§ 6.15 p.m.
§ Lord Spens rose to call attention to the urgent need for Her Majesty's Government to take positive steps to encourage employers to expand their workforces; and to move for Papers.
§ The noble Lord said: My Lords, I beg leave to call attention to the urgent need for Her Majesty's Government to take positive steps to encourage employers to expand their workforces. I am extremely pleased to see that all Benches in this House are to be represented in this debate, and I am very proud of that fact. However, I must tell your Lordships that the time limit again is not all that large and I am advised that it should not be more than eight minutes per speaker. In fact, I think that your Lordships may be able to get a little more time than that because I do not believe that I shall take up the full 15 minutes that has been allotted to me.
I put down this Motion on the day after Her Majesty made her gracious Speech because I was very disappointed in the only reference to unemployment which appeared in that speech; namely:
My Government share the nation's concern at the growth of unemployment and will continue to direct help to those groups and individuals most hard-pressed by the recession".
It seemed to me that that was taking a very negative attitude about what should he done for unemployment and I felt that I ought to put down a Motion of this sort, and I was lucky in the ballot.
§ But, unless Her Majesty's Government believe in fairies—and I do not believe that they do—it is no use expecting the new industries to arise out of the blue to solve the unemployment problem. There are, however, some immediate steps which can be taken in order to reduce the numbers of unemployed. The first one, of course, is artificial—reducing the pension age and/or increasing the age at which young people come on to the labour market. That could be done at any moment. The second is to create new businesses. We had a debate about that last May, so there is no need to touch on it again except for one very small aspect which I shall mention later. The third is to spend billions on promoting jobs in the public sector, and to hell with inflation! The fourth is what I hope we shall debate this evening—to encourage existing businesses to expand their labour forces.
§ I was interested to see that the Economist on 13th November included an article which is very close to my own thinking on this subject. It was headed "Seven winter suggestions". Looking through them I was thinking of four and a half, and the other two and a half I shall leave to other noble Lords perhaps to use. However, the suggestions that I want to make I put into two categories: first, those that will not cost the Government anything; and secondly, those that will cost the Government something if they are to be adopted.
§ My first suggestion is to set employers free from the restrictions of the Employment Protection Acts. I have to say "Acts" because although the 1958 Act is called an Employment Protection and Consolidation Act, it has not cancelled various other Acts which all employers still have to take into account. Employees are now so over-protected that employers are refusing to create new jobs. Therefore, I think that something must be done about this. You cannot get rid of an unsatisfactory employee, nor make someone redundant without having to pay through the nose.
Of course, there are temporary reliefs. No claim for unfair dismissal can be made during the first year of employment and, in the case of very small firms of 20 people and under, I think that that period goes up to two years; no redundancy pay can be claimed during the first two years. However, I do not think that those reliefs are nearly enough. I should like to quote a couple of sentences from a paper which I do not usually use as authoritative but which, in this case, I think is. It is the Sunday Express of 1st November. First:
Job protection has been so heavily written into the law of the land that employees now virtually 'own' their jobs".
Who is going to risk his capital and hire men and women for a new venture if he has to pick up a big redundancy bill should new technology make his venture unprofitable?
§ Time and time again I hear people say that if only they did not have to pay redundancy money, they would take on new people. That is particularly the case in industries like the construction industry which are labour intensive and which could use more labour very easily. Just the other day I spoke to a contractor and asked him how he was doing. He said that things were looking up and that he was getting more opportunities. So I said: "Will you expand your labour force?" and he said: "No, not at all. I cannot because I have to 812 plan ahead for 18 months at least, but I might have to lay off people after two years, and at that stage the redundancy law comes into effect".
§ I should like to suggest that at the moment these periods in the Employment Protection Acts are too short; I should like to see the conditions altered to five years and also increasing the numbers which would qualify as small firms, say, from 20 people to 50 people. An opportunity is coming to do just that, when the new Employment Bill comes before us. That is just the sort of provision that could be put into that Bill.
§ The second suggestion, which will cost nothing, I shall leave to the noble Lord, Lord Boyd-Carpenter. It is about wages councils. I should like to see them disappear and I hope that the noble Lord, Lord Boyd-Carpenter, will say something along those lines.
§ I turn to suggestions which will cost a little money, and come to one point which I want to pick up, new businesses. The Business Start-Up Scheme is beginning very well but it is limited to new business companies. It does not cater for partnerships and sole traders. I know that it might be difficult to get them into the scheme, but if something could be done to give them a similar amount of help, I believe that more new businesses would be able to be started.
§ Secondly, I should like to see the VAT threshold raised quite extensively. I should like to see it go up to at least £50,000 of turnover, and preferably to £100,000. I am not quite certain what the present limit is—whether it is £15,000 or £17,500—but if it is £15,000 of turnover, it means a turnover of less than £300 a week, which means that almost every business that is now involved in trade is caught by the VAT operation. It is very costly and it stops those businesses from expanding.
§ I should like to see abolished the national insurance surcharge of 3½ per cent. on every employee's earnings. I know that this is a ticklish subject at the moment because of the financial situation, but I want to point out that this charge is a charge on costs and not on profits. It is a charge on costs because it is built into the cost of labour and, therefore, it increases the price of the product, and thus it increases inflation artificially. I believe that something should be done to lower that surcharge.
§ I should like to see direct subsidies given to employers rather than to spend so much money, as is being done at present, on these temporary schemes. If there could be some combination of this, it would be very useful. Again, I was talking to a friend who has just made use of the YOP scheme, but at the end of six months he had to get rid of the girl who was working very well as a secretary; he wanted to take her on, but he could not afford to do so because the minimum wage limit for a secretary was too much; she also wanted to be kept on. I should like to suggest that even if no direct subsidies are given, some arrangement should be made whereby young people could be allowed to contract out of these minimum wages limitations, which are so high that they are not able to get their first jobs. Of course, they would have to contract out voluntarily and it would have to be a mutual contract on both sides.
Finally, I want to draw your Lordships' attention to the powers which local authorities have and which I do not believe are being used sufficiently extensively. Section 137 of the Local Government Act 1972 reads:
(1) A local authority may, subject to the provisions of this section, incur expenditure which in their opinion is in the interests of their area or any part of it, or all or some of its inhabitants…
Subsection (2) says:
It is hereby declared that the power of a local authority to incur expenditure under subsection (1) above includes power to do so by contributing towards the defraying of expenditure by another local authority in or in connection with the exercise of that other authority's functions".
Subsection (4) says:
The expenditure of a local authority under this section in any financial year shall not exceed the product of a rate of 2p in the pound for their area for that year or if some other amount, whether higher or lower, is fixed by an order made by the Secretary of State shall not exceed the product of
such an order.
§ My Lords, I should like to see the Secretary of State make such an order and increase the right to spend money locally by doubling the present levy, by raising the limit from 2p to 4p. I should also like to see the new local authorities, the district councils, made aware of the possibilities of this section of the Local Government Act. A lot of them are still too new to realise what they can do under this section, and I believe it is something which would bring them into solving the problem of their unemployment locally. I have reached the limit of my time, and I therefore beg to move for Papers.
§ 6.31 p.m.
§ Lord McCarthy
My Lords, I should like to begin by thanking the noble Lord, Lord Spens, for initiating what I am sure will be an interesting debate on an unexceptionable Motion. I am afraid I cannot say that all the arguments he has deployed in support of his Motion are new, but that is because I have had the fortune of listening to him with his usual force and clarity deploying them in the Select Committee on Unemployment. I am afraid I cannot say that I have been persuaded by them, but at least I have been persuaded to think rather more about why I do not find myself persuaded by them. Secondly, I should like to apologise to the House for the fact that, due to the fact that this debate has been called at somewhat short notice, I am afraid I shall have to leave during some period of it, and indeed because of the Statement we heard from the Government earlier this afternoon I shall have to leave quite soon after I sit down. I apologise for that in advance.
Let me turn to the Motion. We should be pleased to see such a Motion because at least it suggests that the Government should take some positive steps to expand employment. The general position of the Government is that they are not responsible; that they do not require to take any positive steps to expand employment, to deal with inflation, to lower interest rates, for the balance of payments, and all they have to do is to carry forward with their monetary policies and if anything goes wrong, or it takes rather a long time for the level of employment to rise or to stop going down, well then that is our fault. At least, it is someone's fault; it is not the Government's fault, and you cannot ask the Government to do anything positive about it.
From that point of view I think we can all welcome this Motion which says that the Government should take positive steps to encourage employers to expand 814 their workforce. Nevertheless, it is not much good taking positive steps unless the steps you take are in the right direction. In this respect I should like to disagree with the noble Lord in respect of, I think, three, and possibly, if I have time, four, of the suggestions that he put forward. I want to refer to the remission of the national insurance surcharge, which I think is the best of his ideas; the employment protection legislation, which is possibly the worst of his ideas; abolition of wages councils, and what he says about direct subsidies for employers.
It is true that the national insurance surcharge was introduced on a temporary basis. It is true that the Government now raise something like £3 billion in a full year from the national insurance surcharge. It is true that it is a tax on industry. It is true that the remission of the national insurance surcharge could possibly increase jobs. It is true, as the CBI says, that it hits exports and excludes imports. The problem is that no one can tell us, if we remitted one half, or all, of the national insurance surcharge, what effect that would have on jobs, and especially what effect that would have on jobs at the present time. Everything depends on the elasticity of demand. Everything depends on whether, if we remitted the national insurance surcharge, the employers kept the money or reduced prices, or made it up in profits, or whether in fact they increased their labour supply. Since we do not know, and since the effect of this would be very significant and the economy would lose something like £3 billion in a full year, it seems to me that now is not the time to spend this money on a total remission of the national insurance surcharge.
