HL Deb 03 February 1982 vol 426 cc1296-305

2.59 p.m.

Lord Beswick rose to call attention to the economic and social effects of over-reliance on market forces in the shaping of our society; to the desirability of a more broadly-based policy for national recovery; and to the need for a wider consensus of opinion on these matters; and to move for Papers.

The noble Lord said: My Lords, the Motion I seek to move calls attention to the economic and social effects of allowing market forces to be the dominant influence in the shaping of our society. I shall seek to show that the economic emphasis of today cannot give us the sort of society we want tomorrow. I also submit that there is a growing awareness of the need to give up entrenched positions in the effort to get wider agreement on policies which genuinely would serve the common good.

It was with this thought in mind that I originally put down this Motion during last Session. I had read with sadness what the right honourable lady the Prime Minister had said in Melbourne. She is reported as saying: Consensus seems to be the process of abandoning all beliefs, principles, values and policies ".

I wonder whether any noble Lord here would support that attitude. If it were true, what would be the purpose of coming together to discuss these matters in a free Parliament?

I much appreciate being invited today to speak from this Box of the Opposition Front Bench, but I readily admit that the party of which I am proud to be a member has not always had a monopoly of the truth. I shall seek to show, however, that the Government's present economic policy is not giving—and just cannot give—the social results which a stable society requires. I ask the House to agree that in the modern industrial society, highly strung and highly sensitive with modern technology; when each of us with modern equipment can communicate easily with the rest of us; when a small group with responsibility can, if they so choose, do damage to all of us—then in that kind of society a broadly based policy, democratically agreed, is an absolute prerequisite for the solution of economic problems.

Yet it is at this time, in this kind of society, that the Government have chosen to turn back the pages of history, to emphasise the merits of individual self-seeking and to over-glorify the idea of private, as against public, enterprise. The benefits of this approach are not conspicuously obvious after half a Parliament, as Mr. Pym very tactfully reminded his colleagues on Monday, and as the CBI have said this week. We appear to be getting a consensus on that statement, at any rate.

The Treasury Ministers, however, appear to remain aloof from this rethinking. Though they have recently been given to talk about the average rates of inflation, Treasury Ministers have as yet been unable to invent another index which would show that the inflation rate is less now than when they took over. Even the control of money supply is not exactly a success story, and the tragedy of unemployment is so stark that I shall not dwell upon it this afternoon. But Ministers do now clutch at statistical straws which I think we should examine. They quote figures about the recent level of wage settlements and the improvement of output per man-hour which, they say, show that there is now a hopeful spirit abroad. I think that we should look carefully at these claims.

First, as to the level of wage settlements, it is true that the miners settled for an increase some 230 per cent. above the rate which the Government had suggested for the public sector. I do not think that it would be wise, for various reasons, to quote that as an example of the new spirit. But we should look at the general level of settlements. The CBI very reasonably say that the lower level this year—and I quote from their statement—is due to a combination of low profits, price competition and fear of redundancy. I do not think that fear is a good basis for hope. A director of one of our larger companies, Standard Telephones, put it rather more directly. Mr. Neville Cooper said: In so far as this moderation and peace is based on the near bankruptcy of our industry, it requires a permanent state of near bankruptcy for its maintenance. Hardly "— said Mr. Cooper— an inspiring prospect

Let me say at once that, in this last year or two, many old job practices and demarcation positions, which were built up in the struggles of the past, have gone and I hope that they will not return. But to say that recent moderation in wage claims heralds a new cooperation is just self-deception. Market forces can curb wage claims in times of recession, but if an upturn comes then, as my noble friend Lord Scanlon warned from this Box recently, labour's turn will come and the force of labour will have been encouraged, by this doctrine of free-for-all, to start the biggest catching-up exercise that we have seen. The sad thing is that, in the market place where everyone gets what he can, it is not necessarily the most deserving or the most useful who do best.

Three things might fairly be said about the contentious problem of an incomes policy. First, if we are to secure a genuinely stable and civilised society some broad agreement on a national incomes policy is essential. Secondly, while it will be very difficult, in any case, to evolve a policy which would be both meaningful and flexible, it will be quite unattainable if the concept of market forces dominates all other activities. We cannot have one rule for wages and a free-for-all elsewhere. Thirdly, as Sidney Weighell put it the other day, we do not want a formula cobbled up in a crisis. So I am suggesting to this House that we agree that now is the time for seeking a consensus on a policy which can play a proper part in a wider policy, manifestly shaped for the common good.

