HL Deb 29 June 1983 vol 443 cc252-359

Debate resumed on the Motion moved on Wednesday last by the Duke of Norfolk—namely, 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".

3.12 p.m.

Lord Cockfield

My Lords, we come now to the final day of the debate on the gracious Speech. It was illuminated at the beginning by the speeches of the noble Duke and Earl Marshal and by my noble friend Lady Airey. We have also heard a number of maiden speeches: from my noble friend Lord Quinton, the noble and gallant Lord, Lord Cameron, and the noble Lord, Lord Ogmore. They were all interesting, entertaining and well informed. Today we look forward with interest to hearing maiden speeches from my noble friends Lord Ingrow and Lord Bauer.

We now embark upon a new Parliament. We need therefore to chart the course ahead. The gracious Speech indicates the course we will be following in the coming Session. But we need to look further ahead than that. We said when we first came into office that we were embarking on policies which would require not one Parliament but two. That second Parliament has now been vouchsafed us.

We achieved much in the first Parliament. Tough decisions which were then taken—for example, in the 1981 Budget—have been justified by events. Inflation is down to 3.7 per cent. Interest rates are down by nearly seven percentage points since the peak in the autumn of 1981, and, if I may say so, the recent increase in building society mortgage rates needs to be seen against declining interest rates elsewhere. Public expenditure has been brought under control.

As we now enter our second Parliament, therefore, the keynote of economic policy is one of continuity and consistency of purpose. We need to build a new prosperity for our people. We have set our feet on the right path. We must follow that path to the successful future it offers.

"Political economy", declared Adam Smith, "proposes first to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves". That statement, written 200 years ago, is just as valid today. The object of economic activity is the creation of wealth—not just individual wealth but, in the words of Adam Smith, "The wealth of nations". The two are in fact inseparable. National prosperity depends upon individual prosperity.

Governments cannot themselves create wealth. They can only create the conditions in which individuals create wealth; and individuals in turn have to take advantage of these conditions.

We spent our first period in office in laying the foundations: in establishing the right framework within which the economy would operate. That requires principally three things: stable prices, lower interest rates and adequate incentives. We have made progress in all three directions. It has been painful. No one would deny that But you cannot reverse a trend which has existed—and indeed grown worse—over time without pain.

Whether inflation can be exorcised altogether, and for all time, is a matter of debate. But what is undeniable is that no economy can stand the sort of inflation that we saw in the late 1960s and the 1970s. Inflation reflects expectations. The quicker we can remove the expectations, the quicker we will remove the evil itself. We now have the lowest inflation rate for over 15 years—a great achievement, but we must not rest there. Both Western Germany and Japan—our two principal competitors in the manufacturing field—are still doing better than we are.

Interest rates in turn reflect inflation. High interest rates, indeed, flow from high rates of inflation and reflect many of the same causes. The link is particularly pernicious. When inflation falls, interest rates often lag behind. As a result, we are left—at least in the short run—with untypically high real rates of interest, not only in this country; the same is true elsewhere in the world. It is only when we can convince people that the fall in inflation is permanent, and will continue, that real rates of interest will come down in the way that they ought to do. It was the big fall in interest rates after 1931 which led the way out of the great depression. We may well see the same again.

The most effective of all incentives is a reduction in the level of taxation, both for individuals and for businesses. At the outset of the last Parliament we were able to reduce the basic rate of income tax to 30 per cent., and the grossly excessive top rates of tax. At the end of the Parliament we increased the personal tax allowances by a figure double the rate of inflation.

As the gracious Speech makes clear, the attempt by the Opposition to push up taxes as a prelude to the election will now be reversed in a new Finance Bill. The people have made their choice, and it is a wise choice. Further reductions in taxation are a high priority, but these must depend upon prudent management of our finances.

In the business field we are in course of reducing the rate of the national insurance surcharge to 1 per cent. from the 3½ per cent. at which it was fixed by the last Labour Administration. I use the word "last" in the historical sense, although it might well prove to be in the prophetic sense as well. When ultimately the national insurance surcharge disappears, its going will be lamented by few.

In all, we have introduced over 100 measures to assist business, including the new Business Expansion Scheme which was included in the Budget just before the election.

This then is what we have achieved in our first Parliament. As the gracious Speech indicates, we now propose continuing down this path. Our policies will be directed to securing continued progress on inflation through firm medium-term monetary and fiscal policies; and creating a more dynamic and competitive economy.

In this connection it is important that the proportion of the national income pre-empted by government—and I use the term "government" in the widest sense—should be reduced. Few people realise how immense has been the growth of the public sector in our own lifetime. In 1936—the last pre-war year unaffected by rearmament—central Government expenditure amounted to £850 million. Today it amounts to well over £100,000 million—an increase in real terms of eight and a half times. Today 7 million people are employed in the public sector—30 per cent. of the total employed population. In 1936 the figure was three quarters of a million—a mere 5 per cent. of the employed population.

After the war, the public sector was launched on a path of expansion. This continued way beyond the point when both prudence and our own deteriorating fortunes should have dictated reining back. By 1975–76 public expenditure had risen to a peak of 46 per cent. of our national income, and public borrowing reached 10 per cent. of national income.

We have been determined to reverse this trend towards pre-emption by Government of an ever increasing share of national output. The ratio fell last year and our plans, which are published in the Financial Statement, envisage it falling steadily to 41½ per cent. by 1985–86. Public sector borrowing has also been reduced substantially. This year we expect the figure to be 2¾ per cent. of national income—one of the lowest figures in the developed world; and we must keep it that way.

There is one particular facet of the growth of the public sector that I wish to refer to in more detail; that is the question of the nationalised industries. At this distance of time it is difficult to recall the high hopes of a new industrial dawn which nationalisation raised in the early post-war period. The state industries, it was said, were going to provide huge economies of scale. They were going to eliminate supposedly wasteful competition. They were, it was claimed, going to give workers a much closer sense of identity and involvement with their industries.

Tragically, the reality has proved very different. Few of the anticipated economies of scale actually materialised. Insulated from market pressures, the state industries have in general become characterised by overmanning, low productivity, industrial disputes, and heavy financial losses. Productivity generally in these industries has tended to grow significantly slower than elsewhere in the economy, while both wages and prices have tended to increase faster.

The ideal of public service, which underlay the original concept of nationalisation, has also long since disappeared. Labour relations in the nationalised industries are, if anything, worse than in the private sector. In many industries the attitude to the public generally, and the willingness to inflict hardship on ordinary people, in pursuit of wage claims or other grievances, is deplorable.

Much can be done—and has been done—to tighten up the scrutiny, monitoring, and management of the nationalised industries. But we remain convinced that the best incentive to an improved use of resources comes from opening up new areas to market forces wherever this can be done. The most effective way of doing this is by returning industries to the private sector—"privatisation", as it is somewhat inelegantly called.

We have already transferred to private sector ownership, in whole or in part, Cable and Wireless, Associated British Ports, British Aerospace, Britoil, British Rail Hotels, Amersham International and the National Freight Corporation.

In this Parliament we propose to carry the process further. British Telecom, Rolls-Royce, and British Airways; substantial parts of British Steel, of British Shipbuilders, and of British Leyland; as many as possible of Britain's airports; and British Gas Corporation's oil assests—all these will be transferred to the private sector.

There are of course some success stories in the public sector. Most of them are companies or industries en route for privatisation, where the prospect of a return to the private sector has acted as a spur to efficiency and enabled top class private sector management to be recruited. The latest—and outstanding—example of this is British Airways, which has been turned round from heavy loss into profit. This, I may say, is an argument for privatisation, not against it.

The essential job for Government therefore is to provide the right framework; and that is what we are doing. But it is not sufficient just to provide the right framework. People have to take advantage of it. They have to be willing and anxious to make the fullest use of the opportunities offered. This, indeed, is happening and there is plenty of evidence that this is so. There has, for example, been a remarkable increase in productivity: around 17 per cent. since the end of 1980. Cost competitiveness has improved by some 20 per cent. since early 1981.

The exchange rate now stands very much where it did in 1979. Consequently, the whole of the loss of competitiveness which now remains is due primarily to the excessive rise in earnings which occurred principally in 1979 and 1980. Since then there has been a dramatic and welcome reduction in the level of pay settlements. But unless we can bring settlements down to the level achieved by our principal competitors we will remain vulnerable in both domestic and overseas markets. It is no good complaining about the rising tide of imports if the explanation lies in our own failure to produce the right goods of' the right quality at the right price.

But there is another and very important aspect to the question of the level of pay settlements. During the period when there was little or no growth in output, those in employment increased their incomes at a rate significantly higher than the rate of inflation. The resulting loss in competitiveness led to reduced output and increased unemployment. Excessive pay settlements have thus been one of the major causes of unemployment.

If unemployment is to be reduced—and it must be—pay settlements must also be reduced to enable our goods to be sold on a competitive basis at home and abroad. This is a lesson that union leaders and pay negotiators simply must learn in their own interests and in the interests of their members.

Much else needs to be done. We must reduce our costs, including costs imposed on industry by Government. We must continue to improve productivity by better working methods, by the elimination of restrictive practices and by the application of new technology. We must improve the quality and the design of our goods. We must take full advantage of the great extension in training facilities we are now providing. The new youth training scheme for which we have provided £950 million this year is based on the provision of 460,000 places, and we are on course to attain that figure.

We must encourage innovation and ensure that we are in the forefront of the new technology-based industries. Provision for "Support for Innovation" through the Department of Trade and Industry has risen from less than £60 million in 1978–79 to £230 million in the current year, an increase of 135 per cent. in real terms. In addition to this, £185 million was set aside in the Budget for a special innovation package, including a successor to the highly successful small engineering firms investment scheme and a scheme to encourage and speed the commercial exploitation of innovative products and processes.

We are now beginning to see the benefit of the measures we have taken in a steady if modest growth in output. Total output has recovered by some 2½ to 3 per cent. since the spring of 1981. This is not, I may say, confined to oil or even to special sectors such as housing. Consumer spending is up by 3 per cent. on last year. The CBI's industrial trends inquiry shows, for the fifth month in succession, increasing output and improving order books both for home and export. There are clear signs of a general recovery in world output particularly in the United States where expectations of growth have been revised sharply upwards, and also in Canada and Germany.

The prospects for world trade have improved. Although the international debt situation still causes anxiety, many of the largest debtors have now undertaken adjustment programmes, often with IMF assistance and under IMF surveillance. The Williamsburg summit sounded a note of optimism reflecting confidence in prospects for recovery. If I may read from the Williamsburg declaration, it said: The recession has put our societies through a severe test, but they have proved resilient. Significant success has been achieved in reducing inflation and interest rates: there have been improvements in productivity: and we now clearly see signs of recovery. The success of a country; of its culture, its political institutions, its economy, does not depend entirely on material factors. It reflects also the outlook of the country, the spirit of its people. The difficulties which overtook us in the 1970s were not entirely material difficulties. Those difficulties were important. But we faced also the corrupting influence of the great growth in trade union power, the destruction of incentives through massive increases in taxation, the demoralising effect of great extensions of state power and expenditure. All this sapped our will to fight, to make our way in an increasingly difficult, dangerous and fiercely competitive world.

Perhaps the most important thing we have done since 1979 is to change this outlook completely, and I hope permanently. We all of us need to recognise that the prime responsibility rests upon ourselves, as individuals, and that success, whether individually or for the country as a whole, depends on a determination to seize the opportunities which are now available to us. It is in that spirit that I commend the gracious Speech to your Lordships.

3.38 p.m.

Lord Bruce of Donington rose to move at the end of the Address to insert: but deplore that the gracious Speech contains no relevant proposals to assist manufacturing industry or to reduce unemployment".

The noble Lord said: My Lords, the moving of this amendment becomes necessary because we on this side of the House, when we were able to read the gracious Speech, detected within it no constructive proposals for the advancement of the country's welfare in terms of the wealth that it produces and, indeed, of the individual welfare of its citizens.

The amendment is not moved because we expected the Government to list within the gracious Speech a whole series of specific measures calculated to aid manufacturing industry. It is not moved for that reason at all. It is moved to enable us to ascertain from the Government how they propose to deal with the appalling situation within the country after four years of their rule.

I must say that I was struck by the almost incredible complacency with which the noble Lord, Lord Cockfield, approached the situation as it now exists. If I may say so without any offence whatever, he made the same speech as he has made on numerous occasions before. The style has become more elegant with practice but the content remains precisely the same. Indeed, we on this side of the House have answered it so many times that I personally do not intend to respond on this occasion. He has already, in fact, been answered.

The whole spirit of the gracious Speech was encapsulated by the noble and learned Lord who sits on the Woolsack. He said yesterday: In one sense I fully accept the appraisal of it by the noble Lord, Lord Cledwyn, as the mixture very much as before, but perhaps with a second dose of the same medicine.". He continued: we believe, and believe quite simply, that the correct strategy is to make Britain one of the most efficient—I should prefer to say the most efficient—industrial countries in the Western world."—[Official Report, 28/6/83; cols. 129–130.] That is why this amendment deals with the question of the Government's policy towards manufacturing industry. And of course closely linked with the whole future of manufacturing industry is the future of the unemployed themselves. They are both inseparably linked.

Nobody would have thought, listening to the sonorous optimism of the noble Lord opposite, that over the last four years British industry has taken a most devastating hammering under their rule and that there now exist, officially, 3.2 million unemployed after the suitable adjustments that have been made to the method of collecting the statistics. Indeed, there are probably nearer 4 million actually out of work at this time. I should have thought that that would have made the noble Lord a little anxious about the future.

Moreover, the noble Lord's anxiety could perhaps have extended even further than that, because he knows just as well as I do, and just as well as anybody in the banking community in the United Kingdom knows, that we are far from out of the international banking crisis which the noble Lord referred to on a previous occasion and tried to ride down. Already, as he knows if he reads the press, many of the loans that have been rescheduled are once again in default and the banking system is at present under very severe stress indeed. In fact in some parts of the Western world it exists only by the adaptability of the accounting profession in those countries taking a rather more sophisticated view as to what in fact comprises a loss that ought to be written off now or a loss that can be more conveniently written off over a period of time.

On listening to the noble Lord, one would not think that he had apprised himself of the trade figures for last month, which show that, for the first time since the Industrial Revolution, this country has become a net importer of manufactured goods. Of course the immediate point that occurs—and I must put it to the noble Lord and I trust that the noble Earl, Lord Gowrie, will reply to it in due course—is whether it really matters that there should be a deficit in manufactured goods. I observe that, in The Times of a day or so ago, a leader came out with the surprising observation that: Net imports of manufactures should be regarded as the logical, and indeed necessary, counterpart to net exports of oil and services". I do not know whether that is the view of the Government. The old "Thunderer" has been known in the past, under somewhat less propitious circumstances, to be the voice of the Government. It goes on to say: Britain's deficit on manufactured trade is an acceptable feature of the economy. It reflects our natural endowment and improves industrial efficiency". Therefore, the first question I ask the noble Lord is whether that does, in fact, reflect the Government's policy. I am bound to say that it certainly does not reflect the considered view of your Lordships' Select Committee on Science and Technology, whose report we shall be debating next week and on which I will not, of course, enlarge in any detail today.

But, pursuing the matter in completely non-partisan terms, let me read to your Lordships the important and considered observation that they make on this aspect of the matter. They talk of Britain's industrial decline and they say: This decline threatens serious consequences. The United Kingdom cannot do without a vigorous and successful manufacturing sector. Our future standard of living and ability to pay for public services depend on it. Britain's natural resources have, for a long time, been insufficient for our prosperity, although they are now temporarily boosted"— and I would venture to emphasise the word "temporarily"— by oil and gas from the North Sea". Your Lordships' Select Committee continued as follows: Our service industries are strong and valuable, but they cannot create enough wealth on their own. As the Minister for Information Technology said, 'Manufacturing industry provides about 25 per cent. of our GDP and 25 per cent. of jobs but it provides 75 per cent. of our visible trade exports. If we were to replace the contribution made by manufacturing industries to the balance of payments, we would need to increase our exports of services by £60 to £70 billion a year. To do that we would have to increase our share of world exports of services quite dramatically from under 10 per cent. to over 50 per cent. and that is really a wholly impossible task at the moment. So without manufacturing industry Britain could not survive'. That is the view of your Lordships' Select Committee.

We on this side of the House do not pretend, and never have pretended, that manufacturing industry in the United Kingdom is wholly, or should be wholly or even substantially, dependent upon continued subsidy or propping up or protection by the state. We have never believed that. Quite clearly, the future of manufacturing industry in the United Kingdom lies in the hands of its management. Nor is it wholly a question of cost. It is a question of design; it is a question of research and development; it is a question of selling techniques and selling energy; it is a question of after-sales service and, above all, it is a question of managerial organising ability, managerial energy and managerial qualities of leadership. For once I shall be constrained to agree with the noble Lord opposite; these cannot be and should not be the responsibilities of Government.

All other things being equal, if one were to say that the whole scale of British industry and its fortunes was dependent upon the abilities of its managements alone, I am afraid that the last few years present a very sorry picture in that field—in the field of management, not within the operation of the ordinary working operative in the factory. A fish rots from the head, not from the tail. It is noteworthy that those very so-called captains of industry who, with the active support of the Government, are now calling for wage rises limited to 2 per cent. or something of that kind, should over the last year or so have been busily awarding themselves in their boardrooms rises of between 13 per cent. and 25 per cent. This is not always an example of good leadership.

Therefore, the task of the Government is a limited one. It is to take such action in a variety of fields, in so far as they are able, to arrest the present decline—the situation which we have reached—and to reverse the trend. I shall give examples to the noble Lord in case he finds himself carried away on an automaton of his own making. It is a question of interest rates and, closely associated with interest rates, the exchange rates. It is a question of the adequacy or otherwise of research and development support. In some cases, it is a question of direct financial assistance, where this can be fully or adequately justified on national and even on social grounds. Where it is possible, it is a question of initiating policies calculated to stimulate demand. It is also a question of purposeful planning—not haphazard determination—of the nature and extent of public expenditure.

