that, in the terms of Mr. David Woods of The Times recent article, I am a man of the 'thirties, and I accept also that since then very much has changed. Inflation, for instance, has done more than taxation to bring about

1093
the redistribution of wealth. North Sea oil has altered the economic base of Britain from manufacturing industry to primary production. The European connection has been substituted for the advantages which Britain derived from its place of primacy in the worldwide imperial Commonwealth. All this and much else confronts a Government at Westminster with a host of new problems, and our nation with a wide variety of new opportunities.
Yet to me, at any rate, the role of a Tory Government in the 1980s is exactly the same as it was before and after the watershed years of the Second World War. Despite the extraordinary technical achievement of turning the North Sea from being merely a lucrative area for the fishing fleets of Lowestoft, Grimsby, or Aberdeen, into a major source of primary energy, the responsibility for providing work for our people still depends on the success and development of British industry and agriculture. Consequently, it remains the duty of the Government to protect them from the damage done by false competition from foreign competitors able to penetrate our markets, or disadvantage our exporters, by means of Government subsidies, artificial exchange rates, sweated labour and all the familiar apparatus of one-upmanship in international trade.
Take, for instance, the paper industry. Bowaters have the reputation of being the most efficient paper manufacturers in Europe, perhaps in the world, yet Ellesmere Port plant on Merseyside which employs 1,500 people is in danger of closing. And why? In addition, I am reliably informed that if nothing is done 12 more mills in the United Kingdom will close before the end of 1981. Paper is being dumped from Brazil as a result of Brazilian Government subsidies and as a result of the availability of what we would have called—and call—sweated labour in that country. Sweden and Norway are concentrating their export efforts on the British market, supported, I believe, by hidden subsidies. I ask your Lordships to consider what will happen when these competitors have succeeded in killing the British paper industry? They will then do what has been done many times before. They will then raise their prices, and if the sterling exchange rate declines they will be enabled
1094
to sell their paper in our market at ever-increasing price, to our great disadvantage. Further in this particular field, I understand that the United States paper industry, which has large surpluses, is embarking on a dumping programme of paper in the British market with a 25 per cent. reduction in the selling price, which is probably below the cost of production.
On 28th June the Chancellor of the Exchequer said to the Select Committee in the House of Commons:
"The conquest of inflation involves a short-term loss of output and unemployment … No one can be sure how long that run is".
By that I presume he means how long the "short-term" is. I think I can tell him. It will be for the workers of the paper industry on Merseyside a very long run indeed. And, as we all know, what Lord Keynes said was, "In the long run they and we are all dead".
Take horticulture. The Dutch are making a special effort so far as this market is concerned. They are very efficient producers—but so are many of our own horticulturists in the United Kingdom. The Dutch are very competitive. And why? First of all the Dutch Government makes a direct contribution to the cost of salaries and overheads of representatives of Dutch horticulturists concerned with export sales. Secondly, it gives to Dutch growers a 50 per cent. preferential tariff for fuel used in the horticultural industry. Anybody who knows the importance of fuel in that industry will realise what that means. Further, the Dutch Government guarantees growers for bank loans in respect of their development and setting up costs. All your Lordships will realise that with the high cost of fuel in this country, the high interest rates and high labour costs, the British grower has very little chance, however efficient he may be in real terms, of competing with his Dutch counterpart.
My examples are chosen from industry and agriculture, but if I wanted I could extend them over a wide field where British industry, as a result of the present laissez faire policies of the Government, is frankly being disadvantaged by the failure of Ministers to realise that, while we accept that it is wrong to subsidise failing industries, it is right to support and protect efficiency and success against unfair, false foreign competition, from whatever direction that competition comes.

1095
Taking it to its logical common political denominator, I suggest to my right honourable friend the Chancellor of the Exchequer that the short run in the parliamentary lifetimes of Governments and parties is no respecter of elections. I can understand—this has been well emphasised in this debate—the Government's preoccupation with the problem of inflation, but I would remind Ministers that if they succeed in the next couple of years in reducing inflation by half, they will only have reached the point at which they started when they took office in 1979.
It is sometimes said that the Devil has all the best tunes. The fact that the Left Wing of the Labour Party and the TUC are advocating import controls does not mean that such a policy is unthinkable for a Conservative Government. Protection is the traditional policy of the Conservative Party. If it is being advocated by some of our political opponents, let us not forget that it is also being urged on the Government by some of the strongest political supporters who are the leaders in industry, and they are not men who lack guts. It is they, not the politicians in Westminster, who have to face the realities of the marketplace, who have to take the risks and who have the right not only to expect support from the Government but also to have their advice and opinions taken into account when public policy is being framed.
Whatever may be the economic and financial consequences of the Government's rigid adherence to their present policies, the political consequences are certain: massive unemployment, a home market saturated with dumped foreign imports, a long trail of bankruptcies and an apparent lack of concern for the social consequences of what is happening. Even if some of those derive from forces which are outside our control or the Government's control, all of that will make people look elsewhere than to the Conservative Party for solutions to the nation's problems. Every time I hear the Prime Minister say, "There will be no U-turn" —and my noble friend Lord Cockfield said exactly that this afternoon—I feel that she (and he too, presumably) has driven another nail into the coffin of her Administration and, what is more, has made the return to power of a Left-Wing Government far more likely.
1096
The announcement in Tuesday's debate in the other place that £25 million is being invested in a micro-chip factory in South Wales producing 2,000 jobs must be put against the possible failure of the Government to support the paper industry, where 60,000 jobs are at risk, and I am afraid I must say that I regard the establishment of the seven enterprise zones as being little more than political window-dressing. There is a widespread impression that the Government's policies are designed primarily to teach the trade union movement a lesson, and no doubt both leadership and rank and file have a good deal to learn. But if in the process the industrial base on which we depend for our national livelihood and employment is eroded—and that is what is happening—then the price of that lesson will be more than the people of Britain will be prepared to pay.
I am not asking my noble friend Lord Cockfield to answer my speech; he was courteous enough to suggest that if I gave him details of some of the points I intended to raise he would be willing to do so fully. However, what I am asking him to do is to listen, if not to me then at any rate to the voices of the men and women who are in the marketplace and who must feel, and feel at first-hand, the forces of the market economy, who work in and manage our factories, who hang about street corners or scan the windows of job centres, who go out to sell British goods overseas, and who have high responsibilities in leading trade associations and trade unions.
If, as a result, he and his colleagues come to the conculsion that what I have been saying to your Lordships today does not make sense, then, so be it. But if he finds that the wisdom and experience of those who are responsible for the management of British industry and for the conduct of industrial relations within it and, above all, of those who have had experience of the art of governing a great nation and a free nation lead him to conclude that what I have said deserves serious consideration, then I hope he will use his influence with the Prime Minister and Chancellor of the Exchequer before it is too late to carry out a U-turn which will, by means of measures for the protection of efficient industries exposed to false competition from abroad, by the progressive reduction of interest rates, and by

1097
control of the strength of sterling to a realistic level, enable British industry and agriculture to carry this country out of the present recession and lay the foundations for success in the future.
6.16 p.m.
Lord JACQUES: My Lords, the noble Lord, Lord Alport, has spoken with his usual courage and independence of thought and I have seldom followed a speaker from the Benches opposite with whom I was in so much agreement. The level of unemployment we are witnessing today is a direct result of deliberate Government-chosen policy, and we have worse to come. Witness the report of the CBI and its review published earlier this week. They found that business confidence was lower than at any time since the three-day week in 1974. Of course, nobody should be astonished at that because for the greater part of the interval the country was blessed with a Labour Government.
Let no one underestimate the human misery and demoralisation which lies behind the unemployment figures. The young man encouraged by his parents to trudge the streets looking for work that is not there is not likely to be invigorated by the crusade of the Prime Minister for private enterprise; he is much more likely at first to be bewildered, then to be apathetic and eventually to be resigned to a mode of life he never contemplated. Let us not underestimate the economic loss. Every successful businessman will say that one of the first essentials of success is to make the fullest use of your resources, and then you reduce your unit costs. With the present level of unemployment, we have resources which are either entirely out of use or under-used, and our unit costs are rising daily. Our unemployment has increased more steeply than that of most other countries in the OECD, largely because of the Government's deflationary policies.
I could not for one moment accept that the development of North Sea oil should inevitably lead to the decline of our manufacturing industries. Looking back, the greatest constraint we have had in recent years on the expansion of our domestic economy has been our fear of the effects of our balance of payments.
1098
With North Sea oil we get rid of that fear and consequently we have a greater opportunity than ever before for the expansion of our domestic economy. And remember it is when you have expansion of the domestic economy that your unit costs are at their lowest and you have the opportunity of exporting which you would not otherwise have had.
I believe that with proper management of the economy, North Sea oil can and should be an aid, rather than a handicap, to manufacturing industry. Let us look at the example of the other country which has North Sea oil—Norway. Let us look at their present record. First, they have demand management—not monetarism. They have a prices and incomes policy generally accepted by all, and in consequence their rate of unemployment is 1·7 per cent. Their inflationary rate is 9 per cent. Their manufacturing industry is not declining; it is increasing at the rate of 2 per cent. per annum. That is an example of what can be done if there is proper management of the economy.
But why have we to suffer this present inhuman and destructive policy? We are having to suffer this policy because the Government have made up their mind—and with some justification—that if inflation has to be defeated, then the level of wage settlements must be below the rate of inflation not in one year, but in two or more successive years. The Government have further come to the conclusion that that cannot be secured by agreement or by statute. It cannot be secured by those means because if there is free-for-all, which is the basic philosophy of the Government, then the "all" must include the workers.
They cannot secure what they regard as necessary for defeating inflation either by agreement or by statute as long as they have the present basic policy. They believe that the only way in which it can be done is through the fear of unemployment. In that I believe they are mistaken. I believe that they grossly underestimate the pressures upon trade union leaders for the maintenance of the standard of living of the members of the unions. Consequently, we are likely to suffer both the great hardships and the serious economic losses of this policy without there being any great effect upon the rate of inflation.

1099
I do not want to be purely destructive. If the present policies are not effective, what must we do to make the best use of our revenues from the North Sea and to make this country not only one of the best in Europe, but also one of the richest in Europe? I believe that basically we must do three things. I shall not deal with the hard way; I shall deal with the essential principles. First, we must have social cohesion rather than confrontation. Norway has social cohesion; we have not. In politics, as in business, on the face of it many things are necessary, desirable and justified, but they are also unwise. One of the best examples is the trade union legislation that has recently gone through this House. That legislation can be justified as being reasonable and necessary, but it can also be said to be dreadfully unwise; unwise because it is not likely to have any real practical effect, but unwise in the main because it encourages confrontation instead of social cohesion.
It would have been far better for the nation had the Government upon being elected approached the TUC on a much more friendly basis to discuss not just wages, but the whole of their economic policy. They should have entered into friendly discussions with the TUC in order to secure an acceptance that a strike should be the last weapon of the worker, not the first. They should have encouraged and used public opinion in such a way as to get that accepted. The Government should have used public opinion and friendly discussions with the TUC to gain an agreement that if negotiations broke down, there would be conciliation, and that before there was a strike there would be a conciliator's report and a ballot of the members. Those matters are far more important than the number of pickets; far more important than the closed shop. They are the things that seriously affect our economy. It there are fewer strikes, fewer pickets are needed.
We should also have kept in mind the fact that, whether or not we like it, the retail price index is one of the principal factors in any negotiations or indeed in any conciliation on wage claims, and the Government should have used their influence to avoid as far as possible adding to the retail price index. But in fact the Government have done the opposite.
1100
Secondly, if we are to have greater social cohesion, we must show that we are a caring society; and with North Sea oil we should be more able to be caring than we have ever been. For example, our child allowances are not some new giveaway. They are the successors to long-established income tax allowances. The Government, mistakenly, have stinted child allowances since they took office. They have increased them by less than the inflation rate. That is entirely unjustified, and it is the wrong way to achieve social cohesion.
There is at present a need to involve the young in massive training schemes. For years we have been short of technicians in many of our trades. In fact in almost all the trades in which a high degree of technical skill is required we have been short of skilled labour in times of both boom and slump. This is largely because some employers feel that they are too busy to provide training when they are in a boom period and too poor to do it in a slump period. It must be done by Government intervention; and Government intervention is entirely justified. Government intervention and aid in the training of apprentices is as justified as the training of scientists in the universities; there is no real difference. At the moment we need a massive effort to avoid future shortages of skilled labour. This is for the benefit not merely of the present school-leavers, but also of our future economy.
Finally, we must attach far greater importance to productivity, if we are to defeat inflation. Even if wage settlements are approximately at the rate of inflation, we can still go some way towards defeating inflation by greater productivity. We have not given sufficient attention to that. The greatest aid to productivity is investment. We should have policies that facilitate investment and the bringing up-to-date of our industries. But we shall never do that with the present rates of interest. We must have much lower rates of interest if we are to have investment on the scale that we need.
Furthermore, there has never been a time when we needed our National Enterprise Board more than we need it now. We need a National Enterprise Board that has both the power and the financial

