Economic Policy

HL Deb 26 July 1982 vol 434 cc15-96

3.24 p.m.

Lord Jacques rose to call attention to the real cost of Government economic policy during the past three years and the extent to which it has been borne by those least able to bear it; and to move for Papers.

The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. In 1975 the United Kingdom output of North Sea oil was only 1½ million tonnes, but in the latter part of the decade the oil flowed at a much greater rate than it had previously, and by 1979 the output was 78 million tonnes. The increase continued into the 'eighties, and last year the output was 89 million tonnnes.

As a result of this substantial increase in the output of North Sea oil in a relatively short period, confident observers began to take a much more optimistic view of the immediate future of the United Kingdom. They knew that in the future we would not be made poorer by increases in the price of oil, because for all practical purposes we were self-sufficient. They knew that our Government would have a new and important source of revenue in the future from the North Sea oil output. They knew that during the whole of the post-war period successive British Governments of both major parties had been in difficulties in world depressions because they had been inhibited when they came to reflate the economy by the effect upon the balance of payments. But now, for the first time, our balance of payments was protected by the output of North Sea oil.

Those were the reasons why they were much more optimistic as to our future. This optimism was reflected in some of the speeches made at the election by some who became Ministers after the election, especially when they talked of reducing taxation and when they said that they had absolutely no intention of doubling VAT. Then they did this at the first Budget. On unemployment, they were a little more cautious, but they said, "We at least hope to do as well as has been done in the last five years".

Three years after the election our dismal economic performance is being blamed upon world recession. In those circumstances, it is reasonable to make comparisons with other countries, and I will rest content to make only two comparisons—not with individual countries, but with the countries covered by OECD. I refer to the Big Seven: that is to say, the United States, Canada, France, Germany, Italy, Japan and the United Kingdom. For convenience, I will call them the Big Seven.

Between 1978 and 1981 the gross domestic product or total output of the Big Seven increased by 5–8 per cent. During the same period the gross domestic product or total output of the United Kingdom declined by 2.2 per cent. So, to get the measure of the gap between us, we have to add the two figures together, and we see that there was a gap of 8 per cent. Whatever reason may be given by the Government, it certainly cannot be world depression, because they were as much affected by would depression as we were.

The other figure I want to quote is on unemployment, and I will use the OECD adjusted figures, which are calculated so that comparability is facilitated. In 1979, when the Government took office—remember, the year that the Government took office—the percentage of unemployment in the Big Seven was 5 per cent. In the United Kingdom it was 5.7 per cent. So we were only 0.7 per cent. above the Big Seven. But in 1982, in the first quarter of this year, the unemployment figure for the Big Seven is 7.4 per cent., whereas in the United Kingdom it is 12.4 per cent. So the Government inherited a percentage of unemployment which was only 0.7 per cent. above that of the Big Seven, and we are now in the position in which it is 5 per cent. more than it is in the Big Seven.

That, I think, portrays the history of the Government in economic affairs perhaps better than any one individual item. The major cause of our abysmal economic performance is the Government's insistence upon monetary targets which were excessively below the total money spending—and they did that regardless of the results; it was a ruthless policy. In consequence of that tight monetary policy, they forced interest to record rates. Despite rising industrial costs, the high rate of interest and the support of North Sea oil for the pound pushed up the value of the pound, and the Government allowed it to be pushed up. They wanted it to be pushed up because it meant that we paid less in sterling prices for our imports and that helped them to reduce inflation—by itself to be admired; but it played havoc with our exports.

Between 1978 and the first quarter of 1981, we became 50 per cent. less competitive on international markets. Never before had we experienced such difficulties in such a short period in our export trade. With falling sales and rising debt charges, companies had to cut their stocks and, in consequence, they cut their output and, in consequence of that, they cut their orders to other firms. Consequently, failure bred failure.

The vulnerability of firms did not so much depend on their efficiency; it depended upon how far they were dependent upon money which was subject to the current rate of interest. That was the test. No matter how efficient they were, if the money on which they traded was subject to the current rate of interest they were likely to be in difficulties. I know of several firms-I have no doubt that every Member of this House knows of several firms—that were quite efficient, but, because of their high debt charges, they had to scale down and are now a mere shadow of what they were.

As late as March 1980 the Government did not forsee the consequences of their economic policy. In that month, March 1980, they forecast that the unemployment figure for 1982–83—that is the present year—would be 1.8 million. We know now that they were more than a million out in their estimate. In March 1981, 12 months later, they uplifted the figure from 1.8 million to 2.7 million and, in March 1982, they again uplifted the figures to 2.9 million. There is no time left to uplift it again because we are now at the year concerned; but it is extremely doubtful whether that 2.9 million will be sufficient to cover the total adult unemployment.

Who is paying for this folly in our economic affairs? In a way, we are all paying. Despite the assurance given by the Chancellor when he was Shadow Chancellor, we are all paying roughly twice the rate of VAT. We are all paying greatly increased nationalised industries prices, and some of these prices are so much ahead of the cost of production that there is a hidden element of taxation embodied in the price. We are all having reduced personal allowances for tax purposes after allowing for inflation. The party which enthusiastically fought for indexed personal allowances when it was in Opposition abandoned them when it was in office.

But those who are suffering most are the unemployed. They have lost their livelihood and 1 million of them have been condemned to demoralising idleness for more than a year. After allowing for inflation, their benefits have been reduced by 5 per cent. Witness the revolt of the Government's own Back-Benchers in another place 10 days ago. And their benefits are now to be taxed.

But perhaps the saddest thing of all is the effect upon those who are leaving school and seeking a place in the adult world, and finding there is no place for them. They are not only the saddest case but the most dangerous, for their frustration is liable to explode. There is a need for training of the young but not just training which will keep them temporarily out of mischief; it must be training for gainful employment, the prospects of which are likely to be available when the training is finished.

After the unemployed, the next most hardly hit are those with small earnings. A married man with two children who has only three-quarters of the national average of earnings paid 20 per cent. more in taxes in 1981–1982 than he did in 1978–79. That is a measure of the increased taxes upon the poor. A man with two children and average earnings pays 16 per cent. more after allowing for inflation. But those with the highest earnings are protected by the abolition of the higher rates of tax and many of them are paying less than they paid before this Government took office. If it was the intention of the Government to make the rich richer and the poor poorer, they set about it in the right way.

I come back to where I started, to North Sea oil. Our windfall from the North Sea is being frittered away keeping people in idleness instead of being used to provide assets which this country will need in the future if it is going to be successful. If a nation has assets which either need improving or need to be renewed, it is not just Keynesian economics to employ people to do the work required rather than to pay them to be idle; it is sound commonsense. The sooner the Government learn that the better. I beg to move for Papers.

3.40 p.m.

Lord Cockfield

My Lords, I start on a personal note. I have always tried when I have opened a debate on behalf of the Government to listen to the whole of the debate. Today, unfortunately, I shall not be able to do so as a number of important matters I have to attend to have arisen unexpectedly. I apologise therefore to those noble Lords whose speeches I shall not be able to listen to, but I assure them that I will read what they say with great interest. My noble friends on this Bench will take notice of everything that is said during the debate.

If I may now come to the question of the economy, we are making progress—not as much as we would have wished, but we are making progress all the same. Some of the problems from which we suffer are our own fault. Others lie outside our control. It is easier to deal with the latter first. The United States economy has been in deep recession. The effect on other economies in the world is of course serious. With the United States accounting for 30 per cent. of the manufacturing output of the world, it could not be otherwise. A weak American economy depresses international trade. It depresses commodity prices with particular effects on the developing world, and this poses further obstacles to world trade. In Europe, output is at best stagnating. The high level of interest rates reflecting in large measure but by no means entirely, high rates in the United States, presents another obstacle to recovery. All these developments make prospects for the British economy more difficult than they would otherwise be.

At home, in contrast, our difficulties, which have been built up over a long period of time under successive Administrations, are largely of our own making. But, equally, this holds out the hope that the cure lies within our own hands. Foremost among our difficulties has been the deeply endemic tendency to high rates of inflation, itself a product of lax monetary and fiscal policies. Second has been the high, and until recently escalating, level of our costs due principally to high labour costs. These in turn reflect high pay settlements unmatched by productivity increases: as well as overmanning and the maintenance of outdated, restrictive working practices. The result has been a loss of markets both at home and abroad. In the last 20 years or so our share of international trade has virtually halved—from about 20 per cent. to 10 per cent.—while import penetration has increased by 50 per cent. In short, while we have taken a much smaller share of other people's markets, they have taken a much bigger share of our own. Reflecting all these factors, unemployment has risen to unacceptable levels. That is a matter to which I will return later.

But, so far as matters do rest within our own control, we are getting them right. We have made real progress in the last three years. The rate of inflation is down to 9.2 per cent. and continuing to fall. We shall be the first Government for many years to end their term of office with a lower rate of inflation than we inherited. There is less public attention concentrated now on inflation than has been the case for many years. That reflects the growing success of our policy of reducing inflation and the growing public awareness of that success.

That success in turn reflects the success of our fiscal and monetary policies. Here again we may not have moved as fast or as far as we would have hoped. But progress has been made and will continue to be made. The money supply—on all three measures—is well within the target range of 8 per cent. to 12 per cent. set by my right honourable friend the Chancellor of the Exchequer in his Budget. We cannot recoup the excesses of past years. But we are now exercising better control. And the beneficial results are there for all to see.

This year—for the first time since 1979—public expenditure as a proportion of national income will have stabilised—at about 44½ per cent. That is significantly higher than it was in 1979. This is partly because of the recession, which reduced national income while at the same time increasing welfare expenditures, and partly because of the inbuilt momentum of earlier public expenditure programmes. That of course is the answer to the point raised by the noble Lord, Lord Jacques, about higher effective rates of tax. But next year the figure will fall: and thereafter we expect it to continue to fall. This will reflect both a tight hand on expenditure: and our gradual recovery from recession.

There has been a dramatic improvement in our productivity and in our cost competitiveness. Output per head in manufacture has risen by 12 per cent. since the end of 1980. At the same time wage inflation has been substantially reduced. The increase in average earnings halved in the 1980–81 pay round, and there has been a further reduction in the current pay round. Settlements are now averaging around 7 per cent. compared with 9 per cent. last time. As a result, our cost competitiveness has improved by some 10 per cent. to 15 per cent. in the last year. The increase in unit labour costs in manufacture is now running at only 3 per cent. compared with a year ago. This is below the average of our major competitors and comparable to that of West Germany and Japan.

A great deal has been said about the exchange rate. The noble Lord, Lord Jacques, touched upon that point. The dramatic rise in the exchange rate which reached a peak early last year caused great problems for industry. But there has since been an equally dramatic fall. The value of the pound, measured against all the major currencies, stands little higher than it was in 1979 and is lower than in 1975. The exchange rate therefore cannot be said to be responsible for our lack of competitiveness. Indeed, a lower exchange rate would compound our troubles. It would lead to higher inflation, and this would feed back into higher costs.

Interest rates are of course too high. But our interest rates have fallen by no less than 4 percentage points compared with the peak reached late last year. The fall in base rate and moderating short term money market rates show that the process is continuing. Perhaps even more remarkable is the way that we have been able, not entirely to insulate ourselves, but to distance ourselves from American interest rates. At the beginning of this year our interest rates were 2 percentage points above American rates: today they are 2 percentage points below. This reflects the success of our domestic policy in reducing inflation, controlling Government borrowing and keeping the monetary aggregates within the target range.

Last summer, output began to grow. The second half of last year showed an increase of some 2 per cent. in output in manufacture over the first half. In the first quarter of the current year, recovery appeared to falter. The path of a recession is not like a tennis ball which hits the ground and bounces sharply up again. On the contrary, as a recession comes to an end one must expect the economy for some time to be bumping along the bottom before the upturn becomes clearly established. So what happened in the winter was not unusual. The latest figures are encouraging and confirm the view that, taking one month with another, recovery is under way. The figures for May show a rise in total production of 1½ per cent. over April and in manufacturing output of 11. per cent. For the three months to May, industrial production, is some 3 per cent. above the level of the corresponding months of last year. In the year as a whole we still expect to see an increase, compared with last year, although possibly somewhat less than the 1½ per cent. forecast in the Budget Red Book. Next year—l983—we expect to see a further increase: possibly to around 2 per cent. By then we should expect also to see a recovery in the American economy. Indeed figures just published indicate that in the second quarter of this year the American economy was growing at an annual rate of 1.7 per cent. Recovery in America will of course reinforce recovery in this country and in the industrialised world generally. It will also help the third world.

The rates of recovery we can see ahead are modest. But if sustained and, we hope, improved they provide a solid basis for progress. It has, I know, become fashionable to decry modest increases of this kind as insignificant, as hardly worth mentioning. Nothing could be further from the truth. In the 12 years or so between 1951 and 1964 growth averaged somewhat over 2 per cent. per annum. It permitted a sizeable increase in our standard of living. It left the Tory Party in office for 12 years, to the great and enduring benefit of the people of this country. Our export trade has made and continues to make a notable contribution to our recovery. This is a field for which I have direct ministerial responsibility. Since the autumn of last year our visible exports have been showing an increase in volume terms of about 4 per cent. per annum compared with the figures for the previous year. The increase in the three months to December was 4 per cent. In the first five months of this year—that is to May—the increase was also 4 per cent. If anyone is tempted to say that these figures hide a declining trend, let me say that the increase in the three months to May was 6. per cent.

Particularly encouraging is the success achieved by our leading companies in winning major project orders on world markets. Successes on individual projects in excess of £50 million each over the past 18 months now approach £3 billion in total. These successes in the export field reflect great credit on the companies concerned, on the people who work for them, on their agents and representatives abroad, on the people in this country responsible for export promotion, particularly the British Overseas Trade Board, and on our consular representatives overseas.

In the four months I have been Secretary of State for Trade I have visited Denmark, Holland, Germany and Canada. Everywhere I find a welcome for British goods and British exporters. Of course there are complaints, but where they are made I insist on their being pursued. Nowhere are our opportunities greater than in Europe. We have our difficulties with the European Community, particularly over the budget. This is a problem to which an answer must be found and it is one that must be acceptable to our Parliament and to our people. But never let us underestimate the benefit to us of membership of the Community. Forty-three per cent. of our exports now go to Europe, compared with 30 per cent. ten years ago. Germany is now our largest export market, closely followed by Holland in third place. But equally our membership of the Community is of immense value to the other members of the Community. They now account for roughly the same proportion—namely, about 43 per cent. of our total imports. And we buy more from Europe than we sell to them. This is a matter our partners in the Community also need to take into account. We are members of the Community: we intend to remain members. Our membership is of mutual benefit: to the other members just as much as it is to ourselves.

Perhaps at this stage I might say a word about standards, a subject for which my department is responsible. Success in trade depends not only on price but on quality as well. The assurance of high quality, of conformity to internationally accepted or recognised standards, sharpens our competitive position both at home and abroad. It helps industry improve its efficiency and reduce its costs. It is of real value to consumers. For all of these reasons, we launched a major initiative this summer, details of which I gave in your Lordships' House on 7th June.

I now propose publishing this week the Government's proposals in more detail. It is important that we maintain the momentum. We are working in close association with the British Standards Institution and I am sure we can count on the support of British industry as well. I referred earlier this afternoon to the position which exists on the export of steel and the countervailing duties imposed by the American Government.

Perhaps I might also refer to a related subject, namely the American export embargo, as it affects our own companies who have contracts connected with the Siberian gas pipeline. We regard the American action as wrong and unprincipled. It is an attempt to interfere with existing contracts and represents an unacceptable extension of American extra-territorial sovereignty. I hope it will be possible to resolve these matters in a mutually acceptable way. But if this proves impossible, I do wish to make it clear that we are determined to defend our own national interests.

I now turn to the problem of unemployment. Unemployment is a great social problem, and the noble Lord, Lord Jacques, was very right to draw attention to it. But while it is a social problem its roots lie in economic circumstances. There have always been fluctuations in trade. The seven fat years are followed by the seven lean years. While the length of the cycle may vary, good times and bad follow one another with monotonous regularity and have done so since the dawn of history.

That we—that the world as a whole—should be suffering from recession is not unprecedented. But the recession is deeper than it need have been. It was sparked off by the massive rise in oil prices, and deepened and prolonged by the slowness with which the major industrialised countries adjusted to these events.

But our unemployment is worse than other people's. In the industrial countries of the OECD there are 30 million people unemployed. Three million of these are in the United Kingdom. Our unemployment is some 12 per cent., compared with the OECD average of 8½ per cent.

If a person is self-employed, if he is a farmer, a tradesman or a professional man, his income adjusts automatically to the value of his output. If he produces little, he will earn little. But the person who is employed expects a rate of pay which today is largely fixed and determined by trade union negotiation. If this rate of pay exceeds the value of what he produces, he simply will not be employed. This is what has been happening on a very large scale in this country. People have been demanding pay rates and increases in pay quite out of line with what they produce. As a result, employment has fallen.

The very large increases in pay which took place in 1978, 1979 and 1980 were one of the major causes of the present level of unemployment. The result has been to divide our people into two nations—those still in employment, whose incomes are much higher than they were a few years ago, and those who are unemployed and who are carrying the burden of the excessive pay increases won by those who have remained in employment. Between 1977 and 1981, earnings of those in employment increased in real terms by 10 per cent. At the same time, unemployment doubled.

The primary responsibility for this lies outside Government. In so far as it is due to the excessive power of trade unions, we have sought to reduce that power both in the Employment Act of 1980 and in the Employment Bill which is at present before your Lordships. But the real onus, the real responsibility, rests upon the shoulders of the union leaders and, to some degree, on the shoulders of employers. It is for this reason that we have consistently over the years—and I have done so in your Lordships' House ever since I have been here—stressed the crucial importance of moderate pay settlements. It is only if pay increases are related to productivity that we shall re-establish our competitive position at home and abroad. This is the only way that sound long-term growth can be secured; the only way that sound employment prospects on a long-term basis can be created.

While, therefore, the onus and the responsibility thus rests firmly on the shoulders of employers and workers alike, we have taken a series of measures both in the tax field and elsewhere to encourage business generally, and particularly the growth of small, new businesses. The Finance Bill, which your Lordships have just passed, gave relief of £1 billion a year to industry. In addition to the reduction in the national insurance surcharge, the Budget included many other measures designed to help business directly—for example, the energy, construction, innovation and enterprise packages, as well as helpful improvements in the capital tax régime.

Growth is not simply a matter of the growth of existing businesses. Indeed, the problem too often is that particular industries expand, grow mature and then decline. It is vitally important, therefore, to encourage the emergence of new industries which will provide the growth and the opportunities for the future. This is why the present Finance Bill, in common with its predecessors, contains special measures designed to help the new, small business.

While, in the end, it will be soundly based growth in output which will provide secure employment, we have taken a series of special measures to help the unemployed. Next year, the new Youth Training Scheme will replace the Youth Opportunities Programme. The long-term unemployed will be helped by the Community Enterprise Programme and by the new scheme announced by my right honourable friend the Chancellor of the Exchequer in his Budget speech. The cost of all these schemes is £1½ billion a year.

I should like to take this opportunity to inform your Lordships of a further important measure which the Government have taken. I have reviewed the orders relating to hire-purchase and the control of hiring, in consultation with my right honourable friend the Chancellor of the Exchequer. We have decided that these controls should now be removed. Controls on hire-purchase were originally part of a wider apparatus of quantatitive controls on credit. Changes in the structure of the consumer credit market mean that they now contribute little to overall economic policy. Removing them is consistent with our policy of dismantling unnecessary controls in the interests of freeing competition and removing economic distortions. The abolition as from midnight tonight of these controls will benefit the sectors most affected by the regulations, particularly motor-cars, but in a way which is consistent with the Government's economic policy. A parallel announcement is being made in another place by my honourable friend the Minister of State for Consumer Affairs.

This is no time for weeping over the past or despairing about the present. This is no time for poring over the entrails of the chicken to search for shreds of evidence on which to base prophesies of doom. Pessimism is the handmaiden of defeat. Doubts become self-fulfilling. We need to build up our national self-confidence. We need to take pride in our achievements. We need to strive for success and build on that success. Slowly but surely, our policies are producing success. Our objective now is to reinforce that success; not to change course, not to mouth shibboleths, not to follow new fashions which are simply old policies dressed up in new clothes and presented by old men in new parties, but to remain steadfast, to place our trust in the British people, as they have placed their trust in us, and to pursue our policies to the success that awaits us.

4.9 p.m.

Baroness Seear

My Lords, I listened to the speech of the noble Lord, Lord Jacques, with interest, but also with some degree of sadness. It was the same old mixture as before, the same adversarial attack on what is going on, the same absence of any realisation of how deep-seated our problems are and how far back the causes of them reach. There is no excuse in the Labour Party for such a short-term view. After all, the noble Lord, Lord Kaldor, has instructed us on a very great many occasions—and the Labour Front Bench have heard it as well as all the rest of us—on the fact that the decline of British Industry stretches right back to the end of the 19th century. If this be true, it is a little short-sighted to concentrate so heavily on what has been happening since 1979. It is surely the great economic supporters of the Labour Party in Cambridge, the Wynne Godley group, who are taking the line that the disease in the British economy is such that nothing short of a siege economy, with all the disadvantages that that entails of import controls and the consequences which flow from it, is going to make the restructuring and the change which is essential if there is to be a real recovery a reality. So how the Labour Party can take the line that all that has gone wrong has gone wrong in these recent years, I find difficult to understand.

Moreover, the Labour Party has been in power for 17 years of the years since the Second World War. This has given them ample opportunity to deal with many of the problems which confront us today. They have been in a position of exceptional advantage in attempting to bring understanding of the true nature of the economy, of the need for greater competitiveness, of the need for greater efficiency to the attention (one would hope, with effective action) of their partners in the Labour movement inside the trade unions. What really have they done to get rid of overmanning, to get rid of the restrictive attitude towards change which has meant that the trade union movement, the trade union leadership, has done such a very poor job in improving the standard of living of its own members? "Rubbish", I hear someone say. Our people are very badly paid in comparison with our competitors. This is largely because we have failed to take the action which is necessary—as, for instance, the German trade unions took—in order to make the industry of this country more competitive. What have the Labour Party done to emphasise the importance of profitability? In 1973, the real pre-tax return on capital was 9.1. In 1979, that figure was down to 4.3.

Lord Ardwick

My Lords, is the noble Baroness forgetting that the Leader of her Alliance was Chancellor of the Exchequer for five years and regarded as rather successful?

Baroness Seear

My Lords, I do not at the moment take any responsibility for what Mr. Roy Jenkins did in another place, at another time and in another party. The failure to emphasise right through the country the importance of profit has been one of the real reasons why we are in so poor a state. The Labour Party as a whole, not just during recent Governments but over decades, has contributed more to the decline of this country by denigrating the activities of business in wealth creation than any other single factor. That is more among the intellectual, radical, chique element of the party—not, thank heaven! over-represented in your Lordships' House—than it is among the trade union movement as such and the industrial wing of the party. But failure to appreciate the importance of what the wealth-creating sector has to contribute has undermined the developments in this country which we so badly need.

Of course, there have been abuses of power by people in business who have taken unreasonable profit when they have been in a monopoly position and able to do so. But that kind of abuse of power—and it is the abuse of power which we should attack and not the fact of profit itself—is to be found in other sections, too. It is to be found in those elements of the public service which wish to build up large departments, when they are not really necessary, for their own aggrandisement. It is to be found when people inside the Labour movement and the trade union movement use the power which they have at a particular time in order to gain wage increases which are not justified in terms of what they are producing but which they are able to extract because of the power position which they exploit. That kind of abuse of power, on whatever side of industry and in whatever type of employment, is equally to be condemned. So it ill becomes the Labour Party to claim that all the error lies on the other side of the House. We for our part agree that the Government are right to pursue the attempt for greater competitiveness in British industry. There can be no question that the long-term prospects for recovery, and the maintenance of that recovery, for prosperity, for employment, depend upon the improvement in British competitiveness and upon our ability to maintain that improvement when we have it. We agree also that the attempt to reduce inflation has been absolutely essential.

