The Queen's Speech (Hansard, 12 November 1981)

§ The Minister of State, Treasury (Lord Cockfield)
My Lords, my pleasant duty first is to congratulate most warmly my noble friend Lord Constantine of Stanmore on a maiden speech which combined brevity with force and cogency. The point he raises is one of great importance. We have given much thought to this problem and shall continue to do so.
I was equally fascinated by the speech of the noble Baroness, Lady Birk, but for entirely different reasons. Her frequent references to the "Thoughts of Sir Ian Gilmour" lead one inescapably to the conclusion that the Labour Party has no policy of its own and can do no better than cling to the coattails of a former Tory Minister. Her own prescription for the very great ills which beset our economy was a combination of higher expenditure, lower taxes and lower interest rates. These objectives are plainly inconsistent with one another. Higher expenditure can only be financed by higher taxes or higher borrowing. Higher borrowing leads to higher interest rates, not lower. There is an inescapable dilemma: higher expenditure leads either to higher taxes or higher interest rates.
The noble Baroness's policy is the one that the Labour Party advocated at the time of the 1974 election and tried to put into operation thereafter. The result was economic crisis and the virtual bankruptcy of the country. We faced first the humiliation of Mr. Healey's panic return from Heathrow and then the bailiffs, in the form of the IMF. Does the Labour Party really want to repeat that experience?

§ Baroness Birk
My Lords, I wonder whether the noble Lord will give way for one moment? Does the Minister agree that when the Conservative Government came into office in 1979 the rate of inflation was 10.3 per cent.?—it is now higher than that and although unemployment was far higher than we would have wished, it was certainly nowhere near over the 3 million, nudging 4 million, that it is now.