1101
resources, and with North Sea oil we have for the first time an opportunity to give such a board those resources.
North Sea oil will not last for ever; it will last for only a few years. If during those few years we fritter away the revenue, we shall be worse off at the end than we were at the beginning. We must avoid confrontation. We must avoid frittering away the revenues from North Sea oil in merely settling internal differences. We must achieve some kind of social cohesion in order to get this country out of its present position.
6.30 p.m.
Lord BOYD-CARPENTER: My Lords, I will begin, too, if I may, by expressing very sincere congratulations to my noble friend Lord Marshall of Leeds on an exceedingly interesting and penetrating maiden speech. Leeds seems almost to be taking over this House, what with my noble friend Lord Marshall and my noble friend Lord Bellwin. I was almost reflecting this afternoon that if the Department of the Environment proves wholly incapable of repairing our Chamber, it may well be that we shall be hi-jacked off to the Leeds City Hall! My Lords, my noble friend will be a very great asset to the House, and it was a great pleasure to me (particularly as, at least by birth, a fellow-Yorkshireman) to hear him have so great a success.
I have, perhaps, by reason of my own background, rather more sympathy with my noble friend on the Government Bench than have some of those who have spoken in this debate. As some of your Lordships may recall, I went to the Treasury as Financial Secretary in a very similar situation in the autumn of 1951; and, in the winter of 1952–53, serving under my noble friend Lord Butler of Saffron Walden, we were facing what was in many ways an analogous situation to that which my noble friends now face. We had taken the steps that we thought necessary—disagreeable, drastic, unpleasant—to try and turn round an economy which we had taken over in a dangerous and deteriorating situation.
At just the same length of time from takeoff as my noble friends now are (in my case, in the winter of 1952–53) we were incurring all the unpopularity, the criticism of enemies, the doubts of friends,
1102
and we were being warned that we were doing such unpopular things (the abolition of the food subsidies for one) that we would never be re-elected. It may comfort my noble friend on the Government Bench—I do not know whether it will comfort my noble friend Lord Alport—to reflect that, in fact, not only did we win the next election, trebling our majority, but we then won the one afterwards, doubling that further majority again. So I would say to my noble friends that it is wrong, if you are pursuing a policy that you believe to be right, to let yourself be deterred or shaken by the inevitable unpopularity of what you do, and by the doubts or the criticisms which of course those measures elicit.
My Lords, I hope the Government will continue on their course. I believe they are right in taking the view that inflation is the greatest and most crippling danger that this country faces. Inflation is not only an economic malady; it erodes a society. It turns man against man and section against section. We have seen it destroy a society, as it did, for example, in the Weimar Republic, in Germany, in the 1930s. If the policy of Her Majesty's Government, in order to check this rise in inflation and reverse it, involves, as I think it inevitably does, doing things which in the short-term are harsh and inflict hardship, I hope they will still have the nerve to continue to do it—and from my knowledge of the character of the Prime Minister I am perfectly sure that they will, for she has the resolution and the courage to carry on despite all the problems, despite all the criticisms, despite all the difficulties.
To reverse course now, just when, for the first time, there are signs that the policy is beginning to work, when the rise in the rate of inflation is halting and when the public sector borrowing requirement now appears to be within limits, will be to throw away all the hardly-achieved gains in order to do, what?—to try to appease criticisms which are not really directed to the central point, the actual conquest of inflation.
Lord ALPORT: My Lords, could I interrupt my noble friend?
Lord BOYD-CARPENTER: Of course; with the greatest of pleasure.
Lord ALPORT: It is not to appease criticism, my Lords; it is to prevent the unemployment figures becoming 2½ million.
Lord BOYD-CARPENTER: My Lords, my noble friend puts it that way, but, of course, it was a criticism. His criticism was that unemployment would rise (I do not think he quoted that in his speech, but he quotes it now) to a figure of 2½ million. I hope my noble friend will just think this out. It is not proven—I hope and pray it may not be the case—that unemployment in any event will rise to that figure, although I think it will go over the 2 million mark. But suppose the Government were to alter course for that reason. Has my noble friend thought out where that would end? If the Government abandon their battle against inflation, if inflation resumes in full fury and moves into hyper-inflation, what is unemployment going to do then? My noble friend's proposals—and I will come to them, if he wishes, in a moment—would undoubtedly check it for a little, for a period of a few months, perhaps; but if we are to go into hyper-inflation as a result of abandonment of the only policies so far put forward and pursued to deal with inflation, what would that hyperinflation itself do to the levels of employment?
Therefore, I come back to the point at which my noble friend was so kind and courteous as to interrupt me. I come back to the point that it would be simply to appease criticism that this was done, and not because anyone who had thought the matter through could believe that it was going to give any relief to those who are unemployed. I hope it is unnecessary for me to say it, because I have said it all my political life and I feel it passionately, but I hate unemployment. I hate it, not so much, even, for the hardship it causes as for the humiliation; for the frustration of a man who hangs about the house—his children go to school, his wife is busy and he is feeling useless. It is horrible. But it is not just to be wished away when we are in the very peculiar situation in which we are today; and a measure of it—I am afraid I must say this bluntly—may be the price, and the only possible price, for combating the attack of inflation, which of itself would do even more damage and which of itself would multiply the forecast
1104
levels of inflation many times more if it went forward unchecked.
As my noble friend was kind enough to intervene, I will come back to him. I have much sympathy with his point of view. Indeed, in the 1930s I shared it. I must tell your Lordships that I was a protectionist in the 1930s, but the situation was fundamentally different then. That was an era of falling prices. It was the era, your Lordships may remember, in which the war pension organisations, having an index-linked pension, succeeded in persuading the Treasury to break the index-link shortly before the figure of prices reversed itself. It was an era of falling prices.
It was an era, also, when we had a large Empire, with whom we had the closest of economic links and with whom we could trade on something of the Empire free trade basis, which the late Lord Beaver-brook so passionately and with such sincerity advocated. We could trade with that, with tariff walls against most of the rest of the world, but drawing our food supplies and many of our raw materials from that vast Empire within our own fiscal system. It was a totally different situation from that of today; and I beg of those who, like my noble friend, retain the views which he and I both held 45 years ago, to think how different is this situation, and of the difficulties involved in doing what he has suggested.
I am not talking about specific antidumping restrictions worked through the ordinary international machinery as this Government and the previous Government have worked them. I am talking about what I understood my noble friend was advocating; that is, large-scale protection of British industries which for one reason or another found themselves unable to compete with foreign competitors. Such quotas or tariffis are always introduced on a temporary basis. It is hoped that they will not need to last; but they generally do—because they tend to reinforce and confirm the very situation which caused them to be introduced. If British industry is not competitive even on the British market for any length of time, what hope has it of being competitive on other markets? If it cannot adjust itself and its productivity, its wage levels (if you like) and its efficiency to compete on the home

1105
market with foreign imports, how will it cope on those international markets which we must serve if we are to live?
This country is unique among major industrial countries. We have to export a larger proportion of our gross national product than any other major industrial country—much more even than Japan. Therefore, we must always bear in mind that we have to be competitive on third markets to live. If we start to do what my noble friend has suggested—in violation, of course, of the whole gamut of international agreements—what measures of retaliation will we meet? Will that help us in our struggle in the export markets? At times, I thought that my noble friend claimed to speak for British industry. I am not sure, with respect, that he is doing so. I, too, am in the marketplace; I am responsible for a great company and I am not unfamiliar with the problems which British industry faces. But it is news to me that wholesale protectionism of this kind is the policy of British industry. It has not been declared so far by representative bodies, although my noble friend Lord Cockfield may be able to tell me if representations to that general effect have been made to the Government. Of course, there have been representations made in particular cases where an industry —and my noble friend quoted the striking example of the paper industry—have found themselves in difficulty. But as a general policy—and this is what this House is talking about on this Bill—this, as far as I know, is not recommended by responsible leaders of British industry and I should be surprised to hear any noble Lord indicate to the contrary.
Therefore, my Lords, my advice to the Government is to carry on, to be firm. I read a Lesson in the little church last Sunday from the sixth chapter of the Gospel according to St. Mark. It referred dramatically to the removal of an evil spirit from a child. The Apostles attempted to remove the evil spirit and failed. Our Lord himself was called; the miracle was achieved. Afterwards, the Apostles asked Him why it was that they had not been able to cope. He said: "This sort goeth not out save by prayer and fasting". This is true of inflation and the economic situation that our country faces. This goeth not out save by prayer and fasting. I know the difficulties which are facing Her Majesty's Government. I sometimes
1106
wish that Her Majesty's Government would be even blunter about the possible consequences of the necessary policies that they are pursuing. I would hope that they would be brave enough to say that the general standard of life will, for a time, have to come down. I believe that to be unavoidable.
Here I take up a point made by the noble Lord, Lord Balogh, when he was making references (which did not err on the side of over-enthusiasm) to the Prime Minister. He said that the policy of the Prime Minister was a policy of wage restraint but not for highly-paid officials. I would commend to the noble Lord that the very contrary of that is true, as was indicated in an announcement made from that Box only the other day, that the recommendations for highly paid officials which had been made after impartial survey by the noble Lord, Lord Boyle, were not, in fact, being accepted because of the need for people at all levels in our society to accept lowerings of standards in the present national situation. It is very unfair, if the noble Lord, Lord Balogh, will allow me to say so, to attribute views to the Prime Minister which are directly contrary not only to her declared view but to her very recent and widely-reported actions. It would be harmful if, in the atmosphere that we are now in, it should be suggested that the present Government in imposing sacrifices wished to impose them on any selective basis.
My worries go the other way. I wonder yet whether Her Majesty's Government are being firm enough on the pay claims in the public sector. I should be grateful if my noble friend will confirm whether the noble Lord, Lord Beswick, was right when he said that he had heard that Bank of England staff were being granted an increase of 24 per cent. If that be really so, the Bank of England being in the heart of the public sector, I hope that my noble friend will feel that I am right in suggesting that that would call for some explanation. I was sorry, too, to see that that great engine of inflation, the Clegg Comparability Commission, has ground out another proposed increase of 19.5 per cent. for university technicians. Surely, in this situation it is time that the quietus was given to that body and that the distinguished

1107
professor returned to his important duties at the University of Warwick !
It is by the example that the Government show in the public sector that they will get the response from the private sector in respect of pay restraint for which my noble friend asked in his speech. My noble friend never lectures, but he got as near lecturing as he could at one stage when he said that the private sector should exercise particular restraint in pay settlements. I agree with him. But I would beg of him in the light of recent incidents to realise that example is better than precept, and that if the Government will give the lead in that respect it will be easier for those who are directly involved in these matters to exercise similar restraint in their own spheres.
My Lords, this is an enormous Finance Bill. It is one of the main economic instruments of the year. I support it not because I agree with every word or particle in it. I am grateful for Clause 46 and for the concessions made for employees' shareholdings. The company of which I happen to be chairman is a leader in this field and we shall take full advantage of it. I only wish it were not necessary to encase this admirable concession in the horrifying language which the draftsmen have embodied in Clause 46. I am sorry that the Government have not been able to go further—although I understand the reasons—with tax reductions. Direct taxation is still very high and capital transfer tax in an age of inflation is increasingly anomalous.
Finally, I should say that if the Government are in need of funds, I beg them to take the advice of the noble Baroness, Lady Seear, by putting an additional impost on tobacco. I can reassure them on that from my own experience. Three times when I was at the Treasury we did this; and on every one of those occasions the Customs and Excise advice was that we were overdoing it, that we were putting it too high and that the receipts would diminish. So they did—for a fortnight. But on each of the three occasions after that the receipts mounted. I say to my noble friend that if the Government want more money to finance, among other things, the excellent tax concessions that I know the Government have in mind—then shove it on tobacco!
6.50 p.m.
Lord HOUGHTON of SOWERBY: My Lords, something r welcome very much indeed is that we are having a debate on the Finance Bill. Last year, I believe it was, we inadvertently let the opportunity slip by. This time we are having quite a good debate on the Finance Bill—or at least if not on the Finance Bill, on the economic environment of the financial situation.
Until a moment or two ago, when the noble Lord, Lord Boyd-Carpenter, mentioned the words "taxation", "capital gains tax" and other relevant matters to the Bill, I wondered whether I ought to make an apology for some of the things I am proposing to say about our system of taxation. But I am encouraged by what he said. I wondered whether the noble Lord, Lord Cockfield, had written the speech for the Prime Minister last Tuesday, or she had written his for this afternoon. He made two passing but brief references to the contents of the Bill. It is a most formidable collection of fiscal change: it is over a hundred clauses and twenty schedules long. It is complex and almost unintelligible without a cross-reference library at hand.
Of course at this time of year Treasury Ministers are usually having to cope with a bad-tempered Revenue staff. Although this Bill is mercifully free of the heavy additional burden of administrative work, some of its fore-runners have imposed very arduous tasks indeed on an already hard-pressed staff.
I want to refer for a few moments to some parts of the Bill and aspects of our system of taxation; but before doing that, I must join in the congratulations to the noble Lord, Lord Marshall of Leeds, on his excellent maiden speech. The noble Lord came to my committee on financial aids to political parties and gave us a very agreeable session on not only local government problems but the political problems of the Conservative Party. They were most entrancing. Of course, we did not get to know anything like enough about that, but it was a very nice time that we spent with the noble Lord. I think I may be permitted to say in passing how pleased I think the late Lord Pannell, of Leeds, would have been to see his counterpart in your Lordships' House.

1109
Now I wish to say something about the awful mess which our system of direct taxation is getting into. I must first impress upon the Government the urgent need to come to a decision on the computerisation of pay-as-you-earn. It is 21 years ago since computerisation of pay-as-you-earn was first decided upon. But, owing to changes of policies and lack of decision, we have drifted until now. We are aware, of course, that the Government are faced with a very difficult choice between two rival computer firms, and I do not envy them the task they have in deciding what to do. But to decide soon is surely imperative. The present pay-as-you-earn system is creeking badly. The manual system and the problem of accuracy of coding, especially in cases where taxpayers have several sources of income, are becoming worse all the time. There are many overpayments and underpayments at the end of the year and other weaknesses about the whole administration of pay-as-you-earn, which have been referred to by the chairman of the Board of Inland Revenue to the House of Commons Select Committee on Treasury matters. So I ask the Government to come to a speedy decision on the computerisation of pay-as-you-earn.
I make no apology for bringing out another "bee" in my bonnet on tax matters; namely, the out-of-date way in which the tax system still treats the married woman. The Chancellor of the Exchequer in his Budget statement, at column 1477 of Hansard, on 26th March promised a Green Paper on this subject later this year. I hope that we shall get it. Surely the Chancellor of the Exchequer, of all people, should have got the message from the Equal Opportunities Commission about the need for bringing to an end the reign of Queen Victoria.
Now I want to say something about company taxation. Here I believe that we have the most appalling waste of talent and professional brains that we have ever witnessed in this country. Company taxation is a veritable labyrinth of a tax and the simplest reform would be to abolish it. It is worth keeping only because it happens to be there. The committee under Professor Meade several years ago exposed the tattered condition of corporation tax under the impact of stock relief, capital allowances and other intricate erosions of the tax base. I
1110
believe that our corporation tax is a misshapen monstrosity and should be phased out or replaced by a simpler and more suitable system. There are quite a number of sensible suggestions around. A great deal of attention has been given to this by people outside the Revenue service. As things are, companies are handicapped by ad hoc and temporary expedients designed by Chancellors to avert the more disastrous consequences of inflation on corporation tax liabilities.
Finally, I want to say something about the so-called "black economy" or hidden economy. It strikes the headlines now and again and we are told how much many people are getting away with. So far as we are talking of tax avoidance and evasion, it is not wholly to do with the Inland Revenue Department. Dodging the motor vehicle licence duty is a Customs and Excise matter. Then we have the dodging of TV licences. We are told this is done on a very big scale. I believe that a great many dog owners do not have dog licences, either. Every taxing authority has this problem of collection and enforcement, and some are more successful than others according to what sort of tax it is and whether the people will pay it willingly.
But the Inland Revenue start off with a great advantage. They catch us before we can make off with our own money. The principal feature of our tax system is that the tax gatherer should get hold of our money before we have a chance to spend it. Those who complain about the looseness with which tax administration deals with many people whose sense of duty is not highly developed, should remember the great advantages under our tax system of getting money before it reaches the pockets of the taxpayer. It is called tax deduction at the source. It applies to millions upon millions of payments of dividends and interest as well as the whole field of pay-as-you-earn.
While withheld tax systems—we call them pay-as-you-earn—have been adopted in other countries, I know of no other country in which the citizen's investment income is raided by the tax-gatherer before the citizen gets it. So when tax gatherers complain about the number of large and small fish that may be getting away with something, I think they should be consoled by the thought that they have

1113
the Civil Service into a police force. I believe it is caused by many uncertainties and conflicts about material values, moral principles and indeed the realities of life itself. The big stick will not resolve the dilemmas and discontents of people who are trying to find some ground for confidence in the future for themselves and their children, and least of all at this particular time, when the fabric of our social and industrial life is being severely tested. At this time I think we have to apply the art of judgment to the technique of administration. Disenchantment is abroad in the land; marching and picketing are the new vocations; and when resistance to the decisions of Parliament is being adopted as a policy by sections of organised power and the nation's civil servants make victims of the public in their quarrels with the Government, what respect for the law and for them do they expect the citizen to have?
I think this is the aspect of tax administration which we have to bear very closely in mind. My Lords, in Britain today the malaise goes much further than all this. It is a change of attitudes and a different spirit that we want to engender. My noble friend Lord Jacques has just referred to that in eloquent and moving terms. There is a lesson here for all those who serve the state and who may be vociferous from time to time in claiming that more authority and greater obedience are essential to their task. I think they have to be told that we must keep all these things in proper proportion, especially as the changing mood of the public is bound to influence the attitudes of Government.
I conclude by saying that probably our economic analysis will come closer to the facts, as they are emerging, in a few months' time; but meantime the administration of this enormous tax system still has to go on, and if that failed or was seriously disorganised then our recourse to the public sector borrowing requirement would become greater still.
7.10 p.m.
Lord CHARTERIS of AMISFIELD: My Lords, I hope that it is in order for me to make the briefest imaginable intervention in this debate, in my capacity as chairman of the National Heritage Memorial Fund. It is simply to express
1114
the satisfaction of the trustees and their gratitude to all parties in another place for the provision in the Bill by which they will be included in paragraph 12(1) of Schedule 6 to the Finance Act 1975, which deals with capital transfer tax.
As your Lordships know, the National Heritage Memorial Fund was born early in April. It rose from the sea of parliamentary debate like Botticelli's Aphrodite —beautiful, sublime, chaste and stark naked. But it was borne up on a lovely cockleshell of £12·4 million. The lady is not yet fully provided with staff and a house, but she is none the less in business and the fund has already provided financial assistance for a number of worthy heritage causes.
The fund has also been in existence long enough for the trustees to realise the very heavy demands which are going to be made upon their resources, which, in the context of these demands, must be considered modest. It is fortunate, therefore, that these resources can now be augmented by gifts and bequests without the exaction of capital transfer tax. I need hardly say that any contributions will be gratefully received. Finally, may I add my congratulations to those that have been paid to the noble Lord, Lord Marshall of Leeds, on his admirable maiden speech.
7.11 p.m.
Lord ARDWICK: My Lords, this is the first time that I have spoken on an economic subject in the life of this Parliament, although there have been, as the noble Lord, Lord Alport, reminded us, 13 such debates. Before that, I spoke frequently on such gloomy subjects, hoping that if I had nothing that was strikingly original to say, at least I might make the prevailing Labour orthodoxy more vivid with the help of a few phrases which, at an earlier time in my life, I would have used to illuminate a newspaper column or lighten a newspaper leader.
But I have not spoken, first, because I wanted to see whether the new Government's policies were leading, in spite of everything, to success—which I fear they are not—and, secondly, because I have not, as The Times put it this morning,
"an alternative set of policies of the kind which is needed to make attacks on the Government effective".

