Lords Sitting of 11 February 1981

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Truro.

Lord Benson
Sir Henry Alexander Benson, GBE, having been created Baron Benson, of Drovers in the County of West Sussex, for life—Was, in his robes, introduced between the Lord Chorley and the Lord Greenhill of Harrow.

Telephone Service: West Country-London
2.45 p.m.
Lord Gridley: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government, in view of the heavy investment projected for the British telecommunications system, what plans exist to improve the invariably difficult telephone communication between the West Country and London by public telephones.
The Minister of State, Department of Employment (The Earl of Gowrie): My Lords, this is a matter for the Post Office. However, I understand that although the quality of service between London and the West Country is generally good, difficulties in communications may arise on certain lines during busy periods as a result of congestion. Work nearing completion on the trunk route between Yeovil and London should lead to an early improvement in service on that route.
Lord Gridley: My Lords, while thanking my noble friend for that Answer, may I ask him whether the Government are satisfied that the heavy investment earmarked for British Telecoms is being, or will be, used by them to the best advantage? Is he aware that early in January on four different occasions when dialling London from four different telephone booths I got the engaged signal, not from the number dialled itself but from the point of entry into London? May I also tell him that when I telephoned the operator she confirmed that she, too, was unable to get London for the same reason, in spite of giving me every assistance in the difficulties that I experienced?
The Earl of Gowrie: My Lords, I was not personally aware of the difficulties experienced by the noble Lord, but the point of these very large sums for investment is to ensure improvement, and British Telecommunications is engaged in a major replacement and modernisation programme with that money. Therefore, I would have thought that that would give the noble Lord a better service in the future.
Lord Gridley: My Lords, in view of reports in the press today that 77,000 red telephone boxes are to be repainted yellow, may I ask whether it would not be better to use the money to be spent in that connection for improvement of the service?
The Earl of Gowrie: My Lords, I agree with my noble friend, and I earnestly implore the Post Office to abandon this ridiculous scheme.

Armed Forces: Cost of Manpower Increase
2.48 p.m.
Lord Shinwell: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what is the estimated cost of increasing the manpower of the Navy, Army and Air Force for combatant purposes in the event of further tension in international affairs as compared with the cost of increasing our nuclear capability, unilaterally or in conjunction with the United States or other NATO countries.
The Minister of State, Ministry of Defence (Viscount Trenchard): My Lords, I am afraid that without details of the numbers of men, their roles and equipment and the additional nuclear capability which the noble Lord envisages, it is very difficult to answer the Question in specific terms. In order to deter the Russians from starting a war we need to possess a range of capabilities, from conventional forces the theatre nuclear weapons and ultimately to our strategic deterrent. Our aim is to provide balanced forces capable of meeting the threat at every level. I should like to stress that I regard the planned replacement of our Polaris force with the Trident system as a highly cost-effective way of maintaining deterrence. But I also agree with the noble Lord about the importance of our manpower resources, and we have increased the size of the regular armed forces by 20,000 and the volunteer reserves by 7,000 since we came into office.
Lord Shinwell: My Lords, I am very grateful to the Minister for that information. Would it not incline the Minister to agree that it disposes of the belief in certain quarters that conventional forces are likely to be less costly than forces based on nuclear provision and that, therefore, we should focus attention on what is regarded as less costly, when, in point of fact, the increase in manpower in the three services would prove to be far more costly than the provision of the Trident or any other missile that can be conceived of? Is it not time that we furnished more accurate information about the two kinds of military equipment and manpower that we require?
Viscount Trenchard: My Lords, I am sorry that the noble Lord feels that we have not furnished that information. I think it comes clearly through the White Papers, which we have published and will publish again, and I think it came clearly through the Statement that my right honourable friend the Secretary of State for Defence made on 20th January. For instance, we

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have made entirely clear—and here I thank the noble Lord for the points that he has made—that, over the period of its development and production, Trident is likely to cost us in capital costs some 3 per cent. only of our defence budget, and that is roughly in line with what Polaris has cost us in the past. Whereas if we were to make a major increase in our conventional forces, with all the equipment that they need—and we still would not equal Russian manpower on the western front—it would cost very much more.
Lord Shinwell: My Lords, I am very grateful to the Minister for disposing of one myth which has been current in certain quarters. On the subject of further information—because I recognise it is impossible for the Minister to provide detailed and accurate information on every item—is he aware that, according to a report in the Daily Telegraph recently, there was an Anglo-American seminar which was attended by military experts from both sides and Ministers, and also, I understand, by some Members of your Lordships' House and some senior Members of Parliament? If they can be provided with strategic information, some of it of a secretive character, why cannot we in the House of Lords, and even Members in another place, also be furnished with such information? Why should it be confined to a certain number of people? My final question is: Had these people been vetted? It is very important that we should be informed on that point.
Viscount Trenchard: My Lords, to deal with the last, and important, point first, we do not give highly secret information—I am still sufficient of a new boy not to have the classifications fully clear—to people who have not been vetted. On the general point of whether we can do better in providing both Houses of Parliament with more information, I will take the noble Lord's point. I already have it in mind to see whether we can do better in relation to this House. There will, of course, be opportunities for debates and I will do my best to ensure that the maximum information is available for those debates.

The Nuclear Deterrent
2.54 p.m.
Lord Glenarthur: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will confirm that their decision to maintain the effectiveness of the United Kingdom's strategic nuclear deterrent will be achieved without detriment to other areas of our defence capabilities.
Viscount Trenchard: My Lords, the Government are determined to maintain both our nuclear and conventional capabilities.
Lord Glenarthur: My Lords, I thank the noble Viscount for that short reply. Will he consider the
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implications that the financing of Trident could have on other high technology areas of our defence capabilities? Would he not agree that leads in technology are very hard won, and that it would be a tragedy if, through concentrating particularly on the Trident aspect, we were to lose the advantage that we now have in certain weapon systems by being unable to fund continued research and development on other projects?
Viscount Trenchard: My Lords, I would certainly agree with the noble Lord that keeping leads in technology is of vital importance, both to our defence effort and to some of our more advanced industries. As your Lordships know very well, it is also true that in the industrial and defence world of the size that it is today, against the size of Britain within that world, it is a struggle to keep leads in certain areas, and we cannot possibly maintain leads in each and every area. Having said that, I do not think, for the reasons that I have really given in my Answer to the noble Lord, Lord Shinwell, that my noble friend is right in suggesting that the Trident expenditure can be regarded as expenditure which is likely to make it harder to keep leads in high technology. The programme is, as I have said—and it will take some while to work up to it—only 3 per cent. of the defence budget. That is the capital cost of Trident over the period until the mid-1990s. In any event, there is considerable high technology in the building of the submarines for the Trident missiles, and an estimated 70 per cent. of the work that will go into the four-boat force will be produced in this country.
Lord Avebury: My Lords, would the Minister not agree that, if defence spending were maintained at the levels which are planned in any case, but the Trident programme was not included, as a matter of simple arithmetic there would be £5 billion available to spend on improving our conventional forces that will not now be available? Would the Minister not agree, furthermore, that one of the options, as given to me in a Written Answer last Session, would be greatly to improve the effectiveness of our anti-tank force by purchasing another 300,000 infantry-borne anti-tank missiles, which would constitute an extremely effective deterrent against a Russian armoured invasion of Europe?
Viscount Trenchard: My Lords, of course, if we removed any part of our defence programme, we should have more within a given budget to spend on other things. Over the period, we shall have spent on the Tornado programme, in total capital costs, more than we plan to spend on Trident. So, as I tried to indicate in my Answer to the noble Lord, Lord Shinwell, at 3 per cent. of our defence budget there is, I suggest, an undue focus on Trident. It is to maintain our strategic nuclear deterrent. The costs are in line with the Polaris costs, and we believe that it is absolutely vital to maintain the deterrent in the strategic area and our own contribution to the American deterrent in that area.
Lord Gladwyn: My Lords, would it not be better to have this discussion not in relation to an Answer

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to a parliamentary Question, but in relation to the debate which we are to have next week?
Lord Shinwell: My Lords, may I ask the Minister a further question? Would he not agree that we ought not to dispose of any part of Her Majesty's forces, whether conventional or nuclear until, at least—and I emphasise that—the Russians decide to get out of Afghanistan?
Viscount Trenchard: My Lords, I agree with the noble Lord, Lord Shinwell. We must keep a balanced force, and we will continue to increase our spend in real terms in the way that we have done since we came to office. May I say to the noble Lord, Lord Gladwyn, that indeed there are these opportunities. The only reason why I did not rise to answer his question was that I agree with him that they will provide a longer opportunity.
Lord Monson: My Lords, is it not the case that as a result of technological advances the noble Viscount cannot be absolutely confident that within the next 10 years the Soviet Union will not have devised some means of locating and destroying submarines on the seabed? Should this transpire, would not hundreds of millions of pounds have been poured down the drain?
Viscount Trenchard: My Lords, the noble Lord's question is ever present in the minds of all our experts at the head of the services, and of the technical advisers in the Ministry of Defence and elsewhere. We believe that the Trident is the best choice and the most likely to be invulnerable for a very long while to come.
Lord Davies of Leek: My Lords—
The Lord President of the Council (Lord Soames): My Lords, I hope that the House will agree that we should move on to the next Question.
Lord Davies of Leek: Does that cut my question?
Lord Soames: Yes.
Lord Davies of Leek: I thank the noble Lord.

Warships: Building Programme
3.1 p.m.
Lord Gisborough: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will place orders for small general-purpose warships to be ready for sale "off the peg" to overseas customers in two years' time.
Viscount Trenchard: My Lords, there are no plans to place such orders. The speculative construction of warships is a matter for the commercial judgment of the shipbuilders concerned.
Lord Gisborough: My Lords, I thank the noble Viscount for his Answer. Can he say whether there are any other plans for increasing orders through the warship builders?
Viscount Trenchard: My Lords, as my right honourable friend the Secretary of State for Defence made clear in his Statement on 20th January, there is a substantial warship building programme under way at British Shipbuilders, with 28 warships under construction or on order, including the eight ordered by the present Government. The number of orders beyond the present period and the workload for British Shipbuilders in the future are under constant study, both by British Shipbuilders and by my right honourable friend at the Department of Industry.
Lord Hill-Norton: My Lords, does the noble Viscount the Minister agree that the reason why we have sold no warships abroad for something like 10 years (I think I am right in saying) is that the capital costs of building them in this country grossly exceed the capital costs of building similar ships anywhere else in the world?
Viscount Trenchard: My Lords, the noble and gallant Lord is of course correct; the lack of competitiveness of British Shipbuilders has made it very hard for them to get a fair share of world trade. Part of their problem has been the depressed state of the shipbuilding industry all over the world, but part of it undoubtedly has been loss of a share of the market through lack of competitiveness. It is not quite true to say that no ships have been sold, but certainly far too few ships have been sold.

Statements
Lord Ross of Marnock: My Lords, I beg to ask Her Majesty's Government a Question of which I have given Private Notice. The Question is as follows:
To ask Her Majesty's Government whether they will make a statement about the proposed closure of the Talbot factory at Linwood.
Lord Denham: My Lords, with the leave of the House, at a convenient moment after 3.30 p.m., my noble friend Lord Mansfield will answer this Question in the form of a Statement.
This will be followed by a Statement on the British Steel Corporation's borrowing powers which will be repeated, again with the leave of the House, by my noble friend Lord Gowrie.

Economic Recovery: A 10-Point Programme
3.4 p.m.
Lord Banks Lord Banks rose to call attention to the need for action based upon the right honourable David Steel's A 10-Point Programme for Economic Recovery as a framework within which new policies may be developed to encourage investment, control inflation and reduce unemployment; and to move for Papers.
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. I begin by thanking those noble Lords who have indicated their intention of taking part in the debate this afternoon. Their interest in this Motion is much appreciated, whatever their views about it may be.
My right honourable friend Mr. David Steel was led to put forward the 10-point programme because he was very conscious of the need for an alternative national economic strategy to that now being followed. He felt, too, that there was a need for a widely agreed national economic strategy. The 10-point programme was prompted by alarm at the effects of the Government's economic policy and by concern about the possibility of a reaction against it: a swing of the pendulum which might take us further towards the nationalisation of all the means of production, distribution and exchange.
It may well be that a political realignment is necessary to secure maximum support for such an alternative economic strategy. That is certainly a very topical subject; we read about it in the newspapers every day. However, I do not intend to pursue that subject this afternoon, though I am very much tempted to do so. Today I am concerned principally with the 10-point programme itself.
I said that it was prompted by alarm at the effects of Government policy. When we consider the Government's economic policy we find ourselves in something of a dilemma. We have to decide whether we are going to criticise what they say they will do, or whether we are going to criticise what they actually do. The Government said that they would cut taxation, reduce the growth of the money supply, reduce the public sector borrowing requirement, cut public expenditure and allow the private sector to expand. Yet in practice they have done the very opposite. They have increased the burden of taxes. There has been a rise in the real burden of taxation overall.
Two simple examples will perhaps help to illustrate that. In this year, 1980–81, a married couple with two children will find that if they are on half average earnings, 14·4 per cent. of their income will be taken in tax and national insurance. Last year the figure was 12·6 per cent. If they are on twice average earnings, the figures are 28·5 per cent. this year as against 27·7 per cent. last year. If you compare those two sets of figures, you will see that not only has the burden of tax risen but that it has become more unfairly distributed.
The money supply has been growing at about 21 per cent. The Government's target was between 7 per cent. and 11 per cent. The public sector borrowing requirement this year will be some 50 per cent. more than originally predicted. Despite harmful expenditure cuts, expenditure from the consolidated fund for the 10 months to January of this year is 24 per cent. higher than last year, as against the Government's prediction of 20 per cent. Those were the figures in the newspapers this morning. Far from expanding, the private sector has been allowed to contract, with bankruptcies and a frightening level of unemployment.
In their medium term strategy which was published almost a year ago the Government said that there was a link between money supply and inflation, but they
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pointed out that it was erratic from year to year. They can say that again! They said that there was a time lag before the effect was felt. Can we then expect, as a result of what has happened to the money supply this year, to see higher inflation in, say, 1982–83? Despite everything, it is true that the inflation rate has come down, but at what a cost. The private sector has contracted. Output is down. The manufacturing base has been reduced and unemployment is up. High interest rates and a high exchange rate, plus world recession, plus the Government's deflationary policies, have brought this about.
It may be questioned whether I am right to speak of "deflationary policies" in view of what I said a minute ago about the Government's failure to control the monetary supply, to cut expenditure or to restrain the public sector borrowing requirement. I believe that I am fully justified. Melvyn Westlake set out the position very lucidly, I thought, in The Times on 22nd January. This is what he wrote:
" According to OECD calculations, the cumulative impact, between 1979 and 1981, of the restrictive fiscal measures deliberately adopted by the Thatcher Government are equivalent to some three per cent. of Britain's nominal gross domestic product. Against this, the recession has had a counter-effect, pushing up Government spending and borrowing and thereby causing some matching relaxation in the budgetary balance. This expansionary effect is reckoned to be equivalent to about 2½ per cent. of nominal gross domestic product by 1981, compared to 1979 ".
So there is an overall deflationary effect, and Melvyn Westlake went on to say:
" But, while the relaxation in the budget balance, caused by the recession, is tending to offset the deliberate tightening in fiscal policy, this is happening at a lower level of income and employment than would have been the case had policy not been tightened. This is why attention should focus on the Government's fiscal stance. It is this that is the instrument of policy, not the actual budget outcome ".
My argument is that the overall restrictive effect of what Melvyn Westlake describes as the Government's "fiscal stance" has produced, together with world conditions, a reduction in the rate of inflation at an unacceptable cost in lost manufacturing capacity and high unemployment. Hence the need for Mr. David Steel's alternative strategy set out in the 10 points.
The Times on 3rd January said of the 10-point programme:
" It amounts to a policy of economic intervention without significantly increased public ownership and of modified reflation. Mr. Steel argues for close co-operation between Government and industry along the lines practised in France, Germany and Japan; for a long-term incomes policy which relates wage increases to economic success, for partnership in industry and greater help for small businesses ".
I think that is a fair description of the kernel of the programme. The first item in the programme is a modest expansion of the economy. I see that the Trades Union Congress is arguing for an expansion in the economy of £6,200 million. The CBI have put forward a package of measures which they think the Government should adopt, which would cost £1,300 million. I have no doubt that the right figure is probably somewhere between those two. If I suggested £3,000 million, I have no doubt that the Government would say that that would be very inflationary and that if it were put into practice prices would be pushed up. But what about the £3,000 million-plus, by which the public sector borrowing requirement has exceeded

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the Government target in this year? That does not appear to have sent inflation soaring.
I should like to suggest three ways in which we might apply this modest reflation of the economy—this modest expansion of the economy. First, I would do it by means of reducing the national insurance charge, which has nothing to do with national insurance, but is just a tax on employers. Secondly, I would seek to restore the cuts in social security benefits which have been made. Thirdly, I should want to see an increase in investment in the capital infrastructure of this country, and tremendous stress is laid in the 10-point programme on the capital infrastructure, because there has been a continuous decline over recent years. The spending of the Government on our national infrastructure, which in 1974 was 5·2 per cent. of the gross domestic product, is now down to 2·1 per cent. The fall in Government investment in 1974 was 6·5 per cent.; in 1981 it was 19·3 per cent. Britain suffers from ageing capital stock, particularly its industrial equipment and communications structure. The 10-point programme calls for North Sea oil surpluses to be routed to the recreation of our capital assets, thus providing employment now and protecting the future.
So a modest expansion of the economy is the first point in the 10-point programme. The second is lower interest rates. An immediate drop of three points in the minimum lending rate is suggested and, of course, high interest rates have been a potent factor in wreaking havoc upon productive industry. The programme calls for lower interest rate loans for new businesses and an extension of the "Granny Bond" principle through a new index-linked savings bond by means of which the British people could invest in Britain's industrial future. I would hope that it would be possible to arrange that such a bond would give a yield in addition to maintaining the value of the basic capital. I would hope that it might be an index-linked bond with a 2 per cent. real return.
Lower interest rates would of course help to bring down the exchange rate which at its present high level is another burden upon exporting industry. The United Kingdom's industry in the last three years has had its biggest effective loss ever, and the full effects of that have not yet been seen. A reduction in the exchange rate would create a suitable opportunity for the United Kingdom to join the European monetary system. I should like to stress that we see this 10-point programme very much in a European context and we would very much hope that common European policies on these economic matters could be devised.
Perhaps this is the moment to say, too, that we see the situation very much in an internationalist context, and that is why we oppose restrictive measures and protectionist measures and it is also why we support the implementation of the Brandt Report. With a modest expansion of the economy, lower interest rates and a lower exchange rate, incomes would no longer be held down by the threat of bankruptcy and unemployment and a lower exchange rate would tend to push up prices. Therefore, a long-term incomes policy is an essential part of the strategy. This would not be a hasty, temporary expedient produced on the brink of disaster, but an incomes policy with an institutional framework laid down by Parliament, with the machinery
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to provide for Government, unions and employers to arrive at a consensus on the general level of pay increases for the ensuing year, and that they would submit to Parliament.
Then there should be a monitoring body to watch how the general guidelines are applied and to deal with special cases. There is also the question of sanctions. What sanctions would there be behind the policy? There are many possibilities in that area. For example, there is Professor Meade's suggestion of compulsory arbitration; there is Mr. Aubrey Jones's suggestion of giving the power to the monitoring body to deny in a price increase an unjustified excess over the standard pay. But we regard a system of industrial partnership as an essential part of the incomes policy; we believe it to be the necessary background. We should like to see the introduction of a statutory system of employee representation, as other industrial countries, such as the Federal Republic of Germany, have; not necessarily on precisely the same lines but something similar.
We regard profit-sharing as an essential element of incomes policy, as one means of helping to identify the interests of capital and labour. There will be, I am sure, widespread support for the emphasis which the 10-point programme puts on the expansion of the small business sector. Among many other things a Cabinet Minister for small business is called for. I am sure that the CBI were right when they called this week for a rationalisation and co-ordination of all Government agencies providing help for small business.
I think I have said enough to give you the essence of the 10-point programme put forward by my honourable friend Mr. David Steel. A number of the specific proposals—I have not attempted to cover them all—will commend themselves to people in all parties. The underlying economic strategy may not secure quite such widespread support, but I believe that there may well be a majority in the country who would rally to such an economic strategy. With a different voting system we could be sure that a majority in the country would in an election secure a majority in another place. Political developments at the moment open up interesting possibilities. It may well be that even under our unfair and distorting electoral system a way will be found before very long to translate a majority in the country for a programme on the general lines of the 10-point programme into a majority in Parliament. My Lords, I beg to move for Papers.
3.22 p.m.
Lord Glenamara: My Lords, as a relative newcomer here, I must confess that I thought it rather odd that the rules of procedure can be used to debate a Motion of this kind. Nevertheless, I live and learn. Could I say to the noble Lord, Lord Banks, that we are grateful for this opportunity to debate the economy again. Could I say at the outset that I regard the Leader of the Liberal Party as one of the most engaging people in politics today, but at the same time I have to say that his new deal for Britain, in my view, contributes not a single original idea to the debate on Britain's future. The themes—and they are no more than themes, though we are grateful to the noble Lord for filling in a few of the details—appear to have been culled straight from Labour's Manifesto for 1980