It is not sufficient for Governments to talk merely in global terms. There is always bound to be a very significant amount of public expenditure. It is important that it is planned; that it is not determined as a battle merely between departments, but that a thorough review is made as to where it should take place and also as to how industry will be affected by it. It is also important that Governments can help in promoting better industrial relations. Industry is also entitled to expect from Government protection against dumping. I hesitate to mention the term "protection" too much, because I know that under all circumstances there is a large number of ideological free traders present in your Lordships' House. It is also their business to act, in so far as they can, to reduce the rate of inflation.

But before the present Government start their new term, surely they have to do one thing—they have to try to learn from their own past mistakes. This is important when starting out in any sphere. None of us is perfect; all of us make mistakes. All parties make mistakes; all Governments make mistakes. One of the characteristics of the noble Lord, Lord Cockfield, is that, to the best of my knowledge, on any of the occasions on which he has addressed your Lordships' House he has not so far admitted to the Government ever having made one mistake. I think that this is a weakness, and therefore I must ask the Government whether, in the interests of manufacturing industry, they intend to rectify mistake number one that they made. It was the biggest howler committed by any Government, and it is now widely acknowledged as such. It was the raising of the minimum lending rate to the height of 17 per cent. on 15th November 1979. This is now acknowledged in practically every circle of economic thought—yea, even unto the City—as being one of the most idiotic steps ever taken, because of course it had most disastrous consequences.

One of the consequences was the rapid and progressive rise in the rate of exchange that inevitably followed the flow of funds into this country. We also know what the consequence of that was. When money flowed into this country at that very high interest rate not only did it make nonsense of the noble Lord's money supply figures domestically—in fact, there has not been one year when the target of money supply has been kept to—but it imposed on the recipient banks the necessity of relending it at a profit, which they promptly and progressively did to various countries of the world, including South America, where, as we all know, they followed closely on the heels of the arms manufacturers and advanced them large sums of money. They are now in danger of going in default. But that is a separate subject.

Suffice it to say that the consequences on manufacturing industry were very considerable indeed. Members of the CBI know quite well, as do noble Lords opposite who are in industry, that there were difficulties. I do not speak of things that they do not know; I am not even speaking in party partisan terms. They all know what happened. It made it very difficult to finance the acquisition of new assets. Investment in new assets was very difficult indeed to embark upon because of the very high interest rates. Also, there were troubles in financing stocks.

Any business man knows that the larger the batches of commodities or goods that are made for production, the lower the unit costs. This is always the case. The fixed overheads are normally within certain tolerances—and I shall refer to them—and are known. If one is forced to produce in smaller batches then inevitably the unit costs go up. If the unit costs go up—and to that there has to be added the extra interest charges that are incurred in respect of such borrowing that is necessary, aside from that, to stock finance—it is quite easy to see that the burden and the pressure on profit margins are very great indeed. This, of course, is what happened to industry. Any industrialist in the country can confirm it. Indeed, it lies behind the representations that the CBI was making only last week to the Prime Minister, and which it has been making for some time, including the interventions which have been made in this House over many years.

Then there are the other difficulties that have arisen precisely because of the very high exchange rate. This, first, acted as a subsidy to imports into this country and has exerted a further competitive pressure by subsidised imports on the products of our home industry. I am talking in quite non-controversial terms. We all know that this is exactly what has happened. We all know, too, that it has acted as a considerable hindrance to exports.

When one comes to consider the position in terms of the dollar against the pound—it was about 1.56 to the pound in mid-1979 and it was up to 2.40 in 1980–81—one can understand the extent to which this was a hindrance to exports. Although the figures were not of the same dimensions in Europe, it is beyond argument that there was this subsidy to our imports. In the event the result was quite devastating. In the result, manufacturing in this country dropped by nearly 20 per cent., investment dropped by some 40 per cent. and unemployment rose from 1.2 million to the figure at which it is now, at any rate officially after adjustment, of 3.1 million.

These are results of a simple mistake. It was very silly to raise the interest rates, which, according to the noble Lord, are part of the normal supply and demand. They go up at will. They did not in this case. The Government put them up quite deliberately. There was no response to market forces. They did it deliberately, and they made a mistake. If there is any doubt about that one need look only at the most recent report of the House of Commons committee dealing with Treasury and Civil Service matters. What it said was this, if your Lordships will bear with me: The United Kingdom is still the most open of the five large non-communist economies. This makes us particularly vulnerable to variations in external demand, whether caused by fluctuations in the exchange rate or by the world business cycle. The importance of both factors is illustrated by recent experience. Before the appreciation of sterling and the world recession, in the first quarter of 1979, unemployment in the United Kingdom was 5.9 per cent. By the third quarter of 1982, it had risen to 12.9 per cent. Over the same period, unemployment in the 15 major OECD countries rose from 5.1 per cent. to 8.3 per cent. Thus something under half the rise in British unemployment may plausibly be ascribed to the world recession. But why should the rise in unemployment in Britain have been so much greater than in any other comparable economy? Dr. Emminger. the former President of the Deutsche Bundesbank, referring to the level of the real effective exchange rate of sterling in 1980–81, stated: 'This is by far the most excessive overvaluation which any major currency has experienced in recent monetary history … The large real appreciation of sterling from 1979 to 1981 was probably the most important single element in that period's British economic policy, as concerns its effects both on domestic inflation as well as on British trade, production and unemployment'. What we should like to know now is whether this policy is to be continued; whether they are going to do the same thing again.

The other complaint that British industry has is the rates burden. This comes to the Government's determination of their own financial policies. Precisely because of the unemployment and the recession, for which they are very largely responsible by their own mistakes, the strain on the services provided by local authorities has been very much greater. At the same time the Government have reduced the amount of central aid to local authorities, thus in part helping to raise rates, which are indeed another of the burdens of which British industry complains. Therefore, we want to know whether these policies are going to be continued.

There are many other factors, and there have been many other mistakes that have been made. There has been failure to protect legitimate business trading interests. That has been so in particular, as your Lordships remember, where we have had competition with the newly-industrialised countries, particularly South Korea, where we deliberately sacrificed a British order on the basis of grossly unfair quotations submitted to the Central Electricity Board. Other countries protect their industries to some degree. Take, for example, the United States, which has recently imposed a new duty on steel coming from the United Kingdom. A 19.3 per cent. tax has now been put by the United States on certain items of British steel. As we all know, even within the European Community protection does not necessarily take a formal tariff form; it often takes other physical forms on one pretext or another. British industry feels entitled to some protection.

It is quite clear from what the Prime Minister has said that some of the more optimistic statements which have been made by the noble Lord this afternoon are not believed in by her. She does not believe that there is going to be any substantial improvement in manufacturing industry. Otherwise, she would not have said a short while back that she would be surprised—only surprised—if unemployment reached 4 million. About 18 months ago the former Chancellor of the Exchequer was expressing surprise if the figure ever got to 3 million.

The Government have no real plan to deal with the current situation at all. They hope that as and when the time comes for them to be called to account they will once again be entitled to receive all the benefits that they enjoyed in the recent election of what amounted to a Conservative Party censored press, as well as the efforts of Saatchi and Saatchi. Unless they avoid these mistakes, unless they speedily redress them by taking steps to reduce the rate of interest and to reduce also the overvaluation of the pound sterling, they will not succeed. They will find themselves caught in a trap.

I have not this afternoon been talking about the programmes of my own party or of the Social Democrats, or of the Liberals. I have tried not to treat this as a partisan occasion. I have really been trying to help the noble Lord. I hope the noble Lord will be able to help himself, and I hope that the Government may be able to take heed, because, otherwise, before we are all very much older they are going to reap the whirlwind. I beg to move.

Moved, as an amendment to the Motion; at the end of the Address to insert: but deplore that the gracious Speech contains no relevant proposals to assist manufacturing industry or to reduce unemployment".—(Lord Bruce of Donington.)

4.10 p.m.

Baroness Seear

My Lords, as you will know, I also propose to move an amendment at the end of this debate. I do not intend to read the amendment as time is already passing very swiftly. I will speak to it now and it will be taken at the end of the debate.

I should like to say what a pleasure it is to see the noble Earl, Lord Gowrie, in his former position as the spokesman for the Government on economic matters. We very much welcome the opportunities that we shall have for debate and discussion with him.

In speaking to the gracious Speech this afternoon, I hope we shall remember that the general election is behind us, that the Government are elected, presumably with at least four years ahead, and the problems facing not only the Government but the country are still of a very serious nature indeed. Exaggeration, omission and references to unfavourable conditions are the natural order of the day during election campaigns, but the campaign is over. We from these Benches, while disagreeing with many of the points which appear in the gracious Speech—and perhaps still more with many of the points which do not appear—wish to be as constructive as we can in putting forward proposals to deal with what we all know, if we are honest, is still a pretty black picture.

There are certain points of considerable importance which concern us on these Benches. I think I speak for our allies on what the noble and learned Lord the Lord Chancellor referred to as the mountain in his speech yesterday. when I say that we recognise the importance of reducing inflation still further and, what is even more important, the importance of keeping it down once it has been reduced, Stability, and stability in expectations—and I will refer to that again—is certainly one of the most important achievements if there is to be recovery in this country.

We welcome the fact that at no point have the Government weakened on their opposition to protec- tionist measures. I accept that some of us have an ideological commitment, as the noble Lord, Lord Bruce of Donington, said, to the principle of free trade so far as it can be operated in the world today. The retreat into protectionism and economic nationalism going on all round the globe is one of the most serious threats to recovery and any continuing recovery that we may have. We applaud the fact that the Government resist the temptation to resort to the easy policy of a protectionist way out.

Having said that, when one reads the gracious Speech it can only strike all but the most optimistic monetarist as astonishing that, in the face of what must be approximately 4 million unemployed, the only reference to unemployment in the gracious Speech is in the optimistic expectation that improvement in the efficiency of industry will lead to an increase in employment. One can ony say two things. In the very long run, other things being equal—which they are not—this might well be true. I shall refrain from the more than threadbare quotation from Lord Keynes which most people usually make at this stage in a comment about "the long run". However, can anybody seriously believe that the human, social and, indeed, economic problems caused by unemployment can be left without positive constructive action by interventionist measures from Government to cure them as long as it will take for market forces to bring about a recovery in employment?

In the not so long run, improvement in the efficiency of industry, so far from leading to an increase in employment, will lead in some areas to still further reduction in employment. We recognise that this has to be so. But the fact that this has to be so is an argument for interventionist methods to try to do something to ease the present unemployment position.

In response to a question in your Lordships' House last week, the noble Viscount the Leader of the House said in relation to the Government's determination to stay inside the European Community that the Government had a mandate from the country to do this. Of course in relation to the Economic Community he was right to say that the Government have a mandate from the country to continue British membership. But the Government have no such mandate for their monetarist policies. The reason the Government have a mandate from the country to stay inside the European Community is that to the less than 43 per cent. vote that the Government received from the electorate—I am not referring to all those entitled to vote but to those who actually did so—was added the 25 per cent. who voted for the far more long-term committed Alliance members who have supported the European Community from its very initiation; a vote which gave the Government nearly 70 per cent. of the electorate behind them for continuing inside the European Community. That is indeed a mandate; but there is no such mandate for the Government's monetarist policies because the 25 per cent. who voted for the Alliance policies voted for a degree of cautious intervention because they give such high priority to the problems of unemployment.

One of the many differences between the Government on the one hand, the Labour Party on the other—I shall not have three hands—the Conservative Party, the Labour Party and the Alliance, is that the Tory Party believes that if it attends to inflation employment will look after itself. The Labour Party believes that if it attends to unemployment then it need not worry about inflation. How that is done I have never quite understood. The policy of the Alliance all along has been to say that unemployment and inflation are two facets of one problem and that every policy and every Government action taken to deal with one facet of the problem must also take into account the consequences of the other. Every step taken to reduce inflation must be seen also in terms of what that step does to improve or diminish employment. Similarly, every step taken to improve employment must take into account the effect it has on inflation. It is this holding together of these two vital aspects of the problem which is characteristic of the policies of the Alliance.

How are we going to do this at one and the same time? This is the challenge. At one and the same time we must control inflation and get unemployment down within a time-scale that is acceptable and reasonable. The noble Lord, Lord Bruce of Donington, was talking about the problem of unreliable exchange rates and the interest problems associated with unreliable exchange rates. Nowhere in the Queen's Speech nor in the speech of the noble Lord, Lord Cockfield, has any mention been made of Britain's relationship to the EMS. Surely the time has come when we should take full membership of the EMS because of the advantages of stability to currency that that will give. We do not have the degree of control—

Lord Vaizey

My Lords, I wonder whether the noble Baroness would accept for a moment that the volatility of the exchange rates of some of the countries who are full members of the EMS has been considerably greater than the volatility of sterling. How would she reconcile those two facts?

Baroness Seear

My Lords, temporarily this may be so, but the best hope for getting any kind of stability in exchanges rates is for countries to work together on it. Of course, we should like them to work on a wider scale even than the EMS, but that is not open to us to do at the present time. We have the option here and now to go into the EMS, and that at least is a step in the right direction and a step which, in our view, should now be taken.

Having gone into the EMS and established, at last, in the eyes of our European partners that we are in fact genuine members of the Community and intend to stay there and play our part to the full—and that, in itself, I suggest, might have a stabilising effect on some currency rates; for people would then know where we stood, which is something that they have not known for so long—could we not proceed with more constructive economic policies at the European level? We know the Government believe that there should be a switch from the payments made to agriculture and that that switch should be made to industrial policies inside Europe. If we were members of the EMS, if we were showing that we were, at last, good Europeans—something which we have not shown—we could be taking the lead in the development of industrial policies on a Community scale to deal with many of the issues which, on a national scale, we are otherwise unable to cope with.

Research and development in many of the new industries is far too expensive, as, as long as two years ago, great experts made absolutely plain in debates in your Lordships' House. We are in a position now to give a much greater lead in this kind of development inside Europe for developments which cannot be made at a purely national level.

Then, surely the Government must see that an increase in public expenditure of a moderate and carefully calculated kind, particularly in the construction industries, to deal with improvements in the infrastructure—the railways, the sewers, the roads—which are long overdue, can begin to have a real impact on the level of unemployment. We know that the Prime Minister is a great believer in Victorian virtues. I understood that one of the characteristic Victorian virtues was a belief in the policy that a stitch in time saves nine. The failure to deal with public investment which is long overdue means that it will cost a great deal more when we do have to do it. We cannot indefinitely delay this kind of investment. To start now in the construction industry to increase the amount of money that was put into it just before the election, and to have a really sustained effort in the industry (which has a big knock-on effect on other industries in job-creation terms) would do a very considerable amount to begin to pull down the level of unemployment, which, unless such action is taken, will not come down by itself.

Of the money that we are already spending, to which the Government are already committed, are we really spending it in the wisest possible way? We have the special regional expenditure running to over £800 million a year—a considerable sum of money. Is this really the way in which that money can best be used? Modern studies of unemployment suggest that the identification of unemployment problems by regions is, today, out of date; that there are black spots of unemployment in regions which rank as being relatively economically strong and that there are areas in the had regions in which unemployment is, in fact, relatively not serious.

Is it not time that we reviewed the whole issue as to whether regional policy of the kind that we have had is really what we want today and whether the money spent in this direction—and I am not here necessarily asking for more money; I am asking for investigation as to whether this is the best way to use the existing money—could not be used to reduce unemployment by putting it in other directions? I would suggest one or two such directions. There are a number which will occur to your Lordships. For example, there is the development of job sharing, to which the Government gave a partial nod of approval when it was suggested in the report of your Lordships' Select Committee. More money put into making it easier for people, particularly those in the older age groups, to share jobs would be a way in which the problems of unemployment could be modified for a considerable number of people. It might be much better to do this in black spot areas than to spread this money more widely throughout the regions.

Again—and this is an issue to which I hope we shall return perhaps later in today's debate—there can be little doubt that there is a great deal of economic activity going on in what its critics call the black economy but I prefer to call the hidden economy. Certainly, I am rather in favour of the hidden economy. There is only one thing wrong with it so far as I know. The people who take part in it do not pay their taxes and the rest of us have to pay the taxes instead. That is unfortunate, but the work they do is genuine wealth creation, the services they render are genuine services, the money they earn adds to income. We simply do not know how big an increase in the GNP there is because of what goes on in the hidden economy.

I would suggest that it is a serious job to be tackled and that we should try to find ways to bring the hidden economy into the open. If we had set about trying to create a black economy, we really could not have done it better. What have we got? We have got a marginal rate of tax of very nearly 40 per cent. when a man gives up a job in the hidden economy and comes into open employment. On top of that, we have got a VAT of 15 per cent. If one adds those two together. the incentive to continue to work in the hidden economy and not to take a regular job and to start paying taxes is very high indeed. We do not know the measure of this problem. I suggest that one reason why the Labour Government failed to make the problem of unemployment take off in the election is that there is a great deal more work going on in the hidden economy than anybody has been prepared to admit.

Let us recognise that this is something which is going on, that it is not really a very had thing but that there are better ways of getting this work done than by allowing it to continue in the form in which it is at the present time. One suggestion that I should like to float—it may not be acceptable, and I dare say it will not be acceptable: but it is just one way of seeing how we might get over this problem of so much work going on on which taxes are not paid and from which we cannot extract people—is that for the people who leave unemployment and go into paid employment (and. after all, it is not difficult to identify them) there should be a tax and national insurance holiday for a period of time so that it really is worth their while to leave the hidden economy and come into paid employment. This is, I think, a new suggestion. It may strike the Government as a peculiar one; but somehow or other we have got to tackle this issue, and we should then have a much better idea of what the unemployment position really was.