§ Lord Cockfield
My Lords, the noble Baroness has already had ample opportunity to make those points. So far as the first one is concerned, the rate of inflation was rising rapidly in 1979 and the big increase which occurred subsequently was largely due to the policies that had been followed by the Labour Government.
The noble Lord, Lord Rochester, spent most of his time in a charming if somewhat embarrassing courtship of the SDP. Such dalliance is more seemly when conducted in private. But the various exchanges which followed made it quite clear that not even the Liberal Party believes that the SDP has a policy.
The noble Lord, Lord Taylor of Gryfe, endeavoured to repair the damage by giving us a fascinating account of what the SDP Manifesto would be if only he had the chance of writing it. But he was put down very 320 promptly by the noble Lord, Lord Winstanley, whose policy closely resembled that pronounced by Mr. Asquith in 1910: "Wait and See". It is interesting that in 71 years since then, the Liberal Party has been able to make no further advance in formulating a policy.
My sympathy in all this goes out to the noble Earl, Lord Longford, who gallantly, if somewhat rashly, popped his head up over the parapet only to be caught in the cross-fire between the members of the putative alliance. There is a lesson to be drawn from this. The treatment meted out by the Liberal Party to their erstwhile allies should serve as a warning to the SDP. He who sits down to dine with the Liberal Party is apt to find the chair snatched away from under him.
The noble Lord, Lord Rochester, perhaps predictably, raised the question of incomes policy. He was supported by the noble Baroness, Lady Birk, by the noble Lord, Lord Roberthall, and by the noble Lord, Lord Jacques, but opposed by my noble friend Lord Mottistone and the noble Lord, Lord Robbins. It will be of great interest to hear what the noble Lord, Lord Scanlon, says about this. He is a distinguished former union leader. For this reason I will deal with this point when I come to reply to the debate on the amendment.
My Lords, so much of what has been said is an attempt to escape from reality. Reality is harsh and unpleasant. But there is no escape from reality. The 'eighties will prove to be a much more difficult and challenging era than the 'fifties and the 'sixties. In the 'Fifties and the 'Sixties output was growing at a rate of 2½ per cent. per annum. In other countries it was growing at a rate of 4 per cent. or 5 per cent. per annum. But even our own rate of growth supported expanding social services and left sufficient to spare to support a higher standing of living.
My noble friend Lord Butler of Saffron Walden predicted in the early 1950s that the standard of living in this country would double in 25 years. And, broadly, that target was achieved. Too little recognition has been given to the tremendous contribution my noble friend made in those days.
My noble friend Lord Alport referred to the description of the Conservative Administration of 1951 to 1964 as the "Thirteen Wasted Years". This phrase was coined by the Opposition. For my part I have always referred to this era as the "Thirteen Golden Years". We look back on them with pride. The 1970s, in contrast, were a period of hesitation and confusion when new problems appeared, imperfectly understood, unsuccessfully coped with.
In the 1980s, rates of growth are unlikely on, a sustained basis to match those of the 'fifties and the 'sixties. We shall be fortunate, this century, if we see rates of growth over a period of years of more than 1 per cent. or 2 per cent. per annum. This is not a problem which affects this country alone: it affects all the countries of the western world. It poses a challenge: and a challenge which we must meet. Growth even at this rate, however modest it is, will support a rising standard of living. It will enable us to improve the circumstances of our life. But we must tailor our expectations to what is likely to be available. If we try to spend too much, whether on consumption 321 or by Government, we shall inevitably—as the noble Lord, Lord Robbins, has so cogently argued in a speech of great insight—find ourselves in very great trouble.
We can spend only what we earn. Our first priority, therefore, must be directed to improving our level of output; to creating conditions in which, in a hostile environment, we can secure the maximum growth of output attainable. Governments themselves do not create wealth; they consume it. Wealth is created by the private sector of the community, by individuals and firms, whether they are management or workers and whether they are professional men or the self-employed.
One can debate the abstract merits of nationalisation. Some support it, some are opposed. We see the opposing views illustrated very sharply in this debate. Even the Labour Party has always been divided on this issue. Hugh Gaitskell fought valiantly to have Clause 4 deleted from the Labour Party constitution; he failed. The question which needs to be asked is not a philosophical one; still less is it a debating one. It is quite simply, what have the nationalised industries added to the national wealth; what have the nationalised industries subtracted from the national wealth? In the three years since the election the nationalised industries will have received £8,500 million of Government money. Since 1945, and revalued at current prices, the nationalised industries will by this year have received well over £40,000 million of Government money. Some of this has gone in productive investment. Most of it in supporting losses. This is the extent to which the nationalised industries have absorbed wealth, not created it. What others have earned, they have spent.