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published a year ago, and as such, with a few divergencies such as joining the European monetary system, they are quite acceptable to me and my colleagues; we make no complaint about them at all, or about most of them. It is as though the Leader of the Liberal Party had jotted down a few inoccuous headings for the chapters of a book, but of course the publisher would require very much more detail than that, and so I believe would the electorate.
The Leader of the Liberal Party, I think, has fallen for the old thing that political managers used to believe in; that too much policy is a handicap in winning elections, as well as being a hostage to fortune. Not that that need trouble the Liberal Party, of course. I take the view that this view is out-of-date. Certainly the situation today demands that coherent, well-thought-out, rigorously costed policies should be put forward, not simply pious generalities. The Leader of the Liberal Party's proposals range from bigger and better Select Committees to a Bill of Rights.
Predictably, of course, the whole thing is topped, or rather tailed, by proportional representaion. The bit about proportional representation is preceded by the words "above all"—above dealing with unemployment, above all the other things, alter the system so that we can get elected, change the rules, elect a Liberal Government and you will get a national approach. I have never understood why you can only get a national approach with a Liberal Government. Why not with a Labour Government? Why not with a Conservative Government? I suppose I have sat in hundreds of Cabinet meetings. I quite honestly do not recollect a single occasion when, faced with a problem to which there were two answers, one of which was good for the country and bad for the party and the other of which was good for the party and bad for the country, the Cabinet did not decide without hesitation in the national interest. So, I am quite sure, does a Conservative Government. I really must say that I find this self-righteous assertion that only the Liberals would follow a national strategy insufferable. I think self-righteousness is probably the worst sin in a politician or in a political party.
The points the Leader of the Liberal Party has made, divorced as they are from any context of solid, carefully worked-out, carefully costed policy, such as the Labour Party has put forward in the document I have just quoted, the manifesto for 1980, are really utterly inadequate in the face of the dark and dangerous situation which is gathering in Britain today. There is nothing about how they would deal with the appalling problem of unemployment. There is no word about how they would reverse the downward spiral in the economy created by the Government. The document is simplistic and indeed naive. However, we can agree about Mr. Steel's initial premises: first, that
" Our economy is now desperately weak and vulnerable ",
and, secondly, that
" Monetarist dogma has converted recession into an outright slump ".
I take the view that the present situation is 80 per cent. Government induced and 20 per cent. due to world recession. I do not want to bore the House with a lot of figures, but there are some indices which should be emblazoned before the nation because they
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point to a truly horrendous situation, maybe to disaster. First, one or two in the real economy, and then three in the money economy. First, in the real economy: the most striking statistic of all is the unemployment figure, 2·42 million. Every forecast points to 3 million next winter. The Cambridge Economic Policy Group estimates that in 1985 it will be 4·4 million. At a meeting of NEDC last week, 4th February, Mr. Michael Shanks, chairman of the Consumer Association, forecast 5 million. At that meeting the Prime Minister was present with a Government team. According to the Financial Times, not a single one of the Government team rebutted the estimate of Mr. Shanks.
We are still getting the rather pathetic apologia from Mrs. Thatcher when she says "I regret"—and of course, like all of us, she does sincerely regret the unemployment; nevertheless she goes on to say that in a way it is not really a bad thing because industry is being made slimmer. I heard her say this on television recently; industry is being slimmed down; it is being made leaner. This is the theory of the "shakeout". It is being made fitter to compete when the turnround comes and the dark clouds roll away. This thing about the turnround is acquiring a sort of spiritual, almost messianic, meaning, something in the future, the turnround, when it comes. The 2½ million unemployed merely represent cutting out the fat. Mr. Nicholas Ridley, a Minister in the Government, said recently:
" The 2½ million are a useful reserve ".
What arrant, what demonstrably untrue nonsense! But, my Lords, it is cruel nonsense.
When the Prime Minister sees—and she will have read about this in the paper this week—machine tools from British factories being auctioned and purchased by foreign buyers, including buyers from the United States, where they will be used to compete against British firms; when she sees the Consett Ironworks, on which that town has depended for generations for 90 per cent. of its labour, and other great industrial complexes being torn down and razed to the ground, even she must comprehend that what she is doing is cutting out our industrial muscle and not our industrial fat.
Manufacturing capacity, both human and physical, is not merely being massively under-used: it is being dissipated; it is being demolished; it is being sold off; it is being bulldozed and its foreign and domestic markets are being lost, probably irretrievably. I am very keen on history. After the harrying of the North by William I, the Anglo-Saxon Chronicle recorded that in the area between York and the Border "all was desolation". I think that a future historian writing about the industrial scene in Britain after the harrying of industry by Mrs. Thatcher will probably point out that from John O'Groats to Lands End all was desolation.
What did Mrs. Thatcher herself say when unemployment was a million lower than it is today? I quote her words:
" You "—
referring to the unemployed—
" have no self-respect. You haven't even got the respect of your family if you somehow cannot earn yourself a living and them a living too. Sometimes I have heard it said that Conservatives have been associated with unemployment; well, that is absolutely

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wrong. We would be drummed out of office if we had this level of unemployment ".
Now unemployment is a million higher than it was when she said those words. There is also the human problem too. So that is the first index.
The second index is industrial output, and the noble Lord, Lord Banks, has qouted some of the figures. In a country which by and large earns its living by manufacturing and selling abroad this is perhaps the most important and significant index of all. In 1980 industrial output fell by 7 per cent. over the previous year, and manufacturing output fell by 9 per cent. Industrial output is contracting more quickly—it is contracting faster than it did between 1929 and 1931. In those two years it fell by 10 per cent.—a slower rate than that at which it is falling now. As a result of that catastrophic fall, manufacturing investment is falling at the rate of 10 per cent. a year. The Department of Industry's own survey of the intentions of manufacturing industry estimated that there would be a fall of almost 20 per cent. in these two years.
As regards the real economy I should like to quote only three figures. First, let me deal with inflation. In May last year it was 21.9 per cent. It is now about 15 per cent., which is still 50 per cent. above what it was when the Government came into office because at the time of the general election it was 10.3 per cent. Everybody wants to see a fall in inflation, but not at any price. The fall in inflation from 21.9 per cent. to 15 per cent. does not reflect any improvement in the economy: it is due entirely to two facts: (a) to the fact that we have 2½ million unemployed; and (b) to the fact that the Government have put enormous pressure on company profitability. It represents no improvement in productivity and no improvement in production, both of which are plummeting. Secondly, we have the minimum lending rate. It is still at 14 per cent. and a crippling burden which industry has to bear. Nearly all firms have to borrow in order to survive. Without survival there is nothing. The first rule of all is to survive. With the drop in inflation the real cost of borrowing is, of course, rising. Thirdly, there is the level of sterling. It is 17 per cent. above the level when the Government came to office and quite out of line with movements in relative costs. Minister after Minister has in terms ruled out any initiative to try to bring the rate down.
Every index, every forecast of every index, and every trend of every index etches another line in the deeply disturbing picture of our country. There is no glimmer of light anywhere in spite of the contortions that Government spokesmen go to in their efforts to prove that there is. A visitor from outer space would certainly say to us, "How on earth have you got yourselves into this ghastly mess in two short years?" The answer, of course, is quite simple; and it is that we have a Government, and a Prime Minister in particular, who in 1979 looked at Britain and said, "The patient is suffering from some malady or other". Then they went off and consulted their professor friends and diagnosed the wrong illness, the wrong disease.
The Prime Minister believes—and we must assume that all her Ministers believe it or they still would not be there—that Britain has suffered from demand
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inflation throughout the 1970s; and all their policies are based upon that wrong diagnosis. For example, there have been the most draconian and self-defeating public spending cuts which, as the noble Lord said, do not distinguish between asset-creating capital expenditure by publicly-owned industries and, for example, money which is needed to pay the salaries of the Civil Service. They are all lumped together, as I pointed out in the debate last week. We have had savage increases in fuel charges, which go far beyond increases warranted by the costs of the fuel industries, which also are self-defeating. There are increases in the tax burden. The noble Lord mentioned this point and I can give the figures: the tax burden has increased by just over 10 per cent. since this Government came to office. We have very high and sustained interest rates which have imposed an intolerable burden on industry. That is the medicine which the Government have been administering since the general election.
But, of course, the malady was not that at all; the malady was not demand inflation. As Mr. Douglas Jay pointed out in a recent debate in the other place, if that had been the malady we should have enjoyed a period of high profits, high employment and high production throughout the 1970s. Of course, exactly the opposite was the case. The malady was very largely not demand inflation but cost inflation, and during the general election the Prime Minister specifically excluded any action on what is by far the biggest cost of all: wages and incomes. She said, "We shall restore free collective bargaining", and, apart from the misuse of cash limits to impose a norm in the public sector, she and the Government are still sticking to that.
Mrs. Thatcher got it wrong—a fact which is now all too obvious—but, of course, she is too entrammelled in her own theology ever to admit it. As a result she has, with all the energy, the considerable energy, of which she is capable, administered the wrong medicine ever since, and the medicine that she has administered is a very old-fashioned nostrum called "deflation". The label on the bottle is "deflation". It deserves a place in an economic Culpepper's herbal, if ever there is one. She has put all her energies into deflating demand instead of into holding and reducing costs. It was as certain as day follows night that this would cause unemployment and would cause falling production, which in its turn would produce falling investment. As those of us who remember the 1920s and 1930s know too well, deflation has a momentum of its own. It feeds on itself; it is cumulative; it is a downward spiral; it is a kind of nuclear reactor which generates its own fuel.
Of course, this medicine called deflation has reduced the rate of inflation—of course it has. But the logic of the Government's theory is that the inflation rate could be brought down to zero by putting everybody out of work, and that is rather like saying that to eat rather less improves your health, therefore to eat nothing at all would make you perfectly healthy—reductio ad absurdum. But somewhere between reductio ad absurdum and the situation as of today there must be a point at which even the Prime Minister would have to stop the downward spiral. Today unemployment is 2.4 million, and that has produced an inflation rate of 15 per cent., and there is a close correlation between

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the two. Somewhere between that and my reductio ad absurdum there must be a point at which she or her colleagues, if necessary, must call "enough". What is it? May I ask the Minister who will follow me, what is it? Is it 3 million, 3½ million, 4 million or 4½ million? Could I have the Minister's attention?—because this is the core of what I am saying. Is it 3 million, 3½ million, 4 million—
The Ministry of State, Treasury (Lord Cockfield): My Lords, as the noble Lord addressed himself to me, may I say that he had my attention throughout.
Lord Glenamara: My Lords, I am very glad. Those unemployment figures will produce inflation rates of 12 per cent., 11 per cent., 10 per cent., 9 percent., 8 per cent., or what? Somewhere even the Prime Minister must call a halt to deflation. But the 64,000 dollar question is: what happens then? What happens when she, or someone else, pulls the lever and stops the spiral? Do the Government really believe and do the Liberal Party really believe that when she calls "stop" the rate of inflation can be kept at that point by adopting the old classical laissez-faire doctrine of free markets and free collective bargaining?—which failed in the 1930s and which will fail again in the 1980s. Do they really believe that all the auctioned machine tools will mysteriously fly through the air and return to British factories? Do they really believe that the bulldozed bricks of Consett Ironworks will fly up and that the workers will reconstitute themselves? Do they believe that 1,000 other demolished plants will come together again? Do they believe that our lost customers will suddenly return to the old firms which they used to patronise? Do they believe that once the inflation rate has reached their secret figure, the bits of Humpty Dumpty—shells, yoke, white, the lot—will fly together and Humpty Dumpty will fly back on top of the wall and sit there waving his Union Jack? Do they believe that?
So what happens when they stop the spiral? Monetarism has nothing to say about that, and that is the 64,000 dollar question. It will take more—very much more—than a Sunday afternoon exercise on the back of an envelope by the Leader of the Liberal Party to cope with that situation. It will take 10 or 15 years of resolute, courageous Labour Government, comparable with that of 1945 or 1951.
Several Noble Lords: Oh!
Lord Glenamara: My Lords, I thought that I would get that reaction from noble Lords opposite. Perhaps I could remind them of what Winston Churchill said in 1945. He said:
"The country is bankrupt and a Labour Government will never be able to run the economy ".
It was, in fact, the most successful Government of the century.
Several noble Lords: Hear, hear!
Lord Glenamara: My Lords, it laid the foundations of post-war economic prosperity. An almost inexorable law has emerged in British politics since the war: whenever the country is in dire trouble—as it was
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in 1945, in 1964, with all the trauma of the end of the Macmillan era, and in 1974 with the three-day week and all that—it elects a Labour Government to get it out of the mess. However, this time the mess will be of gargantuan proportions. It will take at least a decade, maybe a generation, to clear up the mess left by this Government.
However, has it occurred to your Lordships—and I say this in all seriousness and I am not exaggerating—that it may be too late? If you want a really depressing half hour, take a large sheet of paper, and plot on it all the indices I have mentioned (and there are others) and their trends. They point to at least the possibility of the roof falling in, of economic collapse in this country. For example, how much longer can we sustain the utter folly of an annual payment of £l0 billion, and rising rapidly, to keep 2½ million people in enforced idleness when our factories are closing and our markets are being closed? How much longer can that continue?
The economic and financial consequences of the Government's policy are assuming the proportions of a nightmare, and the prospect is too horrible and too dreadful to contemplate. But whatever the situation, and I heard the late husband of my noble friend Lady Gaitskell say this, Labour stands ready and poised to take on the burden—and we are all proud to be members of the Labour Party and so are tens of thousands of people throughout the country—as it did in 1945 (and noble Lords opposite can whistle in the dark if they like) in 1964 and in 1974. Once more the Labour Party will serve the nation as it did then.
My final word is to the Conservative Party. If the Prime Minister is unwilling or unable radically to change her policies, and if she is so ensnared in her own theories and theology that it is unlikely that she can, the Conservative Party must change the Prime Minister. It has long experience in this kind of thing. It knows exactly how to do it. If it does not do so, it will be failing Britain, and the people of Britain will never forgive it.

The Talbot Factory, Linwood: Closure
3.48 p.m.
The Minister of State, Scottish Office (The Earl of Mansfield): My Lord, with the leave of the House, I shall repeat a Statement being made in another place to a Private Notice Question on the closure of the Talbot factory at Linwood. It reads as follows:
" I very much regret the loss of jobs to West Central Scotland which will follow the closure of Linwood announced by the Talbot Motor Company earlier today. My right honourable friends the Secretary of State for Scotland and the Secretary of State for Industry, and I have been in close touch with the top management of PSA/Citroen and Talbot about future manufacturing operations in the United Kingdom, particularly at Linwood, for some time. We have explained in detail the Government assistance available for new investment projects in Assisted Areas, both through Regional Development Grants and selective financial assistance under

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Section 7 of the Industry Act, and expressed the strong hope that PSA would maintain manufacturing in the United Kingdom to the full extent envisaged in the Declaration of Intent, to which the company subscribed in 1978. Despite a significant improvement in labour relations and productivity since PSA took over at Linwood, it was the company's decision, against the background of very severe market competition, serious financial losses in 1979 and 1980 and the high investment costs of introducing new models, that it could not maintain production at the plant.
" It emerges clearly from the Company's statement today that its productive capacity in the United Kingdom considerably exceeds its present and prospective market share and that concentration of its facilities, rather than expansion, was the only realistic course open to it.
" Apart from the 4,800 jobs which will be lost at Linwood itself, there will be consequences for suppliers. Linwood has however been operating at a low level of production for many months and the local sourcing of components is limited.
" I am considering urgently, in advance of the shut-down by the end of this year, what measures we can realistically take to generate new employment in the area. My right honourable friend and I shall for this purpose be seeking urgent discussions with the local authorities concerned, the SDA, the STUC and the CBI ".
My Lords, that concludes the Statement.
Lord Ross of Marnock: My Lords, I think we are grateful to the noble Earl for his making this Statement. He probably will agree with me that the gravity of the Statement for West-Central Scotland and the Glasgow-Paisley area in particular is no less heavy because it has been trailed over recent weeks. It means that, in an area where there is already 14 per cent. unemployment, the 4,800, plus probably another 1,200 in supply jobs, industry and services making it about 6,000 will drag this up probably to about 20 to 25 per cent. unemployment, and that is serious indeed, particularly in this area.
Is the Minister aware that it is disappointing to read the language of this Statement? "I have been in close touch". "We have explained". "We have expressed the strong hope". Will he not remember that this is not just an ordinary closure? That the Government were involved in very serious negotiations with Chrysler in 1975–76? That obligations were accepted by the company? That these obligations were carried on and further accepted by Peugeot in 1978-that is, two years ago? There is nothing in their statement, or in what the Government say they have done, that gives us any great confidence that we can rely on what they now say in relation to concentration and carrying on in Coventry and Stoke.
Can the noble Earl tell us what face-to-face negotiations there have been between the Government and Peugeot? Have there been any at all? Have Ministers been involved? I understand the difficulty of the Secretary of State being in Brussels when this kind of thing is going on, but it will not be good enough just to have these words given to the people of Scotland,
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that we "have been in close touch"; that "we have explained", and that "we expressed the strong hope". Pledges were given and they should be kept. Can the noble Earl tell us how they can justify using the reduction in the size of the UK market to pull out at the same time as the Japanese are coming in? It shows a confidence on the one side that is not shared by another company.
I am sure in view of what has been said that they will also go on to explain that there has been a big fall in exports caused by the high level of sterling. So this comes down to Government policy; and there is nothing in the Talbot statement, or in the Government Statement, that gives us any room for satisfaction. Can the noble Earl tell us just exactly what he hopes to do? He will remember that there is an enterprise zone just a few miles away on the other side of the Clyde at Clydebank, and in the last ten months or so I do not think there has been a single job provided there. So let us not deceive the House or the people of Scotland. We are not the kind of people who are easily softsoaped anyway.
Lord Mackie of Benshie: My Lords, I think that the Statement just repeated by the Minister is unbelievably apt to the debate that we are now having. I am glad to see that the company do not maintain that it is labour relations or productivity that has caused them to close down the plant. It is an important point and one that the Minister should stress, because a tremendous amount of work will now have to be done to replace this appalling loss of jobs, and, worse than the appalling loss of jobs, the loss of an industry which had been lost to Scotland for some years, and which at the time was greeted as bringing Scotland at least back into the automobile age. I hope that the Minister will be able to give us now some more specific news of what he is going to do.
I personally have always thought the SDA an excellent body. Is the noble Earl going to give it more support? How is he going to try to replace this, and to use the undoubted new spirit which is in Clydebank and in the workers of this factory and who are willing to produce, in order to replace and expand employment? It is not good enough to say that he is going to "consider urgently". He must have some thoughts, and in view of the serious position, I hope he will give them to the House.
3.55 p.m.
The Earl of Mansfield: My Lords, I must thank both noble Lords for receiving this Statement. Of course nobody would pretend other than that this news has the gravest implications for West-Central Scotland. I think that both noble Lords have said that this has been the one car-making assembly line which has existed in Scotland up till now.
The noble Lord, Lord Ross, asked who has been involved. My right honourable friend, who is in Brussels fighting on behalf of Scottish fishermen today, has been involved for some weeks; my honourable friend the Parliamentary Under-Secretary, Mr. Fletcher, who is specifically responsible for industry in Scotland, has had a great many talks with the firm, and other departments of Government have also

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been involved. They have met Monsieur Parayre, who heads PSA, on several occasions; most recently last Monday. There have been frequent contacts with PSA and with Talbot UK at the highest level, and I mean the highest level at both company and Government level.
It is of course extraordinary, if one looks at it in isolation, that PSA should be, as it were, retrenching, whereas apparently another foreign firm wish to come in to make motor cars. I think the fact of the matter is that PSA have been making enormous losses for a long time in relation to a model which was out of date, and they have been considering actively whether, with Government assistance—which, I may say, has been on offer if the right proposal had been put forward —they could in fact redesign their assembly line and produce a front-wheel drive model which could capture a more satisfactory market share in Britain than they have previously enjoyed. In spite of the fact that every inducement under the Industry Act, and so on, was held out to them if this could be done, the company have concluded that there is no way in which they can make their operation at Linwood viable, the Government having in the last few years given them over £60 million in respect of their losses, and reluctantly they have been forced to this decision which they have made.
All the various ways in which the state can help an assisted area such as this are open, and I do not think I can go any further in what I say; that is to say, my right honourable friend and my honourable friend are having discussions with the various bodies that I have already set out to see how, as quickly as possible, the deplorable rate of unemployment can be ameliorated.
Lord Campbell of Croy: My Lords, while it must be accepted that the motor car industry is passing through a very difficult time at present, can my noble friend clarify for the benefit of the House whether, as is widely reported in the press, the French company are under any obligation, or were under any obligation until today, to retain the operations at Linwood as part of the agreement upon the money which they have received?
Is my noble friend aware that this is a very depressing announcement, particularly as it was my noble friend Lord Muirshiel who was largely responsible for moving motor car manufacture and establishing it in Scotland in the early 'sixties at Linwood and Bathgate? Is my noble friend further aware that what some of us would like to know is whether this decision is now entirely a matter for the French company, or whether it is something under which they still have obligations?
The Earl of Mansfield: My Lords, I think it right that I should remind the House of the particular paragraph in the Declaration of Intent which was made in 1978 under which the company undertook to continue and strengthen Chrysler's programme of modernisation and facilities and investment in order
"… to ensure that Chrysler UK grows and prospers as part of the PSA group and thus specifically to provide, to the extent consistent with prevailing economic conditions "—
and I stress those words—
" continued employment at all Chrysler's UK facilities, including the principal plants at Ryton, Stoke, Luton, Dunstable and Linwood ".
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In view of the way in which the company have comported themselves since 1978 and the very real efforts they have made to make this plant viable and productive—which, I would add, have been considerably aided by the attitude and indeed performance of the workforce, which is much appreciated—I do not believe the Government, or anybody else for that matter, could possibly say that the company are in breach of that particular part, or indeed of any part, of the undertakings which formed the Declaration of Intent in 1978.
Lord Pargiter: My Lords, would the Minister agree that this case highlights the grave dangers that exist all the time in permitting British companies to go out of business or to be taken over by foreign companies who regard their operations here as only peripheral and who, whenever they run into trouble, close those places which are on the periphery?
The Earl of Mansfield: My Lords, I do not agree with the noble Lord. There are many cases where foreign firms have come in with new ideas and capital and have provided new and very much needed employment in Scotland. This is something where we could join in with, for instance, the citizens of Ireland who have done extremely well out of foreign investment in their country.
4.5 p.m.
Lord Glenkinglas: My Lords, at the risk of being the third ex-Secretary of State to say something about a firm with which we were all very deeply involved, may I ask whether my noble friend would consider—I do not expect an answer to this today—that while the Government are providing many hundreds, if not thousands, of millions of pounds for British Leyland, we should not consider some part of that money perhaps coming to Scotland where, with bad luck perhaps, Billy Rootes started the original factory and, with a little bit less than good luck, Citroen and Peugeot took it on? The workforce has done particularly well there and there is a very much better degree of co-operation between management and workforce than I think is true of any factory in the Birmingham-Coventry area. Will my noble friend bear that in mind in seeking to put more money behind the motor manufacturing industry in Britain?
The Earl of Mansfield: My Lords, I think we should keep apart the taxpayers' money which is being devoted to British Leyland and any rescue operation which might have been contemplated and implemented at Linwood. What I can tell my noble friend is that if a scheme had been and could have been produced, the Government were ready and willing to play their part with the taxpayers' money to help it on. That goes for any future scheme or ideas which may be put forward for assistance under the Industry Act; the money, as it were, can be made available if a scheme is produced and is viable.
Lord Shinwell: My Lords, did the Government expect this to happen? Had they no indication, no impression of any sort, that this was likely to happen? If they did, did they take any steps at all? May I ask the noble Earl a question which is worrying not only