Finally, the noble Lord, Lord Cockfield, made a great point of the fact that inflation had to be controlled and would not rise only if there was control over pay settlements. The Government have done nothing, and there is nothing in the gracious Speech to suggest that the Government have any plan about what they propose to do when recovery does begin and when jobs begin to become pentiful—and that time will come, I believe, at any rate in some sectors and in some areas—to see that wages do not rise again. Wages have been held down because of the fear of unemployment. It is not Government policy. It is, in effect, the market forces to which the noble Lord pays such tribute. What is he going to do and what are his Government going to do when they succeed in getting people hack into employment? Does he believe —

Lord Vaizey

My Lords, the noble Baroness made great play at the beginning of her speech with the fact that the minority of the population voted for the Conservative Party. Will she not agree that the Labour Party was bitterly opposed to an incomes policy, as was the Conservative Party also, and that, by her own parity of reasoning, only 25 per cent. of the population voted for an incomes policy?

Baroness Seear

My Lords, that is perfectly true but that does not mean it might not be right. The Government were claiming it was on the basis of their mandate. I would say to the noble Lord, Lord Vaizey, that he anticipates me. I have not yet mentioned an incomes policy and I was about to say something which he might not expect from me in respect of incomes policies. The Alliance believe, and I believe, that some form of incomes policy in the future will be necessary, but let me say immediately that I think it will have to be a great deal more flexible than the incomes policies that we have known in the past. The aspect I wish to stress—because I know perfectly well that the Government will not take the slightest notice of what anybody says about an incomes policy—is that the best way to control increases in wages is to see that the highest number of people possible have a real stake in the undertakings in which they work, because they then do begin to realise that putting wages up does not give them any benefit in the long run.

There is nothing in the gracious Speech about any aspects of what we have come to call, rightly or wrongly, industrial democracy. The Government have a wonderful opportunity now; and. after all, they say that they believe in a property-owning democracy, which not only includes letting people buy their own houses but also allowing them to have a real stake in the organisations in which they work. In anticipation of the fact that wages are going to be the problem in the control of inflation, when the time comes that they have got employment going again and still have the problem of inflation to deal with, can the Government now work out a really substantial plan to increase the stake of employees in their undertaking either through wider share-ownership or through more profit-sharing, so that the advantages are there and people are really convinced in terms of their own interest? That is why I said a moment ago to the noble Lord. Lord Vaizey. that I did not intend to put the accent on incomes policies but on something which really must appeal to this Government, Who believe in incentives and in people's ownership and who I believe have proved that they did very well out of encouraging home ownership. If they have done so well out of the encouragement of home ownership cannot the Government proceed to do equally well out of the encouragement of industrial ownership?

4.33 p.m.

Lord Ingrow

My Lords, on Thursday in the debate on the humble Address we discussed, in a simplified phrase, the security of the nation. Yesterday we discussed the kind of society we wanted, and today we are talking about how to achieve those objects and aspirations, for it is industry and business in the widest terms which have to create the necessary wealth. I should like, if I may, to comment on smaller businesses. I believe they should be mentioned and that they have a very important part to play in achieving the objects of the gracious Speech. I have spent all my working life in smaller businesses in the splendid county of Yorkshire.

It is a great honour to be a Member of your Lordships' House and I would wish in every way to uphold its high traditions, and in particular today, by being completely non-controversial, despite the hazard posed by the amendments; any contravention would be entirely, and I hope forgivably, accidental. Certainly, though, I warmly endorse a desire to see unemployment reduced, not merely on social and humanitarian grounds—I hope that may be conceded to me—but also surely on commercial grounds, because my trade is such that it prospers when my customers are earning. Nevertheless, if I could see stable costs ahead, stable raw materials, stable services and stable rates—it seems a far cry today from my time as a local authority finance chairman when one could recommend a rate scarcely increasing from year to year:—and stable beer duty (what an opportunity for a new Chancellor of the Exchequer to be the first since the late Lord Amory to reduce it)—if I could see those or other stable costs ahead, my own industry and others would certainly look forward to progress and development and to the benefits which would flow in employment and other fields. Stable costs are the precondition for success.

Governments can help smaller businesses directly and indirectly: indirectly by encouraging good young people to enter industry, by making it a respectable priority for careers masters to recommend—not to become good minute writers incapable of taking decisions, but able and practical people who can mix with and have respect from all those in the business concerned and who can adapt to a very different life from that in a government or professional office. We need them.

Directly, Governments have begun to recognise the merits of small businesses. There is still perhaps too great a tendency to listen to the pleas of the large concerns, with large staffs to lobby for them. These latter seem, with great respect, rather like Oliver Twist—always asking for more—and they still are. Perhaps in the light of what has already been said earlier, instead of worrying too much about competition provided by imports, they should be more concerned to ask themselves why so many customers who are free to choose prefer other products to their own.

Still, Governments do now help, and seek to help, smaller businesses, and we are all grateful for this. I would, however, ask them to think a little about the balance of taxation. As a generalisation in industry, a smaller proportion of profits is paid in corporation tax as a company gets larger. This may not be entirely for the benefit of the Exchequer and it does not in fact seem quite as fair as it might be. The more labour-intensive merits of smaller companies should not be ignored—indeed, rather perhaps encouraged—especially at times like this.

This Government have proposals for a reduction in the amount of corporation tax paid by companies making less than half a million pounds annual profit. These proposals are, happily, being reintroduced in another place and in the circumstances we may expect them to be enacted. The business expansion scheme, which my noble friend Lord Cockfield referred to, also has much to commend it. When these ideas, which may command general support, leave the politicians they are really quite simple. By the time they emerge after the Inland Revenue have had their hands on them, they are unnecessarily complicated; and this applies in other fields of taxation too.

It seems very important in our interests that if Government proposals are to be effective, Governments should watch closely to see that they are not destroyed in transition from idea to parliamentary Bill—if necessary taking advice from accountants and others at the sharp end—and that the resultant taxes management Acts are as simple as possible and correctly interpret the Government wishes.

Further down the scale, many one-man businesses are today started by people whose skills are practical and useful rather than academic or balance-sheet orientated. Although they must pay their due taxes, it must be realised that paperwork may not be their strongest point and that without their success there would be no jobs for administrators and tax collectors, who might even have difficulties themselves when confronted, for example, with plumbing repairs, such as many one-man businesses do.

One of the advantages of being in a small business is that one sees for oneself the extraordinary proliferation of rules, regulations, consents, inquiries, inspectors and whatever which have developed down the years. One wonders how we survived in the past. All these burdens bear heavily on small businesses, which cannot afford to carry the specialist staff to deal with them. Relief would be helpful indeed.

What I say now—there is no collusion with my noble friend Lord Cockfield—is that our aim in small businesses is to provide what our customers want, when they want it, at a price and quality of which they approve. Anything a Government can do, if not always to help and encourage at least not to allow any department actually to hinder, will be more than welcome. It will enable us to play our part in economic recovery and in developing our society as we would wish. We seek this understanding and appreciation, and we will do our share.

4.41 p.m.

Baroness Lockwood

My Lords, it is perhaps appropriate that I should have the privilege of following the noble Lord, Lord Ingrow, and of congratulating him on his maiden speech. I do so as one Yorkshire person to another. Indeed, were we Lords Spiritual we might even have been tempted to cancel out each other's vote at the last general election, because we both happen to come from the same parliamentary constituency. It is always surprising and rewarding to hear maiden speeches and to see the way in which Members of this House bring their own individuality to their maiden speech, despite the inhibitions of the occasion. I am sure that the speech of the noble Lord, Lord Ingrow, was no exception. We shall all look forward to hearing him speak again on many occasions, bringing the benefit of his experience in industry and in local government and, of course, his plain Yorkshire common sense to bear on our discussions.

In this debate on the gracious Speech I want to concentrate not on the broad economic front which has been sketched out by the three Front Bench spokesmen but on the interaction between education and industry. In his introduction the noble Lord, Lord Cockfield, spoke of the need for us to improve the quality and design of our goods, to take advantage of new technology and to be innovative. These factors rely essentially upon our education and training system and upon the interaction between that system and industry.

There are three ingredients to competitiveness. Many noble Lords are concerned about the competitiveness of British industry. One area in which it is absolutely vital that we do not trail behind others is in the provision of education and training. There are three factors of which we need to take account in this area.

First—I know this will not be popular with the Front Bench opposite—it is absolutely essential that we should devote more of our resources to education and training instead of, as in the past few years, eroding the education service. Not only must we make good the damage of recent years; we must also be prepared to make further investment in educating and training young people—and people generally through the process of continuing education.

Secondly, there must be a greater partnership between industry and education, particularly at the higher levels of education. I was very interested to see in today's newspapers a reference to a report by ACARD which suggests that between £15 million and £30 million a year more must be spent if we are to destroy the traditional British barriers between universities and industry.

Thirdly, there must be greater understanding within the education system of what industry. particularly manufacturing industry, is all about, and what it requires of young people in terms of the demands it will make upon them: the skills, the talents and the quality which the education system needs to develop.

If we look at these three areas, without denigrating in any way what is being done, much of it excellent, we cannot fail to see that great gaps exist. On resources, at both school and higher education level, we have seen economies imposed which do not make sense when, time and time again, we are telling one another that the opportunities of tomorrow will be in areas where education and training are at a premium. Yet two years ago we witnessed an almost suicidal cut-back in higher education. It was purported to be aimed primarily at the arts and the humanities—areas which it was thought were not so closely related to economic and technological development. But in effect those cuts damaged some of our most progressive and technologically orientated universities. Even the objective of the cuts appears not to have been achieved.

Bradford University, with which I have a personal as well as a geographic connection, is a case in point. This is an excellent, innovative university with a bias towards engineering and technology and with very strong links with local industry. Yet Bradford was among the worst sufferers. In order to cope, over the three-year period, with the imposed cut of 25 per cent. in recurrent funding and the 20 per cent. cut in student numbers, the university had to phase out some 12 courses, 11 of which were sandwich courses involving at least 12 months' experience in industry for the students concerned. Furthermore, it has had to abandon the sandwich element in eight other courses.

This brings me to my second point. Here the impact of the cuts has been not just to reduce the number of courses and the number of places but to weaken the interchange between university and industry. The close and continuous co-operation with industry that sandwich courses stimulate has reinforced the work of the technological universities at all levels in both teaching and research. It is no wonder, therefore, that Bradford University is concerned that a valuable link with industry is being impaired. It is just this kind of interchange between experience and learning, practical application and research. that we cannot afford to curtail—which, indeed, we must extend.

Not only the universities but the polytechnics, too, have been considerably squeezed. Ironically, their raison d'e[...]re was the provision of more technologically and scientifically based education, both at degree and sub-degree level, with roots in local and regional industry. In view of the already apparent shortage of skills in certain areas and in certain industries, despite the high level of unemployment, the technician level of education and training is equally as essential as the higher levels. Here, the polytechics have a very important role to play.

Recently I visited Huddersfield Polytechnic—one of the "good" polytechnics in the Yorkshire region—whose links with industry are excellent. This was apparent in the development of the new CADCAM centre for computer-aided design and computer-aided manufacturing, where a number of small firms not able to afford their own expensive equipment, or not certain whether or not it was appropriate for them to have such equipment, were learning together with the polytechnic staff the techniques of computer-aided design and manufacture. Simultaneously, they were also involved in their own problem-solving.

Again, I would say that this is the kind of co-operation that we need to develop and extend. Yet again we ask the question: what is happening to the polytechnics? Whereas the universities found their numbers actually controlled and reduced, the polytechnics found that their finances were being curtailed, yet they were being told to increase their student numbers. The number of students in polytechnics has increased very considerably over the past few years.

One of the ironies of the present employment situation for young people—and it is only a small consolation—is the increase in number of those who are seeking post-school qualifications, including degree level qualifications. As I have said, they are being squeezed into the polytechnics but without compensating funding being made available to the polytechnics. The whole question of funding of higher education needs to be looked at very carefully.

My third point concerns the need for the schools really to understand what industry is all about. In this context I am referring to the schools system, because it seems to me that our careers education in schools is sadly lacking. One can be critical of it in all sorts of ways. For example, there is its failure to take on board the changing work pattern of women and the need to broaden the career horizons of girls in order to fit that pattern. But the real and fundamental criticism must be directed at the inadequacy and under-resourcing of the careers service in schools. There appear to be no coherent or adequate training provisions for careers teachers: no priority or prestige attached to the posts; and no overall concept of what can be included in this part of the school curriculum. As with all services, the provision is patchy. Despite inadequate resources, some schools do a good job, but generally it is the Cinderella of the education service.

We now have a new initiative in the form of the Manpower Services Commission's technical and vocational educational initiative. We are told that this is to be experimental and that it is hoped that the initiative will provide pointers to that which might be developed on a broader scale in other areas. I am not convinced that this new scheme is the best use of available resources; and I am in sympathy with the evidence given by several educational bodies to the House of Commons Select Committee on Education, Science and the Arts. They appeared to be almost at one in their views on this new experiment, particularly in their fears that the new scheme could be a divisive element in the schools involved, and that all pupils—and not just a minority—should benefit from more education about industry.

The noble Lord, Lord Cockfield, mentioned the youth training scheme, and I would be the very last person to deny young people—girls as well as boys—the opportunity for training, particularly as an alternative to a move straight from school into unemployment. I therefore support the scheme, with all its faults. But, once again, it seems to me that, just as in the higher sector, with the pressure of qualified young people wanting to move into universities and polytechnics so, too, here at this level, the Government are more concerned with mopping up the unemployment figures than with establishing a training system that meets the needs of industry and of young people. The scheme originally envisaged by the Manpower Services Commission under the New Training Initiative was far more relevant to those two needs than is the current scheme, which, tragically, has been emasculated in order to meet the overriding needs of youth unemployment.

I return to my three points—the essential ingredients to a sound basis for a competitive economy. These are, first, a greater understanding of industry within the education system; secondly, a greater partnership between higher education and industry: and, thirdly (a factor on which the first two have a crucial dependence), a greater share of resources devoted to education and training. At some stage the Government have to raise their sights beyond the short-term expedient of mopping-up unemployment and to the task of creating real opportunities for employment and of providing a coherent strategy for investment in education and training. That investment must be comparable with the investment of competitor countries, and it has to be geared to the long-term industrial and economic needs of this country.

4.59 p.m.

Lord Bauer

My Lords, my request for indulgence is more than a customary formality. The main reason for it is all too audible, despite all my efforts to master the language. Addressing such a distinguished Chamber, hallowed by great tradition, I also stand in awe.

The occasion recalls an episode in the 1680s. By then, the Republic of Venice was small fry in power politics. However, Louis XIV wished to involve her in one of his schemes and invited a special envoy to impress him with the novel splendours of Versailles—a building which today would no doubt be called an architectural breakthrough. After showing him around, the King asked the envoy what had amazed him most. "That I should be here", the man replied. But perhaps it is, after all, less surprising that I should be here. There are many others here, some even from my native Hungary, to confirm that Britain is an open society, as it has been for centuries.

The Queen's Speech and Monday's debate in the other place make clear the Government's commitment to the welfare state. "The Conservatives have won re-election on a wet programme in the hands of a dry Prime Minister", said an article in The Times of 11th June. It then recalled Disraeli's familiar remark about "Tory men and Whig measures". Thus, it seems that spending on welfare services, especially on the NHS, is to be maintained or increased. Yet in 1982/83 public spending on all social services was already over 50 per cent. of total Government spending, and not far short of 30 per cent. of the national income. And, unlike spending on defence or law and order, the larger part of this expenditure is not on purposes which have to be undertaken by the state rather than by private citizens for themselves.

This brings me to my main theme about the welfare state. The fundamental issue is not economic. It is moral. I say this although I am an economist. The issue is the responsibility of people to manage their own affairs. This was clearly recognised in a thoughtful leader in The Times on 5th October 1982 on the eve of the Conservative conference, with a message addressed to all parties. and which was reiterated in another leader on 27th June.

Old age, ill health, the raising of children, interruption of earnings, housing for the family—are these not all contingencies of life to be paid for out of income whenever possible? When prices are reasonably steady, responsible people should normally be able to provide for these contingencies themselves. Except perhaps for a small and dwindling minority of the poor, they do so, notably by saving, as they do for holidays, or by insurance, as they prudently do for the potentially crippling losses of fire or burglary. The welfare state redistributes responsibility between the agents of the state and private persons. State financed old-age pensions, health care, education, housing, welfare, unemployment pay and other social services are not chiefly transfers from rich to poor. In Britain as elsewhere in Western Europe the poor and the ordinary wage earners are very heavily taxed. For instance, taxes on the poorest fifth of the population represent about one-fifth of their incomes.

Is it not the case that while adults manage incomes, children receive pocket money? The operation of the welfare state tends to reduce the status of adults to that of children. Does it not also undermine the cohesion of the family which this Government are supposed to strengthen? There will always be people with misfortunes for which they cannot provide. They and their families must be helped by relatives, friends, voluntary societies and, acting as a safety net of last resort, by the state. But all this is very different from universal, unconditional, comprehensive health care and other components of the welfare state. The debate ought to be about the individual's and family's responsibility for their own affairs. Consideration of the economic effects of the welfare state is secondary, though it would reinforce my general argument. Advocates of income support for the very poor should give priority to reducing taxes on them, which incidentally would also increase the incentive to work.

Are we really to believe that many people are in penury? In spite of the heavy taxation of both rich and poor, 98 per cent. of all households have television, over two-thirds in colour; over 90 per cent. have refrigerators; three-quarters are on the telephone; most have some form of central heating. and also holidays of a kind undreamt of by their parents. One half of wage earning families have motor cars. Do not these figures imply that the statistics about large-scale child poverty are either misleading or else suggest failure of the central responsibility of parents for their families' condition, perhaps encouraged by welfare spending?

Heavy state spending on welfare in various ways contributes to the erosion of the value of money, a risk against which many people cannot protect themselves. They therefore support state provision for the contingencies of life even though they recognise it as unsatisfactory and would prefer personal provision. The welfare state increases the dependence on the state. By politicising life it creates friction, encourages conflict and undermines democratic cohesion.

The Government plan to maintain and even expand the welfare state, especially the NHS. If the Conservative Party is indeed wedded to this policy, it could be said of it what Livy said of Hannibal when Rome was for the taking: "You know how to gain victories but not how to use them".

