§ Debate resumed on the Motion moved on Wednesday last by the Lord Lucas of Chilworth—namely, 237 That a humble Address be presented to Her Majesty as follows:
§ "Most Gracious Sovereign,
§ "We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."
§ 3 p.m.
§ The Secretary of State for Trade (Lord Cockfield)My Lords, this is the last day of the debate on the gracious Speech and it is appropriate therefore that I should congratulate my noble friend Lord Lucas of Chilworth who moved the Motion we are debating, and my noble friend Lady Trumpington who seconded it. They are both experienced debaters in your Lordships' House and we always listen with profit to what they say.
Amendments to the Motion have been tabled in the names of the noble Lord, Lord Scanlon, and the noble Lord, Lord Byers. I will of course listen with interest to what they say and indeed to other noble Lords who contribute to the debate. We all look forward with pleasure to listening to the noble Lord, Lord Gormley, who will be making his maiden speech on this important occasion.
One of the most important contributions this Government have made has been to break the sterile mould in which economic policy had been confined. When for so many years growth had lagged, when one had lost ground compared with one's competitors, when unemployment and inflation alike had increased successively as one turn of the economic cycle succeeded another, something must have been wrong. We reject the theory of big government; we reject the view that the state can do things better than the individual; we reject the view that what is needed is controls, regulations and direction from Government. On the contrary, our view is that it is only in the freedom of the individual—whether he be employer or worker—that enterprise will flourish, that people will give of their best, that we can build a prosperous economy that will offer opportunity and employment for all.
The fact that this change in course has had to be made during severe recession has posed very great problems. But problems must be tackled; problems must be solved; they must not be thrust on one side because it is too difficult or thought too untimely to tackle them. The debates in your Lordships' House have always provided a forum for the exposition and pursuit of new ideas. Therein lies their importance. I hope the same will be true of today's debate. All this I will return to in due course. But I must start with more immediate matters.
This year for the first time my right honourable friend the Chancellor of the Exchequer has published an autumn Statement: this brings together the separate announcements on economic and other matters usually made at this time of the year. The Statement provides an invaluable background to the kind of debate we are having this afternoon. It reviews developments in the economy in the current year and the prospects for next year. It indicates what the likely balance of income and expenditure next year will be.
238 And it thus enables an informed judgment to be made on next year's budgetary prospects. Of course, there is no lack of independent outside forecasts. This new Statement is not so much a matter of "the more the merrier"; but of the Treasury forecast being, hopefully, primus inter pares; as well as perhaps lifting the corner of the wraps in which the Chancellor's budgetary thinking is customarily shrouded, although to know more of that we must wait until next March.
We have lived through the worst recession in half a century. Not alone, because the recession has struck every major country in the world. But it hit us earlier than most, and harder than many. Not least because the failures of past decades left us less well-equipped to resist. The fact that our share of world trade in manufactures had halved—from 20 per cent. to 10 per cent.—in little over 20 years, while import penetration into our home market had increased dramatically, illustrates how much our competitive position at home and abroad had been eroded.
The dramatic increases in oil prices—two great surges in a single decade—brought inflation and recession to all the countries of Europe, to North America and to the furthest corners of the world. The universal nature of the recession is illustrated by the fact that growth in the major OECD countries, which had averaged 5 per cent. a year in the late 1960s and the early 1970s—that is in the decade before the first oil price explosion—has now fallen to nil. But the recession was not confined to the industrial countries. With recession the demand for commodities fell and thus prices fell too, posing severe problems for many of the developing countries.
Last year the first signs of recovery began to appear. In this country output began to rise. We expected that this recovery would make progress this year and extend further next year. But the failure of the world economy to recover and the dramatic rise in interest rates in the United States last year, with the damaging effects this had world-wide, have together held back our own recovery. We expect total output to rise marginally this year. Next year we expect an increase of 1½ per cent. So we are not slipping back into recession. But recovery is painfully slow.
Within this very modest improvement, manufacturing has done substantially less well than the economy generally. This is the reason why the CBI surveys, which relate largely to manufacturing, and not to the economy as a whole, show a more sombre picture. For many years now commercial and financial business and the service sector generally have shown a higher rate of growth than manufacture. There is nothing exceptional in this. Indeed, it is the direction in which all advanced economies tend to develop.
