Unemployment and Industrial Recovery

HL Deb 17 March 1982 vol 428 cc651-727

3.14 p.m.

Lord Glenamara rose to call attention to the need for Her Majesty's Government to introduce effective measures to stimulate industrial growth and to deal with the continuing grave problem of unemployment; and to move for Papers.

The noble Lord said: My Lords, high up on the moors of County Durham to the south of Tyneside there is an old industrial town of 31,000 souls: it is called Consett. If this were a sermon—which Heaven forbid!—its text would be the town of Consett, because that town is symbolic of what has happened to Britain in the last three years. Physically Consett is dominated by Consett Iron Works—a vast complex of furnaces, industrial buildings and slag heaps. But today the furnaces are cold and empty, the works are silent and closed and only a pitiful hulk remains of a former industrial giant which for generations provided the town with employment. I am quite sure that Shelley would have forgiven me for adapting the last lines his sonnet Ozymandias: Nothing beside remains around the decay of that colossal wreck; Boundless and bare the lone and level moors stretch far away". The Consett Iron Works were not unprofitable: on the contrary, their record of profitability and production was good—indeed excellent—up to the day they closed. But the policies of this Government, which have turned a mild recession into a deep slump, as President Reagan's policies are doing in America, depressed the demand for steel to the point at which even highly profitable works could not survive; and so Consett had to close.

The late Ellen Wilkinson before the war wrote a book called The Town that was Murdered about her constituency of Jarrow. This is another Durham town which has been murdered by a post-war Conservative Government. Today 25 per cent. of the working population of Consett, and 30 per cent. of the male population, are out of work. The recent report on the Consett crisis was prepared by the local authority, the Derwentside District Council. They estimated that 7,000 jobs would be required to avoid an unemployment figure of 40 per cent. by the end of this year. There are no prospects whatever in that area of any employment on this scale. Imagine the plight of the men and women of Consett when the redundancy pay runs out, as it will very shortly. Imagine the plight of those in this town who are paying mortgages and those with families to feed and clothe. Imagine the dismay in those homes when the gas bills come in later this year—up by 22 per cent.—or the electricity bills next month, which are up by 10 per cent.

I said Consett was symbolic. Indeed it is repeated across the whole of the North-East—Hartlepool 20 per cent. unemployed; Peterlee 17 per cent.; South Tyne 18 per cent.; Jarrow 18 per cent.; Teesside 19 per cent. and Wearside 19 per cent. Figures such as these have not been seen for half a century. They have taken us back to the 1930s with a vengeance. And the picture of Consett is not only symbolic of the North-East but it is seen across the whole of Britain: Wales 16.2 per cent.; Scotland 15.3 per cent.; the North-West 15.2 per cent. and the West Midlands—of all places—15.3 per cent. Even the glittering Mecca of the un-employed itself, Greater London, has 9.2 per cent.

These figures are bad enough, but the figures of male unemployment are quite horrific. For example, Red-car, a little town on the coast, has 42 per cent. unemployment. What hope is there of employment for those who are unemployed? The United Kingdom has 3 million unemployed and at the latest published figures there were 114,000 vacancies: that is 26 people for one vacancy. In Consett it is 88 people for one vacancy, and in the North as a whole it is 44 people for one vacancy. I have here a cutting from last Friday's Newcastle Evening Chronicle in which they say that 810 people applied for one job, pumping fuel into aeroplanes at Newcastle airport. I repeat: 810 people for one job.

These facts speak for themselves. If you are out of a job today in Britain the chances of securing one are getting less and less; and 30 per cent. of the workless have been out of work for a year or more. A million people have been out of work for at least a year. What a colossal human tragedy. These are men and women who have got to pay the rent or the mortgages. They have got to pay the grossly inflated fuel prices. They have got to feed and clothe their children. These are the men and women who have got the same hopes and dreams for themselves and their families as we all have, and they are the men and women who have got the same one-way ticket through life as we all have. I must tell your Lordships that many of them are beginning to think that they are not going to get very much out of their one life. There is a colossal human and social cost and there is also a colossal financial and economic cost. We have estimated that the cost of maintaining 3 million unemployed is £15 billion a year in social benefits and loss of tax revenue.

How far removed all this is when it is put into human terms from the media commentators who were wheeled out of their universities last week to comment on the Budget and on unemployment as though it were an abstruse problem in applied mathematics. And how far removed it is from the sycophantic Tory press who labour night and day to dress up every crumb, if I may mix my metaphors, which falls from the Chancellor's table as though it were a great and beneficent new deal for the nation. When it is put in human terms, these are our fellow men. They are not statistics. They are men, women and children.

There has got to be a better way of running the country than this. Of course Ministers are sincere, decent people who are just as concerned about the unemployed as everybody else. I do not seek for one minute to impugn their sincerity or their humanity but they are mistaken, tragically mistaken, doubly mistaken—both in their policies and in persisting in those policies long after they have been seen to fail. Cromwell, in a letter to the General Assembly of the Church of Scotland, said: I beseech you in the bowels of Christ, think it possible you may be mistaken". So the plight and the prospects of the workless get worse all the time as the Government persist with their policies.

May I ask your Lordships to look at the monthly increases in unemployment in 1981: 88, 74, 74, 71, 60, 36, 30, 44, 44, 54, 34, 16 and in the first month of this year 45. To be fair, I have omitted school-leavers from those figures. By contrast, in the last 18 months of the Labour Government, unemployment fell by 120,000—the seasonally adjusted figures. When this Government came into office, unemployment was 5.6 per cent. Since then it has gone up by 70 per cent.—to 12.5 per cent.

The Government have said repeatedly that action on unemployment, apart from the schemes, which we welcome, run by the Manpower Services Commission, must await a reduction in inflation and that that alone will lead to a reduction in unemployment. This is their No. 1 priority. How have they done on that? They have failed to reduce inflation by a complete percentage point since the Budget of 1981 to the present time. So what confidence can anybody have in a Government who make that their number one priority when they have not achieved one percentage point since the Budget of last year? The inflation rate is now well in excess of the figure they inherited. They took over a figure of 10.3 per cent. They hoisted it to 21.9 per cent. in May 1980, and it is now stuck in a groove at about 12 per cent.

So may I ask the Minister who is going to reply: how long must the unemployed wait if they have got to await a reduction in inflation? At this rate of progress they have got to wait indefinitely. Indeed, the Treasury hand-out last week at the time of the Budget said that there would be an increase of one-third of a million this year, and that after that the unemployment figure would remain at that level indefinitely. But most of the things which the Government have done have fuelled inflation. They have stoked it up. They have stoked up the inflation which they said it was their major objective to damp down.

I believe it is thoroughly misleading not to include last autumn's measures in deciding whether the Budget is reflationary or deflationary. If this is done and they are looked at together, the Budget is thoroughly deflationary. For example, what has the outrageous way in which fuel prices have been manipulated by this Government as a form of taxation done to inflation? Prices have gone up 22 per cent. but gas has gone up 97.8 per cent. since this Government came into office. (It is going up 22 per cent. this year, and the 22 per cent. is included in the 97.8 per cent.) Electricity is going up 10 per cent. this year and it has gone up 86 per cent. since this Government came into office. What will that do to inflation? What will the £78 per annum increase in the national insurance contribution—and that is an underestimate—do this year to inflation, or the £2.50 per week on council house rents, or today's forecast of 15 per cent. on rates? I know from experience—many of us here have had experience—that whenever Ministers are considering measures of this kind some bright boy from the Treasury will always say, "Ah, Minister, this will only add 0.7 per cent. to the retail price index". But what they leave out of account is the head of steam which increases of this kind give to wage demands. So Government policies fuel inflation. However, the Government say that the workless have got to wait until inflation comes down. What a cruel illogicality that is in this Government's policy.

Of the major industrial countries, only Belgium has a worse record for unemployment. But we are an oil exporting country. We are a country which is self-sufficient in energy. With all this abundance of riches, Britain ought to be on top of the world, not at the bottom of the list. We are a nation which lives by manufacturing and most of the jobs lost have been lost in manufacturing industry. One-fifth of our manufacturing industry has been destroyed in the past three years.

I do not know whether noble Lords noticed in yesterday's Financial Times an article, headlined "Manufacturing output falls to lowest point since 1967", which commented on some official figures issued on Monday. It pointed out that manufacturing output fell for the third successive month to a level which is hardly better than a year ago (which is one-sixth less than it was at the time of the general election) and that manufacturing output had fallen 19 per cent. since January 1979. It fell 6.3 per cent. in 1981. No wonder we have got 3 million unemployed. Of course, the effect of factory closures is cumulative because industries supply each other with plant, equipment and components. That is why the Consett ironworks have closed. It is part of the fall of the dominoes which monetarism has initiated and sustained in our manufacturing industry.

A major reason for the wholesale destruction of our manufacturing industry has been the penal rates of interest imposed and sustained by this Government; the highest ever known—17 per cent. As far as I can discover, they have never been higher. They have been kept at this level because of the Government's "medium term financial strategy". One has to say that in hushed tones, and one has to write it with capital letters because it has endowed the money supply with a mystical significance in the Government—I was going to say, on the other side of the House.

We welcome the minor relaxation in the Budget but we believe it is quite inadequate to reverse the slide into even greater catastrophe. Yet it is an ill wind that blows nobody any good; the clearing banks' profits last year were £1.7 billion. We believe that the "medium term financial strategy" must be straightforwardly abandoned now. It has to be replaced by an alternative economic strategy; a strategy that makes the reduction in unemployment its No. 1 priority. The central objective of the new economic strategy must be a substantial and sustained reduction in unemployment. Not by schemes to paint the parish council hall or to clean the pond on the village green. They are laudable projects and I am not knocking them, but they are in the field of voluntary work and not a device to reduce unemployment figures. Nor even by schemes which enable 18-year-old school-leavers to start their own businesses. But by a scheme for a substantial and sustained reduction in unemployment in British industry.

The aim of our strategy, which we are putting before the nation, is to reduce unemployment over the next five years by 2½ million. We believe this can be done if both sides of industry, the Government and the people are prepared to make employment and output their top, overriding priority and to accept the measures which are necessary to achieve it. We must recognise that the market place approach we have had for the past three years has failed. The market place has degenerated into a jungle where those with muscle and claw survive and prosper while the rest live in fear and insecurity, and therefore some controls are necessary.

I said a minute ago that we are a manufacturing country. We live by and large in Britain by importing raw materials, applying to them our brainpower and skill (which we have in abundance in these islands) and making goods to sell at home and abroad. As one of my greatly respected noble friends said yesterday, overseas markets are insatiable provided we have the right goods, at the right time, at the right price. The first essential in putting Britain back to work, in making an impact on these tragic figures, is to increase the demand for our goods, both at home and overseas. I said that one-sixth of our manufacturing industry had disappeared in the past three years, but according to the CBI figures, of the factories which have survived 80 per cent. are working below capacity.

Why is there such a damaging drop in demand for the products of our industry? I believe there are three reasons. First, there is the loss of competitiveness. Secondly, there is the drop in domestic demand because of cuts in public expenditure and 3 million unemployed. Thirdly, there is the increased burden of taxation. I want to say a brief word about each. First, on the matter of competitiveness, in the first two years of this Government there was a rapid climb in the exchange rate to a point at which many of our competitors in other countries gained a 30 per cent. price advantage over British firms. It fell in the first part of last year, but since then it has been relatively stable. However, it still makes us 20 per cent. less competitive than we were in world markets.

A first requirement in restoring our competitiveness is a more realistic exchange rate. By direct intervention and by cuts in bank lending rates a Labour Government would ensure that the Government brought about a more realistic rate of exchange. In order to limit the resulting pressure on inflation, there would have to be offsetting pressures to support prices, but a number of options are available. There is the remaining surcharge on the national insurance contribution, and we greatly welcome the reduction in the Budget. There is the possibility of cutting VAT (which this Government doubled). There is also the possibility of relaxing the financial vice in which all nationalised industries are held. We suggest that £4½ billion should be devoted to these cost restraint measures in that kind of way. There is a price to be paid for restoring international competitiveness, but it can be met by counter measures such as those on internal costs. Of course, cuts in interest rates (which would accompany a reduction in the exchange rates) would affect the Retail Price Index, for example by reducing mortgage repayments.

Secondly, a word about increasing demand. Capital investment in the public sector as a percentage of Government expenditure has fallen from 22 per cent. in 1971 to 11 per cent. in 1981. It is worth reminding ourselves what we mean when we talk about "public expenditure" and "public investment in the private sector". What we are investing in is a national infrastructure; in railways, coal mines, steel works, telecommunications, houses, colleges, roads, et cetera. It is an infrastructure essential to a healthy economy and a healthy industry.

We on this side of the House believe in a mixed economy. It is worth recalling also that so-called "public investment" is all spent in the private sector; yet it is talked about as though it were spent somewhere else. It all comes back to private industry; for example, British Telecom's investment programme is money spent with GEC, Plessey, STC and so on. Similarly with roads, the money goes to the great cement manufacturing companies. With houses and coal mines it is just the same. When we are talking about "public investment" we are talking about orders for private industry. If we are to reverse the decline in recent years of our investment in the future, there must be an ambitious programme of public investment. There must be an equally ambitious programme to channel support to private industry where it is needed.

One cannot, of course, turn capital investment on like a tap, immediately; it takes a long time. To restore capital investment to the 1975 level would require an immediate increase of £7 billion, and that is impracticable. We suggest that there should be an immediate £1 billion programme—extra capital spending in the private sector and to aid private industry. It would, of course, have to be raised considerably in subsequent years. But as most capital investment projects take time to bring on stream, there would have to be a major boosting of current public expenditure. There are limitless opportunities to do this after three years of this Government, in the areas of health, education, social services and so on. We are suggesting an additional £3½ billion of current public spending. Here again, the greater part of this additional current spending by public authorities would eventually find its way into private sector industry.

The local authorities' spending has fallen by £2,250 million between 1978–79 and 1981–82. The rate support grant for 1982–83 is 8.7 per cent. less in real terms than the inadequate level of this year. Virtually all of this shortfall, apart from that which goes to taxation and savings (both of which go to the Government) is orders lost to the private sector of industry.

A word on taxation. I trust that the Minister has now read the Inland Revenue's figures on taxation, of which the Chief Secretary to the Treasury was obviously ignorant during the Budget debate last week. I have here the figures published by the Inland Revenue last week. They show that the percentage of income taken in tax from both single persons and married couples with two children will further increase in 1982–83 over 1981–82. As you would expect under this Government, that is only up to £20,000 per annum. After that, of course, the figures decrease, which is precisely what you would expect. In Labour's last year a married couple on average earnings paid 41.5 per cent. of their earnings in tax. This year, the same couple will pay 46 per cent. of their earnings. This is after three years of a Government which got elected on the pledge of reduced taxation.

There are three elements in our alternative strategy: £1 billion additional capital spending in the public and private sectors, £3½ billion additional current spending, and £4½ billion cost restraint measures, such as a reduction of VAT, national insurance surcharge and so on. That adds up to £9 billion, on which I will say a word in a moment. This package would be supported by a depreciation of sterling to a realistic level to offset our loss of competitiveness, and by the reintroduction of exchange controls. May I say that this was warmly supported in a speech a fortnight ago by Mr. Edward Heath. Since the Government removed exchange controls—and that was one of the most irresponsible things they did—a vast amount of capital has flowed out from Britain to our competitor countries in pursuit of highest interest rates. So, in a sense, we have been importing high interest rates.

In addition to this, we would recreate a new price commission. One of the most irresponsible things, one of the silliest things, the Government did was to abolish the Price Commission. The word "profiteering" is not very often heard nowadays, but it goes on on an enormous scale. We are all charged prices for goods and services which bear no relation whatever to costs; they are quite arbitrary. So there is need for a new watchdog body.

Although the package adds up to £9 billion, it would not have this impact on the public sector borrowing requirement, because of the reduction in unemployment which it would effect and the consequent reduction in social benefits and the consequent increase in tax revenue. We calculate that its net effect would be £5.5 billion. We believe that additional borrowing of this order is well within the capacity of an economy such as ours, which has perhaps the most highly developed financial sector in the world. To suggest, as some are doing, as the Prime Minister constantly does, that it would crowd out investment in private industry has been described, not by members of the Labour Party, but by Mr. Edward Du Cann, as a ridiculous theory; cash is available on a massive scale. In any event, an increase in Government borrowing for the purposes I have set out would be partly offset by a decrease in company borrowing.

The package would provide a massive blood transfusion for both public and private sectors. We have tested the package using the Treasury's own model, and its effect in quite dramatic. It would result in an increase in output in the first year of 5 per cent., a reduction in unemployment in the first year of half a million, and a 2½ million reduction in five years, which is our aim. The North of England alone—that is the North-East; technically, in the journal "the North" means the North-East—needs the creation of 50,000 new jobs simply to prevent unemployment from going up any further.

The best service this Government could render the nation would be to go. In the words of Lady Macbeth to Ross and Lennox, Stand not upon the order of your going, But go at once". That is the best advice we can give them. For there is now a credible alternative before the country to the baleful strategy which has wrought so much cruel harm to our economy and to the lives of so many of of our fellowmen in the past three years. It is a strategy which offers hope, well-founded hope, to the depressed and anxious towns of Britain, where, otherwise, there will be no hope. Through it, Consett and all the other communities across the land can live and work and prosper again. My Lords, I beg to move for Papers.

3.45 p.m.

Lord Banks

My Lords, I should like to begin by thanking the noble Lord, Lord Glenamara, for moving this Motion this afternoon. It gives us the opportunity to discuss the strategy underlying last week's Budget and also to consider once again the serious economic problems facing our country. I say at the beginning that I agree with much that the noble Lord said, although I will comment a little later, perhaps adversely, on one or two aspects.

The Motion raises the main issue separating the Government, on the one hand, and the official Opposition, the Liberal-Social Democrat Alliance and much of the Conservative Party, including Mr. Edward Heath and Sir Ian Gilmour, on the other hand. That issue is whether, with three million unemployed, the Government should act to increase demand. Should demand be deliberately increased by the Government to reduce unemployment? Of course, back in the inter-war years, Maynard Keynes and Lloyd George argued that that was exactly what the Government should do. During the war, in 1944, the coalition Government's White Paper on employment policy made it clear that at that time all political parties in this country had come to accept those policies. That White Paper said: A country will not suffer from mass unemployment so long as the total demand for its goods and services is maintained at a high level". The White Paper also put the responsibility for maintaining that high demand firmly on the Government. So far as I am aware, the present Government is the first to repudiate that doctrine.

As I understand it, the Government say that there is no lack of demand in the economy, that there is plenty of demand but that British industry is uncompetitive and cannot satisfy it; British industry is uncompetitive because the workforce has priced itself out of the market, and it has priced itself out of the market because of the inflation in the United Kingdom. Therefore, so the argument goes, reduce inflation in the United Kingdom and our industry will become compeitive again, the £8 billion surplus on the balance of payments will presumably double or treble, all will be well with British industry and unemployment will fall. That is the theory which led the Chancellor of the Exchequer to say in another place earlier this week that the fall in the inflation rate was the best news for the unemployed. So it has been the Government's policy, believing that, to get inflation down at all costs.

We on these Benches are as anxious to see inflation reduced as anyone, but we believe that you can pay too high a price. Of course, the instrument which the Government have used to effect this broader strategy is the medium term financial strategy. That argues that there is a connection between money supply and inflation and therefore we must reduce the rate of growth in the money supply to reduce inflation: to do that, we must reduce the public sector borrowing requirement, and, to do that, we must reduce Government spending. So we have had the cuts that we have discussed often enough in this House, cuts extending even to social security, to personal social services and to university education, Sir Leo Pliatzky in the Financial Times on the 15th of this month said that there was quite a squeeze in many areas at the present time in our economy, and he went on to point out that for other reasons, and notable among them the rise in unemployment, expenditure had nevertheless increased. The point that I want to make is that modifications to the medium term financial strategy are subsidiary to the basic policy, which is designed to secure a reduction in inflation at all costs and to prevent any Government stimulus to demand, and that this has resulted in very considerable contraction of the economy. We have had in this country a tighter economic policy than those found in other industrial countries. David Blake, the economics editor of The Times, writing in that paper on 9th March, said: For the seven largest industrial countries as a whole, all of whom were grappling with inflation, the tightening of policy was about a quarter as fierce as here". Following the Budget it has been suggested that monetarism is dead. It is certainly true that monetary targets have not been achieved. It is certainly true that monetary targets have been modified, although they are still set at levels which are below experience. It is certainly true that the connection between money supply and inflation has not been glaringly obvious. It seems that a wider array of monetary indicators is now to be relied upon. Other indicators—the public sector borrowing requirement, the exchange rate, the interest rate—are all to be weighed the one against the other. There is to be a more pragmatic approach. But the Government's strategy is basically the same: a reduction in the inflation rate at almost any cost, and the deflationary stance continues and the Budget does not depart from it.

Of course the Government say that there is no alternative. But I wonder whether, when they say that, they are fully aware of the economic, social and moral consequences of a continuing level of three million unemployed. I do not mean simply what the effect is now, but what the effect must be if that is a continuing feature of our economic life. I wonder whether they are fully aware of the damage to our manufacturing industry which their policy has so far caused. Is there not a danger that the cure could kill the patient?

Nobody denies the baleful influence of inflation. But we cannot view this problem in purely economic terms. If the Government get inflation well into single figures, which is what they aim to do, how will they keep it there? Surely there can be no relaxation? Surely the Government will be obliged by the logic of their own case to continue the present régime? Indeed, they do propose to cut public expenditure in real terms in 1983–84—something which they have not as yet achieved.

I find it hard to accept that there is plenty of demand in the economy and that all that is necessary is a return of competitiveness. There is a world recession, there is a lack of demand throughout Western Europe and there is a lack of demand which is worse in this country than in the other industrial countries. Obviously, competitiveness is a factor and it is not merely a question of efficiency: it is a question of the part played by a high exchange rate and high interest rates, to which the noble Lord, Lord Glenamara, has referred. There are certain products which have been particularly badly affected by foreign competition. But there is a lack of demand here, as elsewhere, and that lack of demand has been accentuated by the Government's tighter policies.

Of course, world recovery—if it comes, as we hope it will—and lower oil prices will have some effect on employment. It seems that the Government must regard lower oil prices at the moment as rather like the United States Cavalry—galloping to the rescue in what they must hope will be the nick of time. But, with unemployment at three million and growing, is unemployment going to be substantially reduced so long as—to move to another metaphor—the Government keep their foot on the brake? The Government say that, if we increase demand, we increase inflation. If we increase inflation, then there is pressure for higher wages which account for 70 per cent. of costs, which is a point which we must not forget. Moreover, if that happens and wage settlements are higher, then the jobs which we might create by this additional demand are very soon lost. That is why we say on these Benches that, in order to prevent that, it is necessary to have an incomes policy.