To be a Member of your Lordships' House is a rare privilege. I believe that the independence it confers imposes an obligation, perhaps even in a maiden speech, to question consensus views which have not always served us well. This belief has informed my speech, which may have been a little controversial, but I hope was not provocative.

5.8 p.m.

The Lord Bishop of Lincoln

My Lords, it was only as I arrived at the House today that I discovered that I was to have the honour of speaking directly after the noble Lord's maiden speech, but I was handed a copy of his entry in Who's Who to help me and I discovered that his name stands between that of two Bishops; so he may not, as he keeps this company, find it surprising that a Prelate in your Lordships' House should rise and congratulate him on his speech. The noble Lord referred charmingly to his mastery of the language and also to his distinguished origins, but I feel he has given us the best of both worlds, because while we are able to welcome him here as a British citizen he has also been able to give us a Hungarian rhapsody on the subject of the welfare state. I remember a few months ago reading an article that he and a colleague wrote in The Times about Government aid which I found very interesting. I am sure there were as many different responses to the article that he wrote as there are Members of your Lordships' House. He has said that he has tried not to be provocative, as is our custom. I think we can all look forward very much to the contribution that he will make to the liveliness of your Lordships' House.

I can understand that when a Government come to power in a very serious economic crisis and when that Government have a clearly articulated theory to apply to that crisis, and when on top of that not only their opponents but members of their own party and, indeed. some in their own ranks oppose that theory, then that Government so placed have to put all their intellectual and emotional energy into seeing their policies through because they believe there is no alternative. It appears to me that over the past four years the Government have done that. We have to recognise and salute some of the results of what they have done.

However, I believe that that very concentrated expenditure of intellectual and emotional energy leaves very little energy over for engaging with the costs of that programme and their implications. Those costs, as has already been said, are very serious, very wasteful and of major human, social and political importance. I feel, therefore, on being given a renewed mandate—albeit with about 40 per cent. of the votes cast in the election—I pray that the new Government might bring their energies into a wider balance and make the greater alleviation of the costs of their policies a serious part of their programme.

If the results of the policies of the past four years could be seen to be really and convincingly effective that might put the cost of the policies in a more acceptable light. For instance, the problem of very high unemployment can only be solved by renewed competitiveness in the economy leading to real growth. So if the policies of the past four years could be unequivocally shown to be making the economy more efficient and more productive that would be seen as directly ministering to the problem of unemployment. But in spite of the rays of hope that we have been given in the past few days—though I fancy on a rather narrow and shaky basis—it appears that there are serious questions to be asked about the effectiveness of these costly policies.

Much blame for unemployment is naturally put on the world recession and we are told we are not alone in this crisis. But I think it is true that unemployment has risen in the United Kingdom twice as fast as among our main competitors. That means that half the damage cannot be blamed on the world recession. It is sometimes claimed that. while unemployment is an unquestionable tragedy and an unquestionable waste, it does have the effect of bringing down the level of wage settlements. That is true, but the current pay round of 7 per cent. on earnings is 2 per cent. higher than the 4½ to 5 per cent. in the United States, West Germany and Japan; which still leaves us uncompetitive. But the costs are not only in human terms of unemployment. As we know, they are in terms of manufacturing output and in investment in plant and machinery. I think the 1983 Budget Report said that, outside manufacturing industry, there has been no. marked improvement in productivity growth since 1979". I do not say these things on party political grounds. That is not my business. However, I do say them on grounds of what I call social morality because these actualities of the economic and political scene are what make or mar the common good; that is to say, the reasonable, decent human life of our people. Concern about that is a moral concern which is shared by all feeling people, and not by any means just by those who stand in the Christian tradition. Every Government always in this sense have moral responsibilities embedded in their responsibilities of office. The management of human affairs is always a balancing act between what is efficient, on the one hand, and what is humane, on the other, and since both minister to the common good and both—not just what is humane but what is efficient—are moral categories the two things have to be kept in balance. If one is just efficient at the expense of being humane one has a strike, while if one is humane at the expense of efficiency one goes bust. Neither contributes to the common good.

It is my belief that in their urgent and very proper efforts to remedy our crisis by means of their own very clearly held theories the Government have over balanced in the direction of hoped for efficiency at serious cost. I feel there are serious questions to be asked on whether that efficiency has really been efficient.

In conclusion, I turn to two particular issues which relate to this. The first is unemployment and the second is industrial relations. I hope that the new Government—and I echo what the noble Baroness. Lady Seear, has already said—will come more readily to see that grievously high unemployment cannot just wait for market forces to put it right. I recognise and applaud some of the things that the Government are trying to do. For instance, I refer to the very large sums of money they are putting into the community programme, the youth training programme, and to the encouragement they are giving to such things as job splitting. But I hope that the Government will more readily listen to those responsible and very authoritative voices raised in favour of a planned expansion in certain areas of potential wealth. I have in mind the CBI's document on unemployment and the document on unemployment produced by Members of all parties in your Lordships' House which point to areas where expansion could take place without inflation in labour-intensive industries such as construction, as suggested by the noble Baroness, Lady Seear, and, by the CBI, in tourism.

I hope that the Government will give continuing urgent attention to the whole new area of information services allied to electronics where imagination and flexibility will be vital ingredients in the development of what could be one of the main areas for job creation. I hope that that imagination will include the development of flexible measures to facilitate investment in support of enterprise and risk in those areas.

As regards industrial relations, I can understand that when the Government came to power they believed there were many things among the attitudes, policies and practices in our national life which needed confronting. They have been confronted by the conviction that the cleansing winds of economic forces should be enabled to flow unimpeded through the market place. But confrontation is a very blunt instrument unless it is allied to real political sensitivity; by which I mean that the market place is not just a place of abstract economic mechanism which if left alone will set things right. True political sensitivity recognises that the market place is full of people—the millions of men and women in our industry, commerce and services—the reality of whose working lives is lived out within comparatively small working groups; where things are not at all abstract but are very concrete and where not least among those realities are their own attitudes, their own feelings and their human and social potentialities, however laced with the ordinary human frailties. This potentiality of human beings is the greatest resource in the market place. To confront it rather than seek its co-operation is, in the long term, practically foolish and morally wrong. since it is to go in the face of humanity and what it can do and be for the general human good.

There is a politics of recovery as well as an economics of recovery. There will be no recovery so long as the two are not kept in balance. I believe that the apparently intended legislation on trade union reform is a huge irrelevance to what really needs working on in this area, and that is, as has already been said, greater participation on the shop floor, on the office floor and in the places where managements and trade union officials have to negotiate and consult. That is essentially a matter for industry itself and I think not for legislation, but it is surely something that could be importantly encouraged and supported by Government creating a context of concern and urgency about those things and by giving effective recognition and support to those managements and trade unions which are bending their energies urgently in those directions; and there are many.

I fancy that the Government have thought that consensus is wet, and it sometimes is; but I also feel that now. on this side of the last four years and the things that have happened, there is the possibility of a new context in which new sorts of consensus could be explored and discovered to the great benefit of our industry, commerce and national life, and I pray that the Government may give their mind to that and act upon it.

5.21 p.m.

Lord Hatch of Lusby

My Lords, it is pleasantly my opportunity to congratulate both maiden speakers this afternoon: the first, Lord Ingrow (by a coincidence I am another Member of your Lordships' House who was brought up in his area of Yorkshire), and the second, Lord Bauer. whose uncontroversial—perhaps in inverted commas—speech I warmly welcome, but I am glad that he has got it over. I greatly anticipate the controversial speeches that he will make. To judge from his writings, they will certainly associate him with those of us who believe that this should be a House in which politics is discussed.

I am not, for the same reason as my noble friend Lord Bruce of Donington gave, going to deal with the opening speech from the Government by the noble Lord, Lord Cockfield, except to make two short comments on it, the first at the beginning and the second later in my speech. It would appear that the noble Lord has lost his speech writer for the past four years, and he has been making the same speech ever since. The noble Lord made one reference which struck me as somewhat puzzling. He said that the Government's policies had produced pain. To whom: to the noble Lord, to us or to those who suffer the pain associated with the problems about which the noble Prelate so movingly spoke and who many of us have encountered during our tours around the country during the course of the general election? I am reminded of the quotation from the elegy of Thomas Gray: To each his suff rings: all are men. Condemn'd alike to groan: The tender for another's pain. The unfeeling for his own". I wonder to whose pain the noble Lord was referring.

Neither do I intend to make much reference to the gracious Speech, which seems somewhat to resemble the thinness of a Dickensian gruel. This is no reflection upon Her Majesty but on her speechmaker, who. I believe, resides at No. 10 Downing Street. On reading the gracious Speech, there seemed to me a callousness, a complacency, almost a contempt for the sufferings which I believe most of us in this House have witnessed during the last few weeks and which are being experienced by a large percentage of the people of this country—not just the unemployed but the 6 million in the poverty trap. one-parent families and those who are on waiting lists for hospitals, clinics and houses. One does not find any reflection of that in the gracious Speech. I notice that the gracious Speech costs 75p. Rarely can so much have had to be paid for so little.

I should like to address myself directly, through the House of course, to the noble Earl who is to wind up. I do so with a great deal of pleasure and anticipation. I begin by asking him to accept my congratulations on the post to which he has been appointed. It would appear that La Belle Dame sans Merci has at least relented sufficiently to give him a department in which. I have no doubt, not only will he be happy but he will have a very constructive career. He has chosen, or been chosen, to come down from the realms of the arts into the hurly burly which he left a year or two ago, of economic policy.

I ask the noble Earl to recall the debate which we had in this House, shortly after the last general election in 1979. on 19th June. It was not on the gracious Speech of that time but on a Motion which the Government bravely brought forward dealing with the Budget. I quote to him the single point to which I should like him to address himself. My question was: The whole thrust of what I was saying was that between 1970 and 1972 under the Heath Government, before the U-turn. British manufacturing industry declined: the number of British manufacturers declined and investment went abroad. What reason has he to think that the same policies followed this time will not have the same consequences? And if they have the same consequences. What is his policy then? The direct and relevant part of the answer I received from the noble Earl was: The short answer is that we know a bit more now, on all sides, and we are going to follow the same essential policies, the same thrust. but with greater knowledge and greater caution".—[Official Report, 19/6/79: col. 954–5.) I should be very interested to hear in the noble Earl's winding-up speech whether he considers that the analysis that I gave in that debate has proved to be more or less valid than the answer that he gave.

I refer the noble Earl to one or two facts: first, money abroad. Has money gone abroad since the removal of exchange control? What has happened? I quote to him the figures from his own department. Unfortunately they are not up to date. but that is the responsibility of the Central Statistical Office. The comparison between 1979 and 1981 reads as follows. During those two years total United Kingdom gross domestic fixed capital formation at current prices rose by under 15 per cent. The net outward direct investment overseas by United Kingdom companies, other than oil companies, rose, first in Western Europe, by 700 per cent. and in North America by about 40 per cent. That happened between 1970 and 1972. In 1979 I suggested that it would happen again: it has done, and I would ask the noble Earl to address himself to that fact.

The money released, the money which, according to Conservative philosophy as the noble Earl agreed I had correctly described it in 1979, is freed by the reduction in the top level of taxation and by the removal of exchange controls, instead of going into investment in British industry, has gone into investment abroad. But it has gone abroad to the developed countries in Western Europe and in North America. Very little of it has gone to where our potential customers remain, unable to buy our goods, in the third world.

Secondly, what has happened to manufacturing trade? My noble friend Lord Bruce pointed out that this year, for the first time since the beginning of the industrial revolution, we have a deficit in our balance of manufacturing trade. This brings me to the second reference that I would make to the speech of the noble Lord, Lord Cockfield. When the noble Lord, Lord Cockfield, talks about the increase in retail purchases this year, I should like to remind him that, although during the past year retail purchases in Britain have risen by 6 per cent., they have very largely gone on imported manufactures because manufacturing in this country during the same period has actually fallen. One can add to that the facts that over the four-year period from 1979 to 1983—the period of the previous Government—GDP in this country fell by 3 per cent., manufacturing output fell by 20 per cent., and manufacturing investment fell by 36 per cent., These are the facts to which I feel the noble Earl will wish to address himself in the light of our previous exchanges four years ago.

I should like to refer again to the Government's pleasure, which has been expressed this afternoon, over the analysis of the British economy which the CBI has recently issued. I believe that it is false, and that it has been shown to be false. Noble Lords who have read the financial pages of the Guardian today will have seen a reference to the specific example that the CBI has seen fit to give of the prosperity of British industry—the chemical industry. While the CBI talks about this being a strong industry because it has had an increase of 3 per cent. in its exports during the past year, it does not mention—or perhaps it does not know—that there has been an increase of 10 per cent. in the import of chemical products into this country during the same period, and that during the past two years investment in the British chemical industry has fallen by over 30 per cent.

What then is the record of the policy which the noble Earl and I debated four years ago? What has happened? There have been 34,000 bankruptcies. I would say to the noble Lord to whom I previously referred—the noble Lord, Lord Ingrow—that if he is concerned with small businesses, he should look at the record of the Government whom presumably he supports. Being a fellow Yorkshireman, I would hope that he has wandered on to the wrong side of the House. He should look at the record of the Government in regard to bankruptcies in small companies over the past four years. He will find that every single month there has been a record number of bankruptcies.

My noble friend Lord Bruce has already mentioned—and no doubt other noble Lords will mention—the fact that this policy has led to unprecedented unemployment, with the tremendous suffering that that has caused. There are also the social consequences of that policy. There have been savage cuts in housing, and the undermining of the health and educational structures. Most amazingly of all, whereas one of the main election platforms of the Government was the restoration of law and order, and they made a great claim of knowing how to organise the police force and deal with crime, during the past four years crime in this country has increased by 25 per cent.—

Lord Molloy

Market forces.

Lord Hatch of Lusby

As my noble friend says, my Lords, this is the consequence of market forces.

In addition to the social consequences, which again I thought the right reverend Prelate dealt with so movingly, there have been individual meannesses. There has been the deduction of 5 per cent. from unemployment benefit. There has been the decision to increase pensions by only 3.7 per cent., when the Government themselves say that by the time of the increase there is likely to be an inflation rate of 6 per cent. Surely it is not enough for the Government to say that that will be restored the following year. How many old-age pensioners will have died during that year?

There is also the breaking of the promise made by the Prime Minister in the election period of 1979 that prescription charges would not be raised. Prescription charges have been raised. They have been raised by 600 per cent.: and that is another of the small meannesses which has added to the social cost of the economic policy which has been followed over the past four years.

The noble Earl will recall that in the debate following the previous election I said quite clearly that I considered that the Government had a mandate to put their policies into practice. I believe that they have had that mandate renewed in the election earlier this month, despite the fact that their proportional vote was less than it was in 1979 and that more than half the electorate have declared against their policies. Nevertheless, by our system the Government have a mandate to continue—they never really said anything other than that they would continue them—the policies which they have followed over the past four years.

I should like to ask the noble Earl to address himself to the question: what are the Government going to do about the consequences of the policies of the past four years? When are the Government going to say at what stage their policies will result in reduced unemployment? When are the Government going to say that their policies will result in a restoration of health to the manufacturing industry of this country? We have no reason to suppose that the consequences of the continuation of these policies will be any less tragic than over the last four years. Nevertheless, I should like to hear the noble Earl say how and when these policies will result in the consequences that the Government have claimed will result from what the noble Lord, Lord Cockfield, calls this period of pain.

We are conscious of the fact that more than half the electorate voted against the Government's policy. I admit fully that we did not succeed in persuading the electorate to adopt an alternative policy. Nevertheless, it is our constitutional duty and our political duty to be vigilant over the interests of that half of the electorate that voted against the Government. I can promise the noble Earl that we shall be vigilant. We shall ask these awkward questions. I hope that we shall get some answers this evening.

5.41 p.m.

Lord Boyd-Carpenter

My Lords, it was refreshing to hear the last few words in particular of the noble Lord, Lord Hatch of Lusby, when he indicated his determination to carry out his constitutional duties as a Member of this House. It is perhaps fortunate for him, from that point of view, that the party to which he adheres was so unsuccessful at the late election that it has proved impossible for it to relieve him and the rest of us of those constitutional duties. I can only congratulate the noble Lord, Lord Hatch, on the flexibility of his mind which can switch at one moment from supporting the abolition of this House to as admirable an exposition of the duties of a Peer as any of us could have wanted to hear.

The noble Lord, Lord Bruce of Donington—I speak as a connoisseur of his speeches, to which I have listened with increasing pleasure for almost 40 years—seemed rather out of form today. He was really extraordinarily kind to the Government. Indeed, he went out of his way in terms to say that the speech of my noble friend Lord Cockfield was unanswerable. At least, he could not answer it. He was not going to try. That is really a remarkable performance for someone who speaks from the Opposition Dispatch Box.

As the noble Lord will recall, he spent most of his speech, not criticising the policy that we are debating on the Queen's Speech and on the amendment that he himself is putting forward about what is to be done in the coming year or years, but on a quite interesting analysis of the monetary policy of nearly four years ago in the autumn of 1979—I shall, of course, give way to the noble Lord, but it may help him if I pose the point first. I am sure that he will agree. His was a most interesting commentary on the economic policy of four years ago. It is rather surprising that it should form the main weight of his argument in relation to the policy of the coming year.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for giving way. I am sure that he would not wish to mislead the House. The reason that I did not reply on this occasion to the speech delivered with such eloquence by the noble Lord, Lord Cockfield, was, as I explained, that I had already replied to it many times and I did not propose to reply to it again. There was no question of my being incapable of answering it. Indeed. I have repeated the answer ad nauseam, and so far I am bound to say I have not received satisfactory replies from the noble Lord.

Lord Boyd-Carpenter

My Lords, I am surprised that the noble Lord should base his failure to criticise my noble friend's speech and argument on the grounds that he has not so far received an answer to his criticisms. If this House was to conduct itself generally on that basis our debates would be a great deal shorter but they might he somewhat less informative.

