Lords Sitting of 24 July 1981

Preamble
The House met at eleven of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Norwich.

Displaced Cypriots: Immigration Rules
Lord Brockway: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether the 2,000 Cypriots remaining in this country (of those forced to leave their homes in the north by the Turkish invasion of 1974) will now be given full refugee status including permission to stay in this country until they can return to their homes.
The Parliamentary Under-Secretary of State, Home Office (Lord Belstead): My Lords, the immigration rules have been applied flexibly and with sympathy to those Cypriots who came here as a result of the hostilities in 1974 and it remains the Government's policy that a person's stay here will be extended exceptionally if it appears that the situation in the island makes it unreasonable to expect him to return there. The situation is not covered by the 1951 convention relating to the status of refugees and the grant of refugee status would therefore be inappropriate.
Lord Brockway: My Lords, is it not the case that many of these refugees have been returned against their will to the southern area of Cyprus and that families have been broken up as a consequence? In view of the fact that this Government are a guarantor of the integrity of the whole of Cyprus, can permanent residence not be allowed to these refugees until they have the right to go back to their own homes?
Lord Belstead: My Lords, it has been the policy under both the previous Government and the present Government that those who have come to this country from Cyprus because of the situation in the island should be granted stay here exceptionally under the immigration rules. Arising from what the noble Lord asked at the beginning of his supplementary, my understanding is that no Greek Cypriot is expected to return to that part of the island now controlled by the Turkish authorities. Similarly, Turkish Cypriots will not be returned to the Greek controlled area. However, the convention, which is the whole point of the noble Lord's Question, does not apply.
Lord Harmar-Nicholls: My Lords, is my noble friend aware that any reasonable person would recognise the lack of wisdom in giving the blanket cover that is asked for in this Question? Certainly individual cases
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where all the circumstances can be taken into account should be looked at with sympathy and real concern, but a blanket cover is not the kind of thing which this Government or any Government ought to give at this stage.
Lord Belstead: My Lords, I am grateful to my noble friend. This is the policy which the previous Government followed and which the present Government are following, and I believe it is the right one.
Lord Avebury: My Lords, is the Minister aware that in some cases which I have taken up with his honourable friend Mr. Timothy Raison deportation orders were made against Cypriots many years ago but suspended from operation because of their circumstances back home, and then, years later, were suddenly reactivated because of an alleged change of circumstances without the persons concerned having any right to a re-hearing? Where there is a dispute about the family circumstances in the country of origin, will the Minister have a look at the possibility of referring these cases to the appellate authorities so that the evidence can be properly examined?
Lord Belstead: My Lords, if there is any particular case which the noble Lord has in mind, I shall of course make sure that it is looked at carefully and seriously, but I understood from what the noble Lord said that these are cases which have already been looked at.
Lord Molloy: My Lords, does not the noble Lord agree that the technicalities of the law should always be viewed in the light of humanitarian principles, and that where people may have to go back because they are Turkish or Greek Cypriots there ought to be a thorough examination of the circumstances before the ultimate decision is arrived at and they are sent back to a land which, although it is their home, they are frightened to go back to?
Lord Belstead: My Lords, this is exactly the case. In his question I think that the noble Lord, Lord Molloy, has outlined the procedures which are followed at the present time.
Lord Spens: My Lords, can the Minister give an assurance that this policy is accorded also to the 500 or so Turkish Cypriots who were forced out of their homes between 1963 and 1974 and who are now in this country?
Lord Belstead: Yes, my Lords.
Baroness Jeger: My Lords, while I recognise that Governments of neither party have been able to solve this difficult problem, may I ask whether the Minister is aware that his practice of giving extensions in exceptional circumstances causes a lot of strain and anxiety, particularly where education is concerned? In the case of many of the Cypriots who apply for but are refused the exceptional extension it seems that very subjective judgments are brought to bear. Would it not therefore be more fair to look again at the 1951 refugee provisions?
Lord Belstead: My Lords, I do not think that it would be more fair. We have got to be realistic and to take into account that the number of those admitted from the island of Cyprus for all purposes into this country has risen from 16,964 in 1973 to 33,000. So the numbers have doubled in a period of some seven years. We are therefore again talking about an immigration situation which is serious and important. Within this, there is nothing, I think, between us that these particular cases—the people who, after 1974, felt that they had to leave and could not go back—must be dealt with as sympathetically as possible. I should like to add to what I have already said that, in deciding whether a person could reasonably return to the island, full account is always taken of all the circumstances, including, for example, the availability of accommodation and funds and the extent to which relatives have been able to re-establish themselves in Cyprus.
Lord Caradon: My Lords, I wonder whether the attention of the noble Lord has been drawn to a very remarkable and encouraging meeting which took place only a few days ago in London? A mass meeting of Cypriots, both Greek and Turkish, assembled to welcome a declaration which had been made by three editors from the Greek side of Cyprus and three editors from the Turkish side, who had published a call for reconciliation and understanding, and at this meeting, organised by the Friends of Cyprus, 1,000 people, both Greeks and Turks, came together to make a demand that understanding, reconciliation—the purposes of the original treaty—should be carried out.
Lord Belstead: My Lords, this, of course, is an avenue down which, if people can go, there would be a solution to the whole problem which is the subject of the Question tabled by the noble Lord, Lord Brockway.
Lord Brockway: My Lords, while welcoming the intervention of the noble Lord, may I ask this in relation to the Question: is the Minister aware that I have a list of those who have been deported against their will to southern Cyprus, which I shall send to the noble Lord? Is he further aware that at this moment I have a case where the mother of students, who is looking after those students in London, is now being sent back to Cyprus? Will the Minister particularly look at that case?
Lord Belstead: My Lords, if the noble Lord will send me details of the case, I will most certainly make sure that it is looked at carefully and sympathetically.

Cyprus: Settlement Negotiations
11.15 a.m.
Lord Brockway: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what progress has been made in the discussions between representatives of the Government of Cyprus and the
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Turkish occupation authorities in the north for a settlement of their dispute; and what part the United Kingdom is taking as a guarantor of Cypriot territorial integrity and independence.
Lord Skelmersdale: My Lords, talks under United Nations auspices have resumed following the Greek and Turkish Cypriot elections. Progress before the elections was limited; prospects now seem brighter, but progress will require real determination from the parties. We shall continue to give our full support to the United Nations' efforts.
Lord Brockway: My Lords, may I ask the Minister whether he is aware that President Kyprianou is making the utmost effort to reach agreement; that he has just recently said that he is always inspired by goodwill and he will exhaust all margins in the dialogue? Is the noble Lord nevertheless aware that the position has been made more difficult by the recent statement by Mr. Denktash insisting on borders between the two areas and an exchange of the populations, and could our Government, as a guarantor, get in touch with the other guarantors to seek a solution to this problem?
Lord Skelmersdale: My Lords, as I said in my original Answer to the noble Lord, the United Nations' efforts are very much the key to this situation and we see no case for unilateral initiatives but are giving our full support to the United Nations' efforts. With regard to the first two supplementaries, I agree that there have been some very hopeful signs—notably, the agreement on missing persons—and it is encouraging that after 11 months the two sides are still talking. With elections out of the way, there is a real and continuing opportunity for progress, and we hope it will be exploited by all the parties. With expectations on all sides running high, I must point out that the talks are now at a delicate stage, and I do not think that your Lordships would expect me to comment too much upon them.
With regard to the second supplementary asked by the noble Lord, of course both sides need to show moderation and it is regrettable when they make remarks that threaten the good atmosphere currently prevailing in the talks, but I would suggest to the noble Lord, that it would be unwise to attach too much weight to a single statement.
Baroness Jeger: My Lords, while appreciating the difficulties of the present situation and the delicate talks that are going on, I must say that I have heard that for the last seven years. It is never the right time to do anything about Cyprus, and may I ask the noble Lord whether he would not agree that, thinking back to what the noble Lord, Lord Caradon, said about the recent meeting in London between Greek and Turkish Cypriots, that has never been the trouble. Is not the trouble that the Turkish Government are giving Mr. Denktash his directions and that, however helpful Mr. Kyprianou tries to be, it is Ankara that makes these decisions? In view of Greece, Turkey and Cyprus all being associated in the EEC, is it not quite unacceptable that Turkish troops should be on the mainland of another member state of the EEC?
Lord Skelmersdale: My Lords, I agree with the noble Baroness that the withdrawal of Turkish troops is an important issue, but there are others and I think the problem would be unlikely to be solved in isolation. There is no practical alternative to finding a settlement through inter-communal negotiations.
Lord Hatch of Lusby: My Lords, may I ask the noble Lord whether he is aware that this country under the present Government gives a substantial amount of aid to the Turkish Government? Has that aid and that relationship been used in order to persuade the Turkish Government to represent to Mr. Denktash the necessity for making conciliatory gestures towards the approaches which have been made by President Kyprianou?
Lord Skelmersdale: My Lords, aid is given evenhandedly in this case, and we have official dealings only with the Republic of Cyprus under President Kyprianou. We do not, however, neglect the rights and interests of the Turkish Cypriot community. As I say, it is very important to talk and deal equally with both sides on the island of Cyprus.
The Earl of Lauderdale: My Lords, further to my noble friend's reply to that last supplementary question, would he not agree that there is a real danger that things said in this House in favour of one side as against another may do great harm? All the way through this sorry story, with which, like Lady Jeger, I have been familiar for some 25 years, both the Government of Turkey and the Government of Greece have been involved; none is free of blame, and our problem now is to assuage the situation and not cheer on one side against the other.
Lord Skelmersdale: My Lords, I am very grateful to my noble friend for increasing the effect of my answer to the supplementary question of the noble Lord, Lord Hatch.
Lord Hatch of Lusby: My Lords, the noble Lord misunderstood my question. I was not referring to British aid to Cyprus; I was referring to British aid to Turkey. I was asking whether the British Government have made representations to the Turkish Government, not to the Cypriot Government, to use its good offices in order to persuade Mr. Denktash to come to compromise negotiations with President Kyprianou.
Lord Skelmersdale: My Lords, I apologise if I misunderstood the noble Lord's question. I am afraid I have no information on that point because it is not directly contiguous with the Question. If I may, I will take the opportunity to write to the noble Lord.
Lord Denham: My Lords, I know that the noble Lord, Lord Jenkins, has been trying to ask a question for some time. We shall have been 14 minutes on this Question, so, after he has asked his question and my noble friend has answered it, I suggest we move on to the next business.
Lord Jenkins of Putney: My Lords, I want, if I may, to press the Minister on his answer to the last supplementary question. May I ask him to consider the possibility that in eliminating, as it were, the Turkish Government from this consideration altogether, he is failing to use his good offices in a position in which, if the Government did exert a little pressure at the appropriate time, a solution might be found? So will he reconsider that answer?
Lord Skelmersdale: My Lords, I did say that I would write to the noble Lord, Lord Hatch, when I have considered it, and that is exactly what I shall do.

BBC Transcription Services
11.24 a.m.
Lord Ardwick: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will endeavour to rescue the BBC transcription service which is threatened with closure by prescribed economies in the BBC's Overseas Services.
Lord Skelmersdale: My Lords, it is not the Government's wish that the transcription services should be wound up, merely that the annual contribution of some £1 million from the grant-in-aid should cease. We hope that the BBC External Services will be able to continue to sell some of their recorded radio programmes to overseas countries and find alternative means of finance.
Lord Ardwick: My Lords, I thank the noble Lord for that Answer, which is not quite as negative as some people might suppose; nevertheless, it is a disappointing Answer. Do not the Government realise that this is a false economy? Do not they see that by jeopardising, reducing, this service they are risking the loss or the diminution of a minor but quite precious asset; that this service manages to persuade stations in one hundred countries throughout the world to pay a small subscription to broadcast the very best in British radio, and this gives us a presence and it gives us an influence which is the envy of other Governments, who will immediately leap in and supplant it with free services if we go out or substantially reduce the services, as the Government now intend?
Lord Skelmersdale: My Lords, I think perhaps we ought to be rather certain in this particular case exactly what we are talking about. The transcription services, as the noble Lord will be well aware, include music, drama, light entertainment, education and scientific material. It is the Government's view that it would seem more appropriate that sources of finance other than that of the Foreign and Commonwealth Office should be found for those parts. After all, the FCO is entirely concerned with foreign policy questions. There are also some news and current affairs programmes specially made by what is known as the topical tape service. This will continue to receive some £350,000 a year from the grant-in-aid,

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and we can see no reason why the really important part of the whole service should cease.
Lord Donaldson of Kingsbridge: My Lords, is the noble Lord aware that when one was loading ships for invasion one always left a space for NAAFI goods, and that cultural defence is exactly the same in relation to the billions being spent on straight defence? Does the noble Lord remember that there was an important general, whose name I have unfortunately forgotten, in the last world war who described the work of the British Council in the Middle East as worth a brigade to him? It seems to me absolutely incredible. Do the noble Lord and the Government really mean to save what is something under £1 million on a budget of £6 or £7 billion? Do they not believe that in order to get intelligence you have to make friends, and that in order to make friends you have to show them the best we can do in this country?
Lord Skelmersdale: Yes, my Lords, I would agree with the cultural value of this, but what I would not agree with it that this service should be financed from the grant-in-aid from the Foreign and Commonwealth Office. I am glad the noble Lord mentioned the British Council, because this is exactly one of the sources that are being looked at for aid. But, of course, this is a matter for the Board of the British Council, and we do not yet know what they may or may not decide.
Lord Strabolgi: My Lords, are the Government aware that protests have been received from over 40 countries in connection with the Government's decision? Will they reconsider this, not only on cultural grounds but also because of the valuable contribution that these services make to our invisible exports, which should appeal to them on more materialistic grounds?
Lord Skelmersdale: My Lords, I should have thought that the Government's attitude and position on this matter was perfectly clear, but I would remind the House—the noble Lord, Lord Strabolgi, will need no reminding—that we are to have a full debate on this subject on Thursday of next week. My noble friend the Foreign Secretary will be speaking on this matter, and so, I believe, shall I.
Lord Orr-Ewing: My Lords, is my noble friend aware that there are a number of Members on this side of the House also who are anxious to see this matter properly reviewed in the forthcoming debate? In the meantime, he has brought up one reason which I do not think has previously emerged, which is that this is a question of shuffling off the responsibility from the existing Foreign Office grant to perhaps some other Ministry. If that is the reason why we are suspending the transcription service, or a portion of it, and thus saving £1 million, could it not continue until such time as the Government have found some alternative Ministry or some alternative Vote which can pick up the responsibility? Is it not foolish to shed this service and thus lose the audience and lose the service to overseas people while we are trying to find out who should pay for this very important operation?
Lord Skelmersdale: My Lords, I may be naive but I really cannot see why the transcription services should be threatened with extinction, as the original Question suggested. I do not think this is a matter of shuffling off.
Lord Gladwyn: My Lords, should it become clear next Thursday that the House is opposed to these foolish proposals, will the Government be prepared to withdraw them, and not fall back, as I have heard suggested elsewhere, on the alternative scheme for making similar economies in the money devoted to transmitters for the BBC, which would be obviously cutting off their nose to spite their face?
Lord Skelmersdale: My Lords, I do not think the noble Lord would expect me, or would himself expect, to pre-empt the decision of this House next week.
Lord Denham: My Lords, it is, of course, for the House to decide, but I wonder whether, in view of the debate that we are to have next Thursday, the feeling might not be that we are slightly pre-empting that debate.

Prisoners' Information: Cell Cards
11.30 a.m.
Lord Avebury: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government why cell cards are not made available to prisoners in HM Prisons in England and Wales giving up-to-date information about the content of the prison rules, standing orders and circular instructions.
Lord Belstead: My Lords, the department supplies a range of cell cards to every prison, and governors are required by standing orders to ensure that each prisoner is provided in his cell or room with copies appropriate to his status. If cell cards are not available in some establishments or parts of establishments, this is likely to be because persistent vandalism by prisoners has led to alternative arrangements such as keeping sets of cards, to which prisoners have access, in a wing office and the library, and providing induction sessions.
Lord Avebury: My Lords, would not the Minister agree that the cell cards that are placed in the cells at present are inaccurate and that he told me in a letter of 29th January that a major revision of cell cards is in an advanced stage of preparation? Yet, on 15th July—six months later—he tells me in another letter that cell cards are in the course of extensive revision.
With regard to the rules for prisoners' correspondence, is the Minister aware that the prison authorities do not allow extracts from the relevant standing orders and circular instructions to be sent to prisoners from outside; yet if the prisoners apply to the European Commission for Human Rights they may obtain

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complete sets of the relevant standing orders and circular instructions which have been published as Appendix 4 to the Commission's report on the case of Silver and others? Is it not absurd that the Home Office should refuse prisoners access to documents which they can obtain from the European Commission for Human Rights?
Lord Belstead: My Lords, it is the view of the Prison Department that the cell cards need updating. That is the reason why they are being updated. So far as standing orders and circular instructions are concerned, those are for the guidance of management and that is the reason why they are not communicated to prisoners.
The Earl of Longford: My Lords, is it not clear from the report of the European Commission condemning our conduct in this country in a number of respects, that prisoners in this country are today gravely handicapped through lack of information or, indeed, through out-of-date information?
Lord Belstead: My Lords, I would not agree with that.
Baroness Vickers: My Lords, in view of the fact that not everybody speaks English or understands very elaborate English, are these now being printed in other languages?
Lord Belstead: My Lords, that is one of the matters at which I think we are looking at present. It is true, as the noble Lord, Lord Avebury says, that the present cell cards needed overhauling. But I should like to say to my noble friend Lady Vickers that one of the general practices which goes on in prisons is to encourage prisoners to consult wing officers, governors and members of boards of visitors so that they can say if they do not understand things which should be told to them. Immediately they come into prison it is the general practice to hold what are called induction sessions—where immediately, of course it can be seen if there is a prisoner who simply cannot speak English—and, in remand prisons, governors are encouraged, and have for a long time been encouraged, to display wall notices in the reception areas.
Lord Brockway: My Lords, is the Minister aware that I have been in a cell and seen the cell cards and that, necessarily, they are very brief? In view of the fact that the rights of prisoners have now largely been extended and are likely to be extended still further when we apply in this country the changes that have been made in Northern Ireland, is it not necessary to supplement any brief cell card by a statement to prisoners of their rights?
Lord Belstead: My Lords, we are looking at the necessity for supplementing the cell card at present, and I think that we must await the outcome of that study.
Lord Avebury: My Lords, is it the policy of the Government to wait until the judgment of the European
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Court in the case of Silver and others before republishing the cell cards, or any other information available to prisoners? Is that the reason for the prolonged and otherwise inexplicable delays which have occurred since he wrote to me in January?
Lord Belstead: No, my Lords, it is not an easy thing to complete. We must get it right and I can assure the noble Lord that we are pressing ahead with it.

