Economic Recovery: A 10-Point Programme

HL Deb 11 February 1981 vol 417 cc222-56

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 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. 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 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 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 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, 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 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 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 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 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 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. 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 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 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 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 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 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 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 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 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. 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, 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 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 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 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 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 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 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 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 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 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 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 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.