But having said that, and unless anybody thinks that I am no longer sitting on these Benches, far be it from me to continue with any further support for the action and attitudes of Her Majesty's Government. Of course they have been attempting to do the right things, but what kind of a leadership has led to the belief throughout the country that the Government are indifferent to the disastrous consequences of much of their policy? Many of them, I believe, are not indifferent. But it is not enough that they have the right feelings inside them—if, indeed, they have, and I am prepared to believe it. It is the task of a Government to get over to people that they really do understand the disastrous consequences up and down the country for people of the results of the action which they have been taking and to alleviate those consequences in every way they possibly can.

The consequences are both economic and social There are well over 3 million unemployed and the figure is still rising. There are bankruptcies up and down the country of companies—many of them very good companies indeed. And they are the worst hit, because of the very fact that they have been operating in the export market where, above all, we want companies to operate. These are the people who have been hideously badly hit and the consequences will not be easily restored, for once an organisation has gone out of business the chance of bringing it back is pretty poor. Of course, the creation of small businesses to which the noble Lord the Minister has called attention, is desirable, but it takes a very great many small businesses to make up for the collapse of one large business and the consequences which flow from it. So if the Government are going to pursue this policy, with the right objectives of increased competitiveness and reduced inflation, they have to carry people with them, and they can carry people with them only if they get over, by whatever means they can, their understanding of the appalling price that is being paid.

I shall not give many examples of the social consequences of unemployment. It does not take much imagination to see what happens as the figures of long-term unemployment rise and rise and when we have a high percentage of school-leavers not getting jobs—though I accept that over recent months there have been moves to improve, and improve in the right direction, the policies to help school leavers. But just let me take as an illustration the relationship, for I believe that there is a relationship, between the increase in crime and the increase in unemployment. If one follows the trend line in the Government's own Home Office Bulletin of admission of youngsters to borstal and to prison and the trend line of the rise in unemployment, one cannot of course prove that the relationship is causal but there is a very remarkable correlation between the two lines.

Again, it takes little imagination to see what those increased rates are going to mean—not just now to those particular youngsters and to their families and to the people who are the victims of those crimes but what it is going to mean over the years to come, because we have so increased the numbers of people who have been confined in borstals or prisons, in terms of the sort of young men and women they will be and the sort of adults they will turn into in the years to come. Moreover, the failure to provide employment for youngsters leaving school, youngsters who quickly pass in to the 20s age group and then into the 30s age group and who have not had the opportunity of training or the discipline of employment means that they are going to remain a serious problem for decades to come, because these things are not easily going to be put right.

I say to the Government, now that things are beginning to change, surely now you can take more effective action to cut the level of unemployment. We are not asking for unthinking reflation. We realise that, if you reflate, to a great extent you will only return to inflation; that it will lead to a sucking-in of imports and to a rise in wages, because the Government have so foolishly set their face against any attempt at an incomes policy—which is the only other way in which one can attempt to check inflation or a return to inflation once recovery comes.

With judicious spending now on activities which will have to be undertaken sooner or later—carefully placed, low-cost job creation to reduce the number of unemployed, which is still rising—so many things can be done. The noble Lord has told us (in many ways we must be pleased to hear it) of a reduction in the hire purchase controls. That must mean that there is some flexibility in money supply, because it will surely mean increases in credit and in lending from the banks, which is in itself an increase in money supply. If there is to be more flexibility in money supply, surely there are other things which are equally as important—and I suspect more important—which could be done with it. For example, we need to allow the public utilities more capital expenditure based on borrowing. How long will the Government desist from the idea that investment in the public sector has to come out of current takings? There are therefore these very high charges for gas, electricity and the rest, which are affecting both industry and the ordinary householder alike to quite an alarming extent Surely the Government could now allow these industries to undertake some expenditure, which is now overdue and which will cost us a very great deal more when the time comes when we are forced to undertake it.

There are other exercises—not enormously expensive—which would reduce unemployment in the construction industry; the hardest hit industry of all, and an industry which can employ a very considerable number of unskilled people. Take for example sewerage; not a very exciting industry, but I understand that if something is not done about the sewerage in Manchester soon, it will be extremely difficult for Manchester to remain the healthy and thriving place it has always claimed to be. It cannot only be in Manchester that the drains are breaking down through lack of repair. That work must be undertaken quickly and could be started straight away.

Energy saving and improvements in housing could all involve quite small expenditure per job created. It is work that has to be done and so why cannot the Government start it now? I referred earlier to the importance of seeing that we do not continue with such a high percentage of people—and the number has been going up because of youth unemployment—who have not had any training. We know that the future prospects for the unskilled are bleak in the extreme. We know that we in this country have a far higher percentage of untrained people in our labour force than has any of our rivals. I accept that the Government have taken measures—belatedly, but they have taken them—so that by 1983, they will be improving the training prospects of youngsters. But we have a tremendous backlog of untrained adults, and this is something of very great urgency and something on which we should delay no longer.

In today's newspapers, it is reported that the Government are putting more money into a scheme following the promises of the Chancellor of the Exchequer in the Budget, which will make jobs available for a six-month period at a rate of approximately £60 per person. This will do something for the immediate relief of unemployment, but it does nothing in the longer run. What we need are more jobs of the kind I have been speaking about—with the prospect that they will remain as jobs and will be permanent jobs, even if it delays the fall in inflation somewhat over the months ahead.

There is a world of difference between a man or a boy—or a woman for that matter—taking a job knowing that it is going to last only six months and going into a job where they know that if they get down to it and work effectively, there is the possibility of continuing employment. The offer of a six-month job really does not deal with the problem of unemployment at all, except on the most temporary basis. We are now in a position where far too many people have had these short-term jobs and temporary opportunities only to fall back into unemployment and the cynicism which encourages unemployment; and there is no training element in these jobs. We do beg the Government to look again at this and at the ways in which, through voluntary organisations, enduring jobs can be made and maintained, and a proper trade union rate paid for the work to be done.

I fully understand that the noble Lord the Minister does have to go, but I hope that these points will be reinforced to him when he comes to reply. I do not wish to seem ungrateful for what has been reported in the newspapers today, but I am bound to say that it does not begin to meet the needs for continuing employment which has in it a real training component. Anything short of that is fiddling while Rome burns.

4.27 p.m.

Lord Rootes

My Lords, may I crave the customary indulgence of the House for a maiden speaker. I must apologise for my tardiness in making my maiden speech, as I have been a Member of your Lordships' House for 17 years. It has been my sad experience over many years to see the decline of Britain's industrial strength and its loss of markets throughout the world. Whereas British exports of manufactured goods accounted for some 16 per cent. of world exports in the early 1960s, they now account for only 9 per cent. The world recession has brought home to us our vulnerability, and we must judge the problem of today against a longer time span than the last three years, which has seen a depression in the Western world unknown since the 1930s.

With reference to the Government's economic policy, I, in common with others engaged in industry, have been pleased to see a reduction in the rate of inflation and the more realistic approach by industry which has resulted in a more efficient use of labour and resources; thus creating a situation which, it is hoped, will provide an opportunity for economic recovery and increased prosperity in the period ahead of us.

Before referring to specific matters, I must declare to your Lordships certain interests. As many or your Lordships may know, I was chairman of the former public company bearing my family's name. I am a past president of the Society o f Motor Manufacturers and Traders, and I am today a member of its council. I am also at present a director of Lucas Industries and of certain smaller companies in the retail motor trade. Indeed, I have spent all my working life in the motor industry. I mention this background becasue I should like to speak about that great industry, which my right honourable friend the Member for Leeds Northeast in another place referred to as the stunted giant as long ago as the early 1970s. Since that time its performance has deteriorated markedly.

My Lords, the importance of the British motor industry, in which I include component and vehicle manufacturers and supporting industries such as garage equipment manufacturers, is, I believe, undisputed. This industry employs some 500,000 men and women and contributes some 5 per cent. of our gross domestic product. In the last year for which reliable figures are available the industry exported products worth over £4,000 million. But the reason that our industry has been stunted is, in my view, the use of the motorcar as a special source of revenue and the use of the industry by successive Governments over many years as an economic regulator.

If we want a powerful internationally competitive industry we need fairness of fiscal treatment and a strong home market base. In the period from 1960 to 1973 there were no fewer than 13 changes in hire purchase controls. The constant fiscal changes which distorted the market for cars had a disastrous effect on the ability of the industry to plan ahead, given the long lead times involved and the major investments that are needed. My Lords, I had intended today to refer to the discrimination in the hire purchase terms applied to cars in comparison with other consumer durable goods, but after the statement made by my noble friend, Lord Cockfield, outlining the action to be taken by Her Majesty's Government with regard to hire purchase regulations, these remarks are no longer applicable. I am sure that the motor industry will be very grateful for this relief which the Society of Motor Manufacturers and Traders has urged upon Government.

There remain, however, other fiscal measures in operation which place the British motor industry at a disadvantage compared with our overseas competitors. I refer to the discriminatory car tax peculiar to products of the motor industry which successive Governments have seen fit to impose since the introduction of valued added tax. Also VAT itself is non-allowable for deduction on company purchases of cars, thus imposing in effect a tax on the cost of industry generally, in addition to affecting directly demand for the products of the motor industry. One has only to look at the circumstances of our major Continental competitors compared with our own to realise the extremely adverse effect which past discrimination against the motor industry has had. France now has a home market 25 per cent. larger than that of the United Kingdom, and Germany's home market is 60 per cent. greater, with total car production nearly three times the size of ours in France and nearly four times greater in Germany. This reflects, I believe, the difference in policies of governments. Neither the French nor the German governments operate tax or fiscal measures specifically against the motor-car.

The time is now ripe, I believe, for further steps to be taken in dismantling the fiscal discrimination that has so badly affected the profitability and therefore the efficiency and competitiveness of our industry. I should have liked to see in this year's Finance Bill a reduction of the present car tax of 10 per cent. as a first step to the removal of this discriminatory and harmful tax. I also feel that motor-cars purchased by companies for use in their businesses should be allowable for deduction of VAT. Your Lordships will recognise, I am sure, that it is in the interest of this country generally that we have a strong, profitable and competitive motor manufacturing industry. It is essential that the industry has adequate profitability to finance investment in new plant and machinery, in new models and in research and development. Only in this way can we attract and retain international investment in the vehicle industry and thus also provide employment and support for our component industry, which contributes about 50 per cent. of the motor industry's exports.

My Lords, in the light of these facts, may I express the hope that Her Majesty's Government will feel able, as soon as possible, to give further material assistance to the motor industry in the directions I have suggested, thus improving the contribution that the industry can make to the economy.

4.37 p.m.

Lord Underhill

My Lords, it is a privilege to follow the noble Lord, Lord Rootes, in his maiden speech, a speech which I am certain all noble Lords will agree has given the House information based on sound knowledge of our important motor industry and associated industries. I am certain noble Lords would agree that it is our loss that the noble Lord has not spoken for 17 years, and we hope it will not be 17 years, maybe not even 17 days, before the noble Lord addresses us again, not only on this subject on which he has great information and expertise but on other matters as well.

My Lords, before I knew I was to follow the noble Lord, Lord Rootes, it so happens that I was looking at my own maiden speech three years ago, some five months after this Government took office, when I spoke of the Government's policies as they affected the family. I note that I said then: We will all agree that millions of families depend upon the services provided by public spending for an effective standard of life; and … we cannot deal with this debate without considering the cuts in public services which seem to be intended or proposed. Life is to be made much harder for millions of families by cuts that will affect children, the elderly, the handicapped and the sick."—[Official Report, 24/11/79, Vol. 402, col. 103.] The noble Lord, Lord Cockfield, said we must not weep over the past. Some of us are weeping about the present, because when I said those words three years ago I did not know that unemployment would more than double. It has gone up two-and-a-half times since I spoke in that debate three years ago, and is now at a figure of 3.2 million.

When your Lordships debated unemployment in March this year, soon after the Budget, I referred to the TUC estimate based on Government surveys which suggested that if one took into account the special employment measures of the Manpower Services Commission and the fact that so many married women do not register, the figure of unemployment really would be 4 million. I note from the excellent report of your Lordships' Select Committee on Unemployment that in paragraph 3.3, it refers to an estimate that the figure of registered unemployed represents only 75 per cent. of those without jobs and seeking work. That would give a figure of 4¼ million. As has been said, that is some 13.4 per cent. of the workforce. It is the highest figure since unemployment records have been kept. Again, those with whom we are particularly concerned are the long-term unemployed—those who have been without work for 12 months and who number some 1 million—and the large number of school-leavers who have not had a job since they left school.

I do not propose to follow the noble Baroness, Lady Seear, in her critical attack. However, I must say from this side of the House that we have repeatedly stressed our faith in a mixed economy; we have repeatedly said that we believe in a mixed economy; and I am still waiting to hear from the Government side—and maybe from other sides as well—their faith in public ownership as well as in the development of private industries. We believe, generally, in a mixed economy.

I have said that I will not follow the noble Baroness, Lady Seear. I would prefer to follow the constructive arguments put forward in your Lordships' Select Committee on Unemployment in which the noble Baroness played a notable part as its chairman. That Select Committee said that it would be foolish to try to distinguish between the suffering of the different categories of unemployed: the young, the family man, the old, the school-leaver and so on. They said that such arguments are fruitless, and that: In our opinion, the main criterion for differentiating between the unemployed must be the length of unemployment. In all the above groups the long-term unemployed are most in need of help". I would agree with that statement in general, except that I should like to repeat the concern put forward by my noble friend Lord Jacques as regards the situation of the school leavers. Some of us left school at a very early age. The thought that one could be 19, 20 or more before one has even an opportunity of working, and the thought that one may possibly have left school two or three years previously, is to my mind appalling and a problem for both the present and the future. The figures in some areas are particularly frightening—for example, one in five out of work. Some towns in Northern Ireland have a third of the workforce without a job.

We are repeatedly told that the recession has reached the trough. We were told that again this afternoon. We have been hearing these statements from Ministers for the last two years. There has been statement after statement that we are now on the turn, but that does not seem to be reflected by the recent regional survey of the CBI. Neither is it reflected in the quarterly report of the Bank of England which was issued in June this year. The noble Baroness, Lady Seear, referred to company liquidations and bankruptcies. The actual figures for England and Wales are 5,550 for the first six months of this year; liquidations and bankruptcies reached record heights—nearly 22 per cent. above the figures for the first six months of 1981, and no less than 75 per cent. above the figures for 1980.

Cuts in local authority services not only lead to further unemployment but mean cuts in essential services which hit those least able to bear them. Cuts in local authority services mean also less purchase of supplies from private suppliers. There is a multiplier effect. So cuts in local government mean cuts in suppliers, and the development of further unemployment.

The numbers in the poverty trap are increasing—that is, persons whose wages are such that they cannot come into supplementary benefit, rent rebates, rate rebates, heating and other charges. That affects an increasing number of our people. The Secretary of State for Industry in a Written Answer on 15th July said that between the first half of 1979 and the three months ending May this year manufacturing productivity fell by 14.7 per cent. It may be encouraging to know that it has evened out, as we have been told, in the last few months; but there instill that huge leeway to be made up in our manufacturing industry.

I must ask: Where is the demand? We all want improvement in productivity—that is, more output per head. But if there is no increase in demand, the net result is more unemployment. Soon after I had made that note, I read the financial Guardian of Saturday which was making just the same argument—namely, that without an increase in demand any improvement in productivity adds nothing at all to the wealth of the nation. That is reinforced by your Lordships' Select Committee on Unemployment. Incidentally, the report of your Lordships' Select Committee was quoted time and time again in a recent debate in the other place as being a most constructive document worthy of consideration.

In paragraph 14.38 it says: While a reduction of the supply of labour can help to remedy unemployment, action on the supply side of the labour market cannot by itself hope to remedy the central problem of a shortage of jobs, seen most clearly in the absolute shortage of notified vacancies compared with the size of the unemployed stock. To remedy this problem action has to be taken on the demand side as well". The July figures showed a regrettable drop in the number of vacancies. Mr. Tom Clark, the recently elected Member for Coatbridge and Airdrie, in a maiden speech in the other place, referred to an advertisement by the Strathclyde Regional Council for 31 apprentices. There were written applications by no fewer than 3,585 persons—young people—for that limited number of 31 apprentice vacanies. Your Lordships' Select Committee's Report on Unemployment in paragraph 14.39, in the last sentence, said: If we wait for demand remedies to operate through general economic recovery, it will be a long wait. Action must be taken to create demand. It is our firm view that the Government must positively assist the creation of jobs". We now have a waste of skills. We have unused productive resources. All this has taken place at immense cost to the nation. Ministers repeatedly talk to us about public sector borrowing requirements. The unemployed number now 3.2 million and cost the nation some £15 billion a year—in other words, £15,000 million a year. We have repeatedly made statements in your Lordships' House about the cost of an unemployed person, and questions have been put to Ministers about it. The Select Committee's report has a section on this and it gives various tables taking into consideration the loss of revenue as regards income tax, indirect taxes and the loss of national insurance contributions; and the payment of unemployment benefit, the payment of supplementary benefit, rent and rate rebates and other similar provisions. Taking approximate figures, an unemployed person costs the state about £5,000 per annum.

The Government are seeking, we understand, a further cut in local government spending. Incidentally, that will be a £6½ billion cut in local government spending since 1979. Local authority bodies say that it will mean that another 160,000 jobs will have to go. Apart from the fact that there will be personal tragedies, it means another £800 million cost to the Exchequer because of loss of revenue and the unemployment and other benefits which have to be paid out. So what will be saved in local authority spending, the state will have to pay out in additional benefits and loss of revenue.

In the Northern Ireland appropriation debate last week the noble Viscount, Lord Brookeborough, urged the payment of £4 million to subsidise Northern Ireland's home grown cereals by £15 a tonne. He said that that was necessary to save 5,000 jobs. He said that the loss of those jobs would cost the state £25 million. There was no answer given to what he had to say. It would be interesting if we could have an answer today as to whether it is correct that the expenditure of £4 million could possibly save the state a net figure of £25 million.

The CBI is pressing on the Government the need for an economic package. In all, it wants some £1,800 million reflation. I agree with the noble Baroness, Lady Seear, that there must be moves on constructive jobs—not just filling in holes; for example, building works, reconstruction of sewers, roadworks and—yes, we shall come back to it—vital railway electrification schemes, all of which will help the private suppliers as well.

The noble Lord, Lord Rootes, has said that he welcomes the changes in hire-purchase controls and, although I think most people would recognise this, we must beware of a huge increase sucking in imports, because that will not do this country any good at all. There needs to be the creation of demand. Without demand we cannot possibly reap the benefit of any other measures which are taking place. The TUC wants this, the CBI wants this, the Labour Opposition wants this, and, in varying degrees, the Liberals and the Social Democrats want this. The only people who do not want it are the Government, and I hope that they will listen to this plea this afternoon.

4.51 p.m.

Viscount Chandos

My Lords, in thanking the noble Lord, Lord Jacques, for introducing this debate, I am struck by how apt the Motion is and how unsurprising his phraseology. It seems almost natural to associate the Government's economic policy with cost and not with benefit, not just as a political opponent of this Government, but as anyone working or not working, as the case may be, in this country, anyone retired or anyone studying. The Government did not, of course, promise that it would be easy, but it seems tragic that so much has been sacrificed by so many for what is, so far, so little.

As someone who has recently also made his maiden speech in your Lordships' House, I am full of admiration for the speech of the noble Lord, Lord Rootes. I hope that we shall hear him many more times and that every time he speaks the Government will ease the burden on the industry with which he is so closely associated.

When I spoke a few weeks ago in the debate of my noble friend Lord Kilmarnock on youth unemployment, the Minister, the noble Earl, Lord Ferrers, felt that I had spoken with bitterness about the Government's economic policy. He and his noble colleagues will probably think that I have not mended my ways. Indeed, the noble Lord the Minister, Lord Cockfield, has conferred upon me the burden of being an old man in a new party, perhaps to teach me a lesson. But I should add that it is not for me to speak about the Government's economic policy with bitterness, but perhaps only, like my noble ally, Lady Seear, with sadness, because, as the noble Lord, Lord Jacques, has illustrated, there are millions of people in the country who have just cause to feel bitter about the Government's policy.

I hope that your Lordships will forgive me if I rehearse once more the record of the Government and the prospects for the remainder of their term of office. Noble Lords who have already spoken have run through the depressing statistics and I am sure that many more this afternoon will do likewise. Even if repetition of these figures strikes no chord with the Government, perhaps it is a ritual that we should undergo out of respect to those who, through no fault of their own, have suffered through the Government's economic policy.

Since May 1979, real national income has fallen by around 7 per cent., industrial production by 13 per cent. and manufacturing output by almost 20 per cent. In each case, these figures are worse than the equivalent figures for the year 1929 to 1932. Adult unemployment has risen from 1.2 million in 1979 to more than 2.7 million now. Total unemployment now exceeds three million for the first time since 1952, representing one in eight of the work force. The number of long-term unemployed exceeds one million, more than double the figure prevailing when the Government came to power.

These then are the figures which illustrate most starkly the costs of the Government's economic policy, and even the Government must have been dismayed by how much greater those costs have been than they expected—with the Chancellor embarking on his monetarist experiment in the expectation that unemployment would not rise above two million. Certainly, the economic climate worldwide has been harsher than expected, as the noble Lord the Minister has said. But, as I have also suggested before, the Government cannot entirely dissociate themselves from the cause of that global recession, either directly through the United Kingdom's own part in world trade or indirectly through their support for other Governments pursuing similar policies. Nor, as the severity of the problems outside the United Kingdom become apparent, can the Government be blameless for making so little adjustment to their policies according to the changed circumstances.

But, if these are the costs, perhaps they can be justified by other achievements in economic management. The Government made clear at the time of the last general election that they saw the fight against inflation as the first priority. Even if the costs were much higher than the Government expected—and so very much greater perhaps than the electorate were led to believe—real and long-lasting improvements in other areas of the economy might mean that all will not have been in vain.

In the last calendar year before this Government came to office, the retail price index increased by 8.3 per cent., and, while the trend inherited by the Government was certainly one of rising prices, the new Government's subsequent action and inaction, errors and omissions, set the rate accelerating upwards again far faster than would otherwise have been the case, so that the annual rate for 1979 was over 13 per cent. and for 1980, 18 per cent., after periods when the annualised rate was running at closer to 30 per cent. than 20 per cent. So now the Government wish to take credit for an inflation rate which is once more in single figures and about the same level as that prevailing when they took office. Both Government and independent forecasts certainly suggest that the rate of inflation will go lower still, to a level perhaps that we have not seen for some time, and that an upward trend will not develop for some little time.

But how many of your Lordships believe in your hearts that the root cause of the country's economic malaise will really have been tackled so that economic growth of any noticeable level can be resumed without inflation accelerating again? I suggest that it is not possible to impose real cuts in the income of much of the country's workforce, private sector and occasionally public sector alike, through fear and the big stick. Where there have been gains in productivity and improvements in working practice, it has often been at a terrible cost both materially to those keeping, as well as to those losing, their jobs, and to the relationship between the workforce and the management and even between the workforce and its own unions.

Even if I differ with many of those sitting on the Government Benches on whether the policies of the last three years have produced benefits that are remotely comparable with the costs, I do at least hope that, starting from this point—from which I would not have chosen to start—they will agree that policies must be adopted that will allow the paltry benefits to be maintained and built upon. If the profit and loss account of this Government's economic policy is drawn up then, I believe that the figure on the bottom line will prove to be negative. The noble Lord, Lord Bruce of Donington, will tell you better than I that accounting is an art and not an exact science, and in economics perhaps it is more difficult still to get agreement from all sides.

But even if the Government's economic auditors can be persuaded to see a profit and not a loss, what can be said about the second proposition of the noble Lord, Lord Jacques, that the costs involved have been borne unfairly by those who have been least able to bear them? To say that the plight of those two million people who have lost their jobs since the Government came to office was better than that of the people without jobs in the great depression would perhaps be to damn the Government with faint praise. Perhaps that is what the Government deserve. I and all my noble friends on these Benches therefore deeply regret the failure of those in another place to persuade the Government to restore the five per cent. cut in social security benefits.