Other figures, which Ministers have put out very assiduously, purport to show that costs of production are down and output per man-hour is up. I agree, again, that there are notable cases where productivity has increased. Down at Llanwern at British Steel, at Coventry at British Leyland and in Britain's coal industry there are examples to be quoted. Those are cases where large new public investment is beginning to pay off and we should all be pleased about that. But in the greater part of industry, there is not the money for new equipment: costs have been cut; research and development, on which the future depends, is the first to be cut; maintenance is delayed, training is curtailed and that much applauded de-manning is leaving a workforce that is not always properly balanced for future efficiency.

There was a very relevant letter from Mr. Whiting of the Manchester Business School in the Financial Times. The MBS knew of a firm which could show precisely that 7 per cent. improvement in man-hour productivity, which the Government quoted with such relish. But, said Mr. Whiting, these figures for man-hours actually worked were swamped by the fact that the company was working only 50 per cent. of capacity and overall productivity of capital employed had " slumped disastrously ". It is disingenuous ", said Mr. Whiting, to pick out labour efficiency only, as a cause for rejoicing, when capacity working is a cause for greater misery ".

One might also say that it is equally disingenuous to boast, as Ministers have done in this last week or two, that short-time working has decreased, when the explanation often is that the short-time worker is now on the dole queue. It is only fair to add that, in the most recent Treasury report, the authors admit, though Ministers have not, that labour productivity is only one measure and not always the best.

To take another example, noble Lords opposite were cheering with less than their usual restraint the other day, when they were told how many new small businesses had been started as a result of Government action. They were, I fear, not looking at the facts either fairly or closely. The Daily Telegraph, on 22nd January, delicately phrased a rather fairer view. They said: That plank of Mrs. Thatcher's platform has a touch of woodworm ".

They quoted results from a survey which showed, said the Daily Telegraph: although new companies may be created at a record level, the recession has reached a stage where it is killing them off at a record level as well ".

The survey had shown that surviving companies had probably cut 800,000 jobs. Sadly, 44 per cent. of the survey said they would need to be cutting investment in 1982, and 9 per cent. said they would be selling out or closing down. Some market force over-enthusiasts may say that this proves the theory of the survival of the fittest, but a more objective view suggests that it is the slaughter of the innocents.

In that slaughter the use of one weapon has been tragically effective. I mean the high interest rate obsession. The noble Lord, Lord Cockfield, told us on 27th October of last year that interest rates " represent one of the major weapons in getting inflation under control I want to submit that this central feature, this major weapon, is now more of a cause than a cure of inflation. More than that: it is beginning to distort the shape and the structure of our society.

The certainty with which some authorities in the western world insist on high interest rates is I think equalled only by the certainty with which the authoritative Cadman Committee recommended our return to the gold standard in 1924. According to the Treasury, servicing the national debt in 1981–82 will cost £11,100 million, or 13.3 per cent. of all the Consolidated Fund expenditure. In 1980–81, debt interest payments are an estimated £4,363 million, or 16.5 per cent. of all local authority expenditure. Only last week a Treasury Minister said that gross debt interest now ran at £250 for every man, woman and child in the country.

Of course, some will say—some of my friends say —that as a proportion of the GNP the volume of the debt is less than once it was, and the Government themselves justify cutting essential public services and investment by talking of the need to reduce borrowing. But it is not borrowing as such that is wrong; it is not necessarily how much that matters, but what for, and at what rate. In 1946, after six years of desperate war, Britain was borrowing at 2.5 per cent. Today the Treasury commits itself to repay by way of interest the amount borrowed every seven or eight years, but the initial liability will still remain. All money now borrowed simply goes to pay interest on money already borrowed. Neither Governments nor businesses can face that situation for long.

In The Times letter column recently there was a cry from the heart of the chairman of the Council for Small Businesses in Rural Areas. Mr. Vincent said: Proprietors of small firms … are now using life savings [on which] they hoped to retire to service debt, and for all that they are sinking fast ".

I could, given the time, show that much the same can be said of some of the bigger firms as well. Useful industry cannot earn a fair return and provide a proper service if they carry an interest burden of the current order.

I have said that market forces in general and excessive interest rates in particular are distorting the shape of our society. I use the term " distorting " deliberately. Let me say why. At one time the skill and effort of the shop floor and the design office made all the difference in competitive pricing, but the present interest rate policy and the consequent movement of exchange rates mean that those efforts can be completely thwarted and can make all the difference to success in the export market. I notice that the Governor of the Bank of England was saying much the same thing last week.