Friendly Societies Bill
11.34 p.m.
The Minister of State, Treasury (Lord Cockfield): My Lords, I beg to move that the Bill be read a second time. This is a short Bill but an important one. The Chief Registrar of Friendly Societies occupies a position of importance. He is responsible for the supervision of friendly societies, building societies, industrial assurance companies and various other bodies. Of these, the building societies, whose growth in recent years has been phenomenal, are the most important.
The present Chief Registrar, Mr. Keith Brading, has occupied the post for some nine years. He has served with distinction: he has had to deal with many difficult problems which he has handled with great skill; and he is very highly regarded not only in the field in which he works but more generally as well. He has now passed retirement age and wishes to retire. We face, therefore, the problem of finding a suitable and worthy successor.
The present Act, the Friendly Societies Act 1974, requires that the chief registrar should be a barrister of at least 12 years' standing. There are obvious advantages in a legal qualification. Nevertheless the position is that over the years the balance of responsibility has changed: the strictly legal role has declined and greater emphasis has inevitably been placed on prudential supervision. Clearly we need the best available candidate for this post. The present requirement unduly restricts the field of choice. It might well be that the best candidate who would emerge would be a barrister, a solicitor, an accountant, an actuary or, indeed, a general administrator.
Of course a legal qualification is a great asset and would undoubtedly be a factor on which great weight would be placed. But it is no longer essential. What is essential is that we should be able to appoint the best available candidate. My right honourable and learned friend the Chancellor of the Exchequer, who is responsible for this appointment and who has taken a very close and personal interest in the matter, therefore felt that it was right to ask Parliament to repeal the requirement contained in Section 2(1) of the Friendly Societies Act, thus widening the field of choice, and that is what the present Bill does.
Perhaps I should add that irrespective of who may be appointed chief registrar, ample legal expertise will remain in the department as subsections (2) and (3) of Section 2 of the 1974 Act require that at least two of the assistant registrars should be legally qualified. My Lords, I beg to move.
Moved, That the Bill be read 2a—(Lord Cockfield.)
The Earl of Selkirk: My Lords, I should like to thank my noble friend for the explanation that he has given of the purposes of the Bill. I should particularly like to thank him for what he said as regards the work of Mr. Brading, the Registrar General. In the other place the Financial Secretary said that he had done a quite outstanding job. I personally, as President of the Building Societies Association, have written to the Treasury in very similar terms. He has been courageous in some of the actions that he has taken, and he has shown very good judgment. It is his retirement which brings this Bill before this House.
However, we are a revising Chamber and the circumstances of this Bill are a trifle peculiar. We are going through a pretty busy period—and everyone can see the Chief Whip's hairs getting greyer and greyer—and suddenly we get a new Bill plunked in at extremely short notice. No one—and, when I say "no one", I mean none of the parties concerned—was told that this was going to happen, except, I believe, the Bar Council, who are really not very deeply concerned. The Bill went through the elaborate procedure of the other place at 3.26 a.m., and all the proceedings were completed—Second Reading, Committee stage, Report stage and what you will—by 3.36. It was not exactly a filibuster!
I want to make the point that in withdrawing the qualification of 12 years at the Bar and being a lawyer, yes, we can take away the legal status, but we are also taking away in some measure the status of the office. The noble Lord has said that it is important and, of course, I entirely agree with him. But 10 years ago the office was slightly degraded from Deputy Secretary to what I would describe as Under-Secretary plus, so I am not altogether without justification for the suspicions that I have on this matter. I think that that is important for the future standing not only of this Government but of future Governments in regard to this office. It is a semi-autonomous office, working under the general supervision of the Treasury, but quite capable of, and, indeed, responsible for, carrying out its own decisions. It must administer four separate legislative codes.
I do not absolutely agree with what the noble Lord said about prudential supervision. Of course that is important. It may be that some of the episodes that arise from this or from this general consideration catch the public eye. A couple of years ago there was a society called Grays. I shall only say that it was very cunning and very lucky; the matters ended in a suicide and no one lost any money. But this is the sort of episode which catches the eye. However, there are other matters which are possibly even more important than that; that is, the advice, the guidance and the administration for which the Registrar General is responsible. For a moment I should like to remind the House of the task here.
There are 17,000 societies of one sort and another; their value is probably nearer £70 billion than £60 billion, and I would guess—and here I may be advised otherwise—that of the order of 80 per cent. to 90 per cent. of the households in this country have something to do with one or other of the societies concerned. It is, therefore, of very real importance. They were not founded by statute, not like joint stock
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companies or statutory corporations; they are organisations which have grown from the soil of this country over the years, dating back in most cases probably to the 18th century. What is important is that they have gone through a very powerful period of evolution. They have had to readjust themselves in many different ways to the changing circumstances in which we live. They are based on the principle of self-help and participation—words which we use very frequently today and which my noble friend Lord Seebohm brought up in an amendment to the Companies Bill recently when we were discussing how to do it. I do not say for a moment that all these things are perfectly done, but that is the purpose, and it has remained an important role.
I am concerned that the man appointed to this position should be a man of very real standing; the noble Lord has ensured this. He is taking it out of the statute so I am a little concerned at what future Governments might or might not do. No qualifications are involved. It can be said that this will be open to "one of the boys", though I think that the "boys" would probably find it rather hard work to fulfil the duties required of them.
However, I would remind your Lordships that there are many matters which are of prime importance, particularly in the evolution of these societies. The first is the rights of members of these societies against the societies themselves. As societies have grown in size, this has become increasingly difficult. I shall not produce a solution, but this is the sort of problem with which in many cases the Registrar has to deal. He has to deal not only with the application of the regulating statutes, but also with the rules of the individual societies themselves, which are changed as circumstances change. He has to advise societies about the legal application of all sorts of matters that come along, not least as regards the EEC.
I do not differ from the Government in saying that this is something which those skilled in the profession of law are particularly adapted to do. I do not say "uniquely", but there are circumstances which demand a pretty thorough knowledge of law and its implications in the EEC, in this country and in international management. It is for that reason that I an pressing that standing should be the main point of this appointment. The societies greatly rely on the expertise and the wisdom shown by the Registrar, and it is very important that they should do. In a sense he acts as a sort of guide, philospher and friend to these organisations, and that is something that can only be accomplished by a man of outstanding qualities.
I know that the Government say that they have good intentions; in fact, I think that all Governments' intentions are good, but whether or not they carry them out is a different matter and particularly whether successor Governments will do so is a different matter. It is that which has worried me a little in the changing of the law at the present time. Frankly, I should like the office to be restored to the standing of Deputy Secretary, as it was, before it was degraded to what might be described as Under-Secretary plus. That would be an assurance that future Governments would have some standard to go by.
As regards the law, I believe that this is an open

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question, although I think that lawyers would find it easier to deal with many of the very complex questions which go well beyond simply prudential supervision. These are great indigenous organisations, unique to this country, and organisations of which we can be very proud indeed. It is for that reason that I venture to draw the Government's attention to the importance of the Registrar.
11.47 a.m.
Lord Houghton of Sowerby: My Lords, I am a vice-president of the Building Societies Association, but I do not go all the way with the noble Earl, Lord Selkirk, in his approach to the Bill. From the comprehensive description that the noble Earl has given of the duties and responsibilities of the position of Chief Registrar, I was convinced that we should have someone better than a barrister. The present holder of the office, Mr. Keith Brading, has risen above his legal handicap and has been a man of outstanding wisdom and judgment in his position. I shall say something else about the present holder of the office in a few moments, but the condition which the Bill seeks to remove has been in the law since at least 1896 and was modified somewhat as long ago as 1924, when it became permissible for an assistant registrar without legal qualifications to be promoted to the top job, provided that he had had five years' service as an assistant registrar. That is how the law stands at the moment.
As the noble Lord, Lord Cockfield, said, and as the noble Earl has said, the nature of this position has changed a great deal in recent years. Of course, the Chief Registrar used to be the watchdog over the affairs of trade unions; that was my earlier contact with this office. But after the repeal of the Industrial Relations Act 1971 the trade unions were so sensitive about registration that they wished to remove that feature from the law and from the surveillance of the Chief Registrar. That was done for symbolic rather than practical reasons.
Trade unions are very sensitive, so much so in fact that you would think that they were run by Irishmen for their emotional feeling about their historic grievances. But they are not. As a matter of fact, they are run mostly by Scots and Welshmen. However, building societies are very English institutions. They are a world of male chauvanism; they are bedrock and they have come to regard the Chief Registrar as their man, which he really is.
There is not the slightest doubt that this position has greater responsibilities in relation to the building societies than ever before and so we do need a very good man for this job. When a proposal is made to remove one of the conditions of appointment, one wonders why it is being done. If one is satisfied about it being done, the next question one asks is, why is it being done now? Doubts always arise when things are done at a particular moment, when one naturally suspects some plan or plot to plant somebody in a job. This is the point that we should like to have cleared up.
Mr. Keith Brading is going to retire. May I digress for a moment and ask the question, why do good men
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have to retire?—especially when all that happens to them these days, if they are in public service, is that they join the despised throng of those who have index-linked pensions. This is a sad end to some very distinguished careers in public service. After all, if nothing else, those who are now retiring from public service are part of one of the economic necessities of the present time, which is called "natural wastage". But for them the Prime Minister would not be able to reduce the size of the Civil Service as quickly as she is hoping to do. I do object to public servants who retire being talked about as being "index-linked" as though they were something out of a filing cabinet. I sincerely hope that fate does not befall Mr. Keith Brading, who deserves something much better than that when he retires from public service.
This Bill is obviously intended to pave the way for Mr. Brading's successor, and I quite understand that the Government want to leave the way open for someone with suitable qualifications. One of the advantages of stipulating that candidates must have a legal qualification is that, although it may not ensure the best candidates, the lack of such qualifications does enable one to reject the worst candidates. If one sets the qualification of being a barrister as one of the conditions of appointment, one can reject out of hand a lot of people, good or bad, who do not have that qualification. But when the field is open, one wants to have confidence in the people who are going to operate in that field. This may either be a well-intentioned design or it may be a genuine case of having an open field in readiness for the filling of this vacancy. I am inclined to be quite blunt and to ask the noble Lord, Lord Cockfield, who is it? If we knew the answer to that question we should be better able to judge whether the Government are using the open field as we would wish them to do.
This post does require a person of very special qualities and, as the noble Earl, Lord Selkirk, has said, the guidance which it is necessary to have from the holder of this office is of great importance at the present time—especially to the building society movement. In fact, I believe that to get the right person in this job will probably keep the building society movement within the general field of Government and public acceptance, whereas in some circumstances conflict might lead to the need for a wholesale review of the activities of building societies, socially and economically, in Britain today. It is an enormously important movement which has grown out of historic beginnings, and it now holds great financial power in the land. Indeed, sometimes one is surprised when the building societies complain that the Government are bidding for public money in rivalry to the building societies. Of course one must sometimes ask whether the building of houses for home occupation is the be all and end all of our economic policy, and whether there are not some other claims upon our national resources—so one can see how that conflict could arise.
I see that the noble Lord, Lord Cockfield, is to reply to this short debate. He is usually a reticent Minister. He is not what I would call forthcoming with information but he is extremely good at replying to arguments which have never been put. I feel that he could now tell us what the Government have in mind. Will the Government kindly "come clean"?

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If they would, then your Lordships' House could pass this Bill with an easy conscience, knowing that the post has been adequately filled and that the reputation made by Mr Keith Brading will be maintained in the future appointment.
11.55 a.m.
The Earl of Bessborough: My Lords, I apologise for not putting down my name for this debate but, as my noble friend Lord Selkirk has said, we were given extremely short warning of it. I should like fully to support what has been said by my noble friend Lord Selkirk. Like the noble Lord, Lord Houghton of Sowerby, I am also a vice-president of the Building Societies Association and I suppose I ought to declare an interest.
I should like to join with others in paying tribute to Mr. Brading for his admirable judgement in the post which lie has held. I am sure that he will be greatly missed not only by all the building societies but also by the friendly societies generally. I was rather concerned when I was told that the Building Societies Association had not been consulted about the proposed Bill, and that neither were the friendly societies or co-operative societies, which also fall within the aegis of the Chief Registrar. I was disturbed about that.
I will not repeat what has been said by my noble friend Lord Selkirk with regard to qualifications, but I agree with him that the Chief Registrar should certainly have an important status and it seems to me that the status of Deputy Secretary would be the most appropriate. I do not know whether my noble friend is going to move his amendment, but no doubt we can make up our minds what should be done at that stage.
Lord Bruce of Donington: My Lords, we on this side of the House would like to join in the expressions of appreciation to the Chief Registrar and to extend to him our felicitations as and when the time does come for him to retire. We have approached this Bill with a very open mind and I am bound to say that the noble Lord opposite has given very good and cogent reasons for bringing it forward. It is quite true, as he says, that the whole emphasis of the operation of these building societies, friendly societies and co-operatives has now extended, perhaps, far more into the field of finance and accounting than into the questions of law. Indeed, it is very refreshing to have the noble Lord opposite—who was himself called to the Bar in 1942 and therefore has 39 years' standing there—move the extension of this post outside that of his own profession. I do not expect that there will be any rush of accountants applying for the post, although obviously the accountancy profession would be very honoured if an accountant was considered but we are pleased that the field has been extended. Therefore, on quite rational grounds which the noble Lord has himself put forward, we would support this.
During the speech of the noble Earl, Lord Selkirk, I felt one moment of anxiety when he seemed to say—and I hope I heard him aright—that the post, since its original creation, had been down-graded; that it originally carried the grade of deputy secretary and that it now carried the post of under-secretary plus, whatever in fact that term may be. The noble Earl,
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Lord Selkirk, quite rightly emphasised the ever increasing and important role of the building societies and the various kindred societies in our national life, and this was emphasised by my noble friend Lord Houghton of Sowerby. It is now well known that the building societies in particular—but I do not exclude the others—constitute a fairly powerful economic force in the country at the present time. On their interest policies, on their investment policies, quite a series of important considerations arise.
I should therefore have thought—and I should like to be persuaded by the noble Lord if he disagrees with me—that at this time the post should certainly not be downgraded but that it ought to carry its original ranking. In an important position of this kind a person is required who has some official clout, and I think the status of deputy secretary is probably more appropriate. If I understood the noble Earl, Lord Selkirk, aright, that was the original status. I question the desirability of this down-grading. It may well be that the noble Lord opposite will be able to reassure me on this matter, and it may be that he can give a convincing explanation as to why, other than in the interests of economy, the down-grading has taken place. But subject to that, we give this Bill a fair wind and support the Second Reading.
12.2 p.m.
Lord Cockfield: My Lords, may I begin by saying how grateful I am to my noble friends Lord Selkirk and Lord Bessborough and to the noble Lords, Lord Houghton of Sowerby and Lord Bruce of Donington, for the very warm tributes they have paid to Mr. Keith Brading. On a purely personal note perhaps I may say that I entered the Estate Duty Office in almost exactly the same year as he did. I can in fact claim one year of seniority over him, and it will give me particular pleasure, therefore, to pass on these good wishes to him.
My noble friend Lord Selkirk expressed some anxieties about the removal of the need for a legal qualification. He stressed, as indeed did my noble friend Lord Bessborough and other noble Lords, the importance of ensuring that the holder of this post should be a person of quality and character. In this I entirely agree with him. As I said in my speech moving the Second Reading, my right honourable and learned friend the Chancellor of the Exchequer has taken a close personal interest in this matter. Section 2(4) of the principal Act—that is the Friendly Societies Act 1974—provided that the Chief Registrar should be appointed by "the Treasury". The term "the Treasury" in an Act of Parliament means the Lords Commissioners of Her Majesty's Treasury. The Prime Minister is the First Lord of the Treasury, with the Chancellor of the Exchequer next in seniority among the Lords Commissioners.
In matters of importance of this kind the Chancellor would take the decision himself. The Chancellor has taken close personal interest in this matter and it is his firm intention that the appointment of the next Chief Registrar should be subject to his personal approval. May I give the House an assurance that there is no question of a candidate having been already selected, and of the requirements being tailored to a choice that has already been made. It is the Chancellor's firm intention that when the appointment comes to be made

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it should be subject to his personal approval. Given the importance of the post, and having regard to the specific provision in the Act, a future Chancellor could reasonably be expected to take the same position on future occasions. I hope my noble friends will accept these assurances.
The noble Lord, Lord Houghton, asked why the matter had arisen at this time and why the Chief Registrar needed to retire. I dealt with that matter in the speech I made moving the Second Reading of this Bill. I said that he was past retirement age. Mr. Brading in fact is 64 compared with the normal retirement age of 60. He has stayed on really to help in difficult circumstances. It is now his personal wish to retire and I do not think that we should try to stand in his way. This is the only, and perfectly genuine, reason why this Bill has been brought along to your Lordships today.
There is a further matter which was raised by both my noble friends Lord Selkirk and Lord Bessborough to which I wish to refer. On a change in the law of this kind it would be customary to have consultations with the interested parties who might feel that they had a legitimate point of view, which should be brought to the attention of, and considered by, the Government. I regret that on this occasion this was not done. The Building Societies Association have, not unnaturally, expressed concern about this, and concern has been expressed on behalf of other bodies as well. I can only say that I am sorry that the normal procedures were not followed in this case. I hope that the association and the other bodies affected will accept what I say on this point.
The Earl of Selkirk: My Lords, might I, with the leave of the House, thank the noble Lord for what he has said. Because he has been forthcoming and given the undertaking of the personal interest of the Chancellor of the Exchequer, I do not propose to move the amendments standing in my name.
Lord Bruce of Donington: My Lords, it may have escaped the memory of the noble Lord, but I asked him a question about the grading of the Chief Registrar, to which I should like an answer.
Lord Cockfield: My Lords, on the basis that I have not yet sat down, may I say that I would think that it is not appropriate to discuss in your Lordships' House the grading of a specific post in Her Majesty's Civil Service. Nevertheless, I shall certainly bring to the attention of my right honourable and learned friend the Chancellor of the Exchequer the comments that have been made on both sides of the House. Perhaps I may also make it clear that there is no question of the post being down-graded at this present moment. The change in the grading of the post took place a good many years ago.
On Question, Bill read 2a, and committed to a Committee of the Whole House.
Then, Standing Order No. 43 having been suspended (pursuant to Resolution of 21st July):
12.9 p.m.
Lord Cockfield: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord Cock field.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
The Lord Chairman of Committees (Lord Aberdare): I understand that the noble Earl does not wish to move his amendments.
The Question therefore is that Clauses 1 and 2 stand part of the Bill?
On Question, Whether Clauses 1 and 2 shall stand part of the Bill?
Lord Hale: I feel I cannot let this opportunity pass without commenting on the situation. Obviously the Government would now be in very great difficulty about time if matters were delayed, and no one would wish to make use of such delay; but those of us who sit here day by day, and often for a great part of the day, have now heard three or four of the most distinguished Members of your Lordships' House speaking with restraint but expressing serious doubts as to the way in which the procedure of the passage of the Bill is being carried out. The Minister himself said he regrets that some of the formalities, of courtesy and otherwise, were not observed in presenting the Bill, before it appeared on the Order Paper in the form of a multiple resolution which of course anticipated the decision on Second Reading. Second Reading has been carried and we are now dealing with the Bill in Committee, in circumstances in which nobody has had a chance to table an amendment after hearing speeches or of looking the matter up more thoroughly. We are told that the Bill passed through another place in 10 minutes between 3 and 4 o'clock in the morning. That does not suggest a profound discussion.
There was an almost specific suggestion by my noble friend Lord Houghton of Sowerby that there is a further step in the progress of the measure—and of course its consequences—which has already been substantially anticipated; to the extent that half the City knows who is contemplated for appointment, and that one of the provisions of the Bill is designed to make an adjustment of qualification which could perhaps make an appointment necessary (and which has passed through the minds of thoughtful people) but which would not be necessary because that qualification may not be possessed by someone whose name has passed through the mind of the Treasury. Normally I am so deaf that I speak with hesitation, but I heard my noble friend Lord Houghton quite clearly make that suggestion.
Therefore what I am asking—the noble Lord, Lord Cockfield, is always most courteous in attempting to answer our queries—is whether there is any possibility, with decency, of saying that this Committee stage

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should be taken at some other time, but before the adjournment for the Recess. I appreciate that there are only three, already busy, days left, but is there any possibility that that could be done? I ask that because anybody reading the Official Report of this debate, in the circumstances in which it took place in relation to the Commons debate, might be misled into thinking that something more serious was happening.
Lord Denham: The noble Lord, Lord Hale, of course has every right to raise his misgivings, and in fact I am grateful to him because I hope I may be able to allay them. It is not at all unusual for short, uncomplicated Bills with which people are in general agreement to be taken through all stages in one day, and in fact the House has already passed a Motion to that effect; otherwise we should not be able to do it. I understood that the doubts and anxieties of my noble friends, and, I thought, of noble Lords opposite, had been allayed by the assurances that were given by my noble friend Lord Cockfield. The difficulty is that there is a certain urgency about the Bill. The very purpose of it is so that somebody can be appointed to this very important position. I hope your Lordships will feel that in the circumstances it would be right to follow the normal procedure and allow the Bill to go through all its stages today.
Clauses 1 and 2 agreed to.
Bill reported without amendment: Report received.
Bill read 3a, and passed.