There are three participants or partners in the working of an economy—the Government, employers and employees. The tendency today is to talk not of "employers" but of "industry", not of "employees" but of the "workforce". But as Shakespeare said: "What's in a name …". So I will not delay your Lordships on such matters of terminology. The important thing is that each of these three partners has his responsibilities, and it is only if all three play their part that economic progress can be made.
The part of the Government is to provide the right framework, the right environment, in which industry, and the economy generally can operate. Sound money 239 is absolutely essential for the efficient operation of industry, for investment and development, and for the fair and equitable conduct of our social life. Inflation has existed ever since profligate rulers or evil men discovered how you could rob everyone else by debasing the currency or printing money. If you are to put a stop to inflation, you have to start by Government themselves accepting the firm discipline of a sound fiscal and monetary policy. That we have done. As the autumn Statement shows, this will be the first time since 1977 that the annual review of public expenditure will not have led to an increase in planned expenditure. And, on this occasion, not under pressure from the IMF. Public expenditure as a proportion of GDP, while higher than in 1979, will show a fall next year. So too will public sector borrowing. The monetary aggregates have been kept within the target range.
The effect of these policies is to be seen in the dramatic fall in the rate of inflation. From a peak of nearly 22 per cent. in 1980, inflation is already down to 7.3 per cent. By the spring we expect it to be down to 5 per cent. There is still a long way to go, as inflation rates elsewhere are also falling—and in some countries, notably Western Germany and Japan, they start by being significantly below our own. Disraeli referred—in a slightly different context—to "the sweet simplicity of . . . 3 per cent." I commend that thought to your Lordships.
Interest rates too have fallen quite dramatically. From a peak of 16 per cent. reached last autumn, base rate is now down to 9 per cent., a fall of no less than seven percentage points. As each percentage point is worth £250 million the benefit to industry is very considerable. But it is also of help to the private individual. As the reduction feeds through into mortgage interest rates it represents a real fall in the cost of living.
The Government have also helped through a whole range of tax reductions and incentives. Last year's Budget provided help for industry totalling £1 billion, mainly through the reduction in the national insurance surcharge. My right honourable friend has now announced a further reduction in the national insurance surcharge. For this year and next this will be worth a further £1 billion to private sector employers.
The organisation of production is a matter for management. It cannot be done by Governments. The truth of this proposition is increasingly being recognised. What we need, what we must have, is sufficient production to meet demand—both at home and overseas—at competitive prices, at prices people are prepared to pay. This is where in the past we have fallen so far short of what is needed. Overmanning, restrictive practices, outdated equipment and sometimes poor management have all contributed to a loss in competitiveness which has resulted in a loss of markets—domestic markets and export markets alike. But in the last two years great advances have been made. In manufacture, productivity has increased by 13 per cent. since the end of 1980.
There is a heavy responsibility on employees, on the workforce, to co-operate in the improvement of productivity. There is equally a responsibility on employers and employees alike to ensure that pay settlements are moderate. Progress here too has been 240 made in the last two years. Wage settlements in the 1980–81 pay round were halved. Last year they fell again—to some 7 per cent. This coming year they need to fall further. Cost competitiveness has improved. In the last 12 months unit wage and salary costs in manufacture increased by only 6 per cent. This was less than half the rate of increase in the United States and France, but regrettably still higher than in Germany and Japan. There is evidence that in relation to the world's most competitive economies we are still losing ground.
In the year to June, total domestic demand increased by 3 per cent. But output increased by 1 per cent. only. This means that most of the increased demand will have been met by imports. Clearly therefore we still have a long way to go before our level of costs enables us to compete effectively with the most efficient economies in the world. This is why it is essential to press on with improving our efficiency, increasing our productivity and reducing the level of our pay settlements.