At one time profitability came mainly from making and marketing goods, but today sophisticated techniques of using cash, depositing overnight or depositing on Friday afternoon instead of Monday morning can yield disproportionately high results and is diverting both skills and time. A farmer waiting one year for a return on his crops or three years on his cattle, or the manufacturer who may well have to wait five, seven or 10 years for a return on an investment are both grossly penalised if they have to borrow. In the world of double-figure interest rates it is the man who can make a quick buck, who can make a percentage point or two, who can move large sums of money around the world—they are the people who are being encouraged under the present system.

All that seems to be supported by what was said in the Treasury's monthly economic assessment last summer. They said that, while the undistributed income of non-oil companies fell by one-third, that reduction contrasts markedly with that of the financial companies and institutions whose undistributed income doubled within the same period ".

It is this distortion which gives us a society in which we need more houses, while half a million construction workers are kept idle and their families supported by Government money borrowed at 14 or 15 per cent. It is a society in which sewers are crumbling, in which we propose to cut grants to universities like Aston and Salford by as much as 20 to 44 per cent. while at the same time we sit back and wait for breakfast time television. It is a society in which we tell nurses that economic conditions will not allow more than a 4 per cent. pay increase while the Playboy chairman, I read, gets £200,000 a year and another leisure company is offering £¾ million to an executive to change his job. I do not believe that most of us in this House, or in the country, are content to let society shape like this. It is a society, again I say, in which there are 3 million people officially unemployed and, maybe, 4 million altogether, denied the opportunity of earning a living.

We have to reverse recent trends and increase the possibility of reward to honest productive endeavour. Lower, much lower, interest rates are essential. We should examine again and adapt techniques used in time of war for the creation and the direction of credit. Maybe differential rates have a part to play. If all this means controlling more effectively from the centre and controlling the movement of money in and out of the country, then so be it. Let us face up to it. If I am told that in these matters you cannot get around the law of supply and demand, then I would say that at one time we were told you could not defy Newton's law of gravity but the aeronautical engineers showed that we were wrong. Where there is a will, there is usually the way.

Then to restore the balance as between real needs and the candyfloss, I believe we must all accept that public investment and public enterprise has a part to play. In this area I admit at once that both sides of the political spectrum have to change old attitudes. I do not believe that nationalisation as such is some infallible formula. I do not accept that incentive and enterprise is best encouraged if it comes under the direct control of some Government department. A more effective system of employee participation and, where appropriate, consumer participation could prove more effective than prejudiced party exchanges in Parliament as a spur to efficiency. As against that prejudiced criticism, of which I complain, I would like to thank the noble Lord, Lord Cockfield, for his kindly personal references to me the other day on my contribution to one of the public corporations. But I recall with bitterness and contempt some of the things which others have said about those who have accepted responsibility in public corporations. I qualify that bitterness only because of the memory that in younger days, some of my criticism of those appointed to serve was equally ignorant. That ignorance cannot help constructive effort.

I am ready to accept that Mrs. Thatcher has helped many people to realise that there is not an unlimited source of public funding. When she emphasises that the public sector should not be a soft touch for the union negotiator, she renders a service. But if we are to get the social and economic infrastructure that we need in health and education services, and in such things as transport and communications, then public enterprise has a crucial part to play. If we are to get the pump priming which the private sector needs, then public investment is required.

In all this public activity I say again, we can surely exercise the necessary discipline without the sick and demoralising prejudice which calls all public investment a subsidy and all public servants a burden on the taxpayer. In the society of the future we shall need deliberately to encourage the full potential of public service. In the economic new deal which the situation calls for, the overriding and powerful incentive must be the feeling that one is helping not only oneself but the common good. That satisfying incentive is valid equally in the public as well as the private sector.

I have tried to set out some of the things which are wrong in our political and social policy. As a nation we have a lot going for us. The fashionable talk of long decline, in my view, has been much overdone. Since those days when the world maps in the school classroom were coloured one-third red, there is a lot that we have achieved. The development of North Sea oil is not a tale of decadence. The post-war growth of the gas industry is a marvellous story. No other major industrial country has our self-sufficiency in energy, and against all the financial frustrations no decadent industry could have maintained its export trade as Britain has done. We now need a new deal; a new economic deal and a new social purpose. That purpose must be enthused with something warmer and more human than the cold, crude, concept of market forces. I ponder over those words spoken in the Communion Service: Though we are many, we are one body ".

If we could get more of the real meaning of that into our affairs, then Britain—which led the way in parliamentary democracy—could yet show the way to the true meaning of economic democracy. I am grateful to your Lordships for the patience you have shown, and I beg to move for Papers.