There have been some success stories. I pay tribute to the noble Lord, Lord Beswick, for his achievement at British Aerospace. But the more that one can point to success in some areas, the more it highlights the failures elsewhere. It is not for want to trying. Many distinguished men have grappled with these problems. There is—and one has to say it with regret—little public satisfaction with the standard of service given by the nationalised industries, or with the prices they charge. Nor have they provided secure employment for those who work in them. It is the combination of these factors which points to the solution of returning the industries or their activities to the private sector wherever this is feasible and where there is a clear case for doing so. This is not a politically motivated policy. It is aimed very directly at improving the efficiency of the economy; the achievement of higher output, lower costs, greater consumer satisfaction and more secure employment.
We have already taken important steps in this direction. Others have been indicated in the gracious Speech. British Aerospace, Cable and Wireless, the National Freight Corporation, the railway hotels have already been returned in one guise or another to the private sector. As the gracious Speech indicates, the oil producing business of BNOC will be brought into the private sector; and there will be measures to facilitate private investment and private competition in the activities of British Gas.
I welcome the vigorous defence by my noble friend Lord Lauderdale of private enterprise in the North 322 Sea. The North Sea has been a great success story. It demonstrates what vigorous private enterprise can do. I do not accept my noble friend's strictures on the Treasury; nor do I accept many of the allegations he makes. My right honourable friend the Chancellor of the Exchequer approaches these matters with an open mind. He has invited the North Sea operators to suggest an alternative tax regime. They have done so. We are looking very carefully at what they have said.
For all the reasons I have outlined, our hopes for the future thus lie primarily with the private sector of our economy. It follows that we must remove restraints and obstacles and give active encouragement to enterprise and growth. Most people cannot generate their own employment opportunities; they look to others to provide employment for them. This is why we must help those who provide those employment opportunities; not for any political advantage; not because they are our natural supporters; but because without them there would he no work for the rest of the community.
In the two and a half years we have been in office we have endeavoured to reduce the size of the bureaucracy at both national and local levels. The size of the Civil Service has been reduced by 50,000, from 732,000 to 680,000. In the Chancellor's departments, where I have a measure of personal responsibility, we have reduced numbers from 127,000 to 112,000. I am glad to be able to tell your Lordships that there are now fewer tax gatherers in the Inland Revenue than there are men and women in the Royal Navy and the Royal Marines.
We need not just to remove obstacles, but to provide positive encouragement as well. This we have given in each of our last three Budgets. We need to encourage the development of new enterprises and the expansion of existing enterprises. The Venture Capital Scheme, the Business Start-Up Scheme and the Loan Guarantee Scheme are all aimed in this direction. It is in this way and from this source that expansion for the future will come; that new opportunities will be created and new and secure employment provided. These, then, are the positive steps the Government have taken to secure long-term a higher level of output.
But in addition there is a very heavy onus on Government to conduct their own affairs so that they do not themselves impose an added burden on the economy. Here the level of the Government's expenditure is a crucial factor. A Government which spend more money than they receive add to the community's problems; they do not solve them. Government expenditure is all too easily increased, is remarkably difficult to reduce, never more so than during a recession. But it is the size of budget deficits, all over the world, not just in this country but in almost every developed country, which is responsible for the worldwide spread of high interest rates.
There is little point in arguing whether our own high rates of interest are due to the influence of international and particularly American interest rates, or to our domestic circumstances. As John Donne said, No man is an Island, entire unto himself". We are all, all over the world, responsible for high interest rates, because we all, all over the world, run 323 high budget deficits. The increasing awareness of this truth is to be seen in efforts now being made all over the world to reduce budget deficits and to trim public expenditure—in the United States, Japan, Germany, Italy, the Netherlands, Sweden, Australia and even France. We stand not alone in our determination to deal with these matters.
A reduction in interest rates is essential for industrial recovery. But we have calls for massive increases in Government expenditure on the argument that this would solve our problems. We have heard such calls from the Opposition in this debate. It is described as "reflation". We are accused, overtly or by innuendo, of deflating the economy. How anyone can claim that a Government which is adding £10½ billion to purchasing power through its budget deficit is pursuing a deflationary policy, is beyond belief. This point was made very forcefully by the noble Lord, Lord Robbins. I entirely agree with his analysis. Moreover expenditure, as my right honourable friend the Chancellor of the Exchequer has said, will be higher next year than previously envisaged because, for example, of additional expenditure on special employment measures—some £700 million extra on these measures next year.