I would think that far more could be done in positive job creation by expanding and extending the present job creation programme, and in particular by turning the present job creation programme from a short-term measure into a long-term measure. I hope at another time—indeed when we have a debate in the House next week—to say something about how that should be done. My point about the national insurance surcharge is, yes, of course it is an impost on industry, but whether at this moment the best way to increase employment is to remit the whole of the NIS I have reason to doubt.
Secondly, let me turn to employment protection. It is quite impossible to get some noble Lords in this House and others elsewhere to face the facts about the present employment protection legislation. Of course, just to take a few random facts that the noble Lord, Lord Spens, mentioned, most workers in construction who are dismissed on grounds of redundancy get no redundancy pay at all. They have not been working long enough. Of course, the great majority who get dismissed for redundancy in the construction industry, and indeed in most industries, will be lucky if they get more than three or four weeks' pay. Of course, the employers do not pay the great majority of that because it comes out of the redundancy fund. These things are paid for by general taxation and by general imposts on industry, and they do not affect particular employers, and therefore they should not affect them in not taking on labour.
My Lords, would the noble Lord give way for a moment on that? The redundancy fund 815 pays only 50 per cent. of the sum and it pays it in arrears, so that there is quite a substantial pressure on the wage flow of the employer before he gets half of the redundancy money back.
§ Lord McCarthy
My Lords, I did not say that the employer did not have to pay. I said that in the overwhelming majority of redundancies in the industry which the noble Lord took particularly as an example, no redundancy pay is available. Let me turn to the other aspects of employment protection. There is a wealth of evidence, most of which we put before the House at the time of the Employment Protection Bill, to show that the overwhelming majority of employers do not give employment protection legislation in respect of unfair dismissal, or equal pay, or equal opportunity, or maternity rights, as anything like the most important reason why they do not take people on for work.
In some surveys these things come 23rd; in some surveys 24th; in some surveys 2 per cent. say they are important, and in some surveys 1 per cent, say they are important. In a recent survey produced by the Department of Employment on the impact of employment legislation on small firms—another area which I know is dear to the heart of the noble Lord—it was revealed that 50 per cent. of those interviewed said they had no experience of this employment legislation at all. Only 2 per cent. said that employment legislation was their main difficulty. Only 6 per cent. said it was among their main difficulties. All kinds of other difficulties, including, I must say, the depressed state of the economy were given as the more important reasons for not taking on labour. Most employers most of the time, when asked about it by sample surveys, do not give employment legislation as the reason. Nevertheless, from time to time we have these complaints about the effect of employment legislation on employment.
Now let me say a word about wages councils. If one is to believe that wages councils are a significant cause of unemployment one has to believe that the labour market works in a perfect way. One has to believe that the wage council rate imposes a universally statutory ceiling and floor on the wage system. One has to believe that if one changed that by abolishing the wages councils the elasticity of demand would be such that there would be a relatively immediate increase in employment. One has to believe, in other words, that a relatively small change in price would come about, and that relatively small change in price would bring about an improvement in demand. All the evidence—and there is a considerable amount both from academic surveys and from surveys, I am afraid, conducted by the Department of Employment—goes against that.
We have now abolished a considerable number of wages councils; in jute, cutlery, paper box and so on. Detailed surveys have been done and one thing which is clear is that the employment in those industries after the abolition of wages councils continues to decline at much the same rate as before. Some groups get more pay, some less, and those at the bottom get lower pay than they were getting before. There is no evidence that the abolition of wages councils over 816 the last 10 years or so has had any effect at all on employment levels. All it has done is to make things more difficult for those who previously were getting wages council rates, and those who were getting something less than those rates, because most surveys show that about 20 per cent. of workers in this country in wages council industries do not get the wages council rate because of the shortage of insectors. All it does is ensure that those people slip further down the pay scales to become more and more unemployed.
I do not have time to go into the aspects of the other measures the noble Lord put forward. The fact is that all these suggestions are what might be called supply-side solutions; they are all attempts to argue that there is no general deficiency of demand in this economy, that one does not really need in any way to create the conditions in which more jobs are available and that by operating on the supply side of the labour market, and in particular by doing things that are intended (although I do not believe they will) to cut workers' wages, one will somehow price the country back into full employment. There is no evidence for this and therefore I cannot support the arguments put forward by the noble Lord.
§ 6.42 p.m.
§ Baroness Seear
My Lords, I shall resist the temptation, which is not very strong, to enter into the Punch and Judy show between the noble Lords, Lord McCarthy and Lord Spens.
§ Baroness Seear
It has a very familiar ring to me, my Lords. I seem to have heard somewhat similar arguments advanced in the Select Committee on Unemployment and it is less than exhilarating to hear them rehearsed once again on the Floor of the House.
This afternoon in the Statement we were given another compelling reason why it is necessary to do something, and to do it now, to alleviate the appalling unemployment figures. Although we are told by the official figures that they are below 3 million, we all know that that is an understatement, that there are increasing numbers of people who are unable to find jobs and that in some parts of the country the situation has reached disaster proportions. In one area of Liverpool—I say this with hesitation in the presence of the right reverend Prelate the Bishop of Liverpool. but I think he will confirm it—over 40 per cent. of the people out of work have been out of work for over 12 months. And, when we find that something like 25 per cent. of all the unemployed people in that area are under 20, it is not surprising that we are getting social difficulties there.
I shall concentrate this evening in the short time available on a couple of practical things the Government might do now to deal with this cancer in our midst. We must resist the temptation to do things which would help immediately but would in the long run make the employment position more difficult. It is at the heart of the problem that so much that would help in the short run would make the position worse in the long run. I do not mean that only in terms of checking inflation for its own sake. It would make the unemployment position worse in that people could 817 be put back into employment now, but only at the price of making the chance of sustained near full employment even less likely in the future.
The heart of the unemployment problem lies in the uncompetitiveness of British industry, and, if we accept that, then it is vital to do nothing that would increase that uncompetitiveness. Instead, we must do everything we can to enhance the competitiveness of British industry. That must be the starting point of any action that can be taken. Nevertheless, in doing that we must still find ways of getting people back into employment because the price we are paying—there is not time to go into that now—in a whole variety of ways as a result of this continuing unemployment is something we cannot sustain. I am therefore against any measures which encourage employers to take on more people than they need—to over-man—when so many of our problems in the past arose from over-manning. I do not want us to take that path because along it lies no permanent cure.
I wish to discuss one practical step which the Government could take, and take now, which would quickly make a difference. I do not believe in the cutting of working hours. Already we have reports from the PSI and the Anglo-German Foundation which show that a reduction in working hours does not lead to an increase in jobs. It simply means that the existing people, those left in employment, cope with the work. In other words, the evidence is all against the argument that a reduction in working hours will increase the number of people in employment. What it is more likely to do is to put up unit costs, and that only reduces the competitiveness of British industry.
There is, however, a world of difference between cutting working hours and sharing jobs. Will the Government look at the possibility of the positive encouragement of job-sharing? By that I mean using two people for one job. It would have to be done on a voluntary basis. I realise that at first sight this may sound somewhat fanciful to some of your Lordships, but let us consider certain groups of people to whom this could quickly be applied. There is the obvious group of the young, the school-leavers. What is there to prevent us having two youngsters for each job—sharing the job and sharing the money—and spending part at any rate of the time they are not in employment in further training and education? I know the noble Earl, Lord Ferrers, will tell me that they will not train unless they know there is a job at the end of the training. Time is too short to argue that point, though it can be effectively argued.
If they do not wish to be given training, these young people could continue with their education. The Engineering Employers' Federation told me when I discussed this with them that they needed a larger number of people with the educational ability to adjust quickly to new technology. So many of our youngsters leaving school have not acquired that ability. But, once they are employment-based, then, going from employment into training and education, linking those two together, they will he able to see some connection between what they are being taught and what opportunities there are in the world of work. Then, I believe, the incentive to learn will be there 818 for at least a majority of them. If we could do that, it would at once reduce the number of unemployed youngsters. By definition, if employers would take on two youngsters for every job, that would reduce the number of youngsters kicking their heels and, because they are tired of kicking their heels, kicking other things around the streets.
Then we come to people who are within five years of retirement. It is suggested that there should be a lowering of the pension age. It is a popular idea that people should retire at 60. Instead, why not encourage job-sharing within five years of retirement? Average earnings are now £140 a week—about £7,000 a year—and half of that is £70. For a man who has paid off his mortgage, and whose family is off his hands, to work half time and spend the other half perhaps in some job on the side or on a hobby must be an attractive proposition. Surely that would be far more satisfactory than condemning people at the age of 60 to old-age pension levels of pay, and no job to do in which they have any particular place. On the other hand, the sharing of employment at that age has a great many attractions, in that it is in effect gradual retirement.
My Lords, your Lordships' House is full of people in a state of gradual retirement. I happen to be one of them. It is a very attractive position to be in, and I believe that it is a situation which would appeal to a great many people. If it were done voluntarily, there would be no need for the Government to pay such people anything in addition. The average of £70 a week, which is what the average man working half-time would earn, is not intolerably low.