The Government refuse to have an incomes policy; rather, in effect, the threat of unemployment and of bankruptcy—and I do not mean that these are thought of as an incomes policy by the Government—are their incomes policy. The Government say, "Well, incomes policies have been tried and in the end they have failed". But the Government's policy has been tried as well, and, so far as unemployment is concerned, after three years it is a monumental failure. An incomes policy has never been applied by a Government which have believed in it all along. Governments have been forced to do it against their wishes. They have begun by not wanting to have an incomes policy and they have ended by having one. It has been cobbled together to meet an immediate situation. I believe that, if it were applied by a Government which believed in it, which had prepared the ground for it, and which was at the same time introducing sonic measure of industrial democracy and partnership of the kind that exists, for example, in West Germany, the whole situation would be very different.

But, if the Government reject an incomes policy, then Mr. Peter Shore seems to be moving slowly towards one very hesitatingly and very vaguely. We know, of course, that the Labour Party is divided on this issue and that Mr. Benn is very much against it, although I was glad to see Mr. Varley speaking out very strongly in favour of it earlier this week. But in these circumstances it is not surprising that the noble Lord, Lord Glenamara, did not—I think I am right in saying—mention the subject of an incomes policy this afternoon, and I felt that that was the one great weakness in the scheme which he was putting forward at the end of his speech.

We say that the Government should take a deliberate decision to reflate the economy, but that they should do so with caution. We are afraid that Mr. Shore's £9 billion reflation would be too much, and certainly it would be so without an incomes policy. We have preferred a more modest figure of between £4 billion and £6 billion. We have on various occasions set out in some detail what the package would consist of and, indeed, we have debated the matter in this House. We did so a year ago and it has been restated since then. I felt that it was not necessary this afternoon for me to go over the details again because I wanted to address myself particularly to the basic issue.

While we have some very important differences with the official Opposition over the scale of inflation, over the basic need for an incomes policy and over import controls, which they want to associate with their plan and which we oppose, nevertheless we on these Benches fully agree with the noble Lord, Lord Glenamara, that the Government have a responsibility to stimulate demand in order to begin to tackle the grave problem of the three million unemployed.

3.59 p.m.

The Minister of State, Treasury (Lord Cockfield)

My Lords, 30 years ago I worked for Lord Butler on the preparation of his first Budget. Tributes have been paid from all quarters of your Lordships' House and, indeed, throughout the nation to the outstanding contribution Lord Butler made to our national life. But to me he will always remain someone from whom I learned so much and remember with such affection. He was my senior supporter when I was introduced into your Lordships' House. Every year since we came into office he would ask me for a report on the state of the national economy, and every year he would place me on probation for a further 12 months. I am greatly saddened that this year I shall be unable to make my report to him.

There can be no doubt that we are now gradually moving out of the recession. Manufacturing output in the second half of 1981 showed an increase of 2 per cent. over the first half of the year. Total output was also marginally up. The fall in January, to which the noble Lord, Lord Glenamara, referred, is disappointing. It was the result of atrocious weather and strike action, particularly by ASLEF.

But this is only a temporary set-back. This year—for 1982 as a whole—we expect a rise of 1½ per cent. in total output and a rise of 3 per cent. in manufacturing output. In 1983 the improvement will extend further.

There are other indicators of progress. For example, construction orders in 1981 were up by 9 per cent. on the second half of 1980; engineering orders were up by 17 per cent.; engineering export orders were up by 20 per cent.; private housing starts were up by 37 per cent.; and exports volumes (excluding oil) in the four months to December were up by 5½ per cent. compared with the second half of 1980. These are all significant indications of progress. They are not crumbs, as the noble Lord, Lord Glenamara, has suggested.

Some people are now arguing that continued recession in the United States will adversely affect this country and, to use the space age metaphor, will abort our own recovery. We cannot ignore what is happening in America, but, if I may paraphrase Metternich, it does not necessarily follow that when Washington sneezes the whole world catches cold.

The recession started later in the United States than it did here. It would not be surprising if recovery started later there as well. This, indeed, is what happened in the 1930s. I would expect therefore that continued recession in America would slow down our rate of recovery, not stop it; and that when America begins to emerge from the recession this would add impetus to our own recovery.

It is true that progress to date has been slow and that recovery is still patchy. But it does no good, and is no good service to the nation, to denigrate the progress which has been made. This is an area in which confidence is of great importance. We need to reinforce that confidence, not damage it.

Trade recessions are not like tennis balls. They do not hit the ground and then bounce sharply up. There is a decline, a bottoming out and then a recovery, slow at first but gathering momentum. But, of course, it is not enough to view recovery as an act of faith or of history. There are economic deveopments—often themselves arising out of the recession—which lead to the recovery. There are two important developments of this kind which can be identified today.

First, the fall in the price of oil. It was the two great oil price explosions in 1973–74 and 1979–80 which, on each occasion, sparked off worldwide inflation and worldwide recession. There is good reason to hope that the present fall in oil prices will reverse that process; that is, that it will lead to lower inflation and increased output. But it is essential—even more essential in present circumstances—that Governments should continue to follow responsible fiscal and monetary policies, to ensure that the benefits do feed through into lower inflation and thus into sustained and sound long-term growth—and are not frittered away in an inflationary but short-lived burst of activity.

The problem we ourselves have to face is a particularly difficult one. While the benefits to industry and to the consumer of a falling oil price are very great, we also lose a great deal of revenue from the North Sea. Despite this, my right honourable friend the Chancellor of the Exchequer has succeeded in restraining public borrowing for the coming year within a total of £9½ billion, a smaller proportion of the gross domestic product than for the year just ending; and he has done this while at the same time making significant reductions in taxation, not only for industry but for people as well. Keeping public borrowing under tight control in this way is an essential element in relation to the next matter I propose referring to; namely, rates of interest.

Recovery from the Great Depression of the 1930s was led by a fall in interest rates, which led, in turn, to an increase in capital expenditure of all kinds, particularly on construction. The present high rates of interest reflect in part the level of inflation. Progress in reducing interest rates means that we must also reduce the rate of inflation. The policy underlying the Budget is to make progress on both these fronts. The rate of inflation has come down from a peak of 22 per cent. in 1980 to 1½ per cent. now, and we expect it to fall progressively from now on—to 9 per cent. by the end of this year and to 7½ per cent. by the second quarter of 1983. Interest rates have also eased since the Budget. In particular, the building society interest rate has been cut by no less than 1½ percentage points.

Here again some people attempt to argue that we have no real control over interest rates, which they say are effectively dictated by events in Washington. Like so many criticisms, this is at best a half truth. Interest rates are affected both by international developments and by internal policies—in varying degrees, sometimes with one the dominant factor, sometimes the other.

There is little we can do about events in America. But we are responsible for what happens in this country. This is why the Government's borrowing must be kept down to a level which can be financed at reasonable and reducing rates of interest. One thing that is certain is that however potent American influences may be, if we restrain our own levels of borrowing, interest rates in this country will be lower than they otherwise would have been. This was clearly demonstrated by what happened after the Budget last year. In the six months following that Budget, interest rates were on average four points below American and French levels, and on a par with German levels.

Expanding world trade and lower interest rates provide a background for recovery in this country. But by themselves they are not sufficient. It is vitally important that we reduce the level of our costs so that we are fully competitive with other major industrial countries. Costs in this country, and principally labour costs, have escalated in a way which has lost us markets at home and abroad. In the 20 years since 1960 our share of world trade has halved and import penetration into our home market has doubled.

The noble Lord, Lord Glenamara, quoted the case of Consett, which is a great tragedy for the people living there. But both Consett and the steel industry generally are one of the tragedies that arise from the excessive level of costs, the lack of competitiveness and an un-willingness, until the very last moment, to bring levels of manning down to international levels.

The deterioration in our competitive position has been going on for a long time, but the immense increases in pay in 1979 and 1980 made the position very much worse. The noble Lord, Lord Glenamara, spoke as though it was the exchange rate which was to blame, but in fact today sterling's effective exchange rate is close to the level at which it stood when the Government took office. The loss of competitiveness since then reflects essentially excessive increases in domestic costs.

It is also relevant to draw attention to the fact that half of the loss of competitiveness since 1976 took place under the previous Government. The only way that industry could have survived the massive pay increases that took place in the 1979–80 pay round was by shedding labour, and this is one of the major reasons for the present level of unemployment. The union leadership—and the companies which gave in to them—must bear a very heavy responsibility for the resulting high level of unemployment.

We will reduce the level of unemployment significantly by, and only by, improving our productivity and holding down increases in costs so that we regain the ground that we have lost. This is the only way. We cannot continually compensate for excessive cost increases by a perpetual succession of devaluations. This only leads to higher inflation which feeds back into higher wages and still higher cost increases.

If there was any lesson to be learned from the experience of the previous Administration it is surely that; and in fact they were finally reduced to the stage where the pound had been devalued to so low a level that it was in risk of disappearing from sight altogether, and the only thing that the Government could then do was to call in the IMF to rescue them. Does the noble Lord, Lord Glenamara, seriously wish to repeat that experience? Surely we ought, whichever party we belong to, to be able to learn the lessons of history to that extent.

Productivity increased very sharply last year—in manufacturing by 10 per cent. This reflected a substantial shakeout of labour and reduction of excessive manning levels. It is unlikely that we can continue to show increases at that level. But if we are to hold our place in world trade and compete effectively with imports at home it is essential that we should continue to make substantial progress. This increase in productivity is essential in the public sector as well as in the private sector.

Last year the headlong increase in costs in manufacture was very greatly moderated. Pay settlements were about half the level they had been in the previous year. As a result, in the last quarter of 1981 unit wage costs in manufacture were less than 3 per cent. higher than a year earlier. This compares with an increase of 23 per cent. in 1980. It is because increased employment depends upon increased output, and increased output depends in turn on increased productivity and lower costs, that we put such emphasis on the need for moderate—and reducing—pay settlements. Those in employment—and those who represent them—owe a duty to the unemployed. It is in their hands to create the conditions which will lead to an expansion in output, an increase in employment and a reduction in unemployment.

Those who watch television will by now be familiar with the growing practice of scientists and archeologists of exhuming ancient corpses. Their number is now joined by Mr. Michael Foot, who this week has exhumed the corpse of the social contract. Unfortunately, he has not completed the process by conducting the autopsy. I had intended doing it for him. But it has already been done much more effectively by his former colleague in Government, Mr. Joel Barnett. In his embarrassingly revealing book, Inside the Treasury, Mr. Barnett says: The disastrous social contract may have helped to secure our election victory but it did nothing to prevent—some would argue that it ensured—the 27 per cent. growth in earnings that followed"— and I would add the 27 per cent. inflation as well. If Mr. Michael Foot ever gets the chance of putting his theories into practice they will produce the same disastrous results next time as they did last time.

There is no solution to our problems in a programme of massive and inflationary increases in public expenditure, with vain attempts to hold at bay the resulting surge in inflation and fall in the value of our currency by relying on the devices of a seige economy bolstered up by dubious agreements with politically motivated trade union leaders. None of this will work. The noble Lord, Lord Glenamara, quoted certain figures which he said had been obtained by the use of the Treasury model. The Treasury model is not a machine like those which appear in Las Vegas. It is, in fact, a collection of a large number of formulae which are made available to certain people operating in this field, who then use a computer to calculate results from this model depending on the input they feed into it, and, most important of all, the interpretation they place upon the results which emerge.

It is not an automatic process at all. There is a great deal of interpretation in it. According to yesterday's Guardian, the wage and prices equation was overridden in the course of the work to which the noble Lord, Lord Glenamara, refers, and it would be interesting to know whether in fact this is true. I have no knowledge of the matter, I am merely quoting a report which appears in the Guardian, but if it is true that the wages and prices equation in the Treasury model was overridden then the results it produces can be of very little relevance.

We believe the duty rests on Government to conduct their own affairs prudently and wisely; and there is an equal duty on management and workers in industry. The Government have, for their part, also introduced a series of specific measures to help. I shall concentrate on the fiscal measures we have taken and my noble friend the Deputy Leader of the House will deal with the specific measures taken to help industry and employment when he replies to the debate.

First, I would comment on what is popularly described as "the cost of unemployment". This point was raised by the noble Lord, Lord Glenamara, and I have no doubt it will be referred to by the noble Lord, Lord Kilmarnock, who has done a great deal of work on the subject. Unemployment is a tragedy for the individual. It is a loss of national output and national wealth. We should as a nation be much better off if the labour market worked in a way which provided employment for all our people; if our level of productivity was such that all our people could be employed at the level of wages they demand. But it is a very far cry from saying that to attempting to place specific figures on "the cost to Government" of unemployment.

If by "cost" one means the amount of unemployment or other benefit paid, that is readily ascertainable and amounts, on average, to about £1,600 per annum per head. But if one tries to add to that what is claimed to be the loss of tax consequent upon unemployment one runs into immediate difficulties. Unemployment is the result of economic change. Such changes will also affect the yield of taxation. But it is quite fallacious to assume that the change in the yield of taxation can be related directly to the rise in unemployment. They both flow from a common cause but they do not flow from one another. The effect on the yield of taxation depends on the nature of the economic changes. There is no a priori reason to suppose that the yield of taxation will vary in a predetermined way in relation to changes in unemployment or even necessarily move in any particular direction. Nor does experience in this country in the last few years suggest that a relationship of the kind postulated exists.

Thus, if unemployment increases as a result of an excessive rise in wages, the effect may actually be to increase the yield of taxation, not reduce it. The reason quite simply is that the increased pay received by those remaining in employment will be charged at marginal rates, while the pay lost by those becoming unemployed would have been liable at average rates only. This is not a fanciful example; it illustrates what has been happening in this country in the last few years. This is an extremely complex problem and much more work needs to be done on it. Meanwhile, claims that unemployment costs the Government £15 billion a year or some other such large figure need to be viewed with extreme scepticism.

There is another aspect. To suggest that a "loss" is something you can spend is an absurdity. All that would be available to spend is the amount of benefits actually being paid, on average about £30 a week. Anything above that adds to public expenditure and it will have broadly comparable effects as other additions to public expenditure and needs to be judged in much the same way. The only way that one can create additional jobs at a cost of a modest increase in public expenditure is on the lines of the imaginative new community work programme adumbrated by my right honourable friend the Chancellor of the Exchequer in his Budget speech.

I return to the question of the measures taken by the Government in the fiscal field. The Budget this year is directed specifically to helping industry and employment; help to industry is also help to people, in just the same way as help to people is help to industry. I have already mentioned the restraint on public borrowing designed to ease the pressure on interest rates. There is the reduction in the national income surcharge, which will cost £640 million net this year and will benefit industry and business generally by the same amount. That is direct assistance to industry to help reduce its costs. It is crucially important that the money should be used to reduce costs and improve profitability and not be allowed to leak away into higher pay settlements. There is the energy package, designed to give industry further help on energy prices, at a cost of £160 million; the construction package, costing £240 million; the innovation package, costing £130 million spread over three years; the enterprise package, costing £80 million, including substantial improvements in the small workshops scheme, which has been an outstanding success, in the business start-up scheme, in the small loans guarantee scheme and in the taxation of small businesses.

The individual taxpayer has been helped too. The income tax allowances have been increased by more than the rate of inflation, while indirect taxes have been increased by less than the rate of inflation. There is the reduction in stamp duty which will assist mobility and help first-time home buyers. There are improvements in retirement annuity relief for the self-employed. The Budget therefore, in all its aspects, is an integral part of the Government's strategy to help industry, to help the economy, to improve employment prospects and thus lead to a reduction in unemployment.

The path along which we have embarked offers real hope for the future; reduced inflation, rising output, improving competitiveness and the opportunity of creating new employment on a sound long-term basis. But, in the end, it is up to the people themselves to decide whether to seize the opportunities which are there for the taking. The hallmark of freedom is just this freedom to decide. Governments cannot do this for their people. If they try, the long-term effect is always damaging. It is very tempting in times of difficulty to try to shelter behind the skirts of Government. It never works. We believe in giving people the freedom to make a success of their lives and to help other people to make a success of their lives too. We will help in every way we can—by creating the right conditions and by removing obstacles and impediments to growth and progress—but the ultimate responsibility rests on the shoulders of the people themselves. We are making progress and we shall continue to make progress. It is in that direction that success for our people lies, and that success we shall achieve.

4.30 p.m.

Lord Kilmarnock

My Lords, this is the third time in as many months that I have spoken on measures to combat unemployment, but I shall not apologise for doing so. The theme is central to the Motion before the House, and the problem simply will become more intractable the longer nothing is done about it. Previously I have gone out of my way not to pin all the blame on the Government and to attribute a proper proportion of responsibility to factors beyond their control. But things have now come to such a pass that I am afraid I have to withdraw that olive branch.

The Prime Minister tells us that unemployment is unavoidable on account of the world recession. If that were so, our recession surely would be no worse than anybody else's and, if anything, should be less severe as a result of our cushion of North Sea oil. In fact, however, our unemployment is higher and our loss of output greater than those of any other comparable nation.

The Government have sought, they claim, to create the climate for recovery. This they have conspicuously failed to do. They claim with pride—the noble Lord has just claimed—that exports are holding up remarkably well, but if they looked behind the aggregate figures that they are so proud of, they would find that exports are being maintained in many cases by firms cutting, or even totally eliminating, profit margins, and if the firms engaged in this heroic exercise do not shortly get some relief through stimulus of the home market, there will be further waves of bankruptcies.

Furthermore, even if the climate does improve and slimmer and fitter industries can gird up their loins and go forward, it will be because of the labour that they have left behind; it will be on the basis of increased labour productivity and reduced workforces. Successful trading may be the key to economic survival, but it is not necessarily the cure for unemployment. I am not against the market, but the time has passed, possibly for ever, when the marketplace of its own accord can absorb all those who want, or need, to work.

In these circumstances any responsible, any prudent Government (the noble Lord, Lord Cockfield, mentioned the prudence of the Government) will put high on their list of priorities—I would suggest at the top of the list—a series of measures designed to minimise the human misery and the threat to the social fabric which comes about when millions of people are quite simply surplus to market requirements.

Of course measures cost money, but so does unemployment, which, as the noble Lord, Lord Glenamara, mentioned, is at the moment estimated in some quarters as costing the Exchequer in the region of £14 billion to £15 billion a year in disbursements and loss of revenue in one form or another, to say nothing of loss of output. The noble Lord, Lord Cockfield, was perfectly right in saying that I would turn to this topic. As he said, it is a complex one. The Treasury has constantly argued that it does not have anything like that sum to disburse in job creation at nil cost. It is of course true that nil-cost solutions do not exist; but that does not mean that there are not cheap solutions, and it is worth looking at some of the figures.

The Chief Secretary to the Treasury, Mr. Leon Brittan, in a press release on 5th February last, said that the re-employment of someone at present on the register would, on average, save the Government £30 a week in benefits—that was a figure also given by the noble Lord, Lord Cockfield—and if the wage paid were £90, the Government would receive an additional £30 in taxes and national insurance contributions. The net job cost would thus be £30 a week, or roughly £1,500 a year—not such a bad deal, even at that, you might think. But those figures need careful examination.

First of all, the average benefits across the board must be much nearer £40 than £30 a week. In the case of a married man with two children (a fairly typical unemployed person) on £90 per week, for example, the cost of his arrival on the unemployment register is, or will be from November 1982, £76, made up as follows: unemployment benefit £40.65; rent and rate rebates £8; supplementary benefit top-up £2—those are the outgoings—plus losses to the Government of £12.89 income tax; plus employee's national insurance contribution of £7.87; plus £5 approximately in indirect taxes.

Furthermore, the figure of £76 presupposes that he does not claim family income supplement and that he was previously employed in the public sector. But we know that very few public sector jobs have gone, and if, as is more likely, he was previously employed in the private sector, the Government lose a further £10.98 in employer's national insurance contribution, making his re-employment in the private sector, even with a relatively high subsidy, virtually a nil-cost solution. Even if he were to be re-employed in the public sector, in which case the Government would receive no employer's national insurance contribution, the difference between his unemployed cost and a wage of £90 is only £14. If the Government seek to add something for materials and administration, we would not seek to dispute that, but at the lower echelons of the health service or local authority services, where the scope lies, this would not be very great.

Furthermore, Mr. Brittan's estimate that the average previous earnings of the unemployed were in the region of £90 is also open to question. I seem to remember—the noble Lord, Lord Cockfield, will correct me if I am wrong here—that the Treasury has hitherto calculated the average previous earnings of the unemployed at 80 per cent. of the national average wage. The national average wage is now £140—£140.50 to be precise—and 80 per cent. of that is not £90, but £112. It is obvious that the higher the previous earnings, the more the Government lose in revenue when that person becomes unemployed. I would therefore suggest to the noble Lord that there is an alarming under-estimate by the Treasury of the real Exchequer costs of unemployment and thus of the amounts that could be devoted to job subsidies at virtually no net cost and to job creation, at very modest financial cost to the nation. Perhaps the noble Earl would care to comment on that when he winds up.

Against that background, the proposal made by Mr. Roy Jenkins for a £70-a-week subsidy to employers for every additional worker taken on who has been unemployed for six months becomes feasible and realistic. If you are going to subsidise employment, it makes sense to pay employment subsidies which are job specific, rather than investment subsidies which are not. It is also clearly true that it is more advantageous to the Government to subsidise jobs in the private sector than in the public sector, owing to the additional revenue derived from the employers' national insurance contributions and the fact that there are no non-wage costs.

However, there is probably a limit to the additional labour that the private sector can absorb and remain cost-effective. We therefore think it reasonable to aim at an additional 250,000 jobs by this method, for which we have allowed £500 million; that is to say, £2,000 per job per year to take account of the fact that some of the jobs would have been created in any event.

Next, we propose a national campaign of housing rehabilitation and insulation, and environmental improvement. The materials cost of painting and decorating is low relative to the cost of labour, and many of the unemployed, setting aside the 15 per cent. who actually come from the construction industry, have some of the basic skills. Our proposal is therefore to recruit people at £15 to £20 a week over and above their benefit rates. The management and supervision of the programme will be entrusted to the Manpower Services Commission, and the work sub-contracted to private firms, though the local authority direct labour organisations could also participate if their unions would allow them. Clients would pay little more than the cost of the materials. Here, also, is an area in which local authority improvement grants could be revived at very low cost using this source of labour.