In general, the Government's economic policy has widened the gap between rich and poor, both between individuals and between regions. The switch in emphasis from direct to indirect taxation, quite apart from a severe effect on the rate of inflation, further discriminated against the least well off. The cuts in direct taxation, particularly for those with higher incomes, may not have caused the Government to lose much revenue, but it did nothing to improve the relations between the lower paid and the out-of-work and those in well paid positions—and I fear that legacy will come to haunt us in the future. I hope that this—or more likely the next—Government will exercise greater sensitivity in balancing the need for incentive and the need for fairness.

There have been real cuts in the health service when measured against the population's demographic changes, and there have been cuts in education and the provision of facitities for culture and leisure, which have generally seemed to be based on pettiness or even xenophobia more than economic management. With nearly 20 more noble Lords still to speak this afternoon I shall not list further instances of the Government's dismal record. Instead, perhaps with humility, I could try to sum up what I see to be the Government's greatest error in their economic policies and, from that, try to draw a more positive and possibly optimistic conclusion—dependent either on the Government changing their policy or, more likely, on a change in Government.

Many observers associate the single—or should I say narrow—minded pursuit of monetary targets by the Government most closely with the damage suffered by the real economy. It is undeniable that this was the most important factor in pushing interest rates and exchange rates to levels which caused devastating and irretrievable damage to British industry. The noble Minister, Lord Cockfield, is rightly proud—as am I—that many British companies have overcome these obstacles, remained in business and even prospered. But many have unnecessarily gone to the wall or have had to cut back drastically, and many more will bear the scars for years to come—to say nothing of their current and former employees.

The noble Lord, the Minister is therefore straining the credulity of your Lordships in asking for the Government to be given credit for the fall in interets rates which has occurred, from the very high levels engineered by their own folly. In fact, I believe that the fall in interest rates has occurred not solely because the Government have forced the country into the deepest recession for 50 years, but also because the Government have in fact changed their policy to take greater account of other variables such as the exchange rate. As long ago as 1970 the Bank of England Quarterly Bulletin published what I still believe is a classic summary of monetary policy and its effect on economic activity. Its title was The Importance of Money, so one would have expected the Government to regard it favourably. But it concluded: Basing policy, quasi-automatically, upon the variations in one simple indicator would lead to a hardening of the arteries of judgment. The arteries of judgment were certainly hardened for many painful months in the last three years, but perhaps we should be thankful that they have not yet hardened terminally. In fact I believe that there is something more fundamental behind the Government's mistaken policies, and something which relates ironically to the mistakes committed by the previous Conservative Government. I hope that to suggest this will not cause too much pain to those of this Government who have devoted so much time to dissociating themselves from everything they and their former colleagues did a few years previously. My right honourable colleagues in another place are not the only ones who have to justify their past actions.

The Conservative Government of 1970 to 1974 tried to shape the country's economy into the sort of growth rate to which developing south-east Asian countries could aspire. The result was unmitigated disaster. This Government have tried to apply an equal if not greater shock to the system in a vain attempt to achieve the sort of 19th century society in which the workforce gratefully accept whatever pay, whatever conditions, or whatever largesse an autocratic employer dictates. That too, if continued, will end in disaster. The Conservative Governments since 1970 have acted like two doctors treating a sickly, perhaps rather portly, patient. The first doctor, having tried to make the patient run a marathon in the midday sun, has been succeeded by the other who has tried to make the patient swim in Arctic waters—with both hands tied behind his back. It is perhaps surprising that the patient has not expired altogether.

My Lords, the British economy, as it merges from an industrial age into a post-industrial age, is a temporarily frail but essentially robust patient. It cannot, however, survive the shock treatment meted out by this or other recent Governments. The noble Lord the Minister has tried to mock the policies advocated by my party as having been tried and failed. With respect, I should like to suggest that previous governments have never in the recent past applied stable policies to industry and commerce for long enough to allow any real chance of soundly-based economic recovery. The Social Democrats propose economic and industrial policies which combine long-run stability with gradual changes in vital areas such as industrial democracy. I believe that the electorate next year, or the year after, will see this to be a far better way than further sharp and unsettling changes, whether they be more deflationary monetarism or import controls, nationalisation and withdrawal from the European Communities.

5.8 p.m.

Lord Kindersley

My Lords, awed by my surroundings and by the distinction of the speakers who have preceded me and of those who will follow, I am nevertheless daring to say a few words of a general nature in this debate upon the Government's economic policy. Perhaps I should first admit that I am by nature an optimist, and I should also make it clear that I have spent a large part of my business life travelling round the world trying to finance exports of capital goods from this country. I therefore find myself continuously looking at this country from afar and of discussing and listening to the views upon our situation of others from abroad.

In the past even my optimism has been shaken, and something very close to depression has taken its place as I have seen us slipping further and further behind in the exports stakes. Why has this happened? There have been some explanations in the House today, and there are of course a number of reasons and even more theories about why. But it would be presumptuous of me to expound my own theory on this, the first occasion on which it has been my privilege to address this House. It is enough to say that management and labour have been equally to blame, and it is sad that only an excessively severe economic and financial squeeze has inspired both to come to their senses, to recognise the facts of life, and to work together to become competitive again.

Of course it is painful. When one lives in a land of make believe for so long one comes down to earth with a deafening, sickening thud, and some firms and even industries have died on landing. Others, on the other hand, have found spring heels of which they were only dimly aware and they are now preparing themselves for action. I say "preparing" because we are a nation that depends on world trade, and world trade is laboriously trying to get out of the low gear in which it has been grinding along for far too long.

There are encouraging signs. The recent lowering of interest rates on both sides of the Atlantic is one. But there are also ominous ones, and among the most ominous are the signs of deterioration in the balance of payments of the developing countries. This is a cause, in my view, not just for concern but for alarm. Their condition is precarious and has come about for reasons which are quite outside their control. The Western World surely cannot be content with a situation in which the prices of manufactured goods exported to these countries continue to rise, while the prices of the commodities on which their purchasing power depends continues to decline. There is a limit to the benefit an industrialised country can get from the terms of trade moving in its favour. That limit has clearly been reached when its customers go bankrupt, and that has started to happen. I realise there is no ready answer to this problem, but solutions must be found if the Government's economic policy is not to be knocked sideways by the bankruptcy of the developing world.

5.12 p.m.

Lord Ardwick

My Lords, first I wish to congratulate the noble Lord, Lord Kindersley, on his maiden speech, which was worthy of the famous name he bears, and not only on the male side. I recall that when I was at the Observer newspaper there was a Miss Kindersley—possibly an aunt or great-aunt of the noble Lord's—who kept us on the straight and narrow financial path, a very necessary endeavour with profligate newspaper men.

I must also congratulate the noble Lord, Lord Rootes, for bringing to us his industrial knowledge. There was a time when it was suggested that this House should really be a house of industry, and if we had had a number of people like Lord Rootes, that might indeed have produced a very good house. I am sorry this was not the maiden speech of the noble Viscount, Lord Chandos. If it had been his maiden speech, it would have been quite acceptable for me to say it was one of the most superb radical speeches I had heard in your Lordships' House. But as it is not customary for members of this party to bestow praise on members of the SDP, I am afraid I must abstain from so doing.

Every schoolboy in every fifth-form debating society knows there are differences on economic policy inside the Government and in broader Conservative circles. And, like all internal differences, this one is marked by some acrimony and sometimes some acerbity of speech. Yet the difference between the two sides is not very great quantitatively. They are those between a group who want a modest and selective reflation and a Government who intend to stick to their deflationary course with perhaps a small modification to prevent further decline in output and profit. The difference is not very wide because it is now conventional pessimism or realism to say that it is impossible to take any major reflationary action though economic management as practiced since 1945 in order to make a serious impact on unemployment.

We seem to be back to the 1930s when Governments could see no positive way of dealing with mass unemployment and could only pray that prudent finance would, in the end, produce an upturn, and of course that upturn did come in the 1930s with a building boom followed by a rearmament boom. Many of us this afternoon, as we listened to the noble Lord, Lord Cockfield, talking about old policies in new clothes, must have felt that what he was propounding was very much an old policy in old clothes. Many of us remember, looking back to the 1930s, how long were the years of anguish, how deeply the shame of mass unemployment gnawed at the national conscience and how inadequate the recovery was; even when war began, the level of unemployment was still unacceptable. Now the unemployment is back with us, though with some differences; the 1930s were years of chronic deflation while the 1970s are years of chronic cost inflation; but both seem to create a deficiency of demand.

All we thought we had learned in the recent past about demand management is now regarded as fallacious and dangerous, the harbinger of further inflation and the creator of further unemployment. Yet the Government's policies seem to be making things worse. They have seen a succession of false dawns in the past 12 months, and if they are compelled to act now in the modest way they have suggested this afternoon, it is surely out of shame that their prophecies have been so false. We have been eternally bottoming out of the recession, yet we always seem to be in the same place.

Behind them they have a tremulous Treasury who seem to fear that if the economy were to take off, there would soon be a formidable deficit on the external account. We are told that even the modest goal of getting unemployment down to the still unacceptable level of 2 million would produce a payments deficit of about £5 billion, and that could not be sustained for long. The reason given for not taking the risk of stimulating the economy in any serious way is the economic stagnation among the industrial countries of the world—among those countries in which we should have to expand our exports. Until they move forward, then, it is argued, we must just carry on as well as we can.

We look back on the decade before 1973 as a golden age. The developed countries then had an annual cumulative growth rate of 5 per cent. Then came the oil shock and for two years growth almost stopped. But growth came back, though at a lower rate, until the second oil shock in 1979. Since then, growth has almost stopped and the forecasts are frightening. The developed world is not expected to grow by more than 3 per cent. a year, and Europe by even less. If that is so, it means there will be no real reduction in unemployment.

The noble Lord, Lord Cockfield, made several optimistic projections today, putting despair behind him, but there was one he did not make. He did not say when unemployment might come down even by half a million, to 2½ million; he did not even say when it might be a quarter of a million fewer than it is today. You cannot make a speech which purports to reflect some optimism about the Government's policy without saying something about its impact on unemployment.

Faced with this situation, this world recession, you would expect that statesmen would seek a world solution and that Britain, as a nation more dependent than most on international trade, would be in the van of the movement. Not so. The June summit at Versailles looked at the 30 million unemployed in the developed world and it did nothing. The unhappiest figure at Versailles was the host, M. Mitterrand. Just after he came to power he tried to persuade the member nations of the European Community to attempt a concerted expansion, but he failed to convince Mr. Schmidt and Mrs. Thatcher that that was practicable. He has already encountered difficulties of trying to reflate alone in a stagnant world. He has had to devalue, and impose a wage-price freeze. I thought that the Guardian put it rather neatly: It is difficult to act separately and impossible to act together while Mrs. Thatcher and Mr. Reagan refuse to alter their policies". They are both old laissez-faire characters, sturdy believers in a dubious faith that the market will do the job on its own, if we can only suppress inflation.

Yet, without some management of demand, without a firm attempt by the developed world to create and maintain stable parities based on economic performance, without some agreement on interest rates, we shall never bring back the conditions of full employment. So far, unemployment has been accepted with remarkable complacency. But these are still early days. I think that many of us cannot really believe that the golden age is over. Savings, plus the solidarity of families, less ungenerous—even with the 5 per cent. cut—unemployment pay than there was before the war, and the decline in the guilt-inducing puritan work ethic, have for the moment alleviated the plight of many of the unemployed.

Unemployment is still felt as a personal problem, rather than as a social problem. There must be much private despair today, even if television and convenience foods are an improvement on the cinema and the bread and "marge" of the 'thirties. But there is a real danger that one day the despair will boil over, and since we live in what Marshall McLuhan called a global village, it could well be a world movement.

However, the Government seem to accept that high unemployment is a permanent phenomenon of our society, and so we must learn to live with it. The conscience of the employed classes, especially the employed middle-class, has not yet been touched, as it was in the 1930s, when it produced a movement of opinion which helped to create the revolution of 1945. But touched in the end it will be, if unemployment at its present rate is allowed to go on. The danger will be that out of the despair will come policies as vain as those which are now being pursued, and perhaps even more socially dangerous.

5.23 p.m.

Lord Boyd-Carpenter

My Lords, the debate has been marked by two extremely distinguished maiden speeches, both delivered by bearers of names of great significance and high regard in British industry. I suppose that it would be an impertinence for me to seek to congratulate the noble Lord, Lord Rootes, since he disclosed that he had been in this House nearly twice as long as I have, but I am sure that we share the hope expressed by the noble Lord opposite that he will allow an interval much shorter than 17 years to elapse before he next addresses us. Listening to the maiden speeches of both of my noble friends, I could not help thinking what a powerful argument their presence in the House is for the existence of your Lordships' House as at present constituted, because here we are able to draw on reserves of experience and practical knowledge of the working of the British economy at a high level which, though comparisons are invidious, it would not be possible for another place to match.

I want to come at once to the assistance of the noble Lord, Lord Ardwick. He began to refer to the speech of the noble Viscount, Lord Chandos, and then suddenly recalled that he was not officially on speaking terms with a member of the noble Viscount's party. I should like to pick up what the noble Lord half said. The noble Viscount undoubtedly made a speech of a splendidly old-fashioned, radical kind. Indeed, I hope that he will not mind my saying that he took me back about 37 years, to the time when Members of another place were occupying this Chamber, when members of the Labour Party were sitting where the noble Viscount is now sitting, and where the kind of speech that he made was made again and again by the less sophisticated supporters of the then Administration.

It struck one as odd that the speech should come from a representative of a party that has told us that it is going to create a new mould for British politics, that it is all going to be new and splendid, and that the older parties are to disappear. In the speech—I think that when he reads Hansard tomorrow, the noble Viscount will find that what I am about to say is not unfair—we had just the same sad tale of woe and of grievances that we heard so often from members of the Labour Party in this very Chamber, when it was occupied by Members of another place all those years ago.

What we did not hear from the noble Viscount, any more than we heard from those whose speeches he sought to emulate, was any indication of what his noble friends, or his right honourable friends—including even the two of them who I think have actually been elected as such in another place, as opposed to those who were elected under other colours and now sit there under SDP colours—would actually do about the present situation if, by some fantastic freak of the electoral system, they were to be placed in a position of responsibility. We heard not a word. I say in fairness to the noble Lord, Lord Jacques—though I disagree with his remedies—that he and the noble Lord, Lord Underhill, with the great ability that they both show, gave the policy of the Labour Party. In a masterly speech, my noble friend Lord Cockfield expounded the policy of the Government, But it is curious that the SDP now apparently wishes us to know that it has nothing to offer—a matter which does not occasion many of us any undue surprise.

I am sorry that the debate is not taking place on the Finance Bill itself, rather than on the Motion of the noble Lord, Lord Jacques. The matter was otherwise arranged, and we must abide by the arrangement. But of course this House is fully entitled to debate the Finance Bill, and it would be a great pity—I think that the noble Lord, Lord Jacques, himself would agree with me—to start establishing the custom that the Finance Bill should go on the nod and that a debate on another Motion be taken. That would mean that very soon those who compile the documents that guide us would begin to say that it was not the practice of the House to debate the Finance Bill. So I serve notice to my noble friends that if next year a similar expedient is attempted, they will find that there will be at least one noble Lord who will insist on excercising his right on the Finance Bill, even if it upsets the nicely worked out programme of the Government of the day.

I am strengthened in that view by the really quite extraordinary Motion of the noble Lord, Lord Jacques. The Motion refers to the "real" cost of Government policy. What does "real" mean? I can understand the reference to the cost, but what is the difference between the cost and the real cost? Is the word put in only for decoration? Yet the House is having its attention drawn to this phrase, even though at the end of the debate the noble Lord will probably not press the Motion.

The other part of the Motion refers to those least able to afford the cost. I wonder whether we can get clear exactly whom the noble Lord means by the word "those". First, does he mean the unemployed? All of us in this House—there is no difference between us on this—care a great deal about the position of the unemployed. Where we differ is on what is the best method of finding them employment and getting down the horrifying numbers of unemployed. Is that what the noble Lord means? If he does, then I must differ from the terms of his Motion, because I believe that what the Government are doing is the only sound and long-term way of dealing with the problem of un-employment—and that is, above all, of course, in the interests of those who today suffer the appalling misfortune of unemployment. Or does he refer (as in some parts of his speech I rather thought the noble Lord was referring) to the lower paid? This again, of course, is the traditional Labour Party line. The Labour Party always suffers from what you might call the Lazarus syndrome; that is, they tend to feel that those who are on low earnings are in some ways so much more meritorious and valuable than those on higher earnings. This reflects, I think, where the real, basic difference between the parties arises.

The noble Lord's Motion, and his speech, concentrated on the distribution of wealth, which is the prevailing interest of the Labour Party. It did not attempt to deal, if he will allow me to say so, with what to some of us on this side seems the more important point—the creation of wealth. Here we come, you see, to the great difficulty, if what the noble Lord is referring to is the lower paid. It may well be the case (I think in many cases it is the case) that if you wish to stimulate economic recovery you have to treat with particular tenderness those who are effective wealthproducers—many of them, of course, the better paid. You must not discourage them by excessive taxation; you must not induce them to go abroad because they feel they are not allowed to retain a proper share of their earnings in the United Kingdom; you must not discourage them from additional effort and responsibility because they feel that they are not going to get the reward for it. This, I think, is where the fundamental difference between the parties lies, and it came out very clearly this afternoon.

The Labour Party, as I say, is concerned with the distribution of wealth. Of course, that is a very much easier problem than the creation of it. Gray, I think, dealt with it thus: Th'applause of listening senates to command, The threats of pain and ruin to despise, To scatter plenty o'er a smiling land, And read their history in a nation's eyes". If government in a modern industrial society at the depth of a world depression was as easy as that, then the problems of my noble friends on the Front Bench would be very largely resolved. But the only problem on which the solution of the others depends is how to increase, how to maximise, the creation of wealth.

I am not asking your Lordships to take this from theory. Perhaps your Lordships would cast your minds back to what is now called the Macmillan era, the era of the 1950s and early 1960s, when every year the national product rose and every year the yield of taxation increased and the rates of taxation were reduced, but even so there was a surplus available, because of the growing national income, out of which to finance improvements. At that time improvements in social services (with which I, as some of your Lordships may remember, had a certain amount to do) and other activities of the state were financed every year out of growing national prosperity.

It was because at that time, and for a time, it appeared that the problem of increasing the creation of wealth was being solved that in those days unemployment was low, inflation was negligible, the social services were increased (sometimes by appreciable amounts) every year and the individual standard of life of citizens at all levels improved. It must surely be the object of policy of any Government to try to get back to a similar state of affairs in which wealth is being produced in such quantities that it is available to finance all these efforts in that way.

My noble friend Lord Cockfield, I thought very properly, attributed to the attitude of organised labour, at least some of the blame for our failure today to create additional wealth, and I am afraid there is a great deal of truth in that. Let us start with the basic fact, which was referred to at col. 730 of the Official Report of 9th March of another place, by my right honourable friend the Chancellor of the Exchequer in his Budget speech. He said—and I think this is extraordinarily significant in this context: Since 1960 the real purchasing power of the average citizen … has risen by over two-thirds, but over the same period, from 1960, the real return on capital employed in British industry has fallen by five-sixths". There, apart from the world situation, is surely one of the factors which has generated massive unemployment in this country, because if the return on capital is cut back, if profits are cut back, two things happen: there are not the resources available for new investment, nor is there an inducement to investors to invest in British industry. It is because, largely under the influence of the trade unions and the pressure they have exercised, the return on capital employed in British industry has sunk, under all Governments, for the last twenty years, that, I suggest to your Lordships, a good deal of our unemployment has arisen.

My Lords, it does not stop there. Your Lordships know only too well how out-of-date union reactions have handicapped management in trying to modernise industry and in trying to achieve high productivity. The tragedy of the ASLEF strike will leave its financial consequences with the railways, and so with our community, for years. Some people years hence will be unemployed because of the ASLEF strike in 1982. The behaviour of the unions in the docks and in Fleet Street, the overmanning and the inefficiency which results from it, all, in the long run, lead to lack of competitiveness and therefore, ultimately, to unemployment. These are the facts which we have to face, unpalatable to many of us as they are.

These are not the only factors, of course. I myself believe that the Government could do more by way of capital investment. I am wholly against those who wish to speed up current spending, because that money employs people temporarily, no doubt, and then it is gone. But money invested in viable and profitable capital investment—profitable in the broad sense—is there to increase our wealth-creating capacity for the future. I often think we did better some years ago in the presentation of the Budget when we presented current expenditure above the line and capital below it. That, in a way, emphasised to those who, unlike the noble Lord, Lord Bruce of Donington, are not accountants, and who would not be worried by this anyhow—it got into everybody's mind—the very fundamental distinction between current and capital expenditure.

While I criticise the Government to some extent for not cutting current expenditure even more than they have—though from my past experience I know how hard that is—I think they ought to consider, by way of investment, a considerable expansion. If I cite the motorways, to which the noble Earl, Lord Avon, referred earlier today, or airfields or house construction, I suppose I should disclose an interest as chairman of a company which manufactures cement. But I am trying to put that out of my mind for the moment, and I am suggesting that some additional stimulus should be given to the economy, because I believe some additional stimulus is needed. Though the symptoms are good, though inflation is coming down and productivity is going up, though there are good signs, I think some acceleration of this process is desirable for many reasons, and I suggest to the Government that it can best be done through stepping up public investment as well as facilitating private investment.

The only other aspects of the matter which I hope that the Government will consider are the burden on industry of taxation; a great deal still of the notorious national insurance employers' surcharge remains, a direct tax on employment which is wholly indefensible at a time of high unemployment; the very high level of local rates which fall heavily on industry—and industry has no vote, no say in the decision as to what the rates should be. Rates have become a growing burden on companies, given the large increases of recent years. I am told that rates paid by industrial and commercial companies as a proportion of their real, inflation-adjusted, pre-tax profits, excluding North Sea activities, but before deduction of interest, have risen from about one-sixth in 1980 to well over a half in 1981. I understand that there is to be a Statement tomorrow on local government expenditure. I hope that it will not exclude the context of the heavy burden of rates on industry, which can do nothing about them except to add them to its costs.

Nonetheless, my Lords, I remain moderately optimistic. I believe that the Government's policies are working through, although I should like to see them accelerated; and I would remind your Lordships of some remarks made by that very remarkable man Mr Lee Kuan Yew on a visit last week to this country. I had the privilege of hearing three speeches from him, every one a joy. In one of them, he referred to the position of the British economy and he said—and I am closely paraphrasing—that what you need in Britain is to show the same spirit in economic and industrial activity as you have recently shown in the Falklands. If you have that unity of spirit, that willingness to sacrifice, that determination to get on with the job regardless of difficulties and past practices, there is no reason why this country should not recover.

Those words come from, I think, one of the greatest men in the world, a man whose own Singapore is an example to the world of how well run a small community can be, a community that has grown and prospered. It is advice given to us, I think in the kindliest way, by a very great man. I hope that we will follow it.

Viscount Chandos

My Lords, before the noble Lord sits down, I should like to answer him briefly. I did not think it appropriate to rehearse the detailed policies which my party outlined in this document and many others. I will happily send the noble Lord a copy. What I did was to try to outline the general philosophy which my party holds and which, if the electoral system (which the noble Lord himself says is freakish) allows us, would give us the chance to promote the creation of wealth and not the destruction of it.

5.44 p.m.

Lord Wells-Pestell

My Lords, it was not my intention to participate in this debate, for the simple reason that we have been down this road more times than I care to remember in the last three years. We have had a number of debates on the economics of the Government. The noble Lord, Lord Boyd-Carpenter, is usually one of the fairest people in this House. I had reason to be grateful to him when I was a junior Minister because he came to my rescue on more than one occasion when he told his own side that they were quite wrong; and that is always a delight if you happen to be on the other side. I would point out to the noble Lord—because I think he treated the noble Viscount, Lord Chandos, and, for that matter, my noble friend, Lord Jacques, a little unfairly—that, if one reads the Motion, one sees that we are under no obligation to this House to talk about policies.