In the first nine months of this year our exports have shown an increase of 9 per cent. in money and 1½ per cent. in volume compared with the corresponding period last year. There was a very considerable rise in exports in the latter part of last year and with the failure of the world economy to grow, it has been very difficult to match those figures. Nevertheless, we are still likely to show a balance of payments surplus this year of £3½ billion. A third of this will come from visible trade: two-thirds from invisible trade—that is, from services, profits and dividends. We give considerable help and encouragement to our export trade through the British Overseas Trade Board and through our Diplomatic Service overseas. We provide credit facilities, including a measure of Government assistance, through the Export Credits Guarantee Department. In all these ways Government support the very considerable—and successful—efforts made by our exporters.
I reviewed our policy on international trade in the speech I delivered in your Lordships' House on 20th October when we debated the prospects for the GATT Ministerial Meeting this month. We are—and intend remaining—one of the world's great trading nations; 30 per cent. of our GDP is represented by exports—one of the highest percentages of any major industrial country. A liberal, open, international trading system is very much to our advantage.
There are of course other arguments in favour of a liberal trading system. Import controls blunt the competitive edge of competition. Too often they mean that the consumer gets poor value for his money. But we must be realistic. The world has changed since the original GATT agreements were negotiated 30 years ago. Many privileges conceded and enjoyed in the past are no longer justified. What we need, in the new world into which we are entering, is a new concept of parity of opportunity.
Too often people try to achieve a better balance by restricting imports. We see the latest example of this in the case of France. We understand the problems the French face. They are very great. But these problems cannot be solved at the expense of other members of the Community. Free trade within the Community is a basic right of all members of the Community. As far as we ourselves are concerned, apart from oil, France 241 has a substantial balance of payments surplus with this country and we could not accept action which would disrupt our exports to France. I have made our concern very clear to Ministers in the French Government.
I come back to the world trading scene. The last thing I would willingly want to do is to try and solve the problems we and others face by import restriction. What I want to achieve is a better balance by opening up overseas markets to British exports. Take the case of Japan. We have a massive unfavourable balance in our trade with Japan. In 1980, the adverse balance was £1 billion. Last year it was £1½ billion. This year it looks set to be £2 billion. Next year, it will be goodness knows what.
This is not a situation we would want to put right by general restriction on Japanese imports. What we need—both of us, the Japanese as well as ourselves—is an opening up of the Japanese home market. The Japanese by their hard work, ingenuity and enterprise have earned for themselves a high standard of living. This they can really enjoy only if they open their home market to the import of the products of the Western world.
A similar situation exists in the case of many of the newly industrialised countries in the Far East and South America, and in the case of countries like Australia and Spain. All these countries have relatively free access to our markets, usually at low rates of duty, while our exporters are denied equal access to their markets by quotas, high tariffs or other devices. In many instances our own industries are subject to severe competition from imports from these countries. It is difficult, if not impossible, to defend a situation where our own industries have to face competition of this kind when they themselves are denied export opportunities which ought in all fairness to be available to them.
Countries which close, or effectively close, their home markets in this way need to realise that they are simply creating pressures for retaliatory action. One cannot expect the problem to be solved overnight, but there must be movement; it must be in the right direction, and it is already overdue.
I come to the question of unemployment, the great unsolved problem of the Western industrialised world. We are not alone in facing high levels of unemployment. Nor is the present time unique in this respect. There have been serious recessions and high unemployment in former times. None of this in any way diminishes the hardship, frustration and loss of dignity that unemployment involves, but it does illustrate how intractable a problem it is.
Of course, measures can be taken—and are being taken—to alleviate the problem. We in this country are spending £1½ billion this year on special employment measures. Next year we will spend £2 billion. We have extended and improved the Youth Opportunities Programme, we have launched a new and all-embracing Youth Training Programme and we have introduced other measures; but these are all, essentially, palliatives.
Unemployment will be cured only when we can create secure, long-term employment. That will be done only when we can compete on equal terms with the rest of the world. By the CBI's own reckoning, if we enjoyed the same proportion of world trade in 242 manufactures as we did 20 years ago, the exports would be equivalent to 1½ million extra jobs in this country. We are back, therefore, to the basic principles about which I have already spoken. We must increase our productivity, we must improve our efficiency, we must restrain our pay increases and we must improve our cost competitiveness. Pay increases of 5, 6 or 7 per cent., while our competitors in Japan and Germany are accepting much lower increases, are going to destroy jobs, not create them. There is no magic in the formula I have described; there is nothing novel in it. The purveyors of novel remedies deceive the people. In the end, the solution will only be found in the trusted and well-tried virtues: in hard work, enterprise and self-discipline.