Similarly, it is a proposition which would appeal to a very considerable number of women, married women in particular; and, for that matter, why not to a certain number of men? This is not the debate in which to raise the point, but we speak of the possibility of younger men sharing domestic chores. There are situations in which the wife is earning more than the husband, and in which if he went on a shared job basis while the wife continued in full-time work, that would suit much better the family budget and the way in which the family runs its affairs.
This would cost extremely little. The Government would not have to supplement it. I suggest that the incentive to carry out such a scheme should be that the employer should not have to pay any national insurance contributions for people who were on a twinning basis and that people who shared jobs should also not have to pay national insurance contributions, but should have their cards franked so that their social security entitlement would be maintained. As I see it, all it would cost the Government would be the forgoing of the national insurance contributions which would be a very small amount compared with what is paid out to an unemployed adult male, where the loss to the Government is in the region of £5,000 a year per person.
I ask the Minister to think very seriously whether there is no way in which a scheme of this kind could be introduced, at least on an experimental basis, in the areas in which unemployment is at its highest, to see how it could work. It would have positive social advantages. It would cost very little and, as I see it, it would be the quickest way to reduce the actual number of human beings wasting in unemployment.
§ 6.53 p.m.
§ Lord Boyd-Carpenter
My Lords, in accordance with the custom of the House I should at this stage declare an interest as chairman of a company which employs a substantial number of workers and which might well stand to benefit from a number of the proposals which are being put forward in the debate. Having said that, I am sure that the House is indebted to the noble Lord, Lord Spens, for raising this immensely important and significant subject, though I part company with him, I am sorry to say, in respect of the phraseology that he has used. His Motion could be construed as suggesting that all employers should be encouraged to increase their workforces. I fear that that must not be so. Certainly there are a number of employers, in particular in the public sector, who are still grossly overmanned and whose competitiveness—if I may pick up the argument of the noble Baroness—is weakened by their overmanning; for example, British Steel or British Airways. However, so far as the private sector is concerned, and some parts of the public sector that are operating reasonably profitably, it must make sense to facilitate the expansion of their labour forces.
I most emphatically agree with the noble Baroness who has just spoken. The type of employment that we want to create must not be of a temporary or artificial nature. It must be proper employment, in work which has a reasonable chance of producing a product for which people are prepared to pay a reasonable price. Simply to put a great deal of public money into work creation schemes, however admirable in the short term their social effect, must, as the noble Baroness so well said, in the long term aggravate the problem of unemployment, which is the biggest social problem of our time.
It is profitable employment that we should make easier for employers to provide. I was in the United States last month, and in a factory there I saw displayed a great notice which I think makes the point better than anything I can say. The notice in that American works read: "Customers make pay day possible". There, in one succinct trans-atlantic sentence, is the real key to this problem.
One comes then to the question of what the Government should do—because it is the Government whom we are urging in this debate to take particular action. I pick up quickly the question of the national insurance employers' surcharge. I agree wholly with the noble Lord, Lord Spens, that it should be drastically reduced. I agree with the noble Lord, Lord McCarthy, that one cannot here and now quantify its effect in stimulating employment. But surely it is elementary that if one wishes to encourage something, in this case employment, it is really nonsense to impose a specific tax on it. It does not answer the case that the noble Lord, Lord Spens, has made to say, "Oh well, we can't assess exactly how much employment you would get". You would undoubtedly get some employment, and surely it is wrong in principle to impose this tax.
Here I should like to say one thing in parenthesis. As some of your Lordshps know, many years ago I was responsible for the national insurance system, and I am bound to say that neither I, nor my immediate predecessors or successors, would have agreed to any Chancellor of the Exchequer imposing by way of 820 revenue tax a surcharge on national insurance contributions. In those days national insurance contributions went to the national insurance fund, and indeed we took a substantial additional subsidy from the Exchequer. I am sorry that some of my successors, in both parties, have allowed Chancellors of the Exchequer to use this particular contribution as a vehicle for taxation.
In a time of high employment it might not be particularly vicious, but in a time of massive unemployment a tax on employment, a tax on the British product which does not fall on its competing foreign one, must be a nonsense. I know that there is a lot of revenue involved, but I say to my noble friend the Minister that it is essential to reduce this particular impost, even if that sacred cow the PSBR is enlarged a little. Undoubtedly the obsession with the PSBR is tied up with the feeling, for which there is much to be said, that it is relevant to inflation. But, my Lords, nothing could be more inflationary than a tax on the labour costs of British industry. To convince oneself that because the PSBR is being kept down by this revenue contribution, one is dealing with inflation, when in fact one is putting up inflation as a result of this impost, is, with all respect to my noble friend, self-defeating.
I should like to make a specific suggestion which would have a dramatic effect upon youth employment. Let us suppose that the Government were to say that on young employees below a certain age the employer's surcharge would be wholly remitted. I believe that that would give a very great stimulus to employers to take on young people coming from school, and the social benefits of that would be enormous.
The only other point that I want to make is the one that the noble Lord, Lord Spens, indicated I would make. It concerns the question of wages councils. The Minister, my noble friend Lord Ferrers, knows that I really asked him two questions about the Government's attitude to the wages councils, and if he will allow me to say so, his replies to the questions were superb examples of masterly ambiguity. The wages councils were set up over 70 years ago, at a time when there were real sweatshops in certain industries and when they were very much needed to protect workers who otherwise would be grossly underpaid. But today, with a substantial level of unemployment benefit as a floor, that is not a serious risk. But what these wages councils do, in the limited number of industries in which they still operate, is to impose a legal floor, which means that an employer cannot take on a worker, who would be willing to be taken on, at a rate below the wages council level.
Of course, the effect of that is particularly vicious on those who are not particularly strong candidates in the labour market—again, the young people and (dare I mention it?) certain of the people in the ethnic minorities—because they tend to come late in the queue in the ideas of many employers as to who they are going to take on; and if you force up by force of law what must be paid to them to a level which may be well above the value they are or could be to their employers, then you are simply dooming them to unnecessary unemployment.
My Lords, if my noble friend cannot indicate that the Government intend to do away with the remaining 821 wages councils altogether—and I suspect he cannot, because certainly at official level the Department of Employment has a great affection for these bodies—then I hope he will try to give to the House a simple reason as to why it is necessary to retain them. At a time when it is desperately important to increase the number of jobs, artificially to peg wages at a specific level again really does not seem to make sense; and if one studies the history one sees that in fact in wages council industries in the last decade they have forced up wages considerably further than the rate of inflation by itself would justify, and they have therefore undoubtedly deprived a certain number of people of jobs which employers could otherwise have given them.
My Lords, we have far too little time in this debate to deal properly with this enormous subject, but I have put to my noble friend two specific suggestions which it seems to me, and I suspect it seems to some of your Lordships, could really help—a reduction of the national insurance surcharge, with perhaps an absolute remission in respect of young workers, and the abolition as speedily as possible of the wages councils, which are now nothing more than an incubus on industry and a handicap to the provision of employment.
§ 7.3 p.m.
§ Lord Roberthall
My Lords, I, too, welcome the initiative taken by the noble Lord, Lord Spens, in discussing various aspects of the most important economic subject of today, that of unemployment. I very much agree with several of his suggestions, which I think one could describe as making the labour market rather more free—and the noble Lord, Lord Boyd-Carpenter, has made the same point. There is no doubt that the labour market is now far too cluttered up with all sorts of difficulties and regulations which are helping to make the whole economy more paralysed than it ought to be at a time when we are moving into a period when we need to be as flexible as we can possibly be.
I must be as brief as possible. I have only two points that I wish to raise. The first is that I agree very much with what a number of speakers have already said, that it is a pity to create, as it were, artificial jobs that spin out the work or to pay workers for not doing anything. The best way to induce employers to provide more work is to see that they get more orders, and to that extent I feel quite strongly, as I said in the debate on the Address, that the Government must alter the stance or the push of their policies away from the present deflationary attitude towards at least some movement in the other direction; for instance, as has already been suggested by both the noble Lords to whom I have referred, the removal of the insurance surcharge. That is the sort of thing that is likely to create genuine work.
This is no place to go into a discussion of the whole matter, but I suggest that those interested in this might read the article by Mr. Maurice Green in today's Daily Telegraph. The Daily Telegraph is the strongest supporter of the Government, and Maurice Green has an impeccable record, both as an economist and as to the colour of his tie, shall I say. I think he goes extremely well into the difference between a general budget-balancing policy and one in a deep recession.
The other suggestion that I want to make is both 822 a current and a long-term one. I touched slightly on this in the debate on the Address, but I think it is important enough to be worth expanding a little. This recession, because it is so deep and because it has gone on so long, besides producing the beneficial effects that we know it has had at least in the private sector, has done a good deal of damage to the economic structure, both in capital formation and, particularly, in the effect on the labour force, because the push on all employers produced by the reduction in aggregate demand has forced them to dispense with labour. Quite often they have tried, wherever they possibly could, to encourage the older people to take early retirement or redundancy pay; but to a very large extent the flow out of the labour force of skilled and experienced people has not been remedied, as it normally is, by the inflow at the other end of the younger people.
Here, I think things like the Youth Opportunities Programme are not constructive enough. When the economy begins to expand again—and we all hope (and some of us are determined about this) that it shall expand—the limit on expansion of employment is created when the economic structure will not support any further expansion of output beyond the point at which it pays for itself. The bottlenecks set in, exports are held back and imports are encouraged. When you come to this point of expansion, if there is a shortage of skilled labour the expansion will be cut off too quickly.
