The Queen's Speech

HL Deb 12 November 1981 vol 425 cc332-93

ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH

4.20 p.m.

Debate resumed.

Lord Scanlon, rose to move, as an amendment to the above Motion, at the end of the Address to insert—

"but regret that the gracious Speech indicates the continuing reliance of Your Majesty's Government on those same fiscal and monetary policies which have created irrevocable damage to the nation's industry, and caused a massive increase in unemployment; proposes further divisive legislation hostile to the trade unions; announces economically irrelevant measures for the sale of public assets; and consequently offers no prospect of economic recovery, no hope for the establishment of social justice and no vision of a united national effort for the benefit of all."

The noble Lord said: My Lords, I beg to move the amendment standing in my name. I may say in so moving that your Lordships will know that it is virtually impossible for me to deal with all the items of criticism contained in the amendment and many of them, I hope, will be dealt with by my noble friends on this side of the House. The general economic situation, by any yardstick, is, to say the least, alarming. I know that it has been outlined many times but it will bear repetition: in real terms, over 3 million unemployed; a nil growth rate; inflation well into double figures, and interest rates at quite unacceptable levels—and the answer to this catastrophic situation, at least as contained in the gracious Speech, is a tedious reaffirmation of all the old medicine which has failed so dismally in the past and which will surely fail again in the future.

In all truth, it is bad enough to witness these basically ill-conceived and wrong policies that are creating "stagflation" and the miseries of the highest level of unemployment that this country has ever known, but the follies are compounded and made even more nonsensical when the Government and all their supporters must know that the ever increasing cost of financing this unemployment, currently estimated at the staggering figure of 12 billion pounds per annum, is increasing public expenditure costs at a greater rate than their most severe cuts are curtailing them. That, I believe, is economic nonsense. And the Government's ever more desperate attempts to resolve the irresolvable are these: more savage cuts in public expenditure; selling off in a one-off operation some of this country's most priceless assets; more attacks on trade unions; and more of what many of the Government's own supporters consider to be the quite unconstitutional interference with the responsibilities and the rights of local authorities.

There is no easy solution to the present economic difficulties that we are in, but I thought that there was common ground between previous Governments and this Government that, although we would disagree over the means to bring out certain issues, the issues themselves were agreed upon. I thought that in the debates on training and on other economic matters we were all agreed that if we wished to have rising living standards, roads, hospitals, care of the sick and aged, et cetera, we could do so only on the basis that we produced the goods to pay for them—and that that meant a transfer of resources in terms of capital and in terms of trained personnel into the wealth-producing manufacturing base, whether it be private or public. I believe that that should be, if it is not, common ground between us.

It will be no surprise to your Lordships, therefore, to know that I wish to concentrate on the question of trade union legislation and on the issue of privatisation, or, by its true name, denationalisation. I do not want to repeat the name of the song that was mentioned by the noble Lord, Lord Cockfield. I put it this way. Do we ever learn from history, recent history? Have we forgotten the three and a half years of existence of the Industrial Relations Act? To the extent of boring your Lordships, please let me briefly take you through those years. In those three and a half years it cost my union £8 million in fines inflicted by the courts, in legal fees (both those of those who took us there and our own), and in dispute benefits to our members. This staggering sum took no account of the eventual sequestration—I had never heard of the word before; but I can assure your Lordships that it is very painful. Every building, every typewriter, every piece of equipment, was taken into the possession of the courts in order to get the money to pay those fines.

A noble Lord

Hear, hear!

Lord Scanlon

My Lords, before you say, "Hear, hear! It should be much more severe", consider this for a moment. If that was the cost to the union, what was the cost in lost production? What was the cost in the souring of relationships between workers and management? And what was the cost of the continuing aggravation that exists?

And what was all this about? For what? Not one responsible employer, not one employers' organisation, ever used that Act. I hope that it is not unparliamentary language, but the people who used it on the employers' side and on the trade unions' side were the "nutters". On the employers' side they were those who wanted to abolish trade unionism in their factories without any concern whatsoever for the effect on the country or on their own industry; and, on our side, they were those who saw the means of getting a fast buck in the shape of money that might be granted under the terms of a "golden handshake" in order to restore peace into a given factory.

All that loss of our funds, all that sequestration of assets, all those disputes, did not deter in any way the trade unions, and particularly my own, from pursuing what they thought was, and still think to be, a correct policy of saying that industrial relations and negotiations are matters between management and the trade unions and that we should be as free from Government interference here in Britain as we are trying to maintain that the Polish trade unions should be in Poland. That is a principle which I believe is well worth fighting for.

Yet here in the Government's proposals, once again we are going to make unions' funds vulnerable by withdrawing immunities which have been in existence for over 70 years. When will we learn that the strength of the trade union movement here and elsewhere consists not of money in the bank, not of offices and typewriters; their strength lies in the members' conviction of the justice of their cause and, when so convinced, of the need to fight with spirit and determination until that cause is achieved, whatever the cause might be. Therefore, as somebody who has gone through that, and does not want to see its recurrence on the industrial scene, I plead for the Government to think again. We have no specific information on what the actual proposals of the Government are; but we understand that the other items that are to be considered are making strikes which are outside procedure equally removed from the immunities that they presently have.

Let me again remind your Lordships that, in what I consider to be one of the most important industries in Britain—namely, the engineering industry—it took us 40 years to establish a procedure which had a simple status quo clause in it to say that, if two parties have a dispute, neither party shall take sanctions against the other until the procedure is used and exhausted. Of course, if agreement is reached in the operation of that procedure, there is no need to take sanctions. Additionally, since that agreement has been reached, my own union has determined that no dispute play will be made whatsoever unless the procedure has been exhausted.

So a determination to do that, together with—let us face it quite frankly—the present economic climate, has brought about a remarkable change in the willingness and ability to use the procedure in the proper manner. But, in any case, are we not all aware of the fact that most of the major disputes that take place—unfortunate as they may be—are certainly taking place after procedure has been exhausted? Could anybody say that the civil servants' dispute was outside procedure or even, for that matter, any of the unfortunate disputes that took place in the so-called "winter of discontent"? Of course they were not. One thing is certain, however. If this legislation goes through in the manner which is proposed, one of two things will happen: either procedures will be looked at much more closely by legal people, with all that that may imply, or trade unions may even find a quicker way out and have no procedures at all. Then at least in that aspect of the legislation they will not be vulnerable.

I do not wish to carry on on the question of the closed shop and other matters, not because these are not important but because I believe that the majority of employers do not see this as a major issue. Even if legislation were introduced, the closed shop would continue in many, many industries where it is presently of mutual benefit or at worst would continue in some clandestine fashion.

Finally on this question of trade union legislation, I frankly admit that the Government were given a mandate to look at and revise trade union arrangements. I hope nobody in this House or in another place will subscribe to the view that promises made in a manifesto are either worthless or should be ignored. The Government have attempted to fulfil their pledge. We know what has happened on the law of picketing. We know that there has been legislation on the closed shop. I appeal not in any debate scoring manner but to the Government to think again on these issues. Let us deal with the main issue facing us: how can we through co-operation create that additional wealth in the manufacturing and other bases which is so essential for us to continue?

Regarding ballots, I—if I may make this personal—spent 30 years of my life either fighting my own election or seeking to go up the ladder by fighting others. There is no officer from a shop steward to the national president who can hold office without an election and without submitting himself for re-election. He can be thrown out or his period of office can be reaffirmed. Therefore if I spoke personally I would not disagree at all with the Government on the question of ballots. But the vast majority of unions do not elect their officials by ballot and they will put forward very cogent arguments as to why. One thing is certain: we are not going to persuade them or compel them by legislation.

Consider for a moment, however cynical it may appear, the fact that nobody considered the need for a ballot when the workers at British Leyland rejected their stewards' advice and voted to accept the recent offer; but were this legislation in force, anybody could then demand a ballot and say that they wished to return because the people had been misled and they did not know what they were talking about when they put their hands up. That is usually the explanation when decisions go the reverse way.

There is much wrong with the trade union movement. It is ludicrous that it takes 12 unions to build a motor car or 20 to build a ship. It is time that we all co-operated on this issue and gave the TUC the assistance that it needs in bringing about new arrangements. That will be indeed difficult. It is one of my regrets that I did not succeed in getting more amalgamations within our own industry, for this is certainly needed and long overdue.

I turn very briefly—because I know that it will be dealt with elsewhere—to privatisation. I hope that because of the time we can deal with other aspects of privatisation outside the one that I am dealing with, which concerns gas. I declare an interest as a part-time member of the Gas Corporation. There was relief—I put it no higher—that in the Queen's Speech there was no mention of going ahead with showroom privatisation, although we know that the Government will seek powers which may be operated in the future. I plead that the breathing space that this has given will be used to recognise what is being done, and that the danger will be recognised, both in terms of safety and in terms of temptation, of people doing things which they should not do and which the sale of these showrooms can bring about. I say no more at this particular point.

I should like to turn to the question of the disposal of oil assets. There are two main reasons for involvement by British Gas in the exploration for gas and oil: first, it gives British Gas some direct control over its primary feedstock and useful knowledge about the overall size of United Kingdom gas reserves. Secondly, it enables British Gas to acquire direct information on the technology and cost of exploration and development work. This provides the expertise needed for negotiations on gas purchasing. How can we believe that if anybody can purchase gas from the producers themselves, as we are proposing to allow, by increasing the number of people requesting this service we are going to bring the price of gas down? Inevitably what will happen is that the price of gas will go up and that, although in the main it will go up on industry, the domestic user will likewise be a sufferer.

I do not propose to go into the matter in too much detail. I know that the time given to us by the Government for disposal can only mean that the price obtained for Wych Farm and other places will result in a price much below the market value. That places members of the corporation—and I say this with quite considerable reserve—in a very difficult position. They have duties under the Gas Act, and duties to sell whatever is sold at its best commercial value. I leave it to your Lordships in that setting and would again ask you to consider the situation that might confront the corporation.

I turn now to this final point. It is a sad thing when, either through invective or spleen, the media or Parliament choose to particularise problems on one individual. The chairman of the Gas Corporation has been so chosen and I consider it my duty to defend him here. He is looking after the interests of that industry which he was pledged to look after when he took over the responsibilities of chairman of that board. He is not doing it on his own; he is doing it with the united Gas Corporation Board behind him. Everybody but myself on the board is an avid supporter of the Government of noble Lords opposite. Therefore to think that the board were acting from ulterior motives, or that the chairman was acting somehow on his own, is absolutely wrong, and I take this opportunity of remedying that matter.

I was rather goaded by the noble Lord, Lord Cock-field, into the question of incomes policy. It is not mentioned in the Queen's Speech. It may well be that there are other noble Lords in this House who wish it were. But I would ask your Lordships to consider before you start deriding it. I make no apologies for that. I have described what the trade union movement went through in its resistance to the Industrial Relations Act. We stood on our heads under the so-called "Social Contract". It is true that, as a result of the sacrifices of working people as well as management, who all accepted for over three years levels of settlement well below the rate of inflation, the rate of inflation in 12 months was halved, being brought down from 25 or 30 per cent. to 15 to 17 per cent. In the subsequent 12 months it was again halved and eventually reached single figures.

I wish the matter could have been left there, and perhaps we would not have had the winter of discontent. But there were strikes other than that winter of discontent, despite all that went on in that sacrifice—and I do not demur at the word. There was a strike of capital. The investment that should have occurred in our industry never did. I would remind your Lordships that one of the reasons we kept on was the existence of a National Enterprise Board which had not been—forgive the word—castrated, and it was willing to take the steps it thought necessary in its own judgment to ensure that investment went into the right quarters. There would have been no British Leyland now and no Rolls-Royce if that board had not existed and done what it did. It is in that setting that an incomes policy is possible.

I repeat again and finish with a plea: if on these matters you want the co-operation of trade unions in its widest sense, you are not going to get it by the policy of confrontation or by introducing legislation such as I have tried to describe. I know it is perhaps pleading in vain but I hope, even at this late stage, that the Government may well take notice of some of these things and will not make the mistakes which I believe have been made previously. I beg to move.

Moved, as an amendment to the motion, at the end of the Address to insert— but regret that the gracious Speech indicates the continuing reliance of Your Majesty's Government on those same fiscal and monetary policies which have created irrevocable damage to the nation's industry, and caused a massive increase in unemployment; proposes further divisive legislation hostile to the trade unions; announces economically irrelevant measures for the sale of public assets; and consequently offers no prospect of economic recovery, no hope for the establishment of social justice and no vision of a united national effort for the benefit of all."— (Lord Scanlon.)

4.46 p.m.

Lord Banks rose to move, as an amendment to the above amendment, at end to insert "any more than would the policies of Your Majesty's official Opposition".

The noble Lord said: My Lords, I beg to move the amendment standing in my name on the Order Paper. This amendment would add to the amendment just moved the words: any more than would the policies of Your Majesty's official Opposition". I should like to say right away two things about the amendment just moved so forcefully by the noble Lord, Lord Scanlon. First, we on these Benches have considerable sympathy with the terms of that amendment because, like the noble Lord, we do not accept the medium-term strategy which lies behind the Government's policy. Nor do we support the policy actually practised by the Government. Fortunately, the Government have not been able to match the severity of their strategy in their attempt to apply it. Even so, in our view the policy in action has done much damage to the economy. I am not surprised that the noble Lord, Lord Cockfield, should dislike references to the right honourable gentleman Sir Ian Gilmour, so recently in the Cabinet and so recently sharing responsibility for these matters. But he has pointed out that the results of the Government's policies are that unemployment has passed the two and three quarter million mark and is approaching 3 million; output has fallen more than at any time since the 1930s; the number of bankruptcies and closures is unprecedentably high; and price inflation is still higher than at the time of the general election.

Secondly, we on these Benches join with the official Opposition in condemning the dire results—and the adjective is Sir Ian Gilmour's—of the Government's policy. We do not accept a great deal of the alternative programme to which the Labour Party are committed, and our amendment to the official Opposition's amendment is designed to give expression to that fact. For example, we are not in favour of this country pulling out of the European Economic Community. We believe that to do that, among other things, would place 2½ million jobs at risk, would cut us off from our biggest market and would greatly reduce our opportunities for exercising influence in the world. In fact, we would like to go further towards integration and would like to see this country a member of the European Monetary System. Also, we are not in favour of the establishment of a régime of import controls; we believe that would be suicidal for a nation which exports one-third of its gross national product.

Thirdly, we are not in favour of further widespread nationalisation. The Socialist Alternative, the document which was presented to the last Labour Conference by the Labour Party National Executive Committee, said this: We will establish a publicly-owned stake in each important sector of industry". We believe that such a policy would be completely irrelevant to the solution of the problems facing our economy at the present time.

I put forward our plan for recovery in this House on 11th February, when I opened a debate on the 10-point programme which had been set out by my right honourable friend, Mr. David Steel. I shall not go into the detail again, but I should like to remind the House that we stand in favour of a limited expansion of the economy, which we see might be done in two ways, at least: first, by an increase in investment in the capital structure of the country, which has been sadly neglected; and, secondly, by the reduction or abolition of the national insurance surcharge, which, of course, does not go towards national insurance at all. We want to link that limited expansion of the economy with an incomes policy, believing, as my noble friend Lord Rochester said yesterday, that agreement and consensus are better than bankruptcies and redundancies as a means of linking incomes to productivity.

Then, in the field of industrial relations, we should like to give a minimum statutory basis to consultation by the establishment of works councils. There might well be a triggering mechanism included in this, so that if a certain percentage of the workforce in any company were to apply for a ballot to decide whether or not a statutory scheme should be introduced, that ballot would decide whether the scheme would be set up or whether some other scheme, acceptable to the workforce and already in practice, should continue. In this way, we would not necessitate the abolition of existing schemes which might not conform to a statutory pattern, and we would retain a measure of flexibility.

The noble Lord, Lord Cockfield, objected to the Government's policy being described as deflationary. He explained that the Government were spending more and that the public sector borrowing requirement had increased. But, of course, it is not only these factors that have to be taken into account. It is also true that taxation is rising and we have to consider the impact of the high exchange rate which we have had, and which we still have in real terms, and the high interest rates on prices—and prices have been rising substantially faster than the rise in money national income. We believe that a combination of these factors has had a powerful deflationary or disinflationary effect and this, I think, is the fundamental disagreement between the Government and their critics, as to whether the policy which they are pursuing is inflationary or deflationary. We have no doubt that it is deflationary. So far from wanting to see further cuts, we want to see some relaxation and, in particular, no more cuts in social security and welfare.

According to EEC figures, our spending on what is called "social protection", which includes social security, expressed as a percentage of gross domestic product, has been lower than in all the other EEC countries, except Ireland. Admittedly, we must remember that more of the cost of pensions is borne by the employer in Britain through occupational schemes, than is generally the case in the EE3. But, even so, I think there is no indication to suggest that we are out of line with similar countries in what we spend in this field.

But to return to the main argument, the noble and learned Lord the Lord Chancellor, in the stimulating and thought-provoking speech which he made to us a week ago today, reminded us that a debate had been going on for 150 years between two schools of thought—the advocates of the market economy on the one hand, and the advocates of collectivism on the other. The noble and learned Lord described the first of these—the defence of the market economy—as the classic Liberal thesis and he added: … at a time when … the Liberal Party … needed no allies from pink-centred collectivists".— [Official Report, 5/11/81; col. 21.] I thought I detected a slight note of criticism there of the alliance between the Liberals and the Social Democrats.

But the New Liberalism, as it is often described, which developed in the early years of this century, recognised the need for both individual initiative by private individuals and by private corporations, and collective action through the machinery of the state, and recognised the need to secure a proper balance between them.

This recognition was expressed very clearly by Winston Churchill, then a member of a Liberal Government, in a speech which he made in 1906 and which was republished with others in 1909. He said this: It is not possible to draw a hard and fast line between individualism and collectivism. … That is where the Socialist makes his mistake.… No man can be a collectivist alone or an individualist alone. He must be both an individualist and a collectivist. The nature of man is a dual nature. The character of the organisation of human society is dual". The journal, The Nation, commenting at the time on these speeches of Winston Churchill, declared: This moving equilibrium of the forces of collectivism and individualism, not a contradiction or a compromise but a harmony, is of the very essence of that social progress to which Liberalism commits itself with fresh faith and growing courage". I believe that this is as true today of Liberalism as it was then.