The Motion is: To call attention to the real cost of Government economic policy during the past three years and the extent to which it has been borne by those least able to bear it". There is no mandate anywhere in the Motion to talk about policies and there is no reason why we should do so. If the noble Lord thinks that the use of the word "real" is unnecessary, may I point out to him that if you take out the word "real", you do not deal with the really significant features to which this Motion wishes to draw attention. On can ask a man what it costs to run his car. He will tell you what it costs. But the "real" cost is the cost taking into account depreciation and all sorts of other things. It is the real cost of this Government's activity that I want to concern myself with at the present moment.

My Lords, I am concerned with the effect that this Government have had upon a large section of our people in the last three years. I am not concerned with the economic aspects; I am concerned with the effect of Government policy on those people who are least able to withstand it. We have been told of what has happened in a number of ways but, when one looks at the present system resulting from this Government's activities, we heard from two speakers this afternoon in your Lordships' House—my noble friend, Lord Jacques, and the noble Viscount, Lord Chandos—neither of whom was contradicted by the Minister himself or by anybody speaking afterwards that the poor had become poorer and the rich had become richer. This has not been denied because it cannot be denied. It is a fact and it speaks for itself.

The other thing which grieves a good many of us is this treatment by the Minister and by those, who support him of unemployment as a statistic. When it was mentioned in the House of Commons last week that there were over 3 million unemployed, the Prime Minister said that it is very disturbing, indeed. The noble Lord, the Secretary of State, Lord Cockfield, this afternoon said that it was a great social problem—and there it finishes so far as the party opposite is concerned. There has not been one Member of the Government side who, to my recollection, raised one word in defence of the unemployed when their unemployment benefit was reduced by 5 per cent. Yes, in the other House, there were about two dozen who were prepared to put their political future on the line and who had the courage to do something about it. But, to my knowledge, there has not been a single Member of the Government side who rose in defence of the unemployed.

My Lords, can you imagine a more wicked, a more paltry action on the part of any Government than to take the worst-off section in the community and say, "We will reduce your income by 5 per cent."? It is not a statistic. It is 3 million people with red blood coursing through their veins, people like you and me who, perhaps, in many instances do not know where their next meal is coming from or who, if they do, know that it is going to be a very limited meal. You cannot dismiss them by saying that it is 3 million unemployed. It is 1 in 8 of the working population, or 13.4 per cent. of the working population. Of that number, something like 303,000 are school-leavers. There has been no evidence at all in the past three years of efforts by the Government to do anything tangible for the unemployed. In fact, as I say, they reduced their benefit. They have been accepted as a statistic. I think that the Government have either lacked the will or do not have the real wisdom to do anything about it.

It is all very well for the Government to take the view that we are getting round the corner, that we are overtaking recession. Last week the chairman of the CBI did not think that the Government were dealing with the situation. A few days ago the chairman of the Association of Chambers of Commerce did not think that the Government had yet come to grips with recession. So I think that the time has come when the Government will do well to consider what kind of society we really want in this country. With the very greatest respect, if I may say so, it will depend on our concept of social justice. I beg the Government to consider this.

If they consider that the kind of society that we want in this country, notwithstanding the economic difficulties—and I do not deny for one moment that we have had economic difficulties—is going to be based on social justice, then I believe that there are people in the Conservative Party who would say that there is a vast section of people in this country who can afford to pay a bit more than they are paying now. If it is true that the poor are getting poorer and the rich are getting richer, you cannot get it from the poor.

The noble Lord, Lord Boyd-Carpenter, says that we are bothered about the distribution of wealth. Of course we are bothered about the distribution of wealth, and the Tory Party are concerned with the creation of it. Who does the party think creates that wealth? It is the miners and the factory workers. It is the people in our vast organisations. They are the creators; they are the producers. They are the people who are producing the wealth, not the Conservative Party. I am not going to say that we do not need administrators, and good administrators. Of course we do. But they are not the producers. If the producers say, "Look, we need more money" then I think they are entitled to be considered. We talk about the low wage-earner. Do Members opposite really know what we are talking about when we talk about low wage-earners? The hospital workers, by and large, are the poorest paid workers in the country. If your Lordships read the daily press you will see that some of them are taking home £52, £53 and £54 a week. That would not pay the rent of the homes of some noble Lords opposite, let alone enable them to live.

Let us be realistic: it is the unemployed, the young and the old, who are the real casualties of the present system. People are getting so frustrated that before long—if it has not already happened; and in some places it has happened—this mounting frustration can only express itself in one of several ways. One is physical violence. That we know something about. Another is an increase in crime—and we have it, my Lords. Also we have the worst drug-taking scene that we have ever had in this country since drugs were talked about.

I am not saying that the Government are in themselves responsible for this. I can remember that between 1964 and 1970, when unemployment mounted, we then in Government were accused of creating unemployment. I am making no accusation of that kind. What I am saying is that if we do not come to grips with that problem pretty soon then we shall have frustration expressing itself in real violence. We shall continue to have an increase in crime and it is not much use talking about prison reform in those circumstances. We shall have a far bigger drug problem than we have ever had before. These three things are worse today than they have ever been in our history.

I want to say that I believe that the most significant happening to occur in this country since 1945 was the founding of the National Health Service. We could not afford it. We were completely and totally bankrupt at the end of the war. We had sold every possession, every bond, that we had. We were totally bankrupt as a nation. Yet we found not just the time, we found the money, to start what I believe was the most significant development that has happened in this country since the war, if not in our history. Yet it is running down. I honestly believe that there are members not in your Lordships' House but in the Conservative Party who would be glad to see it run down.

A noble Lord

No!

Lord Wells-Pestell

Well, my Lords, I am glad that somebody can talk for everybody in the Conservative Party. That is more than I can do in the Labour Party.

Lord Boyd-Carpenter

Fair enough!

Lord Wells-Pestell

My Lords, too many Members opposite and in the Conservative Party have paid lip service to the National Health Service for far too long. We do not see restrictions on private medical services. Of course we do not because there are so many people who can afford to pay for them and to buy them. In a democracy I do not really object to it. But I object when it is done at the expense of a service which is needed by nine people out of 10. I was appalled to read only two days ago in one of our national newspapers that 34 children, most of them dying, have been turned away from Guy's Hospital. London, this year, because the hospital could not afford enough nurses to care for them. The crisis was apparently disclosed by Professor Cyril Chantler, the Professor of Paediatrics at the hospital, who said that most children turned away this year were mortally ill suffering from burns, congenital heart disease, infections, lung diseases, meningitis, encephalitis and poisoning.

This is what he has written recently in the British Medical Journal—I know that it will come as a surprise to a large number of noble Lords opposite, because they are not au fait as to what is going on in the National Health Service at the present moment. I should like to quote what he has written. It is this: It is sometimes difficult not to believe that a major contribution of the National Health Service has been to restrict the health care available to the population, thus containing costs at a level lower than for almost any other developed country in the world. Whether that is what the people want is another matter. This Government—whether noble Lords opposite like it or not—are in no small way responsible for this, in the same way that they are responsible for the curtailing of a large number of the services which local authorities have been giving for a good many years to the mentally ill, the physically ill, the aged, to children in care, and so on. Authority after authority has had to curtail its activities, and what I am concerned about, as are my noble friends here, is that whatever economic difficulties a country is going through the Government should pause and take stock not only of the economic situation but of what can be done to cushion those who can least afford to bear the brunt of those economic difficulties. I do not think that this Government have taken sufficient steps in that direction.

6 p.m.

Lord Boardman

My Lords, the noble Lord, Lord Wells-Pestell, mentioned the nurses, but is it not a fact that today there are more nurses and they are better paid in real terms than was the case during the time when the noble Lord was in office? The noble Lord will find that is so. Whether there are enough or whether they are well enough paid is another question, but I think it ill becomes the noble Lord to criticise the achievements, with all the difficulties, which have been faced in the health service by this Government.

Lord Molloy

Will the noble Lord give way? If he is asking a question I can correct him. The facts are simply these: the number of students who started in 1978–79 are now full-time nurses. What is perturbing is that in a few years' time, because of the lack of student nurses, we shall have a shortage and if they have to carry on with this minimum pay we shall be lucky if we have any nurses at all.

Lord Boardman

My Lords, I am grateful to the noble Lord: I think he does confirm the point that I made. The noble Lord, Lord Wells-Pestell, also referred quite rightly to the fact that the Motion did not require the Opposition to spell out their own policies; but in so far as they criticise the result and are not prepared to say what they would do, one is bound to seek explanations and perhaps I shall have an opportunity of doing so a little later in my speech. However, first, I should like to join with other noble Lords in congratulating my noble friends Lord Rootes and Lord Kindersley on their maiden speeches, and to note with pleasure the considerable experience, the wide industrial experience, that they will bring to the House.

I am sure the whole House is grateful to the noble Lord, Lord Jacques, for raising this matter today because it opens up a very wide field. I believe his motion can be divided into three parts. First, there is the cost of the policies; secondly, the reasons why the policies were necessary; and, thirdly the consequences. As regards the cost of the policies, the very high level of unemployment and the tragically high level among the young and the lack of jobs for school-leavers, I am sure we all feel that this is a matter of grave concern and that the price is very high. I am sure it is a situation we all wish to see remedied at the earliest possible moment, and there I agree with the noble Lord.

But, when we turn to the cause of the high level of unemployment, I am afraid that I part company with the noble Lord. We really are paying the price for decades of drift; and the longer action has been put off by successive Governments the more costly is the price and the more painful it is to deal with the problems that have been caused. As a nation we can only survive if we can compete in world markets and my noble friend Lord Boyd-Carpenter said that we must create the national wealth and create more efficient industries. Of course he is right, and my noble friend Lord Cockfield also referred to this. We must be able to compete in world markets. Just taking the 10 years from 1970 to 1980—they cover a period of government of which I am proud to have been a member and I do not attempt to escape all responsibility for it—during those years we paid ourselves increases in wages at over twice the rate paid by our international competitors. Yet our productivity—my noble friend Lord Cockfield also referred to this—was only half their rate. Inevitably that must mean lost jobs, low profits, if any profits at all, and lack of capital for investment.

There has been reference to the position in 1979 when this Government came into Office. While one is reluctant to job back too much, I think it is fair, particularly in view of the speeches from the Benches opposite, to remember that at that time inflation was mounting at a very rapid rate and so were the number of days lost through industrial action. Placing those hard facts against the background of the world scene at that time—a deepening world recession and oil prices which had multiplied 10 times since 1973—one could see that the Government inherited a country that was rapidly going broke.

The Government's top priority, which was set out in its manifesto and which has been made plain throughout by the Government, was to reduce the rate of inflation. In that, success is appearing day after day and the inflation rate is coming down. Now, for the first time since the 1950s, I think we have a firm trend downwards in the rate of inflation. The major battle has been with inflation, and, like all battles, it has caused many casualties. It involved the need to encourage industry. Governments cannot make industry do anything, except to create the environment and to encourage industry to become more efficient and to create the national wealth to which my noble friend Lord Boyd-Carpenter referred.

As my noble friend Lord Cockfield said, productivity in the last 12 months in manufacturing has risen by 12 per cent. over the previous year. That is a very encouraging achievement. He also said that unit labour costs have gone up only three per cent. during the last year, which places us in a strong position against our international competitors. Time lost in industrial disputes was less in the last two years than at any time since the war. That reflects great credit on all involved in industry: management, labour and trade unions. They have had a difficult and painful struggle and the credit belongs to them. It has been a painful experience for the Government and for employers, who have had to close plants and create redundancies. But of course it has been most painful of all for the victims of unemployment—victims who all too often are innocent of any responsibility for the practices and restrictions which brought about many of the difficulties over the last decade. Certainly school-leavers must be innocent of any blame and it is indeed a tragedy that we all acknowledge—that is, the difficulties they are having in finding jobs.

The noble Lord, Lord Jacques, referred to the burden falling upon those least able to bear it. I hope I am not being unfair to him if I assume that he was referring primarily to the elderly, the disabled and those in the low income groups. If so, I must remind the noble Lord that the position of those groups has been protected by this Government beyond any measure of protection extended by previous Governments. All benefits they have been receiving will be raised again in November, as the noble Lord will recall, and they have more than kept pace with the rate of inflation and the anticipated rate of inflation ahead. So that, in so far as the Government have been able to protect, they have done so. What they have not been able to do is to protect jobs. Indeed, no Government can protect jobs, although some may say that the measure of protection that has been extended to the public sector is far greater than the protection that it has been possible to give in the private sector.

I have referred to the noble Lord, Lord Wells-Pestell, claiming that it is not necessary for the Opposition to spell out their policies to deal with this matter, and I have said that I am tempted to fill the gap for them. But the gap is filled by the policy document, of which I know the noble Lord will be aware, and which was published the other day—Labour's Programme for 1982. That, I suggest, is an example of crude and fairly extreme socialism. It includes massive further nationalisation, ignoring the fairly disastrous track record that nationalised industries have to show over the years, since they were introduced by the party opposite.

But the part of that document which is most relevant to this debate might be Labour rejects the idea that reducing inflation is a precondition for economic growth and high employment. That is quite contrary to what had been the policy and views of many distinguished former and present members of the Labour Party. Indeed, the last Labour Prime Minister, Mr. Callaghan, said this in a speech at his party conference. If your Lordships will bear with me, I think it is worth repeating, because it is so relevant to the issues today. He said: 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. Each time that has happened the average level of unemployment has risen. Higher inflation followed by higher unemployment—that is the history of the last 20 years", and, of course, how right he was. It is a view which I hope will be noted by his successor. Indeed, his successor as party Leader, Mr. Michael Foot, himself adopted the same theme—and I quote from Hansard—when he said: "Inflation helps to cause unemployment".

So it was, I think, common ground that you cannot buy your way out of inflation. You cannot buy your way out of a recession by printing money or by injecting further money into the system. I agree with my noble friend Lord Boyd-Carpenter that further capital investment would be very welcome, indeed, if it could be financed by cuts in current expenditure. That, indeed, must be the policy to pursue.

I was a little intrigued as to where the noble Baroness, Lady Seear, stood upon this issue. I welcomed her eloquent comments upon the record of the Labour Party, which I thought she put with great style and accuracy, and all of which I could endorse. But I felt that, perhaps, she spoiled the effect by partly going along their road in recommending that further money is injected into the system. I would remind her of what was said by one of her colleagues, Mr. Jo Grimond, only a few months ago in the Journal of Economic Affairs. He said At present, the Liberal/Social Democratic Alliance occasionally looks too much like a halfway house on the old road of State socialism. It will spend more than the Tories, but rather less than Labour. Such compromises may win votes, but they will not improve the country. I would say to the noble Baroness that, in so far as she accuses the Labour Party of wishing to spend excessively, I hope she will not try to compromise by suggesting that the right course is to go about halfway between what they want and what this Government, very rightly, believe is the right balance to achieve.

As to the future—and I think that we should be directing our minds to that, rather than to the past, apart from drawing lessons from it—I am disappointed that it is taking so long to move out of the recession and for the benefits to come through. Certainly, I and, I am sure, many of your Lordships hoped that they were coming through rather more quickly than they have. But I welcome the measures which have been announced today, and what has been said about the need to stimulate more industrial activity, but without, in any way, undermining the sound foundations which have been laid by this Government. To restore this nation, as a prosperous and influential power for the good of all people, will need patience, compassion, and courage, and I believe that this Government possess all three of those qualities.

6.16 p.m.

Lord Balogh

My Lords, I have always been very bothered by the etiquette of this House, that you have to congratulate Peers who move Motions, irrespective of whether you agree or disagree violently with them. But today I have the great privilege of congratulating my noble friend Lord Jacques on his successful attempt to bring the economic condition of the country in front of this House. Equally, I must congratulate the two extremely interesting maiden speakers—both young men who have a great deal to contribute here. I hope that we shall hear them from time to time.

I now come to the manifold appearances of the noble Lord the Secretary of State. Do I discern a certain mellowing of voice and content? At any rate, we have had less teaching from him on all the exploded economic theories than for many a day. As economists, we must be thankful to Mrs. Thatcher. Her obstinacy and partial—therefore, often misleading—knowledge have performed a unique task where better authors and experts have failed. She has presented us with a controlled experiment. Experiment in economics is a very doubtful weapon. Opportunities to test scientifically the truth or fallacy of policies are rare. In this case, however, we shall know beyond doubt whether the monetarist laissez-faire analysis is a secure basis for modern economic policy. If the final outcome is failure, no one will convincingly be able to say that the theory was insufficiently put into practice—3 million on the dole can vouch for that.

Yet it seems to me that the chief gurus, Friedman and Hayek, are beginning to dissociate themselves from their previous allegiance. One of the most enthusiastic monetarists, Mr. Budd, of the London Business School, has likened himself to a rat swimming away from the sinking ship "Monetarism" using the back-stroke so that he can deny his ever having sailed on the vessel. In fact, politics inspired by monetarism have proven to be, as we insisted all along, a failure and capable of influencing inflation only indiscreetly only through mass unemployment caused by old-fashioned restrictive policies, savagely administered. It is no coincidence that most industrial countries are now suffering from this. The reaction against Keynesianism has brought about a policy turn which can lead only to catastrophe.

The relative decline of Britain dates, of course, more or less from 100 years ago. Her absolute decline is less than a decade old. The short answer concerning the cause is not difficult to find. British domestic investment was insufficient to allow a steady expansion. The cumulative result of this is that production plant per head of the working force is far less, and far less technically developed, than in competing industrialised countries. Whenever a Government attempted to escape this vicious circle they ran into shortages of modern plant and skilled labour. Consequently, our share of the world's exports declined while our imports rose by leaps and bounds.

Hot money, lodged in London, was periodically withdrawn whenever confidence waned, and exchange controls, which had been weakened throughout the postwar period, were suddenly abolished. The export of capital is tremendous. It was especially sinister because it stimulated foreign industries. Moreover, the decision was taken not to prevent a rise in the exchange rate of the pound, whenever the outlook seemed more favourable and when the hot money returned. There was a relapse to restrictive policies and to the monetarist belief that inflation was the most damaging force in modern social life. The Government hoped to curb it through simple monetary measures, by keeping the increase in the money supply down. In addition, incentives would be restored by cuts in progressive income and corporation taxes and by cutting public expenditure on social services. The total social wage has been slashed. This policy was regularly defended as a means of mastering inflation.

It must, however, be said that the public's hostility to the trade unions, due to their reckless use of the strike weapon, aroused a degree of unpopularity of the Labour Party, with which the unions were clearly identified, which led to the former defeat in 1970 and 1979. The noble Lord opposite quoted Mr. Callaghan's unfortunate remark. One could trace this to his son-in-law who was an ardent monetarist, but I do not want to go into that. Wage demands remained unrelated to the increase in productivity and were an important—perhaps the most important—cause of cost inflation. Comparability still holds us in thrall. Only a well prepared incomes policy, based on equity and buttressed by a social contract, could, it seems, overcome the political dilemma between inflation and unemployment.

Labour's crisis could not have occurred at a more fatal moment. After the 1945 débacle, the Conservative Party used the post-war period, 1946 to 1951, to revise their strategy and tactics. This phase ended at the conference at Selsdon, preparatory to the election of 1970. As Mr. Heath's Government led to an electoral defeat and he had for a moment associated himself with a policy of direct controls, the Conservative Party turned to a policy of laissez faire, denationalisation and monetarist control. This basic change in policy implied a backslide of monumental consequence. The attempt at monetary control led to unprecedently high rates of interest which caused a rapid increase in unemployment. Mrs. Thatcher asserted that this policy would create a stable base for a subsequent expansion. Still, as a civilised incomes policy was still ruled out by both the Government and the two sides of industry, the struggle led to a further weakening of the unions, and the international competitiveness of the country, especially in manufacturing, was subjected to a further pressure.

The present Conservative Government concentrated on weakening the bargaining power of the unions by direct legislation. When Mrs. Thatcher talks about the Tory success she forgets how much of the increase in productivity merely registers the sacking of the least productive manpower and the closing of obsolete factories one after another. She has decreased, not increased, national income.

A free-for-all in the labour market, which is oligopolistically organised on the side of both the employers and the employees, is no longer compatible either with the maintenance of full employment or with the continuation of a satisfactory rate of increase in the material resources which society needs for the creation of a better and fuller life. The spiral of wage inflation poses a continued threat to the external position of the country. It also militates against the attainment of greater equality in the distribution of non-profit income. Unions are not equally well organised, nor are all occupatons of equal national strategic importance, with the result that the lowest paid and the weakest fare progressively worst.

British economists were persuaded by the success of the 1931 emergency measures, that changes in the rate of exchange could harmonise internal and external differences in policies. I have never believed this. Apart from the tariff protection, Britain was helped by a number of very important factors, not the least Imperial Preference, which are most unlikely to recur. Yet the post-Second World War period, under Keynesian management, saw a continuous increase in employment and real incomes, in deep contrast with the post-First World War period of fluctuations, unemployment and misery which threaten to return.

There remained, however, structural deficiencies. In the short term, these led to a steady inflationary pressure which has been discussed by so many noble Lords opposite that I need not go into it. For a long term strategy there would have had to be a conscious plan for all incomes and not only a restriction of wages, as some Social Democrats now believe. Nor do I think that without giving employees a greater say in management there can be uninterrupted progress.

It must be emphasised, however, that the bitter resistance against such a solution is the outcome of the growing influence of monetarism in Britain and elsewhere. This resulted in the use of old time measures, with the result that unemployment increased. Efforts to solve this problem without a planned, conscious policy to by-pass the resistance and escape conflict were unsuccessful. Several Administrations—Butler in 1955, Maudling in 1963, Heath in 1970—tried to boost economic activity by releasing purchasing power, in the hope that this would lead to an increase in consumption balanced by higher productivity and thus turn a vicious circle into a virtuous one. The increase in income, however, created by the Government mainly resulted in an increase in imports and hindrance to exports. Balance of payments crises continued, which made continuation of an expansionary policy impossible.

The great politico-economic issue in this country and elsewhere is how to combine a high level of income and employment without causing explosive inflation. The present governments of both countries—the United Kingdom and USA—have quite unequivocally repudiated any measure beyond restraint in the fiscal and monetary field to achieve stability. Such indirect measures would increase the public sector borrowing requirement—the PSBR. One of the most important developments lately was the elevation of the PSBR into a target and indicator instead of M3 (volume of money). The new features are the sales of a large chunk of the public sector to contain increases in the PSBR.

From the view point of financial balance, the selling of nationalised industries to the private sector does not represent a deflationary move as everybody, including the Secretary of State, claimed. The vast potential sales would almost certainly lead to the forgoing by the Government of potential equity gains, as the potential buyers would be anticipating pressure in the equity market and lower the bidding price. This was the experience in the case of both Amersham International and BP sales.

Governments also tried to give new incentives by cutting direct taxation—and in both countries, social services have come under attack. Altogether, this represented a diversion of the national income in favour of the rich. The general decrease in real incomes and the consequent rise in unemployment, the continued monetary squeeze, the high rate of interest and cut-backs, make it difficult to see any expansionary force, despite presidential and ministerial assurances. The truth is that they have created an embittered working class, held back from inflationary demands for higher wages by unemployment, and attempting to enforce their wage demands by strikes. Once the Government reverse their restrictive policies—for example, for electoral reasons—it is not unlikely that the various interests will once more repeat the same mistakes. They will lock into the revival high wage claims and the vicious circle will then have been completed once more—and unemployment increased in a destructive way. Unfortunately, union leaders seem to have neither the political sensitivity nor an understanding of the workings of a mixed economy, when incomes and employment are increasing and demand is high.

Britains' problems have been aggravated by two unfavourable changes in the world economy. The first of these is the instability of world income. Indeed, the two Governments of the United Kingdom and the USA blame their own discomfiture on the worldwide crisis. This is utter nonsense. The gravity of the British long-run outlook is emphasised by the fact that, with oil prices maintained at recent levels it could not make effective use of the immense gain resulting from the discovery of oil and gas in the North Sea in huge quantities. Britain was freed from a potential vast loss by becoming a net oil exporter and, what is perhaps even more important, a saving in foreign exchange on oil imports was no longer required. Yet the British current balance of payments has been only hesitantly positive. The non-oil trade is persistently deficient, which represents a future threat for the coming generation.