There is also the capital side of it; and, of course, I feel strongly that if there is any money going it ought to be spent on capital formation projects. But on the labour side it seems to me—and I think the noble Lord, Lord McCarthy, who is not in his place, hinted at this—that we want something that will not give people just a little bit of casual experience but will train them properly for the time when they are going to be needed. I feel that if the Government are going to spend money, if they can be induced to spend it at all, it would be a very good thing if they could do it in some way which would encourage employers everywhere to take on apprentices and to pay them, if necessary, the whole cost of the apprenticeship, and to do this for a considerable period.
That would not run into the present difficulties because we know that young people are complaining that what they get now does not help them to get a job later on. We know that some employers are using the people they take on to do more or less unskilled work and that they get rid of people, so you do not gain anything there. But if the money was directed much more to apprenticeships and training schemes, it would give hope and encouragement to those who were given the jobs, but, much more important, it would help to create the economic structure which will be absolutely essential when we come to the expansion period and which, I am afraid, as a result of the recession, is being undermined now.
§ 7.10 p.m.
The Lord Bishop of Liverpool
My Lords, I am somewhat nervous lest these propositions that the noble Lord, Lord Spens, has been suggesting to us put in front of us a belief that employers can do more than lies within their capacity; although I believe that some of the ideas that we have heard, especially those 823 about work sharing which the noble Baroness, Lady Seear, put before us—work sharing by both young people and older people—would help. It was a bold and wise move of the Government to send the Secretary of State for the Environment to come and spend three weeks in Liverpool this late summer and now to have particular responsibility for Merseyside for a further year. We have a powerful and vigorous Secretary of State who is putting repeated challenges to employers; and in a number of situations employers have not responded, often because they feel they are not able to do so.
Let me give an example of one area in which there has been some willing response, just in that area which the noble Lord, Lord Roberthall, has been mentioning about proper training. The Secretary of State challenged the biggest firms in Merseyside to produce between them 3,000 places for training. Let me tell your Lordships that the score at the moment stands at 700. If everything goes very, very well we may reach 1,000. It is a reminder that the actual ability of industry and commerce to respond to such challenges is sometimes limited. And that has been the area in which there has been the most willing response to his different challenges. Let us not put too much hope on what private employers can do without major encouragement, or we may do no more than tinker with the vast problem which many of us believe needs fundamental changes to tackle it.
The present situation is the result of at least five sets of causes: first, structural changes caused by new technology and by changes in the world economy; secondly, social changes such as the role of women; thirdly, individual employers' priorities; fourthly, cyclical recession and, fifthly, Government policies of the day. This Motion focuses only on No. 3 of those five, when, in the face of the other factors, many firms are in a survival struggle. Ignoring structural change will lead us to short-term policies. An upturn in the economy will not necessarily bring more jobs. Industry is slimmer and leaner because it believes it needs to be. It has a good deal of unused capacity against that upturn.
I feel that the noble Lord, Lord Boyd-Carpenter, and others who have spoken are calling upon us to believe that market, efficiently run, will bring back full employment. I believe that to be untrue and to be misleading the country. A sea-change is going on. There are structural changes caused by new technologies and changes in the world economy which mean that the market, as I believe, will not produce full employment or anything like it in the foreseeable future.
For many years of my life, the initials "MCC" had a certain magic to them. I now have the experience of initials crossing from one world to another. Nowadays I have to bow in a different way when the Merseyside County Council tell me something. The Merseyside County Council's sector-by-sector report in May of this year forecast that Merseyside, already at the bottom of the league, is going to have a continuing net job loss of 80,000 further jobs from 1981 to 1986. The point I want to make is that we must face the fact that there is a sea-change in employment patterns and that can be met only by fundamental 824 changes in attitude. I would ask whether the Government and whether every party would not acknowledge that this is the case. Repeatedly, I am told, most politicians behind closed doors believe it but it is not the acceptable thing to say in public. If a Government reduced unemployment in the next five years, say, to 1.5 million, they would be regarded as having achieved marvels. I want to say that it would not be good enough; for reducing unemployment to 1.5 million, relying on the operations of the market, if it were possible, would probably wipe out serious unemployment in the more affluent parts of the country. But it would scarcely alter anything in Northern Ireland, Glasgow, the North-East or Merseyside.
The noble Baroness, Lady Seear, reminded us of some of the massive unemployment in some areas of Merseyside. I was having my first glimpse of the Scarman Report and it reminds us that Leece Street Employment Office, between 1976 and 1980, fluctuated between 17,000 and 18,000 unemployed. Between 1980 and 1981 the figure went up to 21,000. If we come down to 1.5 million nationally, I suppose we might get back to 17,000 or 18,000. It would change very little of what we have been facing and of what the other priority areas face. When people say that 5 per cent. is an acceptable figure that we must get used to in a nation, that means 10 per cent. in Merseyside, 20 per cent. in Kirby and every area like it; and has done for years.
If we could admit that the market will not produce anything like full employment it would lead us not to wring our hands in hopelessness or to bland statements about how pleasant it would be to have endless leisure; it could lead us to a healthy positive debate about how a country could best use the resources of the very large numbers of people that the market will not require. There are genuine jobs, not make-believe jobs, which are crying out to be done in the community. Each unemployed person costs the state at least £4,500 per annum. Those who are lucky enough to have a demanding, high-earning job, should stop wingeing about taxes and be glad to pay more so that the most precious resources of the nation, our people, may be given work which truly needs doing. It is true that such public spending needs a profitable, slimmed-down industry; but we need to stop setting public and private against each other. Industry and commerce also need good standards of health, education, transport and the rule of law. I hope that, as we look at some of the very modest and proper calls that should be made to industry and that responsible industry is trying hard to respond to, we shall not slide away from the much more fundamental debate that we need.
§ 7.18 p.m.
§ Lord Harris of High Cross
My Lords, I join others in congratulating my noble friend Lord Spens in bringing this Motion before us and for moving it so forcefully. I agree with the kind of approach that he adopted. I should like to have said to the noble Lord, Lord McCarthy, that I would join him in deploring the present levels of unemployment if he would join me in deploring the rising trend of unemployment before 1979. What I think is most deplorable about this saga is the extent to which unemployment has been aggravated over a long period of time by politicians of both parties, animated by nothing more 825 lethal than good intentions. It seems to me that diagnosis must start by acknowledging there has been a steeply rising trend in unemployment, along the lines that the right reverend Prelate spoke of, since 1965. If we look back to before 1960, the total unemployment in one year seldom rose above 300,000. After 1965 the average unemployment has never fallen below half a million. Since 1976 it has not fallen in the best year below 1¼ million. Yet the whole of that period was not marked by savage deflation; the whole of that period was marked by unparalleled expansion in budget deficits and monetary aggregates however one measures them. We need not be reminded that the result has been a massive and continuing inflation in labour costs per unit of output.
Labour costs per unit of output doubled first in 17 years from 1950 to 1967; and they doubled again in seven years, 1967 to 1974; and they doubled yet again in only five years, 1975 to 1980. It seems to me that this dismal record should direct our search for remedies away from repeated talk of so-called reflation at which the noble Lord, Lord McCarthy, hinted. Instead we should consider the micro-economic effects of increased labour costs on the demand for labour in the market place.
To assist your Lordships, I offer for your consideration a little more precisely than the noble Lord, Lord Boyd-Carpenter, the following proposition from the textbooks that it is difficult to confute. Other things being equal, fewer people will be employed at a higher than at a lower cost. If the noble Lord, Lord Kaldor, were in his place I would appeal to him for support since his own ingenious if somewhat shortlived selective employment tax sought to revive the demand for labour in manufacturing by the process of reducing its cost. All Government job subsidies work on precisely the same assumption.
It follows that all those well-intentioned policies from both parties over the years which have raised labour costs have inadvertently tended to increase unemployment. Why should we lack the candour, or the courage, to assert that many workers have been priced out of work by the operation of coercive trade unionism, the compulsory wages council mentioned by several noble Lords and costly measures of employment protection?
During the past decade or so the burden of excessive wages has been intensified by rising national insurance and other statutory charges which now add 25 per cent. to the wages bills of the employer.
At the same time, the value of these higher wages has been eroded in the hands of the worker by national insurance and taxation which he starts paying at a marginal rate of 37.75 per cent. on earnings as modest as about one-third of average earnings. The damage to incentives is even worse if we allow that much of this high taxation goes to provide social benefits that are often more enticing than net take-home pay from employment.
A particular example: a married man with two children earning £95 per week from November 1980 would have been £3 a week better off if he had deliberately chosen to be unemployed for six months of the year. That does not allow for the possibility that he might do some work for cash in what is sometimes delicately called the "unobserved economy".
826 The right reverend Prelate had some hard things to say about the market and created the impression that the figures of unemployment were a great immovable, growing mountain of discarded people. I want to put this to him: despite all the distortions and discouragements to which the market has been subjected, it is surely astonishing that beneath this well-advertised figure of 3 million unemployed we have a very lively labour market, a "dynamic" labour market, in the words of the Manpower Services Commission, in which about half a million new jobs are taken up each month, and in which the Manpower Services Commission estimated that in 1980 there were 7 million changes of jobs in that 12 months.