Of course, there is something of the market economy and something of collectivism in the policies which all Governments have pursued in this country since the war. But the Conservative Party today, whatever Disraeli may have said, is ideologically committed to the market economy and the Labour Party, however gradual the inevitability at various times, is ideologically committed to collectivism.

Incidentally, I was fascinated to see this week that the name of Disraeli has become so much associated with rebellion in the Conservative ranks at the present time that the Daily Telegraph—that daily source of instruction for loyal Conservatives—felt obliged to publish a leading article on Tuesday debunking Disraeli's political record. We read of his "stupendous immobility", his "broad lethargic indifference". We were told that he was a showman and a charade master. It was asserted that he is no more remembered for what he did than Phineas Finn. But I think that even Gladstonians would jib at that. It is clear that, in the eyes of the Daily Telegraph, any Conservative who calls Disraeli in his defence is well down what the porter in Macbeth called "the primrose way to the everlasting bonfire."

The noble and learned Lord said—and I was glad to hear him say so—that he listened often with a high measure of agreement to speeches from these Benches. In so far as they relate to economic matters, I think that must be because, as he said, as between collectivism and the market economy, he has never fully accepted either point of view. But the rhetoric of the Government is heavily biased in the direction of the market economy, and so, I believe, are their policies. I believe it is plain to the people of this country that the Government have lurched heavily towards the market economy school, and that the Labour Party have lurched heavily towards the collectivist school. The compromise, to use the noble and learned Lord's expression—the harmony, as I would prefer to call it—has disappeared.

I believe that the Social Democrats see this as clearly as do the Liberals. I believe that they, with us, stand for that balanced partnership between individualism and collectivism, between market forces and collective action, which is essential for the provision of true economic freedom. I am happy to be associated with them in the pursuit of that end. My Lords, I beg to move.

Moved, as an amendment to the above amendment, at end to insert "any more than would the policies of Your Majesty's official Opposition".— (Lord Banks.)

5 p.m.

Lord McFadzean of Kelvinside

My Lords, when I first joined your Lordships' House, several of the senior Members kindly gave me advice on procedure, particularly the procedure to be followed in a maiden speech: "Be brief", I was told, "and try to be non-controversial, but if it proves difficult to observe both these restraints do not sacrifice brevity".

As we arc all aware—or we certainly shall be by the end of this debate—economics is a many splendoured subject. Its devotees occupy every point of the compass and most are convinced that the direction in which they are pointing represents the only true way. In such circumstances it is difficult to speak in any debate on the economy without appearing controversial to one group or another. I shall therefore be brief. I should like to devote the few minutes which precedent allows to supplementing some of the observations which were made yesterday by the noble Baroness, Lady Young, on the causes of our slow rate of economic growth.

Within the lifetime of many Members of this House we have not only seen the purchasing power of the pound shrink to less than 7 per cent. of its pre-war value but, as was mentioned yesterday, we have been steadily sliding down the international league table in per capita income. Not only have we long since been passed by Denmark, West Germany, Belgium, France, Luxembourg and the Netherlands but our rate of growth over the last two decades has been the lowest of the 10 countries in the EEC. This performance has dismayed our friends and produced more than a tinge of contempt from those less well disposed.

The noble Lord, Lord Kaldor, in his inaugural address as Professor of Economics at Cambridge attributed a large part of Britain's slow rate of growth to the fact that the country was what he called "prematurely mature", in the sense that industrialisation started first in Great Britain and that, unlike many other countries, we no longer have the resources of labour in agriculture to sustain any great expansion in manufacture. Of course there is great force in this argument. Since 1870 there has been an exodus from the land, accompanied by an increase in productivity of those who remained, so that at the present moment agriculture accounts for something close to 3 per cent. of our gross domestic product while employing less than 2 per cent. of the working population. Compared with most of our Continental neighbours, British agriculture is efficient, but this does not mean that the disguised unemployment has been squeezed out of the economy. In fact, the disguised unemployment has moved over to the manufacturing and service industries.

It has become fairly commonplace to blame Britain's lack-lustre performance on a deficiency of capital equipment per man employed; if only the proper tools were provided we would reach the productivity levels of our main competitors. This is sometimes generalised, as it was generalised this afternoon by the noble Lord, Lord Scanlon, into a claim that there has been an investment strike by private enterprise. I have some difficulty in accepting this concept. It does not require too close a survey to discover that over a wide range of British industry it would be possible to increase output appreciably from existing plant by reducing the over-manning and using the manpower thus set free to double shift the equipment which is already installed.

Secondly, figures giving capital employed per worker are not only a function of the amount of money invested. They are also a function of the manner in which the investments are utilised. Thus, with modern, numerically controlled machine tools, multi-machine manning has not only become possible but it has been followed in many other countries. If our work practices are such that we force one man, one machine, while others operate four machines to one man, it is not at all surprising that the per capita capital employed by some of our competitors is four times greater than in Britain. But more investment is not the answer to this problem.

Thirdly, if people refuse to adapt and change their ways to enable the economies of advanced technological equipment to be realised in practice, the incentive to invest is diminished or eliminated altogether.

An article published in New York last month and already mentioned in another House highlighted some of these problems and pointed some very adverse criticism at British industry. It gave a comparison between two car plants, broadly similarly equipped, but one located in West Germany and the other in Great Britain. The German plant was reported as producing 50 per cent. more cars with a workforce approximately 30 per cent. less than that employed in the United Kingdom. In spite of wages in Germany, in this particular plant, being 50 per cent. higher than in the United Kingdom, the German plant could still produce and land a car in the United Kingdom for appreciably less than the cost of producing it here.

This is not an isolated example. It is well known that similar investments can produce widely different results according to the country of location; and the different results are largely the product of unquantifiable factors: the political and economic environment, the existence or otherwise of incentives, traditions, industrial skills and, above all, the attitudes of the managements and workers involved in the projects. Economics, in my view, has become too obsessed with the quantifiable to the detriment of the unquantifiable, yet it is these intangible factors which I have mentioned that largely determine whether a nation prospers or shuffles and stumbles into relative decline.

The dynamic concept of an economy which used to dominate Britain has to a large extent been replaced by a near zero sum mentality. The focus is not on the future and new opportunities but on what already exists: on protecting jobs, on closing markets, on shunning ideas, on re-distributing rather than expanding income. This static philosophy tends to become self-fulfilling and results in the ossification of the economy. If but a fraction of the time and effort put into confrontational industrial relations in Britain could be channelled into improving efficiency and productivity it would soon be possible to increase real incomes all-round. However, changing long established and deep seated attitudes, while essential, is not an easy task. But over the last year— glad to hear the noble Lord, Lord Scanlon, speak in the same way—there has been a growing realisation that unless many of our present practices are abandoned we shall continue to lose ground and jobs to competitors who adapt more speedily to an ever-changing technological environment.

5.9 p.m.

Lord Kilmarnock

My Lords, it is a privilege indeed to be the first to congratulate the noble Lord, Lord McFadzean of Kelvinside, on a notable maiden speech. He brings, of course, the strength of the McFadzean clan in your Lordships' House to two and thus comes within striking distance of Clan Hunt, which I believe heads the league. There is also, I understand, a family connection between the noble Lord, Lord McFadzean, and the noble Lord, Lord Marsh, who is to speak after me. Therefore I shall do my best in my speech not to interpolate at excessive length between this double-star billing on the Cross-Benches which the Chief Whip has so cunningly devised for us.

As your Lordships will know, the noble Lord, Lord McFadzean, has had a very distinguished career in industry and brings a wealth of experience and achievement to your Lordships' House. The noble Lord is also an author. I was intrigued to read from his entry in Who's Who that he has written a book called the Economics of John Kenneth Galbraith: A Study in Fantasy. As I am in fact in agreement with some of Professor Galbraith's ideas, I look forward to debating this with the noble Lord on some future occasion, and I am sure all your Lordships look forward to frequent contributions from the noble Lord.

The theme of unemployment has been remarkably persistent, not only in this debate but also in the debate on home affairs where, in happier times, it would probably not have received much mention. This is further evidence of the definite emergence of this subject at the head of the league of what we and millions of our fellow countrymen are most worried about, and therefore I make no apologies for turning to it again this evening. Personally I am convinced that this social and economic blight will remain with us to an uncomfortable, if not intolerable, degree until we thoroughly shake up all our accepted ideas about the relationship of man to work. The ultimate aim must be to give every citizen the right to a maintenance allowance sufficient to enable him or her to choose between not working, working, part-time working for an employer and working for himself or herself, and varying his choice at different periods of his or her life to suit his or her educational, marital or other requirements. The way towards this is quite clearly by a merger of the present tax and social security systems in a single tax credit or negative income tax system, but this is a subject for another occasion.

In the meantime, we have the fact that 3 million of our fellow citizens are now officially unemployed and are not enjoying it, despite innuendoes to the contrary. There is a fairly wide spread of projections as to what the situation may be by 1984 or 1985 or 1990, assuming present policies. Even the most optimistic is not very encouraging. For instance, the Cambridge Econometrics Industrial Subscription Service pushed up its June 1978 forecast of 2.7 million unemployed in 1985, to 3.4 million in its revised forecast for the same year made in June 1981. The Cambridge Economic Policy Group forecast in April 1981 that there would be 4.3 million in 1985, excluding school-leavers, and of course there are other forecasts of an even more alarming nature.

Distressing as these projections are, I believe it would be unwise, not to say dishonest, of any self-respecting political party to nail the flag of full employment in the old style, as we were accustomed to it, to its masthead and to sail with this as one of its principal commitments into the next election. That could only be achieved by stoking up the economy and going hell-bent for growth at all costs, and without a massive increase in public sector employment it is very much to be doubted whether it could achieve its objective, even in the short term, for the more competitive arm of the economy would still have to aim for improved productivity and lower manpower costs if it were to maintain, let alone increase, its market share.

If there were to be a massive increase in centrally provided public services, these could only be funded by a tremendous increase in Government—that is to say, national—debt, or by taxation. If unilaterally imposed controls were added to the package, it would merely be a question of time before fortress Britain went broke and had to be demolished for scrap. Yet that is the essence of the package offered in the Labour Party's alternative economic strategy, as outlined in their pamphlet called Manifesto.

But between doing nothing and such desperate, if not suicidal remedies, there are other positions. We are not helpless. During the Warrington campaign my right honourable friend Mr. Roy Jenkins put forward a six point programme designed to remove approximately 1 million people from the unemployment register at a net cost to the PSBR of between £2 billion and £3 billion. This was, and remains—and it has never seriously been challenged—a responsible and realistic programme. Very briefly I will remind your Lordships of the six main headings.

The first is based on the Treasury's own estimate that an unemployed person on average costs the Government approximately £3,500 a year in benefits and forgone revenues. This is now an under-estimate. I think the figure should be nearer £5,000. We shall have an occasion to discuss this, when, it is to be hoped, some time in the new year the report of your Lordships' own Select Committee on unemployment is debated, but let us accept the Treasury's figure for the moment. The proposal is that this sum should be paid to every employer who takes on an additional worker who has been unemployed for over six months. The gross cost is, of course, reduced by the direct and indirect tax revenues, national insurance contributions, et cetera generated by the re-employment of these people.

Some of us may not like the idea of subsidies at all, though goodness knows! there is enough subsidy in one form or another in the economy at the moment owing to the imperfect functioning of the free market. If subsidies are to be applied in the interests of employment, then obviously employment subsidies are preferable to investment subsidies. This grant would be limited to two years, and Mr. Jenkins estimated the cost at £400 million a year for 250,000 jobs. As we are a democratic party and allowed to disagree with our leaders, I would put it slightly higher, at £500 million. Even so, I submit that this is not excessive for an emergency measure; and who can doubt that we have an emergency on our hands?

The second proposal is for £500 million of worth-while expansion in the public sector, and the first candidate here is obviously telecommunications. It is ridiculous that investments which bring in good hard returns—no soft options here—should be subjected to the same cash limits as basically non-constructive or palliative public expenditure. We could learn a great deal from the French here. The direct job yield may not be very great here, as was suggested in the very distinguished debate in your Lordships' House on Friday, 10th July, on the EEC Committee's 27th Report on information technologies. But it is a field that we have to be in, and I would suggest that investments should be spread between higher and lower technologies, to include railways, roads, drainage and water, with the aim both of improving the general public infrastructure and of catering for workers with higher and lower skills. Mr. Jenkins foresaw here the generation of 50,000 jobs.

Third, we have the extremely interesting and not vastly costly suggestion of a national housing renovation programme—new homes for old, as it has been called—specifically aimed at unemployed workers with wasting and wasted, but by no means irrelevant, skills. It is surely a scandal that the total expenditure on housing has fallen from £6,072 million in 1975–76 to £4,256 million in 1980–81 and the statistics recently compiled by Shelter show that more than 3,300,000 flats and houses in England are now unfit, lacking in basic amenities or in need of substantial repair. The suggestion is that those receiving unemployment benefit should be given the opportunity of working in this field for, say, an additional £15 a week over and above their unemployment entitlement. In fact the Government have gone some way in this direction by raising the disregard on unemployment benefit from £4 to £10 a week, but they have not made any suggestion as to how or where the unemployed should turn for work.

Here I should like to add a suggestion of my own. Why not make it possible for the handier unemployed—and there are many of them—to draw this additional sum to improve their own homes, whether rented or owned, the materials to be provided from a revived improvement grants scheme, and our charming but antiquated housing stock would take on a new lease of life without any vast programme of building or public expense. Mr. Jenkins estimated the cost of getting 250,000 people back to work in an activity which would be congenial to many at no more than £250 million a year—surely cheap at the price.

Fourth, there is a very large scope for relatively inexpensive improvements in what one might call the caring services, that is to say, crèches, pre-school education, play groups and home helps, enabling the old to continue in their own homes instead of going into costly residential care. That sort of work is ideally suited to women who want part-time work and it would cost about £200 million a year to provide 60,000 part-time jobs in such activities, which is another real bargain for the taxpayer and a real benefit for society.

Fifthly, there is the vitally important question of holding the pound at a viable rate on foreign exchanges, and keeping it reasonably steady, in contrast with the wild fluctuations of the last year or so. A major proposal here is that the oil depletion rate should be cut by a third and held there for the rest of the decade. Funds jostling into this country to take advantage of high interest rates would decrease as interest rates fell, the exchange rate would fall, exports would be better placed, and manufacturing investment would not be crowded out so fast. It is also important to stress that this is not a classical reflationary exercise. There is no reason for any increase in that "damned elusive" money supply. It should never be forgotten that inward flows of hot money and a large balance of payments surplus actually increase the money supply which the Government are trying to control. The loss of oil revenues would be partly offset by the depreciation of sterling against the dollar, in which currency oil is priced. Furthermore, Government revenue would be increased and expenditure on unemployment benefits would fall as output expanded and unemployment decreased. It would not be unrealistic to envisage a gain of 250,000 jobs over two years as a fairly direct result of this depletion policy without any weakening of the Government's fiscal or monetary stance.

Finally, my Lords, there is the question of the young—16 to 18 or 16 to 19, whichever bracket you prefer. Everyone is bristling with ideas in this sector. The Government themselves will have to spend money here if they are to pay anything more than lip-service to the new training initiative to which they are committed. The Labour Party has a grand new plan which will certainly be very expensive. Our own proposals are still under study by our education policy committee, but at the very minimum we are going to have to overhaul the whole apprentice system, improve the Youth Opportunities Programme with a better training and further education element, and introduce mandatory educational allowances to allow all those who want to stay on in non-advanced further education after 16 to do so. Our provisional calculations are that an additional £300 million will be required in order to bring down the dismal tally of young unemployed by 200,000.

The six-point programme I have briefly outlined would in our estimation bring approximately 1 million people back into employment over the next two years at an annual cost to public borrowing in the region of £2,000—£3,000 million which, as my right honourable friend pointed out, not without some effect, to the electors of Warrington, is less than Sir Geoffrey Howe's last year's margin of error. This is, of course, no heady panacea, just a set of modest, rational, perfectly hard-headed proposals aimed specifically at improving the lot of those groups of our fellow citizens who are worst affected by unemployment, at little cost to the economy as a whole and with significant social benefits to our society.

Some of the critics of those of us who sit on this Bench have been at pains to suggest that we have no policies and are all things to all men. Such accusations stem, of course, from the habituation of people to the sloganised and dogmatic approach to policy of the two major parties. I hope I have managed to demonstrate that in the area I have been discussing we have a specific short-term emergency programme with some medium and longer-term implications. It is not gospel. It may receive some shifts in emphasis when our full party membership have had the opportunity of commenting on the green paper to be put out by our policy committee in this field. It does not, I must stress, exhaust our thinking on unemployment. In fact, my noble friend Lord Walston speaking yesterday from this Bench made a notable speech linking unemployment in the West with the problems of the third world. As David Steel said the other day in a lecture sponsored by the Federal Trust, it is absurd to think you can divide time up like lengths of carpet into short-term, medium-term and long-term, and then forget the last of those or bundle it into the cupboard because it is over the average politician's horizon. It is perfectly true, as Keynes said, that in the long-run we are all dead. But other people, our children and grandchildren, with a bit of luck will be alive.

Truly serviceable policies cannot be confined within a time-scale of two years or even five years. We shall, therefore, also be thinking very seriously about the devolution of powers from the centre to local authorities and the encouragement of local labour markets, with considerable implications for locally generated full-time and part-time jobs. I hope we shall be thinking, too, of reform of the tax and social security systems, which will have a very profound effect on the relationship of men and women to work. If an intelligent consideration of such reforms, because it is still tentative and still dependent on the work of our policy committees and the individual voices of our members, is tantamount to a lack of policy, then I rejoice in the jibe, because we, and I venture to think our Liberal allies, want nothing to do with policies consisting of little more than facile slogans mouthed by demagogues; and I think it is no wild claim that a growing number of people in this country are coming to think likewise.

5.24 p.m.

Lord Marsh

My Lords, it is at least a comfort to know that, whatever acrimony there may be—and for those who come from another place lack of acrimony is already one of the more comforting features of this establishment—all your Lordships will recognise the feeling of apprehension with which any new Peer speaks here for the first time. Indeed, it is a sense of apprehension which I think is equalled only at that point where one finally decides the particular debate in which to intervene. I chose today's debate with considerable trepidation. As I look around your Lordships' House there are so very many familiar faces. Many of them have managed to retain a degree of elegant slimness which has escaped me. But none the less they represent elements in my political past, many old friends, politicians and civil servants, eminent economists, people who over the years have played a major part in making this country what it is today.