There is reason to suppose that the emergence of great cartels—producers' cartels such as OPEC, the labour cartels represented by the unions, the industrial cartels represented by private monopolies and nationalised industries—have all accentuated economic instability. Without the constraints flowing from these distorting factors, adjustment to economic change would have been smoother and more efficient. It is to restore the free working of the economic system, and thus in the long run to reduce the severity of recessions, that we have abolished a whole panoply of controls, reduced the size of the public sector and reformed trade union law. Privatisation—or "liberation" as I would prefer to call it—figures largely in the gracious Speech. This is not political dogma. It is determined progress along the path of restoring flexibility and efficiency to the working of the economy, in the long run to the benefit of us all.
In times of difficulty, when the going is hard, as it is at present, when the night is dark and the dawn seems far away, there will always be those who look on the dark side, who see every bit of bad news as confirming their fears, who lose confidence in the present and despair of the future. There is no hope down such a road. We face great problems. We must tackle them with resolution and courage. Since the dawn of recorded history there have been good times and bad; the seven lean years have followed the seven fat years. We have lived through the worst of this recession. We have not emerged as soon or as fast as we had hoped, but progress there is and progress will continue. Our task is to foster, encourage and develop that progress. That is what our policies are directed to, and that is what we will achieve.
§ 3.28 p.m.
§ Lord Scanlon rose to move at the end of the Address to insert:
§ "but regret that the gracious Speech fails to provide for adequate measures to revitalise the nation's economy and to bring about a solution to the tragic problem of unemployment".
§ The noble Lord said: My Lords, I do not think it unfair to characterise the gracious Speech as a continuance of the medicine as usual, which means reliance on excessive monetarism and market forces, public expenditure cuts continuing, confrontation with the trade unions in the continued effort to reduce spending power and, hopefully, as a result of that, to reduce taxation, and, even more hopefully, to get some of that revenue into industrial investment. But is it working? The Government have now been in office for 243 three and a half years. In that three and a half years there was more than an adequate opportunity at least to establish the beginnings of the programme, if not completely to fulfil it. It is not so much that it is not even beginning to work, but rather that there are really no visible signs of any semblance of an upturn in the economy. Contrary to what the noble Lord, Lord Cockfield, said, the only conclusions that one can draw from this is that it has not worked, it is not working, and it will never work.
§ It is true that there has been a fall in inflation. It is now approximately 2 per cent. less than what it was when the Government came into office. It is also true that interest rates have fallen, and, at least according to the Government, industry is alleged to be fitter, slimmer, and leaner; and I certainly confirm that it is leaner. In fact, one of the best ways to own a small establishment these days is to start with a large one, such is the rate of decline in industry. It is also true that wages have been kept down and that by various manipulations purchasing power has been restricted, in particular in the manufacturing section.
§ But at what price have even those meagre, very meagre, aims been achieved? First, there is the staggering realistic figure of very nearly 4 million people unemployed in these islands at the present time. Then there are falling order books in both the immediate and future short-term periods, a nil growth in the economy, and, almost without exception, not only are firms not able to take on additional labour, but most of them are preparing for more closures and redundancies. No programme, no economic policy, no election victory, can be justified on the backs of 4 million unemployed and the present state of the economy.
§ But bad as the unemployment figure is, there is developing a much more sinister philosophy, a philosophy of despair which indicates that somehow, some way, the figure will not merely remain, but will increase. Unemployment will remain in perpetuity, and somehow, some way—I say this with respect to the right reverend Prelate—this is almost a visitation of God, a situation not man-made and able to be resolved by man, but one in which, because of new technology, we have to live with this army of unemployed.