3.24 p.m.

The Chancellor of the Duchy of Lancaster (Baroness Young)

My Lords, we are all grateful to the noble Lord, Lord Beswick, for providing the opportunity to debate this wide and thought-provoking Motion. His Motion has three parts and I shall deal with each in turn as well as saying something about Government policy. The first part of his Motion implies that over-reliance on market forces has contributed to our social and economic problems today. I believe that in fact the very reverse is true. As a party we do not advocate, and never have advocated, complete dependence on the market. Indeed, it was the Conservative Party which, in the nineteenth century, was first to see the need to protect society from unbridled industrialisation. But we do recognise that it is the energy and innovation of the entrepreneur which has been the motive power of economic growth and the source of new jobs.

There are those who will argue that wealth can be created not by market forces, but by the state. But, my Lords, the state does not create wealth by itself. It distributes what others have produced. Indeed, the economy today is far from a free market economy. Let me name three constraints on the operation of a free market. The first comes from the trade unions. These are powerful bodies, uniquely privileged in British law. And there are many examples of the benefits they have won for their members. But their power has been all too often used to perpetuate over-manning and restrictive practices. It has been used to force pay settlements which have exceeded what the market could stand. The result, tragically, has been lost competitiveness, lost orders and lost jobs.

The second constraint on the market is the powerful position of large national and multi-national corporations. I would argue that so far as the private sector is concerned, the operation of the Monopolies and Mergers Commission adequately protects society from the dangers of abuse. In the public sector, society also needs protection from monopoly corporations. I suggest that these observations will command themselves most forcefully to those struggling to work today in spite of the strike of train drivers; and to those in the private sector who have lost their jobs because their companies had to compete in the deteriorating world situation and at the same time face rates bills, fuel bills, post and telecommunications bills which have gone on rising remorselessly.

But the major rein on the operation of market forces is that applied by Government. I have already cited the operation of the Monopolies and Mergers Commission; and one might well put in as well the protection of the environment. But perhaps the most important role which Government plays is in redirecting a large proportion of the wealth created in industry and commerce in order to pay for defence, law and order, health, education, social security and all the other functions of a modern welfare state. And we cannot escape the fact that the quality of our public services ultimately depends on the health of the economy—on the wealth earned by industry.

We have learnt from bitter experience that too heavy a burden of public expenditure damages profitability in the private sector and so reduces its capacity to finance those improvements in welfare which we all wish to see. It is not easy to face up to the painful reality that the creation of wealth must precede social improvements. I was most grateful to the noble Lord, Lord Beswick, for what he said at the end of his speech about this particular point, because I believe that it is a very difficult point for the public to understand. Short-term injections of money may give some temporary relief, but they can only postpone an inevitable and even harsher day of reckoning. This Government have had the Courage and wisdom not to practise such a deceit.

At the heart of Conservative philosophy is a desire to see all the people of this country better off, and to see the disadvantaged well cared for. We, too, want to see education, health care and proper housing denied to no-one. We want adequate defence and law and order on the streets; good roads and efficient railways. To achieve these aims we need greater public understanding of the realities of life and the support of all political and social groups to obtain a real and sustainable economic growth, so that we may achieve increase in the quality of our public services.

I turn now to the process of wealth-creation itself. There are many who will be speaking in this debate today and many outside who will argue that the state can improve upon the market in the efficient allocation and utilisation of scarce resources. I would argue, my Lords, that the facts do not support such a proposition. For example, since 1972 the real rate of return earned by the nationalised industries has never significantly exceeded zero. In some industries —coal, steel, railways—the return has been substantially negative; yet the nationalised industries account for over 13 per cent. of the total industrial investment in the United Kingdom.

In the area of industrial intervention in the private sector costs and benefits are even less clearcut. In the last decade, over £5 billion has been spent on regional aid to industry. Yet, sadly, the regions of the United Kingdom which were poorest in the 1960s are still the poorest today. The Government are devoting £3 billion every year to industry, including the nationalised industries. Much of this is into the traditional industries—cars, steel, shipbuilding—which have grown inefficient by being protected from the market. We are determined to turn these industries round. We are forcing them to compete. It was heartening to hear that Sir Michael Edwardes has announced that overmanning, so long inherent at British Leyland, will soon be ended; that last year productivity in the BL car division increased by nearly one-third; that BL is now, once more, in a position to raise private capital, and that next year the company hopes to break even. Productivity has also improved in many sectors of British Steel; output at the Llanwern plant is now equal to the best in Europe. These are the signs that, given sufficient determination, Government investment in the public sector can bring with it the discipline of improved productivity through competitive practices. These are hardly the actions of a Government committed only to the operation of market forces.