Unlike my former noble friend the noble Lord, Lord Roberthall, I remain a medium-term optimist. I believe that in the longer run there are improvements in productivity, which companies are already achieving in this severe recession, that will enable the rise in real wages to be resumed without this haunting risk we have faced of pricing our people out of their jobs. Meanwhile if we are truly concerned with hastening the decline in the unemployment figures, it is crucial that wages and salaries are held back—that is to say, held down—not least so that profits can be rebuilt as the only sure guarantee of expanding future jobs.
But more immediately we are faced with less alluring choices. I believe that the most promising positive steps would be to combine a cut in taxes on earnings with a freeing of impediments in both the labour and housing markets. A radical approach would include not only reducing trade union privileges on the lines now proposed by the Government, but the repeal of wages councils, where I follow other noble Lords, and the misnamed "employment protection". I would go further, at the same time I would start moving to phase out rent restriction and council house tenantry as two of the most damaging obstacles to the mobility of labour.
I agree with the noble Lord, Lord Boyd-Carpenter, who said that so long as social benefits stand above the net earnings of so many families in jobs it is no longer plausible to argue that minimum statutory wage protection remains necessary to keep workers out of indigent penury. Above all, I think that the reduction in Government spending still holds the key to cutting rates and taxes which I believe would do more than any other single measure—in the words of the Motion—to encourage employers to expand their workforces";and, I would add, to encourage employees to expand their own efforts to price themselves back into work.
§ 7.27 p.m.
§ Viscount Massereene and Ferrard
My Lords, I should like to add my thanks to the noble Lord, Lord Spens, for putting down this debate. I also ought to declare an interest as a small private employer. One aspect that has not been broached in this debate is high interest rates. In order to start or to expand a business the average employer has to go to a bank for money, unless he has a lot of cash in the bank, which is rather rare these days and, with inflation, is foolish. People wanting to start businesses or to expand business, if they are viable, ought to be able to borrow 827 money at a lower interest rate than at present prevails. If money has to be borrowed at 18 per cent. or 20 per cent. it is very difficult to expand a business.
I agree that in the old days monetary supply was controlled completely by high interest rates. That situation does not apply today. After all, public expenditure is over 60 per cent. of the gross national product, and therefore high interest rates do not really control the economy as they used to do. I should like to make that plea for small businessmen who wish to expand their business or for someone responsible who wishes to start a business. They ought to have access to cheaper money.
A point which has been raised by the noble Lord, Lord Spens, concerns the Protection of Employment Act. It is important, but perhaps is not quite so important as has been made out in the penalisation of employers. Of course it is important, but why chiefly I object to it is that it is a complete reversal of British law. The employer is adjudged guilty before he is proved not guilty. The employee may perhaps have been drunk and been an extremely bad employee: the employer gets rid of him and then the employee is able to go to an industrial tribunal. Provided that the employer can prove that the employee has been a bad employee, he will be found not guilty; but I think it is extremely wrong that he should be adjudged guilty before he can prove his innocence.
I am glad to see the noble Lord, Lord McCarthy, is in his place, because the other thing I should like to draw attention to concerns the wages councils. I have often wondered whether people on those councils have ever paid wages out of their own pockets, because the noble Lord, Lord McCarthy, if I understood him aright, appeared to think that very high wages had no effect on the economy. He thought it did not actually make us non-productive; but, as I said during the debate on the Queen's Speech—and I hate repeating myself—between 1970 and 1980 wages increased by nearly 400 per cent. and productivity by barely 15 per cent.—so of course high wages affect productivity and also, therefore, our competitiveness. I think that my noble friend Lord Boyd-Carpenter had something to say about wages councils. I am just trying to remember what it was: it was very good—
§ Viscount Massereene and Ferrard
My Lords, my noble friend said that we ought to abolish wages councils. I quite agree with that, because the point is that there is no fear of sweated labour today, with the welfare state. I have actually met employees who have said to me: "We are quite prepared to take less, but of course the employer cannot give less under the law". If you abolished wages councils, you could have more inspectors who could go round and see whether there were employees who were taking lower wages than has been laid down and whether they were doing it completely of their own accord, and that the employer was not taking advantage of them.
The other thing I should like to say is that I support my noble friend Lord Boyd-Carpenter 100 per cent. regarding the national insurance surcharge. It is a great 828 drag on industry. I also think that my noble friend's suggestion that there should be no national insurance surcharge for employment below a certain age is a good one. I do not know what the age would be; I do not really know when a youth becomes a man, but I think the law lays down that an adult wage must be paid from 20 years old: I think that is right. I believe that would be a great help, because youth employment is the most important factor and has the greatest effect on the whole of unemployment. While I welcome what the Government have done regarding the youth opportunity schemes, anything else that can be done to alleviate youth unemployment will be of immense benefit socially.
I was rather surprised to hear the right reverend Prelate the Bishop of Liverpool say that we ought to take unemployment down instantly to one and half million: of course that is quite impossible. You can only do that by borrowing more or printing more money. As I pointed out in the debate on the Queen's Speech, between 1974 and 1979 the then Government borrowed or printed more money than had been borrowed by all British Governments in the last 200 years. We cannot go on like that. You cannot borrow money to create artificial employment: it is the road to perdition: it is the way of the Gadarene swine; and it is crazy economics.
My Lords, I have almost come to the end of my time limit, but I should just like to say that I favour the idea of lowering the pension age. It has been suggested in this House on previous occasions. It will cost the welfare state more money, but it would be a good idea. I should like, if I may, also to refer to job-sharing, which I have referred to once or twice before. I think it is a sound suggestion for older people, and perhaps for the young also, but it is of course quite difficult too organise. For example, obviously both people could not be paid full wages. One cannot pay two men full wages for doing the one job, but, if it could be organised in some reasonable way, it would be helpful.
I do not want to say very much more, except to reiterate that I should like the Government to do everything they possibly can, as they are doing, to help youth employment, since it is so important for social reasons.
§ 7.37 p.m.
§ Lord Reilly
My Lords, I am grateful to my noble friend Lord Spens for suggesting that I might take part in this debate, for it gives me an opportunity to air for six minutes just two topics; namely, design and craftsmanship. The role and status of design in British industry are to my mind subjects which deserve a debate to themselves, but I think design is also relevant to the Motion before us this evening. Surely the most important question facing British industry is what to make—not how much, how cheaply or how quickly, but simply what?—and that cannot properly be answered without the designer. So pursuing the plea of the noble Lord, Lord Spens, for positive steps, I would urge the Government to do all in their power to stimulate and enhance design in British industry through better education of designers and manufacturers alike, through intelligent promotion and propaganda and, most effectively of all perhaps, through 829 deliberate, discriminating patronage, though there is surely no excuse whatsoever for public money, whether central or local, to be spent on any but the highest available standards of design, provided the price is right. On that point, let us not forget the old saying that, "Good design is always cheap at the price".
In any event, is it not time that we began shedding our "lowest tender" mentalities? If it were to become known throughout British industry that the public purse, the biggest purchaser and the biggest customer of all, would not only demand the best but would also eagerly buy British whenever British was the best, I believe (as does this week's Economist) that our standards would soon rise, to the exclusion of much foreign competition; and in our craft-based industries the new business thus generated or diverted from imports would certainly encourage employers to expand their workforces. I heard a manufacturer of some excellent British furniture say in the Design Centre only last week: "In my company we are very proud of our technology, for our technology is people". It is surely in such labour-intensive areas that work forces can most sensibly be expanded.
May I now turn to the most labour-intensive area of all—that of the craftsman? Here successive Governments have had a reasonably good record, following the lead given by the noble Viscount, Lord Eccles, when he was Minister for the Arts. But I still doubt whether it is widely enough recognised in official circles what a success story attaches to the internationally acclaimed work of our Crafts Council, of which I was proud to be a member until released last month. It has been a success story in terms not only of skill and vision but also of turnover and employment. It has been a wise and imaginative investment of public money and, to my mind, an investment which should be increased, since the Crafts Council maintenance grant of just over £33 a week enables its recipient both to create new artefacts and to earn an income, rather than to join a dole queue at a still higher cost to the state.
Once established via a Crafts Council grant, most such carefully chosen craftsmen develop into small businesses employing three, four or even 10 skilled apprentices while several such master craftsmen have actually opened small factories. The numbers so benefiting are, of course, still very small—indeed, the total employment of creative craftsmen is only a drop in the ocean of unemployment—but a caring Government counts persons as well as people.
There is one other area of labour intensity that no Government can afford to overlook; namely, those crafts associated with the building trades. Here also the Crafts Council is active, having recently set up the first national register of conservation skills in the building industry—an activity which should well complement the Building Conservation Trust at Hampton Court, in which I must declare an interest as its chairman, while thanking two Members of your Lordships' House, the noble Lords, Lord Kennet and Lord Sandford, for serving as joint honorary treasurers.
This is not the occasion for marshalling the many social, political and economic arguments for building conservation. All I would say, in the context of the Motion of the noble Lord, Lord Spens, is that conservation can be done only by hand. It is, therefore, 830 an ideal area in which to take positive steps to encourage workforce expansion, without running into the danger or folly of over-manning.
§ 7.44 p.m.