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noble Lords on this side but, I am sure, noble Lords opposite: When is this going to stop? It is all very well the Government talking about having the matter in hand and considering this and that—and we would not question their sincerity—but is the Minister aware that that is not enough? We want to know for how long it is to go on. Are the Government anticipating an unemployment situation of, say, 5 million, or do they consider that at some stage it is likely to stop, that we can turn and begin to recover? Do they have any ideas at all about it and, if so, will they tell us about them?
The Earl of Mansfield: My Lords, the factory at Linwood, as I understand it, has never been profitable and therefore no doubt this has been in the minds of many people for about 17 years. It certainly occupied the last Government and it has occupied this Government in turn. There has been the payment of losses, as I said, amounting to £60 million incurred in the United Kingdom business of Chrysler, and there is an outstanding debt in relation to that of £28 million payable to the Government. Perhaps I can best answer the noble Lord in this way: Yes, there will continue to be closures unless and until British factories can produce the right goods at the right time at the right price for customers who are prepared to pay for them. There is, luckily, in Scotland, particularly in the new electronic industry, a growing realisation that that must happen if we are to remain a trading nation and be competitive, and I am glad to say that there are more and more factories in Scotland now producing goods which are exciting the attention of worldwide customers and I have no doubt they will succeed.
Lord Galpern: My Lords, may I ask the noble Earl whether, in view of the catastrophic situation which is about to occur on Clydeside, the Scottish Ministers are prepared to take any steps to try to influence by some economic advantages the Datsun company to consider establishing their company in the Linwood area?
The Earl of Mansfield: My Lords, the trouble is that Nissan have said they want 800 acres in a greenfield site. I do not know the acreage of Linwood, but I think it is about one-tenth, and it is certainly not green-field; but we shall certainly bear these points in mind.
Lord Ross of Marnock: My Lords, I wonder whether the noble Earl saw an article in the Economist this week in which they suggest many further developments along the lines of centralisation, and that is centralisation of production back to France? That must be causing very considerable concern elsewhere than at Linwood. Were the Government actually involved in the examination of all the options that Peugeot say were considered and then discarded for the present suggestion that they get rid of Linwood and concentrate, on a slimline probably, at Coventry and Ryton?
The Earl of Mansfield: My Lords, the Government have been privy to the thoughts and difficulties of PSA for some time. Various schemes were put up or various ideas were rehearsed to try to prevent
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closures at all. Unfortunately, in the particular circumstances which obtain at Linwood, it has not been possible to devise a scheme which would restore profitability or even viability to the operation at Linwood.
Lord Hankey: My Lords, to what degree is the closure of Linwood a function of the general recession? Is it, for instance, on all fours with the closure of BL production in Belgium and Spain?
The Earl of Mansfield: My Lords, I cannot answer that directly because I am not conversant with what has happened in those countries. The prime reasons for the difficulties at Linwood were out-of-date models, out-of-date machinery, a world recession with a reducing demand and a heavy pound.

British Steel Corporation: Borrowing Powers
4.10 p.m.
The Earl of Gowrie: My Lords, I hope that it will be to the convenience of your Lordships if I now repeat a Statement, which has been made in another place by my honourable friend the Minister of State for Industry, on the British Steel Corporation's borrowing powers. My honourable friend's Statement reads as follows:
" With permission, I will make a Statement on the borrowing powers of BSC. I will be introducing today the Iron and Steel (Borrowing Powers) Bill 1981, which will increase the British Steel Corporation's borrowing powers by £500 million. This Bill will enable the corporation to continue in operation on reaching the current statutory limit of its existing borrowing powers in the course of the next few weeks.
" As the House will know, the Government received the British Steel Corporation's corporate plan shortly before Christmas. Decisions on the plan involve the consideration of very large sums of taxpayers' money, and will affect the position of a number of private sector companies whose areas of operation overlap those of the corporation. My right honourable friend will be making a further Statement to the House when the Government have reached their conclusion on the corporate plan. At that stage, as foreshadowed in the Queen's Speech, the Government will introduce a further Bill, which will deal with the future of the corporation and its financial reconstruction.
" In view of the urgency of the corporation's need of increased borrowings and the essentially interim nature of the Bill which I am introducing, I hope that the House will facilitate its swift passage ".
My Lords, that concludes my honourable friend's Statement.
Lord Beswick: My Lords, in thanking the noble Earl for repeating that Statement, I should like to make the obvious point that rather more had been expected. It is really a holding Statement. Can the noble Earl

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say anything about the timing of the major Statement on the Government's decisions on the corporate plan? Will the noble Earl make it absolutely clear that the delay in making the major policy Statement is not due to some discussion about the line between the private sector and the public sector? Judging by what one reads in the newspapers, it would seem that there has been quite an organised campaign to try to show that the BSC fight-back has damaged the private sector, whereas I hope the noble Earl will be able to confirm that in fact the fight has really been against the manufacturer of imported steel. I ask him in particular to confirm that the delay in making the policy Statement is not due to any fresh decision about the area which it had been intended to allocate to the public sector.
Baroness Seear: My Lords, we on these Benches also wish to thank the Minister for repeating the Statement. I am sure he will agree that it is so much an interim Statement, there is so little flesh on the bones, that it is virtually impossible to pick the bones with him. However, we are glad to hear that some further information will be forthcoming shortly. We must wish the MacGregor reorganisation well, and since this is part of that reorganisation, we therefore welcome it. But at the same time we very much hope that it means that there will be a limit to the additional amount of taxpayers' money going into this enormously loss-creating enterprise.
The Earl of Gowrie: My Lords, I am grateful to the noble Lord and the noble Baroness for the way in which they have received the Statement. The point made by the noble Baroness, with which I am altogether in agreement, illustrates—and aptly, in view of the speeches of the debate which the Statements have interrupted—how very large and very problematic are these structural shifts in high-employing industries and how the problems that they are causing, as well as the solutions to them, are not new.
With regard to the question put to me by the noble Lord, Lord Beswick, about when the decisions will be made on the corporate plan, as the Statement said, decisions on the plan involve very large sums of taxpayers' money, and of course they will also affect the position of the private sector steel companies. Those are both matters that we shall need to consider very carefully. So I cannot say to the noble Lord exactly when the announcement will be made and when the new overriding Bill will be published, but obviously we shall treat this matter as being of the greatest urgency.
Lord Beswick: My Lords, in the meantime, may I repeat the question that I put to the noble Earl? Will he make it absolutely clear that the efforts that are now being made by the British Steel Corporation to withstand the penetration of the foreign steel manufacturer are not damaging the private sector? Will the noble Earl say that, although there has been cost cutting by the British Steel Corporation, the private sector in fact now has a little more of the total British market than it had a year ago?
The Earl of Gowrie: My Lords, I think that that is really a matter for Mr. MacGregor; and the Government have every confidence in the management of
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British Steel. But as I have said, very large public concerns, in employment terms, financial terms, and economic policy terms, are involved here and that is why we need some time to consider them.
Lord Peart: My Lords, I should like to say to the noble Earl that, whatever emerges, there must be a prosperous steel industry. So far the Government have done irreparable harm all over. I am rather surprised at that. After all, from the point of view of defence—which is dear to the hearts of some noble Lords opposite—if we have a run-down of steel, thus affecting industries involved in defence, that would be a tragedy.
The Earl of Gowrie: My Lords, with the greatest respect I must repudiate unconditionally what the noble Lord has said. He is well aware that one of the reasons why steel is in deep trouble all over the Western industrialised nations is that it employs a great many people—a great many more people than its productivity or the new technology warrants. All over the Western world we are engaged in a structural alteration of the labour market which will be with us for 20 years, and it does no good to sling mud at one side or the other while we are caught in this situation.

Economic Recovery: A 10-Point Programme
Debate resumed.
4.17 p.m.
Lord Cockfield: My Lords, the Motion which has been tabled by the noble Lord, Lord Banks, and which is the subject of our debate, calls attention to the document recently published by Mr. David Steel, setting out his 10-point programme. I have no intention of intervening in the bitter dispute which has broken out between the Labour Party and the Liberal Party. The spectacle of the two former brothers—I think that "brothers" is the correct Labour Party phrase for somebody you bitterly disagree with—of the Lib-Lab pact falling out in public in this way is a most unedifying one. However, having tabled the Motion, the Liberal Party is entitled to have its policy debated, and it is to that that I propose to direct my speech.
But having said that, I must say, quite frankly, that I find Mr. Steel's document a most disappointing one. It is really quite extraordinary that nowhere does the document even mention the greatest scourge of our time: inflation. Unemployment, the tragedy of our times, is mentioned only in passing. The world recession might just as well not exist so far as Mr. Steel is concerned. It might just as well not exist so far as the noble Lord, Lord Glenamara, is concerned; he has not heard about it, either.
Now, it is true that the Motion on the Order Paper—
Lord Glenamara: The noble Lord was asleep, after all.
Lord Cockfield: My Lords, the noble Lord accused me of being asleep, but he was making accusations about the present Government, which I shall refute in detail in a few minutes' time. The accusations were

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totally untrue and were without any foundation, or intellectual basis. But we can return to that in due time.
Meantime, the Motion on the Order Paper very sensibly does not claim very much for Mr. Steel's programme. It merely describes it—and I quote—
" as a framework within which new policies may be developed …".
Very wisely, too, the Motion does not claim that the document itself contains any policies, new or otherwise. What emerges most clearly from the document is a belief, almost an obsessive belief, that the cure for all of our ills lies in proportional representation. Of course, there are great political attractions to the Liberal Party in proportional representation. I do not blame them for that. There are powerful philosophical arguments in favour of proportional representation. I do not agree with them; nevertheless, they are reputable arguments, and they are views which are held by many men of good will. But the one thing to which proportional representation has no relevance whatever is the solution of our economic problems.
Indeed, what proportional representation would do is lead to the proliferation of small parties, to political manoeuvering and to weak government. The disastrous consequences for the nation of the Lib-Lab pact should at least have taught us that lesson; and if I may say this to the noble Lord, Lord Glenamara, the appalling state to which this country had been reduced by 1979 was largely the responsibility of the partners to that pact. The Labour Party had been in office for most of the 15 years after 1964. Most problems they had failed to deal with; those that they had attempted to deal with they had only made worse. At the time of the 1979 election, inflation measured on a six-month basis (which is a much better measure of the underlying trend) was 13 per cent. and rising. On a six-month basis the rate of inflation is now below 10 per cent. and falling. It is much healthier to have a falling rate of inflation, as it is at present, than to have a rising rate of inflation of the kind that existed in May 1979.
Now, perhaps, we may leave aside the obsession of the Liberal Party with proportional representation and turn our attention to the rest of the document. What is said in that document can be divided into three groups. There are first of all statements of a generalised nature with which we as Government would agree; and, indeed, we have taken positive action on many of them. Obviously—and here I quote from what appears in Item 1—we would want,
" to make the public sector more efficient and the private sector more profitable ".
Of course we would, and to this end we are allowing the refreshing winds of competition to blow through the public sector where that is feasible; we are returning industries to the private sector wherever possible; we are subjecting the nationalised industries to the scrutiny of the Mergers and Monopolies Commission, a step of immense importance where the industries enjoy a monopoly position; we have imposed firm financial discipline through the external financing limits; and we have given the fullest support—including, I may say, a very great deal of money—to these publicly-owned industries to improve their efficiency.
I greatly welcome, of course, the Liberal Party's support for making private industry more profitable.
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This is an essential aim, and one which we have consistently emphasised over the years. But profitability cannot be created by Governments: it is the job of management. What Government can do is to lift the burden of government from the shoulders of industry; to remove controls and to leave the market free to operate properly and efficiently. This is precisely the policy we have been following. We have removed price controls, dividend controls and exchange controls. We have reduced the number and complexity of planning controls and regulations. We are reducing the burden of bureaucracy generally. We have reduced the rates of income tax, and particularly the higher rates, to provide both motivation and incentive for management. We have introduced the new enterprise zones. In addition to the original list, two more, in Wakefield and Hartlepool, have just been designated, bringing the total up to 11. This was an imaginative development which was welcomed on all sides of your Lordships' House when it first appeared. I am sorry that it does not have the support of Lord Glenamara, because it offers a great opportunity for the creation of new business and new employment in areas of particular difficulty.
Equally, we welcome the emphasis, which appears in Item 4 of Mr. Steel's document, on the small business sector. Here again, the Government have taken positive action. Apart from the reductions in income tax—a matter of great importance to small businesses—last year's Budget contained an enterprise package specifically directed to the small business sector. The rate of corporation tax on small businesses was reduced; a new venture capital scheme was introduced; capital taxation, and particularly the capital transfer tax, was eased in a way specifically angled towards the small business; 100 per cent. capital allowances were extended to small industrial buildings built for letting; the apportionment of the trading income of close companies was ended; and tax treatment of pension arrangements for the self-employed was greatly improved. We therefore have a record of real progress so far as the small business sector is concerned.
In the case of the expansion of youth training, which is dealt with in Item 9 in Mr. Steel's document, we have already taken vigorous steps. Under the expanded Youth Opportunities Programme all unemployed school-leavers in 1981 will be offered a training or work experience place by Christmas. Other 16- and 17-year olds who have been unemployed for three months should be offered places within a further three months. In all, 440,000 opportunities will be available in the coming year. In this connection I pay tribute to the fact that we are building on a foundation laid by the party opposite, and I therefore hope that the party opposite will support us in the measures that we are taking in this field. We are now giving urgent consideration to what further measures might be taken, and we are doing this in consultation with the Manpower Services Commission.
I come now to the section on international cooperation. This is Item 10. I imagine that this was included by way of reproof for their erstwhile partners in the Labour Party. So far as we are concerned, we entirely support the objectives of international cooperation. We are committed to Europe; and while there is more than ample scope for improvement, particularly

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in relation to the Common Agricultural Policy, it is essential to bear in mind that Europe is our largest export market. The share by value of our total exports going to the EEC has risen from about one-third in the early 1970s to 42 per cent. in 1980. Europe offers us great opportunities. We must take advantage of them; we must turn our backs on the past and not on the future.
There are other aspects of Mr. Steel's proposals which we do not view with the same degree of favour. First, the National Enterprise Board, which makes its appearance in Item 1. The document proposes "a strengthened National Enterprise Board". This, we think, is entirely wrong. There is a place for a National Enterprise Board operating on a very modest scale and we have reconstructed the Naitonal Enterprise Board to that end. But the saga of British Leyland illustrates with great clarity where the kind of "strategic intervention" through a strengthened National Enterprise Board leads us. It is not conducive to efficiency; it is not conducive to proper financial control. It leads to a heavy drain on public funds; it adds to the Government borrowing requirement, thereby pushing up interest rates and pushing up taxes. This kind of intervention is no good to anybody. Mr. Steel's proposals in this regard are a recipe for getting into trouble and not for extricating ourselves from it.
We now come to the question of a "long-term incomes policy". In their 1979 election manifesto, the Liberal Party proposed that this should have the backing of law. This has disappeared in Mr. Steel's present proposals. I do not know whether this is a change of heart or simply an oversight. I was most interested to hear the vigorous support given by the noble Lord, Lord Glenamara, for the concept of an incomes policy. We are entitled to know whether this is now the official policy of the Labour Party—if there remains such a thing as a Labour Party, and if it still has any official policy. But we are entitled to know whether it is the official policy of the Labour Party and I think we are entitled to know whether they propose to enforce it by law or not; and, if they do not propose enforcing it by law, how they do propose enforcing it, particularly having regard to the massive opposition by the unions, and bearing in mind also that the unions have now made a successful take-over bid for the leadership of the Labour Party and, no doubt, propose making a take-over bid in due course for the party as a whole? Are WC to understand that this policy now has the whole-hearted and undivided support of the Labour Party?
Having said that, let me make this comment. There is, of course, a considerable intellectual appeal in the idea of an incomes policy. Such policies appeal to people's sense of fairness and to their sense of orderliness. Above all, they seem to provide an answer to the popular resentment when workers in a strategic position succeed in obtaining excessive wage increases by imposing hardship on the public at large. Be that as it may, experience shows that incomes policies simply do not work. There is no question of them having been introduced in a hurry, on the brink of crisis. One can see the origin of incomes policies in the 1944 paper on full employment policy written by Lord Keynes. We have gone round this field
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again and again and again—and every time an incomes policy has failed. They introduce a serious element of inflexibility into the economy, they prevent necessary and proper adjustments in relativities being made, and they contain immediate pressures only at the expense of an ultimate wages explosion. The apparent short-term gains which an incomes policy offers are bought only at the expense of long-term loss. Both previous Governments, the Conservative Government in 1974 and the Labour Government in 1979, were swept away as a result of the forces unleashed by the breakdown of their incomes policies. One admires the bravery of the Liberal Party in wishing to charge for the third time into the jaws of death. One admires their courage but not their political or economic understanding; and I might almost say that I am relieved to see the noble Lord, Lord Glenamara, tagging on behind them in this foolish and fatal charge.
The third group of proposals in Mr.Steel's programme consists of a number of currently popular aspirations which will be supported by most people; but no consistent policies are put forward for their achievement, let alone policies which would actually lead to their achievement. In short, in the context in which they appear in Mr. Steel's document, they are, frankly, little more than catch-phrases. Of course, we all agree that interest rates should be lower. There is no disagreement on this point. We, as much as anybody else, regret the present level of interest rates. In fact, we have already reduced the MLR by three percentage points compared to the peak which was reached last summer and we have made it clear that, as circumstances permit, MLR will be reduced further. But one of the necessary conditions for bringing down interest rates is to contain the Government's borrowing requirement within acceptable limits.
The measures announced by my right honourable friend the Chancellor of the Exchequer on 24th November were directed to this end: by reducing expenditure on the one hand and increasing revenue on the other. In contrast to this determined attempt by the Government to bring matters under proper control, Mr. Steel's document proposes substantial increases in expenditure: more spending by the National Enterprise Board, more spending by the nationalised industries, massive spending—and the word "massive" appears in the document—on energy conservation, a Severn barrage and so on. The effect of all these proposals on the public sector borrowing requirement would be substantial . Their effect would be to push up interest rates and not to enable them to be reduced. In short, the policies which are put forward in detail are completely inconsistent with the objectives sought to be achieved.
Then, we have in Item 6 a proposition to reduce the exchange rate. I know that industry would be a great deal more competitive if we had a lower exchange rate. It would also be a great deal more competitive if we had lower labour costs—a matter for which industry must share some of the responsibility. In fact, three-fifths of the deterioration in our competitiveness over the last two years is due to the rise in labour costs rather than the rise in the exchange rate.
But however difficult the present position is, what this Government, or indeed any Government, can do to influence the exchange rate is limited. It is arguable