It is not only houses that need a lick of paint, or a new bathroom, or insulation to conserve energy. There is a multitude of things that the long-term unemployed could be doing. London, for example, is coming apart at the seams. In many streets not far from this historic precinct the paving stones are thrusting up at crazy angles, almost as if they were tombstones and the Day of Judgment were at hand. Perhaps it is, my Lords.

In addition to being a threat to life and limb, the streets are filthy. There is an incredible amount of labour-intensive work crying out to be done. Our scheme would make all this possible at relatively low cost. We have calculated another 250,000 jobs at a net cost not exceeding £500 million, though I would say that as many people again could be employed to the vast benefit of themselves and the environment in which we live. It cannot be objected that this is inflationary, for the addition to the PSBR is low, and other measures that we shall propose will reduce the cost of Government debt.

Thirdly, we propose a youth employment subsidy of £30 for every youth employed under 18. This scheme recognises the understandable desire of many young people to have real jobs, rather than continue in full-time education or training, but there would be an obligatory minimum of one day's job release paid out of public funds. This would of course be directed at the same client group as the Government's YTS (Youth Training Scheme), to which it could be seen as an alternative. In an individual case it would cost less than a place on the YTS. But, if the effect were to create an additional 50,000 jobs over and above the YTS, we have calculated the cost at £150 million.

Fourthly, we want to improve the position of women, who are particularly hard hit by the recession, and we propose to increase public spending on domiciliary care services and home helps, who can, for example, assist old people to continue living in their own homes, rather than in more costly and less congenial residential care. We have calculated that 60,000 such jobs would cost £200 million, though personally I believe that there is further scope here, particularly if the scheme provides those part-time jobs of between four and six hours a day that are so attractive to married women with children.

The emergency programme I have outlined under these four headings—and let no one doubt we have an emergency on our hands—would reduce unemployment by some 600,000 at a net cost on the PSBR of £1½ billion. There are in addition budgetary measures whose employment effects cannot be so accurately targeted. My noble friend Lord Chandos will deal with some of these in due course. They will, of course, have beneficial side-effects on unemployment. The Government have belatedly reduced the national insurance surcharge to employers. This is desirable for a number of reasons quite apart from employment, and we would have done the same, or cut it by slightly more; but it has to be recognised that this is an expensive remedy if seen purely in employment terms, because it will be mainly reflected in increased profitability and possibly in reinvestment.

But there is one area, which is an obvious winner both for job creation and for the satisfaction of crying social need, in which we do not think the Government have gone anywhere near far enough, and that is in the increase of public expenditure with special emphasis on construction. I know the Government have made some provisions in the Budget, but they are not enough. I have wearied your Lordships before on the appalling condition of our housing stock, the low level of housing starts, the millions of sub-standard dwellings and so forth. To be very brief, we propose a major increase in expenditure on house-building plus an increase in improvement grants and substantially increased funds for housing associations.

We would supplement this housing effort with an additional £500 million on small civil engineering projects and improvements to roads, sewage and drainage. This construction programme as a whole would aim to create an additional 250,000 jobs at a net PSBR cost of about £1 billion. This is not, it will be appreciated, a public works programme of the lavish capital-intensive type or of the digging-holes-and-filling-them-in type. It would do ordinary jobs that sorely need to be done.

I will not subject the House to further details. Our whole package would aim to create approximately a million jobs over two years at a PSBR cost of approximately £4 billion. It is not pie in the sky. It promises nothing that could not be fulfilled; whereas the official Opposition's fortress Britain policy would, I fear, be not only extremely expensive but also have us starving to death rather rapidly behind our moat and drawbridge. Here, I think, is where I come nearest to agreeing with the noble Lord, Lord Cockfield.

To put our proposals in their context, may I just remind your Lordships of the following facts? The national income—that is, money GDP at market prices—is forecast here in the budget report at £280 billion for 1982–83. My Lords, £4 billion is one-seventieth part of that, and the cost of Government borrowing would in any case be reduced by lower interest rates. As I have said before, attracting hot money into the country by high interest rates is a double-edged weapon. None of these measures is inflationary because the job creation costs are very largely offset by the decrease in unemployment costs, and do not impinge on the externally traded sector of the economy. Much human disillusion and bitterness would be halted, and some enthusiasm generated. The environment would be improved, and the housing scheme in particular would have a national appeal. Everyone likes to be proud of his home. But above all we should have a social policy going hand in hand with an economic policy. The present Government's social policy is simply a bleeding victim on the bleak altar of economic aggregates.

Finally, the following quotation from James Burn-ham's The Managerial Revolution, which came out in 1940, seems horrifyingly apposite: Continuous mass unemployment is not new in history. It is a symptom that a given type of social organisation is just about finished. It was found among the poorer citizens during the last years of Athens, among the urban proletariat … in the Roman Empire and, very notably, at the end of the Middle Ages, among the dispossessed serfs and villeins who had been thrown off the land to make way for capitalistic use of the land. Mass unemployment means that the given type of social organisation has broken down, that it cannot any longer provide its members with socially useful functions even according to its own ideas of what is socially useful. It cannot support these masses for any length of time in idleness, for its resources are not sufficient. The unemployed hover on the fringe of society, on the one hand like a terrible weight dragging it down and bleeding it to death, on the other a constant irritant and reservoir of forces directed against society". Let that not be written on the tombstone of this country.

4.45 p.m.

Lord Allen of Fallowfield

My Lords, throughout my public life I have always tried to resist the temptation of the easy option, when confronted with problems, to blame the other person, or in this particular case, when looking at the British economy as of now, to blame the Government. I find it very difficult to follow my own standard when making a contribution to the debate this afternoon, notwithstanding all the things that have been said in support of the Government's strategy by the noble Lord, Lord Cockfield.

While there may be differing views as to the reasons for our industrial decline relative to most other developed countries, the fact that we are in decline cannot be in dispute. As the world we live in, and particularly the United Kingdom, becomes necessarily complicated, we sometimes seem to lose sight of those simple principles without which no enterprise, whether it be a company or a country, can be successful. Our decline as an industrial nation vis-à-vis our international competitors is of course due to a variety of complicated causes, as the noble Lord, Lord Cockfield, has said; but the one simple factor lying behind it is, I believe, a total lack of confidence and trust. If I agree with anything that the noble Lord on the Front Bench opposite said, it is that—and I quote his words—"confidence is of the greatest importance". I agree, but that is what we have been missing in the last three years.

It is obvious that the workforces seem to have little confidence in or understanding of direction of Government policy, and some managements, for their part, have had little confidence in the Government. Against that backcloth it is hardly surprising that the rest of the world has seemed to show so little confidence in Britain. Our inadequate investment record compared with many industrial countries is long-standing, as is our failure to work to maximum efficiency such investment as there has been.

If we look at the trends for manufacturing investment in the United Kingdom—and they have been dealt with by the noble Lord, Lord Glenamara, in the presentation of his case—the figures are alarming. I have listened very intently to the figures used by the noble Lord, Lord Cockfield, but the figures I have been looking at and examining indicate quite clearly to me that manufacturing investment has fallen by over 21 per cent. since mid-1979, and it is predicted to fall by a further 5 per cent. in 1982. The contribution that high interest rates has made to this malaise cannot be overlooked. Under the monetarist approach, companies have been forced to pay high interest rates. This has obviously retarded economic growth nationally. The long-run failure to invest is clearly at the heart of the failure of British industry. This means quite clearly that our workforce is supported by less investment in the United Kingdom than our trading competitors.

It would also be encouraging, particularly to those managing industry and those working in industry, if the Government changed their approach to exchange controls and gave some clear indication of their willingness to defend the British economy during this malaise against destabilising movements of capital and to counter the growing problems of investment funds, especially pension funds, being placed overseas.

What I cannot understand is the logic of the Government's argument that their policies have been designed to assist recovery in the private sector. The facts belie this myth. We all know how Government policies have cut order books of British firms, both for home and export sales, and their attempts to cut public borrowing have compelled private firms to borrow more at record rates of interest.

I am sad to listen in a debate of this kind to implications that the problems of the British economy, as stated by the Government's representatives, are the responsibility of a number of factors: first of all, that our lack of competitiveness is due to labour costs. That is an absolute nonsense, my Lord and for those who believe otherwise I would ask them to examine the league tables of wages costs among the nine countries in Europe and elsewhere. The United Kingdom is at the bottom of that pile, so please let us not have the excuse that lack of competitiveness is because of high labour rates or high unit labour costs in Britain.

It is also implied—if not expressly so—that unemployment is the responsibility of inflationary wage demands. How can it be, against the background that I have just referred to of wage rates in Europe and the world generally by comparison with what they are here? If, as the noble Lord, Lord Cockfield, said, there is an improvement in labour unit costs, as envisaged by his Government in recent months, then I would assume—to take the logic to its useful conclusion—that if there is an improvement in unit costs in the manner indicated, then we should see a downward trend in unemployment and not an upward one.

Of course, I agree with him when he says that we believe in the freedom of the people to make a success of their lives. In a talk I gave recently to unemployed people I attempted to use a similar analogy. I must say that it did not go down very well. Freedom to do what? Freedom to walk the streets? Freedom to get on your bike looking for a job that is not there? Those kinds of freedoms are alien and should be alien to any British way of life.

Whatever one's political convictions, there can be few who are not worried, if not alarmed, about the challenges which face us in the United Kingdom, not least in the area of achieving much more productive industrial relations. I say that with great sadness because there is still in this country between the three principal parties, which are very important to the success of this economy, a dialogue of the deaf. I hope that the Government genuinely believe that this is an important key, as I do, to a healthy economy, and that they will take a different attitude from their attitude in the past in trying to face up to this problem with the two other parties which are basically interested in this matter. Because of Government policies we are now faced with the survival of jobs—that is, for those who are lucky enough to have one, and have not become a casualty of the Government's economic management of the economy—and we are also faced with the survival of companies; and in some cases the survival of whole industries is at stake.

What a tragedy this is proving to be, when we have so much going for us in this country today: wealth in the form of North Sea oil resources; technological breakthrough and know-how; and yet our affairs continue to be in a mess. Inflation rises, unemployment goes on rising to unacceptably high figures and political and economic wisdom is in short supply. In the face of this appalling social and economic tragedy, how one can be expected to believe all that is claimed to be in store for the nation in the future, or be euphoric about the Chancellor's last Budget—which fails to make now, or in the medium to long term, any impact on jobs—is really beyond the comprehension of the man in the street.

The attempt, through the Budget, to mask the real effect of Government policy over the past three years—which by any measurement you wish to use can only be described as an economic and social disaster—in an effort to promise "jam tomorrow" for some of the Hillhead voters must pale into insignificance when examined alongside and against the record of the Government's past mismanagement of the economy, for which they must be indicted and condemned as being guilty of creating an inertia of fear, suspicion and criticism, a lack of commitment and will to do better, and an absence of determination to utilise the effective use of all our resources—including human.

In fact, the insecurity which has been created in the homes and families of the bulk of our people, and the destruction of family life in too many homes, is in my considered opinion one of the great impediments to acceptance of timely change, thereby losing initiatives in restoring Britain's economic performance. What this country needs now, if I may say so, is a kinder and more caring and considerate society, with greater social harmony, an antidote to mass disobedience, and the abolition of all the symptoms which justify the belief in many minds that we in Britain are creating a two-nation society: those who have, and those who are going without. We need better leadership and vision which will appeal to the imagination of the people. We do not have it at the moment. It is said that, where there is no vision, the people perish.

In recent years it has become fashionable to talk about Britain's industrial decline. Indeed if one is to believe certain recent commentators, just as Britain was the first country to experience the Industrial Revolution, so we are on the verge of being the first country to experience the process which has been given the term "de-industrialisation"—in other terms, the total collapse or near collapse of the manufacturing base of the economy of Britain, which has been even more marked. My evidence for this is a quotation from the TUC Programme for Recovery 1982. I commend those who take a contrary view of the economy and how it is being managed to read the TUC Programme for Recovery 1982. If I may weary the House with just this one quotation, it is as follows: Manufacturing output in the third quarter of 1981 was 16.5 per cent. below the level in May 1979. Metal manufacturing output, which includes the steel industry, has fallen by over 32 per cent., textiles by 26 per cent. and engineering by 17 per cent. There was a record number of bankruptcies in 1981. In the first quarter of 1981 companies were being liquidated at an annual rate of 9,600 compared with 4,500 in 1979 and only 2,500 in 1973. Small firms, on which the Government has pinned its hopes for recovery, growth and employment, have been particularly severely hit. Neither old traditional manufacturing industries, such as textiles and steel, nor new technology industries have escaped the ravages of the recession. There is no question that our manufacturing sector has performed badly over recent years. All the figures show, for example, a consistent decline in manufacturing's percentage share of the total labour force. Of course, that fact in itself is not necessarily serious, but when one combines it with statistics which demonstrate manufacturing industry's declining share of total United Kingdom investment, and also with the decline in the percentage contribution of manufacturing to gross domestic product, then one is forced to conclude that something is seriously wrong in the economy.

I conclude by reiterating what I have said earlier and in this House on previous occasions during debates on the economy—that unemployment is a scandal. It cannot be justified by any Government on any count—economic, social, morally or ethically. The—

Lord Soames

My Lords, will the noble Lord forgive me for one moment if I ask him: which country of the industrialised world does not have a level of unemployment which is scandalous?

Lord Allen of Fallowfield

My Lords, I am dealing at the moment with the British economy. It is not good enough always to want to pray in aid, because of your own incapacity to manage the economy, what is happening somewhere else. So I would conclude by saying that the stigma which has blighted our society since 1979 remains after the Budget in the same form as before the Budget, and is likely to remain so for both the short and the long term. It seems to those who are unfortunate enough not to be in gainful employment that there is very little marked basic change in the direction of the Government's strategy, notwithstanding all the goodies that were suggested in the Budget.

5.2 p.m.

Lord Thorneycroft

My Lords, these are grave and complicated matters that we are discussing this afternoon. I would say this on the Motion put forward by the noble Lord, Lord Glenamara, as it is written: I would support it. I rather agree with what it says and I would give him any of the papers that he wants. But the effective measures I would choose would, I think, vary a little from his. It is an honour to follow the noble Lord, Lord Allen of Fallowfield. He speaks with great knowledge of the trade union movement and has made a speech of moderation and quietness. He said he did not like to aproach something in which we all blame one another. I share that view. He found it rather difficult not to blame the Government. I must tell him that great numbers of the public are finding it increasing difficult not to blame the trade unions, and even I may say a word about them. But I think we want to speak with moderation of one another's faults.

I would give one assurance to the House: I have been nowhere near the Treasury model. That is an asset for anyone making a speech on this subject and I think the House will be relieved to know it. Nor am I going to embark on what I call "the wet-dry argument". I understand it—nobody can accuse me of not being interested in public expenditure and all that. I know the arguments and I know that Peter Shore is leading the wets, almost obscured by spray at the moment, far out in front—there is £7 billion, £8 billion, £9 billion to spend—anything so long as it is a lap beyond the noble Lord, Lord Kilmarnock. At the other end, I know that there are the "drys". At least I imagine that somewhere in a Treasury corridor there is someone trying to find out what M3 is and believing with all his heart that, if he could only find it and stick to it, all would be well. I do not believe either view.

I stick to my old school, which is the school of the rising damp. I believe that Governments spend more than they want to in a recession; they always have and always will. I do not believe there is much room to manoeuvre and I do not believe for a moment that the noble Lord, Lord Glenamara, would embark on the kind of policies he described in his opening speech, which were, I think, effectively destroyed by the noble Lord, Lord Cockfield. I cannot believe that he would put that money in without anything even resembling an incomes policy to hold it. I hold the central position; and in the centre I think the Government are about right. I notice that others think this, too. The CBI think the Government are about right, and even the polls, for what they are worth, seem to think the same; and so I compliment them on that.

What I am concerned with is growth and jobs. I think, as the noble Lord, Lord Cockfield, said, that perhaps the most important thing which has happened in this world recently is not the Budget—that can only affect affairs inside this country—but the fall in oil prices. Perhaps I would put it a little differently from the way he did, with deference. I would say that the world recession has now progressed to a point where it is actually destroying its own origins; that is to say, if the recession was triggered by two great surging increases in oil prices, we have now reached a stage in the cycle where most of the world—I am talking about the world as a whole—can no longer afford to pay such prices for oil, and the cycle has begun to come around, as he says, in a different direction.

In the meanwhile, we here in the United Kingdom have not cured a world recession—it is not within the power of an individual country to cure a world recession—but we have refrained from doing anything silly. We have also rejected the advice to plunge into massive expenditure, and we have in fact conducted the situation to a point at which this country is today infinitely more efficient and infinitely more able to deal with problems of world trade than it was when the Government came into office. The Government ought to be sincerely complimented on that. It was a brave and great achievement, and I believe their reward will come to them for that. Therefore, as I say, with oil prices beginning to turn round and with many other factors mentioned by the noble Lord, Lord Cockfield—interest rates lowering and inflation looking as though it is coming down again—all these factors are for the first time for a long time moving a little in the right direction.

What are the matters which are of real concern to us? I am going to mention them. I do not pretend I know the answers to all the main ones but I think I know what the questions are, and they are not solely concerned with the debate as to whether Lord Keynes or Professor Hayek had got the right of it. They are much closer to the world we actually live in. There is the structure of British industry today, and, I would say to the noble Lord, Lord Allen, there are the unions. They have a really major part to play. Then there is the nature of the unemployment problem and, perhaps above everything else, there are wages. Wages have dramatic effects on whether jobs are available.

May I say just a word about structure. If we are going to ask how to get investment going and jobs provided, it is a good thing to take a good hard look at who is going to provide the jobs and where we are going to invest. Half of industry in this country, or virtually half, is now in public ownership. I am not standing here just to criticise the Labour Party for that. They were not alone. Indeed, the SDP backed them fully in that progress. Even the Conservatives have, from time to time, put things into public ownership. But that is where matters stand today, and the problem of new capital formation in public industry is one of the greatest problems that confronts this country. Oddly enough, it is a problem that was hardly debated at the time when public ownership started on this route. It was forgotten. But the problem of how you amass the money and put it into this great sector is very difficult to solve. Of course, the problem of monopoly unions and all that goes with them is also very basic. That is the centre of our problem in the structure.

There are two themes being struck by the Government, if I read the papers aright. One which I saw this morning is that they are again going to look at how we manage the relationship between the Government and the nationalised industries. The Think Tank has produced a report which is so indelicate that it has not been published at all. I would say to my noble friend Lord Cockfield, that a debate in your Lordships' House on the subject of the Think Tank report on what Governments should do with public industry would be a very worthwhile debate, and I should very much like to see it.

There is the Department of Industry Industrial Development Unit, and we are told that it is to be strengthened. That is a good thing. Then there is a rival team in the Treasury. Why let the Department of Industry get away with it? There is the Public Enterprise Analysis Unit in the Treasury, and that is to be strengthened, as well. And there is the Monopolies Commission looking on. I am not going to deride these efforts. I have been in Government myself and I am sure that they are admirable things to do. But the idea that you can really run enterprise in that way is remote from my experience. The noble Lord, Lord Marsh, is not in the House, but I love to listen to his speeches describing the problems of how you run a railway with a Government sitting on your shoulder. It is quite moving and most impressive.

I think of the industries that I know, such as Trust Houses Forte. I ask your Lordships to imagine it being run by the Public Enterprise Analysis Unit of the Treasury. We would never have any breakfast. The world does not exist in this way. So while it may be right to pursue these things—and we have been over and over this ground—it is not the answer. And we still have this massive state sector closed to the investment of the great institutions. If they come in, it is said that it is increasing the public sector borrowing requirement. So we sit there, with half the industry of this country arguing as to whether we can increase the public sector borrowing requirement, or what will happen if we do.

Mr. Peter Hordern, who is a very able Member of another place, wrote two articles a fortnight ago upon this subject in the Daily Telegraph, and if my noble friend Lord Cockfield has not read them I shall provide a copy for him. He described in vivid terms the problem of how you get investment into the public sector. Bascially, of course, it would be to get the things out of the public sector and, certainly, we ought to study that immensely carefully. If we can get anything more out of the public sector, and open it up to investment by the institutions of this country, that is the way to go for growth, that is what jobs are about, instead of arguing the rights and wrongs of which economic theory ought to guide us in the investment. So I hope that the Treasury will send for Mr. Peter Hordern, not to invite him into the Government, because he is too valuable outside, but at least to listen to what he has to say.

One point he makes is that if you want to sell something, do not be too pernickety about the price. It would be infinitely better to get these things out of the public sector at a lower price, if we could get investment moving into them. My noble friend Lord Cockfield, in an earlier incarnation, was chairman of Boots. I think that one reason why he makes such distinguished speeches here is that he talks with knowledge of these matters. He was a very successful chairman of Boots, but I bet my bottom dollar that there were moments when he sold activities below what they stood at in the books, in order to get rid of them and to get somebody else to run them, because he no longer felt that they were profitable to Boots. The Treasury, alas!, does not keep any books, or practically none. If they kept any books, we would know what these assets are really standing at.

But, one way or another, the lesson must be to be prepared to divest ourselves of a larger portion of the public sector than we have done at the moment; not on doctrinal grounds—I have the greatest admiration for men working in the public sector—but because we want to throw them open to the investment that can take place, with the whole massive resources of the City of London and the rest, and without arguing all the time about whether it fits in with the particular economic theory of the moment.

My second point is about the unions and I shall be very brief. The unions play a great role in this country, but I would ask the noble Lord, Lord Allen, to think really deeply about whether, at the present time, they are contributing to investment and jobs. If I were a great trade unionist—I do not suppose that I would ever have become one—I would be thinking deeply at this moment about what could be done. It is easy to take the exaggerated cases. If any of your Lordships want to put a man, a boy, a son or a grandson into a privileged position, you ask him to join a chapel of a printers' union. That is hereditary. It is far better than going to Eton and the work is minimal. They are admirable men—I do not criticise them; they nearly all vote Conservative, they have lots of spare time and they are running small businesses on their own. That is the extreme end of it. Compared to them, an ASLEF driver is sweated labour.

But all through large sections of the trade union movement today—and this is serious—there is the greatest difficulty in persuading anyone to adopt the modern technology, to use the new machinery, to adopt the new management methods and the rest. I do not say that it cannot be done, but there are managers who spend nine-tenths of their time on this. I had a very good manager whom I saw the other day. He had just left and I wished him well. He handled the labour situations beautifully, with patience and consideration. I asked him, "What are you going to do?" and he replied, "Lord Thorneycroft, I am going to get as far from the trade union movement as I possibly can. I couldn't stand it any longer." That was not a man who disliked them. It was a man who got on very well with his fellow men. But there was the constant effort of having to persuade men against their will, and who were always arguing, to adopt new and better methods.