The proportion of the gross national product taken by public expenditure is higher this year than last year; was higher last year than the year before. We take no joy in this. But we need to recognise this is what has happened. But to pretend that further massive increases in public spending would cure our ills is a cruel deception. It would lead to more borrowing, higher rates of interest and almost certainly higher taxes as well. It would abort our industrial recovery just when it was beginning. Like the late frost in spring it would kill the flower in the bud.
We have been here before. In the 1970s money income increased by 345 per cent., output by a mere 17 per cent. The repeated attempts to reflate the economy by increasing nominal demand, in the aggregate by more than four-fold, brought little increase in output; what it did produce was massive inflation. In the words of Marlene Dietrich, "When will they ever learn?" Will they never learn?
In the end Governments must pay their way in the same way as individuals. You can live on credit so long, but in the end it catches up with you. Nowhere is this better illustrated than by the fact that the interest on the national debt—and the national debt is nothing but the accumulation of past Budget deficits—now exceeds the public sector borrowing requirement and is almost as much as the yield of VAT. One wonders whether the people asking for more reflation, asking for more borrowing, really realise this; whether they really understand the implications for future generations of the policies they are advocating. The remind one of Madame de Pompadour—"Après nous, le déluge". And what a déluge it was! And what a fate overtook la Pompadour!
Just as most industrial countries are now committed to reducing public expenditure, they are also committed to reducing inflation. The link between inflation and unemployment is now universally recognised. The point was made very clearly in the communiqué issued 324 following the September meeting of the interim committee of the IMF: The Committee again assigned a clear priority to the firm pursuit of policies to reduce inflation for the purpose of lowering interest rates, encouraging productive investment, and achieving better rates of economic growth and employment". It is, of course, much easier to diagnose the causes of inflation than to remedy it. Some of the underlying causes are world wide—the two great oil price explosions, the breakdown of the Bretton Woods system, the increasing militancy of trade unions, growing expectations without the means to meet them. Others are more peculiar to this country—a slow growth of output, a low level of productivity, overmanning and excessive union power not always wisely used—and they go a long way to explain why our performance has tended to be worse than that of other people. Lax fiscal and monetary policies have then allowed these pressures to feed through into prices and appear as high rates of inflation. But it is not enough for Government alone to pursue the right policies. There is equally an onus on other people to behave responsibly in relation to these policies.
In one of the earliest speeches I made in your Lordships' House, on 19th June 1979, I said that excessive pay settlements would lead to unemployment for those who demanded them, and low profits and insolvency for the firms that conceded them. It gives me no pleasure that that prophecy has come true. The law regards every man as responsible for the natural consequences of his own acts. Whether we like it or not, the same is true in the economic field. The trade union movement made a cardinal error of judgment in the 1979–80 pay round. They went bull-headed for pay increases: they would have been much wiser to go for job protection. This error of judgment was compounded by management conceding these claims in the mistaken impression that they could pass on the increased costs in prices. As a result the unions secured for their members high nominal wage increases, an improvement in their standard of living, and massive unemployment. This is the tragedy of our time. It need not have happened like this. We could not have opted out of the world recession. Unemployment we would have had to face. But not unemployment on the present scale.
The bitter lesson is being learned. British Leyland is the latest and most dramatic example. It is not the only one. The rate of wage settlements in the last pay round was halved. In the coming year it will need to be drastically reduced again. There is an air of realism on the shop floor. The union leadership ought not to lag behind their members.
Greatness lies in understanding the essence of a problem, the relationship of events to one another. The ordinary man grasps only the symptoms and sees only a series of disconnected events. The great man has a vision of the future which enables him to place obstacles in proper perspective. It is greatness we need in the leadership of unions and industry alike.

§ Lord Davies of Leek
And in Government, my Lords.

§ Lord Cockfield
My Lords, the Government in their turn will provide the leadership the country needs to refashion its economy, rebuild its finances and enable 325 us to live successfully in a harshly competitive world. We have and will continue to set the parameters within which the economy needs to operate. There are no soft options. We delude ourselves and we delude our fellow citizens if we pretend there are. We will win this battle; signs of success are already appearing, not everywhere but in sufficient number to indicate that we are moving firmly in the right direction. Out of this new beginning will come a stronger, healthier economy which will provide work for our people and a more secure future than they have had for many generations.

§ Baroness Burton of Coventry
My Lords, before the Minister sits down, may I ask whether he imagines he has dealt with yesterday's debate or whether those of us who asked him specific questions may hope to have an answer to them?

§ Lord Cockfield
My Lords, on the assumption, a rather extended one, that I have not yet sat down, I shall he answering further matters when I come to speak to the amendment later in the day.