My Lords, the Motion calls for a more broadly based policy for national recovery than our own. This frequently means a call for more money, and indeed the noble Lord, Lord Beswick, said as much. Our national income measured in money terms is currently rising at about £25 billion a year. If we can make less of this pay for inflation and imports, more will go into output and jobs. We believe that it can be done. We must see wage and working practices decided by the discipline of competition. We must see demand boosted at home and abroad by customers, not by Government.

Recovery does not need devaluation. Today, the pound is 10 per cent. below its 1975 level, though manufacturing competitiveness has worsened by some 35 per cent.; the reason is pay settlements unmatched by productivity well above those of our competitors. When it plunged in 1976, industry did not become conspicuously competitive. We need to convince overseas investors that the British Government have a firm control over inflation. Only then will we have a stable currency.

Recovery does not need reflation. We do well to remember the words of the last Labour Prime Minister. He told his party in 1976: We used to think that you could just spend your way out of a recession by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that, in so far as It ever did exist, it worked by injecting inflation into the economy. And each time that happened, the average level of unemployment has risen. Higher inflation followed by higher unemployment. That is the history of the last twenty years ". There are a good many people now who appreciate those words.

My Lords, real sustainable recovery is under way. It is painfully slow. It has to be. There are no quick and easy solutions to Britain's industrial problems. But it is worth remembering how often we have talked of the need for export led recovery. It has always eluded us in the past. Yet now the possibility is a real one. The volume of exports at the end of 1981 was nearly 4 per cent. higher than a year ago, and daily we hear of more large export orders being won by British companies. I commend to your Lordships the direct part which the Government have played in facilitating much of this improvement, by creating the climate for economic recovery.

Of course, the Government want to do all they can to mitigate the effects of distressingly high unemployment, both through direct measures and through the stimulation of the private sector. In the current financial year we are giving £3 billion to industry to assist in restructuring and the preservation of employment capacity. We have introduced 72 measures to promote small businesses as a major source of employment. The sum of £329 million has been spent on encouraging industry to adapt to and realise the full impact of new technology.

The particular problems of the young unemployed will be helped by the new Youth Training Scheme. Also the Youth Opportunities Scheme will guarantee every school-leaver a full year's foundation training. Together with the Youth Opportunity programme, spending on special employment measures and training schemes will be some £1½ billion in 1982–83. These are hardly the actions of a Government that would abandon the fortunes of their people to the forces of the free market.

Finally, I turn to the call for " consensus ". My Lords, I have sympathy with those who long for our country to unite in the face of economic crisis. The patience of the British people will be tried by the slowness of the upturn in our economy. Last to respond to the recovery, sadly, will be the unemployed. The unemployed pay the highest price for past over- manning and past uncompetitiveness. We are all concerned about this. But it is an international problem. Today in the European Community alone there are 10 million people without jobs. Across the OECD countries, youth unemployment is rising at twice the adult level. The United States, West Germany and Sweden are all contending with levels of unemployment which are rising faster than our own. The many and varied political beliefs and approaches to social and economic policy in these countries do not suggest that there is some broadly-based consensus which we could import to solve our economic difficulties. Neither do they suggest that Britain's unemployment problems are simply a domestic product of the policies of this Government.

Those who offer apparently simple solutions to our present economic difficulties do the cause of consensus very great harm. The noble Lord, Lord Beswick, talked of an incomes policy, but is there a fail-safe incomes policy which can win agreement from both sides of industry? Can central planning and controls on prices and imports do any more than inflict severe damage on industrial and commercial profitability? Could capital expenditure on employment schemes produce sustainable jobs without destroying the real sources of employment in the private sector? I do not believe that there is a consensus of opinion or a single untried solution among all these proposals.

What I do believe is that there is a need for a consensus of commonsense based on an understanding of the facts of economic life. I believe we are seeing signs of this understanding, with productivity rising strongly, the number of industrial disputes at their lowest level since 1941, and excessive wage demands being defeated by the simple commonsense which puts jobs before any short lived boost to the pay packet. We have come a long way and, having come so far, we must build on these achievements. It would, I think, be a mistake even to consider a return to the policies of the past, when we are still struggling with the consequences of their failure.

My Lords, I believe that there are real grounds for hope; not that everything can be put right immediately, but that we are beginning to see the signs of a reversal of Britain's slow economic decline. I, for one, would not be prepared to throw this away at this time; nor do I believe that the British people would want to do so, either.