Some of us over the years have changed our views, and I see this as no cause for surprise or for apology. Indeed, with the emergence of the SDP I am bound to say that parts of your Lordships' House make the road to Damascus seem singularly uneventful. In my case, I have to confess that, like many others, I have changed, and today I sometimes lie awake concerned about what possibly seem to be the Left-wing tendencies of Professor Milton Friedman. I will resist the temptation to develop that theme on what is a privileged occasion, in case it is thought controversial. I will, however, hope to return to it at a later date when I have been, I hope, accepted here.

I have always believed that in any modern society a degree of intervention by the state in industry and the economy is inevitable. I do not think there can be any sensible argument which says that a modern Government can remain aloof from what goes on. I do not think the sophisticated electorate will allow any modern Government to stand aloof from what goes on. I think a degree of state intervention is inevitable, whichever party is in power. I have not yet learned the conventions of this House. but I think it would be safe for me to say that when I served in the public sector the most interventionist Prime Minister I encountered—and I will not give his name—was in fact Conservative rather than a member of the Labour Party. In fact intervention occurs under all Governments at all times.

But I do think, and have become convinced over the years, that not only do we exaggerate the extent to which governments can influence the economy—because in most of these big issues there is relatively little that the Government of a country the size of this one, with the economic vulnerability of this one, can achieve—but also, more dangerously, underestimate the irreconcilable and fundamental conflict between politics and industrial management.

I am conscious of the pressure of time today and I will not weary your Lordships with a long speech. I want to confine myself to one issue, because I think that this irreconcilable conflict between politics and industrial management is a major problem, one of many problems but a major problem, regardless of party. Indeed, until very recently the main argument between the parties, regardless of what was said in the manifestoes or in party political broadcasts, was on how, rather than whether, to intervene in industry. Both parties tended to compete with each other with new methods, new solutions, wondrous pieces of legislation, wise men, norms, wages councils, prices and incomes policies, and Ministers of technology, departments of the environment, Ministers for Wales and for Scotland—ccasion we had a Minister for the North-East. We have tried all these various solutions and the one thing which has emerged is that they clearly have not worked.

I find it extraordinary that we in this country still seem to indulge in this extraordinary pretence that one party actually has the solution—somehow or other it slipped out of their hands a year or so before when they were in office—and the other party has no chance of finding it. In fact, the truth is that we have both sought for three decades to find a solution to an economic situation in regard to this country which is intolerable by any standards and unacceptable to any part of the House. It is also worth saying—it cannot be said too frequently—that I find the suggestion of a monopoly of moral concern about social problems deeply offensive.

As I have said, I think that there are three factors which present massive problems for industries which are subject to political intervention, and I believe that they are factors which influence the relationships between Governments of whatever colour and the economy as a whole. I do not believe that ownership, whether it be by the state or by private enterprise, is the essence of political philosophy. It is an argument about management, but I do not think that it is particularly an argument about philosophy. If one takes those three factors, leaving aside the policy of whichever party one supports, I think that there is a fundamental conflict of objective between the politician and the industrial manager.

One cannot run any enterprise properly—which is saying the obvious—unless one has a clear view of the objective of the enterprise. The true fact is that the objective of the politician can never be the same as the objective of the industrial manager because the objective of the politician is macro in concept. He or she must be concerned with the economy as a whole, with questions of the balance of payments, with questions of unemployment and—perfectly legitimately in a democracy—with the question of winning the next general election, which is what most politicians are involved in anyhow. Whereas the objective of the industrial manager is micro in concept. He is concerned with the welfare of a particular company, with trying to provide for the owner that which the owner—whether the owner be the state or an individual—has invested his wealth in that industry for.

The first problem of state intervention, the first problem of the public sector, is not a philosophical problem in my view, but the fundamental problem of two groups of well-meaning people with totally irreconcilable objectives. The second conflict is that of time-scale. However much we try, the reality is that politicians cannot think and cannot work on the time-scales of modern industry and a modern economy. Political parties cannot work on the basis of seven-year lead times or five-year lead times. They cannot go to the electorate in all fairness after a four-year term of office and say, "We are terribly sorry, we haven't done anything for the last four years but we have been reading an awful lot about it". Therefore, the time-scale is totally out of gear and, time and time again, one finds in the public sector that the time-scale by which the politician is operating is so different from that which the enterprise requires that, in fact, great damage is done to the enterprise.

The final and most serious problem is that of accountability, because if there is one thing which is crucial in the enterprise it is that accountability should be clear-cut at all levels. The paradox is that over the years Governments of all colours have paradoxically sought to increase accountability in the public sector, and in the process of so doing they have virtually destroyed it. In the public sector you cannot hold anyone accountable for anything.

I spent five years as chairman of the British Railways Board. During that time we had two Governments; we had five Ministers and we had seven changes of the investment programme. I frequently ask myself whether I was a success or a failure as chairman of British Rail. Many people—without being invited to give their opinion—answer that question to my disadvantage. But, in all seriousness, the fact is that one will never be able to say, because the investment programmes we followed were investment programmes to which frequently the board were opposed. The pricing policies we followed were frequently policies of which I violently disapproved and, indeed, we had income blocks on the amount of money we could pay the most senior people in the industry and so we could not even employ the people we wanted. At the end of five years one can look at these massive undertakings, and the frightening thing is that at the end of the day they are accountable to no one. That is inevitable in the public sector, and I believe that it is one of the inevitable and serious problems with it.

Of course there is no simple or single reason for the economic problems of the last several decades; likewise, there is no single, simple solution. There is no new piece of legislation or new Quango that we can set up. In the last 30 years Governments have tried—at least, I hope that they have tried and finished by now—every conceivable form of intervention in economic and industrial management. I played my part as a Minister responsible for nationalised industries. I Subsequently received my just deserts as a nationalised industry chairman, suffering under Ministers I previoulsy regarded as my friends. I cannot help feeling that if all Ministers were forced to spend a period as chairman of nationalised industries before they became Ministers, legislation would evaporate overnight and so would Government intervention.

The past few years have been interesting and fascinating and have convinced me that political intervention in industry is sometimes inevitable with industries like the British Railways Board as a classic example. I remain totally convinced now that, while it may sometimes be inevitable, it is almost never desirable.

5.35 p.m.

Viscount Eccles

My Lords, this is indeed my lucky day because I have the privilege which will never happen to me again, to congratulate two "maidens" sitting next to each other—first, the noble Lord, Lord McFadzean of Kelvinside. I do not know whether your Lordships share with me the feeling that when some body talks with a delightful Scottish accent he must be very efficient. The truth about the noble Lord, Lord McFadzean, is that he not only has a beautiful voice but he is very efficient and he knows his business so well that we hope he will come many times to this House.

As to my noble friend Lord Marsh, he has made a maiden speech that we shall remember for a very long time. Someone who has been on both sides of the table—the political side and then the industrial side—has unique experience and, if I may I would ask my noble friend to come frequently to this House because he is no doubt absolutely right that there is, in the complexity of our modern society, great difficulty in talking across from politics to business and from business to politics—and I mean by "business" both sides of industry. The more men of experience who will come and tell us the problem and, if possible, the solution—but at least make the problem clear which is a matter which has not really been well thought about in this House—the better. We can say that the two maiden speeches coupled with the speech of the noble Lord, Lord Scanlon, also a man of great experience, show what this House is good at. We are very fortunate to be able to have men who have served so well and held the highest ranks in their career, to come and talk to us in a way which would be very difficult in the other place.

Having said that, I enjoyed the speech by the noble Lord, Lord Scanlon, very much, but it did not have much to do with the amendment. If he will pardon me, I shall go back to the amendment which he only moved formally and did not really go into. What does the amendment, coupled with the speech last night of the noble Baroness, Lady Birk, amount to? If we vote for it we would be voting to call off the fight against the unfinished battle with inflation. It is the relationship between that fight against inflation and the present dreadful situation of unemployment that is the heart of the argument between the two sides of the House. So I would like to devote a few remarks to that point.

We did not expect that it would be so difficult to bring inflation down to single figures. Your Lordships can judge for yourselves to what extent causes outside the control of the Government have contributed to that disappointment. I mean the high wage settlements that were in the pipeline when we came into office, the soaring price of energy, the pressure of interest rates in the United States, and of course, the depth and length of the recession itself.

But, however prolonged the difficulties may be, I thoroughly agree with my noble friend Lord Cockfield in his admirable opening speech today that inflation remains enemy number one. It is the expectation of inflation that does the damage. It stifles investment, turns us into short-time speculators, and pulls apart the fabric of society. Costs spiral and jobs are lost. The institutions are bound to seek a positive return on the money which they lend (and they are lending other people's money). That means the Treasury has to offer a rate of interest substantially above the expected rate of inflation; furthermore, a rate which is competitive with that offered by other good borrowers. So I think that your Lordships would agree that, to make a real impression on the total of the unemployed, the interest rate must come down, but that it cannot come down more than a point or two unless the rate of inflation comes down first.

Apart from the effect of inflation on interest rates, it is very bad for new business; manufacturers want to be reasonably confident that if they take on more labour, they can sell the product. But if they cannot calculate, for reasons beyond their control, what will happen to their costs, how can they be confident? The result, of course, is that they put their plans for expansion in the pigeon hole. My noble friend was chairman of the British Railways Board. I hope he will not mind my asking this question. Suppose that the capital were now to be provided to electrify the railways and that when the work was completed it was found to be impossible to cover the then running costs, plus the new interest charges, without doubling fares and rates. What then? Would the public be able and willing to pay or would they desert the railways for some other form of transport? That is the kind of dilemma which continuing inflation brings. It also stimulates wage claims.

The wife says "I know, pretty well, what things cost today, but shall we have enough money in six months' time?" If the Labour Party had their way, with their massive reflation, the wife would ask that question more often and more anxiously. The greatest service which the Government can do for those in work and those out of work is to fight inflation to the point where employers, workers and savers change their minds about the prospect of rising prices and become convinced that their money will not, forever, lose it value.

I turn to the composition of the 3 million unemployed. That presents us with a new problem. The men and women out of work today are made up very differently from the mass unemployment that we knew before the war. Of the present total, 40 per cent. are under the age of 24, as the right reverend Prelate the Bishop of Worcester reminded us last week in what was sadly his last speech in your Lordships' House. The total of young and its proportion of the 3 million is a new experience. So, too, was the exceptional degree of overmanning at the time when the oil crisis hit our economy. The other day I was astonished to read that when we last had 600,000 out of work our gross national product was almost exactly the same as it is likely to be this year, when we have 2.4 million more out of work. That must be some indication of the overmanning. Since the mid-1970s thousands more jobs have been lost by the replacement of human labour with electronic devices. I very much hope that my noble friend Lord Weinstock will tell us something about that when he comes to speak.

In my political life I have listened to many false claims, but none more outrageous than the pretence that the Conservative Government are responsible for the overmanning of the 1970s and the job-destroying power of technology; for it is those two factors that account for a large proportion of the present total of unemployed. Those two factors have this sad result. Straightforward reflation—that is, borrowing money to pay for work for which the market will not pay—would have only a tiny impression on the total of unemployed compared to what it might have had in the days of Lord Keynes, whose pre-war theories are now so dear to Mr. Michael Foot.

If there was no money around, there might be a better case for reflation. But, as your Lordships know, there is plenty of money waiting for investment—witness the over-subscription of the Cable and Wireless shares this last week. How then do we create the conditions in which industry will think it worthwhile to borrow and to take on workers in jobs that will stick?—not the same jobs as have been lost in the last two years. Abroad this requires a recovery in the United States' economy. Without that things will be very difficult. At home it requires the defeat of inflation followed by a substantial fall in the interest rate and backed by the training schemes which the Government are developing on a large scale.

If that is a fair description of the situation, what have we to say about the alternative strategies proposed by the Government's critics? At their recent conference the Labour Party voted for a programme so remote from reality, so inconceivably dotty, that I gasp to think of men of experience—such as sit on the Front Bench opposite with the noble Baroness, Lady Birk—standing up and defending such a policy. Therefore, I want to ask the noble Lord, Lord Bruce of Donington, who is to wind up for the Opposition, whether he would be good enough to tell the House how the British economy could recover and flourish if his party did what they said they would do at Brighton; that is, enclose Britain within a ring-fence, compounding our failure to compete by putting on tariffs and quotas, confronted by retaliation against our exports in our best European markets, isolated—no one knows how—from the exchange and interest rates of the rest of the world and then, within this socialist stockade, borrowing or printing money to pour into the public sector and non-productive services. Nothing in the whole range of science fiction could be found to equal that nonsense.

I turn to what little we know about the policies of the Liberals and the Social Democrats. I contested the Chippenham division of Wiltshire in six elections. In each one I had a Liberal opponent—of course, he was not the same man each time. I never discovered what his party's policy was other than proportional representation. It may be an advantage at by-elections to be all things to all men, but not, I think, when a Government and a Prime Minister have to be chosen. So I have been listening to and reading the speeches of the dozen or so contenders for the leadership of the alliance, and some of those who probably are not in the race at all. The differences are interesting. Each one offers almost a whole policy. Of course they are not the same, but it is extremely interesting, and in a moment I am going to mention what I believe to be the highest common factor.

Does any of them really represent an organised party? I do not know, and I do not mind very much because I am encouraged to see the SDP destroying all chances of the Labour Party winning the next election. On behalf of my children and grandchildren, for that relief much thanks. On the other hand, it is difficult to see with the best will in the world how this collection of leaderless, floating voters can organise themselves into something which looks like an alternative Government by the time the election comes along. Well, we shall wait and see.

There is something important which most of the speakers on behalf of the alliance seem to me to hold in common. They would not reflate without an incomes policy. I think that the noble Lord, Lord Rochester, said that. I think, so far as I could understand him, the noble Lord, Lord Roberthall, said that too, and we have had the noble Lords, Lord Banks and Lord Kilmarnock, more or less saying that. So far, so good. But how would they get an incomes policy if they make proposals like Mr. Jenkins's unworkable tax which would exasperate the unions and be circumvented by the employers? On other subjects, such as help to the young unemployed, help to small businesses, there is very little to choose between the SDP and my party. But what is important for British politics is that the gap between the SDP and the dwindling Labour Party is growing every day. It will go on growing, because Mr. Benn and his numerous friends are determined that it shall.

I apologise for taking so long, but before I sit down I have two short suggestions. We must feel our way towards an incomes policy. Could the Government offer to large capital programmes finance on what one might call anti-inflationary conditions? I mean, in return for loans could a bargain be struck with the industry concerned to limit the demands for increases in salaries, in wages, and dividends if there are any? I do not believe that the electrification of the railways could be justified unless some agreement of that kind had been reached beforehand, and I do not see why it should not be reached. If we cannot find new ways in which to be more responsible in pay bargaining, the competitive world of tomorrow will see us off.

Finally, I want to take up something that the Prime Minister said last week in another place, at column 22 of the Commons Official Report. Mrs. Thatcher said: We must also stimulate the new jobs of the future". My right honourable friend then listed several ways in which the birth and growth of new businesses are already being encouraged, but she left something out. No mention was made of industrial design. British industry continues to neglect design. We were the first in the Industrial Revolution. It was easy then to sell anything that worked, but now conditions are very different: advertising is international; consumers buy what they see, motor-cars, kitchen equipment, clothing and much else, beautifully designed and presented—and of foreign origin. Our goods will not be competitive, never mind how well they are made, unless we make more use of talented designers and give them the facilities to study the cultures and tastes in our export markets.

I know from experience how difficult it is to persuade industry to give more scope to designers. The directors say they cannot be sure of the results. Indeed, art in any form is a very embarrassing subject at a board meeting. I know it from experience, my Lords. The Government should see what they can do to train designers and promote their use by our manufacturers. Otherwise, the new entrants to industry may be better trained but they will not make goods which will sell. In conclusion, I repeat that a vote for the amendment would be a vote to call off the unfinished fight against inflation, and we must, like the Prime Minister, have the courage not to do that.

5.56 p.m.

Lord Kaldor

My Lords, I too should like to add my congratulations to the two maiden speakers, and particularly to the noble Lord, Lord McFadzean, who has the rare combination of academic excellence combined with first-rate business abilities. Also to the noble noble Lord, Lord Marsh, who will add to the distinguished ranks of those who graduated to business from politics.

This is the third debate on the Queen's Speech in the lifetime of the present Parliament. I count myself fortunate to address your Lordships from the Back Benches of this side of the House and not from the Front Bench of the other side. I certainly do not envy the noble Lord, Lord Cockfield—even though I admire him—in keeping up his usual air of effortless superiority and infallibility, while having to eat quietly so many of his past words.

The noble Lord, Lord Cockfield, with the same confidence and superiority, explained to us two and a half years ago that from now on everything would be different. It is a completely new world we are entering; the money supply will be strictly controlled; the control of the money supply will work miracles; inflation will rapidly disappear, and there will open up a marvellous new era of growth and prosperity. I do not want to repeat too many times the figures that have already been bandied about and quoted. The fact is that our production shrunk; our GDP in two years by 7½ per cent., which is more than has ever happened before in peace time; a fifth of our manufacturing output disappeared; and I could add many other features.

Turning to the methods by which this new Government thought to bring about a new Jerusalem in this country, they were always concerned with turning back the frontiers of government; reducing government expenditure. Today we heard almost with satisfaction a statement from the noble Lord that government expenditure, as a matter of fact, increased as a percentage of the national income from 50 per cent. to 55 per cent., and it will be higher still next year. The PSBR, by whose reduction they still seem to set great store, was exceeded by 57 per cent. as compared with the Government's target in one year, and by 40 per cent. in the next.

I will not go into, but merely register my utter and total disagreement with, his present emphasis of the budgetary deficit and the level of interest rates. I could demonstrate to him—I have done so and I am ready to supply written proof—that there is no necessary connection whatever between the budget deficit and the interest rates; you can have high interest rates and no deficit, enormous borrowing and very low interest rates; you can have a 2 per cent. war (as we had in the Second World War) or a 6 per cent. war (as we had in the First World War); and lately the great Milton Friedman has come round to this view too, and I could supply references to that effect also. Let us leave that there.