Finance Bill
12.18 p.m.
Lord Cockfield: My Lords, I beg to move that this Bill be now read a second time. The Finance Bill gives legislative effect to the Government's proposals in the tax field. Taxation is of course only one part of fiscal policy. The other part is public expenditure. It is the balance between taxation and expenditure which determines whether the Government are following a strict fiscal policy or a lax fiscal policy. The difference between the money the Government receive in taxes and other revenues, and the amount they spend on services, benefits, grants and subsidies, they have to borrow. It is the amount they borrow—the public sector borrowing requirement—which is the measure of the strictness or laxity of their fiscal policy.
Fiscal policy in turn is part, but only part, of economic policy. Similarly, monetary policy is part, a very important part but still only part, of total economic policy. So too is industrial policy, trade union policy and policies to deal with unemployment. The Ottawa Summit has emphasised—perhaps I should say reemphasised—the paramount need to tackle both inflation and unemployment. They are of course linked with one another. It is only if we succeed in dealing with inflation that there is any real hope of creating secure employment opportunities on a lasting basis.
It is important to distinguish between "inflation" and what perhaps I might describe as "inflationary pressures". "Inflationary pressures" are develop
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ments in the economy which if allowed to go unchecked and if allowed to feed through into prices result in inflation. Among the more important inflationary pressures are external pressures such as oil price increases, and internal pressures such as excessive Government borrowing and excessive pay increases.
Some of these inflationary pressures can be offset, for example, by increased productivity or a higher level of profitability in trade and industry. They can, at least in the medium- and longer-term, be prevented from feeding through into inflation by control of the money supply.
There are substantial practical problems in controlling the money supply. There are considerable time lags depending on how quickly people respond to monetary disciplines, and transitional costs if their response is delayed. It was because of these problems that in the past monetary restraints have been relaxed and inflationary pressures have been allowed to feed through into prices and hence into inflation. If one can head off the pressures at source it reduces the stresses placed on the control of the money supply and thus makes curbing inflation itself both easier and less painful. But just as one has to be realistic about how tightly and over what period of time one controls the money supply, one must equally be realistic about what Government can do to abate inflationary pressures. It is worse than useless pretending you can do what you cannot do. You deceive not only yourself but others as well. This is particularly true of Government. The worst service the Government have done for the people over many years past is pretending that the Government can solve problems they cannot solve.
We are seeing today a revival of the attitude of mind that it is for the Government to solve this problem or that, indeed that any problem can be solved by the Government spending money, by the Government borrowing money, by the Government reducing interest rates or by the Government taking this action or that.
It is surprising that there should be this sudden revival of blind faith in what Governments can do just at a time when market forces are at last injecting realism into economic attitudes; when at last we might be able to move into an era when the heavy hand of Government no longer falls upon us. There are some things that Government can do. Thus they can control their own expenditure thereby reducing their demands on the money supply and thus relieving the pressure on interest rates. They can increase the effective level of taxation to achieve the same results.
It was for these reasons that the Government's proposals in the public expenditure field and in the taxation field—effect to which is given in the finance bill before your Lordships—were directed to reducing the Government's borrowing requirement from £.13½ billion to £10½ billion. This was the major theme underlying the Budget strategy. This is turn enabled minimum lending rate to be reduced from 14 per cent. at which level it stood before the Budget to 12 per cent. This step was and continues to be of great assistance to industry.
The reduction in interest rates particularly in relation to interest rates elsewhere has been one of the factors which has led to a reduction in the Exchange rate of the pound. This has been of considerable benefit

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to our exporting industries, but of course it does create problems elsewhere. Just as important as the inflationary pressures generated by excessive Government borrowing are the inflationary pressures generated by excessive pay settlements.
In the public sector excessive settlements feed through into higher prices or increased public expenditure which in turn leads to an increased borrowing requirement and ultimately higher interest rates, thus damaging both output and employment. It is for this reason that the Government have taken so firm a line in those pay negotiations for which they are directly responsible and have exerted pressure, for example, through cash limits and external financing limits in those parts of the public sector where the Government themselves are not the employer, but are the ultimate paymaster.
In the private sector, the negotiation of rates of pay is a matter for management and workers. But they need to negotiate in full knowledge of the consequences of the bargains they strike. Excessive pay settlements mean higher costs, a loss of competitiveness and hence lower sales, lower output, lower profits and ultimately a decline in employment.
Lord Molloy: Before the noble Lord leaves this point, would he allow me to say something?
Lord Cockfield: I understand that the noble Lord has put his name down to speak, so perhaps he would reserve his remarks for that occasion, when we can give them due attention.
If at this point money is printed to finance excessive pay settlements, the ultimate effect is rising prices and inflation. But the inflation itself is then reflected in loss of competitiveness, loss of output and once again lower profits and loss of jobs. There is therefore no escape either for employers or for workers from having to face the consequences of their own actions if they demand or concede excessive pay settlements. We have done very badly on this front over the last 10 years and indeed for a longer period than that, but particularly badly over the last 10 years and regrettably we are now having to pay for it.
Over this period of 10 years, earnings have increased some fourfold by more than 300 per cent. and output by only 16 per cent. As a result there has been a serious loss of price competitiveness both at home and overseas. This is one of the major reasons why we now have 2½ million or more unemployed. Other countries also have high levels of unemployment. However sensible we had been we could not have avoided the consequences of the world recession.
But the fact that our level of unemployment is worse than other people's is a reflection of the fact that our inflation has been worse than other people's and the rise in pay in relation to productivity has been worse than other people's. One might well ask, "why do people behave in this self destructive way?" The more one recognizes the tragedy of unemployment the more one is bound to ask this question.
It is in part a failure of understanding; in part it is a failure of communication; in part it is a determination to pursue the sectoral advantage against the common good; in part it is a failure on the part of management and trade union leadership; in part it is the responsibility
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of Government in choosing the easy way out. To the extent that some of our critics have accused us as a Government of being doctrinaire it is not because we unheedingly or without understanding pursue particular policies, but because we believe that unless Government can convince people of their own resolution in following responsible policies, they can hardly expect other people to do the same.
As a nation we tend to be self-critical, and to be divided by doubts and uncertainties. It is important therefore that standing as we do in the trough of the recession, we should nevertheless recognise that important advances have been made. The rate of inflation has come down from a peak of 22 per cent. last year to just over 11 per cent. now. In short, it has been nearly halved in the space of a year. The figure for June, which was published last week, showed a further fall; a small one, but welcome all the same.
Rates of interest have fallen. Minimum lending rate is down from 17 per cent. last year to 12 per cent. now. For some months now our interest rates have been lower, in some cases significantly lower, than that which our principal competitors have to face.
Lord Beswick: My Lords, will the noble Lord allow me to intervene? Will he add to the figures he has just given the figures for the annual rate of inflation and the MLR at the time that the Government took office?
Lord Cockfield: My Lords, this is a matter with which I have dealt on innumerable occasions. At the time that we took office the rate of inflation was rising rapidly. The big rise which occurred thereafter was very largely the responsibility of the economic muddle and distress that the Labour Government left behind them. It was a major job to reverse the trends. This we have now begun to do, and the results of the reversal of policy are now being seen in significant improvements in a number of directions.
Lord Beswick: Yes, my Lords, but will the noble Lord be kind enough to give me the figures that I asked for?
Lord Cockfield: My Lords, the noble Lord is well aware of the figures. The actual rate of inflation in May 1979 was just over 10 per cent. on an annual basis; it was 13 per cent. on a 6-months basis annualised; it was rising. The rate of inflation is now down to just over 11 per cent., and it is falling. I hope that the noble Lord can recognise the distinction between something that is falling and something that is rising.
The big fall in output which occurred last year is now coming to an end. Unemployment is still increasing but at a markedly slower rate. On a seasonally adjusted basis, the increase last month was the smallest for 19 months. There are signs of improving productivity, in reduced manning levels and in better working practices.
We have introduced a series of imaginative new measures in the tax field to help small businesses. Last year we had the venture capital scheme. This year, the Finance Bill now before your Lordships gives legislative effect to the new "start ups" scheme. There are additional reliefs to help the construction

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industry. The new loan guarantee scheme has been launched. These new initiatives have been widely welcomed, have already made an impact, and augur well for the future.
It is natural when times are difficult for people to look for alternative policies. But there is no future in reverting to the policies of the 1950s, the 1960s or the 1970s. Those are policies of proven failure. As one recession followed another, inflation and unemployment grew worse. It is one thing repeating failure for a second time, as the Labour Party did in 1974, but no one in their senses would want to repeat failure for a third time. Those who will not learn from history, repeat its mistakes. Equally, there is no justification for trying to revive the reflationary policies of the 1930s; they belonged to a different world.
The Government are already spending £10½ billion a year more than they receive in taxes and revenue. To this extent they are contributing significantly to demand, not reducing it. To do more would not increase output; it would simply increase inflation. Recovery must come—and will come—from an increase in activity in the private sector, with the increase in supply which will produce its own increase in demand.
We have to look forward to the future, not back to the past. Our policies over the years have been refined and developed. For example, the system of cash limits and methods of expenditure control have been improved. New developments in monetary control have been announced, and are now being implemented. We have devised new and promising incentives, particularly for businesses. A mass of controls and regulations have been swept away. We have provided large sums of money for the nationalised industries—for British Steel, British Rail and British Leyland. We have provided more money, not less, for nationalised industry investment. We have introduced a new stock relief scheme, which will be of great advantage and financial benefit to industry. This process of development and improvement will continue. But the ultimate burden and the ultimate responsibility rest upon the shoulders of the people themselves. If they want a better future, they must not only will it, but work for it as well. There are welcome signs that this is now being realised.
The Finance Bill, in many of its provisions, is a step in the continuous process of development of our policies. I therefore commend it to the House. My Lords, I beg to move.
Moved, That the Bill be now read 2a.—(Lord Cockfield.)
12.37 p.m.
Lord Bruce of Donington: My Lords, the House has just listened to a declared, and emphatically declared, surrender by the Government to what they call market forces. Let there be no mistake about that. The noble Lord went out of his way to emphasise it, to minimise the role of Government. Therefore, what he is in fact saying is that there is no way in which organised society can have any effect whatsoever on the operation day by day, month by month, year by year, of market forces. Even so, he was careful not to mention in that regard the operation of the common agricultural policy, in which Her Majesty's Government are such
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active participants, and which of course represents a complete and emphatic negation of the whole of the laws governing market forces.
We are now two and a quarter years into the life of the present Government and therefore at this halfway house we are in a position to be able to assess the impact of what the Government have, or have not, done. Their avowed objective, which has been repeated many times, is to bring down the rate of inflation. This has been their aim from the beginning, and I observe that the Prime Minister herself emphasised at the press conference she gave in Ottawa that in her view her colleagues agreed with her that a reduction in inflation must be a precursor to a reduction in employment—a view which I do not believe is entirely shared by Chancellor Schmidt or, indeed, by President Mitterrand.
Where are we? Annualised, the inflation rate when this Government took over in May 1979 was 10·3 per cent.; and as the noble Lord said, it was rising. It had in the pipeline, he will find if he checks his figures, approximately another 2 per cent. The remainder of the rise to the figure of 22 per cent., as he knows quite well—because, in addition to the process of self-education by reading his own speeches, to which he has referred in this House, the noble Lord has probably also read mine, in which I quite successfully proved (and in this respect I have not been challenged anywhere in this House) the composition of the remainder—was injected into the system by the Government themselves by rises in value added tax and by the various other measures that they took, such as the deliberate rises in energy prices, and so on. He knows perfectly well that the remainder was self-generated.
So here we are today, down to an inflation rate of 11·3 per cent. The noble Lord said "and falling". I do not know whether the noble Lord has had an opportunity to read the report in The Times on 14th July, but I would suggest to him that he might care to pay attention to it because it says there:
"The underlying trend in retail prices is for them to rise at just over half a per cent. a month at present. But the August figures will contain the full effects of the latest round of petrol price increases, so after falling to about 11 per cent in July, inflation will go up to nearly 12 per cent. It will then edge to around 13 per cent. by the end of the year, according to most forecasts"'.
There is room for a variation of opinion in this matter, but I would suggest that the bulk of the evidence indicates—and events will prove whether or not I am right—that the present rate of inflation, annualised, is still on an upward trend. So here we are, after two years, back to roughly where we started, with inflation running at marginally over 10 per cent. and rising. I do not a want to use undue hyperbole in this House, but this seems to me to be a less than satisfactory performance bearing in mind the claims of the Government.
Now at what cost has this been achieved, this stabilisation of the rate at or around the rate at which it was when the Government took over? The first cost, of course, has been a momentous rise in unemployment. The noble Lord, when he speaks in this House, and his right honourable friend the Prime Minister in another place, make the point from time to time—somewhat defensively, I think—that under Labour unemployment doubled, as though that were some excuse or some reason

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for the terrific increase in unemployment that has taken place in the last two years. So perhaps we can abandon the bridge analogy of doubling and redoubling, and go to the actual figures.
In March 1974, when Labour took office, the figure of unemployed was 590,000. When we left office in May 1979, over five years later, the figure was 1,299,000 —an increase of 709,000. If one takes that at an annual rate, it means that there was an increase in unemployment during those five and a half years of office of 142,000 per annum. This Government have been in existence for slightly over two years. In that period, unemployment in this country has increased by 1,553,000—a rate per annum of 717,000, or five times the rate at which unemployment rose under the Labour Administration.
There were reasons for that, too. The noble Lord has been kind enough to oblige. He knows perfectly well, on looking at the figures, that the unemployment rate in the last years of the Labour Government—I am talking now of trends, a term well loved by the noble Lord—was downwards. Indeed, it continued downwards, even under this Administration, until the full effect of the idiotic measures that were taken by the Government had begun to bite. In any event, let me take the noble Lord's own analogies, bearing in mind the Prime Minister's end-of-term speech last night, in which she referred to the over-20 per cent. inflation achieved by the Heath Government (of which she was such a distinguished member) in terms of, as she called it, "the phoney boom". It is quite clear—indeed, Mr. Bruce-Gardyne, a very well respected member of the Conservative Party, so put it—that the peak inflation figure under the Heath Administration was 27 per cent; so it can be said that recovering from that 27 per cent., or over 20 per cent, inherited, and bringing it down to 10.3 per cent., was not bad going over that period.
I do not want to go into too many statistics that are embarrassing to the noble Lord. There have been other consequences, too, during these two years in which inflation has not shifted—ever increasing bankruptcies; industrial production down by 14 per cent. in total since this Government took office; manufacturing production 18·61 per cent. down since they took office; a progressive decline in investment; and a whole series of slashes at the social services. So this is all we have to show for two years in which inflation has returned to the figure at which it was when the noble Lord's Administration took office.
In August 1979, when Parliament had gone into recess, the Government decided to have a new taxes and prices index. Great store was set by it, because it was thought that the results shown by the retail price index, which by that time had begun to rise under the Administration of the noble Lord, were not altogether reliable. They did not really want people to pay too much regard to it. So, on 17th August his right honourable friend Mr. Nigel Lawson announced the introduction of a tax and price index. The announcement said:
"It provides, in one figure, a measure which combines both tax changes and movements in prices, and so for taxpayers in general … gives a better indication of changes in total household costs than does the RPI on its own".
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It continued:
"The new index will thus provide a broad measure of change in the purchasing power of incomes, before tax, taking into account both changes in taxation and changes in prices. In short, it measures the increase in gross income needed to maintain the take-home pay in real terms".
At the time Mr. Nott himself announced that it would be a powerful weapon in the Government's armoury. Mr. Lawson concluded:
"what I do say, and most firmly, is this: if you want a general guide to changes in the total costs facing taxpayers, look at the TPI, not the RPI. It is a much truer guide".
And so, after taking Mr. Nigel Lawson's advice, let us now look at the TPI. In May 1979 it was indexed at the figure of 111·6. In May 1981 it was 152·4, an increase of 36·56 per cent. So this is what we have to show in true terms after two years of the Government in office.
It reflects something that the noble Lord knows perfectly well. In spite of all the protests, in spite of all the electoral promises to reduce taxation, the Government have increased taxation, both direct taxes and indirect taxes, and in addition to that have brought a few new ones in under the guise of milking money out of some of the nationalised industries in order to put it into Exchequer funds and deliberately force at least two of the nationalised enterprises to put up their prices to the consumer—also reflected in the RPI and in the TPI that I mentioned.
But, this has not been done evenly. One would have thought, in the light of the Prime Minister's reference on the steps at 10 Downing Street to St. Francis of Assisi, that some steps would have been taken to have produced a greater measure of fairness and a greater measure of justice in the United Kingdom. That is not so because, under the taxation that has been introduced by the Government and also in this budget in particular, the rich have been made richer and the poor have been made poorer.
The question that the country will want to ask and is already asking—and there are murmurs of it on the noble Lord's own Back-Benches in this place and in another place as well—is when are the "fat cats" in the country—I hesitate to use the term and I want to make it quite clear to the Deputy Chief Whip that it is used without any personal offence whatsoever—the fat-cat farmers in the shires, the property-owners and the financiers going to be called upon to bear their fair share of the process which is euphemistically described as "getting leaner"? If leanness is indeed a virtue and industry is to be made more lithe and healthy, why should not this beneficial process be carried into the fields that I have mentioned?
The noble Lord this afternoon has given a number of excuses—or shall I call them alibis?—for the disastrous state of affairs in which this country now finds itself. Of course inevitably—and we have had it all before—he mentions the constraints of the public sector borrowing requirement. He will need to be able to convince the country that it is all right for the PSBR to go up in order to meet the ever-increasing costs of unemployment while at the same time it is wrong for the PSBR to go up in order to provide finance for industrial investment in this country which private interests in this country have so manifestly failed to do under the operation of market forces.