This is not all. The first impact of oil earnings and savings have contributed directly and indirectly to a rise in the foreign exchange value of sterling, with severe pressure on export and import substitution. Out of wealth, penury has been created. It is difficult to see the way out of our troubles without some direct protection. The industrial problem is similar to that experienced at the beginning of the First World War. As we have already mentioned, certain vital new industries are non-existent or are lacking in strength, and could only be dealt with one by one. This means that a favourable outcome of this particular aspect would seem to depend, as in the previous period, on specific safeguarding duties. Devaluation might be necessary, but in my opinion it cannot represent a sufficient force.

Leaders of the countries of OECD should read the history of the American collapse in 1933–34. They would find threatening signs of a repetition of those calamities in the near future. Unfortunately, we and the USA have no Roosevelt now to save us by commonsense empiricism. Our danger is great because of the triumph of monetarist economic theory in practically all important industrialised countries. In academe, the disillusionment has already gone some way. Politicians and civil servants, seemingly, have not yet had enough crises.

The second of the main causes aggravating the future is the problem of the domestic policy. The dominant oligopolistic changes, including the vagaries of oil prices, have confirmed one's worst fears. Socially, we are dominated by the basic contradiction between the increase in the bargaining power of the working class and the distribution of incomes. This is the reason for the increasing weakness, which is as yet unacknowledged and which threatens our future.

6.37 p.m.

Lord Monson

My Lords, may I join other noble Lords in congratulating the two maiden speakers upon their concise and stimulating contributions. In view of the long list of speakers I will not range over the whole field of economic activity or, for that matter, of economic inactivity. I will concentrate on two features of this year's Finance Bill which I believe to be unfair but nevertheless capable of rectification in the next Budget, or mini-budget, whenever it may come.

But I should first like to put it to the Government that one possible way of giving a stimulus to industry without encouraging a flood of imports—and I fear that abolition of hire purchase controls may do exactly that, welcome though abolition undoubtedly is from the point of view of a free society—would be to up-rate capital allowances and grants (for industrial building, for example) by say 10 per cent, for the rest of this financial year and for the financial year 1983–84 only—the allowances to revert to their current level after March 1984. Coupled with the lower interest rates which appear to be on the way, this should encourage businessmen to bring forward plans for capital investment which might otherwise be postponed, and produce a beneficial ripple effect throughout the whole economy.

I must briefly take issue with the noble Lord, Lord Jacques, for criticising the Chancellor of the Exchequer's decision back in 1979 to reduce the marginal rates of tax on higher incomes. I wonder whether the noble Lord realises that this reduction did nothing more than bring the United Kingdom into line, as regards taxation on higher incomes, with nearly every other civilised, industrialised country? Now to the questions of fairness. Where I do strongly agree with the noble Lord, Lord Jacques, is on his attack on the high rate of tax—both marginal rates and overall rates—imposed on low incomes. This is one of the reasons for the well-known poverty trap. When I say tax, I include, of course, national insurance contributions, which are demonstrably a form of taxation.

Partly because of the unfortunate abolition of the lower rate tax band—and I know that the noble Baroness, Lady Seear, and the Liberal party join with me in deploring its abolition—and partly because of the Government's failure to raise personal allowances fully in line with inflation since 1979, a single man or single woman now pays tax and national insurance combined at a marginal rate of no less than 38.75 per cent. on earnings in excess of £30 a week. I wonder if the noble Lord who is to reply can say whether there is any country in Western Europe or North America where such high marginal rates apply to such low earnings? Indeed, a juvenile or a part-timer earning £29.40 a week would be ill-advised to accept a rise of £2 a week, should it be offered to him, because if he were to do so he would find himself paying a marginal rate of tax and national insurance of well over 100 per cent. on the £2 in question.

I do hope that when the next Budget is being formulated the Government will forget for a moment the perennial Conservative obsession with the standard rate of tax, by which I mean the Conservative's naïve belief that a reduction in the standard rate of tax is the key to electoral success: I do not believe it is true in any case. Instead I hope they will increase personal allowances—I do not mean the higher rate bands, but the standard personal allowances—by considerably more than the rate of inflation, so as to reduce, if not entirely to eliminate, the poverty trap.

The second unfairness in the Budget relates to the Chancellor's proposals for the reform of capital gains tax. It is hard to think of any other recent instance when what purports to be a great reforming measure to rectify longstanding injustices, has been given such a frosty reception, has been greeted with such a universal thumbs-down by merchant bankers, stockbrokers, solicitors, accountants, financial journalists and indeed anybody else who has any knowledge of the subject. This widespread disappointment and disapproval is based on two aspects of the proposals. The first is their complexity, which arises largely from the abolition of the pooling arrangements for shares acquired over an extended period.

Secondly, and far more important, is the unfairness of the proposals in so far as long-term holders are concerned. Short-term speculators in contrast get off lightly—rather too lightly some may think. As far as long-term holders are concerned, the unfairness stems first of all from the decision to index the acquisition price rather than the sale price. This results in an inbuilt bias against those who acquired their holdings prior to 1982. For reasons too technical to explain today, the future indexation of their pre-1982 holding will not in consequence be fully effective against future inflation.

Even worse is the refusal to make any allowance for past inflation. Since April 1965, when long-term capital gains tax was introduced, the adjusted retail price index has risen approximately 5½ times; in other words, a share bought for £1 then is worth £5.50 now if it has done no more than keep pace with inflation. But although there is obviously no real gain, the holder will continue to be taxed as if he had made a gain of 450 per cent. In practice the position is actually worse, since so few shares have beaten inflation; most portfolios show a loss in real terms, but the tax will nevertheless be payable on those losses. I believe this is certainly not what Mr. Callaghan or the Labour Party intended when they introduced capital gains tax in 1965.

It is claimed by the Government that the higher annual exemption will help shareholders. It may, of course, help holders of portfolios of stocks and ordinary shares, but it will not help anybody who bought a cottage in Cornwall 10 or 15 years ago; it will not help Members of either House of Parliament whose homes happen to be in Scotland, Wales, the West Country or the North of England, who have had to buy a flat in London so as to fulfil their parliamentary duties more effectively and who, upon retirement or loss of their seat, will almost certainly have to pay tax upon a possibly non-existent real gain.

To introduce indexation at this time when inflation, we are told, is on the way down to 7 or 72 per cent. by the end of 1982 or the beginning of 1983 is surely shutting the stable door well after the inflationary horse has bolted. It is the past 17 years, and in particular the past 10 to 12 years, that we are concerned with. It is no good the Government saying, "This past inflation is nothing to do with us; it is all Labour's fault", because a very great deal of the inflation of the past 10 to 12 years occurred under Conservative Administrations or was initiated under Conservative Administrations. So I urge the Government to do the decent thing and reduce tax on past paper gains, even if it means having to raise the tax on real gains to some extent by way of compensation. I stress as strongly as I can that few fair-minded people object to paying tax, even at a rate in excess of 30 per cent., on genuine gains; it is a tax on bogus gains to which they object.

If I may put one final point; it is accepted that the Government will be obliged to raise extra revenue in order to cover the cost of liberating the Falklands from foreign occupation. If they cannot manage to exempt past paper gains from tax altogether, as I have suggested, could they perhaps adopt the excellent suggestion made by correspondents in the Financial Times a few months ago; namely, to introduce a reduced rate of capital gains tax, say 15 or 20 per cent., on holdings which have been held for more than five or 10 years and which are realised during the current financial year 1982–83 only? This would almost certainly lead to a flood of realisations of longterm gains, thereby, with luck, raising enough additional revenue to cover a substantial part of the Falklands operation.

6.48 p.m.

Lord Hatch of Lusby

My Lords, there have been times during this afternoon's debate when, as an historian, I have wondered whether we had wandered back into the 18th century and were discussing these issues in Versailles. The sound of this institution, representing as it does and consisting as it does of representatives of the greatest landowning, wealth-owning section of our community, talking about the problems of the unemployed, of the poorly paid, of the sick, of the aged, does at times smack of the hypocritical.

The Earl of Longford

My Lords, if I may interrupt the noble Lord, surely we are qualified to speak about the aged here.

Lord Hatch of Lusby

My Lords, I accept the correction of the noble Earl but would add that we are not entitled to talk about the experience of the indignant aged. However, we are here to discuss these matters, and I should like to add my congratulations to the two maiden speakers who have spoken this afternoon, and to assure them that they are not only welcomed by this side but that they may very well find that there is a certain degree of understanding and sympathy on this side for the problems of industrialists which they will not find in the Government or the Front Bench behind which they speak.

In introducing what I have to say, which consists of only one point, I should like, also, to ask the noble Lords, who are making notes for the noble Minister who is to wind up, to note certain specific questions which I would like him to answer. Let me also assure the noble Lord, Lord Boyd-Carpenter, that I want to refer specifically to the issue which he raised on the contrast between the distribution of and the creation of wealth.

The first question that I should like to put to the noble Lord, Lord Cockfield, is to ask him when he is winding up, to meet the specific argument which some of us on this side of the House have been trying to make for several years now. We have had this afternoon and this evening, as we have had so many times previously, an unconvincing apologia for the consequences of Government policies, based upon the fact of world recession. It seems that the Government will either blame world recession for the results of their policies or, if they cannot do that, they will blame the trade unions. I would like the noble Lord who is to wind up to meet the argument that it is specific British Government policies which are at least partly responsible for the world recession and particularly for British sufferings and the British decline within that world recession.

Let me give noble Lords an example of the point that I am making. Last week, I asked the noble Lord, Lord Cockfield, whether he agreed with certain quotations from the Bank of England Review. The second quotation, which is the only one with which I am going to deal tonight, reads as follows: The weakening of commodity prices is seriously worsening the income and payments position of many developing countries. This, in turn, is tending to reduce their demand for imports from the advanced countries and is thus one of the elements contributing to the general weakness in prospect". The answer that I received from the noble Lord to the question as to whether he agreed with this, consisted of the following words: So far as the noble Lord's second question is concerned—the effect of weakening commodity prices on the economy of the developing countries—I agree that this is a serious matter". He then goes on to say: Weakening commodity prices are a reflection of recession."— [Official Report, 20/7/82; col. 751.] But that was not the point that I was asking him. I was suggesting, quoting the Bank of England itself, that the weakening of commodity prices is a cause of recession—not a reflection of recession, but a cause of recession. That was also what the Bank of England was suggesting.

My reason for raising this point tonight, is simply that every time I have tried to persuade the noble Lord, Lord Cockfield, to answer in terms of the effect of Government policies on certain specific consequences, he has always used the tactic of refusing to answer the direct question, and has slid around it and said, "Well, this is caused by recession". I point out that that particular question was asked on the very day that the country's worst figures in history for unemployment were published to add to the record bankruptcies which the Government have now admitted to me were recorded last year. The point to which I would like the noble Lord to address himself is whether he will meet the charge that noble Lords on this side of the House and right honourable and honourable Members of the same party in another place are trying to get the Government to argue about—namely; that certain Government policies are causing the type of circumstances which my noble friends have been describing this afternoon. I have no intention of going into the question of unemployment, the sick, the low paid and so on. That has been done so excellently by my noble friends here, particularly by my noble friend Lord Jacques and my noble friend Lord Wells-Pestell. I want to concentrate on one issue alone.

It is now nearly three years ago since I asked the noble Lord who was answering from the Front Bench on behalf of the Government, what he expected to be the effect of the removal of exchange controls. I was told that this would be a release—if I recall the words—of our people to invest as they wished. I want just for a moment or two to see what has, in fact, happened over that three-year period so far as the effect of the removal of exchange controls is concerned. I allege—this is my challenge to the Minister—as I suggested at that time, that the removal of exchange controls would lead to certain specific consequences. I believe that the figures that I am now about to offer to the Front Bench opposite will bear out that prediction of three years ago.

In 1978, the export of capital for all purposes from this country was £4.6 billion—I repeat, £4.6 billion. Last year, it was £11 billion. Yet, at the same time, the noble Lord cannot answer, "Ah, yes, but you are not taking into account the inward flow of capital", because I am taking into account the inward flow of capital. It was £2.9 billion last year. So we are left with an adverse balance on capital account of £8.2 billion.

What does that lead to? It leads to a number of consequences. The first is that the availability of capital for domestic business in this country is greatly reduced and so is the Government's ability to borrow. This reduces the amount of capital available both for the Government and for domestic business which in its turn inevitably leads to high interest rates and the high interest rates which have been mentioned by noble Lords opposite in particular, which are so restricting the development of British industry. But it leads to other matters. Direct investment overseas last year came to £5.2 billion. That is to be compared with £6.2 billion—only £1 billion more—of direct investment in United Kingdom manufacturing industry. In other words, over £5 billion is going abroad in investment—direct investment, not portfolio investment—whereas in this country only £1 billion more is being invested in manufacturing industry. In fact, since the election of 1979 investment in British manufacturing industry has fallen by 26 per cent., whereas investment overseas has increased by round about 95 per cent.

Again, what are the consequences? The figure that I have just given for last year represents about £500 for every family in this country: that is, about £500 for every family in this country was invested overseas last year, either by industrial or by financial institutions. That was investment in foreign jobs—in jobs for people in other countries. I would challenge the Conservative Party opposite to tell the unemployed in this country that and to tell the public that. Why do they not include that in one of their political broadcasts: "This is what our policy leads to: we remove exchange controls and so we are able to invest in overseas industries and overseas enterprises and buy overseas shares".

It could be said—and I would think that it was a perfectly fair argument—"But you want this country to invest more heavily in third world countries", where the purchasing power is so low—as I quoted from the Bank of England earlier on—that the lack of purchasing power is damaging the industrial prospects of the industrial world. But this is not being invested in the Third World. This is being invested almost entirely in the developed, industrialised world; in other words, in those countries which are our major competitors. When the noble Lord, Lord Cockfield, talks—as he did in his speech this afternoon—about import penetration, is it any wonder that the investors in this country are helping that import penetration by investing in those very countries which are competing with ours, as I am sure later on, when he has recovered from his maiden speech, the noble Lord, Lord Rootes, will be able to tell us from the point of view of his own industry.

How does this fit in with the Government's vision of themselves in the world? Because whereas this Government last year, by their removal of exchange controls, allowed 22 per cent. of the total investment of Britain to go abroad, no other industrialised country invested more than 5 per cent. in overseas investments. In other words, Britain was sending abroad four times as much of its capital investment as any other country in the world. The companies that invest abroad—the major companies, the big companies—are those same companies that are cutting employment at home and adding to the unemployed at home. I give three examples: Grand Metropolitan, Pilkington's and the Imperial Group, all of which were major investors abroad and all of which were cutting their work force at home.

Of course, when the Government talk, as they have done when they have raised this matter before, here and in another place, about there being a lack of profitable opportunities in this country, what are they saying? They are saying that after three years of Conservative Government there is such a lack of opportunities for profitable investment in this country that 22 per cent. of our total investment is going abroad, that we are losing jobs at home, that we losing investment at home and that our industries are dying. In other words—and here I come to the speech of the noble Lord, Lord Boyd-Carpenter—when it comes to the question of going abroad, will the noble Lord just consider that the biggest factor which has led and is leading today to wealth producers in this country going abroad has been the removal of exchange controls by the Government which he supports.

This situation is getting worse. Last year the ratio of outward to inward investment as regards this country was six to one. The situation is getting worse. As the noble Lord said, these are the people who are going abroad; these are the people who could be helping to direct the production of wealth at home; but they are finding that their profitability is greater when they send their money abroad. So, of course, they do so.

Lord Boyd-Carpenter

My Lords, if the noble Lord will allow me, I am afraid it must be my fault that he must have misunderstood me. My reference to going abroad was the well-known fact that a number of high taxpayers have taken themselves abroad because of the level of taxation, as a result of which we have lost any taxation upon their incomes. It had nothing whatever to do with exchange control.

Lord Hatch of Lusby

My Lords, that may have been the intention of the noble Lord, but I still think that there is a connection between the thrust of his argument and the point that I am making, because it is the wealthy who are in a position to invest abroad, and the wealthy are investing abroad. The wealthy are often investing with their feet as well as with their bank balances.

So, we have a situation created through the removal of exchange controls, through the operation of the process which three years ago I tried to argue with the noble Lord, Lord Cockfield—who I am glad to see has now safely returned—a situation in which the few very wealthy in this country are watching with equanimity as British manufacturing industry dies. Why with equanimity?—because they are comfortably cushioned by the receipts which they receive from their foreign investments. What more could create the two-nation syndrome which has already been mentioned in this debate this afternoon? The opportunity that has given to the export of capital from this country has been disastrous, is being disastrous and is becoming increasingly disastrous for the industry of this country or for any opportunity for the revival of industry in this country.

It is disastrous for the over 3 million who are unemployed, who have lost their jobs in industry in this country. It is benefiting only those whom I believe this Government represent, and who I would particularly mention to the two noble Lords who made their maiden speeches this afternoon. This Government represent the large companies, the financial institutions, the speculators. But look at the record of this Government when it comes to the smaller businesses. Look at the record number of bankruptcies over the past 12 months, and the record since 1979 of bankruptcies. Look at the record of investment in industry in this country since this Government removed exchange controls.

I would ask the noble Lord who is to wind up to answer specifically the question which I am sure his noble friend will pass on to him: is this not a factor in the recession in British industry? Is this not a factor in the suffering of the unemployed, whose numbers are mounting? Is this not, above all, a factor in the obstruction of an industrial recovery in this country which the present Government are constantly seeing on the horizon but which never seems to get any nearer?

7.12 p.m.

Lord Camoys

My Lords, I am not sure whether I am fortunate or unfortunate in following the noble Lord, Lord Hatch. Certainly what he says has persuaded me to alter to some extent the argument that I was going to make. It seems to me obvious that the noble Lord totally misunderstands one of the main purposes of the Government's policy, which is to increase the chances for really productive investment in this country. This obviously escapes the noble Lord's attention. Indeed, unless there are good projects capital will not be invested, and we have seen that for years past. It certainly will not be invested in productive projects.

Indeed, at this time, contrary to what the noble Lord seems to think, there is a great deal of capital available, and as a merchant banker in some sense I have to compete with that other capital. There is a great deal of capital for good projects. One of the reasons why I support the Government's policy is that one of their aims must be to make our industry more productive, and therefore more receptive and more attractive to the capital that does exist.

Like others, I am grateful to the noble Lord, Lord Jacques, for this opportunity to discuss the state of the economy; first, because, of course, that matter is one of great concern, and secondly, because after only two years of what I would call real Tory economic policy, it is only now that one can perhaps assess the results therefrom. Before going any further, I should like to add my congratulations to the noble Lords, Lord Rootes and Lord Kindersley, who have made their maiden speeches this afternoon. Each is distinguished in his own field of activity, as their speeches very well demonstrated.

One would have to be totally insensitive not to be concerned at the current level of unemployment, at the lack of growth in GDP, and the lack of investment. As a banker, I have to admit that I find it difficult to disagree with the gloomy views of the CBI, particularly when one considers the weak state of the world economy. The recession obviously is not over. Bankruptcies, receiverships, et cetera, continue, and small- and medium-sized companies are still failing, causing further redundancies. Nevertheless, I believe that benefits have accrued and are still accruing from the Government's economic strategy. Those benefits are at this stage less obvious and deserve explanation, but are nonetheless considerable, and to my mind should allow the Government to seriously consider providing a moderate economic boost.

After a shaky start the Government's economic policy is proving successful in many areas: as has been mentioned before, in bringing down the rate of inflation and money rates; in controlling the PSBR; in bringing down the real rate of wage increases; and in tackling the monumental costs both of previous nationalisation policies and of the consequential public sector monopolies. Nobody could pretend that the Government have been entirely successful in persuading the public sector unions that if they demand high wage settlements so there will be fewer jobs available overall for the currently unemployed. In my humble opinion, however, the Government have succeeded in engendering a far greater sense of realism in this country than has prevailed for many years. That realism applies as much to what you might call management as to those who report to them.

Inflation continues on its downward path. By early 1983 I agree it could be down to 8 per cent., and hopefully by March of next year down to 7½ per cent; a fact which should be reflected in money rates, and hopefully will lead to a reopening of the corporate bond market. In the face of American interest rates and in an area free of exchange control, that is a real achievement; one that was inconceivable no less than three years ago. Another achievement is the control of the PSBR, which can only be further aided as the privatisation programme continues. I happen to have been a privileged witness to the privatisation of the National Freight Corporation and the creation of something called Project Mercury. If they are well managed the benefits to this economy will be considerable. But more needs to be done along these lines in the public sector, and it is most interesting to observe the effects of competition on British Telecom, and the mere hint of such on the Post Office. The management and employees of both have reacted positively, and, I believe we will see, very successfully, to the real world.

So far as the private sector is concerned, I believe that the Government have laid the basis for much more success. The measures that have been introduced to assist the small businesses have surely gone nearly as far as even the Government's most ardent supporters would have dared hope. This year's Finance Bill will have demonstrated that as much as anything, had it not been for the Inland Revenue's highly developed skill in blunting Government objectives yet again, and there are many examples that can be given.

While in most matters I am a strong supporter of the Government's economic strategy and policies, and while I acknowledge and respect their achievements to date, I have two suggestions to make and one important area of concern to raise. My first suggestion is that the Government could and should now take steps to help industry as a whole. Partly due to the weak state of the world economy—a factor to which we may need pay more attention than France, Ireland, or the noble Viscount, Lord Chandos, or the noble Lord, Lord Hatch, appear to do—industry is still in a very depressed state; we should recognise that and therefore be careful. But, with the greater sense of realism now prevailing, there exists a capacity in many companies in many parts of industry to profitably increase production with all that means for GDP, provided demand increases.

Relaxation of hire-purchase restrictions will obviously be welcome to the car and consumer goods industries, but one should not ignore the likely consequence of higher imports. But could not a boost of, say, £1 billion be provided by either engaging the private sector in one or more major construction works—in perhaps the largely outdated sewerage system—or by a reduction in employees' national insurance contributions, or by a combination of both? Would this not create real jobs? I believe it would, and I believe it would not be a great risk for that amount of money to be spent.

The Government have quite rightly stated their desire to see a revival in the corporate bond market. This would not only help boost the economy but would assist in the control of bank credit in this country, which is a subject to which so much attention is paid. At the same time as having this desire the Government still allow purchases of Government securities to enjoy considerable tax advantages. No wonder that that market shows very little sign of renewal. Corporate issues should either enjoy the same benefits as Government issues, or the concessions on Government issues should be abolished altogether. That is my second suggestion.

Of great concern to myself as a banker—and I should emphasise, and I do very clearly, that I voice my own personal views—is the Government's ambivalent attitude to our banking industry and to the clearing bank groups in particular. On the one hand—perhaps this is nothing new—the banks are berated for not providing sufficient funds for industry and for being unadventurous. Yet, when profits are made which allow the industry to lend, they are either heavily taxed or threatened with special taxes.

I can understand, of course, at a time of low profitability throughout industry, the desire of Government to acquire a greater share of profits made by service industries. Yet, to my mind, the windfall tax was very misguided and short-sighted, as any future imposition of such a tax would be. During the time that very high interest rates have prevailed in recent years, the banks earned a return of only between 25 and 28 per cent. per annum on shareholders' funds, and I believe they might have been criticised for that low level, given the high rates of interest. Such returns should, in my opinion, be considered as moderate. Indeed, for an industry whose stock in trade depreciates at the rate of inflation, if one looks at the real rate of return in terms of current cost accounting—the noble Lord, Lord Bruce, will know this—the banks have been doing no more than standing still, and that is really the acid test. The banks' capital ratios are now stretched, partly as a result of having to recycle the so-called petrodollars. If depositors' funds are to remain as safe as they always have been, the banks must be allowed—indeed, should be encouraged—to retain profits to build their capital bases accordingly.