I would say this to the noble Lord, Lord Allen. It is true that the wages in this country are relatively low. It is not true that wage costs are relatively low, not in any industry that I have had anything to do with. It is that gap between us and the labour costs of our principal competitors that is the most difficult. Then there is the wages question itself. The noble Lord, Lord Glenamara, said practically nothing about wages, and yet it seems incredible to make a speech about jobs without making a speech about wages.

The noble Lord, Lord Banks, was very kind to him; he said he thought that the noble Lord, Lord Glenamara, must have meant something which he did not quite hear. But he never mentioned how he would hold the situation when he had put £9 billion into the economy. He was going to repeat all the things which had happened before, without even an attempt to hold wages. That would be disastrous for jobs and for investment. I am amazed that anybody should put forward proposals of that kind.

I do not believe in a wages policy. I do not think that we ought to let people like Professor Clegg wander around too much. I was in the Shadow Cabinet before the last election, and I think I can honestly say that I begged my colleagues to dump Professor Clegg before the election: to say that we would have nothing to do with him. I thought he was a public danger and I was right. It was entirely to the credit and honour of my colleagues that they felt that they could not follow my advice. But the results have been disastrous—in loss of jobs, in increase in interest rates. This profession of the professional negotiator, conciliator, arbitrator and the rest is one of the biggest dangers we have in this world. I am not referring to Members of your Lordships' House. Members of your Lordships' House rise to the head of every profession, including this one. But there are others throughout the country—wages councils, for instance—who are all pricing people steadily out of jobs.

My last point is about the study of unemployment. If I was unemployed, I should get rather bored listening to people arguing economic theory in front of me. I should ask somebody to sit down and study the problems which confront us. They are not all concerned with high-faluting economics. There are employed people who have two jobs; there are unemployed people who have jobs. There are all sorts of varied situations. There are people who would ordinarily work but who will not work because of the poverty trap; there are people who are pricing themselves out of jobs.

The noble Lord, Lord Harris of High Cross, wrote a wholly admirable article in today's Daily Telegraph which I wish I could incorporate in my speech, but for purposes of time I shall not. I simply say that it would be very wise if a study in depth of the realities of unemployment, of the things that really dissuade people from employing others, the role of the poverty trap and the rest were undertaken. I think the noble Lord, Lord Harris of High Cross, was right in saying that the producers of this country can earn the wages which the consumers are prepared to pay for them. That is the basis of employment. These are the realities of how to achieve the objectives for which the noble Lord, Lord Glenamara, asked.

5.24 p.m.

Lord Kaldor

My Lords, I am afraid that I shall be unable to spend much time upon answering the noble Lord, Lord Thorneycroft, sorely tempted though I am by some of the remarks which he has made. However, it is not true to say that it is easier to invest in private industry. It is the reluctance of British private industry to invest on an adequate scale which is the long term cause of our decline.

The period when we really industrialised fast was under the Lloyd-George régime—after 1916. Hundreds of war factories were built. That was a period when industrialisation proceeded fastest. Again, when one considers wage inflation, the two periods of rapid wage inflation, to which the noble Lord, Lord Cockfield, referred more than once, happened to be the responsibility of Tory, not Labour, Governments. The first was in 1974. It occurred while Labour was in power but it was the automatic consequence of legally entrenched threshold agreements which the previous Heath Government introduced in October 1973 and which automatically lifted wage and price levels by something like 20 per cent. in that year.

The second great wage explosion occurred after the present Government came to power, not before. The winter of discontent in 1979 added only about 2 per cent. to the annual increase in earnings—from 14 per cent. to 16 per cent. However, as a result of the disastrous Budget of 1979, the first Tory Budget which increased the cost of living by 20 per cent. and more, wages followed prices and reached in the following wage round—between August 1979 and August 1980–22 per cent. From those high levels, you can then show that you are making great progress in coming down. But it is rather like the Duke of York going to the top of a very high hill and then taking credit for being able to descend from that hill.

In my first speech after the present Government came to power, I congratulated noble Lords opposite on their election victory and offered them my best wishes. At the same time I expressed extreme scepticism about the basic theories and propositions upon which their whole philosophy rests. I said, however, that if at the end of the day they were shown to have been right I should have the intellectual honesty to admit it. That day certainly is not yet. After three years their whole policy as it was originally presented is in shambles. They have failed to secure any of the objectives which they so proudly and confidently proclaimed at the beginning.

Of course, when you listen to such an extremely able and skilful speech as we heard from the noble Lord, Lord Cockfield, this afternoon, you do not get that impression. You get the very opposite impression: that everything which this Government have done was planned, was wise, was inevitable and was effective. However, to obtain a better perspective I suggest that you should compare the present speech of the noble Lord, Lord Cockfield, with the speeches which he made three years ago, because they are very different. The claims are very different. The language is very different, as I shall proceed to show.

A simple comparison of successive red books issued each year with the Budget is sufficient to reveal the truth. The Government's basic philosophy in 1979, equally ably expounded then by the noble Lord, Lord Cockfield, as today, was that the Government's first priority was to bring down inflation; inflation was entirely a matter of the money supply. Therefore, to reduce inflation, the Government will progressively reduce the growth of the money supply and will pursue the policies necessary to achieve this aim". Since the speed with which inflation would fall would also depend upon expectations, to provide a firm basis for those expectations the Government made a firm commitment that there would be a progressive reduction in money supply growth over a four year period. Sterling M3 was planned to come down at a steady rate from 7 to 11 per cent. in 1980–81 to 4 to 8 per cent. in 1983–84. The rate of interest was immediately raised to 14 per cent. upon the ground—and upon no other ground—that the rate of interest was the way to reduce the rate of growth of the money supply.

The money supply failed to respond in the next few months, so in November the rate of interest was raised to 17 per cent. But after that—it is still the first year—the Government ran out of breath. Although in their Green Paper on monetary control it was clearly laid down that interest rates would be raised, come what may, however high they may be, whenever the growth of the money supply exceeded, or threatened to exceed the target (which it did and which it continued to do) the opposition from industry was so strong that they could never bring themselves to go above 17 per cent. They maintained it at 17 per cent., against violent opposition from British industry, as long as they possibly could. Afterwards, in clear violation of the rules, the rate of interest was lowered in successive steps until last year's Budget when the rate was put back exactly where the Government found it when they came in, at a target range of 8 per cent. to 12 per cent. Since then interest rates were raised again, but that served a different purpose—to protect the exchange rate of the pound, rightly or wrongly.

Now let us take the following year's red book—that of 1981. The commitment about money supply was repeated in much the same words. It was admitted that things had not worked out according to plan and this was blamed somewhat vaguely on "major imbalances in the economy", without saying what those imbalances were, which caused sterling M3 to grow by 20 per cent. a year instead of by the 10 per cent. which was foreseen in the previous red book. But no attempt was made to claw back this excess money in subsequent years and the targets for later years were reproduced unchanged. These envisaged 8 per cent. growth, or the middle of a 6 to 10 per cent. range, in the financial year 1981–82.

However, lo and behold! sterling M3 continued to misbehave. It rose by 14½ per cent. instead of by 8 per cent. in the next financial year. At last, the Government threw in the sponge and the new table for monetary growth, Table 5 in the 1982–83 red book, envisages 8 to 12 per cent. for 1982–83—in other words, exactly the same target that Mr. Denis Healey had (and whose inadequacies were blamed for all our ills). From now on, the noble Lord, Lord Cockfield, three years ago said, everything would be different and everything would be made to depend on the money supply. This 8 to 12 per cent. should be compared with the 5 to 9 per cent. which was the figure in the original medium-term strategy for the same year.

In the three years since the present explicitly monetarist Government came to power, the money supply has grown much faster than before. Compared with the five years from 1974–79, under Denis Healey, between 1979 and now the annual rate of growth in the money supply is 80 per cent. larger. If one takes an even better measure, which is not sterling M3, which is an artificial thing, but M3, the excess in the rate of growth of money supply under a monetarist Government was fully 100 per cent. Money supply increased twice as fast as it had before.

On the other hand, remarkably, the Government do not claim credit for their real achievements, which are a rise of nearly 2 million unemployed, a fall of 6 per cent. in the GDP, and a fall of 19 per cent. in manufacturing production. To be fair, one of Mrs. Thatcher's closest supporters, Mr. Arthur Seldon of the Institute of Economic Affairs (a close colleague of the noble Lord, Lord Harris) writing for an American journal published far away in San Francisco, drew up a balance sheet of "Margaret Thatcher's successes and failures". He listed the rise in unemployment by 1½ million in two years as being her No. 1 success—indeed, the only one of any consequence. The others were a slight reduction in the rate of increases in wages and prices, and a reduction in pay settlements to the level at which they stood when Mrs. Thatcher first came in. Mr. Seldon listed all other aspects of the Government's policy—taxation, Government expenditure, PSBR and bureaucracy—as "failures". I cannot spend more time on this remarkable paper, but I am going to place a copy of this article in the Library. That Mr. Seldon should regard higher unemployment as such a good thing is further evidence of a quiet intellectual U-turn by the Friedmanites and the Thatcherites. Originally, high involuntary unemployment was not regarded as either a necessary part or consequence of monetarism. One could quote plenty of passages from Milton Friedman and his true followers in this country to the effect that trade unions are quite harmless; if they raised wages above the true market level they would simply price themselves out of jobs but they could not—I repeat, "not"—cause either costs of production or prices to rise because these are firmly tied to the money supply. This was the core of the philosophy of the present Government.

It was only the bitter experience of the Government's first year in office—when prices rose by 21 per cent. instead of the 10 per cent. forecast—which convinced the Government that control over the money supply was not enough; one must also have low pay settlements. Indeed, without low pay settlements, the growth of the money supply could not be slowed down either. But the Government did discover that by driving firms to the verge of bankruptcy and beyond it, it was possible to bring down pay settlements quite considerably. If a firm is on the verge of going into liquidation, then in order to keep it alive, keep it on that verge, one can bring about quite a significant moderation in wage claims. Faced with the prospect of job losses and permanent unemployment, a wage earner is willing to accept a cut in his real wages. In other words, the chief aim of the policy was to lower wage settlements and thereby lower the rate of inflation.

What have the Government achieved? They claim that there is a wonderful new spirit of leanness and efficiency in industry and that we are on the brink of an "economic miracle" such as happened in Germany under Professor Erhard. Unfortunately, all this is just talk. None of these claims shows up in the statistics which matter—those of output, consumption, investment or exports. In a few minutes, I am going to take the noble Lord, Lord Cockfield, to task for a little playfulness with statistics.

The Prime Minister has proclaimed at least once a year, if not twice, that the worst of the recession is over and that from now on, the economy is on an upward path. This has been said ever since the middle of 1980 and it is still being said. The last time industrial production was proclaimed to have reached bottom was in the three months from March to May 1981. We heard the noble Lord, Lord Cockfield, say that from then on, we have been recovering. Indeed, in the subsequent three months August-October, manufacturing output was fully 1½ per cent. higher, which in annual terms is quite a substantial figure. Ministers were not slow in claiming credit for it, as the noble Lord, Lord Cockfield, claimed credit today. Unfortunately, it has turned out to be a false dawn. It is not true that just January was a bad figure; the whole of the last three months was bad. In the three months, November to January, production fell by more than 2 per cent. as compared to the previous three months.

So in the last three months manufacturing production was lower than in any previous three months in the life of the present Government. You have to go back 15 or 20 years to find output as low as that. And there is no sign that it is improving. All this is just talk; when the figures come out, they show time and again that production is lower than before. October was an exception, it was a freak month; production was 2 per cent. higher than either in earlier or later months. It was on this one month's figure that all the Government's optimism was based.

If we take the forecasts—after all, the forecasts were prepared long before the January production figures were known, and they now look too sanguine—by the first part of 1983, which is the furthest forecasts go, GDP will be 3.4 per cent, higher than at its lowest point in the first half of 1981. What a wonderful improvement to look forward to. From the depths of the recession, in two years, 24 months, you will have managed to increase manufacturing production by 3.4 per cent. This is what they claim. But these claims are already overtaken by the latest figures, the figures published since, and it is no more probable that a rise of 3.4 per cent. will be realised than that the figures will show a fall by 2 per cent. a year between now and 1983.

Even if we take the Government's figures at their face value, the net result of the whole Thatcher experiment will be a reduction of wealth. Real GDP is forecast to be some 4 per cent. less than in the second quarter of 1979, when the present Government took office. We have to go back a long time to find an instance when a Government went out leaving the country poorer than when they came in. Perhaps the Government of Ramsay MacDonald from 1929 to 1931 qualifies for this description.

The purpose of national policy is to increase the production of wealth, and that cannot be repeated too often. It is not increased productivity, it is not lower inflation, it is not lower budget deficits; all these things are only important if they serve the end of increased production of wealth. Initially this was recognised. Initially the Government proclaimed that their basic aim was: to create conditions for a sustainable growth of output and employment". We hear less about this now. After three years, despite numerous optimistic ministerial speeches, there is no sign whatever of this happening. The official explanation—we have heard it several times today, not least from the noble Lord, Lord Thorneycroft—is that the whole world is in a state of recession; how could we have opted out of it, when everybody else is in recession? Well, this leaves out of account the fact that while our industrial partners were at the losing end of the oil crisis, we were at the gaining end. It was our peculiar misfortune that oil and Mrs. Thatcher came on full stream more or less at the same time.

Therefore, all the benefits, all the potentialities which North Sea Oil gave for renewing our industrial equipment, for renewing our ageing and crumbling infrastructure and modernising British industry were entirely wasted. We reduced our GDP just when our potential GDP was enlarged by a new source of income, oil, the exploitation of which would have required a large increase in effective demand sufficient to maintain employment while avoiding vast balance of payments surpluses. The difference between us and other industrial countries is that all other industrial countries are constrained, on account of oil, by their balance of payments, and they could only expand further or faster or follow a more expansionary policy by incurring bigger balance of payments deficits. But our balance of payments is in surplus to the tune of £8 billion, for the first time for I do not know how many years. We are not constrained by our balance of payments; we do not have the excuse that we cannot expand because our balance of payments would not allow it.

However, bygones are bygones. When the present policies are finally abandoned and put into reverse gear, which I am sure will happen, Britain's capacity to produce will be found to have shrunk a great deal. And, however much the policies are put into reverse, the losses caused by the Thatcher experiment will never be recouped. At any particular future date the country will inevitably be poorer than it would have been if the Thatcher experiment, the triumph of monetarism and the magic of money supply, had never taken place.

5.47 p.m.

Lord Ardwick

My Lords, I hope to say something towards the end of my speech about the subject which the noble Lord, Lord Thorneycroft, raised. May I say at the beginning that, like my noble friend, I was very sceptical about the Government's policy when they came into office, but I suspended my disbelief in the hope that there might after all be an Erhard style miracle. But I no longer had to suspend that disbelief when I saw that quite a number of highly intelligent people on the Conservative Benches in another place were even more sceptical than I was about the effect of the Government's policy.

During the past few days it has been asserted in another place that the English phenomenon known as Butskellism is dead, and what was described, rather surprisingly, as the alien one of Hayekism and Friedmanism lay on the next mortuary slab. I have two hopes; one is that naive monetarism, if not dead, is discredited for all time, and that one day Butskellism will be resurrected.

Butskellism did not postulate that the two main parties should be in substantial agreement with one another. The Labour Party was not obliged to forfeit the priority it has always accorded to economic and social equality, nor its belief in public ownership; and it was not required to cease striving for ever greater equality. Butskellism did not oblige the Conservatives to share this socialist goal. Conservatism remained about inequality, about unequal rewards for skill, enterprise and privilege. What Butskellism did mean was that the two major parties had high on the list of their priorities the deliberate pursuit of full employment, expanding output, adequate state welfare and the maintenance of our traditional political freedoms. Surely this is the minimum consensus for a civilised and united society.

Butskellism was founded on the 1944 White Paper, which said: The Government accept as one of their primary aims and responsibilities the maintenance of a high and stable level of employment after the war". That priority has not merely been set aside as impossible during a worldwide recession which has produced unemployment almost everywhere: the Government of the party opposite seem to believe today that there is little that Governments can do at any time to engender full employment and increasing output. Full employment might be a happy consequence of other policies, but it is not deliberately to be contrived, to be aimed at. There can, of course, be ingenious palliatives and micro-economic stimuli such as were quite usefully provided in the Budget. But the macro approach, Conservatives now seem to argue, is fallacious. We bury Keynesism with Butskellism and accept the Benn-Joseph polarities as inevitable. Surely a choice of this momentous kind puts too much strain on the electors.

But even those who doubt what Governments can do to restore full employment must admit that Governments can cause unemployment. That is what this Government have done. The recession of 1981 was deeper and more violent than the Government had anticipated. They have made it worse. Many of us will remember 1947 when the Labour Chancellor inflated a natural boom which before long had to be deflated or, as we called it then, "disinflated". This Conservative Government have done the opposite. They deflated in a recession.

The second thoughts that people have had on the Budget are less favourable than were the first ones. The Treasury mountain laboured and when a mouse appeared people said, "what a jolly creature". One lot of people admired its bright eyes; another admired the deft movement of its paws and a third the sleekness of its fur. Only later did they notice that the creature was very small, very weak and capable of uttering only a squeak.

The Budget with its dubious forecast of an increase in output of 1½ per cent. is a mouse that is admittedly going to make no impact on unemployment at all. In fact unemployment, which now embraces one registered worker in eight, is expected to rise by 300,000. Yet the Government seem to be euphoric, as though this were a glorious morning and everything was going their way. They certainly have enjoyed some strokes of good luck. Cheaper oil will have, perhaps, quite a substantial reflationary effect. The reduction of interest rates from their absurd height makes young people happy by relieving a little their crippling mortgages and putting some money into their pockets. But interest rates will have to fall a lot lower before they are an encouragement to business investment. The uncertainties of American financial policy must deter anybody from predicting that interest rates must inevitably fall.

We see a Government incapable of facing the challenge of our times, a challenge presented by a dangerously high level of unemployment and a desperately low level of output. The Government speak with pride of a gain in productivity, but this has been achieved by bankrupting not just the least efficient, but some of the merely less efficient and some of the less fortunate enterprises. The commentator got it right who said that it was like a cricket team playing only its eight best batsmen and then boasting of an increased batting average.

We must be grateful to the Tory dissidents—I prefer that term to "Tory wets"—for limiting the damage done to the economy by the hard line monetarists of the Government. Their advocacy and the bitter lessons of experience, have caused the Government to begin to move away from their stultifying ideology towards what the honourable Member for Bexleyheath described as pragmatism. But if pragmatism merely means that the ideology will be replaced by old style deflation, it will not be a very great improvement. The positive remedies are not there yet, or do not appear to be there. Perhaps the Government will be emboldened as the election draws nearer.

This has been a very difficult Budget to interpret. As Graham Serjeant said in the Sunday Times: Sophisticated analysts could not decide whether it was reflationary, deflationary or neutral or by how much". As my noble friend Lord Kaldor recalled, the Government began their life with a blithe confidence that income tax cuts, lower Government expenditure and stern control of the money supply would restore the economy. But the tax cuts did not dynamise our entrepreneurs and their executives. The money supply evaded both control and measurement. And the PSBR has turned out to be too whimsically and fortuitously compiled to be the powerful economic totem that it used to be. Thus the Government's medium-term strategy seems to have become so attenuated that it is almost imperceptible.

The Government are now on the run-up to the election. What leads them to suppose that they can appeal successfully to the electorate if they go to the people with 3 million unemployed, as it looks as though they will, and with lower output than when they took office, plus a long trail of bankrupted businesses? The Government's hopes, I suspect, are based on nothing more substantial than the latest public opinion polls where they are ahead of one party which is struggling to remain whole, and of another party which is striving to be born. The Conservative Party seems to believe that, if unemployment is not actually increasing, if inflation is down a few points and if the Official Receiver is not on overtime, the electorate, helped perhaps by a few more sweeteners, will be complacent enough to give them a new life. So the current mass unemployment can be faced not without compassion but without the urgent concern that a modern Government should show.

Of course nobody believes that there is a quick solution for the unemployment problem. However, that does not mean that no solution exists. The Government seem to be terrified even of a modest reflation. They are the victimes of their own dogmatic propaganda. They invent alarming similes about throwing petrol on the fire, when somebody merely proposes that they should stir the sulking embers with a few puffs of the bellows. Surely with the spare capacity Britain has in manpower and machines, a modest reflation could be attempted without the risk of further inflation?

For a radical attack on unemployment and for a powerful reflation it will, of course, be necessary to have the co-operation of the trade unions. It will not be easy to get that co-operation. We are in a very sad plight in this country compared with what happens, for example, in the continent of Europe where they have the concept of what they call the social partners: the Government, industry and the unions. They seem to be able to establish a rapport. Here, we are all in separate compartments with none of us getting on very well with the other.

I do not think that the Government get on very well with industry. Indeed, I was rather horrified by the remarks of the noble Lord, Lord Thorneycroft, this afternoon about the unions. I was horrified not by what he actually said—his words, as usual, were carefully chosen—but by the tone of his remarks, his feeling towards the trade unions. I did not think that that kind of feeling would be voiced by anybody as eminent as he has been in Government—only a few weeks ago he was the chairman of the Conservative Party. I cannot think of anywhere in Europe where that kind of relationship would exist with the trade union movement. I am not suggesting that all the faults are on Lord Thorneycroft's side, but it is characteristic of the British economy, of British society, and until we cure it I do not think that we shall make the kind of progress that we need to make.

As I say, for a radical attack on the problem, no Government can operate without the co-operation of the trade union movement. It will not be easy to get; it will certainly not be easy for a Government that inflict upon the trade unions punitive legislation. The trade union movement, like the Government, sometimes lives in a cloud cuckoo-land of ideology, pretending that all that is needed is a large stimulus to demand and some import controls. Of course, the leaders of the unions, with their first-class economic advisers, know that this is not true, but it makes life easier to pretend that this is wisdom. However, some day they must educate and lead the people who do not understand the problem—the people on the workshop floor.

What needs to be said in bold language—which can be said by Back-Benchers everywhere—is that we cannot return to full employment and growth without an incomes policy that is accepted and respected. What form it should take or could take, I should not like to speculate. There must be a rejection of the behaviour of those disastrous months before the last general election, when the unions were bursting out of their incomes' restraint and the Conservatives were saying that that kind of restraint was not necessary in a well run society.