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One most important word was omitted from the noble Lord's speech. He never once in his entire text mentioned the word "investment", as though the whole of the future of the United Kingdom was dependent upon working people who have no access to the means of production whatsoever and have but little access to the land, and that the role of the investor must therefore be governed by market forces.
The other myth that arises from the public sector borrowing requirement is—
Lord Cockfield: My Lords, I should not normally like to interrupt the noble Lord but, if he will excuse me, he claimed that I had not mentioned the word "investment". I said we had provided more money—not less—for nationalised industries' investment. Whether the noble Lord feels that the nationalised industries are so undeserving that they ought not to be mentioned at all, I do not know.
Lord Bruce of Donington: My Lords, I am grateful for the noble Lord's intervention. Obviously, he will have the opportunity to reply without my having the opportunity of making any rejoinder. I have no doubt that he will make the best as he may of that.
The real myth is that if the public sector borrowing requirement goes up, then it is alleged that it crowds out investment; that is to say, it makes it difficult for money to be made available for private investment. This is called the "crowding out" argument. It is alleged that if the public sector borrowing requirement rises, as it would have to do if there were to be that substantial investment in industry by the state that is so manifestly necessary at the present time in order that this country may produce more, then of course less money would be available for private enterprise.
I do not want to rub this home too much. Therefore, I shall only quote what the noble Lord's right honourable friend Sir Keith Joseph said on the subject, as reported as recently as 20th June last. Sir Keith said:
"There has never been so much money available in the country. Banks, insurance companies and pension funds have money running out of their ears".
So I think the idea of the "crowding out" business is completely erroneous. Where the money has gone in many instances is abroad. One of the silliest things the Government perpetrated was the complete relaxation of exchange controls, as a result of which it is estimated that some £2,600 million has flowed out of this country abroad and much of it has gone into property investment overseas, and into the opening of foreign currency accounts, upon which recently a substantial killing has been made as a result of the decline in the rate of the dollar.
This is open knowledge. I have in my hand a circular issued by one of the leading investment bodies, which says this:
"The traditional purchasers n the United Kingdom of investment property have always been non-tax paying funds who are interested only in the capital growth of their investment. Now private and corporate investors paying high rates of tax can, as a result of the relief given in the 1980 Finance Act, afford at the very least to match the price which the institutions would pay for this sort of property. Institutional funds generally expect to invest between 20 and 30 per cent. of total funds in property
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giving a total weight of institutional money estimated at between £2,500 million per annum. This weight of money has the effect of providing a stable and regular market maintaining the yield on which prime property is bought, almost in defiance of prevailing economic conditions".
And so the indictment on that is conclusive enough.
The second alibi the noble Lord gives is that of money supply. I do not propose to deal with that argument. The noble Lord's argument on the rate of the money supply, which he knows the Government cannot in any event control, has already been succinctly dealt with by my noble friend Lord Kaldor and I have yet to hear any argument from the noble Lord in refutation.
Another alibi is that we are feeling the effects of the world depression. This is manifestly untrue, as anybody who read the extremely informative article in The Times of the 22nd July will well know. It reproduced the OECD estimates of the changes in gross national product in real terms between 1979 and 1981. These were: Japan, plus 7·7; Italy, plus 3·2; Canada, plus 2·6; United States, plus 2·3; Germany, plus 0·8; France, plus 03; and United Kingdom, minus 3·3. And unemployment in all other countries except our own has remained remarkably stable. My Lords, that argument will not run.
The other alibi is that we are uncompetitive abroad, and I think this is one that has to be laid. The noble Lord himself from time to time has paid tribute to the way in which the exports of this country have held up. But implicit in the allegation is that the wage levels in this country are much higher than those of our competitors. This can be easily corrected if the noble Lord will read the figures provided by Eurostat, which show the comparable figures for each country and which are put out in quite explicit terms. I draw his attention to the Eurostat Review 1970–1979, where it shows set out in comparable terms what they call—and the noble Lord as a statistician will be aware of it—"purchasing power standards". The hourly rates in Germany were 3·9 and in this country 2·64. In fact on that standard we were one of the lowest.
Even more adequate testimony is paid to that by one of the noble Lords' noble friends, and I would draw his attention to this. The noble Earl, Lord Gowrie, made a speech on 11th March last—he was talking at a meeting of the European Management Forum in London—in which he is reported as saying this:
"To add encouragement Lord Gowrie described the experiences of overseas companies already operating in Britain. Virtually all the 70 manufacturing companies in a German survey said that productivity in the period 1977 to 1979 was ' satisfactory ' to ' excellent '. Some even claim to have higher productivity than in Germany, and eight out of ten had no official stoppages in the previous two years".
He goes on to say:
"Germans in general find that even where productivity is lower than at home it can be more than counterbalanced by lower wage and other employment costs".
He continues:
"In the international league table Britain's strike record remains a respectable one. Some people might be surprised to know that strike losses of working days for every 1,000 employees were worse in the United States, Canada, Australia and Italy".
If there is a degree of uncompetitiveness in British industry, there is no evidence at all that it arises because of the excessively high wages paid in the United

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Kingdom. It lies in the fact, as I have ventured to suggest to your Lordships on many previous occasions, and I repeat it once again, that ever since the end of the war this country has invested in manufacturing industry, expressed as a percentage of the gross domestic product, 30 per cent. below the level in France, 40 per cent. below the level in Germany and 60 per cent. below the level in Japan. And these are the circumstances in which the noble Lord invites us to leave everything to market forces.
The noble Lord has repeated today that there is no other way. In many ways he is right; there is no other way now. There is no other way for this Government. The Prime Minister announced last night that it is now or never and that she is not going to change course. There is no point, therefore, in any alternatives being offered. It really is no good. I know the noble Lord himself has a most genial disposition, but he really should not come along to this House and address it in the mathematical, toneless terms of a computerised "Dalek". He should address it as a person who, like the rest of us, is mortal and can make mistakes. There can be no alternative that this Government has the intellectual capability even of understanding, because it is wedded to the doctrines of even the 1920s which have so long been proved to be wholly erroneous and completely disastrous to the whole of society.
Therefore all I can say is this: there is the alternative that arises in getting rid of this Government anyway. That may take a little time, but in case the noble Lord has any illusions, and in case he has any residual optimism as to the way in which this Government is conducting or not conducting the economy, may I warn him that the time of retribution draws ever nearer.
1.10 p.m.
Baroness Seear: My Lords, the House will agree that what the country needs at the present time—like a hole in the head—is a knock-about party political battle between the two Front Benches. If retribution is coming, I suggest that they look to Warrington to see the direction from which it is coming. Having said that, I have no intention of going back into the past. It is surely clear that the issues that we face today need a collaborative effort and not mutual attacks and recrimination. They are serious enough in all conscience and, in some directions at least, they are certainly getting worse.
I very much welcomed in this context, the statement after the Ottawa Summit that the Government gave top priority to inflation and unemployment. There are problems in giving top priority to both the control of inflation and an improvement in the unemployment position. But I take it that more than in the past, that statement meant—and I, for my part, do not believe that this Government are so politically foolish as not to be concerned about unemployment, even if they were so inhumane as not to be concerned about it in the past —that a better balance would be struck between the attempt to reduce inflation as quickly as possible and the attempt to curtail the rising levels of unemployment.
The noble Lord, Lord Cockfield, was, of course, right in saying that the rate of increase in unemployment is slackening. But in the case of unemployment and
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inflation, we tend perhaps to forget that a slackening in the rate of increase is not the same as a decrease. It is very satisfactory if the rate of increase is coming down, and one can almost talk oneself into the belief that a slackening in the rate of increase means that there is an actual fall. But, as the noble Lord knows perfectly well, there is no actual fall and there is no prospect of an actual fall for a variety of reasons, some of which are just plain bad luck, but some of which have to do with policy. If this is what it means, then the Budget and the Finance Bill, which was obviously drawn up months ago, might have had a slightly different emphasis if this raising of the level of importance, in relation to the policies for dealing with inflation, is to be the way in which the Government are intending to tackle policy.
I, for my part, entirely agree that there was a very great deal of slack in expenditure to be got rid of. I entirely agree with the need to cut out waste in central and local government, and I believe there is still waste that could beneficially be cut out. But—and we have said this many times from these Benches—while we favour this and recognise that there has to be a sensible degree of monetary control, we believe that cutting out essential investment—and this is the one point on which I agreed with the noble Lord, Lord Bruce, that the emphasis on investment is of paramount importance—is folly. Unemployment can be relieved, to some extent at any rate, if Government will put money into investment, money which sooner or later has got to be spent, where it will cost more to delay than to put the money in at the present time; and, in particular, into investment which will have the effect of reducing the levels of unemployment, particularly in those parts of the country where unemployment is now getting explosively high.
For example, the Government could surely put money, if only into areas of very high unemployment, into energy saving in connection with insulation. This money, allowed to local authorities for this purpose, could be used to draw into employment quite quickly—because these are not jobs which take a very long time to learn—people who are not at present getting jobs and who are not likely to get jobs. There is a small training element in doing work of that kind, though much of it is unskilled. But it would, at least, be a way of getting people, in those areas where the level of unemployment is now rising to a most alarming degree, back into work of some kind. It would also provide a pay-off in the long-run, because sooner or later we must take steps against energy waste and improving insulation is one way of saving energy.
Railway electrification also provides jobs; and another kind of job saving which it would be well worth while putting money into, and which is a form of investment, is the kind of social services which would enable real community care to be given, instead of expensive institutional care. For example, it is well recognised in relation to the old—and I think there is no disagreement about this—that the vast majority of old people would rather be looked after in their own homes, with decent domiciliary care, than have to go into institutions, which are extremely expensive and are not likely to get cheaper. But if you are to have genuine community care, genuine domiciliary service, it requires people who need to be trained and it means

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spending money, probably through local authorities. But it would be job-creating. Those are just some ways in which more spending to reduce unemployment, but also to have the effect of an investment in itself, would be worth doing and could have been reflected in the Finance Bill.
The noble Lord, Lord Cockfield, also said, in connection with reducing inflation, and in the long-run, therefore, with helping to reduce unemployment—and there is no difference between us here—that if we could get a more reasonable wage level it would, above any other single thing, probably have an effect in reducing inflation and would make for more jobs. The noble Lord recognises this. It is perfectly true that the Government are attempting to set an example, so far as their own immediate employees are concerned. But, at the same time, they are turning their face against any further experimentation with any kind of incomes policy. Yet you have only to look at recent very interesting figures which came out in the Economist just this week, showing what it would do if we could keep pay levels down to a much more reasonable level.
The Government say that this is a matter of communication. They will, at least, go that far, although they are not prepared to sponsor any kind of step in the direction of an incomes policy, and we on these Benches believe, as we have said so often, that that is a mistake. But even at the level of communication, the Government can do so much more than they are doing at the present time. What really imaginative exercise, except exhortation, except lecturing—and anybody who has lectured knows how futile a great deal of the lecturing exercise is, be it in the classroom or be it in your Lordships' House—have the Government entered into, in order to get home to ordinary people the real danger of excessive pay claims; the enormous importance of getting pay claims down to a level which begins to match productivity? It is perfectly true, as the noble Lord, Lord Cockfield, said, that we have paid ourselves far more than we have earned over the past decade and this is a disastrous thing to do.
But there are ways—this is not the debate in which to go into them—in which these ideas can be put over, so that they can penetrate into the minds of ordinary people, and so that we can break down the folly of believing that there is an inevitable rise in the standard of living which ought, as of divine right, to come to every man, woman and child in this country. I would throw out, in passing, that the appalling level of youth unemployment is not unconnected with the excessively high pay that goes to youngsters. Can we at least urge on employers and employees alike that, if pay goes up, there is no reason why the starting rate of youngsters should go up in the same proportion? It cannot be necessary. It was a great folly, in a great many cases, to reduce the adult rate to 18 from 21. I regret to say that this was partly in connection with the implementation of the Equal Pay Act, but it was never intended that it should have that effect. It is undoubtedly true that we are paying youngsters at too high a rate and that this is one reason why they are not getting jobs. But it should not be impossible for the Government, in collaboration with the employers and the trade unions, to find ways of getting this thought across before the next round of pay increases.
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Turning more directly to the Finance Bill and away from more general issues of economic policy, I must deeply regret the fact—I am surprised that the noble Lord, Lord Bruce of Donington, made no reference to this—that the Government saw fit to breach the Rooker-Wise rules and not to index the marginal rates of tax increase, so that, with inflation, a considerable number of additional people have come into the tax-paying group. This continues to make the problem of the poverty trap severe and is a very great discouragement to people getting back into employment.
I am not saying, and I do not believe that there is any evidence to suggest, that an important number of people are substantially better off out of work than they are in employment and that this has a disincentive effect on people trying to obtain jobs. Jobs are far too difficult to obtain for this to be a very important argument. At the same time, it is ridiculous that the gap between what people can earn when they have paid tax and what they get when they are not in employment is so slight. Surely it should be crystal clear to everybody that people ought to feel better off when they are at work than when they are not. Tax does not start at 30 per cent. It starts at 30 per cent., plus national insurance contributions, which brings it up to about 40 per cent. of what people earn as soon as they get into the tax bracket. At least can we not have an assurance that next year there will be full indexation of the levels at which people begin to pay tax at the starting rate, even if this cannot be done—as I hope it can be done—all up the tax range?
I know that with his long connections with the Inland Revenue the noble Lord, Lord Cockfield, will not hesitate for one second in turning down this suggestion, but in parts of the country where public transport is woefully inadequate—this goes for many of the rural areas—one of the big difficulties about employment and the relationship between earnings and what one gets when one is not working is the cost of getting to work. In certain parts of the country it is perfectly true that if you add on what it costs a man who has to go by car, because there is no public transport, to work some 10 or 12 miles away, there and back each day, the disincentive to work, at present costs of petrol, becomes very considerable.
Is it really too much to ask the Government to find out whether or not there is some way in which some tax allowance can be given towards the cost of getting to work in areas where public transport is quite inadequate and therefore simply will not enable people to get to work at public transport rates? I recognise that you cannot do this for the country as a whole, but high unemployment areas with bad public transport need special consideration if people are to be got hack into work. This is something which surely should be looked at.
But it is the whole of the tax system that we need to look at. Perhaps it seems odd at a time when public finance is as difficult as it is and when economic conditions are as depressed as they are to say that what we really need is a complete rethink of our tax system. The Finance Bill reflects once again a tinkering with a tax system which is totally out-of-date. We need to work towards some form of credit tax system which would deal automatically with many of these problems which I have been talking about: the disincentive effect

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of the tax system, combined with income-related reliefs of one sort or another, with means-tested reliefs of one sort or another.
I am not suggesting that next year or even the year after we can introduce a scheme of this kind, but I am urging the Government to get to work again on it. A Conservative Government years ago, the Liberal Party over the years, and still today, and I believe also at times the Labour Party, have expressed interest in a tax credit scheme. We know that there is a great deal of work to be done to find out precisely how it ought to work. We know that the schemes which have been put forward up to date have been, in the eyes of many people, excesively expensive, but this is no reason for not working on it again so that as soon as it becomes possible we can have a scheme of this sort without which a whole number of the problems which we discuss again and again in terms of incentive cannot be solved.
Thirdly, I regret very greatly that so little has been done in this Finance Bill to encourage the spread of ownership throughout this country. The new business start-up scheme was an innovation to help investors in small businesses. However, the exclusions from participation in that scheme go far further than, in our view, has been necessary. Why are people employed in the enterprise to be excluded from the opportunities for investment in those schemes? Why is the range of people permitted to invest so limited? I recognise that there could be some opportunity for tax avoidance of an undesirable kind, but it should not be beyond the wit of the Inland Revenue to get over difficulties of that sort if it was really seen to be desirable that greater encouragement should be given to people to put money into the enterprises and small businesses in which they are themselves working. The fact is that the way in which that scheme is operating is a disincentive which could have been well avoided.
Again, we from these Benches have long pressed for something like the loi monory which the French have: an opportunity to encourage ordinary people, who are still saving at a very considerable rate in Government securities of one sort or another, to pile their savings into the development of industry. Why could we not have some kind of scheme along the French lines which would give tax concessions to ordinary people to invest in ordinary shares on the market, and in particular in risk capital?
The noble Lord, Lord Bruce of Donington, has said that there is money running out of the ears of the institutions, but the institutions do not tend to invest in small risk enterprises—or even, for that matter, in larger risk enterprises. Too much of the money—is it 15 or 16 per cent.?—which ordinary people are saving is going into the institutions or into Government securities and not enough of it is going into ordinary industrial investment. It was, after all, the French, under Giscard d'Estaing and not the French under the present régime who got the loi monory going. Why have the Government turned their back on any development of this kind? Again, we have had no extension in the Finance Act or in this Finance Bill of the 1978 Finance Act provisions for the encouragement of share ownership in companies by employees. In all
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these ways the Government are losing the opportunity to encourage people to invest in industry- itself.
Surely it is plain to see that an increasing number of people in this country feel that they do not belong to this society and that this society does not belong to them. That is what is happening in the Toxteths and the Brixtons: society is something in which they have no part. They feel it about society as a whole, they feel it about their local community, they feel it about the place in which they work. Surely there is social as well as economic wisdom in encouraging a far wider extension, far more opportunity for people to feel that they have some ownership, some possession in the economic institutions of this country.
1.30 p.m.
Lord Robbins: My Lords, it is commonly agreed that having regard to our constitutional position there is not much point in discussing the detail of this Bill. Our business rather when, year by year, the Finance Bill comes up, is to survey aims and objectives, to search for underlying tendencies, to ask questions concerning failures and successes. Such has indeed been the centre of gravity of the speeches which we have already heard and such will be the tenor of my own remarks this afternoon.
I will begin by saying that I applaud the general objective which the Government have set themselves, the reduction of inflation. I do not believe that a society such as our own can stand for very long the rates of inflation which have emerged from time to time in the last 20 years or so. They disturb rational calculation; they impair social relations, they diminish private and public honesty and eventually, as we have seen elsewhere, destroy the sane basis of democracy.
When I hear protests against the policy of reducing inflation I feel inclined to ask the protester, "How much inflation do you think we can stand without disaster?" I have recently visited a country where inflation was running at some 90 per cent. per annum where, discounting this, the annual rate of interest was something like 100 per cent. per annum—and I did not like what I saw and what I heard in that particular country.
It is a fact that the rate of inflation has come down. It has not come down as far as might have been hoped. It is still in double figures. It went up, as the noble Lord, Lord Bruce, has reminded us, in the first year of the present Government, partly because of policies which have been denounced by the noble Lord, Lord Bruce, partly as a result—let us not deceive ourselves—of the heritage which the Government received from their predecessors; the "winter of discontent" and the commitment to refer to arbitration certain rates of wages.
I submit that it cannot be denied that inflation has come down since then. Nevertheless it is not so easy to see why it has come down. Obviously, as the noble Lord, Lord Bruce, has said, the switch from direct to indirect taxation had nothing to do with the reduction of inflation. It pushed the rate of inflation up for the time being. Now I confess from the Cross-Benches that looking back I think that at that time it was a mistake. I have no conceivable objection to the action that was taken to remove the anomalies at both ends of the direct incomes scale. Some people at the lower