1115
I have come to the conclusion that this is a false argument. It assumes either that no alternative exists, or that, if it does exist, then the Government's critics have not yet found it. The fallacy lies in the word "alternative". We are not really concerned with the choice between two sharply differentiated lines of action. I may say that it is the custom—and, indeed, the noble Lord, Lord Cockfield, followed it earlier this afternoon—to present the Government's policy as something novel and unique, which I think would be an excellent approach to a youth club which had never lived through such times as we are now experiencing.
But one thing this House is not is a youth club. Our memories may be fallible, but they are long and we have known previous deflationary Conservative Governments, which were extremely economical in their social spending and which learned the lesson that, if you have mass unemployment, then high wage claims will not be rigorously pursued. So it is not quite new. We have also known a gentler kind of Conservatism of the kind that was formulated by the noble Lord, Lord Alport, and his colleagues.
The Government's critics include people of all parties and of none. I think that very few of them are propounding a programme of an old-style pseudo-Keynesian prodigality, or of a total Socialist siege economy. Nobody is seriously suggesting a U-turn, of the kind that Mr. Heath gallantly and foolishly embarked upon when unemployment was soaring. And when the Government cry today that they will not make a U-turn, they are saying that they will not do something which nobody wants them to do, if we mean by that analogy turning in one's tracks, going in precisely the opposite direction, and grossly inflating the money supply.
But, unfortunately, the Government are presenting what is an experimental policy as if it were a dogmatic theology, as the noble Baroness, Lady Seear, said this afternoon. Sometimes I have felt, when my noble friends on the Front Bench here have been arguing the case on the various Bills with the Government Front Bench, that it was like a doorstep confrontation with a Jehovah's Witness—the
1116
witness courageous, courteous, but totally incapable of entering into a rational argument about the priorities of life.
Where are we going on the present policies? Nobody among the Government's critics has put it better than The Times has done today. The Times, the Government's faithful friend, faithful unto death—I mean the Government's, not The Times's death—points out that the Government's policies have costs as well as advantages. It quotes the CBI report, which says that industrialists are expecting a slump of far greater severity than anything we have known in post-war experience. Output is likely to fall sharply for most of the year. The problem of unemployment is assuming greater intensity than the Government expected. We have seen industry reducing output and stocks and curtailing investment; and all this before many of the restrictive forces implied by the Government's policy have yet had time to bite.
The gloomy catalogue of The Times goes on: exports will diminish as the world recession develops; the Government will further cut Government spending; and economic activity will be further depressed by wage settlements below the rate of inflation, while the high exchange rate and the high interest rates are making life unbearable for many companies.
So we are brought face to face with the question which divides the Government itself, and which certainly divides many businessmen from the Government that they were hoping so much from. Should the Government slow down the recession to give the system more time to adjust? That is the really critical question. Even on the far Right, there is a moderate school, to which Mr. Friedman belongs, and an austere school claiming Dr. Hayek. Friedman is a gradualist. Hayek thinks that a crisis is necessary, with a very severe recession, in order to break inflationary attitudes. The Government prefer the Friedmanite view, but The Times delicately comes down on the side of Hayek, because it believes that Governments can stand short periods of extreme dissatisfaction more easily than they can long periods of lesser unpopularity.
All this is the stuff of the university seminar, rather than of real life. In a city such as Manchester, Birmingham or

1117
Newcastle this is not a view which can be held. I may say at this point how glad we were to hear the noble Lord from Leeds making his maiden speech. Of course, it had to be non-controversial, but perhaps on another occasion when we are debating these matters he will expatiate on what the manufacturers of Leeds are saying. Very often in this House, we lack the voice of the industrial North. Of course, we always have the noble Lord, Lord Rhodes, who not only speaks for the North, but also speaks—as, unfortunately, the noble Lord, Lord Marshall, does not speak—in what is known as the "gradely tongue". In cities such as Manchester, Birmingham or Newcastle this rather punitive view is not one which could be held. Are the Government, like The Times, trying to teach us a punitive moral lesson? If so, they are embarking on a very dangerous and perhaps an unforgiveable course.
Yet there are signs that the Government are learning a few of the lessons of reality, though not enough of them, and not fast enough. They seem to be approaching something like an incomes policy in the public sector. There is the creation of seven or nine enterprise zones, a decision to help the transition to higher productivity and more jobs, but of strategic developments in the policy of bringing the rate of inflation and the monetary targets closer together, a substantial reduction of interest rates and an increased borrowing requirement there is as yet no sign, or very little sign, beyond the token reduction of M LR about a month ago.
The pressure on the Government is not to make a U-turn. The Government must not regard an attempt to get them to modify their policy as an attempt to reject their policy entirely, but it is time for the Government to show more practical sympathy for the real problems that industry is facing and to stop infuriating people by imposing theoretical advice taken from reprints of 19th century theory or moralists such as Samuel Smiles. What is wanted is not for the Government to abandon the priority they have given to the conquest of inflation but to stop making it the only object of policy, irrespective of its immediate effects, and for the Government to get away from the rather naive belief that industry will be able to rehabilitate itself once the fever is out of the system. By that time many good firms
1118
will have died and others will have been so crippled that rehabilitation will be out of the question.
Lord BESWICK: My Lords, if the noble Baroness, Lady Airey, will allow me, in response to the question asked by the noble Lord, Lord Boyd-Carpenter, about my reference to the alleged 24 per cent. increase in the Bank of England pay rates, I appear to have been mistaken. I apologise and I withdraw it.
Lord BOYD-CARPENTER: My Lords, I am very much obliged to the noble Lord.
Baroness AIREY of ABINGDON: My Lords, I had not intended to speak as the noble Lord, Lord Charteris of Amisfield, has, in such splendid, picturesque language, given our thanks for all the advantages that the other place granted to us in the National Heritage Memorial Fund. But as your Lordships have so kindly indicated that I may do so, may I say that in every way I support everything which he has said today? We are in business and we shall do our very best to save all the treasures we possibly can with the cockleshell which we hope will be filled to greatest advantage in the future.
7.24 p.m.
Lord BRUCE of DONINGTON: My Lords, we on this side of the House wish to join in the felicitations which have been expressed to the noble Lord, Lord Marshall of Leeds, on his maiden speech, which, we assure him, was keenly appreciated on this side of the House. Looking at his comparatively unruffled calm, I was fortified in the belief that as soon as the Local Government Bill goes into Committee in the early stages of October we shall see him, with the same degree of serenity, sitting with us far into the night and shall undoubtedly have the benefit of his counsel, particularly as it affects the City of Leeds.
Like the noble Lord, Lord Cockfield, and with the good precedent set in our recent debates on the trade union Bills, when the noble Lord, Lord Thorneycroft, chose to depart on to a more general theme, I shall, if I may, follow the example. Before doing so, may I refer in particular to the speech of the noble Lord, Lord Alport, who unfortunately is not in the

1119
Chamber at the moment but with whose speech I found myself in very considerable sympathy. Like him, I am one of what we will call the 1930 age group, or the 1930 political age group. I well remember an association with the Junior Imperial League in Paddington in the 1930s when I was canvassing for the late Lord Bracken to be returned as the Member of Parliament for North Paddington. I confirm, though unhappily I cannot agree with the noble Lord, Lord Alport, now, that the attitude of the Conservative Party, or a very substantial proportion of it at that time, followed substantially the same compassionate lines which he was good enough to set out this afternoon.
I was a little puzzled by the speech of the noble Lord, Lord Boyd-Carpenter, who, as usual, spoke to us with his customary eloquence. However, I observed that one of the reasons he gave as to why we should continue to support to the utmost the policies of the Government—nay, why we should urge them to be more resolute—was that we must not lose the gains which we have so far made. After the speeches which were made—not entirely confined to the Benches on this side of the House—I wondered what the gains were. I wondered whether there had been a gain in productivity, a gain in employment, whether inflation had gone down, whether a whole number of things had happened. I am bound to say that if the noble Lord, Lord Boyd-Carpenter, conceives that there have been any gains to date he must be living in a different section of the stratosphere from even some of his noble friends.
There is one myth which we ought to get rid of at the outset. Like most myths, it is very difficult to dispel because, if repeated for long enough, it becomes accepted as part of the eternal truth. It becomes so axiomatic that nobody even bothers to challenge it any more. It has been said that one of the gains, pace Lord Boyd-Carpenter, which has been made is that taxation has been lowered. Of course, taxation has not done anything of the kind. Taxation has gone up, in terms of taxes on income, by some 39 per cent. since 5th April 1979, taxes on expenditure have gone up by 63 per cent. and taxes on capital have gone up by merely 23.25 per cent. When the Conservative Party says that it has
1120
lowered taxation, what it really means is that it has lowered income tax, but it certainly has not lowered taxation as a whole. Taxation in this country, even if one ignores the extra impost on the gas price, which is another form of tax, has increased in these last two years at a rate far greater than the rate of inflation itself. But we are here to discuss the only apparent instrument that Her Majesty's Government use in their—what I will call, in inverted commas at the moment, "administration" of the economy, which is the Budget itself and its programme of expenditure.
Public expenditure is of course very necessary in any civilised community. Public expenditure in the United Kingdom always has a very bad name. People talk of public expenditure in terms of a dose of undesirable medicine. But public expenditure in itself is one of the most important functions of any Government. It should be done responsibly; it should be done within the whole of democratic society, conforming so far as is possible to what are conceived to be the needs of the times. Obviously there must be some public expenditure on defence. Nobody so far has suggested that the whole thing should be hived off to private enterprise, although much of the production work is of course done by private firms.
A whole series of services and goods are supplied for the population of the United Kingdom as a whole. They are supplied for their advantage and made available to their advantage, and one of the reasons —almost of a psychological nature—why there is very frequently not the public respect or the individual respect for public buildings, for local authority houses, even for stations and even for telephone kiosks —indeed any public property—is the propaganda that emanates from, and colours the observations of, so many politicians on the other side of the House. People are beginning to take them at their word and to consider that, if it is public expenditure, there is something wrong with it somehow or other. If it is publicly provided it must be substandard and therefore it is not respected.
I believe this to be a grievous error. If one goes across, for example, to Paris and looks at the Metro there, where the system is certainly no better than our system here, one does not find the degree of personal

1121
vandalism and graffiti that one finds in this country; and the same goes for all public buildings. Therefore, public expenditure must to some extent be rehabilitated. It is to the utmost advantage of the public as a whole and in the ultimate provides things much more cheaply than they can be provided by competitive private enterprise. It should be remembered that public expenditure is usually somebody else's income or somebody else's profit and in cutting public expenditure we are in fact cutting that. We may be saving money for the body of taxpayers but at the same time we are cutting other people's incomes and other people's profits.
One of the uses of public expenditure on the part of any Government seeking to try to manage the economy in a sensible way is the ability deliberately to accelerate capital expenditure in certain fields in order to promote an even spread of development in that particular industry or indeed the industries that are dependent upon it. So public expenditure can be an instrument in the hands of Government, but if the Government approach it almost with sentiments of hatred that the whole thing is completely despicable, then I think they are making a grave mistake. There must be up and down the country today many firms, whose contracts depend either directly or through sub-contractors on perfectly intelligently devised public schemes, which are regretting the return of a Government committed to wholesale slicing, aside from the economic effects.
However, there is one function of a budget and a Finance Act to which I think we should pay a little more attention, since in many ways it lies at the roots of much of what the noble Lord, Lord Alport, said. Part of the function of a Finance Act in this modern age is to provide for a redistribution of resources. It is to ensure, not that everybody is equal, but the avoidance of social inequalities that exist between various groups of people and which, if allowed to accumulate, give rise to tension and certainly to much unhappiness, on the one hand, and often to undue arrogance, on the other. If these worst extremes are to be avoided then progressive taxation, alternative to or together with redistribution of resources, must take place.
How serious is this? Fortunately, earlier in the year the Commission on the
1122
Distribution of Income and Wealth made its report. Perhaps it is not generally realised at the moment that the top 1 per cent. of the population own 25 per cent. of the national wealth and that the bottom 80 per cent. of the population own 23 per cent. of the national wealth. If we take the top 5 per cent. of the population, they own 46 per cent. of the national wealth. If we take it further to 10 per cent. of the population, they own 60 per cent. of the national wealth. Those figures are all taken from the Royal Commission's report. I am too old in the tooth to be told that, of course, if we divided up all the wealth equally (which I am not for one moment postulating) we should all be back in the same position 10 years hence. I am quite aware of that argument; it is a corny one. I am also aware of the old arguments that if you put the working class into houses with baths they would keep the coal in them. Those arguments are as dead as the dodo.
What I am saying to your Lordships is that when you get wealth disparities on this scale, it is quite clearly necessary to act for the maintenance of the cohesion of society and the promotion of that degree of unity of which both the noble Lord, Lord Alport, and I had our own experience during the war. Proper use of the taxation instrument or redistribution of income or the provision of proper services to those in need must be accomplished, and if any Budget or Finance Act falls short of that requirement it is acting in a way that is quite anti-social.
It should be borne in mind that the 80 per cent. to which I have referred, who have some 23 per cent. of the national wealth, include, of course, at that lower end, people living in conditions of quite unimaginable poverty, even in this day and age. Poverty does not merely mean the absence of an income or the absence of possessions.
I am among those who do say money makes unhappiness more comfortable, but nevertheless it is not only the lack of money and individual wealth resources that affects the other end of the social scale, and there are millions of them involved. It is deprivation, because poverty is not only lack of money; it is being deprived of space, it is being deprived of a neighbourhood in which one can

1123
move, it means being deprived even of the ability to move, and this happens in many cases. It means, in the case of younger people, being deprived, as many of the school-leavers are now deprived, of any purpose that they can form with any hope of possible success.
Young people dream. We have all dreamed; we have all formed our purposes; we have all tried when we were young and in our teens and when we left school, to lay out the whole purpose of our life and its direction. Maybe we were naive in doing so, but we tried and it gave us pleasure and it gave us purpose, and it gave us energy to pursue the work and to take the course that we did.
Today we are denying it. Moreover, we are deliberately denying it. We are denying it, as my noble friend Lord Jacques has said, and indeed, supported, I felt, by my noble friend Lord Ardwick, because we want to teach somebody a lesson. This is why we are doing it. And the result is that one has statements made in another place by the Prime Minister herself who when asked about the problem of unemployment said that the solution was for the moment that those concerned should move.
This matter of mobility is perhaps the most important question of all, because the production at competitive prices of goods and services for the use of people involves two factors: it involves capital and it involves labour. The capital is largely in the hands of that upper 10 per cent. to whom I have referred. They are the people with power, they are very largely the people with space. They are untouched by poverty, they are usually untouched by despair. An effort is required from them to invest, because you cannot have competitiveness, no matter how much labour power you have and with what intensity it is applied, unless there is proper investment. This is the obligation of capital within a democratic society, for which I would willingly concede they are entitled to their reward, which, if the figures in the Royal Commission's report are anything to go by, they most certainly have well received.
What do we find? We find that consistently over the last 20 to 25 years—
1124
unlike in France, Germany, the United States, Japan, Austria and unlike practically any other country in the world—manufacturing investment has been lower in this country, by 20 or 30 per cent. in the case of both Germany and France. And now, faced with the results of this, faced with the uncompetitiveness of British industry that arises from this, from plant and equipment obsolescence, plant and equipment decrepitude, they new seek to blame the whole thing on those among the 80 per cent. who own only 23 per cent. of the total wealth of the nation. So they must be punished, and mobility it is.
Well, my Lords, how can they be mobile? Investment and capital can be transferred across the world in two and a half minutes by key-tested telex; hundreds of millions of pounds can cross the exchanges. One can invest capital from the United Kingdom, any private owner of capital can have it over in Korea inside five minutes, and many of them are doing so. Indeed, private investors in this country are putting money into Korea, into Brazil, into Hong Kong, where labour rates are lower and whose products are coming in in direct competition with British industry. The capital can fly by key-tested telex in two and a half minutes.
Are the British workers supposed to fly also? What are they going to do—go by Concorde to follow where capital is invested? The answer is that in a democratic society there must be capital and plant going to where the workers are, if only for the economic reason that would appeal to the noble Lord, Lord Cockfield: because that is where all the social furniture is; the hospitals are there, the schools are there, the roads are there, the other facilities are there. Why uproot them and leave graveyards of towns to follow the whim as to where capital may otherwise seek to go? That should appeal to them. This indeed is what the Government should be doing.
I will not pursue the other excellent suggestions that have been made by my noble friends on this side of the House, and particularly by my noble friend Lord Beswick, because I am quite sure that at this stage they will not be listened to. But before I conclude I should like to make passing reference to the reasons that are given in the other place for holding on to the course that they have so far adopted.