§ Lord Glenarthur
My Lords, I, too, should like to thank the noble Lord, Lord Spens, for providing the opportunity to discuss employment in this way this evening. Charges are sometimes made against the Government that they are uncaring in their attitude towards the number of unemployed. It seems only too clear and logical to me, however, and, I am sure, to others in your Lordships' House, that there can be little validity whatever in this view. In national, economic and even party terms, it is, of course, tragic to have unemployment on the scale which, sadly, exists today, unless, as is the case, it is the temporary, unfortunate side effect of a policy that is designed ultimately to increase industrial output, improve competitiveness in world markets, stimulate more orders and lead to the expansion that is necessary to achieve them, and hence to more jobs.
The broad thrust of the noble Lord's argument in proposing his Motion was directed towards the ways in which existing bodies might be encouraged to take on more employees. He and other noble Lords have suggested ways in which the Government might further stimulate opportunities in this direction. I agree with many of them, but I should like to develop the theme in a slightly different way, directed more towards opportunities for employment which could be created by increased numbers of businesses.
One of the considerable advantages to industry of the Government's policies over the last two and a half years, coupled to some extent with the effects of the recession, has been the opportunity given to businesses to shed their manpower excesses. It has left them with an increased level of productivity per employee, and on the whole, industry is leaner and more competitive because of it. The disadvantages of carrying unproductive manpower in any organisation are enormous and obvious. Coupled with this, the Government have introduced, and are developing, a string of measures designed to assist small firms both to start up and to develop. Indeed, I have here a list of some 73 different measures designed specifically to assist the development of small firms and hence to increase employment.
In starting any new business, there are two significant elements which the entrepreneur must consider. One is personal financial risk and the difficulties of persuading others to share the financial risk. To a very great extent, the Government have acknowledged and mitigated the effects of this with their introduction in June this year of the loan guarantee scheme. I am particularly glad to see that this scheme has been so widely taken up.
I understand that the value of guarantees available has been raised recently from £50 million to £100 million, that over half the guarantees have gone to firms in the manufacturing sector and that a total of 1,172 guarantees, representing £41 million, were issued up to 31st October. My guess is that there will continue to be a considerable run on this scheme. I hope that my noble friend who is to reply may be able to indicate that the Government would consider a further 831 extension of it, should the demand continue, and that he might also be able to say whether a reduction in the Government's 3 per cent. premium could have a beneficial effect on the number of applications made under the scheme.
There is, I believe, a vast amount of enterprise and talent, a host of good ideas and the enthusiasm to develop them available within the country. The loan guarantee scheme has helped the entrepreneur enormously, by lessening the financial risks which pursuing his good idea entails and, in turn, has led to increased opportunities of employment. But there is another element, and that is in the acquisition of the financial skills which are necessary to put the good ideas into practice. After all, the success of any commercial enterprise boils down, in the end, to management of finance. Abundance of skills and ideas there may be, but the people with them do not, in many cases, possess the financial skills which are needed to implement them.
I should like to suggest that the Government develop their magnificent theme of encouragement further in this area. I should like them to consider introducing a scheme to help the entrepreneur obtain advice and limited training as to how to arrange the financial aspects of his projects, on topics such as financial modelling, sensitivity analysis and all the other measures which should be used to test the continuing financial integrity of a project. I believe that this could be done through special financial advice bureaux, not unlike Citizens' Advice Bureaux, in selected parts of the country, where the prime mover could obtain advice and training on how to organise the finance of what he wanted to do.
I believe that this could be financed by the Government, or by the agency which gives the advice, taking a slice of the action—5 or 10 per cent. of the profits of the project over a negotiated period. Additionally, the Government might consider sub-contracting a scheme such as this to existing centres of financial expertise, such as the ICFC. But the important point is that the scheme must, in the end, finance itself; the Government, directly or indirectly, recovering their costs over a period of time through the success of the business which they have advised. The Government have done much to help the entrepreneur set up new business and to mitigate the risks the individual takes in doing so. It would be impossible, if not wrong, to remove all the risk. Anyway, an element of risk is a considerable incentive to success. I hope that this suggestion in relation to financial advice might be considered sympathetically as a useful addition to the provision of other counselling services which are designed to help start-ups and prevent failures.
§ 7.51 p.m.
§ Lord Kilmarnock
My Lords, we are all agreed that we should be grateful to the noble Lord, Lord Spens, for having introduced this Motion. We all know the noble Lord's interest—I was going to say passionate interest—in the subject. Certainly he was one of the prime movers in the setting up of your Lordships' own Select Committee on Employment. We are very grateful to him for having introduced the topic this evening.
832 The noble Lord set out a number of proposals which were designed to encourage employers to increase their labour force. The party of those of us who sit on this Bench also put forward six proposals. They were put forward by Mr. Roy Jenkins in the Warrington by-election campaign and I outlined them in some detail to your Lordships during the debate on the gracious Speech, so I will not go through all that again. However, there is one aspect of those proposals which I should like to take up because it was not mentioned by the noble Lord, Lord Spens, though I am delighted that it was touched on by the noble Lord, Lord Reilly, when he referred to the building trades in relation to conservation. I want to go a little wider than that and have a brief look at the whole of the construction industry, where again my right honourable friend Mr. Jenkins made some positive proposals at Warrington.
Everybody knows that the construction industry is labour intensive. I think it is calculated that something like 300,000 building workers are on the dole. At the same time, our national housing situation is deteriorating to a quite alarming degree. The total expenditure on housing fell from £6,072 million in 1975–76 to £4,256 million in 1980–81. The number of flats and houses—dwellings on one, two or more floors—in Great Britain which are now unfit, lacking in basic amenities, or in need of substantial repair was recently estimated by Shelter at 3,300,000 dwellings. Our suggestion is that those receiving unemployment or supplementary benefit should be given the opportunity of working in this field at, say, an additional £15 or £20 a week above their benefit levels. The initial cost to Government would be simply this additional sum and there would be a direct and indirect tax feedback. Social, community and individual needs would be served at no vast cost. Mr. Jenkins estimated the cost of getting 250,000 people back to work at no more than £250 million in a given year, which is a very great deal cheaper than most job creation schemes and would also go a long way towards providing us with the habitable dwellings that we so desperately need.
Here I should like to advance for the second time (I apologise for the fact that it is the second time I mention it; I mentioned it on 12th November in the economic debate) my own variant of this scheme. I should say that it is not yet party policy, even in draft form, so I am not committing anybody but myself to it. However, I cannot for the life of me see why this modest sum, at whatever level it is agreed on, whether at £15 or £20 a week, should not be available to unemployed people wishing to improve their own homes, whether rented or owned, if it could be shown that the dwelling lacked amenities or was in need of substantial repair. We are, after all, a nation of handymen now, with a few regrettable exceptions such as myself, and "do it yourself" flourishes, or was flourishing when people could afford the tools and materials to get on with the job. A grant for the materials would also be necessary, of course, but the cost to local authorities would be greatly less than was the case with improvement grants, now mostly abandoned, because the labour element would be provided. The noble Lord, Lord Spens, spoke about stimulating employers to expand their workforces. I am talking about stimulating self-employment at no great cost and with great benefit not only to the housing 833 stock but to builders merchants, tool manufacturers and various other branches of manufacturing industry.
I come now to my final and more general point. The noble Lord, Lord Spens, has concentrated on measures to encourage employers to take on more labour. But we are facing a crisis in demand. This was the main burden of the remarks made by the noble Lord, Lord McCarthy. There is no employer in the world, with or without subsidy, who is going to increase his labour force on any considerable scale if he can see no outlet for his product or service. The noble Lord, Lord Boyd-Carpenter, referred to "profitable employment". He also gave us the neat little phrase, "It is the customers who make pay-day possible". The present Government have attempted to create an atmosphere in which enterprise and initiative can flourish—it was the noble Lord, Lord Glenarthur, who made the orthodox case for this—in the hope that this will revitalise the whole economy and engender new employment. I think (one has to say more in sorrow than in anger) that this has failed. Despite the flickering dials of some economic indicators, there is really no strong sign of a spontaneous revival of economic activity. The trickle-down theory, according to which butter and jam spread lavishly at the top will seep down and lubricate every level of the economy, is coming increasingly under fire, even in that bastion of enterprise, the United States. Mr. Stockman blew the gaff on that the other day.
The recession is widely blamed, but this is simply the best scapegoat we ever had, for the recession is not God-given but man-made and could, with patience and determination, be reversed. The noble Baroness, Lady Seear, talked quite rightly about competitiveness, but if world trade is throttled owing to the strangulation of third world economies by their burden of debt to us and to the institutions we have set up, there will be no net growth of export opportunities, and such as there are will be gobbled up by countries only too eager to work in the sweated labour market. My view is that it looks, sadly, as if the West, despite a discernible shift in the position of our own Government, missed an important opportunity at Cancun. If wealth is not constantly redistributed, it chokes itself.
And what is true on the international scene is no less true on the domestic scene. Perhaps it is even more true. How can employers be expected to increase their workforces to any significant extent with present prospects? The production-consumption balance is out of joint and this imbalance will not be helped by the real cuts we are promised, and which we on this Bench will resist, in social security benefits. The Government say, "Let industry improve its performance and then we will spread the jam more widely". The opposite must also take place. Only a wide and fair distribution of wealth, not least to those who are sick or out of work through no fault of their own, can prime the pump of demand.
Here I am afraid that with some trepidation I take issue with the noble Lord, Lord Harris of High Cross, who is an expert. I do not go along with the general burden of his remarks on social security payments. I noted that he also referred to the noble Lord, Lord Kaldor. This morning, re-reading the debate of 12th November, I picked out from the speech made by the noble Lord, Lord Kaldor, the following quotation: 834our neighbours who have been so much more successful … 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".—[Official Report; col. 359.]Any Government that neglect or belittle social policy these days or treat it reluctantly as charity are in for very big economic trouble.