Any doubts among those who sit on this side of the House as to whether this debate is sufficiently controversial have been quickly removed by the speech of the right reverend Prelate the Bishop of Lincoln. The right reverend Prelate made a most interesting speech. He will not, I am sure dispute that it was highly controversial. I make no complaint about that. Indeed, I certainly could not, since my episcopal grandfather in this place, the then Bishop of Ripon, made an extremely strong speech the best part of 100 years ago in this House against Mr. Gladstone's last home rule Bill. I am glad to say that such was his eloquence and that of his colleagues that the Bill was thrown out.

I have no quarrel with the right reverend Prelate that he should have exercised his rights as a Member of this House controversially to criticise the Government. I am sure, however, that he accepts that this exposes him to the possibility that those of us who take another view may seek, however courteously, to controvert his argument.

In the first place, the right reverend Prelate had a rather curious argument about the level of employment in this country. He accepted that there is a world recession that has created a great deal of unemployment in the world. He said, perfectly truthfully, as regards the last year or two, that our rate of unemployment had risen faster than that of most other countries. Therefore, he said, you can only use half the argument of the world recession. The explanation for the other half must be that it is your fault. With great respect, that argument contains a fallacy.

The world recession does not hit every industrial country in exactly the same way. If it happens, as with this country, that we are more dependent upon our export trade as a proportion of our total economic activity than any other major industrial country in the world, we are, of course, hit harder by a world recession than are countries that are more dependent on their domestic market. With great respect, that was therefore an extremely facile argument—one that your Lordships. I think, should hesitate to accept.

A world recession does not bite evenly and proportionately at the same time on every country. Its impact varies in accordance with the way in which that country's economy is organised. I hope that on reflection the right reverend Prelate will feel that that criticism was unfair.

The right reverend Prelate went on to say that he would have been better disposed towards the policies of this Government in the coming year if, in his view, they had been more successful in the last four years. The right reverend Prelate forgets two things. He forgets that, right from 1979, my right honourable friend the Prime Minister has made clear that her policies for restoring the economy of this country, after many years of error and misgovernment, would take two Parliaments. She has made that abundantly clear. To insist, therefore, on judging these policies by the results of one Parliament is surely, as a matter of definition, quite unfair.

Secondly, the right reverend Prelate did not even refer to what has been the great achievement of the Government: that is, their very successful efforts to contain and reduce inflation. Inflation is now at its lowest point for some 15 years. It is fortunate that it is not a little longer than that, or I would have to say that it is at its lowest point since I left the Treasury, and that might seem a little conceited. But the effort to reduce inflation has been remarkable successful—I shall give way to the right reverend Prelate, but I can perhaps put the point to him first.

It has removed a factor that erodes a society. Inflation of the level it was a few years ago is utterly damaging to individuals and to the standards. including the moral standards, of a people. The fact that the Government's policies have so far reduced our inflation level—not as far as I should like to see it reduced and I hope that they will reduce it still further—to the lowest level for 15 years is surely an achievement to which, if one is fairly viewing the results of the last Parliament, one would wish to give weight. Does the right reverend Prelate wish to intervene?

The Lord Bishop of Lincoln

My Lords, I am grateful to the noble Lord for giving way. I just want to point out that at the beginning of my speech I did say that there were a number of Government achievements which I would very much want to salute and it was exactly that particular one which I had in mind, although I did not specify it: perhaps I should have done so.

Lord Boyd-Carpenter

My Lords, I am very obliged to the right reverend Prelate for making that comment which is a very fair answer. I hope, equally, he will reflect on it himself in order to see whether the experience of the last Parliament does not give greater grounds for confidence than he was, I think, prepared to admit as regards the continuation of these policies in the present Parliament.

There was one other matter that the right reverend Prelate raised to which I would like to refer. He mentioned the forthcoming trade union legislation. I think he would agree with me that he referred to that in very critical terms. He will correct me if I am wrong, but I think he used the word "confrontation" and he certainly indulged in a most elegant paragraph about the importance of human nature and human beings. But I wonder whether the right reverend Prelate has really studied this matter. If he looks at the gracious Speech he will see that the proposed legislation is foreshadowed as being such as to give members of trade unions more control over their unions. How does the right reverend Prelate construe that as being confrontation? How does he construe it as being any reflection on the rights of the individual? It is surely designed in order to increase the rights of the individual.

I know that the right reverend Prelate, as an industrial chaplain, has great experience of industry. I, too, have a certain amount of experience. But both of us must know that the unions' power over their individual members can in certain circumstances be very oppressive, and I am not thinking necessarily solely of the closed shop, although it can be in that context. Why the right reverend Prelate should take such exception to a proposal to give trade union members more control over their unions is something that I find a little difficult to understand, except on the inconceivable hypothesis that he has not really directed very much attention to the subject.

So we have a situation now in which the Government are continuing with a policy which they have been applying over the last year or two and which seems, judging by the results, judging by what has actually been achieved, and judging in particular by the successful battle against inflation, difficult to criticise and it therefore makes one sympathise with the care and caution of the noble Lord, Lord Bruce of Donington.

However, there is much more to be done, as I am sure my noble friend Lord Cockfield would agree, and it is to some of those matters that I should like to invite his attention. Before doing so, there is one reflection on the general election to which I would invite your Lordships' attention. It had one very interesting consequence which made me look up the last speech which was made by the late Mr. Aneurin Bevan in another place on 3rd November 1959. He said: I would describe the central problem falling upon representative government in the Western world as how to persuade the people to forgo immediate satisfactions in order to build up the economic resources of the country … How can we persuade the ordinary men and women that it is worthwhile making sacrifices in their immediate standards or forgoing substantial rising standards to extend fixed capital equipment throughout the country?"—[Official Report, Commons, 3/11/1959; col. 862.] Whatever can be said of the decision of the electorate at the last election, they were offered by the colleagues of noble Lords opposite and by the colleagues of noble Lords on the mappen terraces and in the Liberal party all sorts of benefits including increased social security benefits and the reversal of various expenditure cuts. They were offered all those things, and yet the result was the return of the present Government by a substantially increased majority. Party considerations wholly apart, I find that a very reassuring reflection indicating the maturity and growing sophistication of the electorate. The electorate are not as easily taken in, cajoled or bribed as they were perhaps even a few years ago by offers of benefits, but can see clearly, increasingly clearly, where the policies of a Government are aimed and whether it is worth backing them even though it may involve temporary sacrifices.

I find that very reassuring for the whole future of this country and it goes in parallel, as your Lordships will be aware, with the increasing wisdom and good sense of the members of trade unions when they are invited to take industrial action. There have been several cases recently in which the leaders of the unions have sought to induce their members to take industrial action, but the members have had the good sense to refuse. These I think, are both aspects of the same thing: of the fact that the people of this country, perhaps to some extent as a result of the troubles we have been through together, are developing increasing powers of judgment and good sense in viewing either political parties or industrial leaders on either side from the speeches that they make. Anyway, that was a reflection that I wished your Lordships to consider before proceeding to the directions in which I hope my noble friend will be able to indicate the Government will be going further.

There is no doubt—and here perhaps I may be allowed to speak as an industrialist—that one of the burdens on the British economy today is some of the nationalised industries. I am referring to their high charges, their susceptibility to industrial disputes and their unreliability as regards deliveries. Those are handicaps to those of us in the rest of industry. Let us take as an example the coal industry. Not only does profitable private industry have to be taxed in order to subsidise the coal industry and keep unprofitable pits in production, but it also has to pay more for its electricity because the electricity boards are induced by the Government to take British coal rather than oil or other sources of energy and therefore produce electricity at a higher cost than that for most of our European neighbours.

If the Government, as I am sure they do, wish industry to become tougher, more competitive and more efficient, we need a certain amount of assistance in dealing with the damage inflicted on us by some parts of the nationalised industries. Your Lordships will have seen in the report of the Monopolies and Mergers Commission the extraordinary case of the South Wales colliery which was producing coal at a cost far in excess of the price at which it could be sold. The Treforgan colliery was producing coal which was sold for £48.20 a tonne and it cost £153 a tonne to produce, the balance of course being made up by the taxpayer. That cannot be allowed to continue.

I am sure that the Government will not allow themselves to be threatened by anybody in that industry into producing subsidies on the scale necessary to enable wholly uneconomic pits to continue in production. The colliery that I quoted was one specially mentioned by the Monopolies and Mergers Commission. The commission also mentioned that there were 31 other unprofitable collieries in South Wales. I hope the Government will think that the profitable side of industry, struggling with many problems, including energy costs and taxation, needs a little more help in relief from these burdens.

Lord Molloy

My Lords, if the noble Lord will give way, there is a great deal of truth in what the noble Lord is saying about the mining industry, but I am sure he would wish to acknowledge that, if there is one industry where the law of diminishing returns applies most savagely, it is coal mining. It is brought home when you are a coal miner. When you get out of the cage to work the second shift each day you have another 10 yards to walk, another 10 yards to crawl, to reach the surface where you start your work, and when you cut that first chunk of coal you are seeing something that no other human being has ever seen. You have to carry it much further back; new rail lines for drams have to be laid, new pit props installed. So every bit of coal must be dearer. I know that the noble Lord will appreciate that because he is a fair man.

Lord Boyd-Carpenter

My Lords, if the noble Lord will allow me to say so, that was a most eloquent intervention and deeply moving in its character, but of course completely irrelevant to the point which I was making. I have the greatest admiration for the miner. I have been down pits, as I am sure he has. Indeed, as a boy I was brought up in the knowledge that men risked their lives under unpleasant conditions in the pits in order to sustain the economy of this country by mining coal. I would not wish that to be misunderstood.

However, one returns to the point—which I shall repeat for the benefit of the noble Lord—that to produce coal at a cost about £100 a tonne more than it can be sold for is an economic nonsense and a burden on the generality of the British economy. I hope that the noble Lord is sufficiently sensible and experienced to appreciate that.

The other burden—and I must not detain your Lordships too long—that falls very heavily on industry is that of rates. I was delighted to see that the Government plan to introduce a Bill to restrain rate increases. I am only sorry that I read those words as not necessarily including taking power to compel rate decreases because there are certain local authorities in this country to which that process could very properly be applied.

I am equally delighted to see that preparations are going on for the abolition of the Greater London Council, which contributes so heavily to the rate burden on the citizens of London. It is a very serious matter. Major companies are moving their offices out of London because the rate charged on the office buildings is excessive. The Greater London Council has on its facade facing the river a great poster saying "London's Unemployed: 353,000". There is a certain sort of Freudian significance in the GLC erecting that poster perhaps indicative of the fact that in its conscience it knows that it, to a considerable degree, is responsible for that very unemployment in London. I am delighted to see that it is intended that the GLC shall be abolished.

The other day I was sent by my local council, Kensington and Chelsea, in which area I reside, a short note pointing out that although Kensington and Chelsea reduced their rates, the GLC was putting them up very substantially, and so was ILEA. I should like to put this point to my noble friend. The GLC is spending a great deal of money now. It will take some time for legislation to abolish it to be introduced and to go through. I would ask my noble friend to consider some restraint on its rate imposition powers—perhaps a separate Bill will do that—and also to exercise some restraint on the financial liabilities that it is likely to incur.

The GLC employs a very large number of people, many of them at very high salaries. If' more of these are to be engaged to fill vacancies during the interval between now and the dissolution of the GLC, very heavy burdens will fall on the ratepayers by way of payments of compensation. If we are to set some relief for ratepayers of London, then indeed we very much want some restriction placed upon the GLC.

The policy of the gracious Speech, the policy of going for an efficient, competitive industry, involves the only answer there is to the problem of unemployment. I would say to noble Lords opposite that it would be quite wrong to infer that those of us on this side of the House, or elsewhere, feel any less keenly about unemployment than they do, or are any less sensitive than they are to the humiliation, apart from the hardship involved in being unemployed. On the contrary, we wish to see the population of this country fully employed, but we believe it will only be effected if our industry is able to produce the right goods at the right price with the right delivery dates and able to sell them competitively in the markets of the world. It is no use moaning about imports if the foreigner can produce goods and send them here at a price lower than that of our home producers. The answer is to get our own prices down by our own efficiency, by our own high productivity and by the relief that the Government can give on the lines that I have indicated, and perhaps otherwise, to take the financial burdens off British industry.

But it seems to me that this Government are proceeding on the right lines, that the policies they are courageously following and followed in the previous Parliament are right, and that the ship of state will shortly be moving, in every sense of the term, into blue water.

6.8 p.m.

Viscount Hanworth

My Lords. I should like to speak today on union reform, and although I speak from these Benches my concern is not with any proposals that the SDP are formulating but with a personal attempt to analyse and define the difficult problems facing the unions and any Government. What distresses me is that the Labour Party and the unions as a whole should set their face against any reform, except perhaps those which increase their powers and immunities but not their essential role in our society. Responsible, efficient and, in the popular sense, democratic unions are a must for the recovery of industry and of much else in our national life. Is it too much to ask that we should move forward in this direction without the rancour of party politics and prepared positions before we decide what should be done? Alas! it almost seems so.

A few years ago it could rightly have been said that management was still living in the 19th century, and this was most certainly true of its labour relations. It has made efforts to correct this, and to a considerable extent it has succeeded; but the unions, in spite of encouragement, have largely failed to do so. For a long time their older generation have continued to think in terms of the battles they so bravely fought in their early days, and with the help of old-fashioned management the "them-and-us" syndrome has continued long after it should have been irrelevant. The sad thing is that the younger generation find it easier to adopt old-fashioned, entrenched attitudes than to move forward to positive, pragmatic, clear thinking.

Before discussing further where I believe unionism is breaking down let me unequivocally say that I believe that, with our free enterprise system, exploitation of members of a company will often occur unless there are the checks and balances which good unions can provide. Today we have the problem that extremists have managed to move into union positions at the shop floor level. Some such extremists wish to destroy our existing society as their first objective, and will create trouble as a route to this end. This problem really must not be dismissed any longer by the sick joke of "reds under the bed"; it is far too important.

It has led to a strange paradox where, on the one hand, more senior union representatives cannot control, let alone discipline, some of their extremist shop stewards: on the other hand, they have to agree to disciplinary action and fines against those of their members who step out of line with the actions of those uncontrolled extremists—all, of course, in the name of "solidarity". Even more deplorable are the bully-boy tactics of the extremists.

Turning to a higher level in the union hierarchy, it should be recognised that under the existing system the unions with industrial clout can dictate to the Government at the expense of all of us, including the less privileged unions. I would not wish to consider the merits or otherwise of Mr. Scargill's case, because I am simply arguing the need for reform. However, it does appear (as has been said by the last speaker) that he believes that there is a case for opposing closures regardless of the fact that we must all pay for grossly uneconomic coal production. Collective bargaining, which at one time seemed to be a war cry, is after all the law of the jungle. The weak, whether companies or workers, go to the wall. I ask: is this right? It most certainly is not the pure socialist ideal. It cannot, surely, in a civilised society, be where we want to go.

I am sure that we should take notice of what others think of our unions. The American newspaper, the Christian Science Monitor, says They are renowed worldwide for being tough, old-fashioned, keen on feather-bedding, for resisting technological progress, and for being prone to strikes and jurisdictional disputes". Another unsatisfactory aspect of the present situation is, in my view, the over-dependence of the Labour Party on union funds. This is now particularly anomalous when in the last election it appears that more than half of the union membership did not vote for the Labour Party. I personally should like to see a much greater contribution by the Government to parties' funds. The over-dependence of the Conservatives on funds from the City is, I believe, also unhealthy. The noble Lord, Lord Houghton, made a most excellent speech about this subject yesterday, and I hope that all those who are interested will read it.

I suggest that in dealing with this difficult problem of union reform we would all do well to look at the union structure and functioning of West Germany. It is we who set it up after the last war. Two things immediately stand out: the relatively small number of unions, and the fact that agreements between parties are legally binding. As regards the latter point, I believe that we are nearly the only Western country where this is not the case. What one would have hoped for was reform from within the unions, without outside interference. Governments have tried this approach. Unfortunately, it seems to lead nowhere. The TUC, even if it had the wish to make reforms, has most certainly not the power to do so.

Finally, it is my hope that all concerned will put the national interest first and consider how reforms to our unions can best be brought about. I submit that reform should not be a matter for debate: the question is the best way of moving forward. There is no easy panacea. Unless we have on all sides men with breadth of view and a recognition that something needs to be done, I fear that this nation will continue on a downward course or we will relive the traumas of the strife at the end of the 1920s.

6.16 p.m.

Lord Marsh

My Lords, I regret that as a result of an absence of a few minutes I missed the speech of the right reverend Prelate, who I gather made references to the Government proposals in respect of trade union reform. I gather that he was less than enthusiastic about some aspects of that matter. However, I was cheered by the noble Viscount who has just sat down, because I find my own views very much in common with his. The present protected and uniquely privileged position of the trade unions today is completely outdated and is in many cases the basis both of a completely irresponsible misuse of a unique power and of privilege which is available to no one else.

I found the gracious Speech rather disturbing in that one respect. It would be absurd to suggest—and I think few people do—that all our industrial problems, or even most or many of them, stem from this outdated structure of the British trade union movement. One of the problems of this place is that those of us who have been in various parts of Parliament over many years know too much about each other's private views on political issues, and there are many noble Lords in this House. I know, not members of the governing party, who share the concern felt by many other people about the role of the trade unions in the present circumstances.

There is an urgent need—not just a need but an urgent need—to bring the trade union movement in this country into line with the modern world. It is not only absurd but is not surprising that the very things which form the basis of the complaints which many people make about the British trade union movement are themselves based on legislation enacted before any of us in this House were born: legislation in different circumstances, at different times, to achieve different purposes than are faced today.

The Government have already begun to tackle some of the problems. That is worth saying, because they have gone further than have any previous Government. Indeed, in the past I was a member of Governments which virtually offered the trade union movement almost anything it wanted for the basis of an agreement blessed by "Mr. Solomon Binding": and it did not work. People were concerned and worried that if they moved in this area, important though it was, it would cause great upheaval in the nation and there would be too much trouble.

That has not happened. In fact, the opposition to the Government's policies has been minimal. It has been minimal because there is a great groundswell of public feeling in all parts of the political spectrum behind the need, and the feeling that there is a need, for reform. To say that the opposition has been minimal is not to underestimate the progress which has been made. But having said that, there is still a very long way to go in the significant changes, the fundamental changes, which are required.