1125
In listening to the Prime Minister, I gather that it is now fashionable to refer to the intestinal condition of the Conservative Party; the word "guts" is now apparently in common political use. Indeed, the Prime Minister in her peroration the other day gave fine vent to: "This Government has the guts to see it through".
May I suggest this perhaps brings guts and the other intestinal conditions which are comparable to it into slight disrepute. In war time we understood that that represented courage. Do noble Lords opposite really think it takes moral and physical courage to take away school meals? Is that courage? Do they think it is courage that is the virtue that is involved when they increase the price of school transport for kids all over the place? Is that courage? It it courage to close down blind trading centres? Is it courage to tell health authorities who want kidney machines, otherwise people will die, that they hope they will be able to get them from private donations? Is that the kind of thing that is courageous? Does it require real nerve, does it require real moral fibre to put up prescription charges? Does it require moral fibre to inflict injury in a variety of forms on the poorer sections of the population? Well, if that is courage, they must have it in abundance. It will ring a little truer when they indicate that they personally are prepared to endure the hurts that they are inflicting upon others.
7.50 p.m.
Lord COCKFIELD: My Lords, I should like to start by joining in the congratulations which have come from all sides of the House to my noble friend Lord Marshall of Leeds for a quite outstanding maiden speech which I thought was marked both by charm and by wisdom. The fact that he was supporting the Government, of course, is ample proof of the latter, and his charm evolves from his own personality.
I should also like to express appreciation of what the noble Lord, Lord Charteris of Amisfield, and my noble friend Lady Airey said about the help that the Government had given to the National Heritage Memorial Fund. I add on a purely personal note that I was directly associated with the late Hugh Dalton when the
1126
National Land Fund was set up in 1947. The first property that we bought out of it was Lake Bala set in 33,000 acres. After that the fund fell on to hard times, but we are now only too glad to see that it has found a permanent and extremely worthy home under the most distinguished leadership.
The noble Lord, Lord Houghton of Sowerby, almost complained that hardly anyone who had taken part in the debate had referred to the Finance Bill as such. At this time of the evening I shall not follow in detail the individual points which he made. He will be seeing in due course the Green Paper on the taxation of husband and wife, but I assure him that the aggregation of the income of spouses had nothing whatever to do with the maligned Victorians: it was introduced by Mr. William Pitt the younger in 1799 and nobody could accuse the man who laid the foundations for the defeat of Napoleon of being a Victorian. However, I hope that when the noble Lord sees the Green Paper it will stimulate many other thoughts in his mind.
The noble Lord also suggested that we should abolish company taxation. I am surprised that that did not receive more support from some of my noble friends on these benches. Unfortunately, I must inform him that the yield of the mainstream corporation tax—that is, the tax on the company as opposed to the tax on the part attributable to the dividend—is about £2,000 million per annum. The abolition of the tax would create certain financial problems so far as the Exchequer is concerned. The noble Lord also spoke about the black economy. I agree that we must not become too obsessed with that particular question. Nevertheless it is a serious matter and it has social as well as financial implications. Within the resources available to them, both revenue departments take vigorous steps to deal with the matter.
The noble Lord, Lord Bruce of Donington, for some reason which I do not entirely understand, made a frontal attack upon the whole concept of mobility. Let me speak again on a purely personal basis. When I left home to go to work 47 years ago I travelled from Dover to London to find myself a job. I have never regarded mobility as being, in itself, a bad thing; in fact on the contrary it is a

1127
good thing. That is not in any way to fail to recognise the very great problems that are faced by the older communities in Wales, Scotland and the North-East where old industries are declining and where, therefore, there are communities with very limited employment opportunities. However, one of the things that must be done is of course to foster the growth of new industry as well as to do what one can to ensure that the casualties of declining industries are looked after. The fostering of new industry carries with it a degree of mobility.
The noble Lord, Lord Bruce, also made a long speech about redistributive taxation and the ownership of capital. If he carries his researches a little further than he has, he will find that over a period of years there has been a very considerable redistribution of capital, and that is particularly true if one takes into account capital in the form of pension funds and so on. In fact one of the great contributions made by the Diamond Commission was that it produced figures which covered a much wider definition of capital.
There is another aspect of this matter where I part company with the noble Lord, Lord Bruce. I personally believe that, although it may be necessary to raise heavy taxation on particular income or capital groups in order to raise the revenue that you require, the concept of doing so merely in order to secure redistribution is likely to do more harm than good. It is likely to destroy the capital which is taken away; not to give it to the people lower down the scale. The way in which one readily improves the distribution of capital is to make it easier and better for people at the bottom to acquire capital.
The biggest changes which have occurred in the ownership of capital this century have been associated with the growth of owner-occupied houses—a movement in which the Conservative Party has, of course played a very great Part—the encouragement of pension funds; and the encouragement of share ownership, on which there are provisions in the current Finance Bill to help—a matter on which the Liberal Party, to its great credit, has always given substantial support.
I leave those more detailed matters and come to the core of what has been the
1128
debate this evening. I very greatly appreciated the tone of moderation in which the noble Lord, Lord Beswick, made his speech and put forward his points. But I am bound to say that I just do not agree with him. He is seeking to re-create and extend the kind of managed economy that we had prior to 1979. What happened in fact was this: over the 30-odd years after 1945, we went further and further—under Governments of both parties; I am not making an entirely party political point about this, although I am always capable of doing so, if so minded—in the direction of a planned and controlled economy. Just look where it got us! We were in a position where our rate of growth, relative to that of other industrialised countries, was falling very much behind. We were finding ourselves bracketed with traditionally poor countries, such as Italy, as the poor men of Europe. Countries like France and Germany which we had been far ahead of in the 1940s and early 1950s, finally overtook us and they now have incomes per head very, very much in excess of our own. Over that period the level of unemployment grew. Over that period the level of inflation grew. In each successive turn of the cycle, as recession followed expansion, on every occasion the performance on both unemployment and inflation was worse than the time before. It finally ended with the winter of discontent—a period in our history which was so disgraceful that I am not surprised that so many people no longer refer to it. However, its effect was to destroy the Labour Government and it may indeed, before the repercussions of it have died away, destroy the Labour Party as we know it today.
Lord BESWICK: My Lords, will the noble Lord allow me to intervene for a moment? All he says may be an argument against the planning that has taken place. But would he not accept that it is conceivably an argument not against the concept of a planned economy, but in favour of better planning?
Lord COCKFIELD: No, my Lords, because, after 35 years of attempts to achieve better planning, what in fact happens is that we have more and more control; more and more rigidity in the economy; less and less adaptation to

1129
change; and a small capacity for growth. In these circumstances we simply had no alternative, if the future of this country was to be secured, but to make a complete change in course. That, in fact, is what we did; that is what the electorate voted for in May of last year. That is what we were elected to do and that is what we propose to do.
If one looks at every one of the alternative policies which are put forward—and they have been made by noble Lords in various parts of the House this evening —one sees that none of them would provide a solution; in fact, many of them would make matters worse and not better.
Let me take the simple question of import control. This, in fact, was dealt with very forcefully by my noble friend Lord Boyd-Carpenter in a very vigorous and forceful speech. But the simple truth of the matter is that 30 per cent. of our national output is exported. We export a greater proportion of our national production than does the United States, Germany or Japan. We are singularly and uniquely vulnerable to retaliation, quite apart from international agreements, and this is a very serious matter when one talks in this way of casting aside a network of international agreements. I was most grateful to the noble Baroness, Lady Seear, for her support on this. But then to talk gaily of casting aside a network of international agreements which have done so much for the growth of international trade in the post-war period is a matter of very great seriousness indeed.
What would be the effect? Does anybody seriously pretend that the great majority of industries which are affected by imports are models of high productivity, tight manning and efficiency? Some of them are; I do not dispute that. But to suggest that they all are is really to lose touch with reality.
Lord BRUCE of DONINGTON: My Lords, I apologise for interrupting the noble Lord, but the noble Lord, Lord Alport, who raised this matter, in point of fact specifically mentioned paper. He was not in favour of general restraints, as indicated by the noble Lord, Lord Boyd-Carpenter. If my memory is right, he said "selective".
Lord BOYD-CARPENTER: My Lords, yes he was.
Lord COCKFIELD: My Lords, he gave selective examples in favour of general import control. The Government's policy is to deal firmly with cases of dumping where there is clear evidence that this is happening; and they have taken action under the Multi-Fibre Agreement. But to take action of this kind where there is clearly abuse of the proper practices of international trade is one thing; generalised import control is something else.
Let me take the next point: incomes policy, which was supported by the noble Lord, Lord Beswick, by the noble Baroness, Lady Seear, although she introduced a further suggestion allied to it, and I believe by the noble Lord, Lord Jacques. If there was any policy where experience shows that failure inevitably follows, it is incomes policy. This indeed was the factor which finally broke the Labour Government in that dreadful winter; and we have not yet recovered from the terrible damage that it did to the British economy.
The noble Lord, Lord Bruce of Donington, has spoken at very great length and with great fervour about the rate of inflation. But does he not realise that in May 1979 the rate of inflation was rising rapidly? Does he not realise that it would have risen even more rapidly but for the measures to control the money supply taken by my right honourable friend the Chancellor of the Exchequer both in June and in November? Does he not realise that his right honourable friend Mr. James Callaghan "bought off"—and that is literally the only word to use—these public sector strikes by issuing vast post-dated cheques?—which are one of the major problems which now confront the present Government and which have been one of the biggest causes of inflated pay demands; because people look at these awards, they add the catching-up award to the current award, and they say, "Here are these people in the public sector being given increases of 25 per cent." They are called "Clegg" increases; they ought to be called "Callaghan" increases, because that is where the true and genuine blame for them lies. The private sector look at these settlements and say to themselves, "How can we be expected to settle at reasonable figures when here is the public sector settling at figures of 25 per cent?"

1131
This was the hangover both of the collapse of the Labour Party's incomes policy, and of the policy of the Labour Party itself. We have now virtually lived through that period, and so far as the public sector is concerned, the policy of Her Majesty's Government is absolutely crystal clear. In future we cannot possibly afford pay settlements on the level that we have seen over the last 12 months. The clearest possible indication of the Government's determination in that field has been the decisions that they took on the pay of Members of Parliament and Ministers, and of the top people in the public services.
As regards the rest of the public service, where the Government are not themselves directly responsible for fixing rates of pay, the appropriate disciplines will be enforced through cash limits and external financial limits. We are not in the business, and we have no intention of getting in the business, of settling individual pay claims. This is a matter for the managers of the sectors concerned. But overall we are determined to ensure that the amount of money available ensures that settlements are consistent with the Government's general financial policy.
I entirely agree with the analysis of my noble friend Lord Boyd-Carpenter when he said that a change of course inevitably brings with it difficulties in the early stages. We have never made any secret of the fact—and I can go back over my own speeches over the last 15 months and produce innumerable quotations to support this—that the change in course would itself produce considerable problems. So it has turned out to be. There is a transitional cost in terms of loss of output; there is a transitional cost in terms of higher unemployment. I may say that exactly the same happened after 1975 when the Labour Government, partly under the discipline imposed upon them by the IMF, brought down the rate of inflation. That was also accompanied by stagnating or even falling output in some years and by a rise in the level of unemployment. If one looks at every one of these alternative policies which have been put forward, one sees that they would individually and collectively make the present position worse and not better.
1132
This is why the Government are determined to continue on their present course and to see it through to success. The noble Baroness, Lady Seear, said that we harbour old-fashioned dogmas. Yes, indeed, we do, my Lords. The old-fashioned dogmas by which we abide are those of thrift, hard work and enterprise, and these will see the British people through as they have seen the British people through before.
On Question, Bill read 2ª; Committee negatived.
Then, Standing Order No. 43 having been suspended (pursuant to Resolution), Bill read 3ª, and passed.

CITY OF DUNDEE DISTRICT COUNCIL ORDER CONFIRMATION BILL
Brought from the Commons; read 1ª, and (pursuant to the Private Legislation Procedure (Scotland) Act 1936) deemed to have been read 2ª and reported from the Committee.
INVERCLYDE DISTRICT COUNCIL ORDER CONFIRMATION BILL
Brought from the Commons; read 1ª, and (pursuant to the Private Legislation Procedure (Scotland) Act 1936) deemed to have been read 2ª and reported from the Committee.