I hope I have not strayed too far from the mark. My point is that, though I respect the concern expressed by the noble Lord, Lord Spens, and would agree with him on one or two of his suggestions, notably that on the national insurance surcharge, I cannot, frankly, see employers flocking in their thousands to embrace them unless they also see a reasonable chance of selling what they make or the services they provide. In the meantime, I submit that the modest proposals for the construction industry which I have made are an uncostly step in the right direction while, as we must, we come to grips with these wider issues.
§ 8 p.m.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers)
My Lords, the House will be grateful to the noble Lord, Lord Spens, for giving your Lordships the opportunity of discussing a matter which is of great concern not only to all of your Lordships but also to every man, woman and child in the country. Unemployment is a real anxiety and it is a personal tragedy. The fact that we have been able to have a debate today which has been totally devoid of partisanship, and which has been wholly constructive, I think is a cause for great satisfaction, and I can assure your Lordships that what has been said today will be studied with very great care.
Unemployment itself not only causes financial hardship to people but, worse than that, it eats at a person's pride and self-respect and for those reasons, if none other—and there are plenty—the Government would wish to see unemployment lowered. There is no denying the serious nature of the problem of unemployment itself, as yesterday's figures have reminded us. It is a waste of the nation's resources and it is a waste of men and women.
If I may say so, I thought the right reverend Prelate the Bishop of Liverpool in a most graphic manner brought to the debate a realisation of the problems which affect Merseyside. I approve of all his diagnosis of the reasons for their coming about, other than when he came to the fifth reason, when he said that inflation or recession was the fault of the Government, but I shall come to that a little later. He said that there was a sea change going on. I think there is, but I would take issue with him on one thing. I hope, but of course it is only conjecture, that his prognosis that there will always be a perpetual level of unemployment will not prove to be right. It is rather like when people say that because we are entering the era of the computer we must always expect unemployment. If we take that attitude we are saying that this generation of all generations has come to the end of the frontiers of science and knowledge and therefore we shall not be able to progress. I should not be able to accept that.
But, my Lords, as we try to overcome this problem 835 we must recognise it for what it is. It is a symptom of a far deeper problem which faces not only us but practically every other western country. The recession and unemployment is the outward manifestation of the worst recession which has hit the world in the last 50 years. The noble Lord, Lord Kilmarnock, said that it was all our fault. Well, maybe it is our fault, but nobody succeeds—
§ Lord Kilmarnock
My Lords, I did not say it was all our fault: all I said was that it was man-made and not God-given.
Well, my Lords, that seems to me to be rather similar. However, I will accept that and, even if it is man-made, it is man's business to try to overcome it; and that is not a very easy task. That is the background which we have to accept, whether we like it or not—and we do not—before we consider what effect our own peculiar national circumstances may have in contributing to the problem.
We are not alone in suffering from unemployment; other countries in the world are also affected. The continuing world recession has raised unemployment levels, for instance, in France to 2 million, so that unemployment there stands now at 10.6 per cent. Unemployment in Germany rose by 100,000 last month alone. Belgium has an unemployment rate of nearly 15 per cent. So we are not alone in these difficulties. In a number of industrialised countries unemployment is now rising even more quickly than it is here. Although there are 10 million people unemployed in the European Community as a whole, the fact is that we have a higher percentage of our population in employment in this country than any other member state in the European Community except Denmark. These high levels of unemployment in our partners in the Community are a cause of great concern to us as well because we have to trade with those countries, as they do with us. The international recession itself, therefore, delays our own recovery. If that is so, it merely emphasises the vital importance of our being able to get ourselves into a competitive position as we come out of the recession.
The recession comes on top of the underlying problems from which we in the United Kingdom have suffered and which, at least up to now, have left us in a worse position than our competitors. I agreed so much with the noble Baroness, Lady Seear, when she said that the heart of the problem is uncompetitiveness. I agree; I think she is right. The hard facts are that for 20 years or more we as a country have been falling behind in competitiveness as wages have outstripped production and as we have failed to modernise and make our industry more efficient.
The noble Lord, Lord McCarthy, said that if you cut wages you will not necessarily price yourself into employment. That may be so, but the converse is that if wages and costs rise, you price yourself out of employment. The results of this period of 20 years have been inflation and lost markets and ever-increasing unemployment. But if one looks at the effect on wages and output over the last three years for which one has full figures, the figures themselves tell a horrifying story.
836 Between 1977 and 1980 the average hourly rate of pay went up in West Germany by 17 per cent., in Japan by 23 per cent., in the United States by 27 per cent., in France by 46 per cent., and in the United Kingdom by 59 per cent. If one looks at the other side of the coin—the average output per hour over the same period—in West Germany the average output went up by 6 per cent., in the United States it went up by 6 per cent., in France it went up by 14 per cent., in Japan it went up by 23 per cent. and in the United Kingdom it went up by 1 per cent. So, my Lords, we have been top of the list for paying ourselves more and bottom of the list for producing more.
No one can say that those facts, which we as a country have imposed upon ourselves, irrespective of the existence or otherwise of any worldwide recession, have not made their own contribution to unemployment. Management and unions must share the responsibility for that because usually in collective bargaining it is they who are responsible for what is demanded and for what is offered and for what is finally agreed. No one can divest himself of the responsibility for a state of affairs to which he has contributed. We all have to accept responsibility for our actions. The result is that we have delayed too long in making changes which our competitors have taken for granted. An unwillingness to take tough decisions and the difficulties of overcoming entrenched attitudes and restrictive practices have led to overmanning, uncompetitive prices and failure to adapt to the needs and the requirements of the market. The truth is that employment can only be sustained if the goods and services which are produced can be sold in the market.
The Government cannot halt the recession. If we tried to mask inflation by relaxing fiscal controls, it might have short-term attractions and short-term effects but it would throw the economy into even worse confusion and make inflation even greater. What we can do, and what we are doing, is to create conditions in which employers and workers can themselves, by their own efforts, make existing jobs secure and try to create the new jobs which we need. Only industry—not Government—can do this. Government can set the guidelines but it is only industry—the men and women involved—who can take the initiative and create the opportunities.
The main instrument by which the Government can help is through our fiscal and monetary policies, which set the framework for holding down public spending and inflation. We can trade only by being competitive. We can be competitive only by keeping prices down. Inflation runs counter to all this. It makes people lose confidence in the present and in the future. It undermines stability and it undermines investment; and it is upon investment that the future is determined, and it is by investment that jobs are created. That is the reason the Government see the attack on inflation as one of the highest priorities, irrespective of the unpleasantness of the methods by which this has to come about. We cannot control unemployment without controlling inflation. The short-term attraction of relaxing our grip on inflation would only lead to greater and cumulative long-term problems. This means that inevitably we are strictly limited in the other measures which we can operate, 837 however attractive they may appear, because they can only add to costs which are already too high.
Nevertheless, we are doing a great deal to encourage the economy by removing unnecessary barriers and by giving incentives to change. In particular, we have a wide range of measures to help the new small firms which will provide future jobs. We have reduced bureaucracy and we have encouraged the flow of new finance, particularly to small firms, and we are encouraging new technology. I was glad that my noble friend Lord Glenarthur referred to what the Government have done for small businesses, because he spoke, if I may say so, in a most constructive and informed way, and I will certainly see that the suggestions which he has made for the further encouragement of small businesses are taken into account.
We are encouraging private enterprise to take over from the state. But above all, our aid to industry is designed to stimulate investment and efficiency, because a sound industrial base is essential to achieve economic growth and a real increase in jobs. Your Lordships have made several suggestions as to how this should be done. The noble Lord, Lord Spens, and the noble Lord, Lord Boyd-Carpenter, said that they wished to see the national insurance surcharge removed. I fully realise the strength of feeling in some quarters in favour of reductions. My noble friend Lord Boyd-Carpenter said that if you want to encourage employment you do not tax it; he would not have done it 20 years ago. I accept that, but of course things have changed in 20 years and we have a level of inflation, and regrettably of recession, which we did not have 20 years ago. But the other side of that argument is, that although one does not want to tax employment, if wages are a high cost it may be that the national insurance surcharge can be a way of encouraging competitiveness, because it is a cost and not a tax on profits. Of course I accept that £3.8 billion comes from this tax this year, and it certainly remains a possible candidate for reduction if the resources are available, but the scope for tax measures is very much dependent upon public spending decisions.
§ Lord Boyd-Carpenter
My Lords, would the noble Earl allow me to intervene? He said, so rightly, that this surcharge was a cost, but does he appreciate that it is a cost not borne by our foreign competitors?
My Lords, that may be perfectly true, but what I am telling my noble friend is that nevertheless it does produce a vast sum of money, and if that sum of money has to be produced from elsewhere one has to shift the burden of tax. That may be possible; it may be desirable. Certainly my noble friend's suggestions will not go unheeded.
The noble Lord, Lord Spens, said that he would like to see alterations in the employment protection legislation. Well, the Government are conscious that the employment protection legislation has been inhibiting employers, and particularly the smaller employer, from recruiting. We have made a number of amendments to these provisions which have been specifically designed to ease the position of employers and to encourage them to expand, and so progress has been made there.