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end were being dragged into tax who should not have been and the top rates on earned and unearned incomes (rates which I have never paid in my life) were totally ridiculous. But, as regards the standard rate, I cannot honestly say whether reducing it is an incentive to work harder or to work less, and I think that transferring the burden to value added tax certainly complicated wage negotiations.
If we turn to fiscal and monetary policy, at first sight the perplexity grows. So far as public borrowing is concerned, the limits proclaimed at the two main budgets which we have enjoyed since the present Government came into office, have been exceeded and, let us face it, it is not at all easy to reduce borrowing when inflation is raging.
As for the money supply, Heaven knows! it is a difficult thing to measure, although, if I may be permitted to interject to the noble Lord, Lord Bruce, not impossible to control. It must be added that until the last few months the amount of reported M3, which may or may not be a good measure of inflation, exceeded the targets which were laid down.
So, in the end, we are left with a policy of high interest rates; in our position as an open community, a much more complicated matter than is often thought. The internal effect of high interest rates on investment is obvious, notwithstanding the multiplicity of businessmen and others who, in the past, have beaten their breasts and denied it. In the past, I think it is fair to say, under a régime of fixed or semi-fixed exchange rates, the interest rate policy did not work at all badly. I incline to the view that control of the money supply in some form or another has more to recommend it, but this, I admit, is a controversial question, and I do not intend to dilate on it here. I certainly think that high interest rates have had a restraining effect on internal inflation.
Externally the effect is more complex. Interest rates which are high relatively to interest rates abroad tend to attract an inflow of capital, and this, under floating rates, tends to drive up the rate of exchange. This has a double effect. So far as import prices are concerned, it tends to make them cheaper and so to reduce inflation. I have no doubt at all that this was a powerful influence in 1980, at a time when the sterling dollar rate was high. But at the same time it does make things more difficult for the export industries, or some of them. The pound at its lowest, under the previous Government, was about 1·55 dollars; at its highest it was above 2middot;40. If I am not mistaken, this was a degree of over-valuation of the pound to which the celebrated over-valuation of 1925 was just peanuts. I have no doubt at all that the very great troubles—they have been very damaging—of some of our export industries were due to this fact.
This brings me to unemployment, which we must all surely agree at its present level is a great social evil and a personal tragedy for those concerned. But, confronted with this disturbing problem, it is desirable to bring our heads as well as our hearts into action and to seek the causes, which are very complex. In the first place, let me admit that I have no doubt at all that any attempt to reduce inflation must increase unemployment for a time. All Governments at home and abroad, on the Right or the Left, have had this experience when they have tried to reduce inflation. Yet if
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inflation goes on eventually it leads to even greater disaster. In present circumstances, the fact that in many parts of the world other Governments are attempting to cope with their inflation in this way certainly does not make things better, to put it mildly, for us. We should never forget that ours is part of a world recession.
But, on top of this, there are special local circumstances. At first, in the remote period when inflation was just beginning and for some time after that, employers were apt to hoard labour. The overmanning of many branches of industry was a conspicuous phenomenon. Now at the present day, threatened by tight money, beset with frustrated expectations fostered by inflation, the process is reversed. There is de-hoarding of labour. I have no doubt that in the long run this tends to restore our manufacturing competitiveness, the failure of which it is not possible to deny. But, in the short run, it certainly swells the volume of unemployment.
Secondly—and I know this will not be a popular thing for me to say—there has been the gap between the rise in earnings and the very low rate of productivity. By far the greater part of the value of the gross national income goes in the shape of earnings of one kind or another, and the margin of profit has shrunk to dimensions which in many cases causes closing down and bankruptcy. This is a subject where most simple generalisations are liable to error, but I have really no doubt at all that cost inflation in this sphere is responsible for some of the alarming rise in unemployment.
But where then are we to turn? With every good will to be charitable to all concerned, I do not find the alternatives which are commonly suggested very cogent. The Leader of the Opposition, Mr. Foot, urges reflation, but, in present circumstances, reflation is a polite word for increasing once more the rate of inflation. Reflation has only meaning as an acceptable policy when the rate of aggregate spending is below the volume of production at constant prices, which is what happened in the inter-war period with all its disasters. I speak on this with some trepidation, for at that time when reflation was appropriate I opposed it, and I have come to believe that I was wrong. But our position now is radically different. Inflation is still going on at a rate which is more dangerous. As the noble Lord, Lord Cockfield, said,we are living in a different world. At present reflation means more inflation.
At the back of the more sophisticated advocates of reflation lies the assumption that an acceptable policy of income restraint is adopted. I have no hesitation in saying that if there were to make its presence felt in the labour market an attitude which brought it about that whatever the pressure of demand, money incomes did not exceed the increased value of current production at constant prices or at prices rising by a very small percentage, then our problems would be considerably eased.
I have long admired and ventilated in your Lordships' House the courage of those members of the Labour Party such as, for instance, the noble Lord, Lord Balogh—who is not in his place today—who have risked popularity with the majority in urging this point. But, as the noble Lord, Lord Cockfield, said, we must be realistic. Have not powerful unions declared an unwillingness to adopt any such policies?

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While rates of wages are being settled this year in the private sector at much lower rates than before, wages in the public sector still remain far above any relation to the objective of a reduction of inflation. I believe that in that part of the public sector, which on both sides is either factually or inevitably monopolistic, there are conceivable methods of arbitration—to which I drew the attention of your Lordships' House at Question Time, I think yesterday—which have been suggested by no less a person than Professor James Meade, which satisfy the requirements of pure theory. I commend his notable article to that effect to members of Her Majesty's Opposition. But I agree with Lord Coekfield's reply to my introduction of the subject when he answered that, although the idea—I am paraphrasing—was an interesting one, it would certainly be very difficult to enforce.
So what is to happen? The rise in interest rates in the United States has relieved the over-valuation of sterling in dollars. That may ease the problems of some of our export industries. But at the same time it will tend to make more difficult the reducton of the rate of inflation. I confess that I can see no alternative save the general policy of the present Government. I hear reassuring talk of the increasing productivity in various industries. But the problem of the public sector remains, for the most part, acute.
I am no prophet and the so-called forecasters differ so much among themselves and their projections omit so many external events which are quite fundamental, such as the rise in the interest rates of the United States, that I confess I do not pay much attention to them as actual predictions. I hope very much indeed—and in this hope I rejoice in saying that it has the authority of no less a person than the noble Baroness, Lady Secar—that methods may be devised for getting more permanent jobs for young people, perhaps at wages which are not equivalent to those of persons long experienced in the industries concerned. But my main conclusion at this stage of our fortune is that there is no alternative better than the general objective which the Government have set themselves. In the last analysis our economy cannot function without greater stability in the real value of money.
1.57 p.m.
Lord Houghton of Sowerby: My Lords, I must confess that I find our debates on the Finance Bill rather unpredictable. Sometimes we have a debate on the economic situation and sometimes we seem not to have a debate at all. Scant reference has been made to the Finance Bill so far in the debate and the noble Lord, Lord Robbins, who has just spoken, reminded us of our constitutional position. This Bill could scarcely be called short and uncomplicated, which seems to be the recipe for Bills on the agenda for Fridays. Because we cannot amend it, there is little point in talking about it, but we are asked to pass this Bill through all its stages today. I suppose that the reason for that is that the Bill has arrived late from another place; another reason is that there is a time limit to the passing of the Finance Act under the provisions of the Collection of Taxes Act; and there is also the pressure of other business.
On the constitutional position, I think that it is
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worth remembering that it is 70 years ago this year that we began the subservience of your Lordships' House on matters of taxation and finance when we passed a Bill, under duress, which told Mr. Balfour's poodle to lie down and leave Money Bills alone. But, of course, in Finance Bills there are many things besides money; there is administration; there can be clamping down on the taxpayer; there can be civil liberties; there can be tax raids and seizure of documents. Indeed, anything connected with the levy of taxation can come under the Certificate of Mr. Speaker as a Money Bill. On the other hand, of course, we can do anything we like with the Social Security Bill. We can treble the cash benefits; halve the contributions; and bankrupt the National Insurance Fund, and Mr. Speaker cannot say nay—only the House of Commons can do that.
Therefore, for one reason or another this Bill has a slot in our business arrangements which we usually reserve for indecent displays and animals in zoos. But by a curious coincidence the Twelfth Report of the Public Accounts Committee—Session 1980–81—was published just as the Finance Bill had passed its Third Reading in another place. Be it noted that the Third Reading passed in another place was on a Division, so that the Bill which we have before us this afternoon could not be regarded as having received the wholehearted consent of the House of Commons.
The report of the Public Accounts Committee shows renewed interest in the so-called black economy. I want to say a few things about the black economy and then I want to go on to the strike economy. They are as distinct as black and white. They arise from entirely different causes, but they are both very serious from a revenue point of view.
The Public Accounts Committee draw attention to widespread evasions and understatements of taxable income, which are very worrying indeed. I was interested to see that on the day of the publication of that report on Wednesday, the New Evening Standard headline was "The £4,000 million Swindlers" I thought that was a good one coming from Fleet Street. The most notable tax evasion scandal of recent years was in Fleet Street: the Mickey Mouse casuals of Fleet Street, where employers and employees connived in fictitious names in order to draw—
Lord Ardwick: My Lords—
Lord Houghton of Sowerby: My Lords, my noble friend must allow me to complete my condemnation. It was when employers and employees connived to make false entries on the payrolls in order to avoid deductions under pay as you earn, leaving the recipients to declare their gains on their tax returns, which they did not, with the result that the Inland Revenue lost millions of pounds because this practice went on for years and years. My noble friend wishes to intervene.
Lord Ardwick: My Lords, it is not the Mickey Mice nor the Charlie Chaplins of the machine room who would write the headline in the New Evening Standard; it would be the sub-editors and, if they have any methods of tax avoidance or evasion, they are unknown to the world.
Lord Houghton of Sowerby: My Lords, I never know who writes the headlines in our newspapers. We are sometimes told that the editors would like some headlines but the machine room would like others, and the editors are not allowed to have the headlines they would like. Anyway, I am dealing with the headline which emerged. All I shall say is that no one in Fleet Street, from the editors to the machine room, has any right to call the kettle black when we are dealing with widespread tax evasion. This is, in fact, referred to in the report of the Public Accounts Committee.
There are other industries in which other, equally serious, evasions have been taking place. I ought to mention that Fleet Street has been cleaned up by agreement between all concerned. But the catering trades, the construction industry and the drink trade all have their special problems. Noble Lords can read it for themselves in paragraph 14 of the report of the PAC, to which I have referred.
This is a serious matter, though I do not usually join in the hue and cry which one reads in the popular press and sometimes in the reports of Parliament, on the remedies for this situation. I have written extensively on this subject and mostly the title of my theme has been the futility of taxation by menaces. I shall enlarge on that theme another time if I get the opportunity.
But now that the PAC is sounding a warning on the possible effects of widespread tax fiddles on public morals, I suggest that this subject is getting very close to the heart of your Lordships' House. We are good on morals; we can take the high moral line here because we are aided in doing so by the Bench of Bishops and by the long experience of Members of your Lordships' House in these high echelons of public administration. One can read about that in paragraph 31 of the report of the PAC. I suggest that this is the place to take up that matter.
Another reason why we are suitable to discuss this matter is that we are in a particular sense politically free to seek the truth. This is the great quality of your Lordships' House. We are free of so many of the pressures to conceal the truth and to deal in half-truths. If we have a fault, it is that our courtesy sometimes conceals what we really want to say. If we are looking at causes for the black economy, they are many, they go deep in our social structure, and they have a good deal to do with inflation, as the noble Lord, Lord Robbins, said a moment ago. It is not a problem dealt with solely by acts of administration.
Years ago, before the noble Lord, Lord Cockfield, came to the Inland Revenue, I remember that a new chairman at the Board of Inland Revenue arrived, a rumbustious character of forceful language who knew his own mind and let other people know what it was: Sir James Grigg. He said to me, "I shall not learn all about income tax in this department. I am surrounded by people who know all about taxation. I regard as my main job telling the Inland Revenue people what the public will not stand for". I have always remembered that because I thought that there was a great deal of sense in that description of his job. Incidentally, we must bear in mind that the Commissioners of Inland Revenue are appointed by letters patent for the care and management of the Income Tax Acts, and they have a good deal of statutory
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power and responsibility for administration. It cannot always be forced upon them by the will of Parliament, unless they like to take the matter much more seriously than would be justified. However, I shall not pursue that this morning; another time perhaps.
I should now like to address my remarks to what one might call the "strike economy". This has been brought about by the Civil Service dispute and the disruption in tax collection during the past 20 weeks. I do not wish to raise the whole question of the Civil Service strike. I did mention to the Lord President yesterday that I should be raising this matter in relation to the Finance Bill and I assured him that there was no desire on my part for him to put off other engagements in order to be present in your Lordships' House this afternoon.
The Civil Service dispute has prevented vast amounts of money from reaching the Treasury. In less than four months the "strike economy" has caused greater losses of revenue, temporary though we hope them to he, than has the "black economy" in a full year. That is not all, because VAT refunds due to businesses and individuals from Her Majesty's Customs and Excise have been held up. The position in some sectors of public administration is nothing short of chaotic. Earlier in the dispute arrangements were made for those who were waiting in vain for VAT refunds to set off the amount owed to them against payments due to the Inland Revenue on account of pay-as-you-earn. Now, Clause 51 has been put into this Bill very late in the day, which exempts these taxpayers from interest charges on deferred tax payments under the arrangements to which I have just referred.
This is only a small part of the tragic and deplorable events of the past three and a half months and I am surprised that so little time has been given to considering this unprecedented situation in Parliament itself. After all, Parliament has the final responsibility for the welfare and efficiency of the public services. I am sorry that the Civil Service unions themselves have not brought their case to Parliament; I believe they should have done so long ago. If their grievances were so grave as to lead to a strike of these proportions, surely Parliament should have been asked to consider what the issues were? At this moment, these unions are going through the agony of taking a decision on the Government's latest move to end the dispute. I am bound to remark that an enormous amount of harm has been done already, which will take a very long time to repair. Something very hitter and very deep has affected the pride and loyalty of the Civil Service and it should be our duty to find out what it is. I believe that part of this bitterness is due to the constant stream of criticism and abuse of the public services by the press and by politicians over the past couple of years, or even longer.
Lord Bruce of Donington: My Lords, before the noble Lord, Lord Houghton of Sowerby, leaves that point, would he care to suggest how he thinks the unions involved should bring their grievances to Parliament? What methods does he suggest they should use?
Lord Houghton of Sowerby: The same method I used and which other Civil Service leaders used in the

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past: convening meetings of Members of the House of Commons in Committee rooms and taking along Civil Service spokesmen to state their case and answer questions. Also, seeking from the assembly of Members of Parliament a group who would go to see members of the Government to convey what they had heard, and to express their views on the nature of the dispute and what they thought the remedy was. That has not been done.
Lord Molloy: My Lords, surely—
Lord Houghton of Sowerby: I am sorry to be interrupted so much. I am trying to get on.
Lord Molloy: My Lords, I am sure that the noble Lord, Lord Houghton of Sowerby, would not wish to go on the record as being incorrect, for is the noble Lord not aware that these things have been done? Civil Service leaders have seen Members of Parliament as well as Members of your Lordships' House. The main thing which irritates these leaders is that they have been denied an independent judgment by an outside body, by arbitration, to decide the issue.
Lord Sandys: My Lords, may I remind the House that we are not concerned here with a general debate on policy but on the Finance Bill itself. With due respect to the noble Lord, Lord Molloy, I feel that we should return to the subject which the noble Lord, Lord Houghton of Sowerby, is attempting to cover in his speech.
Lord Molloy: My Lords, Lord Houghton of Sowerby was the one who first introduced the subject of consultation into his speech.
Lord Houghton of Sowerby: Those of us who have spent all their working lives trying to build up a satisfactory, civilised and harmonious relationship between Government and the public services, are heartbroken to see what has been happening in recent months and the mess that has been made of what we thought was a permanent structure of good industrial relations in the Civil Service. Other noble Lords in this House shared with me the responsibility of reaching the agreement 26 years ago this year which established the principles for fixing Civil Service pay and the machinery for applying them, and, with only agreed variations, that has stood the test of varying economic and political conditions ever since, until now. It was then abrogated by the act of Government. Those of us who were the witnesses to the original agreement are bound to feel deeply about what has happened just now.
This brings me back to the Finance Bill, because never before in the history of Finance Bills has Parliament been called upon to give the principal taxing money Bill of the Session its passage through the House with tax gatherers in a state of mutiny. Are we asked to say "Content" when the Question is put on the Third Reading of this Bill? Content with what? Content with a Bill which levies taxation in circumstances in which the Government cannot be sure that
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the taxes will be collected? Is that what we are content about?
I have a revolutionary proposal to make. Under the Provisional Collection of Taxes Act 1968 I believe we have until 4th August to pass this Finance Bill to validate the Budget resolutions in another place of last March. Should we suggest that the debate should be adjourned until next week or the week after, to give the Government an opportunity of settling the Civil Service strike, and be better assured—and we in the House should be better assured—that the Finance Bill can be implemented and the requisite administration will be there to support it? Otherwise, I think that we are asked to pass this Bill in unprecedented conditions of uncertainty and of dismay, and I do not think those are the conditions in which to legislate.
I hope your Lordships will take notice of the fact that for the first time, and I hope for the last, we are asked to pass a Finance Bill with the principal taxing departments refusing to handle the money. This is not a position that we can pass over lightly merely to conform to the formalities of your Lordships' House, even under the disciplines of the Parliament Act 1911. There is nothing in the Parliament Act 1911 to say that we shall not register a vote on the Finance Bill if we want to, no matter what the consequences—which incidentally would not be harmful at all, because it would go straight for the Royal Assent even so. I think that this protest in present circumstances and the conditions under which we are asked to pass this Bill is justified.
2.18 p.m.
Lord Spens: My Lords, I understand that the noble Lord, Lord Barnby, has decided not to speak in this debate, and so I am rising now to address your Lordships for a very short time. As you know, my particular interest is small businesses, and I felt that I must speak today because two months ago, when we had a debate on small businesses, I criticised the clauses dealing with the business start-up scheme in the then Finance Bill. I said then that its scope is limited to the first three years of the life of a business, to cover only 30 per cent. of the equity of that business, and it is only for businesses which, among other limitations on their nature, may not deal in goods.
But it is most gratifying to see that in fact the Bill, as it now stands, has adjusted all those three points and that the scope now extends to 50 per cent. of the business. The limit has been extended to the first five years of the life of a business and genuine dealing in goods, to the extent that it is wholesaling or retailing, is now included in the Bill, and that will make an enormous difference to the possibilities of those clauses helping small businesses. I am thankful that the Government have been able to see their way to expanding those clauses in that way.
There is much more to be done of course and it does not all have to wait till next year's Budget and Finance Bill. I am sure that lower interest rates is still the great priority and I believe that more could be done now by the clearing banks to assist small businesses with differential rates of interest for particular purposes. They are not yet flexible enough and I am