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that to leave North Sea oil in the ground—and this is what the Liberal Party propose—is more likely to push the value of sterling up rather than to push it down. Nor in the light of the other pressures which exist can there be any confidence that lower interest rates would necessarily bring the exchange rate down, either.
Recent experience has shown that quite dramatic changes in the interest rate differential between London and New York have not reduced the value of the pound. On the contrary, sterling has tended to strengthen not to fall. Nor would in-flow controls solve the problem. Experience elsewhere shows that they have a temporary effect but that soon wears off.
Lord Kaldor: My Lords, could the noble Lord explain how we managed for over a century to peg our exchange rate on the gold standard and, after the war, under the Bretton Woods agreement? If his general statement were right, it would be impossible, at least for oil-producing countries, to run fixed exchanges.
Lord Cockfield: My Lords, the noble Lord seems to be unaware of the fact that that system broke down, and it is a situation which has been created by the final collapse of the Bretton Woods system which is one of the major problems that we have to face. There is very little point in going back to the early years of the 19th century and debating what happened then. We have to live in the 1980s and solve the problems of the 1980s. The Government's efforts are directed towards this.
I realise that what I am saying can be interpreted as saying that industry must just put up with a high exchange rate. But what I am really saying is this: we must all face up to the facts—sometimes the unpalatable facts—of life. It is no good service to anybody to pretend that easy solutions exist to problems when they do not; to lead people to believe that they can lean upon Government when it is not within the power of Government to provide help. The fact that industry's problems can only be solved by industry, that management's problems can only be solved by management, is being learned and learned rapidly. Our export industries have coped with a very difficult situation with much more success than most people would have expected. They deserve great credit for this.
I now want to leave the world of David Steel and return to the real world in which we have to live and earn our living; where we have to face real problems and find real answers to them. There is of course no doubt thst the problem which worries people most at the present time is unemployment. I entirely reject as totally without foundation the allegation by the noble Lord, Lord Glenamara, that the present Government are deliberately creating unemployment as a weapon of policy and that they are expecting unemployment to escalate to levels which he quoted. The Government are not in any way using unemployment as a weapon of policy. The Government have not created the unemployment. I reject these charges totally.
The causes of unemployment rest in the following factors: first of all, in the world of recession. Secondly, in inflation—a matter to which I shall return. Thirdly,
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in the growing uncompetitiveness of British industry over a very long period of time—a situation which has been greatly exacerbated by the failure not only of managements but Governments to tackle this problem, particularly the problems of overmanning and restrictive practices and out-of-date working practices. No Government has a worse record in that regard than the previous Labour Government. Finally, a proportion of the present unemployment is due to the excessive rise in earnings which took place in the wage round 1979–80. We repeatedly warned both sides of industry about the effect of this. The effect of these excessive rises in earnings was to make British industry more and more uncompetitive, both at home and abroad.
Of all these causes, the most deep-seated and important is inflation. This is why we have directed our policies to the root of the problems and to dealing with inflation. In no other way can we secure the long-term future of the British economy. In no other way can we provide long-term employment prospects for our people. It is for this reason that, when we came into office and throughout the period that we have been in office, we have throughout, in looking forward to the years ahead, been determined to stamp out inflation; and that determination remains. It is far from easy; it involves painful decisions on both expenditure and revenue; it involves not insignificant transitional costs.
But we are at last beginning to see the clear signs of success. The rate of inflation has come down from nearly 22 per cent. at the peak to 15 per cent. in December, and it will go on coming down. There has been a sharp deceleration in the rate of increase in earnings. The CBI's data on settlements in manufacturing industry show that the majority of recent settlements have been below 10 per cent. Realism has returned to wage bargaining with a speed which would have been beyond belief even a few months ago. The paramount need of the moment is for Government to manage their affairs so that the demands they impose on the community—including the demands imposed by the local authorities and the nationalised industries, which contribute so heavily to the public sector borrowing requirement—are reduced. This will pave the way to progressive reductions in the rate of interest and, in the medium term, to a lower level of taxation which will provide the incentives for business and for the individual as a whole.
These developments will provide the basis on which industry can continue to improve its efficiency; to reduce overmanning; to increase productivity; to lower costs and thereby increase its competitive cutting edge in both home and export markets. There is also a heavy responsibility on all those who work in industry not to demand more than their companies can pay and to co-operate actively in improving efficiency and reducing costs.
It is only in this way that employment can be safeguarded and the basis built for future expansion.
" The only thing we have to fear is fear itself ".
Those words were spoken in the depths of the great depression of the 1930s. They are equally true in our present conjuncture. We face great problems; if we face them unflinchingly, with the determination to succeed, we shall solve them.
4.50 p.m.
Lord Perry of Walton: My Lords, I am grateful to the noble Lord, Lord Banks, for putting down this Motion. I share the view of Mr. David Steel that what we need is a shared national strategy and I should like to say a word or two about the Motion, which stresses the need for action. I confess that I have little expectation that this call for action will be heeded by the Government. When I took my seat in this House I chose to occupy a Cross-Bench. 1 had never been a member of any political party and in the last general election I confess that I almost welcomed the fact of being, in common with criminals, lunatics and your Lordships, disenfranchised. However, I was not proud of my indecision and indeed was rather shamefaced about it.
I am shamefaced no longer because the fears I had at the time about both major parties have, I think, been justified. I need not spell out the horrors of the present Government's policy—the noble Lord, Lord Glenamara, has done so with far greater dramatic effect than I could ever achieve—but his party is promising me withdrawal from the Common Market and from NATO. It is also advocating policies which would mean that this country's policies would be determined by his party and not by Parliament. I find this just as unacceptable and just as horrifying a prospect as the effects of the current Government's policies. I believe that we are now in a situation where most voters would have to give their vote, like me if I had one, against both parties because there is nothing in their policies they would want to vote for.
Mr. Steel's national strategy proposes a 10-point programme and I, like others who have already spoken, find these points quite unexceptionable, if naive. I wish that I could see them all adopted and acted upon now, but I suspect it would need an election to achieve that. To vote against both the extreme Right and the extreme Left requires an upheaval in our political system. I fear I did not believe that the Liberal Party, acting alone, could provoke that upheaval: it required that the public should see politicians they admire changing their minds in public and willing openly to support a more moderate national strategy.
That was why I signed the Declaration of the Council for Social Democracy. Here were people who thought as I thought and who advocated policies that I could vote for. I hope that the council becomes a new party, that an alliance with the Liberal Party is achieved and that the alliance wins the next election, as the opinion polls predict it could do. That is how we are most likely to get the action which the noble Lord, Lord Banks, has called for.
4.53 p.m.
Lord Boardman: My Lords, I will not now follow the noble Lord, Lord Perry, in the points he makes, but perhaps I might touch upon one or two of them a little later. Nor will I join issue with the noble Lord, Lord Glenamara, whose speech was so effectively responded to by my noble friend. Like other noble Lords, I welcome this debate which has been initiated by the noble Lord, Lord Banks. Any Government that thought it knew all the answers would be complacent. Certainly the 10-point plan of Mr. Steel contains many points with which most of your Lordships on all sides
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of the House would agree. The noble Lord, Lord Glenamara did, and so did the noble Lord, Lord Perry, and also my noble friend Lord Cockfield. Indeed, who could not agree with them? If we were to look at a menu, where you could select the dishes you want and reject the others we would have a quite excellent meal, particularly as in the case of a guests' menu in a club where they do not put the price down alongside the particular dish you have selected. There is also the further advantage that you do not have to pick up the bill at the end of the day.
But of course that is not what the Liberal 10-point policy is all about. It represents a full meal to be consumed in full, as I understand it, at one sitting. Perhaps I should correct myself—and the noble Lord, Lord Perry, has reminded me that I should so do—because that menu does not cater for the diet of their fellow-hosts, the Council for Social Democracy, so that it will no doubt have to be extended to cater for that.
I can see all sort of problems arising. For instance, one host may prefer claret, while the other prefers burgundy and in such cases I would ask whether the menu would give a choice or whether one will have to take the one allotted to the area in which one lives; that is assuming the alliance of which we read should ever take off. I must, however, also admire the flexibility of the Liberal Party. Only quite recently we had the Lib-Lab pact to which my noble friend referred. The Labour Party at that time were giving support and comfort to a Cabinet that included Mr. Benn and others who were advocating similar policies to his. Today they are—
Lord Mackie of Benshie: My Lords, with the noble Lord's permission, perhaps I might say that Mr. Benn may have been advocating those policies at that time , but the whole point of the Lib-Lab Pact was that he was not able to carry them out.
Lord Boardman: My Lords, the policies that were being pursued and advocated by the party in Government in those days, which was supported by the Liberal Party, are not the policies of the people whom they are now supporting. They are now giving their support to those who have condemned the party with whom they were previously in alliance—
Baroness Seear: My Lords, I am sorry to interrupt, but the support we were giving was to the Social Democrats inside the Labour Party, and that is why the Lib-Lab Pact was such a huge success.
Lord Boardman: My Lords, the noble Baroness will have the opportunity to make her points later. I think the record is fairly clear as to the terms on which that pact operated. I do not wish to go back too far into the past, but I must warn my noble friend that, in view of the flirtations which the Liberal Party have carried on, he should be wary so that at some future date he is not beguiled by their somewhat fickle attitude towards partners with whom they have operated.
Of course, I recognise their problem; they are seeking their elusive mirage which is known as the middle ground. I am sorry to disappoint them, but that is already firmly occupied by the Conservative Party, as was made clear by my noble friend Lord Thorney

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croft in a speech last week. Just because the Left moves further Left does not mean that the middle ground has to shift with it. I believe, despite the merriment from the Benches opposite, as will those who get around the country, as I try to do, that, despite the pain, discomfort and the costs which are having to be borne by many sections of the public today, the unemployed and so on, most people recognise that the present policies are right, fair and necessary. Therefore, I believe that the ground which is occupied by Government today is still, and I hope will long remain, the middle ground. The Liberal Party arc also faced with something of a dilemma. I think it was Sir Winston Churchill who said:
" One of the problems is that the inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of Socialism is the equal sharing of miseries ".
The party which is claiming equality must decide whether it is the equality of miseries that it wishes to endorse and support. The dilemma is where they stand between those areas.
May I turn briefly to some of the points that have not already been mentioned by my noble friend? I am sorry to say this, but the document is rather badly informed on many grounds. To take an easy example, it states on page 4 that:
" Development should also start on a Severn Barrage as a pilot scheme in the use of wave power ".
I felt sure that the Liberal Party, who have made a great study of energy matters,would know that the Severn Barrage scheme has nothing to do with wave power. It is entirely related to the use of tides and, furthermore, it is complicated by the Severn Bore. The Government have a study going on to investigate the potential. But to put forward a pilot scheme, which would cost many millions, shows a lack of understanding of the real world, to which my noble friend referred.
On the incomes policy point, I shall not add to what my noble friend Lord Cockfield has said, except that I hope he will get a direct answer from the noble Lord, Lord Glenamara, as to whether or not support for a statutory incomes policy is now the official policy of the Labour Party.
The 10-point programme makes reference, quite rightly, to energy and energy conservation, but criticises the operation of the price mechanism. The document states:
" It is wrong to rely simply on the price mechanism to reduce energy consumption ",
and it goes on to refer to plans that are not spelt out in the programme, but which would produce a saving of at least 20 per cent. per annum in energy consumption. The pamphlet states that the plan could be implemented tomorrow. I believe that that is quite unrealistic, and I should have thought that discarding the price mechanism was contrary to the philosophy of many noble Lords on the Liberal Benches.
Indeed, in my experience, and, I dare say, in the experience of most noble Lords, there is nothing more effective in making me and my family switch off lights and so on than the price in the bills that come in. Furthermore, in my industrial capacity I can say that there is nothing which has made us invest more heavily in energy conservation methods than the high cost of energy today. I would perhaps criticise some of that
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pricing policy in its impact on high energy users, but that is not for this occasion.
The paper contains a rather strange phrase. It states:
" Elective dictatorship is a crude and increasingly inefficient way for a complex society to govern itself ".
I fail to understand what that means, and perhaps noble Lords opposite will say more about it later. Does it mean something like the outcome of the recent Wembley conference, or something like the NEC of the Labour Party'? It is lost upon me.
The pamphlet goes on to deal with electoral reform, on which my noble friend spoke. I realise that this is something which finds support in many quarters, but it is something which I myself am quite unable to support. I believe that it must lead, inevitably, to a coalition, with deals being done after the election, behind stairs or whatever is the right term, and to that extent it is less democratic. I believe that electors will not know for what they are voting until after the election results when the parties have done a package deal and decided on the way they will form a government, which may well result in policies which have not had the support of any of the electors.
Finally, may I refer briefly to what the paper does not contain? I believe that the duty of a government and of a party putting itself forward in the euphoria of public opinion polls and claiming to be a future government, is to deal with some of the issues which are the major responsibility of government. There is no reference to defence. There is no reference to law and order. There is no direct reference to maintaining the value of the pound—to honest money, Those are three of the central responsibilities of any government, but there is complete silence about them. I would sum up the pamphlet by saying that, as a thesis, I accept its sincerity and I have read it with considerable interest. But, like my noble friend Lord Cockfield, I believe that it is remote from the real world in which we have to operate today.
Viscount Barrington: My Lords, before the noble Lord sits down, could he explain, not to this party or to the House because it would take too long, but at some future time, how one occupies a mirage of the middle ground? Does it mean occupying the mirage or the middle ground and, apart from how it is done, which is the stress on—the mirage or the middle ground?
Lord Boardman: My Lords, perhaps I may consider the point and let the noble Viscount know how that should he interpreted.
4.57 p.m.
Lord McNair: My Lords, when my noble friends were drawing up this Motion I was in Strasbourg and my feeble Back-Bench voice could not carry from there. But if I had been present, though it would probably have made no difference, I should have urged them to cast the net a little wider and perhaps to draw attention to the political events of the last three months, including the publication of the 10-point programme—something like that.
I wonder how many noble Lords will be surprised when I remind them that the Labour Party's Wembley

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conference took place only 18 days ago today. So much has happened that I suspect we may be going through a period of seismic activity in our political life—a series of tremors which have not yet reached their peak. The political seismograph works very slowly, and only history will show us the Richter scale reading of the Wembley conference. But it may well come to be seen that these events have brought about a radical and permanenent alteration in the political landscape.
One feature of that landscape, as far back as any of our memories go, has been a rigid and seemingly unbreakable pattern in which two large, and, in our eyes, somewhat bogus, coalitions, one called the Conservative Party and the other the Labour Party, relying—in fact, depending—upon an electoral system which obliges people to vote negatively against that which they find the more repulsive, have been quite happy to take in in turns to blight the inarticulate hopes of the electorate (inarticulate, I may say, through no fault of the voters) simply because of the crude and unresponsive way in which our curious system distorts and misinterprets what people are trying to say and denies them any chance of saying it more clearly. No one who has done any ordinary grass-roots canvassing, would deny that at least four out of every five votes are cast against something or somebody, rather than for anything. This is how we have to behave under an electoral system which was described yesterday by The Times as "a lethal gamble ".
This rough, oafish game depends essentially upon fear. You have to frighten people into believing that the other lot are going to be even worse than you have already shown yourselves to be, and in order to pull off this propaganda trick you need bugaboos or bogeymen. You need a name to make the flesh creep. The late and very much respected Aneurin Bevan served the party opposite in that capacity very well for some time. Once, noble Lords may remember, in a lean year they had to make do with Harold Laski. But look what the Wembley conference has given them now: a brand new, shining weapon in their arsenal, the enhanced credibility Benn. That small, well-disciplined force of professionals in the Tory apparat over which the noble Lord, Lord Thorneycroft, presides with such skill and authority must be rubbing their hands with glee. They think they have got the best bogeyman since Zinoviev, and up to a point they are probably right.
That is the warning which I want to give to Liberals and Social Democrats alike. It is a warning which, I respectfully suggest, might be heeded by people in the Labour Party who are not quite sure whether they are Social Democrats or not, or, if they are, what they are going to do about it. And it might even be worth a passing thought for supporters of the Conservative Party, many of whom are beginning to wonder whether Milton Friedman really is quite the Messiah he was cracked up to be.
I give that warning for this reason. If at the next election people are faced with nothing better than the sadly familiar search for the lesser of two evils, and if one of those evils is the sort of manifesto with which the new-style Labour Party looks likely to encumber itself, they will reject it overwhelmingly. And you can hardly blame them, though it would not do them
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very much good. We must offer them a better choice, which of course is where this 10-point programme becomes so highly relevant. It is a brief statement of our beliefs and proposals. As many noble Lords have taken pleasure in pointing out, it is not, and was never meant to be, worked out in the detail which would be required for an election manifesto. I see it as a working paper, on the basis of which a programme could be worked out which would win the overwhelming support of the sensible, non-extremist majority of our people, which hitherto has been artificially divided, held apart and forced into futile conflict by the rigidities of the two-party system. The evidence of many recent polls, all of which agree, tells us clearly that this is what the country wants. Are we to disappoint them?
We do not expect it to be easy to negotiate this alliance. Clearly, a broad agreement on policy must precede any discussion of electoral tactics. Generosity, realism and perhaps even a little humility will have to be shown by all concerned. But I cannot believe that we shall fail. Frankly, as I see it, the only alternative to an electoral alliance is a suicide pact. What a curious time to choose for that. When the first quick look at your coupon suggests that you have got those eight elusive draws all lined up in one column, is that the time to turn to your would-be partner and say, "Come on, let's go out and walk under a bus"? No. There is a tide in the affairs of men. Why do we not take it at the flood and, using this timely document as a basis, get down to the difficult and serious work?
5.15 p.m.
Lord Balogh: My Lords, two debates which were held in another place on the economic situation, and now in this House, show the desperate urgency of the economic problem facing the country. It has also enabled the noble Lord the Minister to display his fund of goodwill and intellectual modesty. I congratulate him on his performance.
Mr. Steel's list of agenda would be accepted by most people of goodwill. However, it does not quite add up to a programme, as it does not contain a timetable nor lay down priorities. Moreover it contains short-term policies, mixed with more far-reaching changes. What needs to be done is a thorough investigation of these missing considerations. Of course, this cannot proceed in a hurry. The point upon which Mr. Steel seems most hesitant is his treatment of the transitional period as we try to kill pessimism by injecting optimism. Very often, of course, one overdoes it. Then one accumulates problems rather than solves them.
Unlike some of her predecessors, Mrs. Thatcher is a true believer in what she preaches. She once more reaffirmed her belief in the self-adjusting mechanism of the market and therefore the pattern of the economy which she prefers. The experiment of stabilising the economy by limiting the growth of the money supply, helped by a deflationist, high-interest policy, is palpably not working. Instead of reconsidering her policy, she is driven by her faith to high interest rates and ever more extreme cuts in public expenditure. While she protests verbally her dismay at the mounting level of unemployment, her deeds tell a very different story.

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How could one rely on the stabilisation of the economy by manipulating the money supply when we cannot even obtain a straightforward definition of the concept? There are a variety of potential money substitutes in the wings, even if we disregard those which figure under the pseudo-mathematical labelling of M 1 to M7. No sooner are effective restrictive measures taken against one of these monies than a new substitute is evolved. This one could see in the last two years when, as a result of the corset, deposit certificates were invented.
Even more perilous is to disregard the changes in the velocity of circulation offsetting policy measures to control its volume. One of these changes is due to the fact that "money" is not a homogeneous entity. It can act as a means of exchange, in which case it has a higher velocity, or it can act as a store of value, where it has no velocity whatsoever; it is dormant. Changing from one to the other will affect the velocity of circulation. The influx of colossal amounts of hot money in the last years will inevitably have increased its role as a store of value. Thus, even if the total volume of money remains constant, domestic demand will shrink and depress the velocity of money. Striving after monetary "stability" will then increase the rate of interest and aggravate an already taut banking situation. Week after week City people encourage each other with the news that the MLR will surely be cut and some upward adjustment permitted, and every Thursday afternoon they are disappointed.
The tragic aspect of these developments is that the growing tension between labour and the employers creates an atmosphere in which inflation seems manageable only by weakening the unions and frightening their membership by mass unemployment—that is, by a democratically unacceptable price. It is not only the present but the future that is imperilled. Investment in high technology equipment will be inferior to that of our competitors, and our relative decline in skilled manpower will continue because of the cuts in social services, especially education and health.
Mrs. Thatcher's destruction of physical capacities, and even more of our human quality, is horrifying to contemplate. Should she continue on the present tack —and one must admire, with the Tories, her tenacity and tactical ability—the losses might become so grave that a revival will be difficult and the process of shrinkage irreversible.
The threat of an irreversible downward spiral is much aggravated by the Government's determination to use—with a few exceptions like steel and BL—as its tactical monetary means a (wrongly applied) system of monetary and fiscal policies. The result will inevitably increase militancy in the longer run. Whenever the Government attain their aim of stopping inflation and try to reverse their policies and to expand the economy, this basic bitterness will surface and we shall once more be plunged into inflation. A permanent reserve army will have to be maintained, slashing standards. A situation of permanent depression will have been produced. The Marxist prediction of a "reserve army" will have been fulfilled by the Tories. Our material ill-success will increase and with it general backwardness and militancy will further rise.
What is the alternative? One could envisage what is now called in polite trade union language" systematic
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adjustments ". Some of my colleagues in a longish letter to The Times on 24th November 1980 suggested that what is needed is a,
" modification of our present pay fixing arrangements or in plain English an incomes policy ".
Unfortunately, neither Mrs. Thatcher nor the TUC and its general secretary Len Murray, nor the noble Lord believe this, despite the torrentially increasing evidence. We are always told that there is not an incomes policy in a successful country. I would not say that Austria, Sweden, Norway and Germany were particularly unsuccessful. But of course the political difficulties are enormous. No incomes policy would be acceptable to the lower brackets if it were not accompanied by other far-reaching reforms.
The great problem is the refusal of the Establishment —officials, universities and the City—to recognise the change in the structure and the functioning of the economy in all industrialised countries, but perhaps it is more obvious in this country than elsewhere. My colleagues talk about "market forces", implying that no single producer or consumer can influence the price which the market dictates to all and produces an optimum situation. That has irrevocably changed. We have not got that sort of market, and therefore what we suffer from is a contradiction between the formidable increase in the bargaining power—at full-ish employment—of workers organised in unions and the distribution of national income as conventionally determined. We need a social contract going far beyond "new pay-fixing arrangements".
There is no indication that the Government are aware of the need for a change. I think the Minister's speech proves this beyond any doubt whatever. Without a direct system of controls, a programme of measures not merely for restarting the economy but deliberately biased towards the poorer classes, we shall not be able to conquer the crisis. We need a planning and co-ordinating machinery, which has been largely destroyed. We need organisations whose investment could and should both stop the deflationary catastrophe and restart the economy at a juncture in which the private sector cannot do it because of the losses which we suffer during the slump.
What is never said by opponents of the incomes policy is that "free" collective bargaining leads either to unemployment or to an inflationary spiral. There has been no British Government in the past 20 years which have not been forced to adopt an incomes policy. They failed to deal with the basic problems and were obliged in the end to deflate and to increase unemployment. That is true of Labour Governments as much as of Tory Governments. In fact, an incomes policy, as the example of Austria shows, is a necessary permanent adaptation of economic management and structure to the needs of the modern economy. With an increase in concentration of economic power on both sides of industry, the balancing mechanism of a world perfect market has ceased. Oligopoly enables the employer to shift the rise in wage cost on to the consumer. In the process many firms go under and the industrial base on which our existence depends is eroded. It has been clear in the last score years, if not since 1945, that free collective bargaining is in reality a monopolistic exploitation of the public by the most powerful, leaving the rest