Then the noble Lord, Lord Spens, referred to wages 838 councils. He said he was not going to say much because he knew that my noble friend Lord Boyd-Carpenter was going to refer to that matter. I could not help but be amused when my noble friend Lord Massereene said he could not remember what Lord Boyd-Carpenter had said, because I thought what he had said was most trenchant. What he said was that he wanted wages councils to be abolished. He did refer to the fact that he had put down a couple of Parliamentary Questions to which I had the privilege of replying. I am not certain whether it was a compliment or a cause of displeasure, but he said my replies were "masterly ambiguity". I thought he really meant that they were a source of total clarity but they did not happen to agree with what the noble Lord was saying.
§ Lord Boyd-Carpenter
My Lords, if my noble friend will allow me, he has very nearly got it right. What I was really trying to suggest was that the noble Earl, with his habitual ability, was making the best possible defence of the wholly indefensible.
My Lords, that, if I may say so, is totally different, and it could very well even be true. I would say this to my noble friend, that there is a case which can be made—and the noble Lord, Lord Spens, did make it the other day at Question Time, and my noble friend Lord Boyd-Carpenter has made it before—for abolishing the wages councils. If you did that you would of course lower the rates which they set. If you lower the rates which they set, the inference is that more people will be employed. The danger of that is that there could be pressures on those people who are already employed, who would have the wages council rate fixing removed, to do the same work for less money. That may be desirable—it may be; I am not saying it is. The reason why the wages councils were set up in the first place was to stop just that. The only places where they are kept are where there is no other system of collective bargaining, and in places where the people involved are fairly diverse; they are also the lower forms of income group. Few of the adult rates exceed £58 per week, and that should be seen in the context of national average weekly earnings of £140 for men and £91 for women. They do refer to those who are at the lower end of the wage scale.
All I would say, as I said the other day to Lord Spens, is that there is an argument both ways, and the Government are not at present convinced that the argument for the abolition of wages councils is greater than the argument for their retention. There are at the moment very few wages councils in practice; they have been reduced a very great deal.
The noble Lord, Lord Spens, said that he wanted to see local authorities spend a 4p rate and not a 2p rate. Section 137 of the Local Government Act 1972 provides that a local authority may spend up to the product of a rate of 2p in any financial year for purposes which, in their opinion, are in the interests of their area or any part of it or all or some of its inhabitants. It does not exist to enable money to be spent by an authority where other statutory powers already exist. Apart from this restriction the power is a discretionary one, and it is up to each local authority to decide for 839 itself how to use its power, subject of course to the need to justify its actions to the district auditor. The Government have no power to intervene in those decisions.
My Lords, in what, if I may say so, was a most interesting speech, the noble Baroness, Lady Seear, referred particularly to job sharing. I welcome the recognition that in general any action which is taken should not remove our competitive ability. The noble Baroness suggested that the sharing of jobs could provide a helpful way of reducing unemployment. It is certainly an interesting idea and I have no doubt that for some groups, such as young people, it could be useful. There are already examples of firms—and I think that GEC is one of them—which have taken on young people in this very way. It might also appeal to other workers who are near retirement, but I rather fancy that there may be problems over pension rights if that happens. However, there may be the possibility of those people being able to share work and where this can be done voluntarily and those involved are ready and prepared to live on lower wages it could prove attractive.
We should have to be very careful about waiving national insurance contributions in such cases given the public expenditure costs involved. I think that there must be some doubts about the scale of the potential for these arrangements. The Government's programme of special employment measures is kept under review and I assure your Lordships that this and any other suggestions from the Select Committee will be most carefully considered.
The noble Lord, Lord Roberthall, suggested that more money should be spent on apprenticeships. We are already providing £9.6 million in 1981–82 and £11 million in 1982–83. This will bring the total support to industry's long-term training needs in the current year to about £50 million. It would be wrong if we were to manoeuvre ourselves into taking steps which would damage our chances of recovery. It is absolutely vital to secure a future reduction in wage costs and inflation, which have shown a marked reduction over the last year. It is a long haul, but the encouraging signs cannot he denied. Unit wage costs have stabilised after the steep rises of the last few years. Manufacturing output rose by 1.5 per cent. in the third quarter of this year. Short-time working has fallen and overtime has increased. Unemployment has gone down marginally over the last two months, but I would make no great case over that—I merely state the fact. How soon real recovery comes will be bound to depend on world economic conditions. And unemployment will not come down properly until that recovery is established.
Of course, we should all like to see more jobs created now. But we need to have permanent viable jobs sustained by profits. There is no point in encouraging employers to take on workers whom they do not need. This merely adds to their costs and makes them uncompetitive. We must not, for sympathetic reasons, permit a return to overmanning and low productivity.
The startling fact is that by and large those countries who have adopted new technologies in the past and who have the most robots in their factories are the countries which have the lowest levels of unemployment. 840 Why?—because they are competitive. That makes their goods required and when their goods are required that creates employment. The way to create the permanent, viable jobs which we need is not simply to encourage employers to take on more workers now, but rather to help them become more efficient, to help create the opportunities for profitable expansion and the opportunities for new businesses as recovery develops.
My noble friend Lord Massereene and Ferrard virtually clouted the right reverend Prelate the Bishop of Liverpool verbally for suggesting that he would like to see unemployment down to 1½ million. I thought that that was a very acceptable suggestion. Then my noble friend Lord Massereene and Ferrard went on to say that he would like to see interest rates lower. The very factors for which he was castigating the right reverend Prelate apply to his own arguments. Of course, everyone would like to see lower interest rates, but once you do that you then run into other fiscal problems. There must be a balance. While we need to make our industries more competitive, we also need to help, so far as we can, those who are worse affected by the ravages of recession, and to do so in a way which will better enable industry to exploit economic recovery. Training for both young people and adults is a high priority among our measures to encourage industry to become more competitive. The response to the Manpower Services Commission's consultative document A New Training Initiative indicated that there is considerable support for the objectives.
The noble Lord, Lord Spens, in his Motion calls on the Government to take positive steps. The noble Lord, Lord McCarthy, said that the Government always say that they are not responsible for unemployment or inflation and can do nothing about it. The Government can do things about it. I have explained some of the things that they have done. I shall also explain what we have done in the positive steps that we have taken, because they are positive. We have initiated the Business Start-up Scheme, to which my noble friend Lord Glenarthur so correctly referred, to encourage small businesses. That is only one, as he rightly said, of over 70 measures which the Government have taken since May 1979 to help small businesses. We started the Community Enterprise Programme for the long-term unemployed. That is taking £99 million of Government money this year. Then there is the Job Release Scheme to help people retire early in order to make way for the unemployed. That is costing £167 million this year. There is the Youth Opportunities Programme for the young unemployed, costing £414 million this year. On 4th January we are starting the Young Workers' Scheme which is expected to cost £60 million in the next financial year. There are other schemes too. So when the noble Lord, Lord McCarthy, says that the Government say that they cannot do anything about it, all I would tell your Lordships is that we shall be spending even more next year, a total of no less than £1.5 thousand million on these and other measures.
The Government are doing a great deal to help through temporary measures of support. But the long-term answer can only be to restore a sound economy which will give real and viable jobs—jobs which are there because the goods are wanted; jobs which are there because the goods are good; jobs which are 841 there because the goods are available at the right time, at the right place and at the right price; and jobs which are there because the companies are successful and profitable. That is not political dogma: it is sheer basic commercial common sense. We have seen our competitors overtake us and take over our markets. It is this which we have to reverse. This commercial competitiveness is fundamental to the success of any company and fundamental to the success of the economy. The Government's policies are designed to achieve this, and I think that they will do so if we hold the course which we have set.
I merely thank your Lordships for the way in which we have had a debate on a highly sensitive subject which has been totally devoid of partisanship and which has been immensely constructive and helpful. I can assure your Lordships that we shall take note of all that has been said.
§ 8.28 p.m.
My Lords, it only remains for me to thank all of your Lordships who took part in this debate, which I believe has been extremely interesting. I should particularly like to thank the Minister for his remarks. He has obviously listened very carefully to what we have said and I am quite certain that he will get the Government to think again on some of the points and the very interesting new suggestions which have been put to him this evening. I do not wish to say much more, except to point out that I did not wish to imply in my own suggestions that I wanted to see employers getting into an overmanning situation again. No; what I am afraid of is that, as the recession turns—and I think it is about to turn—employers will not have the encouragement to carry out the expansion which will then be necessary for the increased demand which I hope will come along.
I should like to direct a few words to the noble Lord, Lord Glenarthur. He made a point about the Loan Guarantee Scheme, and I agree with him that it is being very successful. I am very glad to see that the Government have doubled the amount of money that they are putting into it. But I believe that the banks, which are now responsible for only 20 per cent. of the loan, are still applying their normal banking practice in deciding which businesses should be recommended to the Department of Industry to go ahead with using the guarantee scheme. I have in my possession some letters, which I do not propose to produce this evening, which tend to make me think that, unfortunately, that is still happening.
Finally, I must come back at the Minister about something he said concerning wages councils. He said that pressures might be put on employees to do the same work for less money. Surely, if that is going to happen, that is economic common sense. We must remember that the wages councils were set tip a long time before the welfare state came into existence, and that now there is no need for anyone to do any work for less money than they could receive by doing no work at all. Therefore, I do not believe that those pressures are important. My Lords, with that, I beg leave to withdraw my Motion for Papers.
§ Motion for Papers, by leave, withdrawn.