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sure more could be done. A reduction in the national insurance surcharge would be an enormous benefit, if the Government could see their way to making such a reduction; it would be an incentive not only to expand businesses but to reduce their costs, and action along these lines should be taken as soon as possible.
Sir Harold Wilson and his commission recommended that some form of organisation similar to the Council for Small Industries in Rural Areas (CoSIRA) should be set up in urban areas. If that were now set up in some inner cities where we are having crises of trouble, I believe that could be a base on which the Secretary of State for the Environment could build any recommendations he might bring back with him. I commend to the Government the idea that some form of operation similar to CoSIRA is needed urgently for inner city areas, and I hope that when it comes there will be more finance available for it than is at present available for CoSIRA, and the powers in respect of both organisations should be increased. I commend the Bill because I believe it will genuinely help small businesses.
2.23 p.m.
Lord Molloy: My Lords, I hope the noble Lord, Lord Spens, will forgive me if I do not deal with all the points he made, although I wish at the outset to express my sympathy for him in view of the tragic situation that exists among small businesses, particularly under the present Conservative Administration, for they are going down the bankruptcy drain faster than at any time in British history. That is why I have great sympathy for the noble Lord, who I hope will listen carefully to what is being said from these Benches; if he really has the interests of small businessmen at heart, I must tell him that I firmly believe that it is only through the policies which are being enunciated by the Leader of the Opposition that working people and small businessmen can reassert themselves and make their contribution to the welfare of the nation.
I wish also to thank the noble Lord, Lord Cockfield, for the wide boundaries he drew in his opening remarks. That was a useful and generous way for him to approach the subject because he mentioned, in addition to taxation and expenditure, the fact that the Bill would affect industry, the trade unions, unemployment and inflation. I would add one further dimension; that is, the social effects on millions of our fellow citizens. When a number of noble Lords, including the noble Lord, Lord Cockfield, have seemed to stress that wages must be held, it seems that the holding of wages is fundamental. There is some degree in truth of that. Let me give an example to the House. From 1977 to 1979 the wages and social contract between the then Government and the Trades Union Congress limited wage increases by a voluntary agreement, not by the force of law. During that period we had the minimum industrial unrest in this country and we started to bring down inflation.
But there was a enemy, and I would ask noble Lords on all sides of the House to note this. The figure during the period of the maximum strike action in the British Isles cannot equate with the number of working days lost through bronchitis, pneumoconiosis and other industrial diseases. These are still the curse in working days lost which are well above any loss because of
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strike action. I would immediately add that strike action itself very rarely helps any situation, and most often, as we have seen in the past, working people have been driven to it. We are told, for example, that they must hold wages down, How can trade union leaders go to their membership with this proposal when the membership of trade unions—some 12 million of our fellow Britons—are hit as they were hit by the dramatic increase of VAT to 15 per cent., when every housewife and every working man, those who work by hand and brain, discovered the rise in the grocery bill, the clothing bill, shoe repairs and in everything that affected their lives? They wanted some help in meeting those bills.
I believe this House must understand that when the working men of this country—and I include those who work by hand and brain—ask for wage or salary increases, it is not to swell their bank balance; it is to pay the grocer, clothing manufacturer and all those who make their contribution towards enriching their way of life. If they cannot do that, the only alternative is for millions of our fellow countrymen to accept a drop in their standard of living.
Let me tell noble Lords that we have the most responsible trade union movement in the world, but what enraged trade union leaders was the realisation that the cut-back in wages and the holding down of salaries were designed by this Tory Administration to enable massive cuts in taxation to be made for the very wealthy. This House will realise, for example, that a cut of thousands in taxation might be equivalent to twice the wage of a British nurse in a British hospital. I believe that the noble Lord and indeed all of us must take full cognisance of that; we must try in industry and in the public sector to understand what is irritating and annoying people.
Equally, I believe that people realise that the policies of the present Government are in no way going to be changed, irrespective of the cost which could well be the ultimate epitaph of Conservatism. I do not mind it being the epitaph of that Party, but I am very concerned that it should not be the epitaph of my country as a result of the present Government's policies—This massive operation was successful but the patient died. There is very little sense in that policy.
It would be equally foolish if we did not acknowledge that the root cause of much of what we are suffering today started, as the noble Lord, Lord Cockfield, has said, way back in the 'sixties and ran through the 'seventies and 'eighties. I think he is perfectly right. There is a great deal to be said for that argument, It was in the 'sixties that we were lulled into a sense of false security—the noble Lord was absolutely right—because at that time the Conservative Prime Minister, Mr. Harold Macmillan, was telling the nation. "You've never had it so good". Does any noble Lord opposite want to quarrel with what I have said up till now? Well, let me proceed.
I turn now to the cause and effect of inflation. We must acknowledge that to many people it seems that one cannot blame Government policy alone, and it would be foolish to do so. However, it is making a massive contribution towards deliberately creating unemployment. I believe that the causes are a combination of Government policy—which is centred on monetarism, which has an appalling record

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throughout the world wherever it has been applied—and. to be fair, a degree, a considerable degree, of world recession, for which the present Government are not entirely responsible. Those I believe are the causes.
What then are the effects? The first effect which I believe we must note in this House is the social misery and worry which unemployment creates in every home, whether it be in a middle-class home or any other type of home. It might involve, for instance, a personnel manager who has been on a good salary, and is in the middle of buying his house with a big mortgage. He is sacked because there "ain't no personnel for him to manage". When that happens to the personnel themselves, it means that there is great distress in millions of homes.
It also means of course that as the factory wheels stop, as the small businessmen go out of business. as small industries pack in, there is bound to be loss of production. Where there is loss of production people are put on the dole, and so there is even less production, and of course once they are on the dole there is a dramatic drop in purchasing power. Hence there is a reduction in sales in every High Street throughout Great Britain. Because of cuts in production there is an increase in bankruptcies as well as in redundancies. In consequence of all that, there is an increase in unemployment, and, as a consequence of that increase, back we go to more social misery and more social worry; and the whole ridiculous theme goes on ad infinitum. At the same time there is a massive depression in the standard of living among our people. Many people think that there is an awful evil smell of total disaster in the air, and we must disabuse them of that, because there is an alternative policy.
When we look at what the noble Lord, Lord Cockfield, has said, and indeed at what my noble friend Lord Bruce of Donington has said, we see that there has been a lack of proper investment; that is another contribution to the situation. People have been working with outdated machinery. There have been bad conditions in many of our industries because of out-dated machinery. I hope that your Lordships will note that figures with which I have been supplied from the most authoritative sources reveal that today, in 1981, the average British worker has behind him £7,500-worth of machinery, the German worker has £23,000-worth of machinery, and the Japanese worker £30,000-worth of machinery. That I believe is indicative of both the avarice that there has been in the higher echelons of British industry and the lack of proper investment. Due to that, British industry has not been able to give of its best and because of that the rates of profits have been falling. Therefore there is a similar vicious circle of no investment, no attraction to overseas buyers and a reduction in profits, with men and women being thrown out of work.
But there is another element, a very ugly, evil element, and it is this. There has been a great deal of investment overseas, not in this island, by British manufacturers. Some of them are quite prepared to fly any flag provided it is not British. We should realise that in 1950 one-quarter of the world trade in manufactured goods was provided on this island.
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Now, in this year of 1981, that has been reduced to one-tenth. Further, from the Common Market countries Britain has imported £2,700 million worth of manufactures on almost an annual basis—and that figure is in excess of what they take from us. So we are getting a very raw deal and a very unjust deal from the Common Market; and ordinary people in industry and commerce—businessmen, fitters, coalminers, every one of them—are beginning to realise this and are feeling frustrated and annoyed.
There is another aspect of unemployment which I believe all Members of this House would agree gives us great concern. It is inevitable that when unemployment grows it becomes most dangerous when people pick on one another, not because of their particular situation but because one might have a deeper tan of skin than the other. In short, it is a danger to the ethnic minorities. Alas! this happens mostly among the young, and, in the case of the recent disturbances, whatever else has happened at those disturbances, I firmly believe that the basic, root cause is the aimlessness of our young people, waking up every morning with nothing to do.
I am bound to say that, as with the rest of the unemployed, they do not want any charity, they do not want any dole, but they have got to take it. Every unemployed family has got to take unemployment benefit; every unemployed young person has got to take some degree of unemployment benefit. What for? Once again, it is to pay their way—to buy clothes, to buy food, to be able to travel to look for a job. As I have said before, this benefit that they get is not to bank, although there are elements in this society of ours who have had massive tax reliefs for which there is no other purpose than to bank.
My Lords, young men and women today, different from the 'thirties, have a much clearer understanding. They are not as docile as we were. They will not simply have hunger marches. They will not just go to Hyde Park and start the protest off with a hymn. They are not going to do that any more, because they realise that they have got to make a mark somewhere to ensure that the greedy and the avaricious understand the plight that they are in. I deplore this. I hope that they will stop these sort of antics; and we in this House and in the other place, and in every local authority council chamber up and down our land, should encourage them by making it transparently clear that their case is not being neglected and that we intend to do something proper about it.
My Lords, if we intend to do something proper about it, I happen to believe that the philosophies of Keynes and Kenneth Galbraith are the ones we ought to adopt—and these have been embraced by the right honourable Michael Foot, the Leader of the Opposition. I support him, if only for the simple reason that all the theories we have had have failed. The theory of monetarism embraced by the Prime Minister has brought disaster to other parts of the world, and now it is bringing disaster to this country.
What, then, is my proof about spend and prosper? It is because we have gone through it before. I was one of the victims. I have been on hunger marches. Nothing the great economists have said can help you in any way; and I sometimes think that, with the exception of Keynes and Galbraith, if you put all the

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economists in the world from end to end they would not arrive at a conclusion. But the fact of the matter is that when Keynes and Galbraith expounded their theories, in those days the country that was suffering worse from inflation (the bogey of today) and from unemployment (the terror of today) was the United States of America. The then President of the United States, Franklin Delano Roosevelt, talked with Keynes and talked with Galbraith, and was convinced that their fundamental philosophy of spend and prosper should at least be tried. It was tried in the United States. It proved successful. It was hailed, correctly, as a "New Deal" for all the American people, and it was successful. We tried it later in this country and we too found it was successful.
Therefore I have to say the fundamental element in that aspect of spend and prosper was this: many of our great town halls, roads and schools were built during the depression to find work for the unemployed. Indeed, it put the building industry back on its feet and once that happened, when there were half a million people in various aspects of the building industry hack at work, they could afford to buy clothes, eat better, travel further, and so on. Then the wheels of industry started to turn and the amount of money that the Government had put in following the principle of spend and prosper was recouped enough that by 1938–39 we could start thinking of spending in millions to arm ourselves against the threat of the Nazis in Europe. So I believe that we should take full cognisance of what has happened and what has been proved. What I have enunciated in this House, what the Leader of the Opposition has enunciated in the country, are policies that have been tested and, above all, that have been proved. I would have thought that any sensible person would say, "If they succeeded then, for Heaven's sake! let us try them again to get us out of this grave situation".
There is another aspect that I should like to mention which is causing me great annoyance, and I am sure that I shall carry every noble Lord in this House with me on this issue: great play is made by the Press and the media about those evil people—and they are evil people—who desecrate social security and cheat. That I find abominable. When one realises that the amount of social security fraud equates to £4 million a year —that is,.02 per cent. of all benefits paid—that form of cheating costs a man earning £100 a week 2p. That is too much and it ought to be stopped.
On the other hand, we realise that there are great patriots who always want a bigger Army, bigger RAF, more neutron bombs and horrible missiles. At that level the amount of tax evasion is no fewer than £9,000 million. Which is the greater evil? It is so obvious. But that is not the view of the Government. Let me explain what I mean. The fraud staff, to catch out the social security cheats in the DHSS, has been increased by 25 per cent. The Inland Revenue staff who check up on the tax evaders has been cut by almost 5,000 personnel. That is known outside. This is what the trade union leaders have to listen to from their shop stewards, from their economic advisers, and when they read the Financial Times. They have to tell their members: "It is just too bad. You still have to hold back on wages and these people get away with more
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money through fraud and tax evasion then you will earn in 12 months".
It is ridiculous. The general secretary of the Inland Revenue Staff Association, Mr. Tony Christopher, made it quite clear that if his staff in the Inland Revenue could be increased to the same level as the increase in staff in the DHSS, he believed that they could recoup something between £500 million and £700 million a year for this nation. I believe that is a worthy proposition that we ought to take seriously.
The noble Lord, Lord Cockfield, quite rightly said, as did my noble friend Lord Bruce, that sometimes pictures are painted of our nation which are grossly inaccurate. That is perfectly true, and I should like to give one or two examples on the question of taxation. We have heard time and time again from the media, and, I regret to say, sometimes from the more responsible newspapers, that we are the most highly-taxed nation in the world. This is untrue—that is, if you accept, as I do, the findings of the OECD committee which examined this question. Of the 23 countries belonging to the OECD, Great Britain is eleventh from the top. These are not the words of the Labour Party or of wicked democratic socialist propagandists. I am now quoting totally independent sources. Take, for example, the International Institute for Economic and Social Research. They have said that if employment were at the 1973 level the public sector would have a surplus, instead of which it has a deficit. Why can we not change this? I would not have thought it was particularly difficult.
Public health is vital to us; it is our greatest, and ought to be our first, line of defence—the health of every living soul on this island of ours. But we have the National Health Service falling to hits. Can we spend more? Let us be sensible. Let us set up a Royal Commission to examine in depth what we ought to do. We did that a couple of years ago and the Royal Commission reported to Parliament. It was unanimous that in financial and monetary terms and above all, for the health of our nation, the National Health Service should resort to the principles on which it was founded by the late Aneurin Bevan in that it should be totally free at all points. We could gain so very much from that. Again, these are not my words. This is not wicked socialist propaganda; it is the finding of an independent Royal Commission, upon which eminent men and women served. There was no minority report; their view was unanimous.
When one looks at the report of the Personal Social Services Council one finds that they say this about the state of affairs in our country at present: there is very little evidence to show that we are really trying to protect the most vulnerable in our country. What they meant by that were the blind, the disabled, and those suffering from a variety of industrial diseases which, as I have already said, in any one year cause more lost time than any strikes since strikes were recorded. We have to make transparently clear to people that we understand and are concerned about these things, that we are all of us concerned for our fellow human beings. It is not just the prerogative of any one party or any one group. We all ought to share in this. I believe that if we can adopt the policies which have been shown and proved to be right and which are part and parcel of the Opposition's case, it could help our people in this country in many ways.