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dissatisfied and dependent on social security.
The dozen or so crises which have occurred have not taught this country any lessons. The pound seems to be either too high (as it often is) or too low—and sometimes both in the eyes of the beholder. Speculative attacks on the pound alternate with torrential inward movement of loose balances. These capricious fluctuations might cause an industrial collapse which could be aggravated by the possible unwinding of the international credit system. And there are the Government exemplified by the noble Lord the Minister. Like the Bourbons, they have forgotten everything and learned nothing. Still there is a slight flicker of light at the end of the tunnel: Professor von Hayek has accused Milton Friedmann of being the cause of Mrs. Thatcher's failures.
5.30 p.m.
Lord Mackie of Benshie: My Lords, I am rather amazed at some of the speeches we have heard, particularly the ones from the Front Benches, and more particularly, if I may say so, the one from the Front Bench of the Labour Party. It is quite extraordinary to me that the noble Lord, Lord Glenamara, with all his experience, can make a speech like that, in view of the present torment the party is in and the total lack it has shown of any coherent policy whatever. I must say the speech of the noble Lord from the other side was not quite so euphoric; perhaps the cares of Government have made him much more realistic. But both of them appear to me to neglect the whole point of David Steel's declaration.
Like many noble Lords here, I came back from the last war a young man still, full of pride in my country, belonging to a country which was a victorious one, which had the highest standard of living in Europe outside Sweden, which had most of its factories intact. I thought it would be all go from then on, that Britain was to go ahead and give a lead and continue in prosperity and influence in the modern world. I must say that even noble Lords on both sides must admit that that has not happened. We arc at the bottom of the league in Europe now, or we just about share it with Italy, and other countries have surpassed us in influence, in earning power and in general efficiency.
Noble Lords on both sides of this House cannot escape responsibility for that state of affairs, because since the war they have governed alternately. The last coalition Government was the war-time coalition Government, and since then two-party politics have served this country very ill. If we are going to have a consensus or a coalition of opinion and of power in this country, it should be a consensus or a coalition within Parliament and not within parties. Noble Lords cannot tell me that this is wrong. They have only to look at the history of the decline of this country since the end of the war.
The two-party system is a very different one today from the one which obtained when everyone was born "a little Liberal or a little Conservative". In those days Members of Parliament were financially independent, and with that financial independence also went a great deal of political independence. There was a great deal of cross-voting. The Government of the day had always to consider first and foremost the representatives of the people. They did not have to
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hark back the whole time to the manifesto and the party and the perilous coalition they were trying to maintain.
Today Members of Parliament are dependent on the party not only for their seats but in many cases for their very living. Discipline is so tight that at the moment the proper working of parliamentary democracy is a farce. It is party government we have, and that is what is meant by elective dictatorship, because that is what it is. I trust that everyone now understands it. That is the state we are in today and that is the state which is responsible for a great many of our troubles. We have a divided nation.
It is quite extraordinary, in this time when everyone from all parties tells us that we need to work together, that our whole system of Government is based on confrontation, and the party battle is fought not on points of policy but on the stirring up of bogeymen, as my noble friend said, and on a revival or rejuvenation of class hatred. This is absolute nonsense in the present time and nobody can tell me that this sytem of election has nothing to do with it. That is why I think David Steel was quite right to say that above all PR has a very great deal to do with the state of the country.
I should like to go on to the particular. The noble Lord, Lord Cockfield, has explained many times and at great length, and with that lovely dry throwaway manner which we all so much enjoy, that it is absolutely essential to keep interest rates high and to keep down public spending. But I must say that I understand—with my imperfect understanding, I admit—that you keep interest rates high to stop the runaway activity which will fodder inflation. I never understand what the people who get the enormous rates of interest do with the money they get from the hardpressed manufacturing section. It must have an inflationary effect in their direction. The noble Lord said with great pride that he had brought it down from 17 per cent. to 14 per cent. Big deal! It means that you borrow money, if you are a decent, sound person, at 16½ per cent. My God! when I started in business after the war you borrowed money at 4½ per cent. and thought that was pretty steep.
All over the country we have the extraordinary sight of the most enterprising firms being hit by the present enormous interest rates. All the tax cuts have not had anything like the effect of the high interest rates. If you borrow money to put in new plant, as many friends of mine have done, and then suddenly within a year your interest rate doubles, you are in a position where you are paying compound interest at a rate of 20 per cent. I do not know what it compounds at, but at 20 per cent. or thereabouts it does not take very long to double the debt. That is happening to enterprising firms in this country.
It is not much wonder that many of my friends in the Tory Party in manufacturing, at the sharp end of the business, are wondering what the devil the Tory Party is doing by taking the money away from the manufacturing section and handing it over to the rentiers, the bankers and whoever is fortunate enough to receive these enormous interest rates. This, up and down the country, is ruining not the incompetent; not the canny fellows who tucked away money and never improved anything and are sitting on it; it is ruining the people who are trying to export, who are putting in new plant

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and who in many cases are in the lead in new techniques. This cannot be right.
It is certainly having an appalling effect on farming. I see that the farmers today are to seek an interview with the Prime Minister in order that something can be done about the enormous rate they are paying for money. I cannot believe that it is necessary to maintain these high interest rates. Certainly I cannot believe that it has no effect on the high value of the pound, which again has been absolutely disastrous for a number of people exporting good products, of high standards of design—exporting, for instance, to the United States, where they have suddenly found a movement of over 50 per cent. in price against them. It is an extremely difficult situation and not one the Government should try to shrug off. It is a point of immense difficulty. While I do not believe they should deliberately lower the value to a false rate, there is a fine point at which they should try to stabilise it.
As regards the 10-point plan, one of the matters that David Steel has mentioned—and it is a point of old Liberal policy—is the effect on employees of the attitude of companies towards production payments, profit-sharing or (call it what you will) payment by results. That is an extremely important point. One thing that is true—and the noble Lord mentioned it—is that there has been a tremendous revival of common sense in the country. Faced with the hard facts of unemployment and this enormous recession—and I doubt whether it has anything to do with the Government—people have seen that their interests lie together and workers have taken a drop in pay. Indeed, there have been decreases in pay because of the inflationary factor.
That is an immense step forward from the appalling thinking we have had in the trade union movement in recent years, encouraged by the party beside me, and that step forward must not be lost. It must not turn into a stop-go situation with the employees saying, "When this is finished we shall kick you in the pants in the same way as you are kicking us now". It is up to the employers to say, "Right, you have shown great good sense. We shall install machinery which will give you a proper share of a rise in productivity through profit-sharing and consultation ". I think that that is a vital point and it is one which nobody has mentioned. The opportunity should be taken with the present realistic attitude to push forward with these profit-sharing and production-sharing schemes.
The only way in which many of the things that need to be done—and which I know the noble Lord would like to do—can be done is by having a Government which carry the goodwill of the mass of the people of this country. I have already said that the two main parties as they are constituted do not carry that goodwill at present. They are branded as class parties one way or the other. I find that the thinking of the large masses of the Labour Party and the large masses of the Conservative Party does not differ in any way from my own thinking and even from that of some of my noble friends. I notice, too, that time after time there are large sections of our Administration which are administered by Ministers who are thought little of, and that our party system has for long under-valued the administrative value of a Minister simply because
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we have to pick the Government of this country from a small section.
As I have said, the last time I was really proud of my country and proud of myself was at the end of the war when we had a coalition Government. They commanded respect and, in spite of all the troubles, I am perfectly certain that a coalition inside the Houses of Parliament is far, far better than a coalition inside the parties.
5.44 p.m.
Lord Kennet: My Lords, "pious generalities", "self-righteous", "simplistic", "naïve", "not in the real world", "disappointing"—I think that I am quoting even-handedly from the epithets bestowed by the two Front Benches on David Steel's paper. I am not among those who have always believed that whenever the Liberal Party puts its head above the parapet it is right to dot it, with a ton and a half weight if one is in Government and a ton weight if one is in Opposition.
I do not think that this is a bad, a contemptible or an ill thought out paper and set of proposals. Of course one cannot deny that the noble Lord, Lord Boardman, has a point. There are slips in it. I thought the part about the Severn Barrage might almost have been a misprint. We all have our own preconceptions which we would like to see reflected in a paper which we would like to praise and take to our hearts. Mine is that it is disappointing to see international affairs still at Point 10 out of 10 instead of Point 1 out of 10, given that we must all admit the justice of the claim of the noble Lord, Lord Cockfield—however little else we may admit of what he said—that a large part of our present distress is generated beyond these shores, which is not to say that a large part of it is not generated within these shores. I would indeed disagree with his claim of 80/20 and perhaps put it the other way round.
"Incomes policy" is by now a pair of words which falls into shadow and obloquy because of the recent history of attempts in this direction by Governments of both parties. The noble Lord, Lord Cockfield, spoke most spiritedly about the way in which the last couple of incomes policies which have been tried—one by them and one by us—have blown up in our faces. However, they were income policies of a certain kind. They were different from each other—and I shall not bore the House by reminding noble Lords what the differences were—but they were by no means the only type of incomes policy which could be imagined or which has been imagined; or could be tried, or which has been tried, in other countries.
I think that the Liberal paper has this to say for it. It hints or suggests in some way that a thought has been given to experience in Scandinavia, Germany and particularly the Netherlands. I would like to find another pair of words, which will call to mind not the bad winters—the last one in 1978–79 which blew up after two or three years of success—but a possibility for the future, an arrangement for settling pay differentials between this sort of person and that sort of person which should have majority support by the people. Obviously, one can never hope for universal support for any such arrangement or structure. I am thinking of a kind of arrangement which would be aerated by

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public discussion over a long period and in great depth, so that Parliament at the end of the day could have some idea of what most people really thought a nurse was worth compared to, let us say, a director of a bank. If one could look forward to that day then perhaps it would be wrong to turn our backs on all such attempts because the last two have not worked.
The noble Lord, Lord Cockfield, described proportional representation as a Liberal obsession. It is, and with good reason. But we all know that there are a good many people within both major parties now who share that view not obsessively, I hope, but who believe that coming to such a situation would help British political life.
We are at the moment in very bad days economically and the effect of that has been rather surprising. In bad days one would expect a mature democracy to close ranks and converge upon the middle ground, but the reverse has happened. The reverse has been happening over some years now—even perhaps a decade. As the situation has become very bad in the last year or two, so the reverse has been happening very fast. The two great parties are moving away from each other almost at the speed of light. There is a prodigious elasticity in the British body politic. The Labour Party is going further Left and the Conservative Party under the leadership of Mrs. Thatcher is going further Right. Such a situation, though surprising, is not likely to be durable. In fact, we are already seeing the natural result of this atypical reaction. As the poles draw apart, so gaps are disclosed towards the centre.
I suppose that all our thoughts are rather busy these weeks wondering what will happen about the prospects of filling the gap between the Labour Party and the Liberal Party. I recognise that the Liberal Party is in roughly the same place as it has been in for the last two or three generations—namely, in the centre —and that the action of being in the centre must be largely defined by what is done around you by the other parties. An uncomfortable gap has opened between the Labour Party and the Liberal Party. I think that an uncomfortable gap has also opened between the Liberal Party and the Conservative Party.
There always were these two gaps. Hitherto they have not been uncomfortable, but the natural is happening and there are moves to fill at least one of them; I would not totally exclude that there should be moves to fill the other at the same time, perhaps after the next election, perhaps before—who knows? But the move to fill the" left-centre "gap, if I may so describe it, is indeed a" seismic "one. I think that the noble Lord, Lord McNair, had the right word; or was it the noble Lord, Lord Perry?—I think perhaps it was. It is a fact that, at the moment, the public interest in this move is so great that it is impeding the move itself. I think that noble Lords will know what I mean.
The Earl of Longford: My Lords, may I ask the noble Lord what he means, because it is quite unclear to me.
Lord Kennet: My Lords, I think that it ought to be clear. I would rather not enlarge upon that formulation. If it is cloudy, let us leave it cloudy. No doubt
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public interest will become of manageable proportions in time, and there will be more time to think quite soon. The arguments for proportional representation are pretty familiar. Indeed, so far as I know there is only one argument against it that one hears, which is that stability of government is in some way linked to the first-past-the-post system—the two-party system; we hear people say, "Oh, but if we have proportional representation we should have unstable government ". Of course, we have unstable government now. The lifetime of British Governments is not particularly short compared with those of like countries, for instance, Italy. We do much better in the number of years that we give one party to constitute the Government.
But what is bad compared with other countries—and this is another form of instability—is the comparative contest of legislation; there is a kind of "machismo about it, which is well reflected in David Steel's paper: "I can pass more laws than you and they have more trenchant effects". In that instability of government we compare very badly with countries which have proportional representation. It is indeed absurd to say that we, being the only country in the European Community, the only country in democratic Europe, to adhere to the old first-past-the-post system, have more stable government than Germany, Denmark, Sweden and Norway. The claim should no longer be heard. I wonder what argument remains, except the argument that if you have a large majority in the House of Commons—even if you do not have one in the country —it is nice to keep it as long as you can.
Lord Monson: My Lords, will the noble Lord not agree that proportional representation gave small extremist religious parties undue influence and hence instability in both Israel and Turkey prior to the coup?
Lord Kennet: My Lords, I would. The examples are far afield and the form of proportional representation which did so is not the one which I would advocate for this country. I would go far closer to the Scandinavian or German type where they do not seem to have been troubled to any great extent—with the minor exception of the old Norwegian party—by small religious parties. I have gone rather far from the paper attached to the Motion that we are discussing. I consider it not at all inappropriate to the present political juncture and I can save the House and myself a great deal of time by saying that I found the speech of the noble Lord, Lord McNair, extremely constructive, well-thought and well-judged.
5.55 p.m.
Lord Hankey: My Lords, I support a great deal of what was said in Mr. David Steel's 10 points. I note that the noble Lord, Lord Cockfield, also agrees with a good deal of what is written there. I was greatly impressed by the noble Lord's speech and thought that on this occasion he did very well. I am moved to take part in this debate—I earnestly hope that it will be a constructive part—because I have been alarmed by the statistics recently issued by OECD on the economies of the free world. I used to be accredited as the United Kingdom delegate to OECD and I am distressed to see that the United Kingdom does not

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show up at all well—in fact it shows up very badly—in these statistics and forecasts. But they are all based on present policies and present trends and I believe that they arc a very valuable study to see some of the ways in which we might better ourselves.
Of course, inflation is shown by OECD to be a pretty general problem, except in countries which have maintained a high growth of productivity, such as Germany and Japan. But the United Kingdom inflation rate of 15½per cent. in 1980 compares with a general OECD figure of about 11 per cent., and the forecast for 1981 is 12 per cent. for us and 9¾ per cent. for the rest of OECD. Our growth rates have been bad and are expected to be absolutely abysmal. I think that this poor showing of the United Kingdom is a very serious problem indeed.
I am sure that the Government are right to make the combating of inflation their first priority. I entirely support most of the efforts that they are making to get the monetary equations right. Unless the monetary equations are right, I do not believe that the rest of the economy can be made to work. However, I believe that supply economics and particular attention to keep industry going are absolutely essential. I accept that a relatively high rate of interest is required to discourage excessive borrowing in the economy. But if the rate is allowed to get too high—as I think ours has been for some time past—several things happen. First, a great deal of hot money comes in, much encouraged by our new strength in oil, and in one way and another it increases inflationary pressure in the economy and raises the exchange rates.
All this is counter-productive and undoes what the Government are trying to do by keeping up the interest rate. So I think that we ought to discourage such inflows, as various other countries have done, notably Germany and Switzerland. They have not continued it for a long time; I believe that both of them have now dropped it. But I do not think that that is any reason why we should not copy what they have done in the past.
I think that we should encourage only inward capital flows which are devoted to real investment and which bring with them new technology and industrial know-how. We ought to have that sort of money and I hope that we shall encourage it to come. I think that the Government, the City and the banks ought to get together to see whether they cannot find some means of distinguishing between these two flows. I know that it is difficult. Also, I know that it is difficult to keep the interest rate down when the borrowing requirements are going up and the Government need to borrow so heavily. The high interest rate is very largely the result of that. But do not forget that when the interest rate is so high the cost of all this borrowing is absolutely enormous and is a great burden on the country.
There is another point I want to make. Not only high interest rates but unstable interest rates and unstable tax rates, both of them subject to constant change, are very discouraging indeed to business investment both in the public and private sectors. Businesses, public and private, need fairly stable conditions if they are to invest in new plant, raise productivity, and increase output and employment.
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They cannot otherwise make reasonably reliable and profitable plans. It is simply impossible. This interest rate "yo-yo" business, which I am afraid the monetarists in America seem to favour, is really discouraging to business improvement.
I have received a most telling memorandum from a distinguished United States economist and banker who used to be a colleague of mine on the Economic Policy Committee of OECD. Among other things, he shows that when the United States' interest rates rocket upwards, as they seem to do now every few months, the commercial community draw the conclusion that inflation is getting worse and they rush to borrow more, which is exactly the opposite of what the US Government want to happen. So rising interest rates tend, or it may be argued that they tend, to be counter-productive. I wonder whether the same does not happen here. I believe it is hard to control the rate of borrowing and the money supply, because the City of London has so many flexible institutions and methods of borrowing and raising credit that it is extremely hard to deal with the whole lot of them. That is quite a major problem. So I do not believe that it would be right to make that sort of policy our only hope for setting up our economy.
One of the main components of inflation, of course, is the large deficit in the budget and in the public sector generally. I am very sorry that the Government have not succeeded in keeping the public sector borrowing requirement and domestic credit expansion within better limits, even though it has fallen as a proportion of GDP. This is really a most difficult problem because a large fall in industrial production and profits and a large rise in unemployment is bound to cause a fall in Government revenue and a simultaneous rise in the cost of the social sector, and thus increase the PSBR. This is what 1 meant in one of the recent speeches I made on this general subject when I said that I was not sure that many people here realised how very hard, how difficult, it is to correct an inflation on the scale that we saw last year and the year before. It is very difficult. It takes time, and the OECD have much experience in helping countries to overcome these difficulties.
I am really alarmed by the OECD statistics on unemployment. In 1980 the United Kingdom had an unemployment rate of 7·4 per cent. against the average of 5·8 per cent. for the seven largest countries of OECD. The United States, Canada and Italy also were slightly worse than us. But in 1981 and 1982 OECD foresees a rise in the United Kingdom rate to 10 per cent., 11 per cent., and even 12 per cent., while the others are expected to do very much better. I imagine that every Member of your Lordships' House would share my view that such a rise of unemployment here would be a really unparalleled disaster both politically and economically, and especially socially. The Government absolutely must try to do better in the light of these OECD forecasts, which I am sure they have studied in much more detail than I have been able to.
This brings me to my last and main point. It is essential that the Government should do even more to help industry keep going in spite of the current recession. The noble Lord, Lord Cockfield, gave us a most encouraging account, and a very interesting one,

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of all the measures which the Government are taking. The Government are entirely right to help British Steel and British Leyland, and especially many small businesses. Let us use the inevitable recession—it is no good just blaming the Government for the recession as the Labour Party have done—by all means to get greater productivity and to eliminate wasteful inefficiencies and bad monopolistic or restrictive practices. But when the recession passes let us make sure that we have a good modern steel industry and efficient vehicle production on which to base a real industrial expansion.
We must welcome any inflow of foreign capital which brings in new ideas and modern technologies. I am very sorry about the failure at Linwood. Personally, I greatly welcome the French and Japanese participation in the motor industry. After all, the French produce three times as many cars as we do and the Japanese produce six times as many, so we must really have a good deal to learn on both sides of industry from them.
I am not pressing the Government for a U-turn of policy. They are doing a great deal already to help industry. I am not urging them to spend thousands of millions of pounds propping up inefficient industries. Mrs. Thatcher is entirely right. That would be a really big disaster and would worsen inflation. We need to give selective help to the growing points—and I think I saw this idea in Mr. David Steel's paper. We need to train people in the new skills that will be needed when the recession passes and the growing points get real importance.
I am told that there are real shortages of skilled men in many industries even now. Let there be financial incentive to encourage our workers to use redundancy money to help finance their retraining. My impression is that redundancy payments are at present very often being wasted and really squandered in ways which are not helpful in a time of inflation. Let there be even more help for small businesses, especially in the new fields which science is opening up on every hand. Let the Chancellor encourage the private investor to do this. It is really inexcusable to impose extra unearned income tax on the return on that sort of investment. Surely the Chancellor could lend the private investor a hand there. Let there be much more supply economics and not only monetary economics.
I should like to see the Government consult both sides of industry in some detail about further reducing or removing the mass of small regulations and petty restrictions local and national, ecological and social, which at present discourage or prevent business being set up or expanded. Almost every businessman has suggestions to make about this. I am sure that the trade unions have, also. I hope that the Government will listen to them and take heed.
If the Government took a really hard look at the terrible, appalling costs of unemployment I think they would find that a good deal of expenditure on real investment, which we absolutely must have soon, would be quite acceptable if you deduct the cost of unemployment and social assistance for those involved. We have to pay the men anyway. A small example. Take the dreadful, crowded, inefficient road to Tilbury, London's main port. Take the deplorable shortage of
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ships and aircraft and other needed supplies for our armed forces. I know we are building ships—many more, according to the noble Lord, Lord Cockfield, than I had thought, and I am glad to hear about it. Much is being done, but is it not better to get these things now, when the economy is so slack and when you have to pay the men anyway, than to wait until the economy is under pressure again? Or are we really to wait and order those things that are essential, and increase the pressure on the economy and make it harder to resist the onset of inflation? A real hard look at the cost-effectiveness of certain types of expenditure of that kind might pay handsome dividends. We also desperately need housing to facilitate the flexible movement of our workforce without which we cannot expect the economy to expand efficiently.
In short, let the Government take a new and even harder look at what they can do for industry, both positively and by knocking away the present obstacles to progress. Let them in effect go into partnership with both sides of industry. Perhaps Neddy could even now provide a forum; it is deplorably becoming a scene of confrontation. I do not believe that is the fault of the Government, but I believe kindness and diplomacy and the careful preparation of meetings would pay off well in that forum.
To sum up, I want to see a regime of intelligent exceptions—I emphasise "intelligent exceptions"—and I do not want a lot of public expenditure. In the end we can get this country going again only if we can replace confrontation with co-operation. Most of our countrymen want that and are heartily sick of confrontation politics and policies in Parliament and industry. Speaking strictly from these Benches, I must express the deepest regret that the Labour Party and important elements in the trade unions seem to be moving the other way. I do not think that it will pay them in the end to defy the needs and heartfelt wishes of the vast majority of our countrymen.
Finally, a study of OECD statistics has shown for a number of years that the United States are going the same way as we have, with too little investment, periodic large outflows of capital, fairly high inflation and unemployment. Since 1960, their share of total OECD GNP has fallen from 50 per cent. to 35 per cent. They have done brilliantly, though, in developing new technology and new industries and we must hope that President Reagan can set the United States on a good road once more, because that is essential for our survival in the long run and also for the third world. OECD expects an upturn in the United States economy starting in the second half of this year. We must under no circumstances encourage protectionist or other trends here or in the rest of the EEC or OECD which would delay the United States recovery or the passing of the recession. That is another major reason why I support the Government in combating inflation and putting the development of our productivity and competitiveness first.
6.13 p.m.
Baroness Seear: My Lords, it was I suppose inevitable in discussing so sensible a document as my right honourable friend's 10-point programme that a great deal of the criticism should have been beside the point, because it is criticising my right honourable friend for