Nor should we forget that the absence of a corporate bond market has over many years placed a further strain on the banking industry's balance sheets. I am sure that some noble Lords would argue that the effective rate of tax paid by the major banks is well below 52 per cent., and indeed it is; yet that is largely a reflection of the volume of leasing business written, which is and has been of direct benefit to British industry. Indeed, the Chancellor of the Exchequer himself has stated that the growth of leasing has kept investments in our economy at a higher level than would otherwise be the case. A banking levy is, no doubt, a source of short-term political gain, but in the long-term I believe it could harm not only the clearing banks but, perhaps of greater interest to your Lordships, their industrial customers as well.

As an employee of a clearing bank for four years, and as an employee elsewhere before, I can say with some conviction that the clearing banks adopt a more adventurous, more helpful and more sympathetic approach to lending than any independent merchant bank or foreign bank that I know in the City. Yet such a policy inevitably leads to some bad debts and provisions being made. Again, this can place strain on capital ratios. Healthy levels of retentions provide the main practical way to maintain the capital base and the clearing banks' lending capacity. Nor should one complacently assume that our banking industry's capital ratios are as strong as they once were, compared with those in certain European and American countries. That is a point which has some relevance in the precarious state of international credit at the moment and should be examined, I suggest, with great care.

In short, I ask that the Government appreciate that by attacking the banking industry they are indirectly attacking the manufacturing companies and indeed the new high technology companies whose health is vital to the economic recovery or this country. A healthy and profitable banking industry is crucial to economic growth. While the concern of the noble Lord, Lord Jacques, for those who are suffering during this very painful recession is wholly understandable and is shared, as my noble friend Lord Boyd-Carpenter mentioned, by all noble Lords, nevertheless, I can see no reasonable alternative to the Government's overall strategy, and it is one I support.

Lord Hatch of Lusby

My Lords, may I ask the noble Lord to explain what appeared to be a contradiction in his reply to me at the beginning of his speech—I did not want to interrupt him at that point—when he said, on the one hand, that I was wrong in suggesting there was a shortage of capital because of the export of capital, while on the other he admitted there were a record number of bankruptiecs among small and middle-sized firms? How does he equate the two?

Lord Camoys

Capital has to be attracted, my Lords, and unless there is direction of investment—which perhaps the noble Lord would prefer—it is inconceivable that capital will go into companies which are about to become bankrupt. That is the whole problem. What the Government, it seems to me, are trying to do is to make industry more healthy and attractive for capital to invest in, and if it does so, then no doubt more capital will remain in this country.

7.26 p.m.

Lord Houghton of Sowerby

My Lords, I share the disappointment of the noble Lord, Lord Boyd-Carpenter, that we are having nothing to say about the Finance Bill. It seems very strange that we are having nothing useful to say about a Bill of 157 clauses and 22 schedules. Last year some of us did have something to say, but it was not welcome in some quarters. At least, a note of discontent on my part was received with consternation on the Front Bench opposite. We had our debate last year on the Finance Bill on a Friday, which is usually the day we reserve for animals and pornography. We are now having it on a Monday, with more time. I believe the business managers of your Lordships' House were rather afraid that if we began to debate the Finance Bill today we might go on for a very long time, with the fate of the Bill hanging in the balance until late this evening; and they wanted to get it safely tucked away with as little debate as possible, and then we could range over the whole economy and no harm would be done.

We have a duty. It may be that because it is the Finance Bill this House feels a deep inhibition against debating the measure which led to the difficulties of 71 years ago. But many of us were not here when Mr. Balfour's poodle took such a hiding in the Parliament Act 1911 and the world has moved on since then. Although the major prohibition remains, our freedom to debate a Bill without amending it remains also. We are not solely a revising Chamber; sometimes I think we carry that function too far. Consider the meal we make of Employment Bills and Social Security Bills; there is money in those, too. But when it comes to the Finance Bill, we feel it is more than we ought to deal with.

There are aspects of the Finance Bill which it would have been relevant and proper for us to discuss. Consider the narrow majority the Government had in another place to retain the reduction in unemployment benefit, which created a rebellion because it was alleged the Government were in breach of faith; that they said they would restore the cut when they brought unemployment benefit into direct taxation, and they failed to do so. If this is the House of experience, if not always of wisdom, surely we are worth listening to now and then, even on matters of finance.

Last year I made some reference to the black economy and, more pertinently then, to the strike economy; there was a Civil Service strike on this time last year and I said certain things about it. The noble Lord, Lord Cockfield, whom I am pleased to see in his place, studiously ignored everything I said, on the ground, he explained later, that since the dispute was in progress, it would be wise on his part not to comment on my remarks. Shortly after that the strike ended. I shall not say that it was settled, but it ended; and I think that Parliament, and for that matter the public, have given far too little attention to that serious breakdown in public administration. It was a serious thing to have happened; it had never happened before, certainly not on that scale.

The cost to the country was quite significant, due to the failure of revenues to reach their destinations. The cost in terms of efficiency and interruption of services to the public was serious, too. Last year, I objected to the Finance Bill on the ground that there was little purpose in throwing more work by way of legislation upon the two major revenue departments when they were in a state of mutiny and were refusing to handle the money. When, in the name of an industrial dispute, revenue men suppress their predatory instincts to the extent of saying, "We will not touch the money", there is something seriously wrong; and that is what they were doing. It led to large-scale borrowing by the Government in order to make good the revenue that was being lost. I hope that in due season the Public Accounts Committee will study some of those happenings in order to see exactly what effect they had on public administration.

The form of industrial action that was adopted in the Civil Service—under great provocation, I may say—was to select key points where money was going through in very large quantities and to pull out the specialists in those sectors, so that they stopped work, and were sustained by a voluntary levy provided by those who remained more or less at work. From the point of view of those actually on strike the scale was quite small. I think that at no time were there many more than 5,000 civil servants on strike. But the rest of the Civil Service decided that it must sustain adequately those who were on strike, and since payments made to strikers in lieu of wages are not the profits of holding an office, they are tax free; always remember that, my Lords.

The finances of the strike have recently been published. By voluntary levies the Civil Services collected £9 million for distribution among the strikers who were holding up the nation's revenue. Even a small organisation, such as the First Division Association, and the top ranking inspectors of taxes—the administrative class in the Civil Service, the top brass—subscribed £90,000. Other organisations representing managerial grades went into the £2 million bracket. So during the period £9 million was collected to maintain the strike. The Inland Revenue and the Customs and Excise took the brunt of it because they handled the money. In general the Civil Service was anxious not to interfere with services to the public, but merely to prevent the cash flow from going forward as required.

That all happened as a result of the Government's treatment of the Civil Service agreement with regard to fair comparability and arbitration. It was unnecessary to have got to that stage of bitter dispute. Happily, the Government decided that, as regards the pay claim for 1982—I have been talking about 1981—if they failed to reach agreement, they would refer the matter to arbitration. That passed off peacefully. The Government reserved their position, saying that, in the event of a tribunal making an award which was in excess of what they believed Parliament should be asked to accept, they would have to demur about it. But that did not happen; and the arbitration tribunal made an award that the Civil Service accepted. After the strike it was also part of the settlement that there should be appointed an inquiry. This has taken place under Mr. Justice Megaw, and a report of it has recently been published. No doubt considerable discussion and negotiation in regard to it might be necessary.

All I want to say about the matter—and it cannot wait until next year—is that I hope that the Government will attach the greatest importance to retaining the right of the Civil Service to go to arbitration. Compulsory arbitration was a fixed and firm agreement in the Civil Service for very many years. Winston Churchill tried to take it away in 1925, but he changed his mind under the strong pressure of the Civil Service and Parliament to retain it.

The position of the Civil Service is that its employers are Government, and Government have their own policies—economic, social, financial—which they might be pursuing to the possible detriment of the wellbeing of the employees in the Civil Service. Therefore an independent check on what the Government are doing to their own workers has been regarded as an essential condition of peaceful relationships between state employees and the Government. The arbitration agreement, combined with the Whitley Council system in the Civil Service, have provided harmonious industrial relations for 60 years and were only seriously breached last year when the Government threw aside not only the principles upon which pay was being fixed, but also the right to go to arbitration. That was a serious error, and undoubtedly it precipitated the dispute which arose.

If my experience is worth anything to the Government—and I hope that it is worth a little—I would say that the agreement provides an important condition for the future, and I hope that it will be retained. The Government have always had in reserve the sovereign power of Parliament to accept, or not to accept, what might be awarded by an independent tribunal. Never before has the claim been made that an arbitration tribunal has the last word in matters of public affairs. The Government reserved their position last time, and it was accepted as part of the conditions of going to arbitration.

Well, that is what I wanted to say, and it has more to do with the Finance Bill than with this more general debate on the economic situation. Until the noble Lord, Lord Wells-Pestell, drew attention to it, I had not realised that the Motion was so narrowly drawn; but the list of speakers bears the heading: "Debate on Government's Economic Policy". The highly interesting speech of the noble Lord, Lord Cockfield, earlier on, amounted to a general survey of the Government's economic policy, and much of the debate since has been on those lines.

On the more general situation—and I shall not detain the House for more than a couple of minutes—listening to the debate, as I have been doing, and recalling the innumerable debates on the economy that we have had in Parliament and outside over the last 35 years, I wonder whether we shall ever stop talking about it. Will the economy ever reach the condition that Parliament need no longer have concern about it, nor even discuss it, except to distribute its rewards?

On the other hand, I wonder whether the mixed capitalist economy has a limited future in this country. There are some members of the Labour Party who think that it probably has only a limited future. I believe that probably the next Parliament will be a decisive one. However it is composed, I believe the next Parliament will be a decisive one for the course of British politics. There are those who want a stronger management of the economy; but I think it has to be realised that in order to manage the economy you have to be able to manage people. If you stop persuading them (and there are limits to persuasion) then you get into the field of coercion and the curtailment of liberty—and that, of course, is the future that some of us dread: that so much may have to be given up by way of personal liberty in order to secure economic equilibrium.

But we are beset by many problems throughout the world. New countries are coming into the field of manufactured goods. We have new competitors, and we are no longer able to take advantage of buying commodities at a low price, converting them into manufactured goods and selling them at a high price. Our profit is not going to be made that way. We have also been perplexed by the oil bonanza, which we thought was going to shower prosperity upon the country. Yet there is no doubt that the high exchange rate of 1980–81, which was such an encumbrance to our exporters, was lifted by confidence in this country, partly because we had a favourable contribution to our balance of payments and also a strengthening on capital account. We became strong in two elements of the economy, although the rise in the exchange rate weakened our competitiveness in the markets of the world. That was not our fault, let us say; but we probably did not respond as we should have done to the consequences of the rise in the exchange rate.

My fear is that the alternative strategy which we hear so much about in various quarters now—that there is an alternative to what the Government are doing; and I am sure there is; there must be—has to be accompanied, as it seems to me, by something that this Government have not got and the previous Labour Governments struggled very hard to get but failed to get, and that is wage control. "An incomes policy" is the more acceptable term to use; but unless there is an element of incomes policy then one is driven into monetarism. The last Labour Government attempted a combination of the two, but that proved so irksome to many sections of working people that they revolted against it, and the industrial and social unrest that followed undoubtedly damaged seriously the Labour Government's prospects of returning to office.

So here we are, with a new Government three years ago and probably a new Government two years from now, and no stability will come this way probably because we have not discovered the foundations of agreement to get the best out of the system. If we cannot get the best out of the system because some people want a different system, then I think we are going to be plagued with a divided country—divided industrially, divided politically. We are not going to have the unity of purpose to meet the challenges of the future. Other countries are going to have something more inspiring than we have to drive them on; and that goes for many of the new countries which are entering into the field of manufacture and international trade at the present time.

My Lords, these are only a few thoughts in my mind, because I feel difficulty in coming to grips with the mechanics of what may be needed when I have seen from experience so much difficulty in adjusting human attitudes to the problems which confront us. I think it is our conservatism, really, which is at the foundation of our inability to adjust; but as we are going now, I think we have the danger before us of a lurch to one extreme and then to the other. Somewhere, at some time soon, I feel, those who believe in the free democratic system that we have at the present time have got to find the basis upon which the country can co-operate more closely, and have a firmer purpose for the future than at the present time.

7.46 p.m.

The Earl of Longford

My Lords, I have such a respect for the noble Lord, Lord Houghton, that I am always anxious to agree with him, and I usually find it easy enough except when we deal with one of his special interests, like pornography, and then we sometimes have a little more trouble. But tonight there was no difficulty at all about following him, although I am perhaps slightly more optimistic about the future than he appears to be.

I shall speak, if I may, from a slightly different angle from that of most of the other speakers so far. May I say at once that the case for the Motion was brilliantly presented by the noble Lord, Lord Jacques. His speech was a small masterpiece (because it was quite short) and it was supported very effectively by other speakers. But for my part, I will sum up my thoughts on the main topic, in a sense, by a quotation from the all-party report of the House of Lords Select Committee on Unemployment. I stress the fact that it is an all-party report. It included, incidentally, on its committee a former Home Secretary, and also a brilliant economist in Lord Vaizey, who is equally brilliant whichever party he is adorning for the moment. At any rate, the other side were powerfully represented, as, of course, were our party and other groups. They say—

Baroness Seear

My Lords, would the noble Earl forgive me for interrupting him? I think in fairness one ought to make the point that Lord Vaizey did not agree with some important points in the report.

The Earl of Longford

My Lords, perhaps his brilliance flickered for a moment just at that time, but so far as I am concerned I would follow him a very long way for all sorts of reasons, some of them personal, except when he disagrees with my own party. Now I shall read this quotation, which may or may not be familiar already to the noble Lord, but I would imagine that Lord Vaizey would be happy with this conclusion. The quotation runs: We regard the existence of over 3 million unemployed as an affront; a prodigal waste of human resources; the source of much personal misery, and a stumbling block in the way of prosperity. This is from the all-party committee. It continues: Although unemployment has taught and is teaching salutory lessons about the risks of inefficiency, over-manning and restrictive practices", as referred to by the noble Lord, Lord Cockfield, the price is too high". So that was the conclusion of the all-party committee—that the price is too high. I will not develop that part of the argument, which has been dealt with already very effectively.

Again, other speakers have vividly illustrated (and there are more to come who will illustrate just as vividly) the bitter miseries which are the direct consequences of the Government's policies. None of us, I would hope, whatever our party, would fail to agree about the fact of the pain inflicted. We on these Benches, even if we believed that there would be some ultimate benefit, would consider that the price paid in human waste and suffering in these years is far too high. The House may have heard, perhaps rather too often, that for many years I have been associated with some of the most vulnerable groups in our society: the homeless young, the young blacks, the mentally afflicted and the ex-offenders among them. Groups like these and many similar groups are probably more damaged than any others except perhaps the old, or the indigent old referred to by the noble Lord, Lord Hatch, at times when the social services are being savagely interfered with.

I have time this afternoon for only one illustration and I would draw it from the wider area of average young people and not those who are thought of as especially disadvantaged. I was talking at the weekend to a chaplain in a large comprehensive school in the North of England. This chaplain tries to keep in touch with the young people when they leave school. He sees them about in the town and so on. He told me that, leaving out those who have gone on to full-time education, he had not, until last Tuesday, met a single young boy or girl who left a year ago who had got a job—not a single one. But last Tuesday one boy came up to him with shining eyes and said: I have actually got a job—one job out of all those school leavers.

Yet our Prime Minister, about whom I shall be speaking respectfully but candidly in a moment, had this to say in an interview with Mr. George Gale in this morning's Daily Express. I am now quoting Mrs. Thatcher: You see, Mr. Gale, there is no need for a person of 16 or 17 to be unemployed"— I may tell the noble Lord that I am reading from the Daily Express. Although the Daily Express is not always completely correct I do not think they could have got this wrong. She said to Mr. Gale that there was no need for a person of 16 or 17 to be unemployed. If the noble Lord wonders whether I have taken it out of context, then I am perfectly ready to pass this across to him so that when he replies he will see the context in which it was said. That is what she said—when the actual facts, to everybody who knows them, are totally opposite. In charity, I am afraid we must put it down, as they say in certain theological circles, to invincible ignorance. It is not a quality that we particularly value in our national leader.

Lord Boardman

My Lords, I have not read the article, but could it be that that was in the context of youth training schemes and youth opportunity schemes which are going to ensure that no one is without a job or a training opportunity on leaving school?

The Earl of Longford

My Lords, I am ready to let the Minister see the full context and let him answer if he feels it necessary. I was quoting what she said and setting it against the real truth. Of course, I know that she would never have said it if she knew what the real situation was. Incidentally, I doubt whether the Box is going to help very much here.

My Lords, I hope not to be misunderstood if I say what is commonly accepted: that the present Government's strategy is associated to an exceptional degree with the present Prime Minister. She is a lady whom I respect and, indeed, admire as I think most decent people do, as a person, so that there is nothing remotely personal in what I am saying. Nobody supposes that the policies being followed by the noble Lord's party were devised by the noble Lord, Lord Cockfield. With all his great abilities, he is an instrument of their policies. No one supposes that they are a continuation of the policies of Mr. Harold Macmillan (who was referred to earlier) or of Lord Butler of or Mr. Heath. They have come to us with the present Prime Minister. As someone who once taught history, I can think of no Prime Minister in our whole history who has imposed her personal philosophy to such a large extent on the social and economic life of the country. I do not say that in denigration. If her ideas are right and she is the only one who possesses them, well, let us have them imposed on us. I am just recording a fact about which I think there can be very little argument.

The Prime Minister has described herself as a conviction politician. I accept that unreservedly. I would go further and describe her as a moralist politican, and I say that in no derogatory sense at all. I have been labelled in my time as a do-gooder. I do not see why we should not have a do-gooding Prime Minister; that is, if she is doing good. I would define her as a moral person—not only in the personal sense, which I take for granted, but because she is one who has strong moral ideas which she feels should be laid before the nation and which she hopes to persuade the nation to adopt. I hope that that is not said in an offensive way.

She is deliberately, and very articulately, setting out to improve the moral standards of this country—and I am not saying that they do not need improving. She clearly believes that much in this direction can be achieved both by exhortation and by legislative action. She has called on various occasions—and I am not now referring to the Falklands issue at all; because she has been making these speeches, as I think noble Lords will confirm, for some years—for a return to the ancient virtues of self-discipline, self-sacrifice and the like.

No one doubts her power of self-discipline and, on the subject of self-sacrifice, I think since as I am speaking rather sharply I should not fail to mention the point, which is entirely to her credit, that she has apparently given up a quarter of her official salary; so do not let me suggest that there is any weakness on that front. But we must look behind the words used—"self-discipline" and "self-sacrifice"—to the implications in practice. I discover in her application of these ideas a conviction that the Welfare State has gone too far. That idea is, of course, anathema to those of us (most of us, I think), on these Benches who think that it has not gone far enough. I am not too sure about my old friend (if I may call him that) Lord Boyd-Carpenter. I am not quite sure from his speech today where he would stand on that particular intention. But, at any rate, it seems fairly clear that this Government, led by this very strong-minded and eloquent Prime Minister, take the view that the Welfare State has gone too far. Putting it now not into her words but into my words, it seems to me that she believes that in our attempts to be our brother's keeper we have dragged both ourselves and our brothers down into the pit; and she feels that that has been the wrong approach altogether.

Along with that I find, in her mind—and of course this has been in the minds of many Conservatives for years; but they have had rather to suppress these convictions until they were given the leadership of this lady recently—a touching belief in the teachings of Adam Smith. On occasions, she has praised Adam Smith and the Wealth of Nations which, as some will remember, was published in 1776. Now, along with that, goes a belief in the philosophy of the competitive market. I am sure that the noble Lord, Lord Cockfield, is not going to differ from the market philosophy. That, at least, I am sure he will accept. And along with it, too, goes a deification of economic man. Economic man, of course, the man of the economic textbooks (who had rather fallen into disrepute recently) is now back again.

He is the man who enriches all of us by seeking to enrich himself in all circumstances. That is the philosophy of Adam Smith, and some of the older ones of us will remember being taught our economics along those lines. Recently, that has been thought rather reactionary and out-moded. But economic man is back again. It is a painful fact that economic man is today simply a synonym for greedy man. I believe—and I have said this here before and I know I am saying something that no one will particularly like—that collective group selfishness is the plague of the modern age, not only in this but in other industrial countries; and that applies whether we are talking of business men or professional men, doctors or Government servants or working class people.

The only comment I would make on the last point is that the noble Lord, Lord Boyd-Carpenter, spent quite a lot of time criticising the trade unions. If the trade unions have developed any philosophy of sectional selfishness they have learned it from higher up; they have learned it from the business men and the wealthy people who have pursued their own interest to great advantage when the working men were im- potent. If I may say so—and this has been brought up by more than one speaker—they are pursuing it pretty effectively through the agency of the present Government. However, let us leave that point to look after itself for the moment.

I shall never believe that the unremitting pursuit of what appears to be group self-interest is any kind of escape from our present troubles; but I do not despair. That is why I said I am more hopeful than the noble Lord, Lord Houghton. He was so pessimistic that I think he had to go and refresh himself in more agreeable surroundings. When Mrs. Thatcher first became Prime Minister she declaimed from the steps of Downing Street with passionate sincerity St. Francis Assisi's prayer for peace. I am sure it is familiar to all noble Lords, but maybe I can remind you of a few sentences: Lord, make me an instrument of Your peace. Where there is hatred let me sow love; where there is injury, pardon; where there is doubt, faith; where there is despair, hope; where there is darkness, light; and where there is sadness, joy Other fine words went along with those.

It happened that just before she became Prime Minister I had written a small book about St. Francis of Assisi, and that is why I took a keen interest in her views. I was glad to discover later she has always looked upon St. Francis of Assisi as one of her favourite saints. Whatever else I am criticising her for this evening, I am not criticising that judgment. What does St. Francis of Assisi stand for in so far as we can apply the spiritual teachings of a saint to our hard, worldly affairs? Whatever else he does not stand for, he does not stand for hard line policies which have produced 3 million unemployed and made it impossible for school-leavers in large parts of the country to get any kind of job.

Here, as I draw to a close, I venture to quote one more saying from the all-party report on unemployment: It is a hard but inescapable fact that in a democracy any policy requires a basis of consent. I will never believe that this country will consent permanently to a policy which leaves us with 3 million unemployed. May I humbly and respectfully suggest to the Prime Minister that she thinks again. May I beg her to ask herself whether the true wealth of nations—in this case Britain—can ever be found in ruthless dedication of statistical targets. Should we not rather seek it in a very different area of values—values to which she has made it plain that she is in no way insensitive, as is evidenced from her longstanding devotion to the ideals of St. Francis of Assisi?

8.4 p.m.

Baroness Lane-Fox

My Lords, I regret that I was not present to hear the maiden speech of my noble friend Lord Kindersley about which I hear such good reports. However, I am delighted to have been present to hear the splendidly fact-filled maiden speech of my noble friend Lord Rootes and I should like to add my congratulations to the many that he has already received.

The Motion asks to what extent the real cost of Government economic policy in the past three years has been borne by those least able to bear it. I bring to this subject a simple view formed partly as a consumer and partly as one of those who has for many years sought to obtain higher pensions and allowances to relieve certain sections of hardship. The plight of pensioners, whether supplementary, old-age or invalidity, easily becomes unacceptable to those of us who know and care, and makes us long for a goose to lay the golden eggs, or even for a munificent Father Christmas to fill the deserving pocket purse or stocking. In fact, to long for the wealth-producers referred to by my noble friend Lord Boyd-Carpenter. Of course, we seldom speak of the increases in pensions, mobility and other allowances, for if we did, this would weaken our case for the further increases which must be pursued for long to come if we are to compensate for gaps in various benefits as they have existed for years under successive Governments of both parties.

As your Lordships will know, despite the inadequacies and anomalies that still exist, increases in pensions have been considerable in the past three years. Notwithstanding this, the real enemy of the pensioner is high inflation. To receive a higher pension only to find that prices have risen outside your purchasing power is a constant source of anxiety and unhappiness.

High inflation hits first and hardest at those with little or no income margin, with no fall back. In addition, it tortures those who have lived thrifty, hard-working lives and have put aside a nest egg for a rainy day. For those people the rains came with high inflation and some pensioners have had to liquefy their assets just to pay to live. Undoubtedly, this thoroughly unsatisfactory situation required to be fought on behalf of many groups of pensioners. Now, a sharp reduction in the rate of inflation has been achieved with an underlying downward trend in the United Kingdom inflation rate for the first time since the 1950s, I believe.