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If I may, I should like to say in conclusion that I believe our people have the capacity to overcome the things that afflict us today. With the same humanitarian policy, we can rebuild our economy and rebuild our nation. Our people are capable of doing that, for I believe that when they are free to do it they will start to rebuild our economy, enriching their own standards of life. The way in which they can do it, and the way in which they will do it, will be not merely for the people of this island, but the endeavours of the British people will, once again, be a model for all mankind.
2.51 p.m.
Lord Westbury: My Lords, your Lordships will be very happy and relieved to hear that my average speaking time in your Lordships' House is three minutes and I shall not disappoint you today. I feel that I ought to express the great concern of the racing industry at Her Majesty's Government's decision to increase the rate of general betting duty from 7½ per cent. to 8 per cent. The Jockey Club, the Levy Board and the Horserace Advisory Council have repeatedly warned the Treasury of the dangers of an increase in the tax of betting turnover. Between the last increase in 1974 and 1980, betting turnover rose by 89 per cent., while the retail price index over the same period increased by 146 per cent. The effect of this has been that the Levy Board's revenue is now insufficient to meet the accepted requirements of the racing industry. As a result a number of very harsh decisions have been taken on the allocation of the limited funds available.
In addition, I should like to remind your Lordships of the words of the Royal Commission on Gambling:
"That the rate of deductions from off-course bets was uncomfortably high, and that any increase in the rate of duty carried with it the risk of driving more betting underground".
This would lead to a consequent loss of income to Her Majesty's Government and to racing, not to mention the possible consequences to law and order. I should also like to point out to your Lordships that, in support of this view, the Chief Secretary to the Treasury said in the Finance Bill debate on 13th April 1981 that:
"…the main gambling revenue raisers are already close to the point of diminishing returns".—[Official Report, Commons; col. 39]
I therefore find it extraordinary that, despite the views of the racing industry, those of the Royal Commission on Gambling and those of the Chief Secretary to the Treasury, Her Majesty's Government should, nevertheless, choose to increase the rate of off-course general betting duty. The effect of this ½ per cent. increase has been compounded by the major bookmakers' decision to raise deductions from punters by a full percentage point from 9 per cent. to 10 per cent. I very much hope that, in the near future, Her Majesty's Government will see their way to reducing the rate before further serious damage is done to the racing industry, which by its actions already provides the Treasury with an income of over £200 million a year.
2.54 p.m.
Lord Hatch of Lusby: My Lords, I must apologise to the House for the fact that my name does not appear on the speakers' list. This was due to some confusion in the drawing up of the list, which is entirely my responsibility. But I could not resist continuing the dialogue that I have been having with the noble Lord, Lord Cockfield, over the past two years on one of the few occasions that we have had recently of debating economic policy generally.
I am grateful to him for broadening out the debate from, simply, the Finance Bill into the Government's general economic policy. The noble Lord, Lord Cockfield, began his speech by referring to the limitation of Government powers over the economy. Let me remind him that his party and his right honourable and honourable friends in another place were elected on a manifesto which laid down what they were going to do; what powers they were going to use. I recall vividly in many parts of the United Kingdom, during that election, hearing what the Conservative Government were going to do about inflation and unemployment. Your Lordships will remember the posters with the long queue of so-called unemployed who, believe, were recruited from Central Office. What has happened to those posters? They said what a Conservative Government would do about public expenditure, what they would do about increasing production, what they would do about reducing taxation and what they would do about increasing investment in British industry. This was, paraphrasing, the programme upon which the Conservative Government were elected. It was a false prospectus. We have now discovered, just over two years after the election, how false that prospectus was. We said so at the time. We said in detail why we considered it to be a false prospectus and over the past two years the Government have proved us to be right.
Members of the Government are continually boasting about reducing inflation. They are reducing it from what? At the beginning of this debate my noble friend Lord Bruce of Donington pointed out that the very first thing which this Government did was to increase the rate of inflation, quite deliberately, quite openly and quite honestly, by increasing the rate of VAT. Turning to unemployment, are the Conservative Government still putting up their posters about what happens under Labour? Again my noble friend Lord Bruce of Donington gave us the figures of the increase in unemployment under the Conservative Government and under the last Labour Government. Turning next to public expenditure, I understand that the Government have now exhausted their attempts to reduce public expenditure, and that even the Chancellor is now having to reduce the figures which he was hoping to put forward to the Cabinet in the autumn.
My noble friend Lord Bruce of Donington showed how over the past two years production in British industry, particularly in manufacturing, has sunk continually and drastically. Taxation is at a higher rate today than it was at the time of the election and there are more people paying tax than during the time of the last Labour Government.
Finally, may I turn to investment. I have warned this House time after time and I have never had a

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answer to this question. We saw under the Heath Government from 1970 to 1972 that when exchange controls were removed investment left this country. It does not, unfortunately, go where it would be most useful, into the developing countries. It goes where it will find the greatest profit, into the already developed countries which are our manufacturing and industrial competitors.
I should like to take up the noble Lord, Lord Cockfield, from the point at which we left this argument last year. He may recall that he referred us to the history of inflation going back to the last century and said that from 1919 onwards there had been a different kind of inflation. I will not go into all the details, but he will recall that his argument was that there was a different kind of inflation after the first world war. He has partially repeated that argument today, although he has talked more about the years after the second world war. But these were years when production was increasing, when we had full employment in this country, when we had an opportunity to restore Europe and much of the Far East after the war, when there was a growth in world trade and in the world economy as a whole. So we did have that advantage during the 1950s and the 1960s and, rather than castigating those years, many people would look back on them as years in which, so far as life in this country was concerned, there was a great deal more prosperity than there is today.
The point I want to make to the noble Lord is that somewhere we took a wrong turning, and I want to suggest to him and to the House that that wrong turning was taken particularly during the 1960s and the early 'seventies, when the work of restoration had been virtually completed. When we came to a crossroads the way straight ahead was to complete the task of construction and reconstruction by going straight ahead to the half of the world that was virtually a closed market, where there were not the buildings, where there was not the infrastructure, where there was not the purchasing power which we had restored in Europe and in North America. It was here that we took the wrong turning because we had then, as we have today, half the world waiting for the products of factories which in this country and in other industrial countries are now empty.
I shall not pursue this further because the noble Lord and I have debated it on a number of occasions, but I would say one thing about the current situation. Yesterday, hearing the statement of the Foreign Secretary, I could hardly credit the cynicism with which those seven leaders of the industrial nations had signed a communiqué committing themselves—and the word was "committing"—to increased public overseas aid and increased public information about overseas aid. Is it any wonder that, at a time when the British Government are cutting overseas aid by over 15 per cent. and when the American Government is at its lowest point as regards overseas aid since the war, a communiqué can be signed by the leaders of the Governments of those countries, committing themselves to increase overseas aid?
The reason I make that point is that it seems to me that it is directly relevant to the wrong turning that we took during the 1960s. That overseas aid creates the opportunity for British jobs; it creates the infrastructure
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which the British businessman can use; it creates the purchasing power for the purchase of British goods; it creates British jobs. What this Government are doing—and indeed what the Government are doing through the Finance Bill as well as in other sectors of their economic policy—is to destroy the opportunity for the traditional British innovation, ingenuity, inventiveness and imagination to extend itself into that other half of the world which at the moment is lying fallow. They are doing it not just by cuts in overseas aid but also by cutting down on research and development—surely one of the most important aspects of economic policy for this country today. We are the only industrial nation actually cutting down on our expenditure on research and development. And we follow that by the cuts that are now going to reduce the opportunities of our technological institutions, like Salford University, Bradford University, Aston University, the polytechnics, the apprenticeships; the Bill we were debating in the last week, the Employment and Training Bill, cutting down on the industrial training boards. This surely, by the Government's own standards, by their own values, is self-defeating; it is defeating the opportunity of restoring, developing, resuscitating British industrial power.
Let me give your Lordships just two figures. West Germany turns out twice as many engineering graduates per year as this country does, and three times the number of apprentices—and their apprentices have to pass an examination—each year that we do. It may be that the people in this country have too high expectations in standards of living. I should be prepared to discuss that with the noble Lord at any time. It may be that the whole of the industrial world is using too high a proportion of the resources of the world, if we are looking ahead to the development of a world community.
It could be argued that this Government are deliberately reducing the standard of living of the people of this country. That could be used as a constructive argument that we should reduce our standard of living. But we cannot expect people to accept that kind of argument when, as my noble friend Lord Molloy has been pointing out, we are at one and the same time cutting the taxation of the rich and taxing more of the poor. We cannot expect people to accept that argument when there are in real terms over 3 million unemployed in this country. We cannot expect people to accept that argument when they see the welfare state being quite deliberately destroyed, when they see the rights of the trade union movement being deliberately attacked. Only today an all-party committee has condemned the Government for what it calls "total contempt for homeless poor people"; that is an all-party committee of our Parliament.
When the noble Lord, Lord Cockfield—and again we have discussed this before—talks about the wage increases and the necessity of restricting those wage increases, let him go back to one of his mentors, Professor Hayek, and remember what Professor Hayek had to say about what he called real wage resistance, because it is the real wage resistance against the policies that I have been outlining over the last three minutes that is inevitably forcing the working people of this country to demand that their trade union leaders, not just ask for but, if necessary, fight for

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wage increases which will keep up with the inflationary policies which this Government have followed. I wonder whether the noble Lord has given any thought to what he will do about the miners and their wage demands? They are in the nationalised sector. He has been telling us how the Government are keeping down wage increases in the nationalised sector. What will he do about the miners?
I think that it has become obvious, and increasingly so, in the press and among the public that this Government's policy has failed, and failed totally. If the noble Lord wants an example of that he has only to look back to last week and to what happened to the Conservative vote in Warrington. I wonder what will happen when by-elections are held after the end of this year, when his traditional supporters find that the earnings-related benefits are brought to an end and when the middle income unemployed find that their benefits from 31st December are being drastically cut? Some of us warned—we were called over-dramatic when we did so—that this type of socio-economic policy, if followed through by this Government, would lead to social unrest, which, in its turn, could very well turn to the violence that we all deplore.
I am not sure; I cannot make up my mind whether I would like this Government to continue the policies which they have followed now for over two years. If they do so, then we can expect that the monetarist theory and the class privilege policies will be killed for ever. However, if the Government do continue those policies as outlined by the Prime Minister last night, when she talked about making industry lean and fit—I do not know about fit, but the leanest figure that one can imagine is the skeleton and that is where this Government are leaving the legacy of industrial Britain—my fear is that it may be that Karl Marx was wrong. Your Lordships may remember—you have been reminded of it by other noble Lords—that Karl Marx believed that the institutions of this country might just change the social relationships of this country without violence, without violent revolution. But everything that has happened over the past two years suggests that that might not now be possible.
My noble friend Lord Molloy gave one epitaph for the Government's economic policy as outlined in this Bill. I would give another. I have been giving some thought to how one can describe this policy. I am sure that the noble Lord must have read many epitaphs on the Government's policy from a very wide range of economic writers. My epitaph on the Government's economic and industrial policy would be taken from the Book of Deuteronomy. I am sorry that there are no right reverend Prelates here to correct me if I am wrong, but I believe that there is an apt phrase in the Book of Deuteronomy:
"Thou shalt plant a vineyard and shall not gather the grapes thereof. The fruits of the land and all thy labours shall a nation which thou knowest not eat up".
That is the epitaph to the policy which the noble Lord has put forward to the House this afternoon, and I hope he will recognise, in his customary humility, that I am by no means alone—nor are socialists by any means alone—in characterising the Government's economic policy in those terms.
Viscount Barrington: My Lords, the noble Lord quoted the Book of Deuteronomy, which I believe means the second book of the law. "Deuto" means the second. Perhaps the noble Lord will remember that there is the third book of the law which to me has something more interesting to say about vineyards and labourers than those very beautiful words which he quoted from the Book of Deuteronomy. I do not think that that is very relevant to this debate, and I shall not enlarge on it. I shall read the noble Lord's speech tomorrow and try to disentangle some of the wonderful metaphors that he produced. I shall speak to him in private and not in public.
3.17 p.m.
Lord Noel-Baker: My Lords, I rise to apologise for the fact that my name does not appear on the list of speakers and for the fact that I failed to hear the opening speech of this debate. I have, in fact, travelled through the night from Ottawa and I have come straight to your Lordships' House from the airport. I should like to express my full agreement with my noble friend who spoke of the Conservative policy of making the rich richer and the poor poorer. It has been tried before during my long lifetime; it has never produced the national prosperity which is promised when the measures are adopted.
Fundamental to this Finance Bill and fundamental to the position of the country at the present time are the two issues of inflation and unemployment. It is on those that I wish to make some observations which, in my hearing, have not yet fallen from other noble Lords. I deal first with inflation. Every economist since Adam Smith has said that inflation is too much money chasing too few goods. Every economist since Adam Smith has said that armament expenditure is unproductive. The fact is that over the last 10 years the world has spent £2¼ million million—in American phraseology, £2¼; trillion—on armaments. For that enormous sum, no goods have been produced that anyone can buy or take home. You do not buy a machinegun or a "mini-nuke" and take it home to tea. The facts of the world situation prove the theory that armament expenditure is the major cause of inflation, the hypothesis which I am putting. Israel is a progressive state with a remarkable record of development and general achievement. Israel has the finest financiers in the world—the Jews—but Israel spends the highest percentage of its annual wealth on armaments. Some 30 per cent. of Israel's total annual income goes towards what it is pleased to call defence. With the finest financiers in the world, Israel still has an inflation rate of 150 per cent.
Turkey spends the second highest percentage of its wealth on armaments. Turkey has suffered an inflation rate of 70 per cent. Japan has almost the lowest defence expenditure in the world. That country has been spending less than one-sixth per head of its population of the amount that we spend in this country. Japan's inflation rate has been under 5 per cent. I believe the case has been proved that the major cause of inflation is armament expenditure, both in this country and in the world at large—and world inflation has a devastating effect on our own country.
With regard to unemployment, it is generally said by those who defend the arms race and who regard

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the constant increase of competitive national armaments as a desirable policy, that armaments are good for trade—but that is the exact reverse of the truth. I regard the arms race as the suspension of rational thinking; I regard it as a drift to ultimate and certain disaster. The next time it will be a nuclear disaster. This will mean not "third time lucky", but third time dead.
Lord Sandys: My Lords, although I believe this House much appreciates the fact that the noble Lord, Lord Noel-Baker, has only just returned from the Ottawa Summit, we are discussing the Finance Bill. However fascinating the subject of arms control may be to your Lordships, I feel that we should return to the subject under discussion.
Lord Bruce of Donington: My Lords, so far as I am aware, it has been the custom in your Lordships' House for many years that when the Finance Bill—over which this House has no constitutional control as such—comes before your Lordships, the House may discuss its broad economic issues. Indeed, on the two previous occasions I have participated in such a debate, both the noble Lord, Lord Cockfield, and myself have actually discussed the economic situation in these terms. I would have thought that it was quite legitimate for my noble friend to make the point that armaments are an ingredient in inflation.
Lord Noel-Baker: My Lords, I am greatly obliged to my noble friend for his kind assistance. I submit, with respect to the noble Lord on the Government Bench, that I am in fact discussing unemployment, which is now a vital issue for so many millions of our population in this country. I was saying that armament production is normally, or often, regarded as good for trade, whereas in fact it is exactly the opposite. Armament production is a cause of mass unemployment. Armament production is capital intensive, and there are official United States statistics which show that a billion dollars invested in armament production generate 78,000 jobs for a year, but a billion dollars invested in civil employment, in housing, in goods, in furniture, in television sets, in motor-cars generate not 78,000 but 100,000 jobs.
That is to say, civil production produces 22,000 more jobs per annum per billion dollars than armament production, and 600 billion dollars are being spent by the world today on armaments. Six hundred times 22,000 is 13 million jobs. In Ottawa at the economic summit they were calculating that in the industrialised countries there were 18 million unemployed. If the disarmament problem were dealt with as it should be in the special session next year we might hope that the abolition of armament expenditure would bring us 13 million jobs—a great contribution towards the solution of the economic problems which the world is facing today.
I want to support what the noble Lord said about unemployment being the cause of the violent riots—the un-British violent riots—which we have known in various parts of our country in recent weeks. They are of course carried out largely by young people for whom society can find no useful work to do, who have no prospect of a job, and for whom there are no facilities and no training for the employment of their physical,
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artistic, and intellectual energies and talents. They have nothing to do. They have no purpose in life, and they take revenge against society by violent riots in desperation and frustration.
I believe that if this Finance Bill were to make investments which I will suggest a very great reduction in the cost of crime could be made. Have your Lordships considered what crime costs us today? Five or six years ago The Times newspaper estimated the cost of crime at £2,000 million a year. A few months ago in 1981 it revised its estimate to £5,000 million. If the Government were to invest £1,000 million in constructive training facilities for music, drama, ballet, sport, they could make a very great reduction—far more than £1,000 million—in the cost of crime.
Music is an instrument of tremendous power in education. It has been said by a high authority that a good brass band not only transforms the members of the band but transforms the whole school. If the Government were to invest £500 million a year in education—in part-time singing for all classes from the age of six in their schools, for the promotion of choirs and orchestras for all ages at all levels, in clubs and societies in schools and universities—we should find that the people who take to music do not take to crime, and the same is true of drama and the ballet.
I speak with particular feeling about investment in sport. The declared policy of the Government—declared through the National Sports Council—is the policy of sport for all. But we know that sport is not available to all; that in many towns and villages there are no sporting facilities whatever, with no one to lead, organise or train the people, the young and less young, in the practice of games and sport. When I was young we were first in the world in our sporting facilities. Today we are last in Europe. If the Government were to invest £300 million a year in new gymnasia, indoor sports halls, swimming pools, football grounds, squash courts, tennis courts and so on, and if they invested £200 million a year for a service of organisers, leaders, trainers and coaches for sport, they could bring physical recreation within the grasp of people of all ages, and above all for the young people under 45 who so urgently need physical recreation to lead a satisfactory and rich life.
If the Government would make those investments, they would give the unemployed some purpose in life, some outlet for their physical, artistic and intellectual energies and talents, and I believe they would achieve an enormous reduction in the cost of crime. It is because this Finance Bill does none of those things that I deeply regret that it should be what it is.
3.33 p.m.
Lord Cockfield: My Lords, this has been a wide-ranging debate, perhaps rather more so than is customary. The impassioned plea on behalf of brass bands by the noble Lord, Lord Noel-Baker, awakes an echo in my private heart, but its connection with the Finance Bill seems at best to be somewhat tenuous. The noble Lord, Lord Bruce of Donington, said at the start of his speech that what I had said represented "an emphatic surrender to market forces". Those were of course emotive words and emotive phrases often conceal the shallowness of the thought underlying them. I must ask: what is wrong with market forces?