COAL INDUSTRY BILL
8.11 p.m.
The Earl of GOWRIE: My Lords, I beg to move that this Bill be now read a second time. It gives me very much pleasure to do this in view of the importance of this Bill, which, as was said in another place, is an expression of the Government's confidence in the future of coal and in those people, both management and men, who work in the coal industry. Over the past seven years most of us—in all parties—have completely altered our views about the future of the British coal industry. In the late 1960s it was fashionable to write coal off. The NCB was doing a good job—of running the

1133
industry down. In the financial year 1967–68, for instance, 62 pits closed and the labour force fell by 45,000. It was the same all over Europe. As late as 1973 the European Commission felt that coal would not be a significant factor in the future energy supplies of the Community. As the Middle East oil poured out of the ground faster and faster, it seemed to almost everyone that the age of coal was over.
Fortunately, there were people who took a far-sighted view of energy supplies, and I think there were more of them in Britain than in most other countries. In 1973—under a Conservative Government—the National Coal Board drew up its Plan for Coal. This plan was for nothing less than the complete reconstruction of the industry; for its transformation from a declining industry struggling with worn out, uneconomic capacity to an altogether modern industry operating with high efficiency and allowing its employees improved working conditions, and with great potential for general expansion. By the time Plan for Coal came up for Government approval—in 1974—we had all been rudely shaken from our complacency about unlimited cheap oil supplies. The Labour Administration of the day gave the go-ahead. We on these Benches, then in Opposition, affirmed our support, and the new investment built up. It is now standing at record levels—around £800 million per year in today's prices—and the recent public expenditure White Paper shows that this rate is continuing.
Although lead times are long in this industry, the signs of the new investment are now coming through. I am not thinking merely of the super-pits such as Selby—the first time a new coalfield has ever been developed in a fully planned and integrated manner, with full regard for the local environment—but I am thinking also of the many pits which are being reconstructed all over the country to give increased productivity and extended life. Overall, there are encouraging signs that the long decline in deep-mined output has been reversed, and last year there was a useful improvement in output per man-shift which combined with a decline in absenteeism to give an improvement in output per man-year of some 4½ per cent. This is in an industry, as I have said before, which has few criticisms of the Chancellor's
1134
direct tax cuts. Plan for Coal is well on the way. The delays that have occurred were not, so far as I know, the result of any Government's actions. In any case, they should now be disappearing and the plan should be more or less completed by later in the present decade.
The demand side, too, is important, and progress is continuing there. In the past few years the proportion of our public supply electricity that is generated from coal has increased—from 57 per cent. in 1974 to 71 per cent. in 1979. At the end of June there took place the economic summit in Venice, attended by my right honourable friend the Prime Minister and my noble friend the Foreign Secretary as well as my right honourable friend the Secretary of State for Energy. In the communiqué issued at the end of that summit the countries represented together committed themselves to a doubling of coal production and use during the next 10 years. For many of these countries, their part in this commitment will consist of the kind of actions that we in the United Kingdom have been taking consistently since 1973. Thanks to the foresight of Governments of both parties and the enterprise of the management and labour force of the NCB, we have come a long way.
We start further down the road than most of the other Venice powers. For example, I mentioned a moment ago that over 70 per cent. of our public supply electricity is generated from coal. The next highest figures are 55 per cent. for West Germany and just under 50 per cent. for the United States. The other four countries are way behind these levels. In terms of overall primary energy supplies, the contribution of coal was, in 1978—the most recent year for which comparable figures are available—33 per cent. for the United Kingdom, 27 per cent. for West Germany, 19 per cent. for the United States and only 14 per cent. for Japan. In registering my pleasure at that lead, I do not, of course, find any cause for complacency, but it is at least a symbol of the affirmation that we in Britain have already made—long before most other countries —that coal must be developed. If we can get our investment and productivity and output right, as I confidently believe we shall, the large sums of public money involved will have been justified.

1135
The Bill aims to consolidate this lead and put the coal industry on a firm basis for further expansion. It is the Government's view that the potential of British coal can be realised fully only if the industry is operating in a competitive and financially viable manner. On taking office, the present Government found that the NCB's finances were in a disquieting state. For two or three years the industry's reliance on Government grants had been growing. For the financial year 1979–80 alone they total over £250 million; of this, about £60 million is social grants whose purpose is to help meet the burdens which arise from the past run-down of the industry and to assist in meeting the problems of transition from old industry to new. We expect to continue with these. But the remaining £190 million relate to operational grants which effectively make up losses incurred on various aspects of the Board's commercial operations. For 1980–81 this total is expected to be about the same. But following an extensive review of financial prospects with the NCB we believe that the Board should be able to achieve at least a break-even position by 1983–84. In the years to 1983–84 there should be a tapering provision for operational grants and from 1983–84 onwards the Board should not need any more operational grants, although, as I have said, we expect to continue the social grants.
Accordingly, the Bill has three main objectives. First, it increases the Board's borrowing powers to allow the tempo of their investment to be maintained. Second, it makes provision for operating grants to continue up to and including the year 1982–83. Third, in relation to the social grants the Bill extends the time limit to 1983–84, widens the range of these grants and increases the financial limit to accommodate such changes.
In detail, first, the borrowing powers. The National Coal Board's present borrowing limit is £2,600 million, which is the maximum under the 1977 Act. This level is expected to be reached during the winter, and with NCB investment running at £800 million a year an increase is clearly necessary. The Bill increases the limit to £3,400 million, with provision for further increases by order up to a maximum of £4,200 million. Bearing in mind the extent of grants to the NCB and an in-
1136
creasing proportion of funds generated internally, these increases should last the Board until some time in 1983, at which time a further parliamentary review of the board's progress would be appropriate.
Lord WYNNE-JONES: My Lords, I thank the noble Earl for giving way. I wanted to ask him about the differentiation between the operating grant and the social grant. Is the operating grant purely for normal operations and the social grant for situations where there are special, severe losses? What is the meaning of the social grant as differentiated from the operating grant?
The Earl of GOWRIE: My Lords, I think that my brief is clear on this, and if the noble Lord will be patient I shall come to it. Briefly, we must distinguish, as in all industries, between monies provided for daily operation, which, as we say, we expect increasingly the board to be able to generate itself, and monies for capital investment, which is the bulk of the big increases that I have mentioned, and what I call social grants, which are to ameliorate the effects on individuals and communities of the structural alterations in the industry as a whole. I think that the brief will cover this.
Clause 2 of the Bill permits the Secretary of State to make loans to the board on terms which allow the payment of interest to be deferred for a number of years. This provision will give the board additional flexibility in its finances by allowing major projects with a long lead time to be financed over a timescale which matches more closely their revenue earning capability. But there is no element of subsidy in this provision—interest is deferred, not forgone.
Next, to deal with the second main objective of the Bill: Clauses 3 and 4 make provision for the operating grant payments to 1982–83. Clause 3 of the Bill introduces a new concept: the deficit grant which it is intended will form the bulk of such payments to the board. Formerly the board have taken the Government grants as constituting part of their revenues before arriving at their profit or loss, and we think this is wrong. But the Government have now given a direction to the board to present its accounts in such a way that the deficits grant is shown explicitly for what it is: as

1137
a Government grant to make up losses. The change is purely one of presentation but we think this is the right way to present the accounts; it will enable the industry's progress towards financial viability to be seen clearly by the taxpayers.
Clause 4 sets an aggregate limit for deficit grant and the other operating grants introduced by previous Acts—coking coal subsidy, stocking aid, assisted coal-burn, and the like—over the period 1979–80 to 1982–83; after that time, as I have already said, the operating grants should no longer be required. Within this aggregate limit the Government have in fact agreed with the NCB annual limits for operating grants. In 1979 survey prices these are £135 million for 1980–81, £109 million for 1981–82, and £28 million— a severe tapering—for 1982–83. Payments can be made up to these limits adjusted for inflation—so that in 1980–81 we expect to pay out over £170 million, which represents the £135 million I have just mentioned with an appropriate adjustment for inflation. Incidentally, that should be a good indicator to anyone attending to these things of exactly the kinds of problems which inflation causes, and how urgent it is therefore to take drastic steps to reduce it.
Clause 5 repeals the power to pay regional grants. These grants were originally introduced by a Conservative Government to deal with the problems of a contracting industry, and are no longer needed under the new régime.
The final part of the provisions of the Bill is concerned with social grants. I gave a quick indicator about these to the noble Lord, Lord Wynne-Jones, a few moments ago. We expect the need for these grants to continue for it is only right that the Government should continue to help the coal industry in its unique circumstances to deal with the burdens of the past and to cope with the strains of transferring itself from an old worn-out and declining industry to a new and vigorous and expanding one, and to assist individuals who would otherwise bear an unfairly large share of these transitional pains.
The Bill proposes a number of improvements in the social grants. First, when a pit has to close it is often possible to find work at a nearby colliery for most of the
1138
men. Clause 6 will widen the basis of the Government contribution to include the costs of the disturbance allowance and the retention money which the board will be paying to encourage the men to stay in work at the new job. Increasingly, also, trained and experienced men will be needed to man up the new faces and new pits that are being constructed. I think we had mention of training issues in the coal industry at Question Time this very afternoon. So it is in everybody's interest that any such men who have been made redundant—perhaps at a pit a long way from the new developments—should be given sufficient financial inducement to move rather than to remain unemployed. I hope that this is an aspect of mobility that will find favour with noble Lords opposite. The board will therefore offer a disturbance allowance of £2,000, generous removal allowances and also retention payments. Clause 6 will enable these payments to rank as "relevant expenditure" so that they can qualify for Government grant. The board believe that these additional transfer payments will be attractive enough to bring skilled and experienced men to the new pits.
Furthermore, Clause 7 extends the scope of the Redundant Mineworkers Payments Scheme to men employed at coke ovens and coking plants, and so ends an anomaly, whereby men who mine coking coal, who are declared redundant, receive handsome payments partially financed by Government, but those who work at the board's coke ovens and are equally affected by the decline in demand for coke receive no Government contribution. Clauses 6 and 7 also extend the time limits on grants set in previous Acts, and raise the financial limit to accommodate the changes and allow existing schemes to continue to 1983–84, although there is no intention that the social grants should cease then if they are needed.
Finally, the purpose of Clause 8 is to go some way to remedy an anomaly that has long worried the Coal Board and the mining unions. When the coal industry pneumoconiosis compensation scheme was agreed in 1975, because records of pneumoconiosis victims who had died before 1970 had been destroyed, only small flat rate sums were allocated for their widows. Clause 8 provides an extra £7 million to enable the Coal Board

1139
to pay additional lump sums to these widows to bring them up to a more reasonable standard.
Let me conclude by saying that the Bill aims to create the conditions for a successful industry, looking to the future rather than the past, and building on the achievements already made. The Government have every confidence that the industry will respond and make good use of the opportunities that the taxpayer has given it. My Lords, I beg to move that the Bill be now read a second time.
Moved, That the Billl be now read 2ª.—(The Earl of Gowrie.)
8.30 p.m.
Lord LEE of NEWTON: My Lords, the noble Earl gave a little of the background to the problems the industry had some years ago. He recalled my past. I was in the middle of all that, and the great change in the fortunes of the coal industry since that period have been quite dramatic. We lived through a period in which we saw the industrial, domestic and export markets for British coal contracting rapidly, with the result that a great many pits had to be closed. In those days, as the noble Earl said, there grew up a strong belief that the day of coal as a major supplier of the nation's fuel was almost over.
The decline to which the noble Earl referred, however, did not begin in the late 1960s. It began in the 1950s, and between 1957 and 1959 coal consumption fell by 33 million tons, the NCB cut back its production by 28 million tons, manpower fell by nearly 120,000, and despite all those things, stocks increased to some 36 million tons. That sort of cutback continued in the early 1960s, and by the time I first arrived at the Ministry of Power, which was in October 1964, the industry was in need of immediate short-term assistance. I persuaded the electricity and gas industries to increase their requirements by about 5 million tons, and I persuaded my Government colleagues to give a 5 per cent. preference to coal over oil in the buildings which were under their control. That was the short-term remedy one had to apply as soon as one could.
So far as longer-term policy was concerned, we looked at the Coal Board's
1140
capital debt—I will not go into the details of that at this late hour—and wrote off some £415 million of it, which was worth in interest rates alone well over £30 million a year, which was of appreciable assistance to the board in their period of very great distress. In addition, we produced the 1965 White Paper in which we tried to look ahead by five years, and we outlined the estimates for the coal industry in 1970 as something like 180 million tons.
The noble Earl will notice that when I was estimating in 1965 for the 1970 output, I was some 50 million tons above that which they are now producing, so amid the scenes of people believing that the coal industry was in decline, I was certainly not one of them; and if my 1965 White Paper had been allowed to go to fruition, instead of the rather negative policies which followed, I think that many of the problems of the coal industry we are discussing tonight would never have arisen. The figures which came afterwards—to be explicit, in the 1967 White Paper—reduced coal output to well below that which was consumed in 1970; 162 million tons was, I think, the consumption of coal in 1970, whereas the 1967 White Paper got it down to between 130 million and 140 million tons, a rather ridiculous figure.
I will hurry because of the lateness of the hour, but I have given that brief sketch of the history of the industry in the last 20 or so years in order that we may appreciate the very dramatic change of outlook now as against that of a comparatively few years ago. The position in that period was well stated by the present Secretary of State for Energy early in his speech on Second Reading of the Bill, when he said:
"It must be recognised that in the past there was undoubtedly a feeling that the coal industry was no more than a survival doomed to irreversible decline and early extinction".
That put it very well; the feeling was there. As I said, it was an opinion I did not share, and one did what one could to prove it to be utter rubbish.
The noble Earl spoke about the desire to keep a coal-intensive economy, and again I am all for that. Indeed, in that period, despite all the closures and problems, we were by far the most coal-intensive economy in Europe, and I

1141
rejoice to think that we are still probably in that same position. It was heartening to hear the noble Earl say that deep-mined output is now on the increase and that output per man year and per man shift is showing a significant improvement. Undoubtedly he was right in telling us that these results reflect the value of the quite huge capital programmes since Plan for Coal was introduced, and the figures now certainly justify the large increase; £600 million to £800 million a year over the next four years is what we are talking about in the Bill.
The increased borrowing powers in Clause 1 are obviously very necessary and right. The deferred interest loans under Clause 2 are of course a most vital element in the package, but a great deal will depend on the manner in which the Secretary of State and the Treasury handle their demands for repayment of interest as the financial problems which are bound to arise in a huge programme of this type begin to develop. A too strict demand on such repayment at difficult periods in the development programme could prejudice the whole of the NCB's programme, and that would be most disheartening indeed.
I believe the most contentious issue in the Bill is the financial objective of setting the NCB to become profitable by 1983–84, by which time the operating grant will be discontinued. The pace of the decline in every step is considerable: 1980–81, £135 million; 1981–82, £109 million; and 1982–83, down abruptly to £28 million. Again, to quote the Secretary of State in his Second Reading speech:
"It is completely right that the Government should help the industry in its unique circumstances to cope with the strain of changing from an old industry to a new and expanding one".
I wonder whether we could be told on what type of analysis they conducted their examination of the speed at which that transformation from an old to a new industry could take place? I can quite understand an estimate of the speed and cost of new faces in old pits cut to replace old seams—a process that is routine in any extractive industry; and I can well understand that one can get a fair estimate of the cost of that sort of development. But who can say what expensive setbacks involving geological problems can arise in such new, huge undertakings as Selby, on which there has
1142
already been vast expenditure, and on which much more money will have to be spent?
As yet we have not had the results of the inquiry into mining in the Vale of Belvoir, and even if the result is favourable there will be no coal to offset expenditure for many years—certainly not by 1984. Judging from experience one cannot hope to obtain a high level of coal supply from a new pit for at least 10 years. Yet here we are talking in terms of a cut-off date of 1984.
If the Venice conference is to be taken seriously, we are committed to trying to double our output in 10 years. I know that it has been argued that in this country we are not so committed. Perhaps the noble Earl can tell us about this. It is very vague indeed. It is said that the Americans, with their great seams, are going to be involved in this. To what are we committed as a result of the Venice conference? In the EEC compilations we are now talking about an increase from 170 million tonnes to 200 million tonnes by the end of the century. We shall have to make huge increases in the next few years if we are to stand any chance at all of attaining the lower figure, 170 million tonnes. I hope to goodness we do! We shall have a long way to go to reach the figure of 170 million tonnes, and even much further to go if we are to reach a figure anywhere near 200 million tonnes by the end of the century.
The figures in the Bill may seem reasonable enough, given the problems as we know them, but in the experience of many of us who have looked at this industry for years, no set of geologists has a monopoly of knowledge of coal measures that are as yet untapped, and to speculate on a date as near as 1984 is as much a gamble as George Orwell took on the same year. I shall not speculate on which of the two will prove the more accurate.
I support and applaud the contents of Clauses 6,7 and 8, dealing with increased grants in connection with the problems caused by pit closures. Indeed, I have a recollection of starting proposals of this kind a long time ago. The increased grants in connection with the pneumoconiosis compensation scheme are doubly welcome. The noble Earl outlines the