However, there is too much pessimism about the possibility of full employment. People talk as though there will never be jobs for all again. It is a fallacy, as every economist knows, that there is only a limited number of jobs and so jobs must be rationed or shared, or people in their fifties, in what is now biologically middle-age, must be compulsorily retired to make way for a younger generation. I regard that as a cruel and unnecessary solution, and one which we should put on one side, without examining it any further.

6.2 p.m.

Lord Nugent of Guildford

My Lords, I was glad to hear the noble Lord's last words. I did not agree with all that he said earlier, but I certainly agree with that. When he allowed the Government to have a bit of good luck as regards the lower oil price and said that that would undoubtedly help the Government's policies, he might have mentioned that the Government had a stroke of extremely bad luck in 1979–80 when the price of oil more than doubled. As I am sure he well knows, this was certainly one of the major factors adding to our economic difficulties.

I thought that the opening speech of the noble Lord, Lord Glenamara, was very moving. He knows as well as I do—because he has been in public life for many years—that all in public life share his feelings of distress about the enormous number of unemployed, and especially the position of youngsters. Our problem is: what is the best way in which to tackle it? I believe that what we are doing as a Government is the right way of doing it. However, I listened with great interest to what the noble Lord had to say in his very lucid exposition of the labour policies which provide for this huge expansion of £9 billion, and how it would be employed.

We all have different views, whether we are on the Opposition side or whether we are on the Government side, but I should like to remind the noble Lord, Lord Glenamara, what his right honourable friend Mr. Callaghan said when he was Prime Minister in 1976. I have gone back in the records to see just how the Labour Government faced the enormous problems which they had at that time. Shortly afterwards they had to call on the IMF to bail out the country, when our solvency was really in danger. This is what Mr. Callaghan said to the Labour Party Conference at Blackpool in 1976: We used to think that you could just spend your way-out of a recession by cutting taxes, by boosting Government spending. I tell you in all candour that that option no longer exists and that in so far as it did exist, it worked by injecting inflation into the economy, and each time that happened the average level of unemployment has risen. Higher inflation followed by higher unemployment—that is the history of the past 20 years". The noble Lord, Lord Glenamara, was probably there and probably heard Mr. Callaghan make that speech. It must have been a very sobering moment for the supporters of the Labour Party, in the middle of great problems, as they were, and responsible for governing the country. But that is the fact of the matter. When you are running the show and you have to look closely at all sides of the problems, you see exactly what are the implications and you see that this vast expansion—this vast spending of Government money—which looks so attractive and as though it would help you out of your problems, will only make matters worse. After all, this has been tried several times in the last 20 years. So what Mr. Callaghan was saying was only repeating what, unhappily, we had all come to know was the fact.

In my belief, and evidently in the belief of a great many people in the country, this Budget is showing evidence that Government policies are beginning to work. As my noble friend Lord Cockfield has said, output in 1982–83 is forecast for an increase of 1½ per cent., and more in 1983–84. Exports are up. In his interesting speech, the noble Lord, Lord Kilmarnock, said that manufacturers were only making exports successful by cutting their margins to ribbons, and were not making profits there at all. But every balance sheet you look at shows that it is in the export markets that manufacturers are making their profits. Therefore, this confirms that productivity per man, which increased so satisfactorily last year by some 10 per cent., is, in fact, giving us a competitive edge which we simply have not had in the past.

Inflation, which is now at 12 per cent., it is true rose, but it has now come down to 12 per cent. and it will go on down this year. There is a prospect that by the end of the year inflation will be in single figures at last. So we seem to have checked the downward slide from which we have been suffering in recent years.

I believe that there is only one certain path to industrial expansion and reduced unemployment, and that is through higher productivity in industry and close monetary discipline in public expenditure. The Government are following both those lines. The relief schemes—with which I shall not deal now because I understand that my noble friend Lord Ferrers will deal with them when he winds up—naturally appeal to all of us especially the training schemes which help youth and which generally relieve the distressing impact of unemployed youth. We are spending £1½ million on those in the coming year. Of course, the Government have substantially helped industry by cutting the national insurance contribution. Let me remind noble Lords opposite that this heavy burden on industry was imposed by the Labour Government. This is one of the heavier burdens which employers have to carry. At least we have been able to cut off a third of it and I hope that in the years to come, we shall cut off the rest.

There are two other points which I should like to make. I turn, first, to monetary discipline in public expenditure. The public sector borrowing requirement has always appealed to me as the easiest thing for the layman to understand. This, after all, is the difference between what Government are spending and what they raise in revenue. They have to borrow to get the rest. We have begun to reduce that. In 1981–82 it was £10½ billion. For this year just starting, 1982–83, it is going down to £9½ billion, 3½ per cent. of GDP, with a forecast for the following year, 1983–84, of £6 billion.

This is an important indicator. Let no one think that it is a theoretical figure. Each year's addition to the past debt is the amount of the public sector borrowing requirement, and interest has to be paid on it by the taxpayers. During the last Labour Government from 1974 to 1979 the national debt was actually doubled, and the interest now forecast for the coming year on the national debt is £11.6 billion. That is equal to the total cost of social security. What a way to spend our money. If only we could stop borrowing this huge sum of money every year in order to pay our way, which is what we are doing, how grateful our successors would be who have to go on paying that interest for years and years.

At least my noble friend and his right honourable friends in the other place are moving in that direction, and good luck to them, and may the day come when we do not have to borrow at all. But, of course, if the noble Lord, Lord Glenamara, had his way, this figure would go shooting up and go from bad to worse. This has a direct relationship with interest rates. The more the Government go into the market to borrow, the more interest rates go up, and this affects all industry. It is worth making the point that a 1 per cent. reduction in interest rates saves industry something of the order of £340 million a year. We are down to 12 per cent. today. I am happy to hear that by the end of the year we shall be considerably lower. Of course large numbers of people in the country will be very grateful that their mortgage rates have gone down by 1½ per cent.

My last point is the Government's success in checking excessive wage and salary increases unrelated to increased productivity. Our record here has been spoken about, but I pick out one or two figures which make the point. I take the CBI figures from 1968 to 1980. In those 12 years, our earnings went up by 400 per cent. and our output by 30 per cent. Those are figures which tell the whole story in a nutshell of why we have lost markets year after year throughout the world.

However, the CBI data bank for the end of last year showed that wage and salary settlements this winter have been running at something of the order of an increase of plus 4 per cent. to 6 per cent. This is evidence that in industry employers and employees have really got the message that increased pay is only possible if increased productivity—does the noble Lord wish to intervene?

Lord Bruce of Donington

My Lords, I must apologise for interrupting the noble Lord. I merely wanted him to continue his argument, if he will. Is the noble Lord also aware that there was a survey published in The Times last week that showed, unlike the restraint to which he has referred, that directors of most public companies increased their remuneration last year on average by 14 per cent., and many of them very much above that? Does the noble Lord call that restraint as well?

Lord Nugent of Guildford

My Lords, the noble Lord knows far more about the balance sheets of public companies than I do. Therefore, he would know that what is paid must be a matter for judgment by individual boards. Directors may not have had an increase in previous years. There are a lot of factors that come into it in deciding what they should be paid. I would certainly agree with the implication of the noble Lord's observation that it is very much up to directors who are leading companies, large and small, to condition the emoluments that go to themselves so that they show the kind of example that they should show to their employees who are restrained—as indeed they are now—in their wage and salary increases. But I believe that in the main the message has got over that increased pay is only possible if increased productivity is there. The engineering industry, which last winter made a settlement of some 4 per cent. to 5 per cent. for wages, is a good example of this. They realised that if excessive pay demands were agreed to, this would inevitably mean bankrupt businesses—and, unhappily, all too many have gone that way—and lost jobs.

I agree with my noble friend Lord Thorneycroft, who said in his, as usual, brilliant, highly entertaining and interesting speech that the public sector continues to be a major problem in this field. There on the one hand are the Government as the ultimate paymaster behind the scenes, and on the other hand is the monopoly strength of these great corporations. It is difficult to make them responsive to the market, but Ministers are struggling. They struggle and struggle to try to get payments at a reasonable level, but it has sometimes proved unsatisfactorily high. This is not in the country's interest. It pushes up prices and it upsets the whole community. I agree with my noble friend Lord Thorneycroft that there is still a major problem there, and in my judgment the cost of the public sector is higher than we, as a nation, can afford.

I believe that my right honourable friend Mrs. Thatcher, as Prime Minister, must be given credit for this change in mental outlook which is being achieved throughout the country. The noble Lord, Lord Ardwick, asked how we shall feel going into a general election with 3 million unemployed for whom we are responsible. Of course we shall feel immensely responsible and immensely concerned, but the fact that we are in a world recession is something that the nation understands. I believe that they understand that this Government are giving a lead in the only direction that is going to save us, which is by constraining industry to reduce its costs and to increase its productivity. Only in that way will they win new markets, and so eventually, as some are beginning to do now, expand their production and be able to take on more labour.

Lord Kaldor

My Lords, will the noble Lord permit me? Does the noble Lord agree that our success in exports pales beside our failure in our home market? Despite the increasing recession, our manufactured imports have increased twice as fast, percentage-wise, as our exports since this Government came into office.

Lord Nugent of Guildford

My Lords, of course, I do. It is a perfectly good point, it is true. I think that this is because the firms who are exporting are, in the main, big, strong firms. They understand better what they are about. They have braced themselves to face competition abroad. So many of our firms in the domestic market have been accustomed to the protection of the domestic market, and, when they have had to meet the competition of imports, far too many of them simply have not shown the capacity to do so. Well, many of them are learning to do so. I am sure more of them will learn to do so. The message is getting over to them that there is only one way to their salvation, to their continued existence, and that is in their own hard work, efficiency and productivity. That is the only way. It will be not their salvation only, it will be the salvation of the nation.

I congratulate my right honourable friend the Prime Minister because her tenacity and courage have held us to this path. Despite all the pressures and many doubts of my honurable friends and right honourable friends in another place, she stuck to this path. It is the only path to our salvation. We still have in this country the resilience, the enterprise, the inventiveness to succeed on this path, and that will gradually absorb this all-too-large number of unemployed, for the benefit of those individuals and the benefit of the nation.

6.20 p.m.

Baroness Ewart-Biggs

My Lords, first I wish to thank the noble Lord, Lord Glenamara, for initiating this important debate and, secondly, to apologise because I shall probably not be able to stay to the end of the debate in view of a long-term commitment which I dare not dishonour. I shall introduce into the debate a few ideas and a considerable number of apprehensions about policy towards youth unemployment. I appreciate that that is rather a departure from previous noble Lords, who have concentrated completely on economic theories, but I thought I might speak a little about that section of the community who seem to be suffering particularly from those economic theories. I shall, therefore, take this opportunity to present some aspects of youth unemployment, first regarding the present initiatives for those school-leavers for whom there are no jobs; secondly, the general reactions to the proposed new training schemes due to start in September 1983; and, thirdly, a little about the work that is being done for the young unemployed by the youth services and other agencies.

On the first point, that of job creation, I think it would be generally agreed that the youth opportunities programmes, although criticised on many fronts, have provided occupation for a great number of school-leavers. A youth centre in Yorkshire told me that of its just over 3,000 registered unemployed teenagers, about half were with the youth opportunities programme. Clearly, all the schemes have not been perfect, but many have proved that when organised properly—whether by voluntary organisations, local authorities or employers on their premises—youngsters really have benefited from a good and positive input of life and social skills and a variety of different work experiences. Many of the young people, having come out as failures from their secondary schooldays, needed an injection of confidence, which they have been given through those programmes.

Criticism has been levelled mainly at work experience programmes in employers' premises, the criticism that some firms have taken advantage of a free source of labour and have employed a stream of trainees for six-month periods and have offered little in the way of training. At the other extreme, some firms have given first-class training and work experience and, on completion of a successful six-month period, have been able to employ trainees on a permanent basis. At present, trainees receive an allowance of £25 a week and they join programmes through choice. Where the youth opportunities programmes began to run into real trouble was due to their having been conceived to deal with only a limited number of school-leavers and to act merely as a bridge to permanent employment. The knowledge that there have been no jobs at the end of their period of training has caused a great deal of apathy among the young participants.

That, briefly, is a record of the youth opportunities programme, and it must be remembered that young people have at least enjoyed complete freedom of choice whether to join the schemes or not. However, regarding my second point, that of the new training initiative contemplated for next year, the terms are very different. The initiative comprises a 12-month programme designed to absorb all school-leavers with a weekly training allowance of £15. The scheme embraces the principle of better liaison with technical colleges, more sophisticated educational input and a higher degree of skill attainment, and all that is of course to be applauded.

But there is great concern among youth workers about certain aspects. One is the fact that the scheme is compulsory, allowing no 16-year-old to take a full-time permanent post except for apprenticeship, denying school-leavers any choice, or indeed any share, of the jobs on the market. Another is that the training allowance of £15 a week, in 1983, will be entirely unrealistic, coupled with the fact that the proposal incorporates the removal of benefit entitlement to which school-leavers are at present entitled. There is great concern about the hardship that will bring to families already hit by rising unemployment and the implications of it on the level of theft and crime locally. Then there is criticism that the proposals are purely in terms of equipping young people for employment and do not take into account other life skills which recognise that young people will not automatically find vacant job to which to move on. My final criticism of the initiative is that voluntary organisations appear to have no place in the scheme, despite the fact that they have built up a valuable body of knowledge about training programmes and have had a pioneering role in the youth opportunities programme generally. Neither does the important role of the community services appear to have a place in the new initiative.

Finally, I wish to comment on the enormously important work being done by youth organisations to help prepare young people for the rapidly-changing employment pattern which confronts them. It is generally found that most of today's generation of young still do not want to change their expectations; they want a job and the money that goes with it. It is only by force of circumstance and argument that they will settle for the money alone. Most of them, if unable to get a job through conventional channels, make no effort to get one in any other way. That is partly through ignorance and partly through the feeling that a proper job comes only via the proper channels.

Although the majority of young people still embrace the traditional work ethic, there is a growing number of young people involving themselves in new subcultures; for example, we have seen the great rise in the "punk" culture and that of Rastafarianism, the latter being the major one, and of course such groups flourish as a reaction to the lack of jobs. It is strongly felt among youth workers that where young people are interested in alternative life styles and activities, it is important to support and facilitate them. Training schemes should embrace such activities at the same time as dwelling on more vocational training, laying stress on the fact that any such new concept is not an alternative to training but a complement to it.

The general consensus among all those involved with young people—whether they come from educational authorities, careers offices, industry, voluntary or charitable organisations and so on—is to agree on the priority of working towards making young people accept the importance of education and higher training as life-long assets and the need to dissuade them from the attitude that if they cannot apply their education and training to an actual job, then such education and training is not worth acquiring.

Isolation and loneliness among the young unemployed is a subject of major concern. It is difficult for young people to realise that the greater the range of social and work skills they acquire, the broader will be their lifestyle both in relation to employment as well as to non-paid interests. I would, therefore stress the fears entertained by many in the youth services about the present policy regarding youth unemployment. They emphasise that any future Government training programmes must not be geared totally towards motivating young people to work while at the same time denying them a share of the jobs available. Nothing could be designed to create a greater sense of frustration and resentment, coupled with a total alienation and a feeling of aggression towards the community, as has been demonstrated tragically in Toxteth, Brixton and other places.

If the Government really believe in investing for the future of Britain, they must invest in today's youth, the generation who, after all, will carry a heavier responsibility in time to come. It is no good offering only a compulsory training scheme and £15 a week, with a denial of any supplementary benefits, to some of the country's least privileged teenagers. Speaking from a moral attitude, I think it fair to say that the emphasis should not be on the young unemployed being a problem and expense to society, but more that society has confronted young people with the problem of unemployment.

6.30 p.m.

Lord Mais

My Lords, I should like to add my thanks to the noble Lord, Lord Glenamara, for giving us the opportunity to debate what is not only a very interesting subject, but in the present day a very serious and an almost disastrous one. I imagine that in your Lordships' House there are many who will remember, as I do only too well, the early 'thirties, when unemployment was as bad as, if not worse than, it is today—and the like of which we have not seen in the years between then and now. In the early 'thirties it was difficult to find employment, whether one had a trade or a technical qualification; it made no difference, there were no jobs there; and that I am afraid is beginning to appear to be the situation that we are now in.

There are few things in life more demoralising than to want work and for there to be no jobs, with little prospect of there being one in the foreseeable future. That was the situation that my generation faced in the early 'thirties—and many with me. I regret to say that it is a very similar situation that this generation is now facing.

As an indication of what it was like, I would point out that of my term out of college as an engineer, only two of the whole term found employment. Fortunately for us, I suppose, not very long afterwards the drums of war began to beat, industry picked up accordingly, and therefore we were not unemployed for all that long. But that situation does not exist today, and if possible some alternative other than war must be found to employ the people, in particular the young people, of this country.

I find it encouraging to hear that Her Majesty's Government are prepared to take measures with regard to certain industries, including the industry in which I spent all my working life—the construction industry—with a view to making it possible for them perhaps to employ a larger workforce. If that be so, I am relieved because it was the construction industry which in 1932 was the first industry to begin to show an improvement in the general turnover, profitability, and the amount of work involved. Regrettably, much of the work arose because we had woken up to the fact that we might be facing a war in the near, or not so far distant, future and much of the work was connected with that. But the fact remains that the construction industry is very labour-intensive and it can absorb a considerable number of unskilled and semi-skilled men. Therefore, it could increase its workforce considerably without seeking highly-trained people in large numbers.

I hope that, in whatever proposals they make, Her Majesty's Government will consider encouraging firms to employ as many younger people as possible. It is the young people upon whom the future of this country depends, and it is probably they who at the moment are more disillusioned than any other section of the population. I think that the Government should go even to the length of offering some form of subsidy, or other aid, to firms that can take on young people and, if not teach them a trade, at least give them something to do and to some extent restore the pride that one derives from having a job and doing it well.

Unemployment pay costs this country a great deal of money. It produces absolutely nothing, except possibly hopelessness, bitterness, and in the end a loss of self-respect. Surely it is better to spend a little more, or a great deal more, and have something to show for it at the end of the day, rather than pour out large sums of money just to provide people with the bare necessities of life and little hope for the future.

My Lords, we all, I am sure, deplore the vandalism and violence which at present exists in this country, in particular among the younger people. Nevertheless, I believe that you cannot divorce the vandalism and violence from the fact of the high level of unemployment among the young. If people are idle, not only do they become bitter, but they look around for something with which to amuse themselves. I have just been talking about the construction industry, and I should think that quite a lot of work is being provided in and around London and elsewhere. My own station at home no longer has any windows, the telephone has been torn out by the roots, and two of the doors cannot be locked because they have been removed and not yet found. This reflects pure frustration. If the young had something to do, something to keep them occupied during the day, they would probably be too tired to go around wrecking railway stations.

In most of our towns and cities there are areas badly in need of improvement and modernisation. There has been a tendency for people to move out of the centres of cities and towns, but there are still large areas which could be modernised and improved. Of course the problem is that one might run into opposition from industry itself if one attempts to form groups of younger people or unemployed people to restore the very derelict areas in most of the cities, in particular in some parts of the City of London, or in London as a whole.

Some people to whom I have spoken say that we have to learn to live with 3 million or more unemployed. That is, they say, part of the price that we pay for progress in mechanisation and automation. If that be so, I would feel inclined to say that it is too high a price to pay.

Mention has been made of the possibility of early retirement and shorter working hours, so that more people can he employed, and the older members of the community make way for the younger members. I agree with the noble Lord, Lord Ardwick; I think that this would be an unsatisfactory solution, and it would be a very cruel solution, too.

I appreciate that we might have to face the choice between some form of controlled inflation or a steady rate, and even a higher rate, of unemployment. I admit that the answers to the problems are difficult, but they are, I believe, the most important problems that the present Government, or any Government, can possibly face, and, very largely, the future of the country, and in particular law and order, is at stake.

I know that I have tended to concentrate more on the industry that I know most about. The situation there is that it is at last beginning to show signs of a slight upsurge in the amount of work available; but as I said earlier, it was the engineering industry and the construction industry which led the way in the 'thirties. Whether that can happen again, I do not know. I hope it can. But one thing is certain: this is not just a matter of business or commerce. It is far more a human matter, or a matter of common humanity, and I do not believe the country can really live with itself and with the massive unemployment that exists today and is likely to increase.

6.41 p.m.

Lord Selsdon

My Lords, I would not be human if I did not express some doubt about the policies of this Government. When they came to power, I must admit, I supported wholeheartedly the theory behind their policies. But I wondered after a while as to whether it would be practical for the Government to implement everything they sought to do. As I recall it, there was a trident of policies. The first was to reduce or control inflation, and all sides of this House agreed that inflation was the greatest priority Then it was to remove restrictions and control Government spending. That was the second part. The third was to restore initiative and enterprise by reduced taxation and new incentives.

This, to some extent, began to work. Then it went astray because I believe the Government found it impossible to reduce their expenditure in the way they had hoped. As a result, in order to achieve their monetary targets, increased pressure came upon the very sector they were seeking to support and stimulate—the productive sector. This caused a greater level of recession or deflation in manufacturing industry and the productive sector than perhaps was desirable. At the same time, inflation (as we call it) in the public sector remained relatively high.

But this is history, because these days we look back at past revered economists rather as though they were revered historians, forgetting that every one of them had something practical and sensible to contribute. But irrespective of the past, the worry I think I had was that, although I am meant to be a halfhearted economist and a banker, I have never really understood monetarism. These "buzz" words have always caused me concern, and I think the Government and Members on this side of the House have had difficulty in explaining to people exactly what is monetarism. But the results of the policies, whether the balance in the implementation of them has been right, has been success; and this last Budget has been the only Budget that I can remember where the supporters of one type of policy can find no real criticism, and the opponents of the Government can again find no real criticism.

So what are the criticisms of the Government's medium-term strategy at the moment? It boils down to one thing: how much more should he injected into the economy, not necessarily how much less. We hear the figures of £2 billion, £4 billion, £6 billion, £8 billion. It reminds me rather of the sort of cheerleaders that one sees at an American ice-hockey match chanting, "2–4–6–8, who do we appreciate?", as though a Government will in fact win the support of the electorate by taking a figure out of the air and saying, "We will spend this".

If the Government decide that they will inject too much money into the economy, their policies will fail; inflation would rise again, and before long we would have all the various M1s and M3s expanding at an outrageous rate, and we would have what one might call monetary motorway madness. Inflation would return, and with inflation would come all the criticisms from all parties and everyone of varying political persuasions.