What was missing from the noble Lord's excellent and wide-ranging account today was any reference to the money supply, whereas, by Jove, two years ago the money supply was the centrepiece of everything. The control of the money supply and the reduction in its growth rate would result in all sorts of miraculous changes coming about, so we were told. In the event what happened? Since the day the Government came to office, the money supply, by their own definition, has increased at an annual compound rate of 18 per cent., as against the 11.2 per cent. in the previous five years, between the second quarter of 1974 and that of 1979, and that was under a Labour Government. So the money supply increased more than 50 per cent. faster than it did before. That has been the net result of monetarism.

Certainly the noble Lord did not expect, and could not have expected, that the rate of inflation would be higher, and not much lower, than before. He could not have expected, either, that the rate of inflation would bear no relationship to the change in the rate of the money supply, which would call for an even higher inflation than we had. And he would not have said that despite North Sea oil and an unprecedented recession—which, of course, was not foreseen or taken into account—the balance of payments on current account, as the latest published figures show, would barely break even.

Indeed, if the latest published trade figures, for September, turn out to be more than a freak, 1981 will go down in history as the first peace time year in which Britain was a net importer of manufactured goods—the first time, that is, since the 16th century. Since 1975, the volume of imports of manufactures increased by 76 per cent., while the volume of exports of manufactures increased by 14 per cent. only, which means that imports grew nearly five times as fast as exports. Since the first quarter of 1980, while the economic recession was rapidly deepening, the volume of imports of manufactures nevertheless rose by 9 per cent., whereas the volume of exports fell by 7 per cent.—the very opposite of what one would expect to happen when a country has a much deeper economic recession than its trading partners.

I submit that there is not a single aspect of the Government's policy, announced or unannounced, in which the desired objectives of the Government have been attained, except perhaps one, but that is not one for which anyone could openly claim credit. They have managed to create a pool—or a "reserve army", as Marx would have called it—of 3 million unemployed, and but for the fact that British Leyland was not closed down, as looked like happening—a lame duck, by Sir Keith Joseph's definition, if ever there was one—the figure would soon have risen to 4 million.

There is no use blinking at the fact that in terms of the power of masters over men, the existence of 3 million unemployed makes a vast difference. One has only to scan the statistics of absenteeism, the number of days lost through strikes and the size of wage settlements, both absolutely and relatively to the increase in the cost of living, to realise that the British working classes have been thoroughly cowed and frightened. The trade unions are demoralised and a climate of fear dominates the land. The defeat of a near-unanimous strike recommendation by 350 shop stewards—I never knew there could be so many shop stewards in one firm—of British Leyland only a week ago bears eloquent testimony to that.

Mrs. Thatcher is our first Marxist Prime Minister—none but a Marxist could speak so contemptuously of consensus politics. She was reported to have said in Australia recently: To me, consensus seems to be the process of abandoning all beliefs, principles, values and policies. … It is the process of avoiding the very issues that have got to be solved merely to get people to come to an agreement on the way ahead". I can almost hear Lenin speaking those words when in October 1917 he bullied 17 "wet" members of his politburo in order to take risks and seize power which they were most reluctant to do.

Yet despite the Russian revolution, and despite Britain's present untimely essay into Victorian capitalism, the successful trend in the present century, at any rate in its second half after Hitler was defeated, has been precisely towards the kind of consensus politics our Prime Minister so despises.

Perhaps she needs reminding that there was never a more far-reaching consensus in Britain than that attained by the war-time coalition Government of Winston Churchill, which certainly did not involve abandoning all beliefs, principles and values; whereas the previous "conviction politics" of Neville Chamberlain—a Prime Minister with much the same qualities of single-mindedness, courage and obstinacy as Mrs. Thatcher—divided the nation as it had never been divided before.

Coming nearer to our time, the successful democracies of post-war Europe—countries like Germany, Australia, Holland and the Scandinavian countries—follow the principles of consensus politics characterised by ever-widening consultation at all levels and by making all employees participate in decision-making at all levels. Those are the countries which have excellent labour relations, relatively low rates of inflation, few strikes and high productivity and production records, countries in which you find a recognition of a common interest in the success of the enterprise by all participants—which I consider a most important feature of success.

I would put Japan in the same category. There, in apparent contrast to its strong hierarchical traditions, there is in fact widespread regular consultation between management and staff, as we learned from an article in The Times the other day; and I must say that one of the most promising and cheerful features of recent events has been the increasing involvement of Japanese management in British industry. I cannot see anything but good in that kind of development. In Japan, wages are rapidly rising, in real and money terms, and are twice as high now as they are in Britain, and workers are protected, by the guarantee of lifetime employment, from being made redundant as a result of either automation or robotisation.

In miserable contrast to all that, British industry, as represented by the CBI, or the Government, is convinced that it is only through a large fall in the workers' standard of living, through wage increases consistently falling short of the rate of increase in prices, that industrial competitiveness can be restored. What nonsense that is! Improved competitiveness requires modernisation through new investment. It requires expanding home markets, which require higher, not lower, real wages and, most importantly, it requires an improvement in the technical competence of industrial management which, in the view of all foreign experts—though not perhaps the native experts—is one of the worst in the world.

Real wages could be much higher if our national production could be raised to its economic potential, and I failed to hear a single reference by the noble Lord, Lord Cockfield, or anyone else on the Government side, to this vital difference between actual output and potential output. If we could raise output to the full employment level, our production would be around 20 per cent. higher than what it is now; and if that cannot be achieved it simply means that our organisation of the economy, our market system, and the whole system of production and distribution is fundamentally defective.

The only way that I can see of regaining full employment is by expanding the demand for the products of British industry, which in our present feeble state, I readily admit, would not be possible without protection or import controls of some kind. It would be possible only if we could channel the additional demand to British products and not to foreign products. To that extent I agree with the Government that within the confines of their ideological parameters, which abjure controls of any kind—whether exchange controls, import controls, wage controls, price controls, or any form of planning—there may indeed be no alternative to their miserable policies, which I am convinced will lead us further down and down, with more and more unemployment until some type of revolution changes things radically, for the worse or for the better. Whether it will be a revolution of the Right or a revolution of the Left, I do not know; either might happen.

But in terms of their own chosen criteria the Government's two and a half years of office has been one of unmitigated failure, unless the rise in unemployment by 2 million is taken on the plus, not on the minus, side of the account, and that Government speakers are anxious to deny. Nevertheless, as we heard yesterday from the noble Baroness the Leader of the House, they feel both pride in their achievement and a great deal of confident optimism. This was particularly prominent in the Prime Minister's speech in another place last week. She talked about the signs of economic success … a testament to our new economic strength". She said that the major changes that we have so long needed and so often shirked have now been made, and … we shall secure the kind of success which our neighbours have achieved and which has eluded us since the war".—[Official Report, Commons, 4/11/81; col. 28.] She did not tell us what she meant by "the major changes" which have now been made; we can only guess. None the less, I am sure that those were not debating points. They were genuine expressions of a deeply felt conviction which alone can sustain the Prime Minister in the face of the tremendous pressures to which she must be exposed, and one cannot suppress a certain admiration of the way that she stands up to them.

But unfortunately her convictions, however deep, however genuine, are based on a delusion. It is the delusion that Britain's failures and difficulties are the result of Fabian Socialism and the welfare state, the result of Keynes and Beveridge, and once we—here I quote again— return as many industries as possible to the private sector and get rid of the powers and privileges of trade unions, everything will come right. We shall again be one of the leading nations of this world. That that view, which, on my interpretation, is the basis of the Government's whole philosophy, is fundamentally false should be evident from two considerations. One is that our neighbours who have been so much more successful (to which the Prime Minister referred) had a bigger dose of Keynes and Beveridge since the war, not a smaller one. Social security and full employment were more consistently pursued in post-war Germany, Austria, France, Sweden, Denmark and Norway than they were in Britain. Yet they have not been enfeebled, but very much enriched by those policies.

The second point of which the Prime Minister should have been made aware is that of the broad facts of history. Success has not begun to elude us since the war. This is simply untrue. On the contrary, the 25 years of the post-war period were years in which we made greater and more rapid progress than in any comparable period since the second half of the 19th century. Something like that was acknowledged by the noble Lord, Lord Cockfield, today. From the point of view of lack of development in British industry there was no worse period than the 1870s and 1880s, periods of unhindered laissez-faire capitalism; and even more so, the period from 1899 to 1913, the 14 years preceding the First World War. True, we managed to keep a growing volume of exports in cotton textiles—which made up nearly half of our exports—but we were sadly slipping behind in the new science-based industries, resulting from the invention of electricity, the internal combustion engine and the whole revolutionary change in chemicals. We were totally unfitted industrially to carry on a war with a country such as Germany. Indeed, for the first three years we were dependent on imports from Germany, through neutral countries, for absolutely vital and indispensible parts of all internal combustion engines. Germany grew at a rate of nearly 5 per cent. per annum in the 40 years before the war. America did even better, while we grew at a miserable rate of between 1½ and 2 per cent. Yet during that period there was no dole, no other kind of social benefits in Britain. In fact the only country which at that time had social security legislation, with unemployment, health insurance and old-age pension, was Germany, where it was introduced by Bismarck.

Now the Government evidently put their best hopes on the new labour legislation. Well, with the best will in the world, or perhaps I ought to say with the worst will in the world, they cannot bring back the combination laws of Napoleonic times. The most that they can do is to withdraw the provisions of the Trade Disputes Act 1906, and no doubt Mr. Tebbit will see to it that that is done. But have they stopped to inquire whether pre-1906 Britain was such a paragon of bustling, innovative progress—the kind of country which, in the view of the Prime Minister, Britain will become as a result of the new policies?

The facts are that those years, the early Edwardian period, were the worst years, and not the best, in British history. Output was stagnant, unemployment was relieved only by mass emigration on an entirely unprecedented scale; British industrial investment was very low and falling; and through the City, the world's financial centre, we exported the incredible figure of 10 per cent. of our national income. We invested all our savings abroad; and with the measures that this Government are taking very much the same thing will happen again soon.

So I suggest, in conclusion, that the Prime Minister had better think again. The true cause of our failures lies very much deeper. It lies not in the behaviour, the laziness or the recalcitrance of the British working classes; it lies in our class system, in our system of selection of business leaders, and in the nature of our system of education.

6.21 p.m.

Lord Thorneycroft

My Lords, I do not know whether many of your Lordships happened to see the Speaker of the House of Commons having a conversation with Norman St. John-Stevas on the television, but in it the Speaker said that short speeches were incompatible with oratory. Your Lordships will have to sacrifice the oratory so far as I am concerned because I would prefer to make a very short speech, and I think Lord Watkinson and Lord Weinstock would probably go along with this suggestion. So I will keep it very brief. I have really only one point which I wish to discuss. It was touched on by my noble friend Lady Young and, in an admirable maiden speech, by the noble Lord, Lord Marsh. It concerns the practical limits that are set to the powers of a Government today to intervene in economic affairs. The idea that the national Government of one small country can really have a decisive effect upon what happens to the economy over the next two years is a proposition which does not really bear very close examination.

Other things affect us. I was particularly interested in the speech of the noble Lord, Lord Scanlon. May I, perhaps, without presumption, thank him for his extreme courtesy in the way that, after his speech, he has sat and listened to every comment that has been made upon it. I can assure him that it is deeply appreciated by the House. My noble friend Lord Eccles, whose speech I agreed with in almost every respect, said that Lord Scanlon's speech was not directed to the amendment. This may have been true, but it was directed to the reality of the life which we lead. He talked about the real things, including the relations between trade unions and management; and I thought how fortunate we are in this House to be able to listen, first of all, to a leading trade unionist on that side and then to hear Lord McFadzean in an absolutely first-rate maiden speech answer the points made by Lord Scanlon from a different point of view.

I am not going to debate those issues today, but I am saying that they were talking about the realities of the world, the things that really do affect us. There are many things outside government which deeply affect us. Interest rates in the United States of America may well be decisive. The price that OPEC sets for oil is enormously important. Then there is the trading climate of the world. All these things are vital, and not only outside but inside. The decision by the workers in BL not to go on strike—and I think Lord Scanlon will probably bear me out in this—which may have been against the advice of their shop stewards but which was however following the advice of the engineering union, was a decisive decision. Had they gone on strike the unemployment which is referred to in other contexts in this amendment, the unemployment that would have been caused not only in BL but in the whole of the West Midlands, would have been upon a scale which none of the measures we are debating in this House would have any effect upon at all. Therefore, I say that these are the things that really matter.

If I may touch on a slightly more controversial note, if Alex Kitson is accurately reported in the Sunday Times I must say that the line he is taking would affect employment in this country. He said: There will not be anybody going into the refineries. They will have to pump the bloody fuel into the river". That would affect unemployment in this country. These are the realities of life. It is whether or not the trade union movement can exercise its undoubted and important influence to be able to ensure that we carry on our discussions and our arguments in an orderly way, and that we do not do desperate damage to one another in the process. I therefore say that all these factors seem to me to outweigh the rather narrow economic issues that we debate.

What Governments do, of course, matters. But I always think that what they do not do matters more. I think that by far the most important political decision that has been taken in recent weeks was the Prime Minister's decision not to intervene in the BL strike She was under tremendous pressure to do so. Pressed daily by the Leader of the Opposition in another place, with millions of jobs and the prosperity of thousands of families hanging on the decision, the temptation for the politician to act was almost irresistible in our democratic society; and she had the cold, quiet courage not to act. It is just that kind of courage that is required more than anything else, and certainly more than any trick of economics, if we are going to get through some of the problems that confront us at the present time.

Having said that, let me say a word or two about what the field for positive action is in a world of deep recession. I have been pondering what parties really would do; and I know the key men (because I am getting very old) rather well. The key men in this argument would be, first. Denis Healey. I must be careful what I say about Denis Healey because whenever I praise him he gets into such awful trouble, but if the Labour Party is going to get anywhere the sooner he is the Leader of it the better. There is Denis Healey. There is Roy Jenkins, who is the only man of any weight or note in the Social Democratic Party. And, of course, there is our own Geoffrey Howe. These are the three men.

I find it difficult to see where they would really differ. One of the most attractive things about Denis Healey is that he is always much ruder to his friends than he is to his opponents. He regards his friends as zombies, and who am I to quarrel with him over that? I remember Denis Healey saying when he was Chancellor that anybody who was trying to spend money which was not there was "out of his tiny Chinese mind". I do not think he has changed very much from that. In many ways, I would rate him a rather stricter monetarist than Geoffrey Howe or Margaret Thatcher; and, certainly, he has been so at various times in his career.

Now Roy Jenkins. In the trade—and I was in the trade myself; there is a union even among Chancellors—he is regarded as rather a good Chancellor of the Exchequer with a predilection for balancing his budgets. That was his reputation in those days. He is playing with this idea of inflating the economy and holding it with an incomes policy; but I do not think that even he believes that. Why buy all over again the experience that the Conservatives among others, as well as the Labour Party, have bought already? There is not one of us who has not been associated with a policy like that. It is like turning up the gas under the kettle and sitting on the lid; it does not work. I doubt that, faced with the responsibility, he would try it.

And Geoffrey Howe: I agree with the noble Lord, Lord Robbins. How much I enjoyed Lord Robbins' speech. You may say anything about Geoffrey Howe but you could not say that he was a desperate deflationist. But when the history of these times comes to be looked at in cold analysis, he will go down as one of the big spenders. Enormous sums of money have been spent. Some were outlined in the speech made by my noble friend Lady Young. There is a billion and a half pounds being spent in the coming year on youth opportunities and training schemes and the rest.

If you put those three men into a room, I am really puzzled as to how they would differ. I think that they would come down on the side of prudent flexibility. I prefer the term "rising damp"; but do not press it on the Government. I recognise the presentational difficulties of adopting it as a slogan, but I will settle for "prudent flexibility". I do not see any great likelihood of three men with their amount of knowledge and experience behind them doing otherwise. And if I am wrong about that, and I could be, events would drive them together. For if we moved at this moment very far along any of the attractive avenues which are being urged upon us, we would precipitate a crisis in the overseas exchanges, in inflation and all the rest. We would precipitate a crisis in which we should have to come rushing back to cover quickly—and Denis Healey knows about that. He has rushed for cover before: seized the car, caught the coat tails of the chauffeur before he got out at London Airport and was back in time to call in the IMF. He has done it all before. Why should I assume that a man of that intelligence is going to run those risks again?

Obviously, some things are possible. Governments can work at the margin. I listened to my noble friends Lady Young and Lord Cockfield—and if I ever have any doubts about policy then I sit down and listen to my noble friend Lord Cockfield; although the noble Lord, Lord Kaldor, was slightly critical of his speech. But for a really clear and lucid exposition of a difficult subject my noble friend takes a lot of beating, and I am grateful to him. My noble friends outlined what can be done. Let us face it, what can be done is operating at the margin. I am not saying that these things should not be done. I am all for operating at the margin and working on youth employment schemes and so on; but there is not room for enormous financial and fiscal adventures, nor would they serve much purpose.

My Lords, I am coming to the end of my remarks. I have reached that stage in politics where—though it may sound cynical—I praise people more for what they do not do than for what they do; and I have a few "dont's" for a recession. One is: Don't criticise one another and attribute to one another the views of Marxists or monetarists or all that. The theories that lie there are unreal in the world in which we live. There is not a proletariat to play with or a perfect economic climate in which to operate. We live in the jungle of a mixed economy. It is a different world. I was delighted when my noble friend Lord Cockfield called in his new advisers, Marlene Dietrich and Madame Pompadour. This was a remarkable improvement in which I thought that the whole House and country would rejoice. And what sound advice they gave!

Don't talk about leaving Europe. If I am right in saying so, we live in a world today where we are influenced by huge forces. Don't step out of the world and imagine that you can live on a little island isolated from it. Let us stop even talking about leaving Europe. Don't run for protection and abandon the principles of the General Agreement on Tariffs and Trade. This country and our jobs—these are the realities; and no one knows this better or has done more for them than the noble Lord, Lord Scanlon—hang on the engineering exports. If we go and start a new climate of protection then we will get nowhere and we will have no jobs to give the chaps.

Don't repeat the mistakes that we have made before. We will find plenty of other mistakes to make, so that there is no need to go on repeating the old ones. We have tried inflation and incomes policies and all the rest. They do not work. We have to find a quieter way. I am sorry to say this to the noble Lord, Lord Scanlon, but do not strengthen the trade unions. I hope that he will take that from me. I just ask him to agree not, at least, to strengthen the trade unions; they are strong enough already.