1143
anomalies in this regard, and I thoroughly agree with him. There is also the question of the redundant mineworkers' arrangements. If one visits some of the coalfields in the area of my noble friend Lord Taylor of Mansfield, or even some of the more southern coalfields, one finds a great many Geordie and Scottish accents, and this is a reflection of the fact that arrangements regarding redundancy were started many years ago; and they were highly successful in many respects.
I do not want to delay the House for much longer. For the future, the costs of the changeover to gasification and liquefaction, which will be the modern methods of using our coal, must yet be speculative, and there must be no stultifying of progress in these fields that would hold back the industry's huge modernisation programme.
There are parts of the Bill of which I obviously approve. However, I am greatly worried about the cut-off date. I believe that the Government are placing the NCB in a financial straitjacket. Geological faults can cause months and months of delay and involve millions of pounds of extra expenditure beyond what was anticipated. Bearing in mind our experience of the steel industry, and the way in which a financial straitjacket made such an awful mess of it, I hope that the Government will think again on the question of a cut-off by 1983–84.
8.45 p.m.
Lord TANLAW: My Lords, we on these Benches wish to give a general welcome to the Bill, which should be an essential step forward in the implementation of a capital investment programme to safeguard the future of the British coal industry. The spirit of the Bill reflects the views of the Community that were expressed at the Summit in Venice. These were that coal not only has a future, but must have a future as part of the Community energy policy and for the national energy programme that exists within it.
As noble Lords are aware, the Bill has been very fully debated in another place, and the seven sittings of Standing Committee B have covered virtually all aspects of the Bill, leaving this House with
1144
what is more of a depillaring exercise, rather than a deep extraction operation, in my view. However despite all that has been said about the Bill, it would be most helpful if the Government could define some of the monetary terms of the Bill and their implications.
We must accept that it is the Government's objective to make the industry profitable and be subject to competition and market forces, but are these terms really meaningful in the British coal industry? As the noble Earl is aware, I have raised this point on a previous occasion with regard to the gas industry, and I again wish to ask Her Majesty's Government about some of these matters.
Let us consider for a minute the term "market forces" in relation to the coal industry and look at the Coal Board's main market areas. As everyone knows they are the CEGB, which absorbs most of the production from British coalfields, and the British Steel Corporation; and indirectly linked to these markets is British Rail, which undertakes the delivery of coal from the pitheads. Each of these entities is Government-controlled and is in a virtual monopoly situation. Therefore, market forces in the context of the coal industry must mean negotiable costs with other related nationalised industries. This is a completely different picture from what is generally accepted as market forces in the private sector or in any world business context. Perhaps the Government can explain the term with reference to the Bill, and give an indication of whether they are prepared to make a distinction between genuine market forces and the in-house market arrangements that can best describe the marketing policy of British nationalised industries.
The same reasoning can be made for the term "profitability", which is the main objective in the presentation of the Bill, according to the speech of the right honourable Minister for Energy in another place. I believe that the term "profitability" also needs clearer definition in relation to the coal industry, if it is to mean anything, and should be related to efficiency of operation, which is perhaps what the Minister really has in mind. There must be a difference between commercial profitability and the in-house surpluses of the nationalised industries, of which the coal industry is one.

1145
I consider that to be particularly relevant when the Government are considering the closure of what are called unprofitable operations by the Coal Board. This is not just an academic point when the future of miners' jobs and families is at stake. This afternoon in the Peers' Lobby I met a deputation from the Chamber of Coal Traders who approached me about the anthracite mines in South Wales. They accept in the industry that these mines are unprofitable; at least two of the six of them are unprofitable. On the other hand, if these mines do not function and do not produce anthracite, consumers, both industrial and domestic, using anthracite boilers, will have to resort to imports. As the noble Lord, Lord Lee of Newton, said, there are also geological structural problems with anthracite mines. So if the yardstick of profitablity is to be used in the anthracite section, I ask the noble Earl to confirm whether these other considerations have been looked at; for instance, that part of the industry would have to run imports for the future.
Now I should like to come to the main objective of the Bill, which is the financing of capital investment for the coal industry's future investment programme. If the limits on the aggregate amount of borrowing by the board and their wholly-owned subsidiaries are to mean anything, can the Minister indicate at what rate the discounted cash flow for these programmes has been measured? I would hope the Minister has used the method of the discounted cash flow in these investment programmes, which is quite a usual form of assessment in the world of commerce. For those noble Lords who are perhaps not entirely clear as to what I mean, I could describe the discounted cash flow method as a conventional means of measuring the profitability of capital projects which involves the discounting of capital outlays and future cash flows at various rates of interest. The interest rate which, when applied at the discounted rate to future earnings, gives a present value which is equal to the present value of the capital outlay discounted at the same rate of interest, is the measure of profitability of the project.
The point I am making is simply that if profitability is to be the yardstick of the Government's investment programme in
1146
the coal industry, how is it measured? The rate of discounted cash flow would give the House a clear guidance as to what the borrowing figures contained in this Bill actually mean; and if the Government are unable to give the discounted cash flow rate it means that the interest rate on the borrowings contained in this Bill may not have been determined, and therefore could even call into question the validity of the capital borrowing figures contained in the Bill.
There is a further point which has not been touched on in any of the debates so far with regard to the future of the National Coal Board's investment programme. This is covered in Clause 1 of the Bill, which says in line 9 on page 1:
"… but the Secretary of State may with the approval of the Treasury… ",
and so on. This phrase is repeated at various intervals throughout the Bill, and I am sure it is intended as a conventional protection that the Coal Board's borrowings do not upset he finances of the central Exchequer. However, all too often in the past, as we know, it has been the intervention of the Treasury, exercising these very same powers asked for in the Bill which is before us this evening, which has postponed or interrupted the implementation of capital programmes which are part of the nationalised industries. Whatever the reasons for this may have been at the time, in our view one thing is certain, and that is that the net cost to the taxpayer at the end of the day has been greatly increased due to these interruptions or postponements of capital programmes proposed by the nationalised industries. Therefore, what is Her Majesty's Government's response to the plea that was made yesterday by the chairman of the Coal Board, that investment in his industry should not be included in the public spending borrowing requirement?
In this period of recession, such interventions by the central Exchequer would not only add to the net expense of these investments to the taxpayer but aggravate rather than alleviate the critical unemployment situation that faces the country today. If I can take a hypothetical case, suppose a small company has perhaps pared its costs to the minimum in order to obtain a contract from, let us say, the Coal Board to supply goods as part of the capital programme

1147
that is before us. Having won the order against strong competition, the company will take this along to the bank manager to obtain finance for tooling and for stocking in order that he can fulfil it. The company may also have to take on more men to complete the work in the time.
If the delivery of this order, and therefore the payment for it, is postponed for 12 or 18 months, a small company is in these circumstances faced with almost certain liquidation. The reasons for this are obvious, in that it cannot afford, with the current high interest rates, to keep extra men idle for this period of time, or to retain these stocks without receiving payment for them. When the Treasury eventually agrees to the onward release of the funds for the investment programme, the Coal Board may have to find another company to supply the goods, at almost certainly greater cost due to inflation.
I mention this as an example because it is not often known how many companies go out of business by trying to assist in supplying for a nationalised industry's capital programme, and I am very hopeful that the noble Lord will be able to give confirmation that, in spite of these words saying that the Secretary of State has to wait for the approval of the Treasury before these programmes are implemented, interruptions of the kind I have described will not affect small company suppliers to the coal industry's programme. I just think that this will be a reassurance, especially to many companies on Clydeside who have tried to participate in capital programmes, both of the coal industry and of the shipbuilding industry, and have either gone into liquidation or been seriously embarrassed by interruptions from the Treasury by their not allowing these programmes to be implemented in time.
8.55 p.m.
Lord DAVIES of LEEK: My Lords, first of all, I am grateful to the noble Lord, Lord Tanlaw, who was courteous enough to tell the Minister that he had to go, and courteous enough to tell me, also; so I understand fully the reasons why the noble Lord, and maybe some others, have to go. We have had a long and busy week.
1148
This is a fascinating Bill; and I think that when the opportunity of the Committee stage comes, or if we get the opportunity at some other stage—the Third Reading, perhaps—we might, at not so late an hour in the day, go into it in a little depth, because I am rather worried. Did I pick the Minister up correctly? He is a very careful and able Minister. Did he say that there is no element of subsidy at all in existence? I thought he said it, or it has been said with an aplomb and in a sort of gasconading way, saying, "Thank goodness there is no such element!".
The Earl of GOWRIE: My Lords, if the noble Lord would be kind enough to give way, I could clear up that point. The point I was making is that in the elements of deferred interest there was not a subsidy. The interest would have to be paid back.
Lord DAVIES of LEEK: I thank the noble Earl for clarifying that; but I worry a bit about Clause 2. Again, I will not go into this in depth because I do not propose to speak for more than about nine or 10 minutes. Whatever agreements come, in the last analysis, as never before,
"The approval of the Treasury shall be required for any direction given by the Secretary of State for the purposes of Section 2 above".
I should like to deal with that in depth. In other words, decisions about the movement of cash and about the movement of aid will, in the last analysis, depend upon the Treasury's decision. What expert advice about mining will the Treasury have?
Then, when we are talking about subsidies, we should tell the British public. I wish the miners' union would use the television and pay for an advert, because 99 per cent. of the British public seem to have no idea whatsoever about foreign coal which is imported into this country and is making the British miner redundant. How is it brought in? Government support in Britain for a tonne of coal (and we are now using the Common Market word "tonne") is already as little as £1 a tonne, compared with £24 a tonne subsidy in Belgium, £14.5 a tonne in France and £11.9 a tonne in West Germany.
That brings me to Venice. There is a publication—I want to get it in the

1149
Library—called The World Conference on Coal Production. What was agreed at Venice? Was Britain moving into an agreement in Europe, where we are looking at the tonnage or production of the whole of Europe? And, even if we drop the tonnage of production in Britain, were we saying, "We can import European coal", which, we pretend, is being cut cheaper than British coal, or at least is getting bigger subsidies than British coal? The British public do not appreciate the fact that these vast sums of subsidy per tonne of coal are being paid out in France, in Germany and in other parts of Europe, and in the United States and Australia. And they pretend that this is private enterprise!
The real truth is this. We are trying to throw water in the face of facts. When Mr. Hill introduced the penny post at the height of British power and industrial progress in the Industrial Revolution it was a brilliant concept. What we lost on the envelopes delivering to Welsh farms we gained on delivering across the road in Fleet Street in penny letters. In other words, always under private enterprise the penny post was a success because what you lost on farmhouse and country and rural deliveries you gained in the business world, in the city and in the towns. So, when you say that a pit is not economic and therefore it should be shut, you should look at the pits as you looked at the penny stamp 50 or 60 years ago, when for the purpose of providing an efficient service to the public, a letter was dropped into a farmhouse telling the farmer of the price of pigs at the market; and although the delivery cost may have been a shilling, the letter went for a penny. For Heaven's sake, remember that I or anyone can make any pit uneconomic by loading it with expensive machinery! Let us look at this question of economic and uneconomic pits with wider eyes.
The other fact that emerges—and I am cutting 90 per cent. of a good speech —is that Mr. Howell, the Minister—Bless his heart!—quietly (because there will be trouble) has given himself an opening. Mr. Howell, said Robert Taylor in an article in the Sunday Observer of 22nd June 1980,
"has given himself an escape route from his monetary targets by suggesting that 'exceptional circumstances' could change the size of operating grants to the industry. But the overall impression,
1150
both in the NUM and in the Cabinet, has taken a political decision to bring the mighty miners to heel".
That is the general impression. Nevertheless, shot into the speech was the fact that if things go wrong they can make a U-turn. Of course, they will have to! The policy is changed. The policy before Venice was for a target of coal. The policy now—and the noble Lord, Lord Tanlaw, played about with it; and, after all, we are all beaten by the clock—is profitability. Profitability is the target that is being put first.
Without going into masses of figures, we are assured that our coal resources are about 200 billion tons, 45 billion tons of which can be mined by normal methods. When we were making this target, what conferences took place with the electricity board to give guarantees that they would not import foreign coal and thereby undermine the strength of British coal? What discussions took place at Venice, before Venice or since Venice, with the Minister of Defence?
This House talks sometimes in Cloud Cuckoo-land about being strong with military equipment and cruise weapons. If we have not energy, if we are depending on coal from Europe, we cannot last. We won the last war because we were able to have a greater industrial base than Germany; we won the last war because we had energy. You cannot play about with economic tricks or the vagaries of Friedmanism or monetarism with a valid product like coal which is absolutely essential in defence policy. This Government have not discussed the issue in depth with the defence departments, either before or since Venice. I have mentioned this before in this House. How can you expect to make a strong Britain when you are waffling about importing coal from Australia, from America and from Europe to keep your furnaces and other things going, because you pretend that you cannot get Welsh coking coal or other coal of quality?
Let me ask another question. In a Government that is in charge of itself—and this Government is; the Minister is not an unintelligent woman, she is able, lacking wisdom occasionally but very able—what do the Government think of using money from oil income to support exploration and further improvements in

1151
research in the mining industry? The noble Earl, Lord Gowrie, always presents an excellent brief; and I welcome the social grants. I know what he means by social grants, having myself introduced a Bill on pneumoconiosis when I was a Minister. I am delighted with that. It would be bumbling of me and lumpen not to welcome the social build-up on this side. Of course, I do. I beg the Government to look at the income at the moment from oil, income that will not be here always, to subsidise the other energy assets we have in this country.
Another question and a nasty question! If coal is successful, is it to be put in a straitjacket so that the gurus of private enterprise, monetarism, Friedmanism, Hayekism and all the other "isms" shall be enabled to say "We will hive off the profitable pits, leave the unprofitable bits of coal digging to the National Coal Board and give private enterprise the successful new pits which in 10 years or so will be working"? The sad thing about this is that we have a three-year limit. Anyone who knows anything about pits and about coal knows that you cannot get a pit producing profitable coal in three years. Why is this limitation of three years here? It will tumble as sure as rain and hail tumbles.
I have dealt with the burden. I have paid an honest tribute to the Minister and the Government for thinking of the social side. What about movement of this great increase in coal? When we get another opportunity I will quote from the book on WOCOI. With the "Beechingisation" of our railways—the daftest piece of economic work imaginable in a society that waated to keep alive—we shall want new ports, railway sidings, huge railway buildings and more economic waggons for the use of coal. Seventy-five per cent. of our coal is still moved up and down on our railways. In certain areas where we know that coal is going to be developed we should keep the juggernauts off the roads and build railways to get that coal to the ports and stockpile it. My Lords, those are a number of constructive points. The night is late; I am enjoying myself; you are obviously tired; but thank you for listening.
9.9 p.m.
The Earl of LAUDERDALE: My
1152
Lords, it is always a pleasure to follow the noble Lord, Lord Davies of Leek, who has spared us his anxiety about acronyms on this occasion. What he has given us and what has been noticeable about several speeches that we have heard already, is a relatively consensus approach to a national—even an international—problem where the lead times are not less than 10 years, which means that they cover at least three general elections. That is the reality. The fact that this debate takes place in this mood on this subject when 10 or 15 years ago there would have been cries about blood on the coal, and goodness knows what, is a mark of great advance.
To the noble Lord's point about hiving off the best "goodies" of the coal industry to private enterprise I shall come back later on. If there were time tonight—but there is not—I should like to take him up on his worries about the Venice meeting and the relationship between our energy policy and defence. I can only say that in my own personal and private contacts with Ministers in the Department of Energy over the past six or seven months, I have been repeatedly struck by their great concern with the security aspects, and their approach to the energy problem in terms of national defence.
This Bill is to be welcomed for its attitude to facts and to the flavour of a changing society and a changing economic environment, indeed a changing awareness abroad in the country at large, an awareness as to the governing facts, both inflation on the one hand and productivity on the other. My attention was caught by the words of Mr. Peter Baxenden, the Chairman of Shell Transport and Trading, a few weeks ago, who said:
"One word alone characterises world coal business for the next 50 years, and that is the word' growth'".
He went on:
"Coal is the only energy source available in quantities sufficient to satisfy the growth in energy demand predicted to the end of the century".
I notice also that the World Coal Study forecasts that coal used in generating electricity will at least double in the OECD countries by the end of the century and that industrial demand will expand by a factor of no less than two and possibly a factor of four over that period. The forecasts are that coal production within