The question therefore is not how much more one can inject back into the economy, but how one can effectively apply the resources within the limits of public expenditure to deal with the problem of unemployment. Because this is a social problem rather than an economic problem, irrespective of what the noble Lord, Lord Mais, has said in terms of expenditure upon the unemployed at the moment. I thought I would see whether I could persuade your Lordships to a certain way of thinking, and there were three topics that I was going to try to cover. The first one is related to demand, and the effect of demand or expenditure on employment.

We should perhaps look at the transition that has taken place in the employed sector over the period of this Administration and the last Administration. We often fail to remember that of the 21 million people in employment, or thereabouts, 8 million to 9 million are women and the rest are men; but within the industrial sectors an interesting change has taken place which no Government have managed to halt. It may be the wrong change, it may be the right change. That is in the production industry sector, or, perhaps more important, in the manufacturing sector. Since 1973 the number of people employed in this sector have fallen from 8 million to 6 million. Two million people have come out of that sector. Some have been re-engaged in the service industries, some have been re-engaged in Government departments and some have not been able to be re-engaged at all. I would suggest to your Lordships that the main reason for the rise in unemployment is the increased labour available from the manufacturing sector.

This trend has more recently introduced some other interesting developments. Productivity per head has risen to the highest level since, I think, 1973. You could argue that because there has been a squeeze there have been fewer people employed and, although production may have gone down, the figure given to the average batsman (which I think the noble Lord, Lord Ardwick, referred to) is a real one in that case. But the question which I put is: if one injects more money into the economy, will you provide more employment for people in the manufacturing sector? I say, No, you will not; you will in fact create inflation. More than that, you will have an impact upon the balance of trade because, these days, if one has any form of boom which may ultimately reflect itself in a consumer boom the purchase of consumer durables takes place, and the bulk of consumer durables sold in the United Kingdom in general are manufactured abroad, whether they be motor cars, white goods or things of this sort. This is the sector, the consumer durables sector, that we as a nation have lost—not completely—to foreigners.

You can then say, "If you inject money into the economy to try to create investment in capital plant and machinery, that may have a temporary effect, but where is the demand for the products that will be produced by that industrial sector?" I submit to your Lordships that this demand is not purely domestic demand. The real demand is perhaps the international demand, and it has been pointed out on many occasions that of all the developed economies in the world the United Kingdom depends more upon international trade than anyone else—one-third of our economy. That means, perhaps, reflected into jobs, 7 million out of 21 million; in the manufacturing sector, of the 6 million, 2 million jobs.

Rather than create false demand at home, I would submit that perhaps we might pay more attention to looking at a formula which could satisfy the demand which already exists abroad—and there is very considerable demand throughout the world. That demand is to some extent having a greater impact upon our economy than in previous years. Our balance of trade is extremely good at the moment. We are competitive again in the world. I think, although there has been a strike on trade figures, when they come out we will find there was a 20 per cent. increase in exports last year; and in the sector which I deal with, the Middle East, I can promise your Lordships that the increase will be around 33⅓ per cent., and in some countries 40 or 50 per cent. That sort of demand, other than the demand in developing countries, is for capital plant and machinery and for the very goods that are in the sector of our economy where we have shed labour and where the unemployment problem is highest.

The Treasury have always been very reluctant to try to put a figure upon the number of jobs created by a certain level of export orders. But the figure I am led to believe is currently being floated about is that an export order of £17,000 creates one job in manufacturing industry, and since manufacturing industry is under one-third of total employment the subsequent jobs in service industries could follow therefrom. I do not believe, recognising the dependence of our economy upon international trade, that sufficient resources are being allocated to this sector.

The British, I have often found, are strange people. I do not believe that the provision of money in itself will make people do things. One cannot bribe somebody to move to a development area by cheaper money. What will do it is when they know that there is demand at the end of the day for the goods produced. One-third of that demand at the moment is abroad, and I believe it could be substantially higher. I do not wish to develop in this time too much of that theory except to say that with the CBI and the TUC we are trying to work out some submission to the Government because the allocation of our resources into this sector with employment in mind could have a greater impact.

There are several other factors that one should look at. The problem that we have at home too is the shift to the service industries. It is not a problem, it is an opportunity. My next point is taxation. Taxation in general creates considerable problems because at the moment I think of the total "take" that the Inland Revenue have of some £35 billion from taxation on profits, corporation tax or income tax, roughly £31 billion comes from income tax and only £4 billion from corporation tax.

Noble Lords opposite have often said that people are not paying their fair share of tax. This may be true but tax allowances in general permit people to have further investment in their sector and it is the way that they are applied that bothers me. In particular, I think not of the larger corporation, which in general will pay a relatively low percentage of tax, but of the smaller one, which is seeking to expand and grow. We have often heard the theory that each small business takes on one or two new people and there is not unemployment but a labour shortage.

I have been looking at small businesses; the general complaint that one finds is that there are good ones and bad ones. But they are not, in general, capital intensive. It is not the plant and machinery that they need. They need the labour force to enable them to carry out extra orders. I wish to give your Lordships two simple examples. One is a small painting and decorating business owned by two people, doing extremely well with a turnover of £100,000 and employing eight people. They do not dare take on any more so they subcontract labour. The return to the owners who started from a relatively small base with a £1,000 is very interesting. They pay 50 per cent. tax on their salary, and on the extra profit they pay 40 per cent. tax. They would like to put the money back into the business but they do not want to buy plant and machinery; they do not want to take on anyone else because the administrative costs are too complicated and difficult.

The second one is a small marine engineering organisation—although it is not that small—which sells in a very difficult market. It turns over about £450,000 a year and does extremely well. The person who owns it trades as an individual and pays 60 per cent. tax at the moment. These two types of businesses—and there are many like them—say, "Perhaps we could take on more people and expand if the tax burden applied to us at the moment was not as great as it is". It is not the plant and machinery which necessarily creates the jobs; it is the orders and demand. The demand for services, and the maintenance services that the British can provide at home and worldwide, is very considerable and we are extremely good at it.

This is something that I suggest the Government look at because the burden or relationship between income tax and tax on profits is rather a strange one. It would be much better to shift the balance away from the smaller companies and pay closer attention to the way that tax relief is given.

My final point is a social one. It refers effectively to the young and the prematurely retired. I have another part-time Government job in that I chair what must be the biggest Quango in the United Kingdom: the Greater London and South-East Council for Sport and Recreation. It is our job to look after the people in London, Surrey, Sussex and Kent when they are not sleeping and when they are not working. We believe that they will work less and a strategy has been produced which your Lordships may see in due course. It is quite interesting the way that there is no difference of view between the various political factions in this. Half our executive committee of 170 are trade unionists and we have representatives from the Army, Navy, and Air Force. There is a move towards greater activity and a lot can be done in the leisure and recreational field which the Government have not considered. This is not a question of capital expenditure; it is a question of organisation.

We have, as we know, the problems of the inner urban areas but there are many developments, and the noble Lord, Lord Mais, pointed out that there are many things that the young can do that they would actualy enjoy. Some that we would not expect people to enjoy are as follows. When we said get up in the morning and run round the park, 50,000 people got up and ran round the park. When we said, enter a marathon in London, too many people entered. Some 10,000 people have entered for the bicycle ride from London to Brighton and back again. More significant among the very young, the Metropolitan Police run a five-a-side competition. Some 47,000 children have entered this year.

There is a mood away from watching things and towards doing things. If we cannot provide a way whereby people who may not be working at a particular time or are prematurely retired can occupy themselves and make a contribution to society, then we will be suffering and that will lead to despair. Clive Jenkins, with whom we have been talking on this aspect, pointed out that if work were worthwhile the rich would have kept it to themselves. He has been advocating a 35 hour week for a long period of time.

Before I sit down, may I summarise briefly what I have said. I believe that we could do more to help the unemployed if the Government were to consider re-allocating existing resources, without new resources, towards satisfying the demand that exists abroad. Where I can assure your Lordships that we are com- petitive again. I believe that more employment would take place in the small businesses if the Government would look at the way the burden of taxation falls upon the man who does not have a capital-intensive business but has demand and needs additional labour.

Finally, I believe that we should all look at the problems of the organisation of the young, the prematurely retired and others because there are many things that one could do which do not need capital expenditure. It is surely the duty of Government first and foremost not so much to think of economy but the welfare and happiness of the people.

6.57 p.m.

Lord Granville of Eye

My Lords, I shall not attempt to follow the interesting arguments of the noble Lord, Lord Selsdon, regarding the amount of employment which can be absorbed in small businesses. No doubt the Minister will deal with that. I should like to add my congratulations to the noble Lord, Lord Glenamara, for having introduced this Motion, which all of us will find no difficulty in supporting, and for an interesting speech.

I also enjoyed—as I always do—listening to the speech of the noble Lord, Lord Thorneycroft, because he has seen it all before and, if I may say so, he has done it all before, and so he knows all about it. Like so many speakers, he emphasised the fact that this is a world problem today, a universal problem. In the United States of America there are 7 or 8 million unemployed. In Europe, 10 million are unemployed.

The noble Lord and the Minister referred to 1931 and how we overcame that world economic crisis when we then had 2¾ million unemployed. We had a world economic conference at the British Museum. We had 66 nations there. Franklin Roosevelt wrecked the whole thing with a telegram. We went into the next building and formed the British Commonwealth economic policy; but we achieved nothing from the conference. In 1931, with 2¾ million unemployed, the Labour Government were in office; Mr. MacDonald was the Prime Minister. They had three Ministers, a triumvirate, to deal with unemployment. They were Mr. Thomas, Mr. Lansbury, and Oswald Moseley, who resigned because the Government were not getting on with some of the schemes and formed a new party which had a very short life.

It is interesting, as we have been referring to what happened in 1931, to recall that the Liberal Party produced a very interesting policy called We Can Conquer Unemployment. It referred to the rehabilitation and rebuilding of docks, mines and agriculture—all of it. The Labour Government were a minority Government and the Liberal Party fought it 59-strong. They submitted these plans to the Labour Government and the Labour Prime Minister. They were turned down and Lloyd George was told, with other Liberals, to go to the Treasury and convince them that the cost of those plans was worthwhile and that they would work. I think it was the late Sir Dingle Foot who said: "I do not care if Lloyd George camps on the doorstep of No. 10 as long as he gets the beast to move." But the Treasury killed it and I wondered, listening to the detailed description by the noble Lord, Lord Glenamara, today, whether these plans might not meet the same fate.

The revival, in 1931 as has been said by several noble Lords, really began with that one word "confidence". Overseas and at home, I believe that this is still the vital key in dealing with our problems today. And confidence depends upon the revival of the enginering industry, upon low interest rates, upon good industrial co-operation and upon the ability to attract investment. What will frighten away investment, whether from overseas or in this country, as the noble Lord, Lord Thorneycroft, said, is the continuation of strikes. If you go abroad, perhaps to the Middle East, which has been referred to, they say to you: "You cannot deliver: you are suffering from the English disease and you cannot solve it, so why should we give you orders?" If you go to industrial fairs on the Continent, you are very often told the same thing. It is the media—the moment you get a stoppage or a strike the television cameras are down at the factory gate and the matter is given priority, showing on all newsreels both at home and abroad.

In 1975 and 1976, as has been referred to many times in this debate, there was something of a wages explosion and a lot of people found themselves at the end of the week getting a better wage packet. There was an increase in television sets, holidays in Spain, cars on hire-purchase, hi-fi equipment and so on. The real tragedy today is that the people cannot keep up their hire-purchase payments any more. That is the problem. They were told it was going to last; but it did not last.

It has been said many times, even in this debate, that a great industrial country depends upon industrial efficiency, and so we have to ask ourselves: are our national overheads too high? Are they too big a burden on industry, large and small? Have we in fact reached the age of leisure? Are too many people doing the wrong jobs—easy-going jobs in which nothing matters any more? Can we compete with Germany, Japan, Taiwan and the developing countries? very little reference has been made in this debate to the silicon chip. What happens when the silicon chip and the robot really take over in factories, large and small? You will get a very considerable reduction in the labour force in factories. What will happen then? Will these schemes help in that situation?

The noble Baroness, Lady Ewart-Biggs, said, and I believe, that we have to take the opportunity to train more young people. I happen to be helping to sponsor some young men who are going to Japan, Germany and the United States of America. They are going to Silicon Valley and they are going to discover the working of the silicon chip and the wonders of electronics in general. Frankly, I think the Government could do more in this respect. I know they are doing something, but more of the larger industries could sponsor this kind of thing so that young men can go overseas and acquire new skills. But when we get the silicon chip really operative in the great engineering and other productive industries, can we maintain a population of 55 million by taking in each other's washing, to take up the slack?

It has been a very interesting debate but it is quite obvious that, with the background to all this, one gets the impression that all the schemes which are to be put forward are palliatives to deal with the situation now, and none seems to be dealing with this vital problem. If you are going to make British industry efficient and competitive with the great manufacturing industries of the world, if you are going in for the silicon chip and robot production, what are you going to do with the enormous number of people who will be displaced from factories? I had hoped that we might perhaps hear something about that today, and I very much hope that the Government have it in mind.

7.8 p.m.

Viscount Chandos

My Lords, I should like to thank the noble Lord, Lord Glenamara, for introducing this debate on such an important subject at so timely a moment. The few days that have passed since the Government introduced their latest Budget have allowed us to consider more carefully the effects of the measures put forward and to assess them in the context of the requirements of the country. I should like also to apologise to the noble Lord, Lord Glenamara, and to my noble ally Lord Banks for arriving too late to hear their speeches.

As a practising banker, it is with some diffidence that I speak, since bankers, however closely involved with the fortunes of British industry—perhaps sometimes not closely enough—do not have the detailed experience of the day-to-day problems of industry which industrialists themselves inevitably have. To digress for a moment, it seems to me that bankers should provide the link for other commercial organisations between the financial markets in which the banks have expertise and the commercial markets in which other companies operate. It is therefore the responsibility of banks to ensure that industrial companies know as much as possible about how the financial markets can be used to help those companies' businesses and to ensure that those companies, having been able to consider all the options, can complete the necessary financial transactions as effectively and cheaply as possible. I believe that there is enough still to be done in this modest respect on the part of the banking community, without bankers thinking that they know all the other answers to the problems of industry. For that reason, although I should like to offer a few comments about the broader questions raised both by this Government's policy and by what I believe my noble friends on this Bench would like to see done, I shall principally try to make some observations as a result of the admittedly, short experience I have had of the financial markets.

The noble Lord, Lord Ardwick, has compared the Government's Budget to a squeaking little mouse. I believe that the measures introduced by the Chancellor last week may equally be compared to the legendary fiddling of the Emperor Nero while Rome burned. Three years ago, the Prime Minister and the Chancellor perhaps felt that they were the leaders of the strings of a massed orchestra, but, now that the effects of their policy have been seen, support has ebbed away and they are left to play a plaintive little sonata, or perhaps it is a trio to include the noble Lord, Lord Cockfield.

There is not, of course, any unanimity among forecasters as to the effect of the Government's Budget on the level of unemployment in terms of precise numbers, but the overall effect can only be described as negligible. It seems to me that, to spend time discussing whether the measures are likely to reduce unemployment by 50,000 or 100,000, when the current number of unemployed exceeds 3 million, is time ill-spent. Indeed, of the hour and three-quarters which the Chancellor spent in introducing his Budget, only a fraction of that time was used in outlining measures that can have any effect in the foreseeable future on the level of unemployment, with the vast majority of the time being spent on technicalities and abstruse changes, some of which, individually, may well find wider support from these Benches and elsewhere, but which, in aggregate, do remarkably little in terms of creating new jobs now or in the future.

I should like, for instance, to take the example of the further measures introduced by the Chancellor this year to encourage investment in new businesses by private individuals, to which the noble Lord the Minister also referred. There can be no doubt that there are risks involved in investing in new businesses, and it may, therefore, be justifiable to provide favourable tax treatment to investors, even those who are already very wealthy, to ensure that funds are available for viable new companies. I think, myself, notwithstanding the findings of the distinguished members of the Wilson Committee, that it is not so much that there is a shortage of funds available for new or small companies, but that there is generally an ignorance among small businessmen as to the sources from which finance can be found and as to the terms which are reasonable for the funds to be provided on.

That said, however, what justification is there for the Chancellor in increasing the annual amount on which an individual can receive tax relief in respect of investment in new companies from £10,000 to £20,000 when in reality what is inhibiting further growth in the number of new companies being formed is not the shortage of capital, but the shortage of buyers for their products? I believe that, if your Lordships asked a cross-section of financial institutions whether the increase in the annual allowance was needed, they would tell you that, in fact, even under the existing limit there are more potential funds available than reasonable propositions in which those funds can be invested. I believe that this is one example out of many of the Government starting at the wrong end of a problem and, inevitably, coming to the wrong conclusion.

The low level of demand in the domestic economy makes the viability of many worthwhile new businesses doubtful, whatever the availability of finance, and export markets hardly offer any more favourable a prospect, even if the level of the sterling exchange rate is, at least, a little closer to that at which efficient United Kingdom companies can compete against international competitors than was the case when the Government's monetary policies were having their most disastrous effect on the level of sterling.

The noble Lord the Minister pointed out that the effective level of sterling is now the same as that prevailing when the Government took office. May I remind your Lordships that the unnecessary rise and then fall in the value of sterling in the intervening period has caused exporters to lose markets which will take years to recover? If the Government really wish to see new companies spring up and flourish, and so provide the jobs that are so desperately needed, they cannot expect this to happen solely through capital being made more readily available through the medium of wealthy investors, with a large proportion of the cost being effectively borne, anyway, by the Exchequer.

My noble friend Lord Kilmarnock has outlined the measures which these Benches would have liked to see introduced last week to stimulate the economy and create new jobs. I believe that the cost which my noble friend gave of £4 billion included some measures which the Government did, in fact, introduce, so that the net cost of our proposals to produce, perhaps, 10 times as many jobs as the Government's measures will, would have been nearer £2 billion than £4 billion. I maintain that such additional expenditure would have had a negligible effect on the rate of inflation and would have given a far greater chance for small businesses to thrive and, in turn, perhaps make the concessions to individual investors more justifiable through the consequent demand for capital.

I believe that a greater increase in public expenditure could have been introduced by the Chancellor, without adverse effects on inflationary expectations or the level of interest rates. The City is learning, like other supporters of the Government, that an obsession with any particular set of figures can be misleading. Moreover, the willingness of the Government to introduce new methods of financing their borrowing requirement through the widespread availability of index-linked gilts is to be welcomed. But it is to be regretted that the scope offered by such a change has not been exploited. Samuel Brittan—long a proponent of increasing the use of index-linked Government debt, but no economic spendthrift,—writing in the Financial Times last Thursday showed no family favouritism in describing the Budget as "pedestrian". It seems tragic that, as the wagon containing new jobs rolls ever more quickly downhill, the Government can only walk to try to catch it.

The views of these Benches about the need for substantial changes in the structure of industry and the introduction of industrial democracy are well-known. I fervently hope that when new jobs are created—agonisingly slowly, if the Government's present policies continue—those taking the jobs will have a greater involvement in the running of the businesses for which they work, and a fair participation in the profits that are achieved. This should be an essential part of achieving an acceptable incomes policy and, thereby, ensuring that the new jobs created remain secure whatever the world economy brings in future years.

I should like to end by making one further point. The Government have displayed, as I have tried to show earlier, an attitude based on the view that, if money is available for investment, then new businesses will start and unemployment will fall. Even if the Government did stimulate the domestic economy, as I believe they should, and the international markets offered better prospects, there would still be much to he done to ensure that British companies prosper in an increasingly competitive and technologically demanding world. As I have just mentioned, industrial democracy is one important area for much-needed change, and a more open and less dogmatic approach to the role of Government in their relations with industry is another, particularly in the field of exports. I was disappointed that the noble Lord, Lord Thorneycroft, despite his pleas for moderation, spoke so immoderately not only about the unions but also about the Government's involvement with industry. There are, of course, unhappy instances, but there are happy ones as well. I wonder whether the noble Lord, Lord Thorneycroft, believes, for instance, that British Aerospace would have been more successful in its constituent parts which existed before its nationalisation, than it is in its present form.

In my view, however, possibly the most important area for improvement is that of business education and training. This country is clearly falling rapidly behind many of our competitors in the provision of vocational training generally. I believe that this is particularly apparent in the case of management training. If you compared this country with the United States, I would suggest that the enormously more developed business education system in the United States would be seen to make the difference in performance—not so much of the largest companies but much more in that of the smaller, medium-sized companies from where so much growth, output and employment should be coming. So many more small businessmen in the United States have had some training in all or most of the basic business disciplines that I believe they find it much easier to push their companies from the category of small to not-so-small and then to medium-sized enterprises.

As I said earlier, there is, I believe, much that banks, other financial institutions and professional bodies should do to make their services more widely appreciated and understood by small businessmen, but I have no doubt that a substantially increased level of business education at secondary, graduate and postgraduate level would also make a significant contribution to the growth of our small company sector. I therefore also call on the Government to introduce within our schools, universities and polytechnics a much greater provision for business education. I am no more hopeful that this might be achieved than any of the other measures which I and other noble Lords today have called for, but we should not stop trying for as long as our industrial performance is so poor, by international standards, and our unemployment so shamefully high.

7.22 p.m.

Lord Underhill

My Lords, I, too, would like to thank my noble friend Lord Glenamara for opening this debate with such a compelling speech, backed up as it was with so much factual information. The fact that he was able to give that information avoids the necessity for me to go over the same ground.

When speaking of the highest figure we have ever had of just over 3 million unemployed, one ought to take into account that this is not the maximum un-employment figure which we have at the moment. If we take out the special employment measures of the Manpower Services Commission, that would account for another 350,000. There is a substantial number of married women who do not register. Many of these women found it necessary to go to work to balance the family budget. The TUC, based on Government surveys, estimate that there is an unregistered un-employment figure of some 670,000, which brings the total unemployed figure nearer to 4 million. It is a figure which we ought to keep in mind.

My noble friend referred to the fact that nearly 1 million people have been out of work now for nearly a year, that one-quarter of those are under the age of 25, while about half are over 55. One ought to bear that figure in mind when one considers the points made by the noble Lord, Lord Granville of Eye.

As my noble friend spoke of Consett in such moving terms, one has to recall that there are plenty of areas in the country with 20 to 25 per cent. unemployment, even though the regional average may be below that. My mind went back to the Labour Party's distressed areas commission of the middle 1930s which uncovered the disaster in all those areas. But there are more people out of work now than there were in that great depression of the 1930s. During last year, living standards fell on average by some 3 per cent. As an average figure, it means that many must have suffered considerably more than that.