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not producing the kind of document he never set out to produce. The purpose of the 10 points is to make it clear—not to your Lordships' House but to those elusive people the man and woman in the street—the kind of objectives that the Liberal Party has and the kind of issues to which it would give priority.
The document has been criticised because it does not tell in detail how these things would be done. If we took all the 10 points and if my right honourable friend had spelled out in detail how they were to be done, we should be told that nobody (on the Clapham omnibus or anywhere else) would even begin to read it, and I doubt whether many of your Lordships would either, and it would certainly not fulfil the objectives for which it was written. I always understood that it was the mark of a bad reviewer to criticise the author for not producing the book the reviewer wanted to read, rather than the hook the author wanted to write. And after all, the Ten Commandments are even shorter, and they do not set out to tell you how not to commit adultery.
It has also been said that certain things are left out. The noble Lord, Lord Cockfield, criticised my right honourable friend because he had not mentioned inflation and unemployment. That was unworthy of the noble Lord. The whole document is shot through with a realisation of the horror of both inflation and unemployment. And if, as I am sure is the case, the noble Lord has read anything that my right honourable friend has said and has listened to any of his speeches—and I know he courteously listens to speeches—he will be fully aware that the Liberal Party is deeply concerned with the questions of inflation and unemployment, and my right honourable friend simply did not think it was necessary to underline the fact that those are the major problems with which he is concerned.
Not only that; it has been criticised because it contains much with which both parties agree. But that is the burden of my right honourable friend's case; he is maintaining that there is in this country a great degree of consensus running through all parties about the things that need to be done. That is what he is saying. He is urging that we should mobilise this degree of consent and understanding, and that is reflected of course in the document he has produced. It is not meant to be a confrontation with either the Conservative or Labour Parties. It is an attempt to say, "These are the really important things" and then to find, as has been shown in this debate, that in fact there is a broad basis of agreement that these are the matters with which we should be concerned and the directions of policy which we should be pursuing.
To look in slightly more detail at the criticisms that have been made, the noble Lord, Lord Glenamara, will not misunderstand me when I say that I found his speech headmasterly rather than masterly. He patted my right honourable friend on the head saying he found him engaging. It is, I know, a great trial to my right honourable friend that he still retains the looks of youth, despite the burdens he carries with such ability.
The noble Lord went on to criticise him because, he said, it was a naïve document and because we should find that nearly everything he had said in it—in fact I
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think the noble Lord said "everything"—would be found in the Labour Party manifesto. He took time out in headmasterly style to tell the noble Lord, Lord Cockfield, to attend to what was being said. He returned to his headmasterly attack on my right honourable friend and made the claim that it was all to be found in the Labour Party manifesto. That was interesting. The commitment to the EEC; is that to he found in the Labour Party manifesto? The commitment to the kind of industrial democracy which we advocate, with direct elections from all employees and not industrial democracy dominated by trade unions; is that to be found in the Labour Party manifesto? If so, that surprises me.
The point is not how much of this will be found in the Labour Party manifesto, or for that matter in the Conservative Party manifesto, and I have already dealt with that. The point is what else will be found in the Labour Party manifesto along with the other matters on which we have common agreement. Shall we find in the Labour Party manifesto a determination to increase the degree of nationalisation, a determination to pull out of the EEC, and shall we find that their paymasters, now their masters—the trade unions—will dictate into their manifesto a great many items which would not appear here? That is what the country will ask; not how much overlap there is but what are the other items, far less acceptable and carrying far less general support, which will also find their way into the Labour Party manifesto.
The noble Lord, Lord Cockfield, also attacked my right honourable friend regarding the points which were not included in the programme. I would say to the noble Lord, Lord Cockfield, that he criticises us for our loyalty to the idea of incomes policy. I was interested that on this occasion—and I think it was the first occasion it has happened—the noble Lord, Lord Cockfield, admitted the intellectual case for incomes policy. Indeed, so humble and intellectually honest a man as the noble Lord, Lord Cockfield, could surely hardly do otherwise in face of the fact that incomes policy has had the support of Lord Keynes, of the Nobel prize winner, Sir James Meade, and of the leading academic authority on pay in this country, Professor Sir Henry Phelps Brown. The noble Lord was, I am sure, paying a tribute to the intellectual calibre of the people who give support to incomes policy.
The noble Lord, Lord Cockfield, told us—as he has told us on a number of previous occasions, if he will forgive me for saying so, and he may well retort that I, too, have said the same things on a number of previous occasions—that the trouble with incomes policies is that they come to an end, and that at the end there is a ghastly price to be paid for the period during which the incomes policies have been in operation. I would very much underline the point made by the noble Lord, Lord Kennet: that there are incomes policies and incomes policies. And the world is still young in attempting to find answers to the question of how to get an adequate incomes policy.
It was the party of the noble Lord, Lord Cockfield, which I think made the best attempt at establishing a workable and enduring incomes policy, but it was also the noble Lord's party which removed it, when it shut down the prices and incomes policy led by Mr. Aubrey Jones. I think that for a moment I am

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doing the Labour Party an injustice. Is it not right that the Labour Party in fact set up the incomes policy which was led by Mr. Aubrey Jones?—Mr. Aubrey Jones who, as your Lordships may recall, has now had the wisdom to join the Liberal Party.
But—and here I am speculating—if the institution set up by the Labour Party under Mr. Aubrey Jones had been allowed to continue by the predecessors of the noble Lord, Lord Cockfield, it is possible at least that by now it would have established a standing, a credibility and a respect that would have enabled it to make effective the kind of incomes policy that many of us for a long time have wanted. Surely the one way in which you cannot get incomes policies to work is by adopting a stop-go approach: when the going is tough you take off the policy, and then of course explosion follows. So we would say that you have to try again; and we are not committed, we are not wedded, to any one fixed pattern, as is implied in the words that my right honourable friend uses in describing the sort of approach to an incomes policy that he would adopt.
But what is the alternative to experimenting further with incomes policy? The noble Lord, Lord Cockfield, is telling us, I think, that leaving pay to the operation of market forces is the right way in which to determine how much should be paid. But as the noble Lord, Lord Balogh, said—and he is so transparently right in this regard—market forces simply do not operate in relation to pay. We have a monopoly of trade unions. There is no question of market forces really operating in relation to pay. In the bargaining the strong have the power; the strong get the pickings, and the weak go to the wall. That is not a true market. If we had a true market in labour, perhaps there would be something to be said for leaving that market to operate to determine the price of labour. But we are so transparently light years away from a free market in labour that it is nonsense to say you can leave it in that way.
Of course, at the present time we are seeing what looks like an effective operation of the labour market in reducing the settlements that we have seen in recent months. I agree that it is highly satisfactory that pay settlements are coming down to the extent that they are. But that is under the pressure of the most brutal facts which arc confronting people at company level. The shop stewards know full well what is the cash flow position and what the trading books look like, and when it comes to settlements at company level then for the time being they settle for the kind of limited success that we are getting.
But what happens in the upturn? I am an optimist in these matters, and I believe that recovery will come, though I also believe that we are set to do everything that we can to retard it as long as possible, so foolishly do we conduct our affairs. On the past record there is every reason to suppose that when recovery comes there will be the pressure of inflationary wage claims coming back at once, as soon as the going is good. The only two ways in which we can stop that are through the development of a flexible incomes policy on the one hand, and through the Liberal-type of participation of the labour force on the other. When the labour force see that their real prosperity turns on how successful the business is, and when we get away
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from the idea that the job is always to try to make the best killing that we can out of the employer as soon as profits start to be big, we may be able to have recovery without a return to wage inflation.
But just as we have never had a successful aftermath to an incomes policy, so we have never had in the country economic success which has not been accompanied by inflationary pay claims and inflationary pay settlements. It is up to the noble Lord, Lord Cockfield, who is so confident that one can leave pay to market forces, to tell us what is to happen to pay at the end of the recession, which he confidently expects, as I do. He has not answered that question.
In addition to the noble Lord's reaction to our approach to incomes policy, I would challenge him on one aspect of his attitude towards the PSBR. Government policy is—the noble Lord, Lord Cockfield, is an ardent supporter of Government policy; at least he is an ardent exponent of Government policy in this regard—that public expenditure must be kept down willy-nilly, regardless of the type of expenditure that we are talking about. My noble friends and I, and certainly my right honourable friend in another place, are entirely in support of cutting out wasteful consumption. We are not in the least in the business of believing that one can merely spend one's way out of the troubles with which one is confronted.
However, there is a world of difference between controlling Government expenditure on current consumption and controlling Government expenditure on investment—investment for the future. And it is not just the Liberal Party speaking in this way. I am sure that the noble Lord, Lord Cockfield, read the leading article in the Sunday Times last Sunday. The heading was:
" Wrong Mrs. Thatcher, wrong, wrong, wrong ";
and it might have been:
" Wrong, Lord Cockfield, wrong, wrong, wrong ".
The whole burden of the article was that the Government fail to make the distinction between investment expenditure and consumption expenditure. Not to invest now is to build up troubles of enormous dimensions for the future. We must invest in infrastructure, not in the loss-making industries. Here I point out to the Labour Party the complacent attitude of the noble Lord, Lord Glenamara—just as if Labour had contributed nothing to the present state of affairs, whereas it has been in Government again and again while the steady decline of British industry went on. What did the Labour Party do about the need to restructure industry?
However, my Lords, it is that restructuring which we need to do now, and into that restructuring we need to put resources, whatever it does to the PSBR. We need to put resources into the new industries, the high-technology industries, the industries which can meet and take the markets in the newly-developing countries —because there are markets there. If we do not do this, as the noble Lord, Lord Cockfield, knows, if we do not get really strongly into the high-technology markets, the Americans and the Japanese will be there and we shall not get those markets when times are better. Now is the time to gamble on that and to invest, even if it means some risk of inflation. That is where primarily we criticise the Government's attitude

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towards inflation, and that is the burden of the theme of my right honourable friend.
One further point alone, because time is getting on. The noble Lord, Lord Cockfield, said that he could not understand the relevance of proportional representation to our economic plight. Now I am going to be schoolmasterish. I am sorry that he cannot understand, and I shall do my best to explain it to him, for the relevance is crystal clear, my Lords. We are in a time (on this we are all agreed) of serious, threatening economic peril. I believe we shall pull out, but there is no certainty. We need to make drastic changes—and I know the noble Lord believes this, too—in our country and in our industry. When times are good, it does not matter if a Government have not got the support of the great mass of people in this country. Do not forget that every single Government since the war except the 1945 Government—and I shall be corrected if I am wrong on that—has been elected on a minority vote in the country; and the proportion of support by votes in the country for Governments has got lower and lower.
My Lords, that means that Governments are resting on a very narrow base of consent. When you have not got to make painful changes, that does not matter; when you have got to make painful changes, it is of the essence that you must have a broad basis of consent. The present system of election will not now give you that broad basis of consent. The noble Lord, Lord Boardman, is back with us. He wondered about the relevance of proportional representation, and he expressed his fears of coalitions. He thought that coalitions are undemocratic. The whole point about proportional representation in relation to economic recovery is that when you get an agreement between two parties to a plan of action then, because of that, you are getting the support of a very broad band of the country as a whole. That is the great strength of coalitions; and that, indeed, has been the great strength of the Socialist and Free Democratic Government in Germany, that they have been able to command a very broad basis of consent.
In a coalition, if either of the parties, democratically elected, feels that there is an element in the policies of the other which is totally unacceptable to their supporters, then those policies cannot be pursued; and I would maintain that that is far more democratic, because you hold up the highly controversial issues on which you cannot get agreement and you go ahead on the matters on which you have got agreement. Let me say that if we had had that kind of system in our country we should not, for example, have had the zigzag politics in the case of the steel industry, because we would not have got agreement between enough parties to have, first, nationalisation, then denationalisation, then nationalisation again and then whatever it is that is going on at the present time. So what coalitions can give you—and proportional representation, not inevitably but very probably, does lead to coalitions—is a broad basis of support, and in difficult and harsh times, and in times of painful change, there is no way that Governments can do what needs to be done unless they have a broad basis of support.
What is more, coalitions can give you continuity and stability. Ask any industrialist you know and he
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will tell you, "I would rather have a Government policy that I do not approve and know that it is going to be continued for 10 years than a policy that I approve more with the risk that it will be put into reverse in three years' time". This is so because the lead times in industry are not the lead times in politics, and industrialists need to make plans. They will adjust their plans to the policy, but they want to know that the investment that they have made is made in an environment which will be held stable, and not in conditions which will change.
That is the relevance of proportional representation and the possibilities of coalition to our economic circumstances. It has the relevance, also, that it gives support. It gives people the feeling that they can vote for what they really want instead of against what they do not want. Before I had the good fortune to come to your Lordships' House I fought seven elections, and I can tell your Lordships—because I did a great deal of the door-knocking stuff—that my noble friend was right when we said that five votes out of six (was it?) are against the party you do not like rather than for the party you do like. That is no way to get support. People are now longing to back a policy and to back a party which will give them what they really want. My Lords, we have untapped resources in the North Sea, but we have far more important untapped resources north, south, east and west in the country, among people who want to collaborate with a Government, on a broad front, which will give them a lead in the direction in which they truly want to go.
6.37 p.m.
Lord Cockfield: My Lords, if I might have the permission of your Lordships to speak for a second time, I shall endeavour to do so very briefly and, I hope, largely uncontroversially. May I start by saying that I particularly enjoyed the speech of the noble Lord, Lord Hankey, with most of which I agreed; the speech of the noble Lord, Lord Mackie of Benshie, with most of which I disagreed; and the speech of my noble friend Lord Boardman, who analysed the document produced by Mr. David Steel with great care and in great depth.
The subject-matter of this debate is really of much greater importance, perhaps, than appears on the surface. We have always said that there is no viable alternative to the Government's present policy. We have had an alternative presented to us in Mr. Steel's document, and that is why it was important to discuss it, which we have endeavoured to do in a responsible and, to some degree, a helpful fashion. We have drawn attention to the fact that a lot of the points it raises are common ground. Some of them are points with which we disagree very strongly; others are points which most people would accept but where the document takes us very little further forward.
The noble Baroness, Lady Seear, said that we were criticising a document which Mr. Steel did not set out to produce; that the document was directed to the man in the street. I do not know whether she has in mind that there is some difference in intelligence or capacity to understand between Members of your Lordships' House and the man in the street, but I would have thought that if a document was the kind of document

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which the man in the street would take seriously and study, and agree or disagree with, it was precisely the sort of document that the Members of your Lordships' House ought to examine and on which they ought to express their views. I would have thought that many of the comments made would indeed have been helpful to the noble Lord, Lord Banks, and his colleagues in enabling them to produce a better document next time. We in fact have no fears if they do so. As far as the policy is concerned, we will beat them every time on the merits, but we are only too willing to extend a helping hand to them.
May I take two specific points mentioned by the noble Baroness, Lady Seear. First, she said that it was the view, or appeared to be the view, of the present Government that public expenditure must be kept down regardless of the kind of expenditure; that is, whether it were income or capital. She went on to say that the Liberal Party believed in cutting out waste. So do we, and we have taken specific steps in this direction. I might mention, among other things, the studies carried out under the aegis of Sir Derek Rayner, which have been of great help. But then she went on to say that she did not believe in cutting capital expenditure. The simple, and perhaps unfortunate, fact of the matter is that all expenditure, whether capital or income, has to come out of the same pocket. If the aggregate of expenditure is more than the country can bear without creating excessive rates of interest, the level of that expenditure needs to be cut. Of course, we devote the utmost care to ensure that the cuts are made in the least damaging places. But it is quite impossible to reduce the planned level of Government expenditure—which was far too high—in a way which preserves all capital expenditure.
Another point needs to be borne in mind. This may be thought a technical point, but it is an important one. It is that capital expenditure very often generates a flow of income expenditure in the future. Before you embark upon capital expenditure you have to be satisfied that you can afford the subsequent revenue expenditure that that capital expenditure entails. We do our best to ensure a proper balance in the cuts we make in public expenditure. We do not start from any feeling that there is a soft option by way of cutting capital expenditure. This is not our approach at all.
The second point is that she spoke—and I hope that she will forgive my using such a phrase—with Old Testament fervour about proportional representation. I realise that this is a matter on which the Liberal Party hold very strong views. The matter was dealt with at some length by my noble friend Lord Boardman. I agree entirely with what he said. One of the major problems with which the noble Baroness did not deal is that the existence of proportional representation encourages the creation and proliferation of parties, so that you end up with a very large number of parties all representing a very small constituency in the country.
Baroness Seear: My Lords, the noble Lord himself must know that this depends upon the kind of proportional representation that you have and whether you put on a limit, as in West Germany.
Lord Cockfield: My Lords, I agree that the noble Baroness would doubtless seek to tailor the form of
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proportional representation in a way which ensured that the Liberal Party got representation and nobody else did.
Several noble Lords: Oh!
Lord Cockfield: Just a moment, my Lords. That is perfectly valid. Just as we stand in favour of the present system of first past the post, it is perfectly valid and honourable for the Liberal Party to stand for a form of proportional representation which will result in a very limited number of minor parties. I imagine that one of the limited number of parties that the noble Baroness would hope to see represented would be the Liberal Party. I cannot see anything objectionable in that. It leads to this kind of proliferation. It leads to political bargaining. I do not accept that the results of some of these coalitions that we see in countries where they have proportional representation are representative of the views of the people of those countries as a whole. The big danger is that you end up in a situation where, in fact, instead of having a clear-cut policy, you have fudging and compromise and a failure to tackle important issues that must be tackled—
Lord Mackie of Benshie: My Lords, is the noble Lord saying that the Conservative Party is wholly at one; that no fudging and compromising goes on in the production of the manifesto of the Conservative Party?
Lord Cockfield: My Lords, the noble Lord is now getting on to an entirely different point. The Conservative Party has always been very free in discussing its policy. It does not suffer, as do certain other parties, from a diktat over the conscience or the views of its members. It produces policies which have great appeal to the people of this country, as is evidenced by the number of elections that the Conservative Party has won and the number of elections that it will continue to win at least until the end of this century.
My Lords, I am sorry to have been diverted by the noble Lord in that way. Perhaps I might go on to pick up another point. It is that the noble Lord said that both Front Benches had missed the point of Mr. David Steel's declaration. Obviously, I cannot speak on behalf of the noble Lord, Lord Glenamara. If I did so, I have no doubt that the noble Lord, Lord Balogh, might find his sensitivities offended; so I shall speak solely on my own behalf. I did not miss the point of Mr. David Steel's declaration. In fact, I regarded it as a most important move because I believe that if in a few years hence we were to look back on the present period from an historical point of view we would see it (as was said by the noble Lords, Lord McNair, Lord Perry of Walton and Lord Kennet) as a period in which many of the old political groupings were breaking up.
Just as in the 18th century we had the War of the Spanish Succession and the War of the Austrian Succession, and the War of the Polish Succession, what we are now seeing is the "War of the Labour Party Succession". The Labour Party is breaking up and there is now a battle as to who is to take over the dominion which used to be occupied by the Labour

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Party. I do not in any way criticise Mr. Steel for coming in at this juncture and making his bid for part of the inheritance. But the one thing that I am absolutely clear about is this: the ground vacated by the Labour Party is not the middle ground at all. It is part of the ground of the Left and, in moving into that ground, the Liberal Party pose no threat to the Conservative Party. The Conservative Party occupies the very broad centre of politics in this country. We have policies which appeal to the great mass of the people. We have the only policies which will put the economy of this country back on to its feet, and we intend to pursue those policies to a successful conclusion.
6.48 p.m.
Lord Banks: My Lords, I do not think that the noble Lord, Lord Cockfield, succeeded in his aim to speak non-controversially. In his opening remarks he said that he hoped that the debate would enable us to produce a better document next time. Of course, it is always our aim to improve as we go on, but we have provided the noble Lord and the Government with the opportunity to produce a better policy now. The noble Lord dealt with public expenditure. I will not pursue that at this stage. But I think that it is one of the matters which was dealt with cogently in the Sunday Times leading article last week, to which my noble friend Lady Seear has referred. The noble Lord, Lord Cockfield, said that under proportional representation you have a multiplicity of parties. Well, that is not necessarily true at all. If you look at Ireland, which has one system of proportional representation, you will find that there is no multiplicity of parties. If you look at West Germany, which has another system of proportional representation, you will find no multiplicity of parties.
Great objection has been expressed in the last remarks, and earlier in the debate, about the fact that there is a certain amount of manoeuvring as a result of an election held under proportional representation and bargaining between the parties. My noble friend Lord Mackie of Benshie raised an important and relevant point when he said that this is not unknown within the boundaries of the existing parties. After all, one of the arguments made against having coalitions is that the existing parties arc supposed to be great coalitions. This is what we are told. We are coalitions; we are a very broad church. If the existing parties are coalitions, then there must be a good deal of manoeuvring and bargaining within them in order to arrive at their position; but they end up getting into power under our present voting system without a majority of votes in support of them. They are coalitions, no doubt, as they claim, but they are coalitions based on a minority of votes in the country. If we are to have coalitions at all, surely it would be better to have a coalition which was based on a majority of votes in the country.
I should like to thank all noble Lords who have taken part in this debate today. We have had a stimulating and interesting discussion. I am tempted to try to answer every point in detail, but that would be inappropriate at this stage and quite unnecessary since it has already been done so excellently by my noble friend Lady Seear. Much support has been
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expressed during the course of the debate for the 10-point programme put forward by my right honourable friend Mr. David Steel. I join with those who see it as a most important contribution to the new and encouraging developments which are now taking place in British politics. My Lords, I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Concorde: Operational Support
6.51 p.m.
Lord Glenarthur Lord Glenarthur rose to ask Her Majesty's Government whether they will give an assurance that they will support continued operation of Concorde aircraft.
The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. My reasons for asking for this assurance from the Government are threefold. First, Concorde has now been in commercial operation for just over five years and many commentators have thought it a suitable moment to review its preformance during that time. Secondly, there is considerable public interest in Concorde. There is a wealth of enthusiasm and support for it but, at the same time, there are those who argue for the cancellation of any Government involvement in financially unrewarding projects. Thirdly, in this country Concorde is operated by British Airways which overall is forecasting a large deficit in this financial year with a rather gloomy outlook on next year. Concorde does, I am afraid, represent at present a small part of that loss, although not every individual aspect of the Concorde operation is loss-making.
I am also aware that a Select Committee in another place is looking critically at the continued cost to the Government of Concorde. Evidence, both written and oral, has been or will be given to this committee by interested parties. I hope that when the Government come to consider the report which will no doubt follow they will also take into account views that I expect will be expressed in your Lordships' House this evening. May I also say that I am delighted that so many noble Lords have indicated their intention to speak on the subject this evening. I find this most encouraging and I am very grateful to them.
Before going any further, I must declare an interest. I am employed by British Airways Helicopters, which is a wholly owned subsidiary of British Airways. Other than being one who subsidises British Airways in the same way that any taxpayer does, the financial results of the Concorde operation do not affect me in any particularly special way other than being aggregated with all the other parts of the concern to produce an overall financial result.
I do not propose to dwell on the development history of the Concorde project. Development and production costs together, less manufacturers' receipts from aircraft sales and sales of associated spares, amount, as far as I can tell, to something like £800 million in this country; and my view is that the taxpayer is entitled to have something really worthwhile to show for his investment at the end of the day. I believe, contrary to the views expressed by the pedlars of unrelieved economic gloom, that the taxpayer has got in Concorde something worth while and which he can