1153
the European Community at 250 million tonnes a year at the end of the century is likely to be somewhere between 150 million tonnes and 350 million tonnes below demand. This of course is something to which the noble Lord has called attention more than once and so have I in Select Committee hearings and at other times.
The fact is that obviously the European Community will have scope for importing perhaps five times as much coal as at the present time. This is an issue which we shall have to explore on another occasion because it raises in the noble Lord's mind issues of dumping which I am sure are there though I wonder whether the dumping element is quite so serious and quite so decisive as he alleges.
What is however true about the present situation is that the doubling of oil prices over the past year has dragged other fuel prices with it. Thus the expectation is that world trade in coal could be expected to multiply between two and a half and three times by AD 2000, and steam coal could be traded then at 10 to 15 times its present volume.
That is the context in which I am delighted to see the NCB trading profit trebled over the period 1975 to 1979. We saw a trading profit rising from £40 million to £120 million on a turnover that only doubled. Those two figures speak a great deal for themselves. But what about the productivity schemes so bitterly attacked on political and emotional grounds—and irrational grounds—not so very long ago? The fact is that they have borne fruit and the output in the first three months of this year as compared with the same three months last year is up 5 per cent., and this at a time when manufacturing output slumped. Last year saw tonnage losses from disputes halved. This is a fabulous accomplishment; a drastic change-around. Absenteeism was the lowest for more than 20 years. These are fabulous changes, and while I believe it would be wrong and, indeed, out of place, to inject Tory politics into debate on a matter which I hope is becoming de-politicised, it is just worth pointing out that the productivity schemes were greatly assisted by cutting tax. This is a reality: we may like it or not, but let us accept if for the results that it has accomplished.
1154
Let us look at the position of coal in relation to other energy sources. The coal price per therm, taking oil as the marker, was about 80 per cent. of oil in January last. But six months later, oil having risen, it is now only 65 per cent. That is a measure of the advantage which coal is gaining all the time over other sources. This seems to lead to two strands of development. There is the plan for coal—itself a massive investment plan supported by both sides of British politics. It has its origins, as my noble friend was good enough to remind us, in studies under the Tories. It was carried on by the other side. We have honoured it and welcomed it and we are now as a nation benefiting from it. Then there has been an enormous improvement in output per man shift. As I wanted to say just now in another connection, while manufacturing output actually fell something like 2 or 3 per cent. over the first three months of this year as compared with last year, coal output rose 9 per cent. Productivity itself went up something like 5 per cent. These are such great achievements that they provide a proper context for the Bill. Now that the 1974 Plan for Coal is running its course and one might say has almost run its course, in that we are now getting the benefit of that heavy investment, the question is: what next?
Certainly the key to success cannot be everlasting subsidies. In an inflationary world they simply add to inflation anyway and as a form of printed money they simply disguise the situation. Now is the time for a return to reality of thinking. It is called for all the way round and I think it is already evident (if I may say so with respect to those who know the industry much better than I do) among the younger miners. It was only today that my noble friend pointed out to this House that trying to get into the pits nowadays is about as hard as it is to get into your Lordships' House. The queue for jobs for miners is getting longer and longer, because they are jolly good jobs. The day must come—and I look forward to it—when only those with a degree in science will be allowed underground. That, after all, is the condition that we would like to see eventually.
For the moment, the critical political purpose must be to allow the industry to be rescued from the maw of Government control and influence. It has been

1155
said more than once from the other side tonight that this recourse to the Treasury over and over again cannot be healthy, and it is not something that any of us really wants. But the only real way to sell coal—or indeed anything else—is to beat competitors on delivery, price and quality; and whatever the subsidy element may be on the Polish, Australian or South African coal, it does all carry a heavy oncost of freight, which is sometimes forgotten.
What is of course commonly not recognised, and which must be faced too, is that something like 50 per cent. of the NCB's running costs are in wages. I am not for underpaying the miners, because I believe that the better they are paid the better they work. We have seen that over the past year and therefore I am not decrying the miners or their claims; but honestly, their wages have to be kept in balance with the result and of course the fact is that the output per man varies by a factor of two as between the best and the worst regions, and by a factor of a good deal more than two between the good and bad pits.
In the simplest terms, this really is the case for closing the uneconomic collieries. I am not suggesting that it is easy to define what is an economic pit, because there are so many inter-relationships. But it is worth recalling that, at a cost of 200,000 jobs, something like 249 pits were closed—never mind by whom—between 1964 and 1970. My own view about colliery closures is that they offer a magnificent opportunity for the application of underground gasification, and I believe that this is an area which the Coal Board are beginning to appreciate and respect more seriously than hitherto. I believe that it has been clouded by political prejudice and we were told all kinds of stories about British coal being too tarry or too sticky to lend itself to this process, known commonly as UGC. The answer to that is to ask Humphreys and Glasgow, who conducted the Newman Spinney experiments in the 'sixties and brought out a very different answer.
Surely the future lies in the steady upgrading of mining skills. It also lies in the immense opportunities beneath the North Sea. There underground gasification is the only intelligible means of extraction that is now foreseen. It is being increasingly
1156
studied by private enterprise and it seems to me that this is an area where private enterprise must come into the picture, without any attempt to scoop up the goodies and the cream from the best resources that are already available to the Coal Board.
The prospectus, the programme and the philosophy from now on should be fewer targets but more realism as to price. We should consolidate the gains, modernise the mood and continue to give this Government and their approach to energy a warm welcome from a heart instinct with the principle of consensus.
9.22 p.m.
Lord TAYLOR of MANSFIELD: My Lords, it is always a pleasure to follow the noble Earl, Lord Lauderdale, because we all know of his great knowledge in the sphere of energy, particularly as regards coal. Today has seen the publication of the 1979–80 annual report of the National Coal Board, and I feel that I cannot refrain from reading this line from a press report this morning:
"Old King Coal strikes again".
So far as that goes, he has never finished striking and some of us have had more confidence in the importance of coal over the years than many other people who should have known better.
I have seen some ups and downs in the mining industry, because I have been connected with it in one way or another for many years. But this morning when I read those words, I thought that it would not be a bad thing to intimate to your Lordships tonight what the press is saying. The report went on:
"King Coal has had a royally successful year. Deep-mined output was up by nearly 4 million tons which was the first increase since 1963".
My observation on that is that the colossal investment in the mining industry is now beginning to pay off. I can remember that in 1913—and I made a contribution to it—the global output of coal in this country was 287 million tons. There were no machines. It was all done by brawn. However, as the noble Earl indicated to us just now, output is up by 5 per cent. Fatal accidents were the lowest ever.
The first thing I have to say tonight will be about the human factor—that is, safety in the pits. It is true that this is

1157
not directly mentioned in the Bill but, believe me, my Lords, safety in our pits is an integral part of the operations of the coal industry. It always has been in some degree, and it still is. It is my belief that there is now a greater safety consciousness than at any time in the long history of the mining industry. And may this continue. So long as ever it is necessary to extract nature's treasures from thousands and thousands of feet below the earth's surface, I feel it is right—I make no apologies—that the question of safety in the pits should be mentioned in your Lordships' House. As I hope to show, it is worthy of a place on the record.
For only a few moments may I ask for your Lordships' indulgence so as to put the matter of safety in the pits in its proper perspective. I quote now from the annual report of the National Coal Board for 1978–79. Since 1950—it gives me great pleasure and a feeling of pride to make this statement—there has been a progressive decline in the casualties at the pits. For 100,000 man shifts worked—this may be, after all, the best guide in ascertaining the progress that has been made—in 1950, 30 years ago, there were almost 140 casualties. In the year 1978, that figure had been reduced to 94·6.
On the question of fatal accidents, they were fewer than ever in the year that has just passed. But in 1950—think of this astronomical figure in terms of the sacrifice of men's lives in extracting this previous treasure of nature from the bowels of the earth—there were 476 fatal accidents; and I remember the time when there were more than 1,000 a year. In the years 1977, 1978 and 1979, the numbers of fatal accidents were 38, 48 and 72 respectively. The reason why the figure was bigger in 1979 than in 1978 or 1977 was that there were two nasty accidents, one at the Bentley colliery in Yorkshire and the other at Golborne in Lancashire. It is true—I might be reminded of this—that in 1950 the manpower was much greater—690,000. Now it is about 235,000, but, even so, in the best of the last three years there is a welcome improvement and this also applies not only to fatal accidents but to serious reportable accidents. During the last 30 years there has been a welcome progressive improvement in this sphere of safety in the pits.
Without saying anything more about
1158
statistics, as one who has been connected with the mining industry for many years I want, in your Lordships' House, to pay my tribute most sincerely for the thoughtful diligence and care that has been exercised in this field, by both the National Coal Board and the National Union of Mineworkers. Right from pit level upwards this spirit of engendering the maximum amount of safety in the pits of Britain has been present. It must have been a very costly business: sometimes all that we do is to talk about output and money and what is it going to cost? Will there be a profit in it? But what has been taking place in the last thirty years in regard to safety has cost a lot of money, not only in the prevention of accidents but also in the provision of treatment when an accident has taken place or a life has been lost or a limb has been sacrificed. These improvements have taken the form of medical centres at the pit, professionally staffed, plus all the apparatus for immediate treatment at the pit and even in the pit, it may be two miles or more inby, and this excellent progress should be on the record.
I say this as one who knew very different circumstances. At one time we used to have to carry our own first aid box, and where we used to put a dead body after an accident in the old days is really nobody's business. Having gone through that and having seen it, for one, pay my tribute to all in the industry who have contributed so much. I trust that on that point I have said sufficient to indicate the real progress that has been made in making the pits safer and with fewer accidents.
I have used up nearly all my time in ventilating that particular topic but I should like to say just a few words about the Bill. It is an important Bill and the noble Earl, Lord Gowrie, explained it to us very well indeed. He made what is a difficult thing—namely, reading the Bill—quite simple and easy to understand, but I do want to give him my thinking on it. This Bill can be likened unto the proverbial curate's egg: it is good in parts and not so good in other parts. If I were to go through all the clauses (which I do not propose to do) I think I could prove that beyond any shadow of doubt.
As the noble Earl said, Clause 1 deals with increasing the borrowing powers of

1159
the Coal Board. That is a "must". The money that was voted under the Act of 1977 to invest, so far as the Coal Board was concerned, is almost at an end. The Board, with its commitments to make progress at existing collieries, and for the future provision of capacity, have to have more money to keep up the tempo that the noble Earl, Lord Lauderdale, spoke of in his speech. The two examples are these, Selby and the future of Beauvoir.
I just want to ask the noble Earl, Lord Gowrie, two questions, if I might. Has he any knowledge with regard to the inquiry concerning Beauvoir? Will the proposals soon be known, the views of the inspector? What is going to happen so far as Beauvoir is concerned? We all know what the Duke of Rutland is expecting to happen, and we all know what he threatened to do in the event that what he expected to happen did not happen. Perhaps I may ask the noble Earl this. I have seen some figures regarding the inquiry into Beauvoir which suggest that it has cost the National Coal Board £2 million. Just imagine what we are doing, spending £2 million in order to guarantee the future supply of fuel for producing energy which the country so much needs.
I was going to say something about Clauses 3 and 4. In my opinion these are the unsatisfactory clauses in the Bill. I have discussed this matter with the National Union of Mineworkers and their representatives, and it has been put to me that Clauses 3 and 4 of this Bill are a charter for the closing of certain pits. I should like to have expanded upon that, but the time is not opportune. Perhaps the noble Earl will have something to say about it. The social grants and the operating grants I will leave, but may I make just one observation about Clause 8.
The Earl of GOWRIE: My Lords, I am most grateful to the noble Lord for allowing me to intervene. I missed the second point that he wanted me to comment on. I got the point about Beauvoir but I did not hear the second point he wanted me to comment on.
Lord TAYLOR of MANSFIELD: My Lords, I said that there is a reaction to Clauses 3 and 4 in some NUM circles that they provide a charter for the closing down
1160
of certain collieries. May I close with a reference to Clause 8. I am happy to see that a further £7 million will be added to the £100 million that was given by the last Government particularly for the widows of pneumoconiotics who have died. The story of this chest disease is a very interesting one. It was only in 1928 that silicosis (as it was called then) became a prescribed disease for which compensation was payable. You had to prove that there was a percentage of silica in the rock before compensation could be claimed. Then we got the story in 1943 of pneumoconiosis and so on. I am delighted, and I welcome the proposal in Clause 8 that the widows of pneumoconiosis sufferers who died before 1970 are going to be beneficiaries under this Bill.
9.40 p.m.
Lord HALE: My Lords, this has been a very remarkable debate. I see that the noble Earl, Lord Lauderdale, is compelled to leave—indeed, I do not ask him to stay because I can make my comment while he is moving away. I wish to congratulate him on the speech which he made. I know that he has been saying these things for many years and he has been one of the first apostles of these matters. As a matter of fact I have brought with me a photostat copy of a debate opened in 1977 by my noble friend Lord Wynne-Jones, in which the noble Earl, Lord Lauderdale, took part. In that debate he urged further development of deep coal mining and so on. I do not think that there is a word which he has said which I did not appreciate. However, do not let me detain him at this time of night.
I confess to some guilt in this matter. I heard the announcement from Venice and the way in which it was put with very real apprehension. It was put in a rather remarkable way. It came, so far as I was concerned, with some considerable surprise. I found it extremely difficult to understand. One matter which went through not only my mind, but quite clearly the minds of Members of another place when discussing this matter, was why it should be announced in this way. Why do they say that Britain is not going to mine any more coal, in spite of all that we have said? In presenting this historic announcement, why was it said that our present plans are sufficient for the time being? Is it really a question of the

1161
provision of alternative supplies? I was wrong about that and I am satisfied that I am wrong.
However, a question remains. The Minister was singularly forthcoming in the course of the debate in another place. He quite obviously knew what he was talking about and was obviously known to the many miner members of the committee. He spoke as a man of considerable knowledge. It is curious that throughout the discussion no particulars were given as to any clearly planned participation on our part in the Venice agreement which, of course, was presented almost as a major contribution to the Schacht Report, politics or development politics—a major form of expansion of production.
There is another matter which the noble Earl failed to make quite clear. I know that at this time of night it may be very difficult, but I see that the Motion on the Order Paper is to try to get rid of the Committee stage. The noble Earl is putting those of us who are not accustomed to speaking late at night at some disadvantage. So, in the circumstances I shall certainly not raise a finger to oppose the Motion.
I should like to speak with real pleasure of almost all the speeches which have been made in the debate, but particularly so of the speech of my noble friend Lord Taylor of Mansfield, whom I have known for 40 years. He worked underground for some years in the North Derbyshire coalfield. He worked through the difficult periods as a trade union officer in the time of the Spencer Union and the Proprietors' Union. He lived, as I did, through two miners' strikes, and he lived in a mining village; he saw the quite dreadful things that happened. He was probably principally engaged at that time on industrial diseases and other matters arising out of work underground. He had visited many of the coalfields; he had to take part in witnessing the consequences of one substantial mining tragedy in Stoke-on-Trent.
As a politician my noble friend had real reason to deplore the dreadful failure to renew our country. He became aware of this in fighting an election as a Liberal in 1929 under the Lloyd-George programme of coal and power, a programme
1162
of development and expansion of roads: I do not suppose for a moment that he could have put them all into force. I am not suggesting that it was necessary or readily practical; but we neglected this great country. In that long period of neglect we neglected our best and most useful workers. We neglected their health and we twisted them. We set up a system of law which is a bitter farce.
The first time I entered this House was to hear your Lordships' Divisional Committee deciding, on appeal, that a 13-year old lad, who had been crippled for life with osteomyelitis working with a pit pony, had no right to any benefit because he had failed to give notice of the accident during a period in which he was confined, immovable in hospital. I apologise; one should not divert to as long ago as that and I had not intended to do so, but I am so moved. My old friend who holds universal esteem in this House, who I think has not made an enemy anywhere, and whose task in life is to serve others, should now at least be able to see something which fills all of us with real anticipation.
There is one question that I should like to ask the noble Earl. It is quite a simple one. The noble Earl says that we have come to the conclusion we can do this, we can do that. Obviously by comparison with some things in the past, it sounds a difficult programme. Has the National Coal Board accepted that the scheme of development, with the diminishing revenues and diminishing contributions, is, in its view, practicable? Has it accepted the mission to carry out its task, saying that it believes that it can be done and hopes that it can be done? I do not ask for multiple overconfidence; we had warnings given about that. We do want to see this done. We do not want to say a word which would cast any unnecessary criticism on these proposals. These are hard times, and I myself have said that I accept the Government's proposition that the defeat of inflation is the first task of any Government today. In carrying out that task they ought to have the support of the country. So long as they can convince themselves and convince a substantial number of citizens that they have reasonable hopes of success, I will not stand in the way.
In conclusion, I want to recall some-