We are encouraged by the development of small businesses. I was very interested in the speech of the noble Lord, Lord Selsdon, on this and similar matters. However, wherever one goes one finds that small-sized and medium-sized factories are up for sale or for lease. I live on the outskirts of London where there are small industrial estates. Factory after factory has been closed down and is up for sale. Although we may be building up small businesses we are closing down the medium-sized and just below medium-sized industries. We have to remember the figure which was mentioned by my noble friend Lord Allen of Fallowfield. Last year there were getting on for 10,000 bankruptcies—double the figure of the year before.

Of course the problem started before 1979, and of course one recognises that there is a world recession, but it cannot be denied that the Government's policies have contributed materially to our position. One noble Lord who intervened—I cannot remember who—said that all industrial countries are facing unemployment. However, I believe the figures demonstrate that Britain's unemployment has been going up much more quickly than that of other industrial nations—and more quickly than that of our EEC partners. I think these are official figures. Bearing in mind that Britain is one of the few countries which is self-sufficient in oil—indeed, self-sufficient in all energy supplies—this makes our position extremely dangerous.

As has been mentioned, behind cold figures and percentages there are human tragedies. I believe that the Government individually are as much concerned with the tragedies behind unemployment as are we on this side of the House. The trouble, however, is that the Government's policies do not help to deal with the situation. And the Government cannot make up their mind about whether they should make a complete change in order to cope with the situation.

Another tragedy is that 40 per cent. of those out of work are young persons under the age of 25. This is a great tragedy. I am certain that Mr. Chris Chataway, who was on Robin Day's programme a fortnight or so ago, meant it kindly when he said that some young people may find that they will never have a job. It will be terrible if we have to face that position. My noble friend referred to some 30 jobless seeking each vacancy. As I have already mentioned, I live on the outskirts of London, in the first borough over the Greater London boundary. When I picked up my local paper the other day I found that in Waltham Forest, which is just inside the London boundary, there are 8,310 jobless chasing 310 vacancies registered at employment and careers offices. In Redbridge, which is quite a substantial borough (again the last one on the other side of my own district) 250 jobs are being chased by 6,776 jobless.

The noble Lord, Lord Cockfield, said that the hallmark of freedom is people deciding their own future, but 30 people chasing one job cannot decide their own future. I know that they can turn out this Government at the next election, but what is to be done during the next 12 months, 18 months, two years? Unfortunately, they must rely to a great extent on the Government to take measures to cope with the situation.

We all agree that inflation is a problem. However, we were told that the Government's monetarist policy would deal with the situation. Everybody knows that inflation is slightly higher now than when the Government came to office in 1979. Noble Lords will recall that when the first Budget of this Government was introduced they said their tax reductions would help to tackle industrial decline. Incidentally, only the better off benefited from that Budget. As again has been stressed by my noble friend, we have the same position with the present Budget. But did we get increased investment? The noble Lord, Lord Cockfield, listed a number of reasons for the lack of competitiveness of British industry, but I cannot recall him mentioning that there has not been investment in British industry. The position is that investment in manufacturing industry is down 21 per cent. over the last two years. That is the lowest figure for some 20 years.

The noble Lord also ridiculed (and I believe that "ridiculed" is the right word) the Labour Government's social contract with the trade unions. That worked successfully for 2½ years. I, together with other noble Lords, believe that we will move towards some kind of wages policy, but it will have to be not a wages policy but an incomes policy; it would have to be related to other things. The noble Lord, Lord Banks, referred to industrial democracy, and that is one thing it will have to be linked to. I wish to emphasise as strongly as I can, while using parliamentary language, that there is no hope at all of getting agreement with the trade unions on wages or an incomes policy unless this Government change their attitude towards the trade union organisations. Without the co-operation of the trade unions that is something that will be impossible to achieve. Many of us believe that some form of incomes policy will be essential.

The Government also said that another solution was to cut public spending. Despite massive cuts in direct public spending matters have got worse—otherwise we would not be in the position of having more than 3 million people unemployed. Then, local authorities spending was held to blame. Their capital and current spending has been slashed by nearly 11 per cent. between 1978–79 and 1981–82. What has happened is that unemployment has doubled and, as other noble Lords have stressed, the industrial base is being emasculated.

Just an hour or so ago, I was looking at some EEC figures which showed that the United Kingdom's public sector borrowing requirement as a percentage of our GNDP is 5.9 per cent. The percentage for five other EEC countries is considerably higher in each case—three of them being double that figure. I was very sorry to hear the noble Lord, Lord Cockfield, argue about the cost of unemployment. Everybody knows that unemployment must cost the Exchequer and the nation something. Yesterday, I happened to pick up in your Lordships' Library some figures on the cost of unemployment produced by the House of Commons' Library research division. There I find three figures. The Treasury figures work out at £5,000 per annum. The Manpower Services Commission figure works aut at £4,380 per annum. The Institute for Fiscal Studies presents a figure of £4,500 per annum. I understand there was an argument about this and that the noble Lord went into some detail to explain this away. I will just read one extract. First of all, reference is made to the fact that the February 1981 edition of the Treasury's Economic Progress Report included an article on costing of unemployment. It went on: On 18th February 1982 The Times carried a report that an updated version of the Economic Progress Report figures had been prepared but it had been decided not to publish the revision". The 1981 figures showed that the cost was £3,400 per person and that the 1982 figure would have shown a cost of £5,000 per annum.

Lord Cockfield

My Lords, I am sorry to interrupt the noble Lord, Lord Underhill. He refers to figures not being published. I did explain the background at great length. Is he seriously suggesting that the Government should publish figures in which they have no confidence?

Lord Underhill

I am suggesting that the Government should publish the actual figures so that we can see them. We could check these figures against the estimate of the Manpower Services Commission and against those figures produced by the Institute for Fiscal Studies, which I do not believe is a Marxist organisation.

Lord Glenamara

Would my noble friend agree that the Treasury figure of £5,000 produces exactly the total which I quoted, of £15 billion?

Lord Underhill

Yes, I would, and that is why I wish to stress this point.

Lord Cockfield

My Lords, the noble Lord claims that this is a Treasury figure. Perhaps he would quote his authority for that statement.

Lord Underhill

My Lords, the figures here show something much more substantial than the figure of £1,600 to which the noble Lord, Lord Cockfield, referred. I am not prepared to bandy figures about in detail. My noble friend says that we should stick to the Treasury figures. We do know that unemployment costs a considerable amount of money, whether it is caused by loss of taxes, by loss of VAT, or because of the unemployment benefits which have to be paid.

Obviously unemployment is going to cost the nation a considerable amount of money and I will return to that point later.

It is tragic that in order to get income the Government are so readily selling off the nation's assets. How much has selling off of any one of the assets of the public industries affected the immediate economic and industrial position, and how will it affect the economic and industrial position, and how will it affect the economic and industrial position in the future? The Government are trying to raise money without any thought of the future possible income for the nation, in order to follow their doctrinaire policies. My noble friend has said that ours is a mixed economy. I have mentioned this time and time again in your Lordships' House. The Government say repeatedly that they also believe in a mixed economy, but as they unfold one measure after another for selling off the nation's assets (I hate the term "privatisation") one has grave doubts about whether the Government really do believe in a mixed economy and therefore about the way in which these sales are really affecting our industrial position.

There must, of course, be more economic planning, more public intervention and more public accountability. My noble friend set out in some detail Labour's alternative strategy, which I support. We cannot just rely on "something turning up" to end the recession—and that appears to be the Government's policy. I hope that the noble Earl who is to reply will provide us with a firm account of what the Government's long term plans are. I hope that it will not be just to tinker with unemployment, to deal with 50,000 people this year, but that we are really going to get unemployment figures down. We must create some demand—not just a consumer boom which will suck in imports, but investment for constructive projects.

Just before the Budget, the Shadow Chancellor said, It is fallacious to see any conflict of interest between investment in industry and investment in economic infrastructure". He went on to say: Unless the Government invest in efficient energy, transport and communications systems, private industry will be handicapped in its competition with other nations". Reference has been made by some noble Lords to lack of demand. I should like to give one simple example. If brickmaking plants turned out more bricks, it would not be of any value unless someone wished to use those extra bricks. It would be no use just stacking thousands of bricks in a field. Someone has to create a demand whereby those bricks will be used.

The noble Lord, Lord Cockfield, referred to a constructive package in the Budget. The noble Lord ought to keep in mind that housing starts in 1981, for both private and public building combined, were the lowest in some 60 years. We have a waiting list of nearly 1¼ million and nearly 400,000 construction workers jobless but wanting to build, make repairs, and rehabilitate property. The Observer Business News reported on Sunday that the construction industry's powerful "Group of 8" estimates that there will be a further drop of 1 to 2 per cent. in the construction industry's output this year and that the Chancellor's measures will have little impact on the 400,000 unemployed building workers. The chairman of the "Group of 8" was quoted as saying, The further we fall back, the more difficult it will he to respond to economic recovery when it comes". We need to have investment in British Telecom; at the moment 80 per cent. is derived from the industry's own resources. We need to do something more about the North Sea gas gathering pipeline, something about our collapsing sewers and about our road programme. I heard this morning that the water industry badly needs to see the renewal of some of our water supply pipes. All this material is obtained from the private sector. When one injects investment and starts construction of this kind there is the multiplier effect, from the supplier to the other supplier, and it affects shopkeepers, and so you have this great turn round.

My Lords, time is getting on and I shall not say much more. The Sunday Times business section said: Extra unemployment pay boosts spending directly but is more inflationary and creates fewer jobs than the same money spent repairing the roads". That is the essence of what I want to say. I was very pleased that my noble friend Lord Allen referred to the TUC Programme for Recovery. If noble Lords believe that the Labour Party programme was based on too many political arguments, I believe the Programme for Recovery ought to be compulsive reading for every noble Lord in the House. It is based on facts and on statistics, well thought out and documented. I hope the Government will appreciate that unemployment can be created by Governments and jobs can also be created by Governments. That is what we wish to set out to achieve.

7.42 p.m.

Lord Whaddon

My Lords, I must express regret to noble Lords that my name did not appear on the speakers list. It was submitted in good time, but disappeared somewhere in the bureaucracy. I shall, therefore, not detain the House for long. I am one of those who agree with the noble Lord, Lord Underhill, that the social compact worked extremely well for two and a half years or so, and it was a great shame indeed that it finally collapsed in the winter of discontent. Certainly, if any of our hopes are to be fulfilled, there must be reflation of demand, as my noble friend Lord Chandos pointed out. But we cannot hope to expand the economy again without running into disastrous inflation unless a more hopeful form of incomes policy emerges. A simple understanding or expression of pious hope between unions and Government is not enough. The Government must be prepared to have at least reserve powers to back up their aims. In this connection the most useful suggestion made in many months has certainly been the inflation tax, which has yet to be tried out.

I would simply intervene for two minutes to put forward one small suggestion with regard to small firms. Everybody, of course, is in favour of small firms; it is like being in favour of motherhood; we are all in favour but how can we do so constructively? The last Labour Government and the present Government have made considerable changes in taxation which are favourable to the climate for small firms. The loans guarantee scheme is greatly to be welcomed, although I personally cannot understand for the life of me why the three per cent. extra interest charge is levied. Interest charges are already horrific, and why small firms should be loaded with the extra 3 per cent. for these loan guarantees is beyond me when one considers that the Government are supposed to be so favourable to small firms.

The business start-up scheme has also been improved. A number of banks and the CBI are looking at providing new sources of finance. But a number of problems still remain intractable for small companies starting up. The old Macmillan gap still largely remains. The fact is that if one goes with a good idea and asks for £1 million it is relatively easy to get, but go and ask for £20,000 for a good new idea and it is extremely difficult to get. It may be that the local bank manager will provide the money for somebody he knows if he has faith in the man, but a good idea which needs thorough investigation costs any of the financial institutions £10,000 or £20,000 to look at. If an entrepreneur goes asking for less than £100,000, he is not going to get looked at.

There is, therefore, a need for a new approach. The Department of Industry has been tending to show favour towards the American ideas in the Small Business Administration. I would suggest that we have a much more successful example in our own country which for some reason the Department of Industry seems to have ignored. That lies in the CoSIRA model. I should declare that I have for some years been on the board of management of CoSIRA. It has proved to be immensely popular with the users and immensely efficient of the risk capital involved. Less than .7 per cent. has been lost, compared to something like 6 per cent. under the American schemes. Why, therefore, have we not taken this model for use throughout the country?

I would, therefore, urge the Government to consider most urgently the extension of the CoSIRA type operation into the urban areas, which are vastly bigger, of course, than the rural areas. By basing their assistance to small firms on small industry committees of local businessmen they give a much more comprehensive support. The applications for finance are vetted by that local committee and money can then be provided from Government sources or from private sources. I do not mind which. Whether it is public or private, the vetting costs of the applications are negligible, and loans of £5,000, £10,000 or £20,000 can generate new employment.

The CoSIRA type of organisation also does not just respond. The small industries advisers of the Department of Industry in the towns now take a very responsive role; they wait for applicants to come to them. What we need in the towns is for the organisers, the small industries committees I am suggesting, to go round and see what is possible and promote ideas in their areas. In far too many cases people who could and should be generating small firms simply do not know how to begin. If public promotions and educational programmes are carried out in their areas, such as is already done in the rural areas, this is bound to have a similar response.

The structure I am suggesting, if simply inaugurated now throughout Great Britain, would inevitably be very expensive. If one were simply to do a back-of-the-envelope calculation, one is talking of many hundreds of millions, perhaps £1,000 million if one were to create a CoSIRA type organisation throughout all British towns. I am not suggesting that this should be done overnight, although one must think in terms of this sort of money if one is to give small business the boost that it really needs and deserves. What I am suggesting is that without delay the Government take three or four towns throughout the country, because the urban environment is very different from the rural environment; rather than simply reproducing CoSIRA throughout the towns, I am suggesting that they take three or four towns and start off this CoSIRA type organisation in those towns for one or two years, getting the experience in the urban environment and seeing exactly what type of organisation should be spread throughout the country. I ask the noble Lord the Minister to take my idea back to the Department of the Environment and urge them, before they spend more public money on a plethora of half-baked schemes for the towns, to look at the success we have had in the rural areas and build on that successful example.

7.50 p.m.

Lord Bruce of Donington

My Lords, the House has already thanked my noble friend Lord Glenamara for introducing this Motion which has, indeed, afforded us the opportunity of a wide-ranging debate. However, I find one thing a little remarkable about it. The party opposite has been repeating over the last three years, as a half apologetic reason for not doing any more than it has been doing, the plea that there is no alternative. My noble friend has put forward, albeit briefly, a plan of action in broad terms to deal with the current emergency. Despite the fact that a very similar plan, perhaps on a smaller scale, was put forward by the noble Lord, Lord Banks, on behalf of the Liberal Party, and despite the fact that an even more slightly modified version was put forward on behalf of the Social Democratic Party, there has been no real endeavour either by the noble Lord, Lord Cockfield, or by the noble Lord, Lord Thorneycroft, nor, so far as I can see, by any other noble Lord on the Benches opposite, to come to grips with the proposals that have been put forward.

I would have expected, and the House would have expected, reasonably close attention to have been paid to the proposals. They have been made public now for quite a number of days and I would have expected a reasoned response. But no; we have had no kind of reasoned response at all—just the same kind of speech with which the noble Lord. Lord Cockfield, has favoured us these last three years, in more or less the same terms, but brought up to date with slight changes in detail. The noble Lord has been endeavouring to stand on a policy which he quite clearly knows is completely indefensible. Monetarism is dead. He himself has participated in the burial. It would be unkind to dissect that matter further because my noble friend Lord Kaldor has already disposed of the noble Lord and his argument in the speech that he made only a short while ago. There is nothing more to say to the noble Lord, Lord Cockfield, about his policies save to mention the results, to which I shall shortly turn.

The noble Lord, Lord Thorneycroft, was evidently so bored with hearing the same speech from his noble friend he had the fortitude to listen to this afternoon, that he decided to liven up the proceedings somewhat in his inimitable style. And his inimitable style, of course, invariably comprises putting up dummies and then knocking them down again. He had no constructive observation whatever to make on the proposals that were put forward. He was only concerned with making a half-hearted defence—which he dressed up behind effusive compliments—of the policies or the lack of them that had been propounded by his noble friend. I rather thought that he fell short of the occasion.

The position is one of the utmost gravity and ought not to be treated with any kind of levity. I thought that the noble Lord sought to blur the plight of the unemployed by saying, "Well, of course, some of them"—he did not define how many—"probably have spare time jobs. Some of those in jobs already are probably causing a bit of unemployment by doing double jobs". In short, he sought to minimise the problem that exists for three million unemployed and probably nearer four million, if we take into account the figures put forward by the noble Lord, Lord Underhill.

Does the noble Lord really think that the hundreds of thousands of people who are 45 or in the their fifties and who will never get another job again if existing policies are continued, will put up with it without very serious complaint? Do the Government think that the social cohesion upon which a democratic society depends will be maintained in full order and with free social intercourse among people, with a reasonable degree of civic serenity and calm, so long as this state of affairs is permitted to continue?—I think not. People will not live long and they will not endure long, having no hope at all. They will not endure long the feeling that they are despised and are not wanted and are not taken into account in any way. Therefore, the problem is grave and any serious endeavour such as has been made today by my noble friend and by other noble Lords in various parts of the House really to apply their minds to alternatives, ought to receive far more serious examination.

Where do we stand after three years of the Conservative Government following, presumably, the policies that they had determined from the outset? In possession of a vast parliamentary majority with the support of, indeed, 75 per cent. of the national press and a sizeable part of the media, they have had complete power to do whatever they thought it necessary to do. I am not impugning their integrity. Others may, perhaps, question their wisdom and perspicacity. But after all this time, after all these wonderful policies, how much longer are we going to be told, year in and year out, or promised at six-monthly intervals, that there will be much better times and that production is going up or, to use the favourite phrase, "the underlying trend is favourable"?

We have 4 million unemployed. We have manufacturing production down by 19 to 20 per cent. We have inflation at above the figure when the Government took over three years ago. Some £16 billion has left the country for investment overseas since the removal of exchange control. Interest rates, which were 12 per cent. in 1979, are now 13 per cent. The exchange rate is within two cents of what it was before. And what else?

Surely, the logic of the noble Lord, which he has paraded before this House so often, must lead even him to suspect the validity of the policies that he has been carrying out. After all, it is now three years since they came to power. But, of course, the noble Lord always shifts the responsibility, saying that the responsibility is, of course, not the responsibility of Government, no matter how great their majority. The noble Lord put it quite neatly—he has abdicated all responsibility; it is up to the people to decide and, therefore, Governments do not influence economic events.

The noble Lord, Lord Thorneycroft, made that point on the last occasion on which the subject was debated in this House, saying that there is little Governments can do, that it is all up to market forces. That is what the noble Lord said today: that it is up to the people to decide; that, if those in employment seek too high a remuneration, they must expect that there will be more unemployed. In other words, the plight of the unemployed—and it is a real and personal plight—is blamed, not on the Government who have been sitting in the seat of power, but upon the employed people.

Therefore, over the past three years the ground has shifted. First, the Government were going to control the money supply; then it was the public sector borrowing requirement; then it was public expenditure. Now we are told—and, in fact, the orchestra has been working overtime, particularly in the past six months—that the real fault is that we are not sufficiently competitive, implying of course that the British people are not working hard enough, that they are not justifying the amount of pay that they receive in comparison with our competitors.

Three points fall to be made about that. I thought that one of them was made very well, not only by the noble Lord, Lord Allen of Fallowfield, but also by the noble Viscount, Lord Chandos, who referred to this aspect of the matter—to the fact that productivity depended on two factors. It depended on human effort and the pay that was given to the person for making that human effort, but it also depended on the quality and quantity of the machinery and plant available for that purpose.

The first point I want to make is a very clear one, and I am afraid that the noble Lord is not in a position to deny it. The noble Lord, Lord Cockfield, will perhaps note that, when I refer to investment in manufacturing industry, I mean just that, and not the Inland Revenue all-embracing investment, including investment in service industries. I say that in case he bandies that figure about, as he did on a previous occasion, in place of manufacturing investment. Ever since 1950 manufacturing investment, expressed as a percentage of the gross domestic product of the United Kingdom, has been approximately 30 per cent. below that of France, 40 per cent. below that of Germany and 60 per cent. below that of Japan. Until investment is made on comprehensive lines, it is not quite fair to blame it on labour productivity. Fortunately, we have been able to obtain some data which show the relative performance of United Kingdom workers, together with their rates of pay, working in American factories established in this country using identical equipment to that used in the United States. Therefore, we can get a true measure of comparison.

For your Lordships' information, the report was made by Maynard and Barry, a Theodore Barry Associates Group company, on the experience of 80 United States subsidiaries in Wales, and was published in September 1980. I am well aware, and would indeed hesitate to impute, that Wales—particularly South Wales—is anything but perhaps a slight cut above sonic other parts of the country which I shall not mention. But, broadly speaking, I think that what goes for Welsh workers, making allowance for the fact that they come from the land of our fathers, is applicable to the lot.

What was found? 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 the production statistics that I shall provide presently—it was found, 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 the 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 Japan.

I turn now to what the report describes as: Productivity in Wales compared with the USA". The report states—and the figures are all here: Approximately 60% of companies stated that their output per person (as previously defined) was at least as high as in the USA". and it gives the tables. As for "Output Per Unit Wage Cost", it says: The table below"— and I can read the table if necessary— shows that over half the companies had an output per unit wage cost of at least 1.25 times that in a comparable industrial plant in the USA". This shows that the myth, which has been put about these many months, about the alleged inefficiency and over-payment of the ordinary working-class person in this country, is indeed a myth. The whole trouble is that the truth takes a long time to catch up with the myth. So I trust that before the Government talk about competitiveness, they will take these figures into account, and that they will further take into account what has already been made clear, that investment is the principal problem.

The results of three years are known. What then are the conditions which have to be dealt with by the carrying into operation of the plan which my noble friend has briefly outlined, or indeed of the modified plans which have been put forward as alternatives by the noble Lords, Lord Banks and Lord Kilmarnock? The current reports show not only that industry has been largely devastated. It is well known in the City—and I speak subject to correction by those who are in the banking profession—and in those banking circles in which I move, that, with the current high rates of interest, a substantial proportion of British industry today is only in existence and only remains ticking over by the forbearance of the banks. If the banks ever took the carpet away, then there would be the most appalling crash that the country has ever known. Had the banks over the last two years followed the same policy that the banks followed in the 1930s that would already have happened.