Over the past three years, the Government's policy appears to me to have aimed to make the country better able to cope with current world recession. The fact that output per head in manufacturing has risen sharply since 1980 backed up by a comparatively lower rate of inflation, suggests that industry will become more competitive and attractive to investment. As capital investment is the seed corn for future manufacturing prosperity and competitiveness, surely the uncomfortable steps taken to achieve this end are justified. If we do not have hearts of stone, the dreadful dilemma of unemployment touches all of us particularly those of us who have ourselves searched for employment.

But the Government have taken special measures. Perhaps the most important one, as announced this afternoon, is the abolition of hire purchase restrictions. But there are other measures to employ many more of the young unemployed such as in an expanded Youth Opportunities Programme, a Youth Training Scheme, Young Workers Scheme, Community Industry, Training for Skills and Unified Vocational Preparation, plus arrangements for numbers of pupils to stay on at school. Unemployed adults will be helped by the Job Release Scheme, Community Enterprise Programme and Enterprise Allowance Scheme. There are other schemes too. So the effort is there. Of course we should all like much more to be done. But it is a great start, and thank goodness for that. What is certain is that the Government's prime purpose "to defeat rising inflation" is succeeding. I repeat that it is my belief that those who have the least to lose are the ones worst hit by economic crises, recessions and inflation. Therefore, I think that those termed in the Motion as "least able to bear it" have been suffering the trauma of rehabiliation towards a more stable economy to rescue them from future undue inflation. Finally, rehabilitation can be hard and almost cruel to bear for the weak, but (as on this occasion) it can be immensely beneficial.

8.10 p.m.

Baroness Ewart-Biggs

My Lords, I should like first to thank my noble friend for introducing the subject we have been debating this evening and for presenting it to us in such a very lucid and human way. I should like also to congratulate the two maiden speakers. Remembering the great trauma that the occasion presented to me, I very much admired their calm and clear delivery.

I thought I would concentrate on the second part of this Motion, as the previous speaker has done—namely, on how the Government's social and economic policies are affecting those least able to bear them. First, however, may I point out that the recent findings of a research programme into aspects of deprivation which was carried out by the Department of Health and Social Security and the Social Sciences Research Council are very relevant to the particular issue we are debating this eveing. As the report defines the three more gravely disadvantaged groups at present in Britain as being the unemployed, the elderly and the single parent family, I thought I would try to evaluate how economic and social policies are affecting these last two groups, as the unemployed have been singled out for attention already by several of my noble friends.

The first reason why these two groups have fallen into the poverty trap is that the numbers in each case have risen dramatically and very fast in recent years. Statistics now reveal that one family in 10 is headed by a lone mother, with a much lower proportion by a lone father; and there are about eight million people aged 65 or over in Britain, many of them living alone.

Originally, speaking generally, mothers found themselves alone mainly as a result of widowhood, but now the numbers have been swelled by increases in illegitimacy, divorce, separation and a greater tendency of lone mothers to establish households on their own. Widows, recognised as they were by the state as being a legitimate form of single parent, are slightly better provided for, in that they receive a pension whether they work or not. But the incomes of other categories of single mothers are very deficient. Apart from any funding they can get from the fathers of their children, state benefits are not sufficient to allow mothers to stay at home and look after their children in any degree of security, and lone mothers are put at an even greater disadvantage by their lack of opportunity to boost their income. On the one hand, single mothers lack a partner to help with household costs and, on the other hand, their parental responsibilities mean that they can rarely take on full-time employment. Furthermore, there is the additional injustice that single-parent mothers who wish to work receive very little help from a tax system which does not even acknowledge the costs of child minding as an allowable expense. Also, for those mothers who do not work there is no real financial recognition in tax or benefit systems of their vital role in child rearing. Apart from the adverse financial consequences, this treatment makes the mother feel that the rest of society is unsympathetic to her particular predicament.

Furthermore, it should be remembered that a failure to guarantee single-parent families an adequate income is contributing to their disadvantage in other ways. Quite apart from a low income meaning little to spend on necessities such as food and clothes and on so-called luxuries which families need, these families, whose choice of somewhere to live may be restricted by a lack of money as well as by social stigma, are more likely than most to end up in very poor housing.

Such disadvantage probably goes quite some way to explain why children from one-parent families tend to do less well at school than other children. Their home environment is not conducive to physical well-being or any kind of scholastic study. They are in all probability suffering from a repercussion of the tension and anxiety that single mothers, facing life alone, are beset by. So, through a combination of poverty, poor housing and additional tension, the children of single parents are among the most likely to suffer cruelty and abuse and eventually to be received into care.

Another cruel facet of the circumstances surrounding single-parent families is that a lone mother feels her poverty more as it affects her children. A lone mother is very conscious of her own inadequacy, which she may feel led her in the first place to her existing predicament. She recognises that the same inadequacy prevents her from coping with life, dealing with the mounting pressure of debt under which she often finds herself and responding to the demands put on her by her children. The final cruel paradox is that a single parent is more likely than others to run into debt through her desperate wish to see her children better dressed and provided for than others, as a way to compensate them for the absence of the other parent. She will do her buying mainly through mail orders and then, when the bills start to come in, she can never catch up. She is continually running in order to stay in the same place. So, although the system will have given her both support and care during pregnancy and immediately afterwards, her allowances are in no way in line with the growing cost of children as they get older. Thus her ultimate fear is that her own inadequacy in dealing with all these problems will lead to her child or children being put into care.

As I said at the beginning of my remarks, there are now 8 million people in Britain who are over 65, and the evidence points strongly to the fact that the structure of social policies is no longer protecting them from extreme deprivation. This deprivation is brought on by an array of factors such as long periods of retirement, the value of savings eroded by inflation, small state pensions and few opportunities to earn extra money. Perhaps the most noticeable consequence of poverty on the elderly is the effect it can have on their health. Old people living alone have to buy food in small quantities, and hence expensively; and many seem not to be able to afford a nutritious and a varied diet. More important, perhaps, is the difficulty that many old people currently experience in keeping warm. Recent and massive increases in the price of fuel seem responsible for the alarming rise in the cases of hypothermia and death among old people that have recently been reported.

In more general terms, the physical care of old people may also suffer. The elderly frequently live in unmodernised housing and are rarely in a position to improve their circumstances. Also, they are unlikely to have any spare cash to allow them to compensate for their personal disabilities by enlisting the help of non-statutory services. There can be no doubt that all these difficulties are being aggravated and will be further aggravated by the cuts in the social services, in local authority spending and in the health services. In fact the system is no longer really geared to the size of the problem presented by such a large group of elderly people.

So, what can be done to relieve the plight of the elderly and stop them feeling, as some do, that they are a burden on society? And what can be done to alleviate the multiple deprivation of the single parents and to prevent their children becoming alienated from the community and a danger to it? First, of course, there is a great deal the Government can do in re-aligning their social and economic policies to meet real needs; but there is also something that members of the community in general can contribute. There can be no doubt that the stigma of poverty can only be accentuated by society's ignorance of social problems and social policies. I have often felt that there prevails in Britain more than elsewhere a great inhibition upon the discussion of social problems such as poverty, old age, crime, race, child abuse, mental handicap and so on. The press and the media certainly make a contribution to the discussion, but that is often tinged either with sentimentality or with sensationalism, and consequently can have an adverse effect. Undoubtedly, increased social awareness can but lead to a greater tolerance on the part of the more fortunate members of the community towards the less so. It must be true to say that the individual does have a great responsibility in setting the tone: it is his values and those of society generally which will eventually determine the extent of the attack made by Government against disadvantage.

Finally, my Lords, what are the changes in Government policies necessary to help the most deprived? First, since bad housing contributes to the most basic deprivation in the cycle, the trend of recent years towards a reduction in spending on housing should be reversed and, instead, the construction of houses for the low income bracket should be given a very high priority in social policy and public expenditure.

Secondly, lack of income remains the common denominator of deprivation, and many of the poorest members of our society are those who depend for long periods on state benefits. It is now quite evident that, certainly so far as the elderly and single-parent families are concerned, basic benefit levels are quite simply inadequate. These should be increased as a matter of priority, and, in particular, supplementary benefit levels. On another aspect, the aim of the National Insurance scheme was, essentially, to provide a comprehensive and adequate income maintenance system for those unable to support themselves by work. At present, it excludes too many people because of the restrictions of the categories and contribution conditions. Thus, if contribution tests were withdrawn and entitlements redrawn, benefits could be extended to, among others, single-parent families. And, in order to relate to new patterns of living and working, there is a very great need to revise the co-ordination of fiscal and income maintenance policies.

A further way of helping children in all the low income families is through a substantial increase in universal child benefit allowance. But, as I said earlier, on account of the present high cost of food and children's clothing, the expenditure incurred in feeding, clothing and entertaining a 13 or 14 year old child bears no resemblance to the cost of looking after a baby or a small child. It would, therefore, be very much more appropriate if benefit could be more closely geared to the actual cost of children which, of course, rises as they get older. So may I end by saying, as the noble Lord the Minister said, that while the tennis ball is busy bumping along the bottom, the realisation of the old dream of one nation is becoming more remote.

8.22 p.m.

Lord Davies of Leek

My Lords, we have had a long and interesting debate and, quite certainly, the maiden speeches of the noble Lord, Lord Rootes, and of the merchant adventurer, the noble Lord, Lord Kindersley, as well as the speech of the noble Viscount, Lord Chandos, were—and I hope that I do not sound pompus or condescending—excellent contributions to this debate. All the speeches were worth listening to and being looked into by the Government. Undoubtedly, over the gamut of the debate there is quite a lot of information for the Government who are now in power to sift out useful topics.

It is late, so I shall not trespass too long on the time of the House. I travelled today in my car some 180 miles and I listened to the service in St. Paul's Cathedral. It was inter-denominational and there were religious people of different points of view. It was a brilliant service, soberly put forward, weighing the issues of peace and war, weighing the problems confronting us today and paying tribute not only to the 250 young men who died on the Falklands but to the 400 men who have died while trying to bring sanity into the almost impossible problem of Northern Ireland, together with the thousands of others who have been injured. That is the kind of world that we are living in and it is not one about which to make cheap jokes across the floor of the House.

Speaking as one who has spent most of his life in South Wales and who saw the poverty and misery that unemployment can bring, I do not believe that we are succeeding in a nation where unemployment is now creeping up to 3.2 million and where we could, by the next General Election—I say this without exaggeration and it is nothing to be proud about—have 4 million unemployed. What answers do we find in this Chamber, or anywhere else in the governmental system, to that problem? Not so long ago I saw shipbuilding in Korea, I have seen the motor-car factories in Japan and I have seen work going on in many other parts of the world. We are no longer top dogs, as we were in the 19th century, when we had 290 steam engines before the rest of the world had any. We are facing that situation and it needs the best of thinking.

I have one caveat for the Government, who are in a simple state of euphoria. There is no guarantee that the Conservatives will win the next election, if we creep up to 4 million unemployed. We are more likely to get a state of society which is on the road to an authoritarianism which could be dubbed fascism. That is the danger of the world in which we are living. I have seen fascism in Spain and in many other parts of the world, and there should be a reality on both sides of the House about tackling this problem of unemployment, and about giving dignity to human beings.

My noble friend Lord Jacques, in a brilliant 14-minutes speech, called attention to the real cost of the Government's economic policy over the past three years, and to the extent to which it has been borne by those least able to bear it. Those least able to bear it are the axle on which the wheel of the misery that we are in today is turning. The Treasury analysis of the movements of real take-home pay, given in answer to a Parliamentary Question, shows a sharp decline in living standards over the past two years. I do not want to give masses of statistics, but there was an improvement in the first year of Tory rule which was much greater for the better-off than for the low paid. Taking the three years of Thatcherism, there has been a 4.1 per cent. decline in real pay for a single man on half-average income, and a 3.2 per cent. decline in the standards of a married man with two children.

The Financial Times stated: Sir Geoffrey Howe, Chancellor of the Exchequer, at a press conference on 6th July, said that the Government's approach means substantially lower pay rises than last year and, in the face of the present level of unemployment, might well mean no pay increases at all. The Financial Times said that undoubtedly this would lead to higher unemployment. I do not want to make cheap jokes about the lady Prime Minister, but she could be described as the panjandrum of politics at the present moment, because she does not seem to be sure of the direction in which she is going. There are more "wets" turning up in the Conservative Party now than ever before in its history and they are beginning to grumble.

Here is the 64,000-dollar question. If 3 million unemployed, and a spread of labour-saving machinery, is called success, there is no hope in that and concept of capitalism. There cannot be any success in a society that is doing well for the upper crust if 3 million of the lower crust are bumping along the bottom. Safety nets for the unemployed and the sick have been attacked, and some have been destroyed. I am going to ask only one question, and will then sit down, because I promised to be brief. I want to know whether it is true that the Government intend to drop the fair wage contract, which was originally set up in 1891. There was a fair wage concept at the International Labour Office, and in 1946 the Labour Government confirmed the fair wage contract.

What does this mean? It is not abstruse or esoteric. This is all that now stands between Britain and noncompliance with the International Labour Office in Geneva. The fair wage contract ensures that when authorities give work to private contractors those contractors cannot undercut—because they must pay fair wages in an effort to get lucrative local government or Government contracts anywhere within the European Convention or within Europe. Convention 94 of the International Labour Office came into force in 1952 and was ratified by Britain. Have this Government now indicated that they may renounce this convention, which can be done at 10-year intervals? The Government will be looking to renounce it, when? They are to renounce the fair wages clause at the International Labour Office in September while we are in recess. This is monetarism gone mad. This clause is a protection for contracts. It is a protection for Conservative Governments or Labour Governments when in power. The fair wages clause should not be interfered with. I shall leave my question at that. Much though I should like to speak for another 10 minutes, I shall sit down and shall hope to get an answer to my question.

8.31 p.m.

Lord Selsdon

My Lords, I have very considerable sympathy with the Motion of the noble Lord, Lord Jacques. Also I have had a high regard, over some time in this House, for his integrity and sense of purpose. However, during the past few years in various economic debates, particularly since this Government have been in power, I have not found one straw to clutch at which leads me to believe that noble Lords opposite or their friends in another place have a credible alternative policy when the priority, agreed by all concerned prior to the last election, was fighting inflation. That does not mean that in any way I wish to criticise or that I shall fail to listen to the views expressed by noble Lords on the Benches opposite.

However, I recall a saying of the developed world: "A man who does not know"—and indeed they do not know what to do—"is a teacher. Do not ignore him. Heed him". I am sure my noble friend Lord Cockfield will advise noble Lords opposite that he will take note of their suggestions—although, as I say, no credible alternative policy has been put forward. The same saying continues: "A man"—or perhaps a woman—"who knows that he"—or she—"knows, is a leader. Follow him"—or her. This is what I believe we should do with the present Government. They are a strong Government. They are resolute. They have a sense of purpose. While the impact of their policies and the pressures thereby created may not have fallen evenly on people over the past three years, it is a fact of life that there is a strong resolution.

The same sense of purpose and knowledge came through in the speeches of my two noble friends here. They certainly knew that they knew, and they conveyed that impression to us. We should follow them. The same saying continues: "A man who does not know that he knows, is asleep. Awaken him". My two noble friends rested for some time before entering your Lordships' House. Now that they are awakened, I know that we shall have the pleasure of hearing from them more often in the future.

I submit to your Lordships that the country as a whole has been awakened, and that in or among what we call managers—or, as some on some sides would say, the wealth creators, or others the brains, or those who have the potential to lead and develop—there is a new thinking. I submit that a few years ago the main ambition of the manager was to try to climb the next rung on the corporate pyramid within which he worked, claiming that he was not paid enough to survive in a high inflation society, that he could not afford a mortgage, that he could not afford holidays. Therefore he sought more money. That same seeking for more money spread throughout all sectors of industry and public and private life. Now I submit the tide has turned and that the same people who were discontented before are saying, "Well, I am not too badly paid but I am not being productive enough", or, "I do not have the chance to build, develop and create", because prosperity in this country is created by individuals who come together or even work on their own.

My own family had some ties with the motor trade. I recall being told that a motor-car was not made anywhere: that the individual components were made in garages and back rooms and put together by men of foresight who added the brand name; and that as soon as the motor trade brought everybody together under one roof and the individual initiative, or the free thinking of an engineer was tied into a corporate structure, productivity fell. I think we have seen a return to the possibility of increased productivity.

I would summarise it in this way. Some time ago there was, I believe, a Member of your Lordships' House who, when asked by his son what his son should do in order to be productive and successful, said, "My son, there are only three things that you can do. Either you are one of them that do, or you are one of them that advise people how to do, or you are one of them that takes the credit for them that do. If I were you, I would think about being the first, once again, because there is no competition in Britain these days". If we can persuade people to get out to do or to create, we shall change the structure of our economy. Here the barriers and the burdens imposed by Government unfairly are restrictive. By this I mean the burden or the way that taxation falls. It falls least upon the biggest and the largest because they are encouraged to reinvest and to expand, and it falls heaviest upon the smallest. I have raised this theme before, but it is one which I should like to suggest should for ever be considered.

There are two practical suggestions which I should like to put forward. One begins with the motor industry. But I would not say the motor industry as such. It begins by the allocation by Government of existing resources. To me, when so many people are crying out for resources to meet a demand, it seems strange that a large Japanese car company which has announced that it may wish to invest in the United Kingdom almost has to stand aside in the rush by public authorities and others to woo it, creating in my mind the impression that there are more than sufficient resources to support inward investment, a theme that I have raised before. I do not believe that you can bribe people to invest. They will invest if the demand is there. If it is not, nothing on earth will persuade them, because it will be a mistake in the long run.

Therefore I submit that some of the resources which may have been allocated to try to attract companies such as Nissan or others should, maybe, be reallocated to support demand which does exist. The theme again is that demand is greatest at the moment in the developing world, which is starved of resources and where perhaps a more judicious and pragmatic application of increased aid funds could produce increased demand at home, which would create more jobs and encourage investment. Currently, something like 7 per cent. of our aid budget is allocated under the aid-trade provision—that is, to create or to win orders overseas, which in fact effectively create jobs at home. The gearing of that is quite incredible: that £1 creates perhaps £4 worth of business, or orders, and with it comes the demand. I must pause for a moment to refer to the work of my noble friend Lord Kindersley with the Commonwealth Development Corporation which has shown remarkable courage and success around the world. Once again I believe that it could benefit from increased resources.

So I started with the car, which was the backbone of our economy, submitting that resources allocated to encourage people like the Japanese to come here may be better allocated in other areas. The second thing is new resources and new investment. I think that now that we have a stable economic situation (and it is stable, with indicators pointing in the right direction) with people complaining that perhaps demand has been too squeezed, there should be some form of expansion. This is a point which my noble friend Lord Cockfield mentioned this afternoon. But coupled with that—and the comments of my noble friend Lord Boyd-Carpenter—there may be a need for capital investment. I think that there is a case for sewerage and for water treatment, although I must declare an interest. As chairman of a consortium called British Waste Water, this is something which I should welcome. However, one must look at what is politically acceptable to the current administration and at what would make the greatest sense. To me, this is more related to the subject of tomorrow's debate, to the area of defence as a whole.

I come back to the second pillar of our historic industrial development, the shipbuilding industry. It is indeed sad that a ship should sink and that the owners should wish to build her replacement in a Korean or Japanese yard because the price is better. It is not the price; it is perhaps the productivity that is better. I shall for ever rue the day when my noble friends and I did not fight strongly enough on the nationalisation Bill for the ship building industry, because, without doubt, our productivity has fallen—although British Shipbuilders themselves have reduced their loss and, effectively, most of the public corporations spend their lives trying to plug the hole in the bucket rather than trying to expand. But surely, a situation has arisen that none of us foresaw and none of us wish, our ships once played a major role in the world, and we should give careful thought as to whether our future strategy in relation to ships—be they military, naval or merchant marine—should be harmonised. I have always supported the navy; my son wants to go into it and I was in it too. History plays a part—and the noble Lord, Lord Hatch of Lusby, will understand that.

There are capital ships these days; these are submarines beneath the surface. In the last war they may have been aircraft carriers and in the First World War the dreadnoughts. They would have been ships of the line in Nelson's day. Then there are the rest. The rest in general are floating platforms. There are more floating platforms today than there have been, maybe, since the time of the "Mary Rose", when one loaded as much armament as possible on the top and set to sea. I submit that for the future these floating platforms—whether they be for the Navy or the Merchant Marine—could be of similar construction and design. It calls for some form of thinking in the shipbuilding field, but, allied to it, perhaps, considerable investment in the defence field as a whole. The defence estimates will show that there are roughly £1.8 billion of defence sales around the world. The events of recent weeks have drawn the attention of the rest of the world to the supreme competence and confidence of the British in the defence field. I think that is something which it would be timely and opportune to exploit, and perhaps link it with increased investment by the Government in that field.

For the first time in a long time I sit down in an economic debate with a sense of hope. Perhaps it is because more people around the world think that we are going to do better and well in the future than we do ourselves. My own job takes me to many countries, and in the past six months I have come across great praise for the strength of purpose of our Government and for the way in which policies are being tackled, and—perhaps more—that for the first time Britain is becoming competitive and constructive in many fields abroad. I do not believe that we should see a change of policy. Some mild reflation is desirable. I am grateful to the noble Lord, Lord Jacques, for having raised this issue.

8.43 p.m.

Lord Bruce of Donington

My Lords, the statement by noble Lord, Lord Selsdon, which many of us may have thought erred slightly on the side of complacency—that we had in his view reached a stable economic situation—presents the precise reasons for the initiation of this debate by my noble friend Lord Jacques. If wide sections of the Conservative Party are convinced that this is really a stable situation, then the speech of my noble friend Lord Jacques in which he drew attention to the consequences of the Government's policies upon certain sections of the community, is more than abundantly justified.

This has been a long and interesting debate. It falls to me also to add my congratulations to the noble Lord, Lord Rootes, on his maiden speech. I must express my apologies to him that I did not realise it was to be his maiden speech, but I must say that he spoke as one who has thoroughly accustomed himself to the whole attitude of the House and its atmosphere. We hope that he will speak many times again. I should also like to congratulate the noble Lord, Lord Kindersley, on his maiden speech. We do on occasions, as we all know, receive very valuable contributions in the field of finance. Some of them are not always unanimous. They sometimes come from the Cross-Benches and have even been known to stray into the Front Bench opposite. But to have another contribution from an expert in the financial field is always valuable in any debate we have.

In the course of the speech made by the noble Baroness, Lady Seear, she seemed to suggest that those of us who disagreed with her were guilty of making partisan speeches. The noble Baroness is well noted for her very moderate and genial approach in this House, but I rather wish she would listen to a playback of her quite partisan attack on the Labour Party. I sincerely hope that when she feels inclined to make strictures on those whose duty it is to criticise where criticism is due, she will also read—if she did not hear—the most admirable speech made by the noble Viscount, Lord Chandos; a speech to which, even though the noble Viscount does not belong to my party, I am very pleased to pay my own tribute.

It must not be imagined that we do not, as Members of this House, have an obligation to criticise in the most stringent terms, if necessary, those whose whole philosophy and convictions are diametrically opposed to those of us who believe in our beliefs with equal sincerity. Perhaps I may commend to the noble Baroness, Lady Seear, the observation that those who cry, "A plague o' both your houses" very often end up with a plague themselves. There is no case in this modern age for benevolent neutrality that is so dulcet that it blows over all the differences. Otherwise, we are not performing our functions as a house of debate within a free democracy.

In the course of the debate, my noble friend Lord Jacques was admirably supported, I am sure your Lordships will agree, by my noble friend Lord Underhill, who graphically drew attention to the various vistas which have been held out to the country over the past three years as to the possible future course of our affairs. Also, we had from my noble friend, Lord Ardwick, the somewhat pertinent view—to which I hope the noble Lord, Lord Cockfield, will reply when his turn comes—that so far the Government have failed to make any proposals whatsoever, or make any forecasts whatsoever, concerning unemployment. I venture to repeat the question of my noble friend: what do the Government propose to do about unemployment, aside from many of the measures which must be regarded as temporary expedients and which, to some extent, must be regarded as a means of reducing the signing-on numbers and of lowering the apparent figures which people have to take into account?