1163
thing from a Committee stage which occupied seven mornings in another place. At one stage the Members came to the question of the 1975 widows and the rectification of this matter. There was no doubt about the welcome this was given. In the course of an interchange of personal reminiscences, one Member in another place recalled one little claim that might have been missed or one oversight in the wording. The Minister said, "Well, let's get round the table some time. We don't have to alter the Bill. We know there are always
1164
little oversights. Let's put them right, and let's get round a table to do it". As I read that, although I have not checked what happened, I believe it was accepted as something to be done. That was, I hope, at least an indication of a new spirit and a new understanding in a great industry that has contributed so many great men to our political life, that had a homogeneity quite characteristic and distinctive in itself and which may now be given the chance of leading us back to what might be one of the best chances for an industrial future.
9.54 p.m.
Lord WYNNE-JONES: My Lords, this debate has produced some fascinating speeches. It has produced a very human speech from my noble friend Lord Taylor of Mansfield; we all heard it with great interest and regard. It has also been a debate which I think the noble Earl, Lord Gowrie, will feel has been a very valuable one and one which perhaps I may say has been comforting to him because there has been such general agreement. In particular, I should like, as my noble friend Lord Hale has done, to say how much we all appreciate the way in which the noble Earl, Lord Lauderdale, has shown over a number of years a clear determination to try to get every Government to appreciate the need for a continuing long-term policy for the coal industry.
It is just on this one point of the continuing long-term policy that I still should like to press the Government a bit further. I appreciate that the Government have shown that they intend to have the coal industry developed. I appreciate that they regard this Bill as an important contribution towards this. Yet, when one looks at the Bill, one cannot be altogether satisfied that the Bill gives the guarantees which many of us would like to see. It says a number of things, but they are practically all conditional.
It is important, when we are dealing with an industry like the coal industry, a vital industry for this country, and when we are dealing with its long-term future, that we should drop conditions, because it is not by conditional promises that we shall ever get the coal industry to continue in its proper development. Many of us feel—and in fact several of us said so in the debate two or three years ago—that the target of 150 million tonnes by the end of the century was too low; that 170 million tonnes was the least one should be aiming at; and many of us felt that we should go further towards 200 million tonnes. One would like to see a greater resolve on the part of the Government to increase the target.
It is also important to bear in mind that the coal industry goes far beyond just the mining of coal. I have some figures here which deal with the distribu-
1166
tion of coal and everything concerned with it. It may surprise noble Lords to learn that the NCB itself employs 24,000 people in the distribution of coal and in the associated industries; that independent producers employ 10,000; that the distributive trade employs 50,000; that appliance manufacturers employ 6,000. British Rail, road haulage, et cetera, employ 10,000, making a total of roughly 100,000 people dependent incidentally—not directly—upon the coal industry.
This is an extremely important matter. There must be some clear guarantee that we have a proper assurance for the coal industry, especially in the critical years after the period covered by this Bill, which runs up to 1983, for, as I think the noble Earl knows only too well, the period after that from the middle of the 1980s to the end of the 1980s is generally regarded as a critical one for the coal industry.
In fact, certain experts—I do not agree with them—have predicted that the use of coal may slump to something like 50 million tonnes a year instead of the present about 110 million tonnes a year. If such a thing happened it would be catastrophic. If it happened at the very time when, according to this Bill, the grants will have dwindled away to zero, then indeed we could be faced with a serious position. I would ask the noble Earl in reply to pay attention to this question of guarantees for the coal industry.
I do not want to delay your Lordships any longer, but there is one other point to which I want to call attention. There is a small industry in South Wales called the Phurnacite industry. It produces the material, Phurnacite, which, as noble Lords know very well, is used in many domestic furnaces and is an excellent fuel of the smokeless variety. The battery of ovens for producing it is just about run down. A Question was asked in another place earlier this month and, in a Written Answer, Mr. John Moore said:
"The NCB have explored with the Government the possibility of special assistance to enable them to replace the two oldest of the six batteries. The cost might be some £36 million. The Government have decided against giving special assistance".

1167
That means that those batteries will be closed down, in which case I am given to understand that the employment of about 1,000 people will disappear and that, in addition, as anthracite, owing to the difficulty of winning it, is virtually being priced out of the market, there will have to be imported into the country material to substitute for Phurnacite.
When the Government on the one hand say they are prepared to pay employers to keep people at work unremuneratively, and on the other say they will not give money to rebuild these furnaces for producing Phurnacite, they are being extraordinarily inconsistent. It is essential that they pay attention to the vital need for keeping something like that going. It is not irrelevant to the coal industry: is closely connected with it and a vital part of it. I do not wish to detain the House longer, and in conclusion would merely assure the noble Earl that while I am not antipathetic but sympathetic towards the Bill, I am still not satisfied that it gives the assurances that are required.
10.3 p.m.
The Earl of GOWRIE: My Lords, the noble Lord, Lord Taylor of Mansfield, in a notable and moving speech, broadly welcomed the Bill, like most of your Lordships, but described it as a bit of a curate's egg. If the Bill is that, then I suppose my right honourable friend the Secretary of State is cast in the role of the curate, and that puts me in the rather improbable role of the choir boy. I intend to sing rather rapidly this evening because it is bad luck on the Bill that it fell after a longer economic debate than we anticipated, not only late in the evening but late in the year, because I agree with your Lordships that it is a very important Bill of far-reaching consequence to the industry and our economy, to our defence, as noble Lords have said, and to many other matters. Because it is so important, I greatly welcome, curate's egg or no, the broad response it has received from the House tonight: that is very gratifying to the Government and will be gratifying to the coal industry as a whole.
The noble Lord, Lord Lee of Newton, asked a number of questions. It is a great pleasure to debate this issue with a former Minister of Power, as the office
1168
was then called—I am not sure if I do not prefer the word "power" to "energy"; it has quite a thump to it—and he asked me what analysis of speed of transition underlies the Government's decision. The starting point was a review in considerable detail of the prospects of the NCB as regards production, the market, investment and, of course, their financial position. The Ministers responsible went to considerable pains to satisfy themselves that these figures were both robust and realistic, but naturally, as with all forward budgeting, some conjecture is inevitably built in.
I should add one point. The noble Lord, Lord Lee, expressed some surprise at the speed of transition. I could sympathise with that view had we been starting from scratch, but we must not forget that we are building on substantial progress since 1974, and I pay tribute to the noble Lords on the other side and to their right honourable and honourable friends for achieving that progress. There is a simple figure that can illustrate this point better than words. In 1973–74 the board's assets amounted to £384 million. In 1978–79 they amounted to £1,336 million. It is this investment which is now coming on stream which enables us to look forward to so marked a financial improvement. It was the noble Lord, Lord Taylor of Mansfield, who reminded us that the investment was beginning to pay off; and may I say to the noble Lord that that applies to investment in safety as well.
The noble Lord, Lord Lee, asked what had happened to the production target of 170 million tonnes by the year 2000. This target is the one originally put forward by the NCB in 1977, and which so far as I know has not received the commitment of any Government. But if I may say so, the Government do not believe that the coal industry should plan by setting a production target in vacuo. Even though the lead times for new capital development are long, the starting point of any plan must surely be an assessment of potential demand in the market place and an assessment of the industry's ability to supply that demand economically. To set a production target regardless of demand is surely a recipe for trouble.
The noble Lord, Lord Tanlaw, explained to me that he was unable to remain for the

1169
whole of the debate, and I must say that in that regard he gave me the best explanation that I have heard. So if the House will forgive me, I shall answer his questions, even though usually if a noble Lord leaves before the end of a debate, he does not receive an answer. However, these points may also be of general interest.
First, I shall deal with pricing. Realistic pricing is of course central to our energy policy. We believe that pricing must be based on the sound economic principles that I have just outlined in assessing supply and demand. It must give both consumer and producer reasonably accurate signals about the costs of energy supplies. Proper pricing not only discourages wasteful use of energy—and throughout the western economies we are all having to adjust to dear energy—but at the same time it encourages entrepreneurs and inventors to devise new methods of utilising, saving and conserving energy. We believe that there must be healthy competition among all fuels. Each fuel has characteristics which make it preferable for different tasks, and consumers need to know how they can most effectively choose their fuel mix. We should not want a mono energy policy any more than we should want a mono transport policy.
The noble Lord, Lord Tanlaw, asked me what is the rate of discounted cash flow used in the board's capital investment appraisal. The answer to this somewhat technical question is set out in the White Paper on the nationalised industries, published in 1978. This Government look to the National Coal Board, like the other nationalised industries, to secure a required rate of return of 5 per cent. in real terms in the event of the totality of its capital investment. This concept is not entirely on all fours with that of a first rate of discount, but is not less demanding, and for technical explanation I cannot do better now than refer the noble Lord to the relevant appendix to the White Paper. If he is not happy, I am sure that he will take up the point in Hansard and put down a Question for Written Answer.
The noble Lord, Lord Tanlaw, and also the noble Lord, Lord Davies of Leek, and his noble friend Lord Wynne-Jones, were concerned with what they felt was perhaps a little time-bomb of a phrase—"with the approval of the Treasury"—and the
1170
noble Lord, Lord Wynne-Jones, wanted to know what conditionally was involved in the Bill. The phrase, "with the approval of the Treasury" is, I understand, common form in financial provisions of Bills, which is no doubt why it is a rather unfamiliar phrase to your Lordships' House. The Government are of course indivisible, and the phrase is there to draw attention to a standard administrative requirement. It does not represent any attempt to infuse any additional or sinister Treasury control.
The last point put to me by the noble Lord, Lord Tanlaw, was his concern that some anthracite pits in South Wales might be in danger of closure while there is insufficient United Kingdom production to meet demand, and while high-priced imports might be required. I think that situation would clearly be absurd, and your Lordships will not be surprised to know that the real position, which my right honourable friend the Energy Secretary recently discussed with the board, is rather more complicated. Some grades of anthracite are in surplus; for others, the Coal Board and the trade have had to import to make up demand. The price difference between imports and home-produced anthracite is up to £15 per tonne in favour of the home product. Thus there is some scope for price increases. But because of the fact that only some grades are short, these must of course be on a selective basis within the overall spread of prices in the domestic market. I understand that the whole issue will be discussed with the Domestic Coal Consumers' Council, and any price increases would be introduced over a period of time. Anthracite price increases would go some way, in fact, to help some of the viability of the loss-making pits in South Wales, but even the largest increases the consumers could be expected to tolerate would, I think, fall very far short of bringing the heaviest loss-makers up to a point of break-even.
The noble Lord, Lord Davies, also mentioned coal imports. United Kingdom coal will continue to meet the bulk of demand in this country, but the Government are not in favour of artificially restricting the commercial freedom of consumers to buy coal from abroad. Imports are best countered through commercial arrangements like those between the Coal Board and its major

1171
consumers, the CEGB and British Steel. If there is a subsidy—and my noble friend Lord Lauderdale mentioned the transport element in any overseas subsidies—to some degree it is a foreign subsidy of electricity, of energy and, indeed, of the taxpayer, so one can benefit from it in certain circumstances as well. But I think I should like to point out to the noble Lord, Lord Davies, that Australian and United States coal is not subsidised, and the great bulk of our imports come from those countries. We import a modest amount of coking coal from Germany under a contract which was reached four or five years ago, and virtually none from France or Belgium—and Belgium, for social and labour reasons, as the noble Lord pointed out, is the country with the largest subsidy and the one where we would be most vulnerable.
My Lords, I very much welcome the support of my noble friend Lord Lauderdale for this Bill, and his pointing out that productivity in the coal industry was up at a time when we were in general manufacturing recession. That is encouraging, at least from the point of view of the coal industry and the future.
The noble Lord, Lord Taylor, asked me about Belvoir. I cannot comment on that as the inspector's report is awaited and the matter is still sub judice. But I must say to the noble Lord that of course we have to allow for the costs of environmental protection and of the kind of public inquiries which allay public disquiet. I think it would be wrong for the Coal Board not to do so; and, indeed, as I have seen for myself looking at retrieved open-cast pits, the Coal Board have an excellent environmental record of putting the country back in the shape in which it originally found it.
The noble Lord, Lord Taylor, also asked me about closures. I do not want to give any credence to the concept that this Bill is a recipe for closures. As with any extractive industry, reserves run out or become prohibitively expensive to exploit and, as a result, closures must inevitably occur. In recent years there has been a steady pattern of closures. For example, five collieries closed last year, nine in 1978–79, seven in 1977–78 and only three in 1976–77. That is by no stretch of the imagination an extravagant
1172
rate.It is far from the 50 or 60 pits a year which were closing in the late 1960s; and I think that pattern can be expected to continue in the future, at the lower rate. Even so, if we were dealing with a declining industry, I acknowledge that there would be cause for concern; but that is not the case and, as I have said many times, the coal industry has a bright future before it. We are easing its path into the new century; and our social grants, as I mentioned in my opening speech, of course allow aid for mobility and soften the effects on individuals of closures of that kind.
The noble Lord, Lord Hale, asked me whether the National Coal Board has accepted the financial strategy. We have never disguised in Government that the financial strategy embodied in the Bill is demanding and a challenging one, but, equally, it is realistic and achievable; and it is in that spirit that the Government have laid down a strategy and the board have accepted it. Mr. Derek Ezra gave a press conference on the strategy yesterday.
Finally, the noble Lord, Lord Wynne-Jones, asked about how we could continue to make guarantees to get the kind of stability that the industry needs. I am delighted that the noble Lord assumes that I shall be in a position to make guarantees to the Coal Board beyond 1984. I am sure that he is right in that respect, but I think that to lay down a general strategy between now and 1983 is sufficient. That will be in accordance with the general precedent and I cannot go further than that at the moment. On the matter of special assistance to a pit with the particular kind of production that he mentioned, I do not know the details of that but I assume that if the Government turn down special extra assistance, it will still be within the discretion of the board, if they thought it important enough, to provide the necessary £2 million or £3 million which will be a small amount in the totality; and it will be for them to decide what their priorities would be.
In spite of the lateness of the hour, and the fact that we had a major debate before this one, this has been a useful debate for the Government. I hope that even if it is not widely reported because of those circumstances it will be studied closely by the Coal Board and by the coal

1173
industry; because I think this House has sent out a clear message from all sides about how passionately committed to that industry we are and what a great future we all see for it.
On Question, Bill read 2ª, and committed to a Committee of the Whole House.
Then, Standing Order No. 43 having been suspended (pursuant to Resolution):
The Earl of GOWRIE: My Lords, as I understand no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee, I beg to move that the Order of Commitment be discharged.
Moved, That the Order of Commitment be discharged.—(The Earl of Gowrie.)
On Question, Motion agreed to.

LAW REFORM (MISCELLANEOUS PROVISIONS) (SCOTLAND) BILL [H.L.]
Returned from the Commons agreed to with amendments: the said amendments to be printed.