Over the last few weeks a number of trade union leaders have stated quite openly that they will seek to use their considerable industrial power to obstruct the policies of a Government returned with a massive majority only a matter of days ago. Had a Labour Government been returned and, in the days after its return, speeches been made urging that some other group in our society should go on strike—perhaps industry might use its position to seek to obstruct the Government's policies or the army might decide that it did not approve of the defence policies of the Government—that would be regarded as intolerable. It is an indication of the size of the problem that, when trade union leaders say something that would be totally unacceptable if it came from the lips of anybody else, it is regarded almost as the norm. That is the danger of it.

I well understand that many people were less than ecstatic about the Prime Minister's massive and increased majority. But disappointment with an election result does not give any group the right to take extra-parliamentary activity to frustrate the result of that election. Even having risen to the dizzy heights of general secretary of the National Union of Mineworkers does not allow anybody to make statements of that type in a democracy.

For some of the trade union leaders—not all of them—the explanation is that they are the prisoners of wondrously, magnificently inflated egos. They are tortured by delusions of adequacy. Others on the ultra-Left are motivated by the ideological commitment way to the Left of any Communist Party in Western Europe. It is absurd to say that the Labour Party has been infiltrated by Communists. That is not so at all. Most of the people who have quite openly infiltrated the Labour Party in recent years from the Socialist Workers' Party and Militant Tendency—and this is the reason that the Socialist Workers' Party did not run candidates for the last election—are way to the left of any European Communist Party. Indeed, if they tried to peddle the policies of the Socialist Workers' Party or Militant Tendency in the Soviet Union, they would rapidly find themselves languishing in a Siberian labour camp, which only goes to prove that there is some good in everyone.

The only reference to trade unions which I can find in the Gracious Speech is, A Bill will be introduced to give trade union members greater control user their unions". That has been overtaken by events. All the candidates for the leadership of the Labour Party are in favour of greater control over the unions by their members. But I should like to go further than that. I think that because they are so important to our society it is high time that the rest of us had a hit more control over organisations as large and as powerful as these. Collectively, we expect to have some control over industry. Nobody objects to that. Why is it believed, and on what basis of argument, that in this one area of economic industrial activity alone it is almost indecent for anyone to suggest that the rest of society should have some say in how they conduct their affairs?

The noble Lord, Lord Cockfield, spoke of the corrupting influence of the massive increase in trade union power and the need to improve working practices. I think that most of us would be in total support of both those propositions. But the scale has been tipped, the balance of power has been shifted to such a point that industry cannot achieve that itself. It does not have the power to do so. In my view, we shall not make real progress until the unions are held financially responsible through their central funds for the damage they inflict upon others, where they brutally exercise power in breach of agreements that they have themselves signed. I think the only answer in the ultimate is that, just as anybody else must be held responsible for actions which damage others, so also should the unions. The need is for procedure agreements, such as there are in virtually all industries now, which are signed by both sides and where actions for damages can be attached to the unions' funds if they breach those agreements.

If any employer were stupid enough suddenly to cut the wages of his staff by some incredible amount in breach of an agreement, he would be sued. I know something about this, for I have a couple of writs around my ears at the present time in another capacity. That is quite right, but in the case of the trade union movement there is no recourse at all.

Many books have been written and many speeches have been made about this problem. There are people who specialise in the whole subject of British industrial relations. There are academics, lawyers, politicians and a whole host of people. I should like to take a few moments, if your Lordships will allow me, to cite the current specific example which highlights the problem and the difficulties with which we are faced. That is the current dispute in the Financial Times newspaper.

At this stage, I have to declare an interest as chairman of the National Newspaper Publishers' Association; though I am not speaking on its behalf, I hasten to add. There is insufficient time to go into the details of this dispute, as they are always fairly complex. Indeed. I am not really concerned with the details, but with the principles and problems which this particular dispute highlights.

This dispute concerns 24 men earning £305 a week. Sixteen of these men do not work full time with the newspaper and they can work for other newspapers where they can pick up £120 a week. Thus there is a situation where someone could earn £425 a week. Let us establish at the very beginning that we are talking about people who can hardly be described as oppressed, exploited or living at Dickensian living standards. Those rates were agreed in the belief that they would be paid for by increased productivity. There was no argument about that and that is how the increases were given.

The union has refused any productivity improvements and has demanded not the maintenance of jobs, but still more jobs. One can make many criticisms about the national newspaper industry in this country and, as chairman of the NPA, I am bound to say I can add to some of them. But the suggestion that the industry is under-manned is not the criticism which would come easiest to mind. The unions decided that they wanted more jobs and they wanted an increase of another £25 a week on top of that. If that had been agreed, they would, in four months—because, to set the picture of this, the last increase was in February—have had increases of over £70 a week: an increase of 27 per cent. in the earnings period and a complete refusal to consider increased productivity.

In case anyone doubts this, the general secretary of the National Graphical Association, who is a very nice and decent bloke, expressed his view. He was worried that people might not understand where the union stood on this issue, so he wrote to the Guardian newspaper. I quote: The NGA will not self-fund productivity deals by selling men, more particularly at a time of high unemployment. Our prime responsibility is to protect jobs, and this we have sought to do. The company would wish us to diminish our labour force. Here is a situation where very highly paid men are flatly reneging on every procedure agreement they have signed. They are quite different from the noble Lord who opened the debate. They are not on the noble Lord's side. They do not believe in improved working practices. That is totally outside their view. They are quite prepared to take the money for the improvement, but they do not produce the improvement. So, for the employer faced with that situation, what happens? The men have withdrawn their labour in complete breach of the procedure agreements. They talk about the freedom of the press in this country, but during the general election they deprived a quarter of a million people of the opportunity to buy the newspaper of their choice—a highly specialised newspaper. They have so far cost that paper and that company over £4 million and they are threatening—not wicked capitalists nor Conservative Governments, but they—the jobs of 2,000 people there; because no company of that size can continue to lose £4 million and to make losses on that scale.

Why do I raise this? I raise it because there is nothing the management can do about it, nothing at all. The management of the Financial Times have made approaches to all the party leaders—that is a bit optimistic, for a start—and they have made approaches to the TUC. They have made approaches to the officials of all the trades unions concerned; they have had a number of meetings at ACAS and are having another today. The fact of course, and the reason that I raise this, is that no one can do anything about it because any trade union can pursue that sort of policy regardless of the consequences and it is above the law, it is above any power of Parliament. That cannot be a sensible situation or a tolerable situation. And it is but one of many examples of the urgent need for legislation to redress the total imbalance. It is not a question of bashing trades unions or removing trades unions. It is a question of producing a balance between them where sensible agreements can be reached.

I think that on every test of public opinion, including the result of the last election, this Government have a clear mandate to change the state of affairs, to restore some balance in the situation. I would express the hope that the Minister when he winds up will be able to give us an unequivocal assurance that the Government will, in this Parliament, seek to change a situation which is manifestly unjust, on any sort of basis of morality, and is highly damaging to the management of British industry.

6.32 p.m.

Lord Kaldor

My Lords. I regret not being able to continue in this cosy vein of bashing the unions and talking about the awfulness of the British working man. I am not even going to say that I disagree with everything that has just been said. What amazes me is how it is that some people suddenly come to see the light. They were blind for most of their lives, they were blind when they were members of the Labour Party, blind when they were members of a Labour Cabinet, and then, suddenly, a revelation comes to them.

Lord Marsh

My Lords, if the noble Lord will allow me to intervene, this is called learning from experience.

Lord Kaldor

My Lords, learning from experience is essentially a method over time. It is not something that one can do overnight. If the noble Lord can produce some evidence of how he slowly and gradually came to his present views and how he expresses them, I think that we should all be interested. I wish temporarily to change things round so that, instead of criticising the British Labour Party or the unions, I will criticise Her Majesty's Government and Mrs. Thatcher's policies. However, before I do so I should like to say, just because my speech will be so critical of Mrs. Thatcher, that in one respect I consider that she had a happy thought in elevating one of my ex-countrymen, the noble Lord, Lord Bauer, to your Lordships' House, thereby laying once and for all the slur that all ex-Hungarians are Left-wing intellectuals; although she may not have succeeded quite in her parallel desire to show that not all Hungarians are controversial.

Following these remarks I should like to begin by taking my cue from the remarks of the noble Lord, Lord Boyd-Carpenter, concerning the general election. Different observers see the same events in different ways and I think that my observations will not be quite the same as those of the noble Lord. The general election was very remarkable. It showed a remarkable contrast to almost all earlier elections in this country. I say this for two reasons. It was the first election in which carefully planned publicity and advertising played a major role and was the cause of a marked inequality between the contending parties.

The Conservative Party's campaign was both lavish—lavish in the sense that it must have cost an enormous sum of money which under our present laws (in contrast to constituency elections) need not be disclosed—and professionally of a very high quality. It was triumph for Saatchi and Saatchi, who must have made millions on account of it. I do not mean that they were paid millions by the Conservative Party. I think that they must have earned millions on account of the advertising value of this election campaign which. I am sure, must have attracted to them very important new clients.

We learned from the BBC on "Panorama" the other day, of the careful and systematic organisation of the election at Conservative Party headquarters, an organisation led by experts in publicity who were specially brought over from America and who carefully monitored every thing that was happening in all the constituencies and who monitored all the speeches made at all the local meetings through large batteries of television sets. They had large bevies of girls taking down in shorthand everything that was being said at the little meetings at some of which half a dozen people were present—only to have splashed next morning in banner headlines across the press how one of the Labour leaders defaulted on the Labour manifesto because he had said at a meeting that it might be a good thing to offer the Polaris missile to the Russians in exchange for some concessions. I do not think that it was a very daring remark, but it was a wonderful occasion for showing that the Labour Party was terribly disunited. To me it was all George Orwell coming true—except that it happened one year earlier, not in 1984. And for "Big Brother" one must read "Big Sister".

The second and even more remarkable feature of this election was that, unlike earlier elections in this country, it was not fought on the Government's record, except insofar as Labour speakers kept on bringing up the 3½ million unemployed, which Tory speakers promptly attributed to unavoidable external causes—the world recession. It has often been said of British elections, particularly since the war, that people vote against the existing Government far more than in favour of the policies of the opponents. But this time, thanks to the carefully orchestrated publicity and the extreme partiality of the media, the election was fought on the Opposition's programme and not on the Government's record. of which almost nothing was said.

We had the unique spectacle of witnessing what I regard as the worst Government that we have had in this century—worst by all measurable tests except one, which is often mentioned but which I do not regard as terribly important—winning the largest parliamentary majority in this century except for the coupon election in 1918 or the National Government election in 1931. And if the opinion polls are to he believed—and on their recent record they must be believed—the popularity of Mrs. Thatcher had nothing to do with her home or foreign policies. It was the exclusive result of the romantic and patriotic appeal of the Falklands war. Up to that point, her popularity rating was the lowest of any Prime Minister since opinion polls began. Then it shot up in a matter of two weeks from 22 per cent. to over 60 per cent., and it has stayed there solidly ever since.

All this pushed into the background the incredible bungling and incompetence with which the economic affairs of the nation had been conducted since May 1979. This was most succinctly put in a leading article in the Guardian during election week. With your Lordships' permission. I should like to quote the critical passage: The charge against Mrs. Thatcher this week is not one of malevolence but of weakness and stupidity. Her failures—and the failures of the Government—are those of perception and intelligence, of intellect and human understanding. A government that sits on its hands and its economic primers whilst sterling touches 2.40 to the dollar and British industry dies on the bough in the face of such absurdity is a government of profound doctrinaire stupidity". That was in a leading article on 6th June. No one could accuse the Guardian—not even Saatchi and Saatchi—of extremist Left-wing views.

I should like, if I may, to quote a more authoritative source—a recent publication of OECD. This stated: the near coincidental timing, in the United Kingdom, of North Sea oil development and severe disinflation was unfortunate. That, of course, is diplomatic language. I will put it more directly. It was a national misfortune that Mrs. Thatcher and North Sea oil came on stream more or less at the same time. For North Sea oil meant a resource boom, involving a sudden fall in oil imports and a sudden increase in oil exports—a turn-round of 10 billion in three years—and unless this is accompanied by an expansion of domestic demand of the same order of magnitude. either by a large increase in public investment or a large remission of tax, or both, the gain from this valuable new source of wealth will be lost since it will lead to a corresponding diminution of existing sources of wealth, which give the same value-added but provide many times the number of jobs provided by the new source of wealth by which they are replaced. In other words, unless this is combined with an expansionary policy—if I may use the dreaded word, unless it is combined with reflation—the new wealth from oil does not enrich the nation because it destroys existing sources of wealth to the same extent. In Britain it meant a 15 to 20 per cent. fall in manufacturing output and a two million loss in civilian employment, three-quarters of which was in manufacturing.

Of course, we had to have the negative balance of manufactures with the rest of the Common Market. How else could they have paid for the five billion pounds worth of oil Which they are buying from us annually? But if there had been an expansion of total demand instead of a contraction, the policies of disinflation or deflation, this negative balance would not have been at the expense of domestic output and employment in manufacturing industry.

Mrs. Thatcher, with her monetarist ideas and her natural predilection for the virtues of economy and parsimony which she inherited from childhood, could not have appeared at a worse moment on the stage of British history. It was just a coincidence, for she and her Chancellor introduced highly deflationary Budgets in succession. The OECD in Paris estimates them to be the equivalent of 6 per cent. of the gross domestic product and three times as large proportionately as has been incurred over the same period by any other member of OECD. And she did that at a time when the very opposite was required if Britain as a nation was to derive a net benefit from the discovery and exploitation of North Sea oil.

Mrs. Thatcher could hardly be blamed for not understanding the full implications of this problem. There was nobody with the mental sagacity who was able to give her the right advice among her chosen coterie of personal advisers. The abandonment of Keynesian economics, the abandonment of the commitment to full employment and the elevation of inflation to the role of public enemy No. 1 could not have come at a worse moment, whatever the merits of these things.

Britain was almost the only industrial country in the world which in the circumstances of the early 1980s could have opted out of the world recession; and, more than that, could have brought about a second industrial revolution, with tremendous implications for her own future. In doing so she would also have greatly benefited her partners in the Common Market, and not just Britain. So far from unemployment in Britain having been the inevitable result of the world recession, as the Government claim, it was the Government's own policies that were largely responsible for creating the 1980 downturn in the world economy. A large part of the unemployment generated by British policies occurred not in Britain but with her trading partners—in Germany, France and other countries of the Common Market. This is what happens if you leave things to the free play of' market forces. which the noble Lord, Lord Cocktield—I am sorry he is not here at the moment—is so particularly fond of as a principle. In many cases, leaving things to the free market forces produces the worst possible result, not the best result.

But now that the harm is done and the contribution of manufacturing industry to our national output has deteriorated as much as it has been improved by North Sea oil, our freedom of choice is far more circumscribed. In the three years 1980 to 1982 we had a cumulative current account surplus of £14 billion—a petro-dollar surplus: or, should I say more accurately, a petro-sterling surplus. This is the measure of our net contribution to the world economic recession; and in a European context the effect was very substantial indeed. But now, thanks to the spread of the recession—and if we did not initiate it we have certainly aggravated it—our balance of payments will soon he back in the red. Only this year the Treasury has officially estimated that we shall have a surplus of —1½billion, but now it looks more likely to be zero. We shall soon be hack to the good old situation—our accustomed posture—of being always on the verge of a balance of payments crisis. Once that happens the chances of North Sea oil being used to improve our long-run economic prospects will have faded away. It will therefore probably be true of Mrs Thatcher's second Administration that they will not do the wrong thing nearly as often (if at all) as did her first Administration. And why not? It is because their freedom of manoeuvre to make mistakes will be far more severely constrained.

6.50 p.m.

Lord Harris of High Cross

My Lords, it is a new experience for me to follow the noble Lord, Lord Kaldor, with whom I have had some disagreements in the past. But on this occasion I think it might be best to respect the informal economists' protection society by not immediately following his speculations on Saatchi and Saatchi, George Orwell and sundry other matters, which I found rather difficult to follow. Rather, I would start by congratulating the noble Lord, Lord Bauer, on what I thought was a notable contribution to our discussion. I look forward to further such uncontroversial speeches from that quarter. For the present, I would only add that I thought his cogent criticism of the welfare state for robbing individuals of responsibility was by no means lacking in true concern and compassion, which is often interpreted in a different way by the Labour side of this House.

In a rather different mood, I enjoyed the typically combative performance of the noble Lord, Lord Bruce of Donington. When I am listening to him I always think that he is somebody I should like to have with me in a tight corner, but until he faces the right way I have decided that it would be better to keep out of tight corners. I can agree with him from the Cross-Benches on one matter: that the gracious Speech is sadly lacking on the major issue of unemployment. Even if we allow, as I would, that the official statistics include a good deal of voluntary unemployment, as well as ignoring the black market, about which the noble Baroness. Lady Seear, spoke, the lack of job prospects remains, in my view, a dark shadow, especially over the lives of young people. But on this occasion the noble Lord, Lord Bruce of Donington, turned aside to offer some interesting reflections on past Tory failures. Some of his criticisms on the exchange rate might be seen with hindsight to have some justice, but he overlooked telling us what proposals he had in mind to support his amendment calling for relevant measures to reduce unemployment.

In anticipation of this coy modesty, I had to turn once again, for what the Labour Party called "New Hope". to their election manifesto. There we find two main lines of action against unemployment. The first is the promise of what they call "a massive programme for expansion", with increased public spending on investment, social services and most other things they can think of. This is the plausible Keynesian panacea, of which we got a whiff from the noble Lord, Lord Kaldor. It is the doctrine that I dutifully imbibed with my beer at Cambridge after the war and went on for some years trying very hard to believe.