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be justifiably proud of: an aircraft which no other country—other than France—has; one which is between 10 and 15 years ahead of its time; the envy of many nations, I have no doubt; and one of a type which we must develop for the future.
I hope that when he comes to reply my noble friend the Minister will be able to give a detailed up-to-date breakdown of exactly what the costs of development and production and of receipts from sales is. May I also say how grateful I am that the noble Lord, Lord Trefgarne, is here to reply tonight. I know he was to be abroad and I am sure that we are all very grateful that he is able to answer the Question.
I believe that the decision taken in 1978 effectively to give Concorde to British Airways was entirely right. The whole concept is so special and different that it justifies an unusual financial approach by the Government in order to make its operation financially feasible. When it comes to profit, however, the British Government take 80 per cent. of any operating surplus, leaving 20 per cent. to British Airways, no doubt as a stimulus to do their best. In France, however, as I understand it, the Government underwrite 90 per cent. of any loss which the airline makes in its Concorde operation. I assume that there are inter-governmental contacts over the operation of the aircraft because of the technical support required of British Aerospace and Rolls-Royce. I doubt whether the Minister will be able to go into any detail about the French Government's views on the operation of Concorde, but I hope that he will be able to reassure the House that there are indeed close contacts and a cross-fertilisation of ideas between the two Governments and their two national airlines, mutually pooling ideas on how best to continue to finance the operation and to increase utilisation and revenue.
The operation of Concorde as a sound financial venture was made difficult by three factors: the increase in the price of fuel; limited range and consequent limitations on routes; the latter compounded by the third problem: sonic boom. The aircraft cannot be flown at supersonic speeds over anywhere but the least densely populated parts of the world—over the sea and over the desert—and is inefficient when it is flying subsonically. It does not have the range to overcome these problems by extended routing.
Methods must he found of mitigating the effects of these factors. Fuel consumption has been cut by the most assiduous and careful planning by the operators and by the designers. No opportunity is missed to minimise consumption. I saw clear evidence of this when I flew in the aircraft the other day. It was one of the prime concerns of the crew operating it. Additionally, I understand that development of a new combustion chamber in the engines will improve fuel efficiency further as well as enhancing the integrity of that part of the engine which has been giving some trouble.
Looking at the existing route structure of Concorde, as operated by British Airways, I believe that there is much to be done to improve it. British Airways have seven aircraft but at present operate only two routes. This is done using three aircraft, with one on standby, one on maintenance and one undergoing modification. So there is one spare. Once the modification programme is complete, under this existing structure route
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there will be two spare aircraft at least. This is not a healthy situation. It represents gross under-utilisation, removes the opportunity for much needed revenue, and in no way would be acceptable in conventional subsonic aircraft.
I know that British Airways are looking at other routes: Miami through Washington, Lagos and Toronto have all been and are being examined. But it is my belief that, notwithstanding their desire not to interfere, the Government must get together with British Airways over this problem. A far more positive and aggressive attempt must be made, coupled with a much more flexible and speedy response to changing markets and changes in complementary routes, to work out ways of improving the route structure and building upon the sound core provided by the North Atlantic routes, which carried nearly 100,000 people last year and, in the case of New York alone, should produce a profit of over £4 million, although the entire operation looks as though it will go down by about £6 million. I should like to know from the Minister whether the Government will consider this approach so that they and the airline can use all their powers of imagination and diplomacy to develop a worthwhile route structure and a timetable to meet demand.
I should be the first to agree that making technical stops for fuel in an aircraft such as Concorde makes it less efficient. But with 70 per cent. of the earth's surface being covered by water, there are I believe opportunities to stretch the range of the aircraft in this way, and it could open up routes to Japan, Australia and even South Africa. I see no reason why there should not be a market for Concorde to each of these. I should also like to ask the Minister about other opportunities for increasing revenue through charters and leasing. I hope that any opportunities in these respects will be given every assistance by the Government.
Turning to the question of continuing Government costs in supporting the operation, I hope that my noble friend will be able to give your Lordships' House a good idea of what the costs are going to be over the next few years. I have a fairly sound idea myself of what they are going to be, but, although I fully support all the Government's attempts to bring down public spending, I think they must be very careful in their judgments on advanced technology in this respect. One simply cannot measure the success or failure of every enterprise in this area just by looking at a balance-sheet or a profit and loss account. There are much wider implications involved, and nowhere is this more true than over Concorde, which has captured the imagination of thousands, if not millions, of people in this country and abroad.
I would go so far as to say that, despite any economic misgivings they might have, there is a certain amount of jealousy on the part of the United States and the Soviet Union—both technical innovators on a grand scale—that Europe has pulled off a technical achievement in passenger transport which they have not. It is one which really works and which is in service, and whose realiability and punctuality is outstandingly good. Let no one under-estimate that.
The achievement in engineering and operation is huge. Added to that there is a considerable "rub-off"

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or what British Airways call a "halo effect on the rest of their operations. The fact that they are seen to operate Concorde brings them additional customers for their subsonic routes, amounting in their view to something between 10 and 15 per cent. In arguing the merits of Concorde, this may not be a theme which British Airways are keen to overplay. Using Concorde as a loss leader, so to speak, is unsufficient reason by itself for continuing to operate it. However, it is a considerable bonus in its favour.
Much more important, to my mind, is the huge prestige value which the country gets from Concorde. It turns heads wherever it goes and attracts thousands to air shows, which are the shop windows of aviation. Everyone stops to watch it; even our traffic controllers stop to watch it. It is an achievement in aviation which is available to the public and which matches that of space flight. I believe it is highly desirable, at a time of economic upheaval, that Britain is able to bask in a certain amount of pride at something so highly prized as Concorde.
Looking to the future, it seems to me there are bound to be financial penalties which would be invoked if Concorde operations were stopped, either unilaterally or bilaterally. Perhaps the Minister will be able to confirm that this is the case and say how these figures compare with the cost of continuing the operation. However, I doubt very much whether he or anybody else can measure the damage that would be done to the national spirit and prestige, as seen both here and abroad, by cancellation. That is a much harder problem to work out. It cannot be quantified; one can only take an educated guess at it. My guess is that it would be positively damaging to this country's image, nationally and internationally, at a time when I believe there is international acceptance that our affairs are taking a turn for the better and that we are once again on the right course. I believe it would demonstrate that we do not have the courage of our convictions in the highly technological age in which we live. Advanced technology of all sorts is one part of our industrial life which we must build on and in which we must maintain pre-eminence.
Man is innovative; he will always strive to improve on what exists and to do what has not been done before, to go faster. In supersonic passenger transport aircraft, we and the French have achieved a world lead second to none. We must develop the theme and I hope that the Minister will be able to assure the House that research is being carried on, perhaps with partners overseas in addition to the French, to enable us to develop it.
In summary, I hope that the Government will recognise the need for a far more positive approach to the problem of improving Concorde's revenue and although I understand the difficulties of asking them to commit themselves to years ahead, I hope that in conjunction with the operators and manufacturers they will be forceful in seeking improvements in operating techniques, route structure and technological innovation, and that they will not allow the enterprise to drift, as I detect it is beginning to do at present. Concorde is a technological marvel. Its development has done much to enhance the reputation of British engineering in aerospace, and although it may not be a great
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financial success it is by no means a huge financial disaster. It is a mighty good first effort. It has done, and is doing, untold good to this country and to abandon it now would do considerable harm. That is why I ask the Minister for this assurance tonight.
7.5 p.m.
Lord Beswick: My Lords, I am sure we are very grateful to the noble Lord, Lord Glenarthur, for raising this matter and for the informative and balanced way in which he made his speech. I was particularly glad to follow him when he reminded us again that he was a pilot in the service of British Airways. I am bound to say I wondered whether he was a member of the pilots' association of which I still have the privilege of being president. I will not go over the ground covered by the noble Lord, but as far as the very practical questions which he posed are concerned, I look forward to the answers which he will in due course get; and I hope that they are satisfactory.
If any message is to go out from here, I hope it will be quite clear that in our view the Concorde operation should continue, that a degree of development of supersonic transport should be funded and that the necessary project support will be maintained. To throw away the knowledge we have now assembled both in the manufacture and operation of supersonic transport—and assembled at such enormous cost in terms of money, man-hours and skills—to throw that away now would be nothing short of criminal. It has become almost trite and boring to say that Britain is good at invention and innovation but bad at exploitation. Surely we have now learned something of the lesson and I hope that in this particular case, at any rate, we are not going to commit the sort of mistake we have made in times past.
The noble Lord himself said a good deal about the "halo effect" to British Airways of the Concorde operation. I hope that will not be written off as some sort of romantic aviation enthusiasm. It seems to me that British Airways are now exercising sound commercial judgment when they declare their wish to continue and indeed to expand their current operations. I am not sure why the noble Lord said the operation was likely to bring a net loss under next year's operations. My understanding is that with the £4 million profit on the New York route, even with the £2 million loss on the Washington route, there is a net gain.
I find this wish of British Airways to continue the operation all the more impressive because I have reason to remember very clearly that at any rate some people in British Airways were once very much against the Concorde project. Looking back and assessing some of the cost factors, it is fair to say that their arguments at that time—I am thinking of six or more years ago—were probably deserving of more respect than I was inclined to give them in the discussions we then had. However, the capital costs have now been incurred and as far as British Airways is concerned they have been written off. Given those facts, it seems to me inconceivable that present operational plans and programmes should be cut out and that Britain should quit the one technical and industrial field in which, with their French partners, they are now supreme.
I should like to consider for a moment the question

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of the future and the possibility of keeping Britain in the SST business. Without any doubt at all, supersonic transport over certain routes will be commonplace in the future. The question is whether they will be operated with aircraft which we have had a share in making.
I gather that there were recently some rather silly remarks about the snob appeal of the Concorde. If it is snobbish to travel quickly and comfortably from A to B, then I confess to being snobbish. But few who have actually travelled from Europe to the United States by Concorde, or, for that matter, from London to Bahrain, will deny that it is a superior form of travel. It is not only quicker; it is less tiring in kind as well as in time. If I am told that it is a form of transport that is reserved for the few, then I can only say that when I first crossed the Atlantic in a converted Liberator that was considered a little eccentric, and other people were said to be practical if they took four or five days on the sea trip. But times have changed and they will go on changing, and I hope that the Minister will be able to give us some assurances that Britain will be kept abreast of those changes.
Some little time ago, I had discussions with Mr Sandy McDonnell of McDonnell Douglas, about collaboration with them on the SST. I believe that a certain amount of work has been done together on noise reduction, and I should be glad if the Minister could tell us whether this working together will be encouraged. At some point, there will need to be decisions about a larger SST, with longer range and a quieter power plant. It has always seemed to me that this will best be done on a tripartite basis—the United Kingdom, France and the United States of America. Again, it will be good to hear from the Minister who is to reply that there will be active encouragement from the present Government of any practical moves in that direction.
I make one further point. The so-called halo effect has been mentioned by the noble Lord and by myself. I agree with him that it is not easy, or indeed possible, to quantify the additional commercial value to British Airways; that is to say, the additional revenue earned by the airline which has an enhanced reputation springing from its supersonic experience. But there is also an additional spin-off for the manufacturers—for the component manufacturer as well as for the airframe and aero-engine manufacturer. I can think of more than one example of skills learned on the Concorde being applied to other projects, and at least one other major maintenance contract was on the back of the Concorde experience.
But in addition to the value to the operator and to the manufacturer, we should not, as the noble Lord, Lord Glenarthur, said, underrate its value to Britain itself and our reputation in the world. As the noble Lord said, it has captured the imagination of people throughout the world. I recall landing at Mexico City in the Concorde. It was estimated that there were 500,000 people at the airport—a most remarkable reception.
The noble Lord said that it turns the head of everyone who hears it passing by. I can remember one seasoned old reporter at the Washington Inaugural, telling me how it was not simply a matter of heads turning, but of some ladies bursting into tears when they first saw this aircraft coming out of the sky and landing at Washington
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It was not just that it is a beautiful aircraft—and it is a supremely beautiful aircraft—coming in to land. It was the feeling that the New World and the Old World were being brought closer together.
We heard earlier today of one more industrial failure in this country and the general economic outlook is bleak, almost without relief. But many in the world see this great Anglo-French technical achievement of Concorde as something which is immensely to our credit, and I hope that we can keep the picture that has been created of Britain and France, by the technical achievement there, as bright as is possible. I hope that the answer we shall get later will be an encouraging one.
7.15 p.m.
Earl Amherst: My Lords, I, too, should like to thank the noble Lord, Lord Glenarthur, for giving us the opportunity to discuss this matter, and I strongly support him in his request to the Government for an assurance that they will continue their support of the Concorde services, for the following reasons, which I should like to give quite briefly.
Although the New York service had a very rough start, which was in no way the fault of British Airways, in the present financial year, 1980–81—and British Airways' financial year goes from April to March—the New York service has shown a cash surplus of some £4 million. Over the same period, the Washington service showed a cash loss of £2 million. As your Lordships know, the service to Singapore ran into a great many difficulties and made great losses, so it was withdrawn. For the 1981–82 period, it is anticipated that the New York service will again make a cash surplus of some £4 million, but again, too, the Washington service is likely to show a cash loss of £2 million, leaving a surplus of about £2 million.
In the period 1982–83, an overall cash surplus of about £5 million is anticipated, but this relies to a certain extent on British Airways being able to extend its Washington service through to Miami. I understand that there are also plans for new services to Japan, South Africa and Canada, as the noble Lord has already mentioned. But a lot must depend on there being no serious increases in fuel costs and airport charges, and a cessation of our industrial difficulties and disputes, any one of which can play havoc with the present services and plans. It should be noted that if the existing services are to be cancelled or withdrawn, there will probably be a loss of about 600 jobs, which I should have thought was a totally unacceptable prospect at any time, especially at the present moment.
An analysis of the track record of the Concorde service to the States shows that business travel accounts for something like 86 per cent. The reason for this is that time is now of the essence in so many contracts, agreements and regulations and that, and the saving of other travel costs, such as hotels, more than compensates for the extra cost of the flight. With time being very much of the essence, it is also important to note that very expensive airmail services, with their heavy delays of delivery on both sides of the Atlantic, no longer meet the needs of the average business man.

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Apparently, this business traffic goes from all over the United States to New York in order to catch the Concorde service, and, indeed it comes from a great many points in Europe to London for the same reason. I think I am right in saying that we know the French Government support their Concorde service mainly in the interests of national prestige, but British Airways operate mainly on a commercial basis. There can be no doubt that the Concorde is a unique technological achievement and a forceful commercial power. So I hope we shall hear from the noble Lord, Lord Trefgarne, that the Government will give the assurance for which the noble Lord, Lord Glenarthur, has asked.
7.20 p.m.
The Earl of Bessborough: My Lords, like other noble Lords, I am most grateful to my noble friend Lord Glenarthur for raising this Question this evening and I am happy to support him in his general argument, as well as the remarks of the noble Lord, Lord Beswick, and the noble Earl, Lord Amherst. Having visited oil rigs in the North Sea by helicopter, I know some of the problems with which my noble friend has been faced. I once got lost in the fog there. It reminded me of the times, before the war, when I used to fly to the Arctic.
Being half French, I have been interested in the development of Concorde ever since its conception. During five and a half years at our Embassy in Paris immediately after the war, I was concerned to encourage joint Anglo-French projects in advanced technology—civil nuclear power, electronics and aerospace. For many reasons, not all potential co-operative projects were successfully achieved. We both went our own way on television standards and we never co-operated as fully as I think we should have done in atomic energy for electricity generation. Nor, indeed, in aviation, over the Viscount, the Comet, the VC10 or the Caravelle did we effectively co-operate.
However, despite all the differences arising out of working in two languages, on different standards and from two bases, Bristol and Toulouse, Concorde became and still is the tremendously impressive joint technological achievement which other noble Lords have already mentioned. I am glad that more general European technological co-operation in aerospace has also been successful in so far as the European airbus is concerned, the multi-range combat aircraft, the Tornado, and more than one Anglo-French helicopter. As my noble friend knows full well, they have been successes; so it can be done.
In 1962–63 I was involved as a Minister for Science with my noble and learned friend, now the Lord Chancellor, and with my right honourable friend Mr. Julian Amery, then Minister for Aviation, in the decision finally to go ahead with Concorde. Later, as an Opposition spokesman on these questions from 1964 to 1970, I continued to take a close interest in the SST project, and even attended technical working parties in Toulouse which were conducted in the two languages. As the noble Lord, Lord Beswick, knows, it was slow work. None the less, it produced what is technically this quite remarkable aircraft.
During the later 'sixties, I also visited the American aircraft industry on the West Coast. As a result—I
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want to admit this to your Lordships, perhaps for the first time—and partly because of the then already escalating costs, I became in favour of France and Britain bringing in an American partner. At that time when the United States Government had given their SST contract to Boeing, I thought that Lockheed, who had designed a somewhat similar supersonic transport to Concorde, would be our best partners. I still believe that I was right and that the aircraft would have been more successful, especially in the United States and indeed in other parts of the world, if the project had then been tripartite. But in those days my friends in both the British Aircraft Corporation and Sud-Aviation, the predecessor of Aerospatiale, feared that if the Americans were brought in they would dominate the whole project. However, I still regret that this never happened. As we know, the Boeing design never got off the ground and was cancelled by the United States Government.
Then in 1970, as Minister of State (Aviation) at the Ministry of Technology, I was concerned with supersonic operational problems and the cost-effectiveness of the aircraft at that time. That was before the energy crisis hit us and the cost of aviation fuel exploded, if I may put it like that. Then again, in the mid- 1970s, as a spokesman on advanced technology in the European Parliament, I continued to support the project and flew on a proving flight to Newfoundland, leaving at nine o'clock in the morning, attending a three-hour meeting in Gander and getting back to London very early in the afternoon of the same day—I may say as fresh as a daisy—to find, if this is not irrelevant, that my daughter had produced a grandson just at the moment when I was going through the sound barrier. I need hardly say that the grandson's middle name is now, unofficially, "Concorde". I hope noble Lords will forgive me for this irrelevant interpolation, but that was a remarkable experience. Having gone through the sound barrier of all these development phases and had the good fortune to travel on recent scheduled Concorde services, I would regret it if commercial supersonic flying was stopped from this country, especially if the French continued to fly.
However, I feel now, even more strongly than in the 'sixties, that the next generation of supersonic aircraft must be developed in conjunction with the United States and, maybe, even other countries. I think now that McDonnell Douglas—I saw their representative this afternoon and he authorised me to say this—would be the most appropriate partner with whom we should now co-operate, although perhaps it might be a wider United States consortium. In these circumstances I am certain, from what I have heard from my American friends, that British Aerospace and Aerospatiale would be assured of full participation in such a tripartite project.
I am also interested in the possibility—I do not know whether my noble friend Lord Trefgarne could say anything on this; I am sorry that I have not warned him—that we might offer to the National Aeronautics and Space Administration in the United States a Concorde as a gift or on hire, on condition that Britain and France have a full share in any commercial SST developed in the United States. I hope that the new Republican Administration under President Reagan may be well disposed to Britain and