My Lords, do not nationalise any more industries. I accept what he said about privatisation and so on, but, in the light of what my noble friend Lord Cockfield said, when you tot up the amount of wealth that has been consumed in total by the nationalised industries, whatever the theoretical arguments—and there is merit in public ownership; I agree with that—we cannot afford to nationalise any more industries.

My Lords, I recognise that these are rather drab approaches to life but I believe it is better to take things in a sense of reality. I realise that people may not feel very happy to know that they are in large majority at the mercy of market forces working on a worldwide scale. But I believe we are. I do not believe that the world can yet influence these forces to any great extent, although we can try. We should be members of the great international organisations and make our influence felt. Nevertheless, in the main there are forces very largely outside our control.

We have not done too badly. We are far more efficient than we were a few years ago; our productivity is going up; there is good sense in our wage settlements; we are far more export conscious than we were and, although many firms have suffered, many new enterprises have started. It is not too bad a story in very foul weather. I think that the political prizes of the future will not go to those who boast loudly that they have new solutions to our problems; I believe that they will go to those who are quietly competent and brave.

6.40 p.m.

Lord Benson

My Lords, I have a very simple point to put before this House and I promise not to keep you very long. You may find it so naive as to ridicule me, but I speak with conviction. The point is merely this: I do not believe, whatever other policies are necessary, that the economy of this country will be put on a firm footing until our industrial performance at least matches those of our competitors in Europe. I do not know how many of your Lordships have had the advantage of reading a recent NEDO report, completed in September, taken at the council meeting in October and then issued to the press. It was a balanced, objective report, free, so far as I can see, from political bias. It sought to establish how we stood with our competitors in Europe and what policies they adopted to make themselves more successful than we are.

The basic factors which came out of it make dismal reading. The growth rate of the gross domestic product showed that this country had been bottom of nine for the past 30 years. The growth rate of industrial production showed that we had been bottom of nine for 30 years; the productivity of labour showed that we had been bottom of seven for 20 years. Unemployment as a percentage of the total labour force showed that we had been second or third highest of nine for the past 20 years. The rate of inflation: we had been second or third highest of nine for the past 20 years. With regard to investment, as a percentage of the gross domestic product, we had been bottom of nine for the past 30 years. Finally, regarding the numbers of 17 to 18 year-olds not receiving education or training, we were the highest of six in the year 1978, which was the last year for which the figures were available.

Of course the study went much further than that. It tried to ascertain and isolate the policies which had been adopted in these nine countries abroad and which had made them more successful than this country. You may feel, my Lords, that those policies were so unusual, so peculiar, so bizarre, that they were quite out of keeping with the British public's view of how industry should be managed. But not at all. They are so simple, so straightforward, so full of common sense that I should like to give them to you. They are only six in number and are very short. The detail, of course, is put out in the study itself.

The first one is continuity and stability of policy. Secondly, concentration of effort—that is to say, a package of different measures which are mutually reinforcing. Thirdly, careful planning of long-term industrial priorities. Fourthly, selectivity in industrial policy measures as opposed to blanket measures. Fifthly, investment in human resources; higher quality of technical and vocational education and training. Lastly, consensus and commitment at national and company level by all those engaged in the industrial process.

The simple point that I want to put before the House is this: Is it beyond our capacity in this country to follow the same policies which have proved themselves to be successful abroad and which have made those countries abroad more successful than we are? Of course, even if those policies were followed on a sustained and continued basis, that would be only half the journey. We would have to find the quality and depth of leadership in management and in the unions which would make those policies successful. By way of example, I believe that the great mass of people in this country are saddened and sickened by the industrial scrimmaging which goes on day after day and makes orderly production on a competitive and economic basis impossible. Yesterday it was motor cars; today it is oil tankers; tomorrow it will be something else. We all know very well indeed that in a year's time the whole dismal process will begin all over again.

If that quality and leadership does not emerge, then we may have to find some measures which will substitute for the leadership which is lacking. But the simple point that I want to put is let us first do Phase 1, let us establish the policies which have been successful in all the countries in Europe, and the let us attack the second phase and see whether there is the leadership there capable of carrying those policies into effect.

6.46 p.m.

Viscount Watkinson

My Lords, I should like first to add my very sincere congratulations to two very remarkable maiden speakers upon their speeches and hope with others that we shall hear them here often again. I am very glad to follow the noble Lord, Lord Benson. I am not sure I can quite emulate his absolutely dramatic shortness and succinct approach, but I agree with every word that he said. It goes very well with what my noble friend, our noble Leader, said in opening this debate. We are examining not so much economic policy as such but the fundamental changes that underline it—changes that are bound to affect our lives and those of our children. Therefore, one finds it a little depressing sometimes that the general economic debate across the nation seems so often to illuminate the confusion rather than come to any agreed conclusions which might lead to action.

I believe that there is only one objective way to judge the validity of the Government's economic policy. It is by long term results. The problem here is, as the Government and the Prime Minister have always said (and what is true) is that these results need a time-scale of well over two or three years in which to justify themselves. Yet during this period of we have any major switch in strategy all it will mean is that much hard and often very painful effort will be denied any real chance of success. So it is a dilemma and a probem.

The noble Baroness who opened the debate for the Opposition seemed to imply to me that the CBI wanted no part of this problem and on the whole were perhaps against present Government policy. That is not so, my Lords. What worries the CBI is that the Government may not have the time to see their policy through to success. I think I can fairly say that there might be a unanimous vote in the CBI council that they do not want to see the present strategy stood on its head by the Left-Wing of the Labour Party. So we need continuity; but in our kind of democracy continuity is very difficult to achieve. Yet, if we do not persevere in this effort, we have very little chance of improving our economic performance. As the noble Lord, Lord Benson, just said, if we could even catch up with our immediate competitors, we should be doing a very great deal.

The first issue that we have to take on board on this side of the House and in my party is that, if we believe that this is the right road for Britain—as I do—and that there should be no turning back, then we must do a great deal more to lift the level of debate across the country and to try to bring it to a rather more factual appreciation of what we really face. We must say more clearly that it will do no one any good now to throw away the clear gains from increased productivity that we are achieving and the more realistic pay bargaining and manning levels that we are getting, nor should we prejudice the growth of genuine participation that management is encouraging as the correct response to the harder times which are imposed on us by world conditions.

So I think that to succeed in this difficult task really does mean that we ought to try and concentrate the argument on the real gains. Will current policies make our country more efficient, more productive and thus more prosperous and more fully employed? That is the real test, and it really is no good, if I may say so to the party opposite, confusing and debasing these issues, as the Labour Party perhaps has to do as part of the struggle for power by its militant Left-wing. Nor is it any good, nor does it do any service to anyone, to pretend that unemployment was invented by the Conservative Party. I think it is right to say that during the whole of the last Labour Government the CBI and its various officers at that time are on the record time and time again as warning that if we did not change the then policies unemployment levels of 3 million or more were inevitable—and so, sadly enough, it has proved to be. And if I may venture to say so in the presence of my old friend the noble Lord, Lord Scanlon, it really is not a great contribution for the TUC to take dazzling decisions about unilateral disarmament and that sort of thing, when one really wishes they would be concentrating their minds on the struggle for economic survival. Referring to the noble Lord, Lord Scanlon—and I agree with practically everything he said, if I may say so, about labour relations—I think as a matter of fact he may find that the Secretary of State for Employment's bark is worse than his bite. I hope so.

But coming back to my argument, the noble Lord did not say much about the joint TUC-Labour Plan for curing all our problems because I think that in his heart, as my noble friend Lord Thorneycroft has just said, he knows it simply is not workable and would only throw us back once again into yet another economic crisis. So this is a sincere plea to all those who wish our country well—and we are still in the majority—for a more practical and businesslike examination of what we have to do to bring down unemployment, inflation and interest rates and step up productivity, output and exports.

I believe the best way we can do that is to apply one test to everything we try to do: the test of "will it help when the upturn comes?"—because, my Lords, one thing is certain, in my view. In the cyclical way in which the world economy has always behaved there must in due course be an upturn in world trade. It may be slower or slighter than we would wish, but it is bound to come and we have to be ready for it.

Let me give one or two short examples of what I think this approach might be. For example, to be ready to expand when the chance comes we have to give more emphasis to exports and the technical skills that back them. We have got to provide exporters with a pound that does not behave like a yo-yo, and I hope the Government will give very serious thought to whether joining the European currency Snake might not be one way of stabilising our currency. That is what exporters need. We need a new concerted export drive. I believe the noble Lord, Lord Scanlon, would not disagree with that; and here is one cause anyway in which the interests of the Government, of the employers and of the unions ought to coincide—and we had better have just one or two causes where we can perhaps try to find some common ground. I find it very difficult to say today that one can have the sort of consensus I have always wished for with a TUC that has voted, in my view, to increase unemployment by at least another 2 million by leaving Europe. But leave that on one side: let us at least try to find some things we can do together and some things we can work for in Neddy and other bodies.

There are a number of things I think the Government ought to do, without in any way departing from their strategy. Our biggest and best invisible export is inward tourism, and we really do not do enough to back that. But coming to the hard question and the centre of most of this debate—the question of unemployment—the CBI rightly ask the Government to reduce the burden of the national insurance surcharge originally imposed by Mr. Denis Healey when he was Labour Chancellor of the Exchequer. The Government certainly should do this and I hope they are giving it some very coherent thought. It would help many firms to take on more labour more quickly as soon as any upturn develops.

I should also like to suggest that the Government might consider going further in this matter. Unemployed men and women are a serious problem at all ages, but, my Lords, to leave young people, the seed corn of our future, on the street corners is the most serious problem of all. I understand that the Secretary of State for Employment has plans for a wide increase in youth training. These deserve the strongest support, but also we need a strong follow-up with more apprentice training and more skilled training of all kinds, leading to actual job employment. I think that would be much encouraged if the Government would consider offering further reductions in national insurance surcharge to firms who would offer apprenticeships and then jobs to young people up to an approved level. At least it is something which is worth considering. We must give these young people some hope for the future somehow.

There are a number of capital works which the Government are going to do, such as more nuclear power stations or the Channel Tunnel. Again, if they are going to do such things I hope they will say more clearly what they will mean in terms of new jobs and new opportunities for the future. My greatest anxiety about the present position of Her Majesty's Government is that if we cannot show a bit more light at the end of the tunnel we may not be able to persuade the nation to goad itself to go the full distance that we all know is necessary for success. This would be a tragic thing for our country. To have second thoughts halfway is a mistake that we have made too often in the past, and we ought not to make it now. So the Government and all who support them should do more to underpin the main strategy by emphasising the positive aspects of what we are trying to do. After all, is it wrong to try to turn our country away from a steady decline in the world economic league—the sort of decline that you really cannot argue with on the figures that the noble Lord, Lord Benson, has just set forth? Is that wrong? Is it wrong to try to get back to the dominant position we once enjoyed as a trading nation not so very long ago? Is it wrong to have real participation in industry and commerce in a concerted drive for more efficiency and productivity? Surely all our social policy and everything else depends on this. I believe that is basically what could be the out-turn of our present policies if we have the guts to continue with them, and I think there is very little future for our country if we fail—so why not see it through to success?

6.58 p.m.

Lord Weinstock

My Lords, I, too, should like to congratulate the noble Lord, Lord McFadzean of Kelvinside, on a speech of characteristic good sense. It is quire clear that the noble Lord, Lord Marsh, is going to make a positive and enlivening contribution to the proceedings of your Lordships' House in the future.

The speech with which the noble Baroness the Leader of the House opened this debate contained much which was not only true but incontrovertible. I found it surprising that the noble Baroness, Lady Birk, in her reply could find no common ground with her—surprising that is, unless it is accepted that the asperity of the party political battle overrides all other considerations, including the national need to decide what Government can and should do for the best. Happily, my old friend and adversary, the noble Lord, Lord Scanlon, took a more constructive line, although he seemed to lose nothing in robustness in the course of doing it.

This debate has followed many trails and, although it gives me great pain to disappoint the noble Viscount Lord Eccles, I do not have it in mind to pursue another one in the form of a lecture to your Lordships' House on electronic devices. But I do have to tell him that it is no longer true, if it previously was, that industry neglects matters of design.

I agree with what was said yesterday by my deeply respected friend and mentor, the noble Lord, Lord Robbins, to the effect that one can only have sympathy with the general aims of Government policy, even if not agreeing with it in every respect. It is surely wrong to attach to Ministers the whole blame for the current recession in trade, or for the unemployment that follows from it. Nor can they he blamed for that part of our high level of unemployment which results from the inefficiencies of our industries over many years—for bad management, apathetic shareholders, or the short-sighted foolishness of those who sought protection for living standards and job security through industrial malpractice, instead of through constructive co-operation with management and investors. But efficiency in British industry has improved quite a lot in the last few years, and so have the relationships between those who work in it. That improvement now needs a more positive impetus than is to be gained from growing unemployment and increasing pessimism. The Prime Minister's indication of better things to come within a year is therefore welcome. And it is in line with her straightforward and consistent approach that she has the courage to put down a specific marker by which the success of her regime may be measured. The noble Lord, Lord Cockfield, has actually observed signs that the economy is now on the way up, but they are not generally readily discernible.

Many suggestions have been made as to programmes to reverse, or at least temper, the present negative trend. Some of them would give a renewed impetus to inflation; they are irresponsible and ultimately self-defeating. But several are worth serious consideration and action by the Government, although some of the "hard-headed" six points of the noble Lord, Lord Kilmarnock, sounded as if they had been thought up by people with soft heads. But the noble Lord was, mercifully, speaking rather quickly and perhaps I did not hear him aright. I do not propose a detailed list to your Lordships today, because the company which employs me is more or less concerned with many of them. But there should not be any particular difficulty in choosing between projects which, on the one hand, merely involve current, or perhaps wasteful, expenditure and, on the other, those which are properly to be regarded as investment to produce future economic and social returns.

If we are unjustified in blaming the Government for the greater part of our economic maladies, they deserve no praise for their presentation to the British people of the problems. The noble and learned Lord the Lord Chancellor went so far in this debate as to say that public opinion has been left in a state of near bewilderment, because of the watershed of our public affairs. That is hardly surprising when Ministers have been almost entirely negative, depressing and demotivating, in contrast to the country's need of more enterprise, more creativity and more vigour. If we have merited sulphur and brimstone, it has been duly administered and perhaps we should be thankful for it. But most people will not place their confidence indefinitely in physicians who offer no prospect of any other diet, and who have increasingly given the impression that they would not know how to concoct one.

That these feelings of unease and discontent should be widespread reflects political failure. But it is not failure beyond redemption. Neither is it a failure to be redeemed by resort to other forms of nastiness, such as union bashing. No doubt there is need for reform in the trade union movement. The time may well have come to put right specific failings, where there is at least a chance of a measure of acceptance.

I cannot follow the noble Lord, Lord Scanlon, all the way in what he had to say on this matter. But do not believe that it will be productive now to attempt a thorough-going reform of the trades unions, so attacking their basic rights and privileges that no such measure of acceptance would be even remotely probable, and risking an upsurge of bitterness which would greatly reduce the influence of moderate and enlightened opinion in the labour movement. In some other respects, I am afraid that I cannot follow the noble Lord, Lord Scanlon, at all, particularly when he conjures from his imagination a strike of investors which never existed, or the fanciful idea that the remedy for that non-existent strike was to be sought in recourse to the National Enterprise Board.

Apart from the political aspect of Government, for which we cannot so far award Ministers high marks, there is the managerial function in which their performance has been worse. It is probably too much to expect efficiency in public administration, but it is ridiculous to abrogate common sense in favour of a Treasury-dominated régime constructed around arbitrarily contrived statistics.

No one contends that money supply should not be controlled, even if few of us really believe it possible to identify exactly what that means. But the narrow system of cash limits, as applied, is too restrictive to permit the departments of state and the nationalised industries to function even as efficiently as they could. The result of this way of doing things is to stultify good ideas and initiative and to slow down the whole administrative and managerial process.

The Treasury's accounting system often conceals and can easily work against the national interest. An example worthy of your Lordships' consideration is in the field of public purchasing. The buyer department in a particular project does not have to take numerically into account all the costs arising from a course of action to which it may become committed. It may congratulate itself on deciding to pay, say, £10 million less to a foreign supplier than the price offered by his United Kingdom competitor. It does not put against this one-off saving the indefinite and continuing future costs in unemployment pay and social benefit, and the knock-on effects to sub-contractors and component suppliers, not to mention the damage to potential exports.

These costs will usually soon eat up the apparent savings, but the system does not require the buyer to take them into account. On the contrary, it encourages the narrow departmental interest not to do so. There is no machinery to measure from the outset these adverse financial consequences for other departments, or to see that credit is given against the appropriation of the buying department, if it does not look to the foreign source. The buying department must take its position on the basis that it will be debited with the gross cost. If it buys a home-made product at a higher price than that of a foreign supplier, it must forgo other items it wants to buy, in the absence of additional funds. The overall national interest is not seriously considered until Cabinet committee, long after the isolated departmental view has hardened.

A thorough revision of the accounting procedures, to take a full synoptic view of the implications of the different options, would bring about a considerable change in the way departments deal with each other and in the relations between the Treasury and other state-controlled organisations. The present self-appointed Treasury monopoly of concern for the national interest, measured in cash, is based on dividing and ruling the other departments in constant bilateral negotiations, effectively overriding their specialist judgments and responsibilities. In different circumstances, all this may not matter very much, but in times of recession and high unemployment it is especially relevant. For those engaged in the private sector, it is not possible to be precise about the effect on the economy of the consequences of their purchasing decisions. Nor do they individually carry quite the same responsibility as do the Government. Nevertheless, I would hope that private sector buyers and, indeed, all consumers do not disregard the damage done to British industry when making decisions to buy from abroad goods and services available from United Kingdom suppliers, because damage to our industry and our country there will certainly be.

Your Lordships will generally agree that it is right and necessary to hold down public expenditure as an extremely important element in the struggle to contain inflation, but it is not at all clear, having reached the present stage when there are idle resources of men and machines, that it is more inflationary to spend public money on providing useful goods than to spend almost as much on paying the dole.

One should not be too dogmatic about these things and I note with satisfaction every sign—and there are signs—that Her Majesty's Government are now likely to take a more flexible view. Money well spent is one thing, but what is unquestionably undesirable is to waste public money. And, for all its unyielding rhetorical rejection of reflationary proposals, the Government have in fact spent heavily and not always wisely. Leaving out of the reckoning some of the more naive projects undertaken at public expense by the National Enterprise Board and the Department of Industry, there is one aspect of their activities which is especially questionable. This is the so-called inward investment policy which causes Ministers and officials to desert their overflowing in-trays for the joys of travel to foreign parts.