Then there was the very moving speech, many may feel, from my noble friend Lord Wells-Pestell, who speaks with deep knowledge and deep passion concerning those millions of our fellow countrymen who have suffered severely as a result of the policies that have been imposed by Her Majesty's Government. And I will come to the observations of the noble Lord, Lord Boyd-Carpenter, on this matter at a little later stage. I well recall him over a year ago saying that we had to endure the bitter medicine. All I would remind him is that it is mainly the poor that have the bitter medicine and it is the rich that have the benefits so far.

There was the speech of my noble friend Lord Hatch of Lusby, who spoke of the way in which the economies of the developing countries were proceeding, the effect that they were having upon our own prosperity here, or otherwise our own economy here, and the effect they were having on the European economies. Then there was my noble friend Lord Houghton of Sowerby, who, after making some very learned observations on the Finance Bill itself, which was the formal subject of the debate, did utter a fear which found an echo in the hearts of many of us when he said that he did not see the economy and society developing on the lines on which it appeared to be bent without some coercion eventually emerging within our society. In view of the long experience of Lord Houghton of Sowerby, this is something that we would do well to bear in mind.

My noble friend Lord Longford made his inimitable contribution in drawing the attention of the House to the sometimes conflicting strands that he seemed to find in the mind of the Prime Minister, and I thought that in requoting the citation from Saint Francis of Assisi he probably brought home more poignantly to the House the departure of the Government from the philosophy that was propounded than possibly anything else could have done.

My noble friend Lady Ewart-Biggs dealt, as she always does, very expertly with the fate of those that are deprived but not necessarily unemployed. Sometimes, although we concentrate on the unemployed, and very rightly so, we tend to forget the other people who are deprived. Then my noble friend Lord Davies of Leek spoke movingly of the service at St. Paul's and also expressed his misgivings as to the way in which society was going under the policies of the present Government.

My purpose here tonight will be a very limited one indeed, because most of the points that were made by the noble Lord, Lord Cockfield, have already been dealt with in his absence by my noble friends. But tonight I propose to meet the Government head on and to invite them to answer, not necessarily now but later, when they have had an opportunity of examining what I have had to say. One of the advantages for the Government in speaking a second time—certainly do not complain of the pleasure of listening to the dulcet tones of the noble Lord, Lord Cockfield, twice—is that in replying you can always ignore any point upon which you are unsure; one can always refuse, or fail, to answer any question put in the hope that ultimately one can get away with it.

The Government, after having abandoned their monetary controls as a means of getting the nation out of its ills, having almost forgotten about the public sector borrowing requirement, except when it suits them, having almost abandoned out of decency the whole question of public expenditure, bearing in mind that the extra unemployment they have created is already costing the country over £9,000 million a year, have now come to their own alibi to explain the position in which we are. Let us make no mistake about the position. Let us count the benefits over these last three years and two months. We have inflation running at a rate which is one penny in the pound less than the rate of inflation when they took over. Inflation has not come down. In fact, the value of the pound compared with when they took over is now approximately 66p. Prices are still going up. I certainly give the noble Lord this—I do not wish to deny him the achievement—the rate has now come down by one penny in the pound below what it was in 1979. I give the noble Lord that.

And what else have the Government achieved? They have achieved a slight increase in output over the last one or two months. As the noble Lord now admits, in contradistinction to his earlier speeches, it is bumping along the bottom. And the noble Lord sought to derive some comfort from that situation, in referring to his prediction that it might rise 1 or 2 per cent. over the next year or so, by referring us back to the good old Conservative days when it was increased at the rate of 2 per cent. a year. And he explained how wonderfully we were all getting on on that basis. What he did not say, but what the country now well knows, is that manufacturing production has dropped in this last three years by nearly 18 per cent. He did not mention that. So that is another one of his achievements. What other achievements are there? One per cent. off the rate of inflation, and the cost, an extra 1,890,000 unemployed! No wonder my noble friends—many of my noble friends—asked: Is it worth the cost?

The Government think that they have found an alibi. It really is not their fault at all, nothing to do with them; there is a world depression, and, after all, we cannot be expected to do anything other than roll along with it. My noble friends have disposed of that in the course of this evening's debate. And the noble Lord himself is an honest man; he knows that that is no alibi anyway. So now the whole excuse of the Government is that the only way to get out of the situation in which we now find ourselves is to become competitive. The noble Lord and his right honourable friend in another place have been full of homilies as to how it is vitally necessary to reduce labour costs, how it is vitally necessary that we should be able to compete in the markets of the world and that it was the workers themselves—the noble Lord said it himself and it was echoed by many of his noble friends—who were employed, and who were demanding too high wages who were causing unemployment. That is the alibi upon which the noble Lord now rests.

I do not mind the noble Lord having an alibi. What troubles me is that he might believe it himself. If this Administration really believes that unemployment is caused by the actions of the employed working people themselves and the trade unions, then this country is in a very dangerous situation indeed. The facts, of course, are exactly the reverse.

As I demonstrated to the House on 17th March last, the alleged fact that British goods are uncompetitive abroad is a myth. I demonstrated to the House on 17th March that that was not so. I said at column 717: First, in regard to hourly compensation of production workers in manufacturing in 10 countries in 1980—and this particular part of the report does not relate to production statistics that I shall provide presently—it was found that in 1980, and taking the hourly compensation as including all national insurance costs and everything else associated with it and taking the United States index as 100, the figure in the United Kingdom was 71, in Belgium it was 133, in Germany it was 120, in Netherlands it was 123, in Sweden it was 127 and in Italy it was 91. There was only one country where there was a lower hourly compensation cost, and that was in Japan". But then one might say, "Well, of course, that is only the wage rate, what about productivity?" In that same debate I quoted from an extremely reputable report that made a survey of manufacture in South Wales. The important point about it was that the performance of British workers was tested against American workers in the United States using identical machinery. The point I want to stress is "using identical machinery".

As regards output per unit wage cost, the report, shows that over half the companies had an output per unit wage of at least 1.25 times that in a comparable industrial plant in the USA". I stick to that. If the noble Lord has evidence in fact which is based upon reputable figures, other than the supposition that exists in his mind, that the British worker is any less productive than any other worker anywhere, let him produce his figures—I challenge him to do so—and I will debate the matter with him in the House any day.

The fact of the matter is that the main uncompetitiveness in British industry over the last 3½ years, during which we have been inflicted with this Government, has been due to the Government's foreign exchange policy, their policy of interest rates that have forced up the rate of exchange and, in fact, subsidised imports to a point where our own domestic products here cannot compete with them anyway. So the import penetration has increased precisely because of the exchange rate policy adopted by the noble Lord, which has also inflicted hardship upon exporters as well. Let not the noble Lord disclaim responsibility for that and say, "Well, of course the interest rates are all due to the interplay of market forces". One of the first things that the noble Lord's Government did when they came to office was to shove up the interest rate deliberately on their own initiative by some 4 per cent. That, of course, increased the costs of production in most of our factories and increased the rate of inflation as well. No; when they are talking about competition the Government mean something else altogether.

Your Lordships may have noticed, when the "Canberra" came back from the Falklands after having served there, that 129 of her deck and engineroom hands who have returned from the campaign are to lose their jobs to Indian seamen who will be employed at about a quarter of their pay. That is what competition means. If capital that has no fealty to any country—not to this one, not to any country—cannot get the labour it wants at one price, it will go wherever it can get it notwithstanding the national implications of what it is doing. Mr. Alan Langley explained and said: I can fully understand and sympathise with the people who have contributed to this heroic voyage and have acted magnificently in every way and now find themselves without employment"— here come the crocodile tears with which we are so familiar in this House; he goes on: But the fact is that we are in a highly competitive situation and if we employed entirely UK seafarers, the 'Canberra' could not afford to sail. Employment is a very high cost factor. The employing of non-domiciled labour, mostly from India, is historic and in recent years we have actually been increasing the number of seafarers from the UK". I trust that when the noble Lord, Lord Boyd-Carpenter, for whom I have a very considerable personal respect, comes to invoke the Falklands spirit, which he seemed to do at one moment in his speech, he will remember how at any rate one company treated the Falklands spirit as soon as the struggle, in which its directors had not participated personally, had ended.

Similar observations apply to the "Atlantic Conveyor". There is the question of the replacement of the "Atlantic Conveyor", for the use of which I believe that the Cunard Company has already received some £9 million in compensation. It is to be replaced, and I think it is to be replaced either in Japan or South Korea. This is a most patriotic spirit that must reflect the respect which certain sections of the commercial and business community—some of them with powerful press interests—have as regards the people of this country! Yes, we are back to the question of competition. That, of course, is why the investment, to which my noble friend Lord Hatch of Lusby referred, has gone, in its thousands and in its millions into Korea, Hong Kong, Taiwan and Brazil—because their union labour is not so organised as it is here; low wages can be got away with.

Therefore, when they are talking of competition, they are not talking of conventional competition within the industrialised countries—between ourselves and America, between ourselves and Germany or between ourselves and France—although there are exchange considerations that result in a lack of competitiveness here; what they are really after and what they want to drive the British worker down to are the levels of pay which obtain in countries such as Korea, Taiwan and Hong Kong. Then they think that they will be able to get their way, and then—and only then—will the stable conditions to which the noble Lord, Lord Selsdon, referred, endure: when the power of the trade union movement In this country is broken by the ever-increasing incursion of low labour-cost products being imported into this country. The only answer to it that the Government have is an ever-increasing exhortation to be competitive. That is the competitive case of the Government killed. If they have an answer to it, let them produce it—if necessary in this debate, if necessary later—because we will not let it go. That is their last alibi. Let us hope that the next time they will produce a better one.

In the meantime, the people of the United Kingdom should not feel that we in this House regard unemployment as another statistic; at any rate, those of us on this side of the House do not. It is a problem which strikes to the vitals of the whole social cohesion of the country. No mass importation of water cannon into this country—and we already have four sample water cannons here at the moment—will be able to quench the quite natural reaction to a Government that appear to ignore the elementary human principles which should be enshrined in Government: ensuring as a first priority that all of their citizens are fully and gainfully employed. This Government have no intention of pursuing that objective; they have abandoned the objective of full employment. The only useful function or step that this Government can now contribute to the unemployed is to join their ranks themselves.

9.12 p.m.

Lord Cockfield

My Lords, may I have your permission to speak for a second time? It is never easy in some 20 minutes to answer a debate which has ranged so widely and which has lasted for virtually six hours, but I should like to start by joining the many noble Lords who have congratulated the two maiden speakers today—the noble Lord, Lord Rootes, and the noble Lord, Lord Kindersley—on two most interesting and distinguished maiden speeches. The noble Lord, Lord Rootes, speaks with very great knowledge and authority on the motor industry and I was very pleased indeed with the welcome that he gave to the announcement that I made about the withdrawal of the hire purchase controls.

The noble Lord, Lord Jacques, who initiated this debate, always speaks with great sincerity, and although we do not agree with his analysis of economic circumstances we do, indeed, understand his concern about the social problems to which unemployment gives rise. This is why I analysed the causes of unemployment in such detail, and why we have so consistently advocated moderation in pay settlements as a means to avoid further losses in employment. The noble Lord, Lord Bruce of Donington, seemed to think that this was something which had appeared suddenly in the last few months. If he will, as I have often recommended him to do, read the speeches that I have delivered in your Lordships' House over a long period of time, he will find that that particular theme occurs consistently.

The noble Baroness, Lady Seear, delivered one of the most trenchant and destructive analyses of Labour Party policy which it has ever been my pleasure to listen to. She did, of course, catch the noble Lord, Lord Bruce of Donington, on the raw, and he protested very strongly. I had never thought hitherto that he was such a sensitive plant. But, when it came to the question of what alternative policies the Liberal Party could offer, I found myself very much in sympathy with my noble friend Lord Selsdon who felt that few effective alternatives had in fact been proposed, although, if I may say so, the noble Baroness's rejection of Mr. Roy Jenkins' policies was one of the real gems of this debate.

Baroness Seear

Mr. Jenkins' policies in a previous incarnation.

Lord Cockfield

My Lords, I am most grateful to the noble Baroness. Whether Mr. Roy Jenkins has reformed or not is a matter that I leave her and the noble Earl, Lord Longford, to fight out between themselves. The noble Lord, Lord Underhill, raised the almost traditional question of the poverty trap. This is of course an important matter. But he seemed to regard the improvements made in the family income supplement scheme as indicating an increase in the number of people in the poverty trap. But this is quite a misleading way of looking at the matter as it would mean that any improvement in welfare benefits for the lower income groups would automatically increase the number of people in the poverty trap. Such an argument is the economic equivalent of the logical reductio ad absurdum.

My noble friend Lord Boyd-Carpenter in a typically powerful and thought provoking speech referred to the great damage done to the national economy by the fall in the real rate of return on capital. As he so validly pointed out, this has, in large measure, been due to excessive pressure by the trade unions which has resulted in what should be the seed corn being consumed in current wages and salaries. We do indeed need additional investment but this requires two things. It requires the necessary finance which can best come from retained profits, and it needs also the real prospect of an adequate rate of return on that new investment. At the moment, both are lacking. This is why a recovery in the level of profitability is so essential.

I really felt that the noble Lord, Lord Hatch of Lusby, ought to take his noble friend Lord Bruce of Donington aside and explain to the noble Lord, Lord Bruce, that imports from the Third World are one of the ways of sustaining the very often meagre level of subsistence of the people in those countries, and the bitter attack made by the noble Lord, Lord Bruce of Donington, on imports from the Third World was, I thought, a little exaggerated.

Lord Bruce of Donington

My Lords, would the noble Lord be good enough to explain exactly how I attacked imports from Third World countries? I shall read him in Hansard tomorrow, and he will read me, but of course I deny that.

Lord Cockfield

My Lords, I note the noble Lord's denial. If in fact I have misinterpreted him, I am sorry. But we will read each other's remarks tomorrow. I have not the slightest wish to misinterpret him. He referred to seamen on the "Canberra" at some length, and I thought he then went on to refer to imports into this country from low cost countries overseas, many of which of course are in the Third World. We will read the report tomorrow.

The noble Lord, Lord Hatch of Lusby, if I may come back to less contentious matters, seemed to be under the impression that what was fundamentally wrong with this country was the outflow on capital account. But this outflow is simply the counterpart of the very large surplus we are currently earning on the balance of payments. In other words, what is happening is that we are investing abroad the surplus we are earning on our foreign trade. The future flow of income from these investments will be to the enduring benefit of this country. Also, this investment is often to the benefit of the Third World as well, If there is a shortage of investment in this country, it is not due to a shortage of funds. It is due to an inadequate return on that capital, a point made strongly not only by my noble friend Lord Boyd-Carpenter but also by my noble friend Lord Selsdon. If therefore the noble Lord, Lord Hatch, wishes to see an increase in the level of investment in this country, he needs to join my noble friends in seeking also to secure a higher level of return on capital invested.

The noble Lord, Lord Houghton, raised the question of Civil Service pay. The Megaw Committee was appointed to examine this problem. It has now reported. I suggest that the right thing is for all concerned now to give that report their most careful consideration. That is what the Government, for their part, are now doing.

The noble Earl, Lord Longford, in one of the most interesting and ingenious pieces of misquotation I have heard for a very long time, attacked my right honourable friend the Prime Minister on the basis of what the noble Earl thought she had said in reply to an interview published in the Daily Express. I fear, therefore, that I must read out the whole of what she said; I am sorry to inflict this on your Lordships, but, in view of the nature of the attack made by the noble Earl, I think I have no alternative. The question started like this: But can the average young unemployed youth start up a business? The reply was: No, of couse he cannot. But he can take advantage of all the training and education there is. I am very disappointed at the number of youngsters who choose to leave school at 16 and take Social Security. I prefer them to stay at school or take a training course". I diverge from the quotation to remark that I explained at some length in my speech the training courses which had been made available by the Government. My right honourable friend was then asked the following question: But doesn't the Social Security system encourage them to take these benefits? The reply was: At the moment I am afraid that is so. It does encourage some of them. You see, there is no need for a person of 16 or 17 to be unemployed. There are places"—

The Earl of Longford

May I interrupt here very briefly?

Lord Cockfield

No, the noble Earl may not interrupt. He started by a selective quotation. I am now reading the complete quotation and the noble Earl might at least do me the courtesy of permitting me to finish reading it. I shall therefore start again, even at the expense of taking an extra few seconds: At the moment I am afraid that is so. It does encourage some of them. You see, there is no need for a person of 16 or 17 to be unemployed. There are places in the schools and places in further education

The Earl of Longford

May I interrupt?

Noble Lords

Order!

Lord Cockfield

My Lords, if you read those two replies together, it is abundantly clear that what my right honourable friend was referring to was the availability of places in schools, in further education and in training schemes.

The Earl of Longford

Am I allowed to interrupt now?

Lord Cockfield

In a moment. I am surprised that the noble Earl should have put any other interpretation on those remarks.

The Earl of Longford

My Lords, I believe I referred earlier to the noble Lord as Lord "Cock-field" and I apologise for that but for nothing else. I read out one sentence which he has at last got round to; he has now read out the sentence I quoted, although I do not have with me a copy of the complete quotation. That was the sentence in which she said there was no reason why a young person of 16 or 17 should be unemployed. I say that is absolute nonsense.

Lord Boyd-Carpenter

Oh?

The Earl of Longford

That is true. If one takes the country as a whole, to say that there is no reason why a person of 16 or 17 should be unemployed is absolute nonsense.

Lord Cockfield

My Lords, the noble Earl is doing exactly what I said at the beginning he was doing—he is selectively quoting. Out of two replies, he has not quoted even one of them in full. He has picked out a single sentence without any relevance to the context, the qualifications, or what else was said.

I now come—

The Earl of Longford

My Lords, am I allowed to interrupt the noble Lord? It is for him to say whether he will give way. I quoted one sentence and I said that I was ready to hand over to the noble Lord the whole passage if he wished to put it in context. Nothing could have been more straightforward than that. I say again that the original remark, which the noble Lord has had to repeat, was absolute nonsense.

Lord Cockfield

My Lords, had the noble Earl himself taken the advantage of reading the whole passage, he would not have misrepresented my right honourable friend in the way that he has done, and he really cannot get away with that sort of thing.

Perhaps I may turn to the speech of the noble Lord, Lord Bruce of Donington. It was an interesting speech, because it started on a very statesmanlike plain, and subsequently developed in a rather different way. I want to pick up just one or two points that he made. He claimed that what the Conservative Party thought was that we had "reached a stable situation", and it was on that basis that he was attacking the Government's policy. In my own speech I had at great length made clear that the economy was now on an improving trend. This is the view that is taken by most outside forecasters. The leading indicators published by the Central Statistical Office in fact give this message. As I said—and I made no attempt to gloss over it—there has been a difficult period during which the economy was bumping along the bottom. But I hope that we have lived through that and that the upward trend is now established.

The noble Lord also claimed that we had abandoned our monetary controls, forgotten the PSBR, and abandoned the question of public expenditure. Nothing could be further from the truth. In fact, as I said in my own speech, on the basis of the three measures the money supply is now within the target range of 8 to 12 per cent. announced by my right honourable friend the Chancellor of the Exchequer. Far from having forgotten the PSBR, we regard it as one of the most important elements because it has a very significant bearing on rates of interest, which is one of the matters which greatly, and rightly, concern the noble Lord.

So far as public expenditure is concerned, in the course of my own speech I pointed out that the proportion of the gross national product going in public expenditure was last year higher than it was in 1979, due in part to increasing welfare expenditure—something that I should have thought the noble Lord would be anxious to support—and that our intention was to ensure that in future years the proportion of the national income taken in public expenditure in fact falls.

The noble Lord also claimed that the fact that British goods were uncompetitive abroad was a myth; and he said that the problem was due to the exchange rate policy pursued by the Government. There is no substance in either of those claims. If British goods had been fully competitive we would not have seen a situation in which over a period of 20 years or so our share of international trade had halved. Nor would we have seen a situation in which import penetration had increased by 50 per cent. The proof of the pudding is in the eating. This is what has happened, and it is the clearest possible demonstration that over a period of time our competitiveness has declined.

The noble Lord referred also to exchange rate policy, but the simple truth of the matter is that the pound today, measured against the other leading currencies—not just against the dollar but against the Smithsonian basket of currencies—stands at approximately 92, compared with 100 in 1975. So the exchange rate over this period had actually fallen. To suggest, therefore, that our loss of competitiveness is due to the exchange rate is completely inaccurate. We went through—

Lord Bruce of Donington

My Lords—

Lord Cockfield

May I complete this point? We went through a very difficult period in which the exchange rate was very high, but that period lasted for a very brief while indeed; and the current exchange rate, as I say, is not significantly higher than it was in 1979 and is noticeably lower than it was in 1975.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for giving way. If the noble Lord will turn to Table 18 in the latest Bank of England review he will find that, of course, that is quite true in the case of the United States dollar, where the value of the pound has gone down significantly, which of course affects the Smithsonian index. But if he will look at the case of Belgium, France, Italy, the Netherlands and Germany he will find that the high exchange rate policy still obtains.

Lord Cockfield

My Lords, the only fair comparison is to take a basket of the currencies which are in fact trade weighted. This is what is done in order to calculate the Smithsonian parity, and the figures are in fact as I have quoted them. The current exchange rate is significantly lower than it was in 1975, and only a little higher than it was in 1979. The noble Lord raised the question of the "Atlantic Conveyer"—a subject which has caused a great deal of comment, and rightly so. We recognise the importance of this issue, and very much hope that Cunard will build in the United Kingdom. Her Majesty's Government continue to keep closely in touch with Cunard about their decision.

Finally, I should like to say just this. For many years now we as a country have been going down a blind alley. As each recession and each recovery has followed the previous one, we have ended up with a higher rate of inflation and a higher rate of unemployment. It was absolutely essential from the point of view of the future prosperity and, indeed, survival of this country that we should reverse that process. This is the job to which we set our hand in 1979. We did not for a moment believe it was going to be an easy task. It has not been an easy task; it has brought great difficulties. But there is really no policy which has been put forward which offers a better hope for the future. We propose, therefore, pursuing our policy to its successful conclusion.

Lord Bruce of Donington

My Lords, before the noble Lord sits down, will he give me one final answer? I do not ask for it now. The noble Lord will recall that I made the point — indeed, I made a challenge—about unit labour costs in the United Kingdom; about productivity by people belonging to our own country as compared with the United States, and about labour costs. These are contained at column 673 of the Hansard of 17th March. I should be grateful if the noble Lord will confirm to the House that he will read that column, he will read the contentions contained in it and that he will either agree with them or publicly disprove them.

Lord Davies of Leek

My Lords, may I ask the noble Lord—and I thank him for his reply; but I asked a categorical question about the fair wages clause in the International Labour Office which is going to be discussed in September and are the Government prepared to withdraw that fair wages clause and what attitude will they take? If I cannot get an answer tonight, then perhaps I can be answered later.

Lord Cockfield

My Lords, if the position is as the noble Lord says, that it is going to be discussed in September, I should hardly think it appropriate to discuss it now.

Lord Davies of Leek

My Lords, that is very clever but I am asking this. Will the noble Lord confirm that it is being discussed? That was a clever piece of debating; it was not a commonsense answer. I am asking the noble Lord to confirm that it will be discussed.

Lord Cockfield

My Lords, I am not prepared to comment on what appeared to be a newspaper report. I had assumed that the noble Lord was giving us this information on his own authority; but if he was merely quoting a newspaper report, then I can only say that I have no comment to make on that.

Lord Davies of Leek

My Lords, it was not quoting a newspaper report. I was asking the Government—but we will leave it at that. I am not getting the courtesy of a reply.

Lord Jacques

My Lords, I would draw the attention of the noble Lord the Minister to the fact that at least one matter has had the support of both sides of the House on several occasions—the need for further capital investment now. It came from both sides and from several speakers from both sides.

Having got that point home, may I congratulate the maiden speakers, thank everybody who took part in the debate and ask leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.