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France participating in the development and returns in respect of such an aircraft. Having pioneered in commercial supersonic transport, Europe must in my view retain its foothold in a project which in some respects is, I think, more practically significant and important to mankind than landing on the moon. That was a message which my noble friend implied in his remarks introducing this Question.
Technically, Concorde has demonstrated that supersonic transport is feasible and can operate safely and consistently within the present framework of airways and airports. The two airlines, British Airways and Air France, have had no significant problems in absorbing Concorde into their operating and maintenance procedures, as I am sure the noble Lord, Lord Beswick, knows. Exceptional levels of product support have not been required.
I should like to add that British Aerospace and Rolls-Royce have also derived, as has already been mentioned, "spin-off" benefits from the project. I am glad to learn that continuing technical advantages are seen from future in-service experience. Moreover, cancellation of Concorde services would enable competitors to claim that Concorde was technically not supportable. Commercially, the prime route is of course the North Atlantic where a small but steady increase in passengers is evident. I might add—I am not certain whether another noble Lord has already mentioned this—that Concorde is the only daylight service from Kennedy to Heathrow; that is to say, eastbound. Despite the dramatic increase in fuel costs and predicted future increases, British Airways, I gather, forecast a £2 million surplus on existing routes in 1981, rising to £5 million by 1985.
I feel that I ought also to emphasise here that contractually unilateral cancellation has not been catered for in the constructors' inter-company agreements. British Aerospace and Rolls-Royce have technical airworthiness and product support responsibilities for 50 per cent. of the aircraft's elements. Withdrawal of their support, as I think my noble friends would agree, would make it impossible for either airline or the French manufacturers to continue to operate. Claims for breach of contract could be made against British Aerospace and Rolls-Royce, who would seek to recover any damages from Her Majesty's Government under an indemnity clause in their contracts with the Government. Such an event would certainly affect our status as collaborators with our European partners at a time when I believe European technological co-operation should be intensified.
As I understand it, the social consequences of cancellation would involve an estimated 2,145 redundancies at British Aerospace and Rolls-Royce and their sub-contractors; some redundancies, as noble Lords know, at the Royal Aircraft Establishment and sub-contractors and suppliers. Some 564 redundancies is the figure that I have been given for British Airways. Therefore, let us hope and pray that Her Majesty's Government will, in their wisdom, give some kind of assurance. I am not asking them, any more than the noble Lord, Lord Glenarthur, for an unqualified assurance, but for some optimistic noises that support of the present Concordes will be continued, even if perhaps no more are built, and also that some consideration will be given to possible military uses
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of the aircraft. I will not go into details of that this evening, although 1 imagine it would be useful for the Chief of the Defence Staff and his staff, if they felt it necessary, to get from here to Washington or Ottawa, or let us say Singapore or Canberra in an emergency.
I hope, too, that Her Majesty's Government will also support Anglo-French collaboration with a United States consortium when the time is ripe and appropriate negotiations have been concluded. I know that we must control Government expenditure, but in this field we and France are ahead of the whole of the rest of the world and I think we should invest in it. The prestige element has been mentioned by all noble Lords. It is not insignificant. I think we should continue to invest in this great supersonic aircraft.
I am grateful to the noble Lord, Lord Glenarthur, for having raised this matter, which in my view is of very great importance to the Western World. We have to wait and hear what my noble friend says, and perhaps this plea may not necessarily be very well received by Her Majesty's Government; but I do think that my noble friend was right to make it.
7.35 p.m.
Lord Gore-Booth: My Lords, as I have very little technical knowledge of this great enterprise which we are in a sense developing from debating into celebrating —and quite rightly—I will be very short indeed. But I should like it to be felt that there is some particular exhilaration in being here at this time as a retired member of the Diplomatic Service. All the people engaged in this tremendous profession perhaps owe quite a lot to our service for the collection of fares, even if they are payments from one Government to another !
As autobiography is apparently just allowable on this occasion, perhaps I may join other noble Lords in a slight personal reminiscence. In my official duties, I have had the privilege of being present at the first landing ever of the Concorde in Kenya, arranged for me by my late friend Malcolm MacDonald, who was a great supporter of all your acts and inventions. Also, I saw the first descent of this aircraft in India, at a horrible time in the middle of a cold night; but there it was. There was one of the earlier "births", if we can fairly say that, of the extension of the Concorde services, and its appreciation elsewhere. One waits hopefully, particularly in view of the tone of so many of these speeches, for a rapid expansion of, particularly, the earning power of this wonderful aircraft. But I must express my satisfaction at being here at this time.
Obviously, I am not going to try to make suggestions to this extremely distinguished and technically learned company; I am going to make only one suggestion, and that is about something which did not start too well but about which I think those handling the flights have now learned a great deal. On those occasions which I mentioned, which should have been very splendid occasions, we were still in an era of being rather shy about public relations, and I should like to congratulate all those who have been engaged in the work on this side; to express congratulations on the improvement of that arm, which quite frankly at the early stage was almost amateur in what it did not do. I am sure that lesson has now been learned, but I

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have no shame in mentioning it, so that it shall be understood that this will remain, for a country which is still apt to be a bit diffident about itself, not of the standard which a great enterprise like this needs and deserves.
I should like very much to express, again in my former capacity, the greatest pleasure which it gives all people in my kind of occupation to know that this has all been accomplished in partnership with our great French allies. People in my profession certainly know that sometimes we and our French friends get a bit across each other, although not for long, and it is wonderful to have an unparalleled form of partnership which we have developed as a result of this great aircraft. It is wonderful to know and it has enriched the performance and the character of this great enterprise that it has been performed as an international partnership.
I would just express a hope en passant that our political relations in general with our French friends should be inspired by the spirit which animated those brilliant engineers and others who brought the Concorde aircraft into existence. It has been an immense accomplishment which will never be forgotten, an accomplishment which will live in the lives and thoughts of all of us here, and will, as I say, continue to animate the memories of those of us who have in our time, or are even now like Lord Trefgarne, dealing with each other as individuals, as members of organisations, knowing that we have as a pair of nations something unique to live up to. In other walks of life we should always have in mind what we could do together; we have done many other great things together before, but this is something so conspicuous.
I think from the way noble Lords have spoken this evening it will remain not only part of the common accomplishment which will exist in the lives of our two peoples. To others who have helped and worked with us, who go on increasing, that will be part of what one might call la vie Anglo-Francais. That is really what one has to say. But, once again, I would simply like to emphasise the privilege which it is to be here on this occasion and to wish—even if this has become a different kind of speech—all those with whom I have worked, and my successors in the business of diplomacy, a happy co-existence of an active and useful kind to all the rest of the world.
7.42 p.m.
The Earl of Kinnoull: My Lords, I should like to echo the praise of other noble Lords to my noble friend for introducing this debate tonight, and indeed for attracting and maintaining here the presence of such heavyweight pilots as the President of the British Airline Pilots Association, sitting, I am delighted to see, in his increasingly rightful position on the Front Bench of the Opposition, and long may it last on the Front Bench of the Opposition. It is a pleasure to hear my noble friend combining his professional knowledge as a pilot with now the persuasive tongue of a practising advocate, very much in the mould and style of my noble friend who will reply.
My Lords, the timing of my noble friend's Question is extremely opportune because even the most loyal supporters of Concorde, and there are many here tonight, must feel a certain apprehension, in the economic
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climate in which we move, for its future; the fear that some hard-nosed, narrow, blinkered accountant will try to persuade either British Airways or Her Majesty's Government to pull the plug and so end an era of Concorde and of supersonic commercial flight, and indeed, as other speakers have said, leave Air France to operate alone. The economic conditions, with the cost of fuel and the apparently increasingly high cost of engine maintenance of the aircraft, together with the recession in air travel, are fairly daunting conditions. But even more so, of course, are the daunting problems of British Airways with their cutbacks in staff and in aircraft and in services.
It is therefore immensely encouraging to hear from British Airways that this small operation, part of their very large international service and network, does have, in their unemotional and clinical view, a commercial and prestigious value which they have no wish to lose. Perhaps my noble friend may feel that the most important contribution of this debate tonight is that it has emphasised in one way or another the points that should be hammered home, the inestimable value of Concorde, not only its prestigious commercial value but also its value to British industry, as the noble Lord, Lord Beswick, mentioned. The value to our aerospace industry of the experience drawn from five years' service of Concorde, a reason to keep a test bed operation, a reason to keep a team together at British Aerospace, and to keep the hope alive of a future supersonic development programme.
These are the sort of arguments that no doubt do not persuade hard-nosed accountants, or those who throw jibes at Concorde, that it is only fit to fly pop stars. But my noble friend Lord Trefgarne, is I am sure, inside —and we shall see whether his brief allows him to be—a supporter of Concorde. I hope he will be positive tonight on the value of continuing the Concorde service, positive on the examination of other routes for Concorde, to Singapore and Australia as one and New York and Miami as another. It does require Government support to assist the operators to achieve these routes. I hope he will be positive on future collaboration on the next Concorde, as Lord Bessborough said.
My noble friend Lord Glenarthur reiterated the British Airways' view: their confidence in moving from operating losses to operating profits on the North Atlantic routes; their determination to find an increased market with the decision on the standby services they are planning to introduce; the possibility of their freight service, and the value they see in retaining Condorde as a supreme service. Those who have witnessed the pride which those who operate Concorde show to the passengers, or who see this great big beautiful bird take off from Heathrow and disappear into the sky—even they forgive the noise. They see indeed that here is the British crown jewel of achievement, of pride, and yet of great commercial value. I hope my noble friend will say from his brief that Her Majesty's Government should not abandon this, but will endorse my noble friend's plea tonight.
7.48 p.m.
The Parliamentary Under-Secretary of State, Department of Trade (Lord Trefgarne): My Lords, the agreement between the British and French Governments for

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the development and production of the Concorde supersonic transport aircraft was signed on 29th November 1962. Indeed, as one noble Lord reminded me, I think it was my right honourable friend Mr. Julian Amery who affixed his signature for the British Government. Some 13 years later, on 21st January 1976, the aircraft entered commercial airline service with British Airways and Air France on inaugural flights to Bahrain and Rio de Janeiro. During 1979 the last Concorde was completed, ending a production run of only 16 aircraft. Of these 16, two were retained by the manufacturers for development testing and seven each have been placed with British Airways and Air France. My noble friend's Question therefore comes at a time when development and production of the aircraft have been completed, and when the two airlines have just passed the fifth anniversary of Concorde's introduction into service.
It may, therefore, come as somewhat of a surprise to some of your Lordships that there is still a substantial programme of Government support for Concorde. I shall, therefore, if I may, take a little time to describe the nature of this support and the policy that has underlain it. As your Lordships will know, an aircraft manufacturer's responsibilities do not end when his product has been delivered to the customer. Indeed, as my honourable friend the then Minister of State for Industry, Mr. Adam Butler, and the French Minister for Transport noted when they met to consider these matters in September 1979, continuing technical support for the aircraft and engines by the manufacturers will be necessary so long as Concorde remains in service with either airline.
The manufacturer is obliged by the contract of sale to provide a continuing supply of spares, to replace under warranty parts which fail during the period specified, to undertake continuing development work required for airworthiness and operating reliability, to provide a technical back-up to the aircraft and analyse incidents which occur, to provide updated technical literature, and a number of other matters. In addition to these manufacturers' tasks, the British Government are responsible for the cost of continuing work on the major fatigue test specimen at the Royal Aircraft Establishment at Farnborough.
These commitments to support Concorde are therefore very broad ranging; and the cost has been considerable. In the five years 1976 to 1980, the British Government, whether directly or through the manufacturers, have spent about £250 million at historic prices on the support of Concorde, which includes post certificate of airworthiness development of the aircraft and engine. This is additional to amounts spent on production during the same period. Expenditures in France have been the equivalent of somewhat in excess of £200 million. Offsetting this the British manufacturers have sold to British Airways and Air France some £75 million of spare parts and other support services, and the French manufacturers about £50 million worth.
To cover the substantial differences between expenditures and receipts—some £175 million in Britain and about £150 million in France—the manufacturers have understandably had to look to their respective Governments. It was indeed inherent in the decision taken by the two heads of Government in July 1974
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to continue only the 16 aircraft programme already authorised, that such Government financial support would be provided. In Britain the arrangement is that the Government, under contracts with the manufacturers, meet all agreed and verified expenditures (including an amount for a non-risk rate of profit) and take all receipts. Though no time limit has been set for these arrangements—which incidentally remain unaffected by the impending infusion of private capital into British Aerospace the Government have the right, as with all Government contracts, to give three months' notice of termination. Additionally the Government finance directly work undertaken in Government research and development establishments, notably, as I have already mentioned, for the major fatigue test specimen at Farnborough. It is essentially a continuation of these financial commitments that my noble friend seeks in the Question that he has asked this evening.
If allowance is made for price changes and account taken of rising receipts, the net cost to the two Governments of Concorde support has fallen sharply over the past five years, and it is still falling. However, even now not inconsiderable sums are involved. Financial Estimates that will shortly be laid before Parliament envisage gross expenditures in 1981–82 at forecast outturn prices of some £65 million, covered as to £33 million by expected receipts, leaving a balance of net expenditures of some £32 million.
It is consequently perhaps not surprising that the House of Commons Select Committee on Industry and Trade should have decided last July to call for evidence on the operating and associated costs of Concorde, and subsequently to have decided to inquire into these matters with a view to reporting to Parliament. This is the first substantive inquiry by a parliamentary body into the in-service support phase of Concorde, just as the debate we are having tonight is the first occasion on which either House of Parliament has discussed Concorde support, as distinct of course from the development and production of the aircraft.
The Departments of Industry and Trade have been co-operating fully with the committee in their inquiry, as have British Airways, British Aerospace and Rolls-Royce. Three departmental memoranda have been submitted; and on 4th February my honourable friend the Minister of State for Industry Mr. Tebbit appeared before the committee in public session. The matters into which the committee are inquiring are of some complexity, and none more so than the question of the relative costs of continuing Her Majesty's Government's contracts with the manufacturers for Concorde support—as my noble friend advocates—or of cancelling them. The Department of Industry has submitted both written and oral evidence on this topic, so closely linked to tonight's debate. As my honourable friend indicated in his oral evidence, it is now beginning to look as if cancellation, even if agreed by all the parties after consultations with them, would result in there being no significant net savings to public funds over the next few years.
This assessment was based on estimated costs of cancellation in the 15-month period beginning 1st October 1981 of some £36 million, as compared with net costs to public funds of continued support of somewhat under £2 million a month. The estimated

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costs of cancellation assume cancellation on an agreed basis and after consultation with interested parties. The costs of unilateral withdrawal could well be higher. However, a definitive picture has yet to emerge; and this will remain the case until the department can re-work the estimates on the one hand to take account of the on-going social costs of cancellation beyond the 15-month period, and on the other hand to update the costs of continued support using the 1981 Public Expenditure Survey forecasts as a basis.
Meanwhile, I think that it is generally accepted that any assessments as to whether it would be cheaper to cancel Government support for Concorde than to continue it are necessarily tentative, not to say hazardous. Indeed, it is just because the position is so uncertain that the committee has asked for further calculations to be submitted. These are in hand. Your Lordships will therefore understand if, on behalf of the Government, I am unable to give tonight the clear-cut and unqualified assurance which my noble friend seeks in his Question.
Lord Beswick: My Lords, I hope that the noble Lord will allow me to intervene for a moment. He said, or he gave the impression at any rate, that the decision would be made on examination of the cash-in, cash-out basis. Who is making the assessment of the incidental advantages of this continuation?
Lord Trefgarne: My Lords, if the noble Lord is referring to the advantages, other than the purely financial considerations to which I have referred, then I feel sure that those will in the first instance, in any event, be matters which the Select Committee, which is currently considering the matter, will want to take very carefully into consideration. I wish to say quite clearly that the Government will not reach any premature decision in this matter, and certainly not before they have had a chance to consider and study the report being prepared by the Select Committee in the other place.
What I can, however, say—and this, I hope, will provide some assurance to my noble friend and to others who have spoken for the continuation of Government support to Concorde—is that the Government have no plans to terminate arrangements of a contractual nature for the project's continued support. This is inherent in the request that the Government will shortly be making to Parliament for funding to meet the full costs of support in the financial year 1981–82, and to which I have referred earlier in my reply.
I should now like to turn to some of the points that have been made in the debate tonight.
Lord Davies of Leek: My Lords, I do not wish to delay the House because I did not take part in the debate, but I presume there is some sense of urgency in the Select Committee getting down to work in order to get an early answer to this problem?
Lord Trefgarne: My Lords, it is not for me to suggest how the Select Committee should conduct its affairs, but I understand that we expect to receive a report from it in about three months' time.
I shall now turn to some of the points which have
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been made. I should like to start on a personal note. This year, as in previous years, I went to the Farnborough Air Show and for the first time I took my two small sons. I recall—surprisingly, as I thought at the time—that the two things that really thrilled them were the Lancaster of some 40 years of age, I imagine—older than I am, I think—and the Concorde. They seemed not in the least interested in the modern jet fighters which whistled by with such regularity at Farnborough. But the Concorde coming over and suddenly applying its power and climbing away into the sky was something which they talked about for at least a whole day afterwards.
I return now specifically to the points which have been raised in this debate. In addition to referring to the costs of in-service support, my noble friend Lord Glenarthur has spoken of the costs of developing the Concorde aircraft and engine, of the costs of production, and of production receipts. It has been the practice of successive Governments to report periodically to Parliament on these matters and to give figures for the French contribution as well as those for Britain.
The most recent such statement was contained in an answer which my honourable friend the Parliamentary Under-Secretary of State for Industry, Mr. Marshall, gave to the House of Commons on 16th June last year. This showed the British manufacturers estimated total development costs as £580 million, their total production costs to the end of 1979 as £366 million, and their receipts from the sale of aircraft, and from the sale or lease of engines and spares, also to the end of 1979, as £146 million.
My noble friend also referred to the financial assistance which the French Government gives to Air France. This is of two kinds. The Government meets 100 per cent. of Air France's capital expenditures on Concorde, this being almost entirely to enable Air France to repay monies which they borrowed to acquire their original fleet of four Concordes and spares. This accounts for about two-thirds of the total financial assistance, or about £20 million equivalent annually.
The other form of assistance is that the French Government now meets 90 per cent. of Air France's Concorde operating deficits, which is about £10 million equivalent annually. Until the end of 1980 the figure was 70 per cent., and, as the price of obtaining a higher contribution from the state, Air France has surrendered to the Government the right to determine on which routes Concorde should be operated and at what frequencies.
These arrangements are tailor-made to the particular circumstances of Air France, namely, the continued reliance on outside capital and the fact that, with the marginal exception of New York, none of Air France's Concorde services returns an operating surplus, even if no allowance is made for amortisation or return on capital employed.
The circumstances of British Airways are very different. The airline have been relieved of the capital debt associated with the purchase of Concorde by the decision to write off £160 million of public dividend capital under the provisions of the Civil Aviation Act 1980. The airline receive no subsidy to cover any Concorde operating losses; and, under arrangements made following a review of the airline's

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finances and announced by the then Secretary of State for Trade to Parliament on 22nd February 1979, 80 per cent. of any accumulated operating surpluses are to be paid over to the Government.
These arrangements were agreed with the airline against the background, first, that British Airways set high store on retaining commercial freedom to decide whether to operate Concorde and, if so, on which routes and at which frequencies; and, secondly, that the airline at that time foresaw a rising trend of operating surpluses. In the event, as noble Lords will be aware, there have been substantial operating deficits; and the cumulative effect of these will delay any return to the Government under the 80 per cent. arrangements.
The airline are now hopeful that, with the suspension of the heavily loss-making route between London and Singapore and with revenues on their remaining services to North America having caught up with the sharp rises in fuel and other costs of the last two years, they have turned the corner financially. In this connection they recently advised the Select Committee on Industry and Trade that in 1981–82 the airline expect to earn a surplus of some £2 million overall on their Concorde operations, and significantly larger amounts in ensuing years. This is in contrast with the continued operating deficits expected by Air France with its much less profitable route structure.
Given the very heavy investment which the Government have made in providing Concordes and associated spares to British Airways without charge, it is only right—as I am sure your Lordships would agree—that the Government should have the major share of any future operating surpluses.
My noble friend Lord Glenarthur also outlined various ways in which there might be closer collaboration between the Government and British Airways to improve the profitability of the airline's Concorde operation. His specific suggestions, as I recall them, were that the Government and the airline should get together to devise a better route structure for the airline's Concordes, which was mentioned by at least one other noble Lord, and that the Government should support such non-scheduled activities as charter flights and so on.
The Government, as the major beneficiary of any accumulated operating surpluses earned by British Airways' Concordes, have a direct interest in seeing that the airline turns in the best possible financial performance. To this end, as well as undertaking such services as negotiating to secure landing and overflying rights, the Departments of Trade and of Industry maintain a close dialogue with the airline about their Concorde operations and how these might be improved. Several years ago, for example, the Department of Industry, which was then concerned with placing the remaining unsold British-assembled Concordes, took the initiative in establishing a Concorde Potential Routes Committee, This brought into one forum British Airways, the various interested departments, British Aerospace and Rolls-Royce. Shortly afterwards, the department formulated the concept of the maximum profitable utilisation of Concorde, rather than its maximum utilisation, as being the objective towards which it seemed right to aim. This is now very much the British Airways Concorde operating philosophy.
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In maintaining this dialogue, the department have no wish to seem either to be trying to teach the airline their business, or to be formulating British Airways' commercial policy towards Concorde. As I mentioned when speaking about the Air France arrangements, British Airways set high store by retaining their commercial freedom on Concorde, no less than in their subsonic operations.
Within these limits, I accept, however, my noble friends view that the Government have a role to play in the cross-fertilisation of ideas that is so necessary for the commercial and financial success of this aircraft to the mutual advantage of the airline and ourselves. As is to be expected in a collaborative project, this cross-fertilisation does not stop short in Britain. Thus there are regular exchanges of view between the British and French officials who constitute the Concorde Management Board established under the 1962 Treaty, and also directly between British Airways and Air France on the support and operating aspects of Concorde.
As part of the new financial arrangements for British Airways' Concorde operations announced in 1979, it was agreed that from the year 1978–79 onwards surpluses from such operations would, as I have already said, be shared, with 80 per cent. being paid to the Government and 20 per cent. retained by British Airways. The airline are, however, entitled to set off any accumulated Concorde operating losses before such surpluses are shared in this way. In the years 1978–79 and 1979–80 British Airways' Concorde operations made a total loss of £8.5 million on the basis of the new financial arrangements. The forecast for 1980–81 is a further loss of around £6 million, but, as I indicated earlier, British Airways expect Concorde services to begin to generate surpluses from 1981–82 onwards.
My noble friend Lord Glenarthur also asked me about expenditure on developing an advanced supersonic aircraft. The continuing operation of the aircraft in airline service and support of the manufacturers are themselves valuable contributions to the development of supersonic technology. They will add to the potential contribution that the United Kingdom and France could make to the development of an advanced supersonic transport aircraft. But I have to say, regretfully, that most observers put such development many years in the future.
My noble friend Lord Bessborough suggested that we should give a Concorde aircraft to the National Aeronautics and Space Administration in the United States in return for a share for the United Kingdom and France in a future SST programme. I understand that British Aerospace has, in fact, been holding discussions with NASA about the possible use of a Concorde aircraft in its supersonic cruise research programme. If and when a firm proposal is made by NASA, it will be carefully considered by the British and French authorities.
My noble friend has raised issues of very considerable public importance. Your Lordships will be grateful to him for the opportunity that he has given for these to be debated and, indeed, for the contributions that other noble Lords have made to the debate tonight. The Government will naturally take careful note of these sentiments in the months to come.