There may be much merit in the establishment of new, foreign-owned, enterprises in this country when they are intrinsically complete and innovative. And joint or collaborative projects between British and foreign firms may well turn out to be highly productive. It is good to have the help and encouragement of Ministers in all this. But who, except the noble Lord, Lord Kaldor, can see the justification for the invitation to Japanese manufacturers to establish, with large grants of British taxpayers' money, assembly plants in the United Kingdom which will operate as marginal extensions to their main activities and, in our home market, take business from our own established firms which have not enjoyed any such subsidy? What is the good of creating, if that is the right word, two new jobs in one place at the cost of destroying two, or perhaps even three, already existing somewhere else? Is it sensible, or is it even sane, to expect foreign powers to export jobs from their countries to the United Kingdom—which is to say, to import some of our unemployment? The Government offer to pay them to do it, and they do so from taxes gathered from British firms who will suffer as a consequence.

I do not wish to denigrate the constructive work of the Department of Industry, of which my employer is, after all, a client. The department is in many respects helpful and sometimes indispensable to the success of British companies in particular instances. But it is sometimes arbitrary and idiosyncratic and can be more than a little extravagant in the expenditure of public money, as well as in promoting wasteful expenditure by others, in the mistaken pursuit of objectives the usefulness of which it does not have the expertise or competence to judge.

I have already detained your Lordships too long at this late hour, but I ask your indulgence to make one last point. The scourge of unemployment worries and dismays noble Lords on all sides of the House, and the disproportionate share of it which falls on young shoulders is a demoralising factor which will have unhappy long-term effects on the structure of society. It is not beyond our collective wit to create schemes by which the money which must in any case be paid out in social benefit can be better spent to render greater value to the community. I do not believe that compulsion has any part to play in this, or that we can expect only by that route to stabilise the outlook of a generation at risk. We need to mobilise the latent desire of our people to prove their worth as human beings—as the noble and learned Lord the Lord Chancellor said, to re-awaken a sense of civic and national pride. We need to combine the fulfilment of the public need to provide work with the individual's sense of wanting to make some constructive contribution and to earn his, or her, keep.

The noble and learned Lord, Lord Elwyn-Jones, drew your Lordships' attention to the Prime Minister's reference to "a comprehensive training scheme for the young unemployed." The noble Viscount, Lord Watkinson, also mentioned this subject. There are reports of Treasury approval of a scheme proposed by the Secretary of State for Employment for the training of all school-leavers. I hope the report is true and I hope your Lordships will welcome it. Imaginative training programmes, in collaboration with industry and commerce, are of obviously special importance in the present circumstances. We should remember in this connection that British industry is quite seriously handicapped by shortages of particular skills, despite the present high level of unemployment.

Man does not live by bread alone, and in these difficult times there is an urgent and special need for inspiration and leadership. That is surely the first and indispensable duty of Her Majesty's Government. I do not think that the proposed amendment which we are discussing today helps in any way to take us forward.

7.16 p.m.

Lord Sandford

My Lords, I rise to draw attention to the hypocrisy in the Laour Party's amendment. I invite the House to look at their handling of the economy in those parts of local government where they now have control and exercise direct responsibility. It is in the metropolitan cities where enormous difficulties are being caused to industry and where great damage is being caused to business—not by the policies of Her Majesty's Government but by the high-spending policies of Labour councils, elected last May and led in profligacy and irresponsibility by the Greater London Council.

In a debate on national economics it is as well to bear in mind that local government is responsible in this country for no less than one-quarter of all public expenditure. They spend not far short of £20,000 million a year, so there is no doubt at all that the economics of local government have a direct bearing on national economics and that there is need for trust and co-operation between local government and central Government.

May I remind your Lordships that on 2nd June last the Secretary of State came to the Commons and announced (and my noble friend Lord Bellwin announced here) that local government seemed set to be planning to spend £1,000 million more than had been allowed for in the public expenditure plans of central Government. The Secretary of State asked for revisions of budgets and warned of legislation to come if those revisions were not sufficient. In a short intervention I suggested that the Secretary of State should wait as long as he could for local government to exercise their common sense and show their responsibility.

He waited for three months. By that time, the great majority of local authorities had responded: as he asked, 75 per cent. of the non-metropolitan districts had revised their budgets downwards, with 63 of the London boroughs, 42 per cent. of the metropolitan districts and 33 of the shire counties. But at that stage all that effort, all that thrift, all that economy was completely cancelled out by the deliberate defiance of three Labour-controlled metropolitan counties, led by the notorious example of the Greater London Council.

I should like to suggest to the House that it is this defiance which is damaging industry and raising unemployment in the inner cities. It is this profligacy which is threatening the integrity of local government and damaging the image of local government in the public esteem. It is this that has led the Secretary of State to propose legislation. It is the Labour Party's total failure to constrain this irresponsibility in the authorities for which they are now responsible that is fast losing them credibility and losing them members to the Social Democratic Party. If the Labour Party cannot stop this sort of thing then it is not surprising that the Secretary of State has to step in.

Lord Mishcon

My Lords, would the noble Lord forgive me? Looking behind me to the back, the Opposition does not seem to have lost very much by the presence of the SDP, not one of their members being present in the Chamber for this important debate.

Lord Sandford

Well, my Lords, that is not my responsibility. As I was saying, in my view, it is the failure of the Labour Party to constrain the irresponsibility being shown by these councils, notably the GLC, that has obliged the Secretary of State to consider what he should do about it and required the Local Government Finance Bill to be included in the Queen's Speech and published last week.

My Lords, just consider what his options are. Can he ignore this sort of thing if nobody else is prepared to do anything about it? Can all the economies and efforts of all the thrifty and responsible local government authorities be set at nought by the defiance and irresponsibility of a few? I submit to your Lordships that they cannot. If the present judgments against the GLC are sustained in your Lordships' House and similar judgments are sustained against other authorities elsewhere, then of course that legislation may well not be needed, but we cannot yet be sure of that. Therefore the Secretary of State has had to introduce the present Local Government Finance Bill. In that his civil servants have recommended the grant-related expenditure assessment as a way by which they will decide what each authority ought to be planning to spend. A referendum is then prescribed before any authority is allowed to spend more than a certain percentage (which the Secretary of State will decide) above that. By any accounts that is a major intrusion by central Government into local government and is highly undesirable. But it may be unavoidable.

The Scottish approach, whereby under alternative forms of legislation the Secretary of State for Scotland has been able to curb the Labour extravagance in the Lothian region of Scotland, has been recommended for the Secretary of State in England. I do not believe that is a viable alternative. The Secretary of State in Scotland has surveillance over the whole range of local government expenditure—education, social services, transport—these do not lie within the responsibilities of my right honourable friend the Secretary of State for the Environment in England. I do not believe that without that he is in a position to judge the reasonableness or unreasonableness of the spending plans of the much larger number of authorities for which he is responsible in this part of the kingdom.

It seems to me that in so far as this excessive expenditure which has cancelled out all the thrift and prudence of all the other authorities and in so far as a substantial part of that over-spending is in the field of transport—bus fare subsidies—almost all of it in the case of the Greater London Council—it may be sufficiently effective, and certainly I think it would be more acceptable, to substitute for the present Bill a No. 2 Bill confined solely to the field of transport. I hope that my noble friend and my right honourable friend will bear that possibility in mind.

Whatever legislation we are faced with to deal with the situation which the Labour Party does not seem able to deal with—and it is their responsibility—it does seem most important that that legislation should be of limited duration. If an amendment to that effect is not introduced by the Government or by somebody else in another place, it is my intention to invite your Lordships to support me in an amendment to secure that this legislation is in force only for the minimum amount of time necessary to produce the responsibility which Labour-controlled councils do not seem able to produce for themselves.

All this points to the very urgent necessity once again to see whether we cannot tackle and solve the problem of revising the rating system. I am delighted to hear from the Secretary of State that his proposed consultative document is now on his desk, waiting for his approval before going off to the printers. I think that this is the way in which we can tackle this vexed problem once and for all, but in the meantime we have an extremely difficult problem to solve entirely as a result of the irresponsibility of the Labour-controlled metropolitan county councils.

7.26 p.m

Lord Hankey

My Lords, I should like to begin by congratulating my noble friends Lord McFadzean of Kelvinside and Lord Marsh on their remarkable maiden speeches. f hope we shall hear them very often. We have heard many remarkable speeches in this debate from both sides of the House and I thought my noble friend Lord Robbins gave us an absolutely admirable analysis of the economics behind our present situation. The noble Lord, Lord Weinstock, gave us a remarkable analysis of how these things work out in practice and the difficulties that we meet with, and I agree most warmly with what he said.

I do not suppose anybody in this House is more anxious than I am that the Government should succeed in getting this country back on its feet. I agree with the Government that they cannot cure inflation unless they get the monetary equation right, but I am not personally a monetarist because I cannot persuade myself that we know enough about the ever-fluctuating factors at home and abroad that influence the money supply to be sure of measuring it accurately. As I have often said before, I know from over five years with OEEC and OECD that not even Mrs. Thatcher's Government can cure inflation unless they keep industry going. I greatly appreciated what the noble Lord, Lord Cockfield, said in his very noteworthy speech about the help the Government are giving to industry. We also had a remarkable contribution from the noble Lord, Lord Thorneycroft.

Industry, including service industries and together with agriculture, of course, produces the income of our whole community, including the income of the Government. I am sorry to say anything so basic but I often wonder whether the journalists and others really do seize this basic fact and hold it. Our factories, offices and land, and especially the applied genius and experience of the people who work there, constitute the source of all our wealth and health and a very great amount of our happiness. If they are allowed to decline or are hampered in their activity by Government measures or by management failures, or by trade union excesses, then the product on which we all live in practice will never match up to the monetary factors. We cannot—repeat cannot—cure inflation unless industry of all sorts is kept going.

It may be that the Government are right in thinking that we have passed the worst of the depression, although the CBI seem to have little confidence about that. The point is that we know what the situation was six months ago because we have the final statistics; we think we know what the situation was three months ago, but we do not know what the situation is today. We can only make a "guesstimate", so it is really very hard to steer an economic policy with any sort of accurate fine tuning, especially where monetarist factors are concerned. But one thing is quite certain: on all previous experience our industry is always very slow to get moving after a recession. This is a point which really worries me now. This is what happened in 1962, in 1969, and again in the 'seventies. In every case the Government were faced with tremendous problems of getting industry moving, and in the end they expanded demand, caused inflation and a flood of imports, and we did ourselves very little good. So we are, or should be, all agreed that we really must not now expand demand. That is really central and I am very glad the noble Lord, Lord Cockfield, made that abundantly plain; I most warmly agree with him. The situation, in my opinion, calls for much more selective measures.

My Lords, I believe this is now urgent. I am quite sure that our people will not long stand for having three million unemployed, whatever the party in power. If the Government do not get industry moving soon, in spite of the world recession, they must surely face very big electoral trouble, and our industry is definitely going to be slow this time. I believe time is running out.

So what should we do? Well, I am going to come in cautiously where angels fear to tread. I am sure I shall probably tread on a landmine or two. I ask your Lordships' indulgence. But I shall try hard to be constructive, and as brief as possible. Boards of directors, as we have been told by several people, really require stability before they dare to undertake any large developments and investments. Equally, they must not be hampered by too many restrictions. Take stability first. The instability of the exchange rate has been a real disaster to export industry—worse, I believe, than the revaluation of 1925, though of course that lasted longer.

As we now send such a huge proportion of our exports to Europe, I do strongly urge the Government to join the European Monetary System. A number of other noble Lords have said the same. I know there may have to be periodical realignments of the currency parities. There was one the other day. But realignments do happen periodically anyhow. I do not know that that changes much. If necessary, I should like to suggest to the Government that, if they are nervous about this, we might claim the same freedom as Italy, which has a right to vary the exchange rate plus or minus 5 per cent. each side of the agreed parity instead of the usual 2½ percent. By joining the European Monetary System I think we should strengthen both ourselves and Europe. So let the Government do it now and no shilly-shallying.

Next I come to the instability of interest rates, which many other people have mentioned; especially the high rates which we now suffer have, I believe, been an unmitigated disaster. My noble friend Lord Eccles had a great deal of great interest to say on this subject. Companies, businesses, shops, corporations, house purchasers, all of them have had to borrow to meet the situation. The high level of borrowing really has not helped to restrain the money supply. Many companies arc said to have borrowed even more to meet the high interest payments. The high rates of interest have attracted to Britain some of the huge liquid funds floating around the world, and that has also increased our money supply, even if only indirectly. The high rates, I believe, are self-defeating, therefore.

I should like to say another thing. The principle of playing yo-yo with the interest rates, of which the Americans are the highest—perhaps I should say the worst—exponents, is done without regard to its effect on other people. The thing we learned at OECD was that it is really vital to make sure that the economic policies pursued by various Governments in the leading countries are so constructed as to dovetail in with each other. When the American rates go charging up and funds rush out of Britain and Germany and France into America, and when the Americans suddenly drop the rates down by 20 per cent. and the funds rush back into Britain, it is a great embarrassment to everybody. I do not think it is good for business. I hope, therefore, that the Government will lean on the market through the Bank of England and get lower rates.

The Government's own borrowing requirement is, of course, a major factor in pushing rates up. I am very fully aware of this. But I think they ought to do their best to keep rates down. I shall later have more to say about this. In any case, I urge that the Government should decide which industries and which businesses should be helped most, especially the new ones involving the many new technologies which are now awaiting industrial application. It is no good just leaving this to market forces, I believe; I wish it were. The Government have done much already to promote industry, as the noble Lord, Lord Cockfield, said. But I think the Government should press forward with even more measures, such as tax concessions, perhaps with more credit at lower differential rates. There are probably all sorts of gimmicks that can be found. They have done a great deal already; I hope they can do more. In spite of what my noble friend Lord Benson said (I am sorry he is not here), I am assured that the French and Germans and Japanese have found means of doing this. I cannot help thinking it ought not to be beyond our wit to find similar measures, even if we do not talk about them too much.

Energy costs are another sore point with industry. We have oil and gas in real profusion; one might say we have it running out of both ears. But the Government lets both be priced at top world rates and even puts an extra tax on oil. In the desperate situation our industry is in does it really make good sense? I do really have doubts about this. I think industry should have cheaper energy, and further I urge that it is more than high time that we got on with the fast breeder reactor, because that completely changes the financial aspect of nuclear power production by using the by-product from our existing magnox reactors. I cannot think why the politicians have not got on with this for so many years. The fast breeder reactor at Dounreay has been pumping electricity into the grid for 21 years. All sorts of other powers are now doing it, but here we are lingering in the background; it is ridiculous.

None of these measures is going to reduce unemployment entirely, though they will help. But, if this country is to recover by 1984, the Government, in my view, have to prime the industrial pump, not—I repeat not—by any general reflation of demand, which would be disastrous, but by careful selective measures. What I want is a règime of intelligent exceptions. I think that is a very diplomatic phrase. I think the Government should at once get on with public works which will help industry. Here are some examples: the repair of the Manchester sewers is an instance; it is manpower intensive, it involves no imports; it is vital for Manchester's health and the safety of its roads. It really ought to be got on with in times of recession. Next, the communications with Tilbury, which is the port of London and a major container port, are really an inexcusable disgrace. The A13 is cluttered up with lorries going in both directions at a fairly slow speed all day and pretty well all night. There should be motorways both from London and from the Midlands to Tilbury. The M25 ought to be finished urgently, if only for that purpose, and to ease the dreadful truck traffic right through London. The motorway and trunk roads to Southampton should be completed very soon and something should be done about the trade union situation at Southampton. Your Lordships will note that I am suggesting things which will greatly help our exports. I think it is important to very be selective in the suggestions that I am making.

I mentioned the trade union situation at Southampton. It is exactly 25 years since I reported from our embassy in Stockholm that the Scandinavian shipowners had decided never to send their ships any more to London or Liverpool if they could possibly avoid doing so, because they were subject to so much thieving and extortion by the dockers. Both ports have now gone bust. I am sorry to say that there is some reason to think that the same will happen at Southampton unless somebody goes and sets matters right there. There is a real muddle.

Next, I urge the Government to let the nationalised industries borrow more to meet their investment requirements. T honestly do not think that it pays in the times we are in to have them subject to narrow cash restrictions. I urge the Government to do something about this. A recession is the time to do it, anyhow. It will help industry throughout the whole country.

I want to urge the Government again to order more ships for the Navy. I know that this means spending money, but our Navy is inadequate and there ought to be more equipment also for our other armed forces. That would help steel, coal, electronics very much, shipyards—indeed, the whole engineering industry right across the country. We have to pay the men anyway, so these will really be the cheapest ships et cetera that one could buy, and the genius and experience and the morale of our working production teams and other workers will be preserved. It was, I think, the noble Lord, Lord Weinstock, who made a very good point in this connection.

I do not have time to say this more than superficially, but I want to suggest that the time has come to consider reintroducing some sort of national service. I know that that will be regarded by many as a scandalous suggestion, but we have a very undisciplined country now and there is no doubt that such a measure would improve discipline. It would be a framework within which extensive training could be given and I support very much the training which the Government are giving. Those measures are very important. However, it would solve youth unemployment all at once and that is really something that ought to be seriously considered.

I shall not go on with more ideas, although I have lots more. It is too late. Having been 38 years a civil servant, I have one very important point to make. The Civil Service Ministries live in boxes. I say, "Build more ships", for instance, but the Ministry of Defence will say that their budget does not allow it. But the savings on redundancy and social security payments of all sorts, for the men who would otherwise be unemployed, surely ought to be taken into account. The Department of Social Security, however, lives in a separate box and I suspect that section of the Treasury does also.

In addition to that offset which I have mentioned, there will be more Government receipts from corporation tax, VAT, income tax and so on. Those are important offsets. This is where a Government of real character and determination, such as Mrs. Thatcher certainly aims to have, should survey the general scene, I suggest, and take a wise and broad view. These ideas for a regime of intelligent exceptions are, in view of the offsets, not as inflationary as they look; and in political terms they are far safer than the unemployment which we have now. I believe that they would greatly help industry to get moving out of recession and that we have not much time to let things drag on.