The alluring theory was that increased monetary demand would draw idle resources into employment. Alas! repeated experience showed that once the trade union highwaymen got wind of this extra money on the road, they perfected their "stand and deliver" act, whereby the greater part of the extra money got diverted into higher wages. It is to this spectacular wages snatch over the 1960s and 1970s that I trace our record of accelerating inflation and rising unemployment. Indeed, the Labour Party manifesto actually acknowledged this very danger. It sought to fend off the risk of inflation with all that stuff about "a national economic assessment"—that is to say, a powwow with the highwaymen—which was code language among the faithful for another incomes policy.

Like a fifth or sixth marriage, it represented a triumph of hope over experience. The last time Mr. Healey walked up the aisle with the TUC it was in the name of the social contract. The outcome was that, between 1974 and 1979, total national spending increased by 130 per cent. over five years. But, of that massive spending spree, less than 10 per cent. went to raise output, while 110 per cent. went to boost prices. The modest rise in output was not enough to stop unemployment more than doubling under Labour—from below 600,000 to approaching 1½ million.

If we turn to the present Government, we find that the last Conservative Chancellor did not reduce demand but only the rate at which it increased. Thus, from 1979 to 1982, total spending still rose by 45 per cent. over the three years. The result was that prices increased by 50 per cent. and output fell by around 4 per cent.. with unemployment again doubling from 1½ million to 3 million.

From all this I deduce, by logic which I have not time fully to elaborate, that the Government's target for monetary growth of 7 to 11 per cent. this year is perfectly consistent with declining inflation and increased output—only so long as the additional spending is not absorbed by higher costs.

We are therefore brought back to confront the central importance of labour costs as a cause not only of inflation but also of unemployment. I have some hope for at least silent agreement from the Labour Benches, because their manifesto promised further measures against unemployment, which rather gave away the whole trade union game. Thus, in addition to expanding demand, Labour promised a second line of action in the form of what it specifically called "employment subsidies". These were to be given to firms which avoided redundancies or created new jobs. But why subsidise wages if they are not already too high? Here was a frank admission that labour costs are above the market value of labour's contribution to output and are therefore at least one cause of unemployment.

This truth is illuminated by OECD figures which show that, by 1981, labour costs in Britain had grown to absorb over 80 per cent. of GNP, compared with around 70 per cent. in France, Germany and Japan. Precisely the same trend is revealed by other indications of declining long-run profitability in British industry. Thus, if we exclude North Sea oil, we find that the average real rate of return on capital in Britain fell from above 10 per cent. in the 1960s to 5 per cent. in 1979 and 2 or 3 per cent. more recently. We really cannot escape the conclusion that a major domestic cause of avoidably high unemployment is the rise in labour costs per unit of output and the resulting decline in profitability. Such a shift in rewards must reduce the incentive to employ more people. At the same time, it reduces the funds available for investment which would create jobs directly in new buildings and plant, or indirectly by improving efficiency and sales in competition with foreign suppliers.

We all say, and endlessly repeat, that we deplore the economic and social consequences of unemployment. But suppose we cared above all else for bringing lasting jobs to those who are genuinely seeking work, would we really go into the Lobbies again to preserve the wages councils which we know, at the margin, price young people out of the market? Suppose we cared less for maintaining outdated political prejudices, might we not think of new ways to encourage employment, mobility, investment and, if I dare say it, entrepreneurship? What about such measures as repealing stamp duties, reducing the tax on capital transfers, on stock options, on portable pensions? Not least, what about ending the taxation of low incomes, which now reduces take-home pay to little, if anything, above the value of social benefits?

As a gesture, for my part, I would overcome my deep doubts and distrust about further Government intervention and even agree to some new programme of public spending, if only it could be shown not to make things worse by raising taxes and other costs elsewhere so as to damage existing employment.

My concluding thought is that an agenda for radical reform to reduce unemployment would range far wider than the measures outlined in the gracious Speech. Certainly it would include action on nationalised industries, trade unions, and local authority spending—for the reasons so splendidly developed by the noble Lord, Lord Boyd-Carpenter, and my noble friend Lord Marsh. But it would extend to long-overdue measures to reduce Government spending and taxes—especially for misdirected welfare, which was so powerfully exposed by the noble Lord, Lord Bauer, from the Government Benches.

7.1 p.m.

Lord Campbell of Alloway

My Lords, in opening this debate the noble Duke the Earl Marshal brought out on parade some of the skeletons in our industrial relations cupboard—some of them have no identity discs. Perhaps the underlying problem in industrial relations is as suggested by my noble friend Lord Cockfield today—that the future is put to the hazard by unrealistic wage claims, thus affecting profit potential and employment prospects. These matters are strictly relevent to the amendment tabled by the noble Lord, Lord Bruce of Donington: but in his speech the noble Lord sought to concentrate on allegations of mismanagement of the economy. While not accepting the Keynesian theory, he did not refute the assertion that the underlying problem affecting manufacturing industry and the reduction of unemployment is unrealistic wage claims.

In economic and industrial affairs the gracious Speech heralds a policy of continuity and consolidation generally—in particular, those measures to give trade union members greater control over their unions. The content of the Bill is left wide open, as is the door to consultation. If there is to be constructive dialogue on the matters canvassed in the Green Paper, on matters already debated on more than one occasion in your Lordships' House (and again mentioned in today's debate by the noble Viscount, Lord Hanworth), would it not be wrong and unwise to anticipate the White Paper, which it is understood will be forthcoming in the autumn?

In all this, however, a measure of clarification would be welcome, if possible, when my noble friend Lord Gowrie winds up this debate; clarification in the sense of a very broad assurance not intended to prejudice the prospects of successful consultation. But as a basic principle—and surely one may not govern or oppose a Government without principles—there is no doubt that the object of the Bill, whatever form it may take, is not, as asserted by certain noble Lords opposite, to slight the trades unions. Its object is to stand guard over certain fundamental democratic precepts. The justification arises only on account of practices of oppression and abuse, by which in the past the trade unions, alas, have done themselves and their members a not inconsiderable disservice. Hence the need for legislation and the need to set such legislation in its true perspective.

This perspective could—even within the life span of this Administration—envisage one comprehensive statute written in intelligible English which could command a degree of acceptability commensurate with its status; a statute in which provision could be made for matters of current concern and of future importance, some of which have already been touched upon in this debate, such as extended worker participation in both the public and private sectors. Why should not the house-owning democracy become the share-owning democracy? Here I go along the road taken by the noble Baroness, Lady Seear. Such as, resolution of public sector disputes, especially in the essential services, and the resolution of inter-union recognition disputes. Such as, the avoidance of certain restrictive labour practices, especially in the case of some craft unions, possibly in context with redundancy. Such as, job sharing and extended assistance to all unemployed who genuinely travel in search of a job. Such as, extended jurisdiction of the industrial tribunals so that they may deal not only with questions of unfair dismissal but also with breaches of the employment contract itself. There is also the question of financial responsibility for breach of procedure agreements—the point touched upon by the noble Lord, Lord Marsh. There could also, perhaps, be some regulation of resort to the block vote—a system that would cause an ancient Athenian to shudder in his shrouds.

The rectitude of the "step by step" approach in the past is not to be questioned; only the relevancy of its ambit to future steps. We build upon an ancient structure devised to accommodate conditions prevailing at the beginning of a century which will soon reach its close—conditions which no longer exist and will never exist again. I take the point put more cogently than I could have put it, by the noble Lord, Lord Marsh, that there is an urgent need, and that this need requires objective and constructive recognition.

Furthermore, the case for consolidation in the form of a comprehensive reappraisal one day is unanswerable. It is as unanswerable as the concept that such a statute should be intelligible. But legislation has its limitations. It cannot create jobs. It cannot increase productivity. It cannot ordain economic revival. And it cannot infuse that spirit of partnership without which none of those ends may be achieved. But such a partnership in which the trade unions play their part cannot exist without a degree of individual surrender on the part of each member in favour of the institution, the trade union.

In this there is no paradox. The dream of Beatrice Webb is now a reality, and collective bargaining which in the last resort allows and must allow for collective industrial action, is indispensable to the economic health and wealth of the nation. And here, alas, I differ from the views expressed by the noble Viscount, Lord Hanworth, on this. But the practical problems of ballots, to call for and to call off a strike, to call for or call off other forms of industrial action, are far from imagined; they are real. However, this is neither the time nor the occasion upon which to discuss the matter further.

Beatrice Webb, however, did not envisage that the trade unions should either aspire to govern in substitution for constitutional government or decline consultation with government on matters of common concern. Have such aspirations and attitudes been laid at rest to die, or merely to slumber in repose? It is idle today to speculate, because we are not concerned to rake over ideological battlegrounds, to unearth bones of old contention with the trade unions; and because, even if we take note of the extant threat on the part, not of the trade unions—I stress that—but of certain trade union leaders to smash the Tories by so-called extra-parliamentary action, the only probable effect today would by not to smash the Tories but to smash the Labour Party as a viable Opposition.

Flexibility is in no way inconsistent with resolve. This is why both what was said and also what was left unsaid in the gracious Speech is much to be welcomed. I am sure that the noble Lord, Lord Marsh (and I understand his position; I understand his sincerity and I understand the situation of which he spoke) would agree with me—I hope he would—in saying that it is not by law that we draw upon our reserves of goodwill; it is not by law that we can harness the full potential or our native skills, or indeed foster this bond of partnership with the unions. No, my Lords, it is not by law, but by the spirit of man and steady government.

7.13 p.m.

Viscount St. Davids

My Lords, in the course of the last few months we have heard a great deal about unemployment. In fact, the subject would long ago have exceeded the bounds of boredom if it was not so deadly serious. The only thing that amazes me about it is that nobody appears to have defined either what full employment is or what unemployment is. Let me quote some examples. In ancient Rome there was indeed full employment among the slaves; indeed, it was a lifetime of full employment. One could not say that they had an enormous amount of job satisfaction. They were perpetually in revolt. But full employment they did have.

Or take Soviet Russia. They boast that they have got full employment, and they are right. It is quite easy to provide it by their method. First of all, with the aid of the Communist Party and subservient trade unions you cut wages down to a minimum, you then compel all firms to take on extra workers. It costs the firms nothing for the simple reason that what is happening is that the workers already employed are in fact paying for the extra workers; that is where the money comes from. Then of course they can abolish unemployment pay, an enormous benefit for the Government; and that, of course, incidentally gets rid of the poverty trap. They can then make unemployment illegal, and the scene is complete.

There are, of course, the disadvantages that you have totally abolished liberty and that you have produced an industrial picture in which all advance is practically impossible. The seize-up of Soviet industry is such that it is only by quietly violating its own rules that it manages to keep going at all. Those are not the sort of pictures that we see as good, although they are in fact cases of full employment.

In the days when I called myself a socialist I was sometimes asked which brand of socialist I was, and I used to say that I was a Gilbertian socialist. I have since rejected the word "socialism", but I continue to call myself a follower of the great W. S. Gilbert. Let me give your Lordships a small quotation to mull over, and you will understand why: When everyone who feels inclined Some post may undertake to find Congenial with his peace of mind Then all shall equal be". As you see, no compulsion, no compulsion even to work, but job satisfaction very heavily underlined. I believe that is the direction in which we should be moving. I have ceased to believe, however, which I believe Gilbert did believe, that full employment will ever be possible.

I think I understand why, It may be a strange thing to say. I think your Lordships will understand if you will let me say it. In every community in which there has been a large level of democracy and leisure it has happened because that community has been able to stand on a platform of slavery. Ancient Athens was very much a case in point. If the Athenean democrat went in for politics he had the time, the leisure; he also had the time and leisure to indulge magnificently in sport and in art. But it was because the slaves below him were doing the work and keeping him on the standard of life which enabled him to do this.

I will not go through the whole of history for your Lordships; it really would be most unfair on the House. But let me give your Lordships one other case. In the last century there were no slaves in the old sense but there were a great many wage slaves. They had no unemployment benefit to fall back on. If they were out of a job they starved. If your Lordships go round London, as I am sure you often do, you will see all over the place hundreds—at one time there must have been many thousands—of little houses that were built in that century. They are easily identifiable. Some were for better-off people, some were for the less well-off people and some were for people who were little more than semi-skilled artisans. One need only read Dickens to see the picture.

One thing that every one of these houses had was a room or some place for a servant girl. Those girls cleaned out, lit and stoked the fires. They carried up the hot and cold water and did a number of other tasks. Why are they not there now? What has happened? Hot and cold water comes out of taps. We no longer have to stoke fires because one turns a switch on and off. It is all done by machinery. That is why the girls are no longer there. That was the start of the position we are now moving into where we no longer have wage slaves. The machines do it.

Gilbert's day was probably the last moment at which the machine had not taken over. The movement started slowly and is now going faster and faster. We are now making machines. We do not make cows, horses or sheep. They reproduce themselves. The machine is about to do the same. When machines make themselves we shall all have a great deal more leisure.

The one thing that we must not do is call ourselves unemployed. Let us go back to that servant girl. If we brought her into our day and showed her the unemployed with their unemployment payments, supplementary benefits, family allowances and council houses with their television sets, would she call them unemployed? No, they bear no resemblance to the picture that she saw of unemployment. She would call them ladies and gentlemen of leisure because that is the class in her day which corresponded to them.

In her day there were a great many people living on very small incomes. Some of them were living on pensions—private or public—and some were living on small amounts of interest from investments. Some were living on small rents from properties. They were a very mixed lot. The only thing they all had in common was that they were paid and lived on what they were paid but they did not work for it. What did they do? Some of them no doubt did nothing and wished to do nothing. Many would have taken jobs if jobs had been offered. But a great many worked very hard. They were the backbone, the troops, who formed and were the founders of many great charities and great institutions and were at the start of many great projects which were commenced in that century. They were not top men. The top men were no doubt Peers or people in high positions. However, they were the real body of people who did all these things.

They did something else. Looking upon themselves as people of leisure, they were enormously valuable. Artists, sculptors, poets and writers are notoriously apt to starve, but being the people they were and having this leisure, they produced a great burst of art for which we are now grateful.

That is what we must do now. We have to make people understand that if they are never to be employed, in the sense of living by being paid for doing a job, they are not unwanted and that they are the seed corn of the country and thus enormously' valuable. How would I promote this? First, I should make it possible for unemployed men and women to earn a considerable income. which is not as high as an actual living income, but without losing their right to unemployment benefit. The old age pensioners can already earn a considerable sum before losing benefit. That would have several effects. It would bring a great deal of our hidden economy to the surface. That would be of benefit, and I very much agree with the noble Baroness. Lady Seear, on that.

Another point is that when a person starts a business of the smallest size it is often able to support only one man. Often it can support only half a man. There are many men who would be small businessmen if, when they started a business, they could find the income that is needed to eat for the first month or so. Let them do that and I think we shall see a further burst of small businesses, as the Government wish.

Another thing I should do is allow the unemployed to work for long periods for charities. I give one example from a field I know very well. On the inland waterways, we have had large gangs of volunteers digging away and repairing old, broken, rotting waterways. They do not get paid for it. The amount of work they do is extremely valuable. They learn a great deal in the course of doing it. They develop the habit of hard work and, when they have done the job and it is completed, they go away leaving a working waterway around which develops a whole number of solid jobs. They are real jobs not only involved in looking after the waterway but all sorts of ancillary jobs. I believe there are many other fields such as that.

We must consider that in the future there will be many people working at jobs for which they are not paid. A very great writer and futurologist, Mr. Arthur C. Clarke, has said that the truly civilised man is the man who will work hard although he does not have to do it for a living. I believe that our real task is to civilise humanity. That, in the end, may prove much easier than trying to provide full employment.

7.29 p.m.

Viscount Trenchard

My Lords, we have indeed lived, and are still living, through a period of pretty unique industrial history, with some enormously violent changes which have taken place in the 1960s and 1970s and are still taking place in the 1980s. At the risk of boring your Lordships, I am afraid that I am going to put my gramophone record on again, which in my view makes it abundantly clear—and this follows very much the line of the remarks of my noble friend Lord Boyd-Carpenter—that it is the years of fool's paradise in the 1960s and 1970s that have caused unemployment today. I agree with those who say that unemployment has not all been caused just by the world recession of very recent years. But that recession caught out the country, which had become progressively more and more uncompetitive over those fool's paradise years.

We had between 1960 and 1978 lost half our world market share and we had also lost similar shares of many of the markets for our own manufactures here at home. The figures were that we were knocking on 20 per cent. of world markets in 1959. By the late 1970s we were in the 9 per cent. ball park.

Our ills were indeed of long-standing, as my noble friend Lord Boyd-Carpenter has pointed out. Why is it that ills of this degree of long-standing did not show up more quickly? The reason is that this period of the 1960s and 1970s was unique in industrial history, and, in my view, will probably remain so. After the appall- ing second world war and the period following it when half the world was getting back to normal, we had the most unique period of growth that the world has ever seen. The world market in those two decades, when we lost half our market, doubled, and that is why, with our half market share, our production stayed more or less constant and our standard of living even edged up. The proof of this is shown very clearly in the fact that during these years 13 extra countries passed our wealth, as indicated by gross domestic product per head, making 16 ahead of us by 1978, with Portugal and Spain only just behind us.

So much for the growth policies of past Governments in the 1960s and 1970s. I say this against the kind of policy that I understand the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Kaldor, have recommended today of stimulating demand. What did it do? It in fact merely sucked in imports, and the fact that it was doing so—the fact that it was failing totally—was masked because the world market was growing so fast, and we were missing this unique opportunity of growth as country after country passed us. It is for that reason that I do not agree with the noble Viscount, Lord St. Davids, who has just spoken, that reinstating full employment is a hopeless task. It is a long-term one, but if we had fallen from only a 20 per cent. share of world markets to 12 per cent. we should today have the least had unemployment record of any of the free countries of Europe.

I do not believe it impossible to reach that 12 per cent. share of world markets again. Of course the employment will be different, the problems of our old industrial areas still acute and the problems of shortage of modern electronic engineers very great. But, overall, the employment position would be quite different. I believe that 12 per cent. is not an idle thought, because we are now today proved to be competitive. Why do I say that when there are still figures being bandied about which suggest that we are still less competitive than we were in 1975 or 1978? I in fact know the origin of those figures. Indeed, I worked rather hard to get them produced in order that my then Secretary of State should realise just how uncompetitive we were. However, they are not a fair comparison today for reasons which, at this hour, it would take me too long to go into. But I say that they are proved to be erroneous because in fact over the last 12 months our industrial production record has been better than the records of virtually all our industrial competitors.

