FINANCE BILL

HL Deb 31 July 1980 vol 412 cc1071-132

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facing this country are far too serious and far too complex to be solved by the application of what are very largely out-of-date dogmas.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.

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 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 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 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 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 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 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 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.

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 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- 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.

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.

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 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 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 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 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.

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 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 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 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 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 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.

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.

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 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.

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.

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.

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 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, 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 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 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 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 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.

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 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 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 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". 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 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 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 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 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 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 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 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 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— 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.

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 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 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 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 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?"

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.

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.