To conclude, I think that the time is coming when our hard-pressed people might answer to a clarion call on behalf of all sections to pull together to get this country going again. Self-help by all would be the word. But, before the Government could do that, I believe that they must be able to show to everyone's satisfaction that they have got industry going again and unemployment on a strong downward path. I earnestly hope that the Government will be able to bring that about.

7.45 p.m.

Baroness Seear

My Lords, I should like to add to the congratulations which have been offered to the two noble Lords who have made their maiden speeches tonight. They were such informative and delightfully delivered speeches and we shall look forward to hearing from them very often in the future.

If I had been one of the 3 million unemployed and over the last two days I had been sitting in the Gallery of your Lordships' Chamber, I would be going away tonight angry and in something near to despair. I would have looked to the Labour Benches expecting, perhaps naturally, that from the Labour Benches would come real help. But if I were a thoughtful member of the unemployed—and there are many such—I would have had questions to ask about what we heard from the Labour Benches. We are being told by them and we are being led to believe that there is a choice between pulling down inflation and improving the employment situation and that there is something evil in attempting drastically to reduce inflation, and something righteous in promoting more employment—and of course we all want to see more employment. However, I am deeply convinced that, unless we can reduce inflation, any attempt to improve employment can only be short-term.

It is the most wicked deception to say to people who are unemployed, "We can buy you jobs" if you know that that method of buying jobs will increase the unemployment queues in four or five years' time. That is not to say that I do not believe—and I shall go on to explain that I do believe—that there is some expenditure that should be made. But it is folly in the extreme—and we must try to stop this because it is developing in the country—to set the reduction of unemployment as a low-grade objective and the increase of employment as the immediate objective as if they were in conflict; whereas, in fact, the two objectives march together although the time-scale may seem different.

If I were an informed member of the unemployed—and there are many such—I would have been saying to the people on the Labour Benches, "Yes, you are suggesting that there should be expenditure in order to increase jobs, but what else are you suggesting?" I have great sympathy with the Labour Front Bench today in your Lordships' House. What on earth is the Labour Front Bench in your Lordships' House to say when the Labour Party produces conflicting policy after conflicting policy and the country is presented with the scene of the two wings of the Labour Party locked in deeper conflict than the Opposition and the Government? Indeed, one of the great weaknesses of politics today is that we have no effective Opposition, because parliamentary democracy can only operate if there is a strong, united Government and a strong, united Opposition. We have a disunited Government and a disunited Opposition.

The noble Lord, Lord Cockfield, is obviously sufficiently concerned about the development of the Social Democrat/Liberal alliance to take time out to put us in our place. Our place, I fear, is filling a vacuum: I hope that it will be a great deal more. In my view, we have a great deal more to contribute than that. But the extent of the support, from a national point of view, almost alarms me. It alarms me because it is a measure of the failure of both Government and Opposition to command any support in the country at a time when unified support was never more greatly needed. I shall not spend more time on what the contribution of the alliance will be, because the last thing I want to do tonight is to talk in divisive terms. I have simply been factual about the position of the Labour Party. If the Labour Party can reassure me that the two wings of that party are united, then I would he delighted to withdraw what I have said.

On the other hand, the noble Lord, Lord Cockfield, said that the intention of the Government was to go right on to the end; and so did the noble Baroness, Lady Young. The noble Baroness, Lady Young, claimed that the Government, though determined to continue with their declared objective of putting the reduction of inflation first, had been flexible. But I- fear that the best she was able to do—and she did it with the greatest of grace, and how nice it was to listen to a woman Leader of your Lordships' House—was to tell us that the "flexibility" of the Government, as she called it, was really the ability of the Government, too little and too late, to react against circumstances which they had not anticipated; that if that flexibility had been built into the policies in the first place, then indeed the story would be different.

But what was there in the flexibility that reflected the policy? Nothing at all. It only reflected pressures to which, when they became too great, the Government had to yield. The noble Lord, Lord Cockfield, said—and I agree with him—that we enjoyed a most enlightening and helpful speech from my old colleague and mentor, the noble Lord, Lord Robbins. However, I hope that the noble Lord, Lord Cockfield, was not too selective in his listening to the speech of the noble Lord, Lord Robbins, because while the noble Lord, Lord Robbins, most certainly said that he believed in the Government's objectives, he also said loud and clear that a too single-minded, narrow approach to the achievement of those objectives was a failure to recognise that an immensely complex problem must have a many-pronged approach to its skewer. That message came over loud and clear from the noble Lord, Lord Robbins. If the noble Lord, Lord Cockfield, is indeed so great an admirer of the noble Lord, Lord Robbins, then surely he takes that part of the message as well as the support for the determination to reduce inflation.

The noble Lord, Lord Cockfield, also said that greatness lies in the understanding of the essence of a problem. I fear that it is here that the Government are lacking. Surely the essence of the problem is that we can solve our joint problems of inflation and unemployment; that the core of the matter is the gross uncompetitiveness of British industry; and that this has continued not just in the lifetime—of course not—of the Conservative Government or even of previous Labour Governments; but, as the noble Lord, Lord Kaldor, has told us again and again and as any of us who have looked at the text know, it began indeed at the end of the 19th century. It has accelerated of recent years, but the disease is deep-seated.

The only way out of this uncompetitiveness is a ruthless determination to restructure British industry. That is easily said, but it is desperately difficult to accomplish. We know that on the horizon there are opportunities. They may not be there by the time we have done our restructuring because our competitors will he there ahead of us, and it is always more difficult to get into new markets when other people are there in advance. But there are opportunities in high technology.

Other speakers this afternoon have reminded your Lordships' House of the debate we had in the summer on micro-technology in relation to the European Community, and a very informative and alarming debate that was. Noble Lords were told that of those new markets, 70 per cent. were already in the hands of the Americans and the Japanese, and it is not easy for other people to get into markets when so much has already been done by our competitors. Yet there are opportunities and there have been opportunities. This is the case against both the other parties. There have been opportunities over the last decade, and what has been done to seize them? They have been there to seize, otherwise the Americans and the Japanese would not be able to be in the position in which they are. There are other opportunities. We bewail the fact—unworthily in my view—that many of the developing countries are now competitors; but if they are competitors, they are also markets, markets to be taken by people who have the enterprise, the flexibility and the determination to do so.

There are opportunities in the field of small businesses. I shall not say much about that; I am much in favour of the development of small businesses. But it will not be the sovereign cure. It is only one ingredient of the whole range of new opportunity. Then, of course, if we are successful enough and are wealth-creating enough, there are almost unlimited opportunities in the field of services, both private and public. There are plenty of opportunities for job-creation for a country that is economically successful and adequately wealth-creating. But it means a determined attempt to bring about quite drastic change in the structuring and ordering of industry in this country.

The essence of this problem is not only the need for change and the fact that we are at the eleventh hour of making that change; it is also the recognition of Government that this can only be done with allies, wherever we can find them. This is not something which Governments themselves can do. They must have allies among the employers; allies among the trade unions; allies among the general public and the consumers, and allies with our partners overseas in Europe. All round your Lordships' House tonight, representatives, people with knowledge of industry, have been urging that the Government should take action for some modified relief of the burdens that industry has to carry. Let us press again that they should at least do something about the national insurance surcharge. That is just one—I shall not give a long list—of the things that should be done.

In relation to the trade unions, there is the need to get them together to discuss these matters with an open mind and with a determination to collaborate, and there is not much time left in which to do this. At this of all moments of time, when the need to collaborate with the unions and to get the support of the rank-and-file was never greater, why go and introduce legislation which is bound to have an extremely divisive effect, which is bound to put the leaders of the trade unions in an extremely difficult position? How can the leaders of the trade unions go to their rank-and-file and ask them to make the changes in which everyone's interest lies if, at the same time, they are being confronted with legislation which, however rationally you might be able to make a case for it, the Government must know will be represented up and down the country as being a deliberate attack on trade unions and trade unionists?

I agree, and everyone in this House agrees, that there are reforms which need to be made in the trade unions, but in God's name, what a moment to choose—what a moment to choose! Can you not discuss again with them? Can you not get together with the employers and the trade unions to talk this over again to see what can be done? What is the price—because everything has a price—of getting the changes that we need in industry?—which is the very heart of the matter.

Of course, along with this is the reduction of unemployment. I do not for one moment believe that the Government are using unemployment as an instrument; that they want to drive people into unemployment in order to get discipline. This is a measure of the distrust which the Government have created, and it is not only theirs; it is a long and unhappy tradition in this country. But gestures to show that they care, to catch the imagination of people, would make such an enormous difference.

At the beginning of my remarks I said that I am not advocating that we spend our way out. But the latest figures that I have seen indicate that an adult male in terms of benefit paid and loss of tax is costing £5,500 a year. There is much that you can do in terms of employment with £5,500 a year. I am not talking about temporarily useful, but rather insignificant, job-creation; I am talking, as other noble Lords this evening have talked, about the kind of job-creation and investment which is genuinely an investment, which will make for a more efficient country in the long-run. Energy conservation is one; other noble Lords from all round the House have given the list. We have this £5,500 per head with which to do something.

I agree that there are other things we should be talking about. I agree that in certain sectors—and I think that young people comprise one of them—wages have priced people out of jobs. This problem will only be solved with real collaboration between both employers and trade unions. It could perfectly well be that with pay increases in the future it will come to be accepted that for pay increases the percentage given to 16-year olds will be a lower percentage than the percentage given to adults, because I think the gap between the school-leaver rate and the adult rate has become too small for all sorts of reasons which to some extent were not anticipated.

Then again the Government should put their whole weight—this is another form of investment—behind training. We have had the initiative from the MSC. We have also had some striking initiatives from employers. I see that the noble Lord, Lord Weinstock, is no longer there. In one of his factories the organisation is offering one job to two youngsters who will share the work and share the pay, with the understanding that they go and get some training during part of the rest of that week.

Just imagine what, if that were widespread, it would do in terms of jobs for school-leavers. This is an initiative which has come from an industrialist who is not known as the most sentimental and starry-eyed industrialist in the country. Yet it is a real initiative which, if followed through in the country, would make a great deal of difference. As I understand it, it does not cost them anything. I am a deeply cost conscious person—cheeseparing, my friends call me—but this is something that could be done for nothing in terms of cost to a firm. Why not give incentives to employers? Say that if they use schemes of this kind then they need not pay National Insurance contributions. It would be cheap in terms of the money we are having to pay in unemployment benefit.

On to that we have to add the unquantifiable but real costs that arise as a result of youngsters being out of work month after month after month, and it would add to the stock of skilled labour. I hope that the noble Lord, Lord Cockfield, will not tell me that, "We are not prepared to train unless, you know, there is a job at the end". One thing we know about the future is that for a great many of the really unskilled there will be no jobs. The falling off in the demand for really unskilled people is going to get worse and worse. If people have a skill, a proportion of them at any rate will find a way of turning it to wealth creation, and therefore it is worth while doing this.

Again, if you do not want to teach these people a skill, improve their educability. It was the Engineering Federation which said to me, "What we want is people who are more numerate and more literate". So let them spend part of their time when they are not in employment improving their ability to learn, their ability to be trained to be flexible as jobs change in a changing labour market. With actions of this sort, developed in conjunction with the employers and trade unions, which show that the Government are really deeply concerned, that they have an objective, that this is what they are doing in the process of restructuring and with a view to restructuring, then indeed the Government might capture the imagination of the country.

The noble Lord, Lord Cockfield, cannot in his wildest dreams imagine that this Government have caught the imagination of the country. I, from a party political point of view, do not much want him to catch the imagination of the country. I do not think he is likely to do it. But if he could, it would be worth it even at the price of the development that I am so glad to see in the alliance between us.

We need another ally. We need our allies in the EEC. We need our allies, as that debate in July showed, for research and development in high technology industry and in other areas too. May I also follow other noble Lords who have said how astonishing it is that, at this moment when there are so many difficulties, when the level of sterling, both too high and now perhaps too low, has caused us so much concern, we have heard nothing from the Government side about the EMS. There has been no discussion even of whether this is the right moment to start considering, at least, going into the EMS. Let us at least have a discussion about it.

I know there are difficulties. I do not claim to be an expert on this, but more and more voices are saying that, now that the level of sterling is lower than it was, this is the time at least to consider it, because it would give the stability that industry so much needs. A ruthless and narrow pursuit of a policy which has the right objectives will, I assume, be defeated by the failure of the Government to catch the imagination of the country. I beg them to enlarge the horizons of what they can do to see that there are opportunities which will convince people that they know where they are going and that they intend to carry people with them.

8.5 p.m.

Lord Bruce of Donington

My Lords, we on this side of the House found so much of what the noble Baroness, Lady Seear, said to be quite agreeable that we almost forgot what she herself would call the party tit-for-tat with which she commenced her speech. I shall indeed return to some of the things that she was kind enough to suggest to your Lordships. Before doing so I should like to offer our felicitations to the noble Lord, Lord McFadzean, and the noble Lord, Lord Marsh. The conventions of the House forbid me from commenting further upon what they said, because, if I were tempted to do so, I myself should be drawn into the realms of controversy which are not always appropriate to these occasions. However, I hope that both noble Lords will take it from us that the whole House will be very pleased indeed if they will favour the House with their attendance at frequent intervals, and give us many opportunities of listening to their views.

I was fascinated by the speech of the noble Lord, Lord Cockfield. There was a certain familiarity about it, and since I am just as much an avid reader of his speeches as he is of his own, I am bound to tell him that I have heard the basis of this one many times before. But I must congratulate the noble Lord: he has relaxed his attitude towards this problem quite considerably. It takes a bold economist to bring in Madame de Pompadour together with Marlene Dietrich, and I most certainly do congratulate him on that.

In the course of his peroration, which the noble Lord delivered with his accustomed gravity, he invited us to face realities. One could almost hear the exclamation mark ringing through the Chamber by the amount of emphasis that he gave to it. This is what I think we ought indeed to do, except of course that one's views about what the realities are vary considerably.

Not wishing to detain the House very long, I shall not give my own view of the realities. I shall confine myself to a source which is generally reckoned to be far more neutral than that pleasant state to which I can aspire, and which is not entirely unfriendly in the normal way to the noble Lord. If we want the realities we need go no further than the Economist for 10th October. This indeed paraphrases the realities in inimitable style. When Mrs. Thatcher became prime minister in May, 1979, year-on-year inflation stood at 10 per cent.; now it is 11½ per cent. Banks' base lending rates were 12 per cent.; today 16 per cent. Mortgage rates were 11¾ per cent.; this Friday, they will be raised to possibly 15 per cent., probably more. The pound's trade-weighted exchange rate stands almost exactly where it was when she acceded, having risen and fallen by a bankruptcy-creating 20 per cent. in the meanwhile. In the last days of Mr. James Callaghan's government, investment was higher, profits were higher, real personal disposable incomes were higher. The two biggest changes between end-Callaghan and mid-Thatcher are both catastrophic: manufacturing production is 16 per cent. lower and an extra 1.4 million people are out of work". There is the paraphrased answer to the noble Lord. He is, as always, an optimist. Indeed, Her Majesty's Government are perennially optimistic. The noble Lord seemed to think that signs of improvement were on the way. Mind you, they were only the odd decimal point or so, but hope springs eternal and one is entitled to derive some minuscule comfort from even such vague movements of statistics at decimal point level.

I observed, however, that the noble Lord's confidence was not exactly shared by the noble Viscount, Lord Watkinson. He seems to think it will take very much longer. In fact, so long will it take, from his standpoint, that he is getting worried about winning the elections in 1984. His perspective is very much longer indeed; he already sees what the bulk of his colleagues in the CBI see; namely, that there is no way out of this for a very long time.

The forecasts of recovery—and I do not want to remind the noble Lord too unkindly of the forecast about the rate of inflation he made at the end of his speech at the end of July; I will not tax him with that—have been going on now for 18 months. "Next year"—that is, this year—we were told the recovery would take place. Then we were told the recovery would be taking place later on, in 1981. Now, in 1981, we are told it will be some time in 1982. How long are people going to have to wait? What vista is there at the end of the tunnel? The gravamen of our complaint against the measures contained in the gracious Speech is that they are completely irrelevant to the problems facing the country today.

Not that the Government have no philosophy. The noble Lord, Lord Thorneycroft, who becomes more rumbustious the further he is removed from the cares of the high office he recently occupied, gave the game away. Many of us of course suspected—we were not entirely sure before—that he was, as it were, an intellectual anarchist who believed that all government was ineffective anyway and that we did not want government. But what we have realised all the time is that there was no philosophy for him, and there is no philosophy for the party opposite, but reliance on market forces. That is the only remedy they have to offer.

The noble Lord, Lord Thorneycroft, supported by other noble Lords, was himself at pains to point out that, after all, Governments could really do very little at all in the current situation, that it was outside the powers of Government to influence anything. That was not the story in the election manifesto of the party opposite, and noble Lords opposite who are artistically inclined, like the noble Viscount, Lord Eccles, who believes in art, will remember the big Conservative Party posters showing a lengthening line of unemployed, all put in such terms as implying that people only had to elect a Conservative Government in order for unemployment to be eliminated.

The noble Lord says he believes in market forces, and of course he does, as does the party opposite. But in order to maintain that position, they have to blame all the ills of the country on everything but the Government. They blame the working person. Indeed, the noble Baroness the Leader of the House said yesterday: What has been happening since up and down the country in private and public sectors of industry is that concealed unemployment in the form of overmanning has suddenly come through in perceived unemployment".—(Official Report, 11/11/81; col. 238.) That is the most extraordinary statement I have ever heard from a Government Front Bench because it implies that the vast increase in unemployment, of 1.4 million, since her Government took office is, in the main part, due to a shedding of labour, so enabling industry to become leaner and fitter, whereas it is nothing of the kind. Manufacturing production has gone down by 18 per cent. and manufacturing employment has gone down by 16 per cent. What has happened has not been a thinning out; there has been a wholesale slaughter of firms up and down the country, a wholesale destruction of industrial capacity, due entirely and deliberately to the policies of the Government. To blame the ordinary working person for pricing himself out of a job by demanding even up to the present rate of inflation is to put the blame precisely where it does not belong.