However, it is not only a matter of the mass destruction of certain parts of industrial plants and industry in this country. The transport system is already in considerable disarray. Roads are falling into ruin, sewers are in desperate need of repair and renewal and in the education field there are going to be 25 per cent. less students in polytechnics and colleges, not-withstanding the clamant need for there to be much more trained skill in the country to serve its future and developing industrial and communications role.

In the field of health, we have continued stories of crumbling hospital buildings. We have sad stories of where the lack of provision of a comparatively small sum of money for things like kidney machines has resulted in loss of life. There have been cases, which noble Lords must have seen in the press, where some doctors, owing to the lack of funds, have been forced into a position where they have had to choose in the case of certain diseases which children shall be treated and which children will have to die. There is a situation in which the dental health of the country is deteriorating. There are even circumstances reported in The Times this morning where, due to lack of funds, further development of a particular type of cancer research is threatened. There are all the reductions that have taken place in social security. This is after taking into account the provisions of the recent, inconsequential Budget.

This is the position that any plan has to take into account. It would be wrong to say that there is an instant plan that could cure all these ills quickly. It would also be irresponsible to put forward a plan in any other terms that would not produce a breach in the current battle against inflation to any significant degree. That is why the plan put forward by my noble friend is a sober plan. It envisages only an effective injection into the system of some £9,000 million—a far smaller sum, incidentally, than the noble Lord's margin of error in calculating M3 from time to time. This is a mathematical tolerance that the country might well be prepared to accept, at any rate, as giving more chance.

It might well be—and I willingly concede it to the noble Lord—that the plan put forward by my noble friend would result in the rate of inflation being 2½ per cent. higher than it might otherwise have been, although this might be compensated for—nobody can tell—by a further decline in the price of oil. I say that it might be. But even if it receives a 2½ per cent. addition to what otherwise might have been, let us take the noble Lords' forecast of a reduction by 2½ per cent. in the next 18 months. Therefore, all it would mean, on the assumption that it was inflationary to that degree of 2½ per cent., is carrying on at the existing 12 per cent. at which we have been stuck over the last 18 months.

Therefore, we on this side of the House are not saying that the policy is without that possible disadvantage, to the extent that we do not know because, of course, who knows what the future price of oil is going to be? What we do know, however, is that the rate of interest has to come down. We are grateful for the assurance of the noble Lord this afternoon that it is the one instrument over which the Government have a large measure of control. I would say 70 per cent. control. They moved it up all right in the first few months they were in office; they could equally well move it down again, and this they will have to do.

It may well be that in so doing funds may flow from London, or that funds that otherwise might have flowed to London will not come to London and the exchange rate will consequently come down. But, in a reply to a question the other day (which I have in front of me) when we were discussing the outflow of British funds, the noble Lord presented that as an advantage. The fact that £16,000 million of funds have left the country had the advantage, from his standpoint, that it prevented the rate of exchange from rising higher than it would otherwise have done. Therefore, the noble Lord really is in sympathy with the reduction by the Government, if necessary, of the rate of interest.

I would suggest to the noble Lord and to the House that it is far better that exchange controls should be reinstituted so that the money can be invested in productive manufacturing plant in the United Kingdom, and then produce exactly the same result of lowering the exchange rate, and thus make British goods more competitive by the simple method of lowering the rate of interest. There is no reason why it should not be done. If the noble Lord would like to read the speech of his right honourable friend Mr. Edward Heath in the other place a couple of days ago he would be informed of the techniques by which this could be done.

Therefore, in expressing our appreciation of the plan put forward by the noble Lord and the reactions of your Lordships, let us remember that the people of this country will expect something to be done. They will not go on indefinitely taking year in and year out the baleful banalities that sometimes come from the opposite Front Bench. They want action, and sooner or later they are going to lose patience with the excuses that have been brought forward. Sooner or later they are going seriously to consider and support such constructive alternatives as can be laid before them.

8.20 p.m.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers)

My Lords, the House is grateful to the noble Lord, Lord Glenamara, for introducing this debate on what is a very important and fundamental subject, and I found his speech most impressive. It came from the heart and I think it struck a chord in noble Lords in all parts of the House. He referred to a number of points, of acute concern equally to the Government as they are to himself.

I could not help thinking that there was a slight distinction between his speech and that of the noble Lord, Lord Bruce of Donington, who cannot avoid—I do not blame him for it—making party political points in a manner peculiar to himself. We accept that and I shall resist the temptation to reply to some of his less generous and more personal remarks about my noble friends Lord Cockfield and Lord Thorneycroft. I did not think they added greatly to the quality of the debate. I do not regard this as a matter of scoring party political points, and the debate has been remarkably devoid of such points. I shall have to be particularly careful for fear that I slip into the position, as the noble Lord, Lord Bruce, suggested, of making baleful banalities from the Dispatch Box. I do not believe that anything Lord Bruce has heard from my noble friend Lord Cockfield on any occasion falls into that category.

The contributions which have been made today are part of the national search for a solution to the problems which are affecting every man, woman or child in this country. We will study very carefully what has been said in the debate. I shall not follow the noble Lord, Lord Kaldor, into the quicksands of macro-economics, of which I am not an expert and of which he is. I shall certainly take note of the suggestions put forward by the noble Lord, Lord Glenamara, by the noble Lord, Lord Kilmarnock, from the Social Democrats, and by the noble Lord, Lord Banks, from the Liberal Party.

I realise that whatever the problems, the solutions are extremely difficult, and I would be the first to conclude that there is nothing more personally wounding than for a person to be made unemployed or for a young school-leaver entering the threshold of life to find there is no employment. The noble Lords, Lord Glenamara and Lord Underhill, referred to a number of people looking for the same job. That is, of course, a devastating state of affairs and one which no Government would wish to see. The shockwaves which surround such a state of affairs and the deep personal impact they make on people go very deep. Everyone wants to be wanted; and not to be wanted in work, apart from the eonomic effects that has, is a humiliating experience and it is up to all of us to try to find a solution. I agree with the noble Lord, Lord Banks, who said that the long-term effect of long-term un-employment has a far-reaching personal significance. The suggestions which your Lordships, correctly and helpfully, have put forward today will be studied with great care.

There is no blueprint for success. There is no simple answer. Had there been, any Government would have produced it. The fact is that we must deal with the world as we find it and there are certain basic factors which, I suggest, we must remember. The first is that the present situation is not of the Government's making. The Government are seeking to find a solution to a situation which would face any Government in office of whatever party. The method and variety of solutions may be different according to individual choice, but the facts of the situation would remain the same. The noble Lord, Lord Bruce, complained that there was a shortage of money. Of course there is. Of course there is more we all want to do, but it can be done only if we can afford it.

Secondly, the problems are not confined to the United Kingdom; they affect the whole of the industrialised Western world. Thirdly, on the whole, Governments do not create things. People create. Governments can only set the conditions in which people can give of their best. To set conditions in which people can give of their best at a time of world recession—which means that the ability of others to purchase that which is created is limited—makes the setting of those conditions infinitely more difficult. The noble Lord, Lord Bruce, said that for three years the Government had complete power to do what they liked. That showed a total lack of appreciation of reality. Governments do not control economics, any more than they control nature. In both cases they merely influence and can manipulate, but they do not control.

The noble Lord, Lord Banks, was not sure the Government were right to put such a high priority on the attack on inflation, and the noble Lord, Lord Underhill, asked what the Government's long-term plans were to stimulate jobs. Of course, in the end jobs can be created only by people wanting to buy what is produced; the only way in which British industry can hope to compete in world markets is if our goods are competitive. If we have a rate of inflation higher than our competitor nations, our goods become increasingly less competitive. If the German rate of inflation, for instance, is consistently half that of the United Kingdom, which at the moment it is, then even if annual wage increases were the same, our goods would become automatically and progressively less competitive in world markets. British industry would find it less easy to sell, would find it less easy to employ and unemployment would become higher.

That is why the Government have made a determined attack on inflation, and it has had some notable successes. The rate of inflation has been halved since the peak in the spring of 1980, when it was 21.9 per cent., down to the present monthly increase making it 12 per cent. When the noble Lord, Lord Banks, asks if we are right to set that as such a priority, my answer is that that is the raison d'être behind it. I was glad to hear my noble friend Lord Selsdon say there were many opportunities abroad for business. So there are, provided of course we are competitive. In a world the population of which has increased by 50 per cent. since the end of the last world war, a world in which people must be fed, there must be demand, and we can meet it only if we are competitive.

My noble friend Lord Cockfield said the deterioration in the international situation owes most of its origin to the oil price increases of 1973–74 and 1979–80. It does not do any harm to remind ourselves of the alarming facts. In 1970, oil was 1.30 dollars a barrel. In 1981 it was 34 dollars a barrel, a 26-fold increase in 11 years. It is that which has stimulated and created inflation in so many countries and which has thrown the elementary exercise of budgeting, on which every business depends, into total confusion. That is why, like my noble friend Lord Thorneycroft, the Government welcome the recent fall in oil prices, which should help industry. Lord Thorneycroft graciously described himself as "rising damp". I am not sure I know what that is and I see that my noble friend is not in his place; perhaps he has risen already, damp or otherwise. I would merely say that we can unite in rejoicing in the joys of lowering oil prices.

Unfortunately, Britain was in a worse state to face the recession than most of our competitors. We had been losing the competitive edge which for years we had had on the markets of the world. Unemployment has been made significantly worse by our paying ourselves far more than we could afford. The noble Lord, Lord Banks, said—I think he was quoting—that we had priced ourselves out of the market. During the 1978–79 and 1979–80 pay rounds, earnings rose by over 40 per cent., which was quite unrelated to increases in productivity.

An essential element in the climb out of the recession is good industrial relations. Over many years, and in too many parts of industry and commerce, our progress has been dogged by endless and futile disputes about unrealistic pay demands or outdated lines of demarcation, the introduction of new technology, and so forth. These disputes have done nothing to improve our competitiveness; all they have done in fact is to help our overseas competitors. This is elementary, but it is true.

We have spent too much time arguing among ourselves and trying to protect jobs, as opposed to trying to ensure that our industry, or job, or firm is highly competitive. We cannot afford these types of dispute. They hurt the companies which provide the jobs, they hurt the people who go on strike, and they hurt others who are not on strike and who want to remain in employment. But our factories must be modernised and must be competitive, and it is up to both employers and employees to work together to ensure that that happens.

My noble friend Lord Thorneycroft said that it is vital to see new technologies in industry. I would agree. The noble Lord, Lord Mais, referred to the fact that we might have to be satisfied with 3 million unemployed. The noble Lord, Lord Granville of Eye, referred to the anxiety which he saw in the silicon chip. The noble Lord, Lord Ardwick, on the same point, said that he was concerned that we might have to have a permanent high level of unemployment.

My Lords, I disagree. There are those who say that the introduction of new technology will put people out of work, and that it should be resisted. In fact that is a fallacy. If the introduction of new technology results in a firm being more competitive, then the resistance to the new improvements in fact puts far more jobs at risk than does accepting them. When the horse gave way to the internal combustion engine, the wheel-wrights', the smiths'; the saddlers' jobs all went, but in their stead there rose a whole new era of mechanics, garage proprietors, motor manufacturers and tanker builders, all of whom created new jobs. The telephone never put people out of work.

Therefore I would reject the philosophy that says that because of the enormous strides in computers, micro-processors and suchlike, the new technologies will put people out of work to such an extent that we shall have to contemplate a permanent level of high unemployment. These tools are the servants of man, not his masters, and used properly they can create employment and provide new opportunities.

We must not repeat the mistakes which we made in the 1950s. Then, and in the following decade, we failed to reap the benefits which others, notably Japan and West Germany, gained in applying automation and new technologies to their factories. The Advisory Council for Applied Research and Development gave this warning: If we fail to take advantage of these new processes then certainly in the long term, and often in the short term too, more unemployment will result from loss of market share following a failure to innovate than from the introduction of a new technology. Conversely, if the introduction of new technology by a firm leads to an increase in its market share, then there is almost invariably an increase in employment opportunities in that firm. An increase in productivity in service industries often leads to greater variety or quality in the service provided, than to a reduction in the numbers employed. The Advisory Council added: If we retain outdated methods, we shall lose markets because of the inferior quality of our goods. We have no option but to attempt to match the productivity, and product quality of our overseas competitors". Those simple facts ought to be enshrined by both management and workforce in each firm as part of fundamental philosophy. We disregard these simple facts at our peril.

For far too long we have come to believe that work is there for the benefit of those who are employed. The hard fact is that work is there only for the benefit of the customer, and if goods are not produced at a time, at a price, and in a condition which is attractive to potential purchasers, then the customer will buy elsewhere, and the employment—both the workforce and the management—just goes.

It is a matter of enormous concern to Government and individuals alike that unemployment has reached the extent that it has. The noble Lord, Lord Allen of Fallowfield, said that it was a scandal. The noble Lord, Lord Underhill, among many others, referred to this plight. Of course it is a matter of great concern to us, but it is as well to remember that we in this country are not alone in this. In Canada, France, Italy they are experiencing the highest unemployment levels ever. In the United States and West Germany they have the highest levels since 1935. But despite the fact that we have so many unemployed, it is worth remembering that we have in fact a higher proportion of our people in this country employed than is the case in any other country in the European Community, other than Denmark.

We have an unhappy knack, though, of all too frequently contributing to what is a worldwide phenomenon by our own internal actions. Management and workers must work together in harmony with each other. Too often management virtually conceded its right to manage and, in order to avoid confrontation, has simply given way to a union's every demand. That might have been possible, though undesirable, in times of economic growth with full employment, but in the long term it has stored up a legacy of inefficiency and restrictive practices which have resulted in our industry being all too often uncompetitive, and from which we are now suffering. The tragic fact is that the unemployment which was previously hidden in industry has now found its way on to the unemployment register.

That is part of the cause of our difficulties, but there are very encouraging signs. The number of days lost in strikes has gone down from 29.4 million in 1979 to 4.2 million in 1981—an immence improvement. Already there are signs of a turn in the economy. Output rose in both the third and fourth quarters of 1981, and is expected to rise by a further 1½ per cent. in 1982. Manufacturing output should grow even faster, perhaps by 3 per cent. Productivity in the manufacturing sector rose by no less than 10 per cent. in the course of last year, and as a result of more moderate pay settlements and the depreciation of sterling, the index of competitiveness—which is an indicator of the amount of wages required to produce a unit of output—has improved by about 10 per cent. since the first quarter of 1981.

Short-time working was dramatically reduced by three-quarters, and overtime working was increased by 15 per cent. during the course of last year. Vacancies have been increasing since the middle of last year, being about 25 per cent. higher in January and February this year compared with the second quarter of last year. As the noble Lord, Lord Kaldor, said, the balance of payments current account is estimated to have been about £8,000 million in surplus last year, and that is the highest that it has ever been. The rise in our unit labour cost, which was previously among the fastest in the world, has been transformed into one of the more modest. With one or two notable exceptions from the public sector, industry has become much less strike prone. All that is an encouraging and successful story in times when world conditions are not only unhelpful, but positively unencouraging.

The Government are helping industry in these difficult times, as my noble friend Lord Selsdon will know only too well. In 1982–83 the supply estimates allow for industrial support of towards £1.5 billion, including support for specific industries. Among other things, that allows the Government to assist anywhere in the country industrial projects which are likely to benefit the United Kingdom and the national interests. Assistance is available for projects which create new jobs or which safeguard existing ones in assisted areas. There are regional development grants, which are streamlined to concentrate help on the most needy areas. Government grants are also available to industry towards the cost of converting oil-fired boilers to coal; and up to £50 million was made available in the two years 1981–82 and 1982–83.

The noble Lord, Lord Whaddon, the noble Lord, Lord Granville of Eye, and my noble friend Lord Selsdon referred to the importance of small businesses. They are quite right. Small businesses are vitally important, not only from the point of view of economic encouragement but from the point of view of the employment that they create. Existing and new small businesses have a vital role to play in the economic growth of the country, and the Government have introduced over 70 measures to help these small firms. There is the loan guarantee scheme, which encourages banks to lend money to new and existing small firms. The total sum available for loans in the first year was raised in the Budget by £50 million to £150 million, and a further £150 million will be available from June 1982 to May 1983.

The business start-up scheme was introduced in 1981–82 to allow private individuals to get tax relief at their marginal top rates on up to £10,000 a year invested in new businesses. The relief limit was increased to £20,000 for each of the years 1982–83 and 1983–84 in the Budget. This encourages new businesses requiring a modest amount of risk capital during their early years. Then there are many schemes for helping new technologies and micro-electronics. One of the problems is the lack of awareness by industry of the opportunities which are afforded by new technology, and the Government have designated 1982 as Information Technology Year in order to encourage these new technologies. The major event of the year is a two-day conference which the Prime Minister will open in the Barbican Centre in London on 8th and 9th December.

All this is positive stuff which we are doing to encourage industry. But important though it is, of course, it does not help the people who, regrettably, because of the recession, are not able to find work. It is the Government's concern to help these people as much as possible by providing opportunities for work where this can be reasonably done, and also by training them for work so that there are skilled people available when the recession comes to an end. The noble Baroness, Lady Ewart-Biggs, said that she wanted more done. My Lords, in this financial year alone over £1,000 million is being spent by the Government on special employment measures, and this will rise to nearly £1,500 million in 1982–83. Overall, the various schemes at present are helping over half a million people, and they are saving over 300,000 people from having to sign on the unemployed register.

We must not, however, mistake the purpose of such measures. They alone will not solve the problem of unemployment—nor are they intended so to do. The Government's basic economic strategy is designed to reduce inflation and so to make our industries more efficient and more competitive in the world markets. The help which we are giving to young people who are unemployed goes hand in hand with the arrangements which we are making to improve training. Our plans to improve training are to develop more open and flexible forms of skill training which are based on agreed standards of skill, to improve vocational preparation for young people by offering a combination of work experience and related training and education, and to improve training opportunities for adults.

My Lords, proper training arrangements cannot in themselves solve all our problems; but without them we will never be able to move ahead to take advantage of future opportunities. We are providing for the development of an open-tech programme, to make technical training more accessible; and we are introducing a new £1,000 million Youth Training Scheme guaranteeing, from September 1983, a full year's foundation training for all those leaving school at the minimum age without jobs.

The Youth Training Scheme will be a more constructive and positive way of helping young people. It will replace the Youth Opportunities Programme which was started in 1978 to help those aged under 18 who could not find jobs. En the last four years, the programme has grown to between three and four times its original size, and this year it will have some 550,000 entrants. It has been particularly successful in providing work experience for this huge number of young people. In 1982–83 Government expenditure on this will be £747 million.

There is a very real cause for concern about the number of young people who receive little or no training on their entry into the labour market. The Government's aim is that the new Youth Training Scheme should provide a full year's foundation training for all unemployed 16-year-old school-leavers compared with the present average of 23 weeks on the Youth Opportunities Programme. The Government are asking the Manpower Services Commission to develop the programme so as to provide 100,000 of the new 12-month training places in the year starting in September 1982, in preparation for providing such places for all school-leaver entrants in 1983.

We estimate that when the scheme is fully in operation there will be some 300,000 young people on courses at any one time. While the Manpower Services Commission will play a central role in this new scheme, it will also need the support of many sections of the community; and, contrary to what the noble Baroness, Lady Ewart-Biggs, said, voluntary organisations will not be excluded. We rely on employers and other sponsors to provide courses of the right quality at local level, as we have relied on them under the Youth Opportunities Programme.

Another scheme which began to operate on 4th January is helping young people directly to get jobs. That is the Young Workers' Scheme, designed to encourage employers to take on more young people at realistic wage rates which reflect their inexperience and frequently their need for training. That is going to cost about £59 million in 1982–83.

Then there is the Job Release Scheme. The Prime Minister announced the expansion of this scheme last year. Now men who are aged between 62 and 64 will be able to apply for job release until the end of March 1984. Women aged 59 and disabled men over 60 will also be able to apply until March 1984. This is the first time that any Government have committed themselves to accept applications on to this scheme for more than a year ahead; and that is going to cost £244 million in 1982–83.

Then there is the Temporary Short-Time Working Compensation Scheme. That is a short term measure which encourages firms to adopt short-time working as an alternative to making some or all of their workers redundant. That is going to cost £118 million for 1982–83. Then there is the Enterprise Allowance Scheme. Then there is the Community Enterprise Programme, which is going to cost £157 million in 1982–83. The Government are constantly looking for new ways of helping the unemployed, and we shall certainly take into consideration the ideas which have been suggested by your Lordships this evening.

So, in fact, the Government are doing quite a lot, and I reject the view which insinuates that the Government are content to see unemployment at its present level. I reject the view that insinuates that the Government are doing too little to alleviate it, or too little to prevent it. That just does not measure up to the facts; and I was glad that my noble friend Lord Nugent agreed with that.

In the end, my Lords, the life and the success of a nation depends not on Governments but on individuals. Governments can set the conditions—they can help—but it is individuals who are the people who make successes and upon whose successes others depend. We—Great Britain or the Government—cannot be responsible for a world recession. That is a fact of life with which we have to contend. We are, though, as individuals, whether employers, employees or politicians, responsible for the actions which we take within this country. It must be our determination at all levels to ensure that our businesses succeed and prosper. We cannot afford to pursue selfish ends if, by pursuing them, we adversely affect our fellow men or our businesses, upon which not only our own livelihood but the livelihood of others depends.

Governments can exhort and can set the conditions. These we have done and are doing. Governments can help by providing money to train people. This we have done and are doing. But the success of any business—and there are plenty who have succeeded—depends on those who operate it and on those who work in it. We are involved in a corporate effort between Government and people and between employer and employee. If we continue along the lines on which we have started, we will see industry pick up; we will see employment pick up; and so as a country and as individuals we will pull ourselves out of the recession and out of the hideous effects of it in which we find ourselves.

8.51 p.m.

Lord Glenamara

My Lords, we have had a very good debate and I should like to thank all noble Lords on both sides of the House who have contributed to it. We have these very good debates frequently in the House of Lords, but nothing much seems to happen as a result of them. So I was very pleased to have the assurance from the noble Earl, Lord Ferrers, that he will take back all the points which have been raised and have them examined. Above all, I should ask all the Ministers present—and there are four of them at the moment—to transmit to their departments, to the ministerial and Civil Service heads of departments, the deep anxiety expressed on all sides of the House about the continuing evil of unemployment. After all the myriad things pulled out of the barrel in the past few minutes by the noble Earl, the simple fact remains that unemployment remains at 3 million and will go up by 300,000 this year. I beg leave to withdraw the Motion for Papers standing in my name.

Motion for Papers, by leave, withdrawn.