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In fact, what has gone wrong in this country for so many years is a failure to give rein to market forces. That has led to a low rate of growth, low productivity, poor price competitiveness and poor performance both at home and overseas. To improve market forces, which is what our policy has been directed towards, is a goal which we all ought to strive to achieve.
There is one other point I should like to pick out in relation to the speech of the noble Lord. This was echoed by a number of noble Lords; the same point was raised by Lord Hatch of Lusby and it was touched on by my noble friend Lord Robbins. This is the question of investment. The first thing is to get the facts right. The gross fixed investment in this country last year—that is the year just ended—at constant prices was about the same as it was in 1975, five years before. There was then a small fall followed by a small rise, followed by a small fall. But, after all these movements, the total gross fixed investment in 1980 was very much the same as it had been in 1975. But—and this is very important—a much larger share of that gross fixed investment was private, that is investment by the private sector of the economy. This is the sector where profits are made, and these are the profits on which in the end the country has to live.
But even more important than that, investment in plant and machinery which is most closely connected with productivity has shown a dramatic rise compared with 1975. In fact, the rise is of the order of 30 to 40 per cent. in investment in plant and machinery. We therefore ought to be very careful about denigrating the performance not only of the United Kingdom but of British industry.
It is important to make the point that what matters is profitable investment. In so far as the level of investment in this country has been lower than we would like to see, it is because the level of profitability has been lower. It has not fundamentally been because of the shortage of funds. I accept that if the profitability of industry had been higher, more money would have been available for investment. But the real reason that more investment is not undertaken is quite simply that investment is not profitable. If I may say this to both Lord Molloy and Lord Hatch, the reason that British money is invested overseas—a great deal of it by pension funds, I may say, including the pension funds of the nationalised industries—is that the level of profitability overseas is higher than it is in the United Kingdom. That is regrettable. I should like to see much more money invested in this country, but the price of that investment is to improve the productivity of British industry.
I entirely agree with the point made by the noble Baroness, Lady Seear, that it was very important to get over the message to ordinary people about the effect of wage increases on price levels, or of excessive increases on employment levels, and the effect of all these facts on the national economy. This indeed is what we as a Government have been trying very hard indeed to do. I think it is of vital importance that people should understand the connection between these various factors. If I may say so with respect, my own speech was directed specifically to tying these factors together in a way which I thought was readily understandable.
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The noble Baroness expressed regret that what are normally known as the Rooker/Wise provisions for the indexation of the personal allowances had not been implemented this year. We equally regret it. We share her view that the tax allowances are too low. We should like to sec them significantly higher, but this depends on an improvement in the economic situation generally. But I would say—and I think it only right to make this point—that in our first Budget we increased the allowances by double the figure that indexation itself would have required.
The noble Baroness raised a number of other interesting points which would perhaps take me too long to follow in detail. As she well knows, the plea that the cost of travelling to work should be allowed for tax purposes has been with us for a long time, certainly throughout the whole of my official lifetime, which, I may say, now goes back almost 50 years. It has been with us throughout the whole of that time. I do not want to start talking about income tax principles—it is so easy to do so. But if we look at this as a practical matter, we see that once we start allowing one form of travel expense, we have to allow another. Some people say that the railways ought to be helped by allowing railway fares for tax purposes. But if one allowed the cost of rail fares, one would have to allow tube fares, and then bus fares. Once that was done, then of course in equity one ought to allow the cost of travel to work by those people who use their own motor-cars at their own expense. By the time all those items had been brought in, one would be faced with the most formidable cost. I should not like off the cuff to put a figure on it, but certainly it would be likely to be upwards of a billion pounds. If one is considering spending—perhaps that is not the right word in terms of tax reduction—or, rather, devoting a billion pounds or more to a tax relief—
Baroness Seear: My Lords, I should like to point out to the noble Lord that I specifically limited the allowance to particular areas of high unemployment where there was inadequate public transport. I fully realise that otherwise the cost is out of this world.
Lord Cockfield: My Lords, I am grateful to the noble Baroness. I had not overlooked the point. I was making the point that once the allowance is given to one group of people, it then moves to another because people would then argue that if it was given to Liverpool, it ought to be given to Manchester, and then if it was given to Manchester, it ought to be given to Birmingham. This is what always happens. If one is speaking in terms of very large sums of money, I think it would be much fairer if the money were used to increase the tax threshold, which is the noble Baroness's other high priority.
I was most grateful for the support which the Government's policy received from the noble Lord, Lord Robbins. He and I have been in this field together now over a very long period of time, and I much appreciated his conclusion, with all the reservations that he made, that there was no real alternative to the general policy followed by the present Government. The noble Lord referred specfically to the competitiveness of our manufacturing industry. This is a point of great importance. It was raised in a way

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that I did not find at all acceptable by the noble Lord, Lord Bruce of Donington. It is perfectly true that wage levels in absolute terms are not high compared with the other industrial countries of the European Community. But the problem is that the productivity in this country is very low compared with that of those same countries, and our wage costs in relation to those other countries are in fact high.
Over the last three years the level of our price competitiveness, compared with that of other countries, has deteriorated to a very marked degree. A few months ago the CBI quoted a figure of 50 per cent. It might not now be quite as bad as that, with the fall in the exchange value of the pound. Nevertheless, whether looked at over a short, medium, or long period of time, the loss of competitiveness is there. It is one of the major problems that we face in this country; and until such time as we can improve significantly the level of our productivity, then we are going to be dogged by slow economic progress and by great difficulties in dealing with the other problems that we face.
The noble Lord, Lord Spens, welcomed the business start-up scheme. I was grateful to him for his support. Many of the points that he made in an earlier speech in your Lordships' House were in fact taken up and significant changes were made in the scheme. The noble Baroness, Lady Seear, in fact mentioned this general point en passant, and asked the same question as the noble Lord did: Why was the scheme so restricted in its scope? We have indeed significantly widened its scope, and we must now see how well that scheme works. It was quite deliberately targeted on a particular field. The scheme is in fact quite without precedent. There is no other country which offers an incentive as generous as this one; and I think it is only wise that one should see just how well it works and then come back to it to see in what direction one can improve it.
I listened with great interest to the speech by the noble Lord, Lord Molloy. I was most surprised to find him describe himself as docile, but that was not the only error that I detected in his arguments. He seemed to be suggesting that the effect of the Government's policies had been to reduce the standard of living of the people, and this was why the unions had to fight so hard to get wage increases, or large wage increases—and the same point was made by Lord Hatch of Lusby. Of course, this may be a very fine political argument but it bears no relationship to the facts at all. The position is that in the last three years personal total disposable income in this country has increased by between 16 and 17 per cent. I am going to deal with the unemployed, my Lords, because this is the most severe indictment of the kind of policy for which the noble Lord stands.
What in fact has happened in this country, not just over the last few years but for a long time, has been a massive redistribution of income. That has not been a redistribution from the poor to the rich at all; it has been a redistribution in favour of those in work against those not in work; it has been a redistribution of income in favour of those in monopoly industries against those in competitive industries; it has been a redistribution of income in favour of some of those in the public sector as opposed to those not in the public sector. What has happened in fact
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is that one trade union has robbed another, and in the course of doing this they have created a massive level of unemployment. Now it is a tragic thing—and I say this with very great feeling—that a movement which was founded on the brotherhood of man should have ended up by producing results of this kind.
My noble friend Lord Westbury raised the question of the increase of one-half of 1 per cent. in the betting duty, and he referred both to the Royal Commission and to the words that were uttered by my right honourable friend the Chief Secretary. But both of them said that the present duty was "near" the point of diminishing returns, and it was for this reason, and taking this very much into account, that the Chancellor of the Exchequer decided to limit the increase to one-half of 1 percentage point. His judgment was that the tax could bear this modest increase. It was necessary to recoup the duty that had been lost as a result of the reduction in the duty on derv, and this meant that the Chancellor felt that he had to look, inter alia, on those duties which had not been increased at the time of the Budget.
There was very great public pressure that there should be increases in duty on betting generally. But, as I say, the rate of duty so far as the betting duty was concerned was limited to one half of 1 per cent., and there was no increase at all on the on-course betting duty. We shall of course continue to keep this matter under review because it is obviously not in the interests of the Chancellor of the Exchequer, any more than that of anybody else, to push a duty beyond the point of diminishing return.
In conclusion, I just want to say this. There were various references to the Ottawa Summit. The noble Lord, Lord Bruce of Donington, suggested in his opening remarks that we were in some way out of line with some of the other people attending that conference. Perhaps I might read from brief extracts from the communique which was issued. The first is this:
"We must continue to reduce inflation if we are to secure the higher investment and sustainable growth on which the durable recovery of employment depends".
The next one is this:
"We need in most countries urgently to reduce public borrowing".
My final quotation is this:
"We see low and stable monetary growth as essential to reducing inflation".
Obviously, if you have a number of Heads of State meeting together in a conference of this sort—and they are of very great value—there will be differences of opinion and slight differences of emphasis. But I think that I am justified in saying that we stand in the mainstream of economic policy.
In 1979 this country stood on the brink of economic disaster. We were in the position where the economy was declining and where it was more than likely to go into an irreversible decline. If we were to adopt the kind of policies which have been advocated from the Benches opposite, we should find ourselves back again in that situation. The general election in 1979 offered us an opportunity to change course and try to bring this country out of that situation of decline. This is what we are committed to do, and this is what we propose driving through to a successful conclusion.
On Question, Bill read 2a; Committee negatived.
Then, Standing Order No. 43 having been suspended (pursuant to Resolution of 21st July):
Lord Denham: My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Finance Bill, has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Lord Cockfield: My Lords, I beg to move that the Bill he now read a third time.
Moved, That the Bill be now read 3a.— (Lord Cockfield.)
Lord Houghton of Sowerby: My Lords, the noble Lord has not said a single word yet on the matter that I brought before your Lordships' House during the Second Reading of this Bill. Some £7 billion of revenue have been intercepted in the past few weeks. Large borrowings have become necessary by the Government in order to fill the gap. Considerable increases in interest on borrowed money have now been imposed on this Budget, and the noble Lord has not said a word about it. He is so consumed on this Bill with the economic situation that he cannot give his attention to the disruption that is going on in the Inland Revenue, for which he has a large share of responsibility. I think it is due to your Lordships' House to know a little more about this. I shall not give way for the moment: I have not finished. I was courteous to the noble Lord in bringing this matter before the House and I think we are entitled to have greater reassurances than we have had as to whether this Bill is worth the paper it is written upon.
If we are to have a continuation of the interception of billions of pounds of revenue, how is the financial condition of the country going to survive? I think we are entitled to expect something from the noble Lord. Also, although he is not directly responsible for the Civil Service, he has a very important stake in the consequences of the present state of affairs in the Civil Service. I deplore the fact that Parliament has tended not to interest itself in this dispute and that information given about its consequences to public administration as well as to finance has been meagre and not forthcoming. Therefore I would ask the Minister, before this Bill is passed, to say something more on that situation.
Lord Cockfield: My Lords, I had quite deliberately not commented on the speech of the noble Lord. Lord Houghton of Sowerby. We have an industrial dispute which is still in progress. We all very much hope that that dispute is now being brought to a conclusion. It never helps in these circumstances for either side to make statements which are likely to exacerbate the situation. We now in Government hope very much that a conclusion will now be reached, and I would prefer to leave it like that.
Lord Houghton of Sowerby: My Lords, why did not the noble Lord make that comment in his speech on Second Reading. but instead ignore altogether what I
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said and not say a word about it until I rise on the Third Reading of the Bill? He could quite easily have said—
Lord Denham: My Lords, if the noble Lord, will forgive me for just a moment, he should use the formula, "Before the noble Lord sits down"; otherwise he will be out of order in speaking for a second time.
Lord Houghton of Sowerby: My Lords, we have both sat down.
The Deputy Speaker (Lord Airedale): The Question is that this Bill be now read a third time. As many as are of that opinion will say, "Content"; to the contrary, "Not-Content".
Several noble Lords: Content!
Lord Houghton of Sowerby: Not-Content!
The Deputy Speaker: My Lords, Tellers for the Not-Contents not having been appointed, pursuant to Standing Order No. 50, a Division therefore cannot take place and I declare that the Contents have it.
Bill read 3a accordingly, and passed.
Lord Denham: My Lords, I do not know whether the noble Lord, Lord Northfield, wishes to carry on with his Question. All I would say is that, after this quite exceptional behaviour which I have never heard of before in this House, I hope that if he does so he will be very brief indeed.

Guyana-Venezuela Dispute
4.2 p.m.
Lord Northfield Lord Northfield rose to ask Her Majesty's Government whether they will confirm their support for Guyana in the present border dispute with Venezuela.
The noble Lord said: My Lords, I shall be very brief and we can dispose of this matter in a few minutes. I am grateful to the noble Lord, Lord Skelmersdale, for staying to deal with this at the end of a long day. This issue has importance for three reasons. It is not just a small border claim. It is a claim by Venezuela to five-eighths of the whole territory of the independent country of Guyana, the whole of the former Dutch colony of Essequibo, which we conquered in 1803 and which was ceded to Britain in 1814.
It is important for a second reason. Since we were responsible for the whole of the territory from 1814 until independence in 1966, and signed all the treaties concerning the definition of the territory, our honour is involved and we cannot, I submit to the House, escape from our responsibility to back Guyana in this issue.
The third reason why it is important is this. As I shall show, the latest 12-year agreement to freeze the dispute ends on 17th June 1982 and all signs indicate that a bigger dispute—perhaps something even worse than that—will follow that date in June 1982. It is, therefore, important now for Her Majesty's Government to say that their support for Guyana is firm and openly expressed.
The history of this matter can be briefly summarised. The early period of colonial conquest left disputes

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about boundaries in all such great areas of South America. We can perhaps start with 1897, when Venezuela, with the support of the United States, asked for the whole matter to be reopened. There was then the Washington Agreement of 1897, establishing an international tribunal of arbitration, with two distinguished United Kingdom judges, two United States judges and one Russian jurist. This held long hearings and gave unanimous findings, putting this territory firmly into Guyana. The boundary was worked out by a mixed boundary commission and has been reproduced on Venezuelan maps for about 60 years. So for a long time after that arbitration in 1897 with this distinguished participation of foreign judges, the boundary was fixed and was apparently largely acceptable to Venezuela.
But then came the situation which reopened the matter. Mr. Mallet-Prevost, who was one of the Americans appearing for the Venezuelans, in 1949 left some posthumous allegations that the settlement of 1897 had been a "political deal between the United Kingdom and Russia". This has been hotly disputed. The papers have been examined, after the British had offered to do so. There has been no agreement as to whether they were fake or had any meaning at all. But Venezuela has objected to Guyanan independence, based upon this one posthumous document of one man who had been in the employment of the Venezuelan Government and which nobody else accepts. So Guyana came into independence with Venezuela disagreeing with the situation.
In 1966 we had the Geneva Agreement which set up a mixed Guyana-Venezuela Commission with the "task of seeking satisfactory solutions for the practical settlement of the controversy". This mixed commission met for four years and reached no conclusion. Indeed, during that period there were breaches of the Geneva Agreement. There was the occupation of Ankoko Island by the Venezuelans; there was annexation of the territorial waters of Guyana; and there have been incidents on the frontier, with penetration of Guyanese territory.
So we reach 1970, with the breakdown, if you like, of the Geneva Agreement which was supposed to be trying to settle it after 1966. There again it was not settled. With the intervention of other countries, we had the new agreement, the Protocol of Port of Spain, which was to freeze the issue for 12 years in the hope that it would all calm down. It was firmly stated in that Protocol of Port of Spain that, after all, there should be, if necessary, use of Article 33 of the United Nations Charter which covers means—for example, negotiations, mediation, arbitration, et cetera—to a peaceful settlement.
Therefore, since 1970, when it was supposed to have been frozen for 12 years, there have been some attempts at resuming normal relations and building friendship, including the presidential visit by Mr. Forbes Burnham to Venezuela. But in 1981, after that visit, the whole situation has again been thrown open by a most belligerent, uncompromising statement from the Venezuelan President and Government reinstating their claims and saying that they will pursue them by all means and that they are unwilling to extend the 1970 Protocol beyond June 1982. We have in the making, therefore, a very dangerous situation.
I can therefore summarise the situation and bring my remarks to a close. The present situation is as follows. There is no doubt that next year this situation will be very bitter. There is the new dimension of possible oil and other discoveries in five-eighths of the territory of Guyana and in the territorial waters. No doubt this is inflaming Venezuelan claims and making them more strident, belligerent and uncompromising. They have gone further. They are objecting to the Upper Mazaruni hydro-electric project and trying to stop the World Bank from offering money to Guyana to get that huge project—a project of immense importance to that part of South America—under way. That is our first point in the present situation. It is bitter, it is divisive, it could blow up at any moment in the period beginning next June, and meanwhile Venezuela is even trying to stop economic development in the disputed territory.
The second point about today's situation is that there is no doubt that the area is peopled by Guyanese citizens and that a long period of history besides the 1899 arbitration award has surely given the present boundaries full viability. The third point is that Venezuela is involved in other disputes and so one has to judge this partly by the fact that Venezuela seems to be disputing all round its borders with other countries and we have to take that into our consideration in regard to Guyana.
So I come to my last point: the importance, which I reiterate, of Her Majesty's Government making our position clear ready for June 1982, when the present protocol and the freeze on the matter come to an end. I hope the noble Lord will feel able to say that we stand firmly by Guyana, as in honour we are bound to do, given our historic involvement in all the treaties concerned. In this respect, I would agree with part of the sentiment of a letter which the Minister of State, Mr. Ridley, has written to Sir Nigel Fisher, the Member of Parliament, who has provided me with a copy. I agree with him that the best thing would be for Venezuela to take their obligations under the Geneva Agreement seriously and therefore to follow them through and use the means of peaceful settlement provided for in Article 33 of the Charter of the United Nations.
The part of the letter which does concern me is where he says:
"Now that Guyana is fully independent, it would be wrong for Britain to take an active part. Neither the 1966 Geneva Agreement, nor the 1970 Port of Spain protocol obliges us to take any specific action".
I hope it will be agreed that that is not strong enough. I must press the noble Lord to be more firm in support of Guyana in this present situation, and to say that we are prepared to come out openly and say that, given the history of the whole matter, this is a wholly unjustified claim and that we will stand by Guyana now and in 1982 when the protocol expires.
My final words are these: I hope we shall realise how this is seen in Guyana. It is a black country; it is small; it is ex-colonial. It sees Venezuela in a sense as the Spanish Conquistadores in a new guise, imposing the yoke of colonialism on a newly emerged colonial state. Therefore, if I may suggest it, it has wider repercussions than simply, as I said at the beginning, a border dispute. When a small country

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such as this is threatened in that way, and when another country is demanding five-eighths of its territory, I hope we shall take this matter very seriously and stand by the involvement that lies at our door, given our long period of history in the matter.
Lord Peart: My Lords, I shall only make a brief intervention. I should like to congratulate my noble friend Lord Northfield on a concise speech which has explained the issue in connection with Guyana. At different times I have spent long periods in Guyana, and also I had to do the sugar negotiations and I always found the people loyal and very anxious to help Britain when we needed them. I believe that now we should defend them and that we should take the line which the noble Lord, Lord Northfield, has stressed so strongly and so eloquently.
Lord Skelmersdale: My Lords, at this late hour perhaps I may reply briefly to the terms of the noble Lord's Question. I should like to express to him the appreciation of the House for the very accurate manner in which he has dealt with the history of the problem that we are now discussing. What the noble Lord is essentially asking is what is the present position of Her Majesty's Government.
There is of course no question of our changing our historical view of the 1899 Award. However, now that Guyana is independent and a sovereign state, we believe that it would not be right for us to take an active part in pursuing the settlement of the controversy. It is for the Governments of Venezuela and Guyana to settle this matter between themselves. As the House will know, neither the Geneva Agreement nor the Port of Spain Protocol provides for any further action on the part of the United Kingdom after Guyanese independence.
At the same time, we naturally wish to see this controversy peacefully resolved. We would view with the very gravest concern any development which put in jeopardy the principle enshrined in the Charter of the United Nations, that the adjustment or settlement of international disputes should be brought about by peaceful means. We believe, therefore, that it is important that if the Port of Spain Protocol is terminated in June 1982 the Governments of Venezeula and Guyana should pursue the procedures for arriving at a peaceful settlement provided in the Geneva Agreement. When my noble friend met the Foreign Minister of Venezuela on 26th June, he indicated to him that that was our view. My honourable friend the Minister of State conveyed a similar message to the High Commissioner for Guyana on 2nd July. It is our present understanding that both Governments will follow this course.
Lord Northfield: My Lords, may I ask, follow which course? Does the noble Lord mean that they will refer it to the Article 33 procedure?
Lord Skelmersdale: Yes, my Lords. In these circumstances, and referring to the terms of Lord Northfield's Question, it would not seem either appropriate or helpful for Her Majesty's Government now to play an active role in this controversy. We are naturally concerned that it should not be allowed to develop
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into a further source of tension in the Caribbean area. The central point, therefore, is that the spirit and the letter of the Geneva Agreement, to which eve are a signatory, should be observed by the Governments of Venezuela and Guyana in seeking a peaceful settlement. We earnestly hope that this will result in a solution to the controversy which is acceptable to both parties.
Lord Denham: My Lords, with the leave of the House, I must inform the House that Royal Assent will not be given today, because another place rose some time ago, and therefore it is impracticable.