§ I hope that the Government will publicly reject such dangerous nonsense. It is true that state benefit, meagre though it is, somewhat cushions the worst effects of unemployment. Certainly it cushions them as compared with my day when, if you were unemployed, you starved—literally starved. Indeed, had the cushioning not taken effect, social unrest would already have reached quite unacceptable proportions. But there is a limit beyond which the barriers of tolerance will break. This is not said lightly. More than any other single factor, the Government's complete inability to hold out any real hope for the future for the youth of this country will greatly exacerbate, and is greatly exacerbating, this dangerous, very dangerous, situation.
§ However, there is a sound economic reason, as well as a social reason, for quickly reducing unemployment. Leave aside the obvious economic argument that the cost of unemployment is being met by the revenue of North Sea oil, instead of that being 244 used to re-equip and modernise our industry. Leave that aside. It is a matter of simple economics that slumps are caused by the inability of people to purchase back the goods that they themselves have produced. By the continual depressing of purchasing power, whether through unemployment, social expenditure cuts, or unnecessary wage restrictions, the situation will develop until, like a snowball going downhill, it will become uncontrollable and will lead us into economic despair from which it will be very difficult to recover.
§ I remind your Lordships of what I know to be a true tale. The president of General Motors was showing the president of the United Automobile Workers around the firm's latest automated factory, in which from the molten metal to the finished engine block, ready for assembly in the car, everything was done by machines—casting, drilling, honeing, tapping, the lot. The president of General Motors said to the trade union leader, "You will have difficulty in making these machines your trade union members", and the president of the union replied, "You will have greater difficulty in getting these machines to purchase your motorcars". That will be absolutely true if we continue to depress the purchasing power of all.
§ Perhaps the most unkindest cut of all in the policy of depressing purchasing power—if I may follow the noble Lord in quoting Shakespeare—is the proposed action of the Chancellor of the Exchequer, as indicated yesterday, on the future benefits for pensioners. This cannot be justified, even on the basis of the inflation rate. To claw back from the pensioners what it is indicated will be clawed back ignores completely the fact that the prices of the essential foods that they have to purchase are not altered by the rate of inflation. Try telling them that the prices in the shops have fallen. Try telling them that heating, lighting, cooking costs are falling, and they will give you an answer. Tell them additionally that the sustained increase in petrol prices is not having an effect on the whole range of commodities that they must try to purchase not so as to prosper, but merely to live. Above all, these pensions are spent immediately. They are not put into savings. In a very small way they go towards relieving the economic gloom by purchasing directly, which is not always the case in relation to other increases.
§ We make this earnest plea to the noble Lords opposite, and in particular to the noble Lord, Lord Cockfield: Please use whatever influence you can to persuade the Chancellor of the Exchequer not to exact his pound of flesh, even though a very strict interpretation of indexing may well permit it. I believe that this is one of the most savage blows that any Government have contemplated against any defenceless section of our community.
§ What is the alternative policy? I shall frankly admit that there is no general panacea for overcoming the very difficult economic situation with which we are faced and which is prevalent throughout the industrialised world. But there are things that can, and should, be done, and I shall name but a few. The first is that there must be a controlled—and I emphasise the word "controlled"—reflation of the economy. Cuts in the basic rate of tax will assist, but yesterday—and it has been repeated in your Lordships' House today—much was said about the so-called assistance that is being given to industry.
245§ The Chancellor, in his speech, estimated that every fall of one point in the rate of inflation was worth £250 million to industry. On a rough calculation, that means, on his figures, that industry should benefit to the extent of £1¾ billion. The cut in the national insurance surcharge means another £700 million; and we have heard again today that a fall of 1 per cent. in the interest rate means a further £250 million to industry.
§ Where does that money go? Does it go to investment? There is no indication that this is so. I know the arguments that will be used by industry against this. They will argue that this money is cancelled out, and more than cancelled out, as a result of variations in the rate of exchange. It is a pity that the CBI were not able to be more definite than they were in the statement of their views on the exchange rate. It seems to me that neither they nor the Government, nor the Treasury, know whether they want a strong pound or a weak pound. It seems to the outsider, and to somebody who does not understand the mystiques of high finance, that when it is weak everybody wants it strong, and when it is strong everybody wants it weak. But let me say this. If only the CBI had used the much-maligned block vote and stopped the distributors and importers from out-voting the manufacturers, we might have been able to get a decision, even from the CBI.