I have been a member of the Labour Party for 46 years and shall, I hope, remain a member of it until my demise. I well remember the times before the war—as possibly the noble Lord, Lord Thorneycroft, also can—when we had exactly the same story put before the working people—that unemployment was essentially their problem; that it was due to restrictive practices and to a lack of production effort by the ordinary working person. It was due to everybody except the system. People may have short memories, but we, and the bulk of the people, now know how untrue that was. And how odd it was that when a national effort had to be made to defeat a wicked and ruthless enemy, the economic activities of this country, the production apparatus, under state supervision, was brought to a state where production went up by leaps and bounds, as did enthusiasm, and the arms for our forces were sustained by British effort in British factories by both men and women.

In those days everybody seemed to praise the ordinary working person on whom the victory finally depended, except those people, immortalised by Nathanial Gubbins, in the safe hotels whose perpetual function it was, even in wartime, to grumble at everyone else; and what we see today is strongly reminiscent of a return to that kind of attitude. The irony of war was that we then had no unemployed at all; and the further irony was that under rationing, probably for the first time in their lives, millions of our citizens received a square meal of a quality and a quantity that they were unable to have in the years before the war. En those years there was a greater measure of fairness and justice which contributed to the spirit of our country, to which the noble and learned Lord the Lord Chancellor was able to refer in his remarks in opening the debate.

It is no good any Government any longer adopting an attitude of contempt towards the bulk of the people of this country. It is all very well for those of your Lordships, and those people outside the House, who have comparatively comfortable circumstances, who go to homes where, within fairly spacious conditions, their eyes can easily rest on things which please their eyes, where they can find some degree of personal serenity. It is all very well for people who are privileged by space as well as sheltered by income to say to the rest of the country that they are wrong. The people of whom I speak are in a position that is much different from that of millions of our people who today live under conditions of unimaginable squalor. Many of them live in great poverty, with very great problems, and, above all, seek somehow to have a purpose, which at present eludes them.

The function of government in this country—and there is a function, whatever the noble Lord, Lord Thorneycroft, might think about it—is so to guide our affairs that the people of the nation, in particular the young, can have a purpose in life, can have some vision, can be allowed to dream dreams, and can be allowed the luxury of the possibility that, given some effort and co-operation, those dreams can be realised.

Both competition and co-operation have a role to play in all economic and social conditions. Competition, in particular in the intellectual sphere and in the field of excellence, is a very good thing indeed. But if we are to live together in society, we must co-operate, and co-operating together means immediately restriction on the individual liberties of people who co-operate with one another. It consists essentially of all of us giving up some of our rights in order that we might achieve common objectives.

It is that spirit to which we on this side of the House desire to return. We desire to rekindle some of that enthusiasm to which the noble and learned Lord the Lord Chancellor referred, some faith in the greatness of our country, some vista of the possibility of obtaining personal serenity for large numbers of our citizens. These are worthy aims. They go beyond party. But they are the aims to which Her Majesty's Government should address themselves. Our regret about the gracious Speech is essentially that it reflects a doctrine that is sterile and disproved. It reflects no real purpose outside the recognition of market forces. It sets out no reforms other than those minimal reforms by virtue of which a bemused electorate might be persuaded to return the present Government for a further term of office. It is no inspiration to the nation at all.

We note with some amusement that from the Liberal Benches there is an amendment to the amendment which we have proposed. Well, it might suit that immediate political purpose to put down amendments of that kind. I recall the noble Lord, Lord Rochester, in the earlier part of his speech admiring the courage of his new colleagues in the Social Democratic Party in having the strength of their convictions. Convictions are good things to have, and I am sure that one of the most interesting things that will emerge eventually over the next couple of years, is precisely what are the convictions of the Social Democratic Party. So far they have been inexplicably postponed, but I can assure the Social Democratic Party that as and when they are publicised they will be received with great sympathy. I must say that I was most encouraged by the excellent speech of the noble Lord, Lord Walston, a former colleague of mine, on aid to the third world.

I hope that the House will not take too seriously the amendment from the Liberal Benches. We ourselves shall of course vote against it, and if, as a result of that Division, it is possible for us to vote for our own amendment, as distinct from an amendment that has been tampered with, we shall of course vote for it. In its present form our amendment is moved in the belief that the Government have to go a very long way yet before they become even the plausible custodians of the nation's destiny.

8.27 p.m.

Lord Cockfield

My Lords, the contempt for the electorate expressed by the noble Lord, Lord Bruce of Donington, in the course of his speech no doubt reflects the contempt that the electorate will express for Lord Bruce and his party when the time comes. We have had two distinguished maiden speeches from the noble Lord, Lord McFadzean of Kelvinside, and the noble Lord, Lord Marsh, and I most sincerely congratulate them both. The noble Lord, Lord McFadzean, has immense industrial experience. Indeed, there are few branches of industry with which he has not been associated. He was a most distinguished chairman of British Airways. He speaks with great authority on industrial matters. The noble Lord, Lord Marsh, has great breadth of experience spanning politics and industry, in both the public and the private sectors. He is able to speak from direct personal experience of the problems that he discusses, and this is a factor that your Lordships always appreciate.

I propose to deal with one or two major issues which have been touched upon in the course of the debate and to which I did not refer when I spoke on the original Motion. I should like to refer briefly to the question of incomes policy. This was strongly supported by the noble Lords, Lord Rochester and Lord Banks, on behalf of the Liberal Party, by the noble Baroness, Lady Birk, and the noble Lord, Lord Jacques, on behalf of the Labour Party—and I hope that they do not get expelled for their temerity—and by the noble Lord, Lord Roberthall, on behalf of the SDP. On the other side, incomes policy was opposed by my noble friend Lord Thorneycroft in a brilliant, wide-ranging speech of deep wisdom. It was also opposed by Lord Mottistone and by the noble Lord, Lord Robbins. I mention this only to illustrate the diversity of views on this subject.

But let us not debate at this time of night the policy issues involved, the philosophical or even the moral principles. Surely it is enough that on no less than seven or eight occasions since the original White Paper on Full Employment was published in 1944 incomes policies have been tried, and they have always failed. Incomes policies always go through precisely the same history. They start by being voluntary, flexible and ill-defined, but over the years, as the problems multiply, the rules become more complex. As individuals or groups ignore or evade the rules there are demands for enforcement, whether by union muscle or by statutory provision. Ted Heath tried the latter, Jim Callaghan the former. Both failed. We need to learn from their failure, not brush it on one side. We can go down the same route again and will end up in the same way. The crucial point now is that many of the most powerful union leaders have made it clear that they will not accept an incomes policy under any circumstances. This being so, as the noble Lord, Lord Robbins, pointed out, there are no circumstances in which a voluntary or a statutory incomes policy would be feasible.

The noble Lord, Lord Banks, the noble Baroness, Lady Seear, the noble Lord, Lord Hankey, and the noble Viscount, Lord Watkinson, all raised the question of the EMS. The Government support the broad aims of the EMS as a step forward in monetary co-operation in the Community. We contribute 20 per cent. of our gold and dollar reserves to the fund, and participate fully in discussions on future developments. We have stated our intention to join the exchange rate mechanism when conditions are right, but the very substantial fluctuations in the sterling exchange rate in the last two years have made this impracticable. If we go into the EMS we must go into it in circumstances which ensure that we stay in. Noble Lords with longer memories will remember that when we joined the Snake in the days of the Heath Government we stayed in it for only six weeks. This is an experience we do not wish to repeat.

Lord Davies of Leek

Crawling pegs!

Lord Cockfield

My Lords, the noble Lord is no doubt a great expert on these matters and we shall have an opportunity to listen to his views on crawling pegs and other forms of insect life some day in the future.

The noble Lord, Lord Kaldor, has offered to provide statistics which refute the assumptions on which our monetary policy is based; but statistics can prove or disprove anything, and the noble Lord is a great expert in their use. Common sense tells us that more money chasing the same amount of goods will drive up prices, and that if Governments try to borrow more by competing with the private sector for funds interest rates will be bid up. The money supply figures have been biased upwards by the removal of the so-called corset, and now by the Civil Service dispute. But the general thrust of our policy remains the same. Only when inflation is permanently at a low level will the conditions be right for sustained growth in output and employment. The noble Lord complained that I had not on this occasion dealt at length with monetary policy. I would have thought the remainder of your Lordships' House would have been relieved.

I promised that I would reply to the noble Baroness, Lady Burton of Coventry. She asked about the legalisation of "bucket shop operations for the benefit of scheduled airlines. This is a matter that the noble Baroness has raised directly with my right honourable friend the Secretary of State for Trade. When Titans are locked in battle the wise man stands aside. She also raised the question of the report dealing with the position of consumers in relation to the nationalised industries. This is a matter of great importance, but I fear there is nothing I can add to what my noble friend Lord Lyell told the noble Baroness on 22nd October. As she knows, this is a complex matter, and a Statement will be made as soon as possible.

My noble friend Lord Sandford referred to the Local Government Finance Bill. May I assure him that the Government are conscious of the concerns to which he has referred, and I will ensure that his comments are brought to the attention of my right honourable friend the Secretary of State for the Environment.

I now turn specifically to the amendment moved by the noble Lord, Lord Scanlon, on behalf of the Labour Party. We welcome the noble Lord's active participation in our affairs. He has a great fund of wisdom and experience to bring to hear. The points he raised, which are important—and, indeed, much the same points were made later by the noble Baroness, Lady Seear—will form the substance of the debates which will take place in your Lordships' House when the relevant legislation comes before us. We look forward to the noble Lord's participation in those debates. At this stage I m ill say no more than that the Government's policy is based on the simple proposition that the balance of power has swung too much in favour of the unions. It is this balance we aim to get right.

The Opposition have a perfect sense of timing: they always get it precisely wrong. Had they moved this amendment last year, when the economy was still slipping into recession, they would no doubt have been able to produce many agruments. But this year, today, there are many encouraging signs appearing, and they will multiply. The rate of inflation has come down. It has been virtually halved in just over a year. Today it stands only marginally higher than the OECD average, and actually lower than the OECD figure for Europe. Despite the recent and temporary setback, the long-term trend remains downwards. We must work resolutely to achieve it.

Manufacturing output in the three months to September shows an increase of 1½ per cent. Productivity is up by 5 per cent. in the first half of this year—a massive increase by any standard. Engineering orders are up by 15 per cent., and investment in plant and machinery now stand at an all-time record level. I am sure that the noble Lord, Lord Scanlon, will welcome both those developments. Unit costs in manufacture have stabilised for the first time in a decade; company liquidity has improved; our exports have held up remarkably well, and the fall in the exchange rate will give our exporters further assistance.

We have secured a number of immensely important overseas orders individually worth many hundreds of millions of pounds. The Castle Peake Power Station in Hong Kong, £600 million; the steel plant in Orissa for the Indian Government, £1,250 million; the submarine cable from Sydney to Vancouver, £172 million; the university in Oman, £150 million; the steel plate mill in Mexico, £350 million, and the Anglo-Brazilian project involving £380 million. These are all great achievements by British industry in which we ought to take great pride.

The number of trade disputes is the lowest since the 1940s, wage settlements have fallen and will go on falling, thus helping our competitive position; unemployment is rising, regrettably still rising, but at a much slower rate. The increase in recent months is less than half those at the end of last year. Movements in unemployment always lag behind changes in output, so that a rising level of output needs to be firmly established before unemployment falls; but fall it will. There has already been a substantial reduction in short-time working, and overtime is showing signs of picking up. These are all encouraging signs.

My Lords, we are not yet out of the wood by any means, but at least let us take encouragement and new heart from what is going right. It is all too common in difficult times for pessimism to abound. Oppositions of whatever colour have a professional interest in encouraging it. But never was there a time when it was more necessary for us to hold fast to our hopes, never was there a time when there was more evidence to justify our so doing. My Lords, I must conclude by asking my noble friends who sit behind me to abstain if the noble Lord, Lord Banks, presses his amendment to the amendment but I must advise them to vote against the amendment in the name of the noble Lord, Lord Scanlon, regardless of whether or not that amendment has been amended.

8.42 p.m.

On Question, Whether the amendment to the amendment (moved by the Lord Banks) shall be agreed to?

Their Lordships divided: Contents, 34; Not-Contents, 40.

DIVISION NO. 1
CONTENTS
Airedale, L.	Mayhew, L.
Amherst. E.	Ogmore, L.
Aylestone, L.	Perry of Walton, L.
Banks, L.	Roberthall, L.
Barrington, V.	Robson of Kiddington, B.
Beaumont of Whitley, L.	Rochester, L.
Burton of Coventry, B. [Teller.]	Sainsbury, L.
	Seear, B. [Teller.]
Byers, L.	Simon, V.
Diamond, L.	Tanlaw, L.
Donaldson of Kingsbridge, L.	Tweeddale, M.
Evans of Claughton, L.	Wade, L.
Gladwyn, L.	Wilson of Langside, L.
Hacking, L.	Winchilsea and Nottingham, E.
Hampton, L.
Harris of Greenwich, L.	Winstanley, L.
Kennet, L.	Winterbottom, L.
Kilmarnock, L.	Young of Dartington, L.

NOT-CONTENTS
Ardwick, L.	Milner of Leeds, L.
Bernstein, L.	Mishcon, L.
Beswick, L.	Molloy, L.
Birk, B.	Noel-Baker, L.
Bishopston, L.	Oram, L.
Boston of Faversham, L.	Parry, L.
Brockway, L.	Peart, L.
Bruce of Donington, L.	Pitt of Hampstead, L.
Cledwyn of Penrhos, L.	Ponsonby of Shulbrede, L. [Teller.]
Collison, L.
Cooper of Stockton Heath, L.	Ross of Marnock, L.
David, B.	Scanlon, L.
Davies of Leek, L.	Stewart of Alvechurch, B.
Elwyn-Jones, L.	Stewart of Fulham, L.
Jeger, B.	Stone, L.
Jenkins of Putney, L.	Strabolgi, L.
John-Mackie, L.	Strauss, L.
Kaldor, L.	Underhill, L.
Llewelyn-Davies of Hastoe, B. [Teller.]	Wallace of Coslany, L.
	Wells-Pestell, L.
Lovell-Davies, L.	Wynne-Jones, L.

Resolved in the negative, and amendment to the amendment disagreed to accordingly.

8.52 p.m.

On Question, Whether the amendment (moved by the Lord Scanlon) shall be agreed to?

Their Lordships divided: Contents, 42; Not-Contents, 122.

DIVISION NO. 2
CONTENTS
Ardwick, L.	Milner of Leeds, L.
Bernstein, L.	Mishcon, L.
Beswick, L.	Molloy, L.
Birk, B.	Noel-Baker, L.
Bishopston, L.	Oram, L.
Boston of Faversham, L.	Parry, L.
Brockway, L.	Peart, L.
Bruce of Donington, L.	Pitt of Hampstead, L.
Cledwyn of Penrhos, L.	Ponsonby of Shulbrede, L. [Teller.]
Collison, L.
Cooper of Stockton Heath, L.	Ross of Marnock, L.
David, B.	Scanlon, L.
Davies of Leek, L.	Stewart of Alvechurch, B.
Denington, B.	Stewart of Fulham, L.
Elwyn-Jones, L.	Stone, L.
Jeger, B.	Strabolgi, L.
Jenkins of Putney, L.	Strauss, L.
John-Mackie, L.	Underhill, L.
Kaldor, L.	Wallace of Coslany, L.
Llewelyn-Davies of Hastoe, B. [Teller.]	Wells-Pestell, L.
	Wynne-Jones, L.
Lovell-Davis, L.	Young of Dartington, L.

NOT-CONTENTS
Abinger, L.	Campbell of Croy, L.
Airey of Abingdon, B.	Cathcart, E.
Aldington, L.	Chelwood, L.
Alexander of Tunis, E.	Cockfleld, L.
Alport, L.	Coleraine, L.
Avon, E.	Colwyn, L.
Bellwin, L.	Constantine of Stanmore, L.
Beloff, L.	Craigmyle, L.
Selstead, L.	Croft, L.
Bessborough, E.	Cullen of Ashbourne, L.
Boothby, L.	Daventry, V.
Brabazon of Tara, L.	de Clifford, L.
Brain, L.	Denham, L. [Teller.]
Brougham of Vaux, L.	Digby, L.
Brownlow, L.	Drumalbyn, L.
Caldecote, V.	Dudley, E.
Campbell of Alloway, L.	Eccles, V.

Ellenborough, L.	Mottistone, L.
Elles, B.	Mountevans, L.
Elliot of Harwood, B.	Murton of Lindisfarne, L
Elton, L.	Nairne, Ly.
Fairfax of Cameron, L.	Northchurch, B.
Faithfull, B.	Norwich, Bp.
Falkland, V.	Nugent of Guildford, L.
Ferrers, E.	Nunburnholme, L.
Ferrier, L.	Orkney, E.
Fortescue, L.	Orr-Ewing, L.
Fraser of Kilmorack, L.	Polwarth, L.
Gardner of Parkes, B.	Radnor, E.
Gibson-Watt, L.	Reigate, L.
Gisborough, L.	Robbins, L.
Glasgow, E.	Rochdale, V.
Glendevon, L.	Romney, E.
Gormanston, V.	St. Davids, V.
Gray, L.	St. Just, L.
Gridley, L.	Sandford, L.
Hailsham of St. Marylebone, L.	Sandys, L. [Teller.]
	Savile, L.
Hankey, L.	Selkirk, E.
Henley, L.	Sempill, Ly.
Hornsby-Smith, B.	Skelmersdale, L.
Hylton-Foster, B.	Stodart of Leaston, L.
Kemsley, V.	Stradbrooke, E.
Killearn, L.	Strathclyde, L.
Lane-Fox, B.	Sudeley, L.
Lauderdale, E.	Swinfen, L.
Lindsey and Abingdon, E.	Thorneycroft, L.
Linlithgow, M.	Tranmire, L.
Long, V.	Trefgarne, L.
Luke, L.	Trenchard, V.
Lyell, L.	Trumpington, B.
McFadzean, L.	Tweeddale, M.
McFadzean of Kelvinside, L.	Vaizey, L.
Maclcod of Borve, B.	Vaux of Harrowden, L.
Mancroft, L.	Vivian, L.
Margadale, L.	Wakefield of Kendal, L.
Marley, L.	Watkinson, V.
Marsh, L.	Weinstock, L.
Massereene and Ferrard, V.	Wolverton, L.
Melville, V.	Wynford, L.
Mersey, V.	Young, B.
Monk Bretton, L.

Resolved in the negative, to accordingly.

On Question, Motion agreed to: the said Address to be presented to Her Majesty by the Lords with White Staves.