§ I turn now to the second point—and here again we must entirely disagree with the noble Lord, Lord Cockfield, on the question of import controls. I emphasise the word "selected" import controls. I can well remember (if I am not boring your Lordships with another true tale) that I happened to be at a Neddy meeting with the noble Viscount, Lord Watkinson, who was then president of the CBI, when we were debating import controls. He made a statement which has remained with me ever since. He said: "We would not need any import controls if only we could learn to fiddle as well as the French". That may well be true, but in the absence of our ability to fiddle, something has got to be done.
§ Let us take, for instance, imports of cars from Spain. They are subject to a tariff of only 4 per cent. when they come into Britain, and yet cars manufactured here and going to Spain are subject to a figure nine times bigger than that—36 per cent. The same is broadly true of South Africa, of Australia and of Korea. These are the economics of the madhouse. You cannot continue, I say to the Government and to noble Lords opposite, to hide behind the idea that we cannot have import controls. Reciprocal trade, yes. Where there is equality between tariffs, yes. But where there is the outstandingly ludicrous situation that I have tried to describe, something must be done if industry is to survive and if the wage restraint and the working practices which have been referred to are not all to have been in vain.
§ I turn now to the question of privatisation. Let me say again at the outset that I believe the Government can say with some authority that they had a mandate for a degree of privatisation. But the extent to which some of Britain's most priceless assets are being disposed of—I cannot say sold—only for the purpose of reducing the public sector borrowing requirement, thus enabling the Government, hopefully, to give some electoral tax relief not justified on the basis 246 of their economic policies, is little short of scandalous. Privatisation of bricks and mortar, of machines and equipment, may well be justified within the mandate; but it is one thing to talk about those things, it is another to dispose of the indigenous national wealth, such as oil, gas and coal, which belongs to the people of this country and is not for disposal to any private individuals, in our view, whether they be small shareholders or large shareholders. I hope that we will be able to remedy the errors of this Government, given the opportunity in the future.
§ Now a word on the question of training. Here, let me say that the Government's record is good—very good. But—and I put it only in these words—there arc signs that the excellent programme launched by the Government is going to be used to subsidise low wages and as a constant replenishment of workers at low rates of pay, rather than by employment later on, after the training has been given. I do not want to labour the point any further than that; but some of these things will cost money, and the obvious question is: How is this money going to be generated?
§ My Lords, we on this side of the House stand second to no one in our support for and agreement with the decisions on the Falklands, both to send the task force and to use it. We stand second to no one in our admiration for the valour and diligence of all the services, and of the Merchant Navy. I say that because yesterday the Chancellor again indicated that the additional cost of the Falklands conflict was in the region of £650 million. We cannot on the one hand support the end without on the other supporting the means. My only point in referring to these things is to say that if there was a willingness on the part of the Government to find money for reflation and for the necessary investment in industry, it could and it should be found.
§ But there is another question on defence. I express my personal view (and I am not now going to embark on the argument between multilateralism or unilateralism) but it concerns the quite senseless expenditure of money and resources on a so-called independent nuclear deterrent which is neither independent nor a deterrent. If some of that money could be diverted into the channels to which I have referred, I think we would be doing something really useful for the regeneration of our economy.
§ My Lords, I have spoken at length on some of the things to which I believe the Government should give immediate consideration and attention. One of the lessons one quickly learns is that Governments continue to govern even though they listen with rapt attention, and then proceed to do nothing about the remarks to which they have listened. But I believe that within the points that I have tried to outline, particularly in relation to some of the modified points of the Government's own programme, the Government should and must do something if we are indeed going to survive as an industrial nation. My Lords, I beg to move the first amendment to the Motion.
§ Moved, At the end of the Address to insert: "but regrets that the gracious Speech fails to provide for adequate measures to revitalise the nation's economy and to bring about a solution to the tragic problem of unemployment".—(Lord Scanlon.)