Where, in the latest figures available up to December, January and February, they are still down against the previous year in industrial production outside construction, we are level-pegging in those months. We have a better record: it is a couple to three percentage points better than the average of them. You cannot do that in a recession (which is still with us) and not be competitive overall. I say "overall", of course, because it is not in each industry that we are growing. In some we are still falling. But we are proved competitive, and the latest surveys which have been mentioned today of the CBI and others merely confirm that that is so. Our share of markets has not declined further, and indeed it is edging up. You simply cannot do that, as every industrialist knows, if you are not overall competitive.

Do we need growth in the manufacturing or in the service industries? We need it in both, but I support those who have underlined the importance of the manufacturing industries for a reason additional to those mentioned already. That is that in my rough estimation half the service industries of this country are fairly dependent on our manufacturing base.

Do we need fast or slow recovery growth? Of course, if world production grows, and if we are regaining our share, there is then a double chance of it being slightly faster. We certainly do not want false growth: the growth of a plant that is deluged with nitrogen. I have a feeling that the policies that noble Lords opposite are recommending are very close to that situation—only for "nitrogen" one should read "printing money". That would bring inflation back and spoil it all at this point. We do of course want growth as fast as we can get it in a competitive way to relieve the awful stresses of unemployment, and to do it in time for the decline of our oil supplies, which are of great value to us today. One wonders whether it is going to happen at a rate which is fast enough; and one wonders whether the whole of industry has yet realised the degree of change that exists now in this country as a base for competitive manufacturing.

The exchange rate has been mentioned today. Of course, it is not the only thing that has changed. When the noble Lord, Lord Bruce of Donington, mentions it in terms of its strength being caused—it was the only reason that he gave—by a 17 per cent. interest rate (which at that time was only a 2 per cent. real interest rate because the inflation stoked up by the latter years of the last Labour Administration had inevitably pushed inflation to that level again) he is of course leaving out many of the factors which influenced the exchange rate at that time. Perhaps it is not just our possession of North Sea oil that should be mentioned but the fact that there was a world-wide oil crisis; a near panic. Any international financier who put his money in a country that did not have an oil supply at that time was perhaps in need of having his head tested. This moved the exchange rate.

How much can Government do about exchange rates? Internally in Government at that time I argued that toss over and over again with academics and with my colleagues. I have to say that I was convinced in the end that one can do comparatively little about the exchange rate. Your exchange rate is what the world thinks your pound is worth; and, with a panic oil situation in the world, there was very little that we could do to stop money flowing in at that period.

I have to say—very quickly—to the noble Baroness, Lady Seear, that I do not believe that the EMS and our entering it will to any extent alter the degree to which governments can affect the exchange rate—

Lord Bruce of Donington

My Lords—

Viscount Trenchard

My Lords, if the noble Lord will let me finish my point about the exchange rate, I shall then give him an opportunity to intervene. I believe that we had a period of aberration in exchange rates, due to the factors that I have mentioned and sonic others which there is not time to mention. I believe that is was an aberration, and I think, and hope, that industry will realise that, while there always could again be major crises, it is unlikely that there will be the same violent fluctuation in the exchange rate and a violent strength in sterling again in the future.

Lord Bruce of Donington

My Lords, I am grateful to the noble Viscount. There is only one point I wish to raise with him. He mentioned the effect of the oil situation upon the exchange rate. Perhaps I ought to refer him to the second report of the committee of another place on Treasury and Civil Service affairs. It considered that question, and in its report came to the conclusion that the influence of the oil situation at that time on the rate of exchange was not an important factor.

Viscount Trenchard

My Lords, I am aware of the many different opinions that there were at the time and that there have since been; there will always be different opinions on that question. I have given the House my opinion, with the benefit of having listened at the time to the academics, as well as to my colleagues and to experts.

Today, with the exchange rate that we have, we also have completely new attitudes and productivity records, which, bearing in mind that they have been achieved with little or no growth in many cases, are remarkably good. Five per cent. up on the back year is the average, with 12½ per cent. up since 1979 in production per person hour. To achieve that in the middle of a world recession with no growth augurs extraordinarily well for the future.

Therefore I believe that there are many opportunities. They are beginning to show—even in recently unfashionable industries, from the chemical industry to the textile industry and even in industries such as the newsprint industry, in which, I notice, two big international firms are to open plants in Wales. So I hope that there will be a growing realisation of the fact that this country is now a very good base for manufacturing industry, notwithstanding the problems which still exists in a minority of industries, which the noble Lord, Lord Marsh, has mentioned.

I believe that there will be a key period of test for this country's banking and financial system as to the support that it will need to give to the growth of British industry in many different areas. I regard it as a total red herring to say that a good deal of money has gone, and will continue to go, in overseas investment. There is money enough to support good projects. We are seeing more and more good possibilities, and I hope that our financial and banking system is aware that it is going to have a period of enormous opportunity to help forward our efficient industries.

I must not keep your Lordships longer. I believe in free trade. With the exports that we have I cannot possibly do otherwise. But I also believe in fair trade. British Ministers and civil servants must be careful not to lean over backwards too far to be fair, and they must bargain hard in the world to ensure that we get fair trade. I do not believe that this will affect our exports. I am delighted that in the gracious Speech there is mention of combining the Department of Industry and the Department of Trade. In my period in office too much time was taken by Ministers and high-powered civil servants arguing protection against non-protection, from one end of Victoria Street to the other. I am delighted that the departments have been combined under my then sometime adversary, but colleague, too, Cecil Parkinson, who was in No. 1 when I was in No. 123.

I support most strongly the remarks of my noble friend Lord Boyd-Carpenter on the effects that arise from the fact that there is still a long way to go in making our nationalised energy industries competitive. The effects of their uncompetitiveness in the past and their pricing policies when pressure was put on them by Government have done harm to the competitive position of manufacturing industry. I consider that, though a difficult problem, this is something which the Government must face up to and must study: and they must find a way of preventing our manufacturing industries from being handicapped.

Let me say quickly to the noble Lord, Lord Marsh, how much I agree with his remarks. We have had a hang-up on the question of trade union agreements and their enforceability since the final débâcle of the 1971 Act. Those who have studied the detailed reasons for the failure of that Act know that it is not impossible to conceive that what the Donovan Commission recommended over 13 years ago should now be possible; namely, at least the enforceability of procedure agreements.

In the past I have had the good fortune to be responsible for factories at home and abroad, and I have to say that the most industrially important difference that exists, in terms of its effect upon industrial efficiency and productivity, is that concerning the reliability of agreements. This question can completely erode one's management effort. It can take up all the spare time which one's management should be using to move with the times and introduce new methods and change. All that time can be used renegotiating agreements which have been signed only recently, as was clearly indicated in the example which the noble Lord, Lord Marsh, gave to the House.

To those who believe that the law is not an answer to this problem I would say that the law is not everything, that attitude is far more important, and that a change of law will not overnight change attitude in the residual areas where it is not yet changed. But attitudes are changing. Let us get the law about trade union agreements right. I say that because, if over the last 60 years there had been no law against robbery, we would not all have been thieves, but robbery would have spread; and so in the trade union world this problem has spread. It is not universal, and attitudes are coming right for other reasons. But let us once again look at the agreement situation.

In conclusion, I would say that I was sorry that the old argument about British management being incompetent and substandard has once more raised its head. In my opinion it is not true. It is a product of our own tendency towards self-criticism. I am now going to indulge in that tendency and say that we could not possibly have been clever enough to put all our geniuses into the professions, the City, agriculture, retailing, the armed services, and the Civil Service—all of which are the envy of the world—and all our idiots into manufacturing industry.

7.49 p.m.

Lord Balogh

My Lords, it seems to be the tradition of this House to start with congratulations to Ministers, maiden speakers and others and to explore their advantages without being too detailed on the disadvantages. I make these introductory remarks with a heavy heart. I have to commiserate with the country upon the choice of company that it has elected to govern. As Walpole exclaimed: They now ring the bells. but they will soon wring their hands". I had prepared a better and more jocular introduction but the noble Lord, Lord Kaldor has shot my Yugoslav-Hungarian fox. Only the bare bones remain.

What we are now witnessing is not a mere change in the urgency of pursuing action between two parties with a common base towards approaching problems. Mrs. Thatcher's Tory predecessors limited their intervention on economic and social policy to conservation. She, on the contrary, is willing and, indeed, eager to reverse the trend towards social reform. With her smashing victory, a fundamental change has abruptly been incorporated into Conservative policy-making. The 1926 to 1978 period of relative tolerance was violently displaced by a revival of a sort of totally un-Tory Herbert Spencerian philosophy that has not been accepted in any advanced country outside England. Thus she acquired an irresistible power centre and she continues to move the country into complete reversal of the basic direction of policy.

The Government formed their policy first on stemming and then on rolling back increases in the "socialistic" public sector, hoping to profit. In fact, apart from defence, they will lose. They secured, through fiscal means, a regressive distribution of the national income. As the main features of the philosophy and action became clear, chiefly through the 1980 Budget, the Keynesian economists, involving in those days the largest part of the profession, predicted a steady deterioration of the economic outlook. This prediction, unfortunately, has been fully borne out by events. The remorseless worsening of the economic situation and prospects give the lie to Mrs. Thatcher's bouts of optimism followed dutifully by her Chancellor, Ministers and ex-Ministers. There is a horrid sense of déja vu as one recalls Hoover's drift into total bankruptcy, which was regularly accompanied by the optimistic talk of that unfortunate American President.

The policies of the monetarist school produce a débâcle in human terms in this country greater, for a large minority, than the Great Depression. Nor can the excuse be made that there has been insufficient use of the weapons advocated by the monetarist school. The unemployment figures testify to that failure. The trend is still upwards although the actual shrinkage has for the moment been slowed down and halted, probably due to restocking.

The unworldliness of the monetarist school had been demonstrated clearly by the fact that it denied the very possibility of cost-push inflation. Yet this has been proved to be one of the main factors. The monetarists ignored that the structure of the economy in the main industrial countries has altered. Pure competition no longer dominates an increasing sector of the economy. more especially of manufactures. I was interested to hear the noble Viscount, Lord Trenchard's remarks on manufacturing. I had been under the impression that for the first time in 400 years the British balance of manufactured goods was negative. I do not know how the noble Lord can explain how that harmonises with what he says.

Viscount Trenchard

My Lords, what I said was that our industrial production outside construction had a better performance in the last 12 months than all our main industrial competitors, based on the last three months for which figures are available. That is correct. The change in our balance of payments in visible trade, analysed correctly by the noble Lord, is due to the years of fool's paradise during which, as I tried to explain, we lost half our share of the world market. Then, when the recession came, we were caught out and the chickens came home to roost with the result that the noble Lord has indicated.

Lord Balogh

My Lords, I do not think that that is an explanation. It is a re-statement of facts. Pure competition no longer dominates an increasing sector of the economy, more especially manufactures. In fact, Conservative policies in all affected countries from America to Germany were, and are, based on indefensible hypotheses. Mrs. Thatcher claimed that the Government were able to dominate the complex economies of the country and manage the entire system through the money supply, albeit that Mrs. Thatcher's most ardent partisans were unable to define that slippery concept.

The exceptional steadiness of the progress of the mixed economies under Keynesian auspices is beginning to be appreciated, although not by officials. The social and political menace of a perpetual mass unemployment is beginning to replace inflation as the main obstacle to prosperity and harmony, although the need and the possibility of price and incomes control still excites horror.

More incomprehensible even than the monetarists' approach to the problems of adjustment to domestic change were their recommendations to cope with the problems of the international market and its relation to domestic problems. The neo-classical world would demand perfect competition, but perfect competition is a shrinking area. All post-war history points to the conclusion, however, that both on the side of labour and of manufacturing enterprise oligopoly increasingly dominates. This necessarily means growing, upward pressure on costs, the most important being salaries and wages. In the longer run, and in socially and politically advanced countries, this means accelerating inflation, with its harmful effect on class and professional harmony. It could not be tolerated for long.

Two systems eventually emerge to suppress inflation. It could be done by force, cutting the legal and economic or financial and military support of the trade unions. Alternatively, it would be dealt with in a more mature and civilised way by general agreement. The former can be operated by outlawing the unions; or the Government could, by internal legislation, create a deflationary atmosphere and thus increase unemployment and push the balance of power against the unions. The alternative would be an agreement to limit the increase in incomes to be compatible with the increases in productivity. It would mean forgoing the most important strike weapon, and it would have to be achieved by strenuous negotiation.

It now seems clear that the Government are changing from their reliance on pressure of a general kind, monetary and fiscal, to force. The shape of their measures of restrictions is to do away with the immunity for torts committed by their members. It is to be feared that this means sliding down the slippery slope of doing away with all safeguards. Their outlawry will be effective and will engender extreme bitterness. Some of the interventions of noble Lords have demonstrated how far one can go in unfortunate remarks which just yield greater conflict.

However, it should be said quite emphatically that the Labour Party and the unions have to a great extent brought the crisis on their own heads. The menace of inflation has been growing ever since 1960. It was also clear that full employment would accelerate the process. Professor Robinson, as early as 1938–39, predicted and outlined the nature of the problem. Michael Kalecki and I published warning articles as far back as 1943, and we both insisted on the need for an effective incomes policy if unemployment was to be avoided. In my pamphlet Labour and Inflation I pointed to the need for involving the representatives of the workforce in production and distribution programmes. Without a firm conviction that justice would be done to reasonable demands and that the planning of income distribution would not be used for unilateral repression of wages, co-operation of the unions could not be expected and that would make the policy impossible.

More must be said about the foreign exchange market, which has been touched upon by the noble Viscount. Lord Trenchard. I do not believe that the Bank of England is incapable of controlling the market, provided the pressure is upwards. Downwards pressure is a problem and a very different situation. But upward pressure would mean the acquisition of a vast amount of liquid reserves which at present would not be very unfavourable to Britain, because our situation is so delicate that we need large amounts of reserves. To say that the Bank of England cannot print enough sterling in order to acquire dollars shows an incredible ignorance of how the City works.

It seems from the gracious Speech that the Government wish to continue with their drive for freer trade and services. The history of the post-war years since 1945 has shown how foolish it is to hope for great advantages. Advantage goes to the strong; disadvantage goes to the weak. We have not had any assurance that our relative weakness can and will be eliminated. In fact, the international markets became the most important source of change for the worse. At first the impact of the IMF was temporary only, and even that had to be suspended until it was supported by Marshall Aid. The oil price explosion changed all this. It created vast amounts of short-term balances which could be, and were, shifted about irrespective of the development of production patterns or productivity, although the latter were influenced by the former. They were the result of loss of confidence and panic by the bankers and other financial agencies which searched desperately for security, unobtainable under the circumstances without international co-operation, which was not forthcoming.

Changes in stocks and the oil balances were especially unstable, and could violently flow to and fro. These fluctuations in the locus of reserves had nothing to do with the real situation; for example, the current balance of payments. They could immensely destabilise the basic situation. As I have said, the Bank ought to have stabilised the exchange by buying up the dollars which were forthcoming. It is the avoidance of inflation for which the British, indeed the Anglo-Saxon, Governments strive. But they will not have success until they have better means of controlling or at least influencing savings and investment.

The unions, instead of collaborating on their terms, repudiated all efforts to achieve a new balancing system. Their leaders showed open hostility and stood out for free collective bargaining which had no hope of success. I was savagely attacked at the Labour Party Conference of 1970 by Jack Jones for advocating incomes policies. In 1969 Mr Callaghan himself all but brought down the then Labour Government by making impossible the evolution of an incomes policy.

So long as the national income continued to grow the fatal problems due to an explosive sterling crisis could be avoided. Unfortunately the balance of payments continued to worsen despite the discovery of oil and gas. In consequence the British Labour Government had to have recourse to the IMF, though it is now clear that this was a mistaken calculation.

In the outcome the union leaders did not join the Government in persuading their members of the need for restraint. The unfortunate Mr. Callaghan now went to the other extreme and tried to impose a 5 per cent. upper limit on wage increases. The winter of discontent followed and with it the victory of Mrs. Thatcher.

The policy of deflation, high rates of interest and cuts in public expenditure was now consistently pursued and proudly acclaimed. The first phase of developing a forcible policy started, based on repressing wage demands in the public sector and creating a deflationary atmosphere in the private sector. The suppression of inflation, of which one is so proud, was at the cost of both terrible unemployment and bankruptcy. The bargaining power of the unions was weakened, and is to be further weakened, by legislative action.

Mrs. Thatcher and her minions claim that the present deflationary policy cannot be relaxed because that would involve the ruin of the painfully sought stability, the creation of a base for "real" expansion, mainly thought of in terms of increases in private consumption and investment, while the expansion of public investment remains abhorrent. In fact, the policy implies bitterness on the part of the workforce, and the ensuing industrial action is more than likely to lead to an acute class struggle.

Unfortunately, neither side of industry has as yet accepted the inescapable need for an incomes policy, the only alternative being mass unemployment. The timid statement in the Labour Party's election manifesto of 1983 has had little relevance to this problem; it promised welcome increases in social services, but did not deal effectively with the problem of how to pay for them.

The laissez-faire Conservatives claim that incomes policies have invariably failed. But they failed mostly because they were used as temporary emergency measures. Where they were used on the basis of a consensus, as a long-run remedy to the dysfunctioning of the system, they did not fail at all, as Sweden and Austria demonstrate. Indeed, the guide posts introduced by President Nixon in America were only too successful and they were abolished because of their success, not because of failure. With the laissez-faire reactionaries in command in the United Kingdom and the United States, we can expect a rapid deterioration in the social atmosphere. Yet a reflationary policy is impracticable it' the main industrial countries do not act simultaneously, because otherwise exchange crises would follow. Alas, there is no chance of a happy ending.

8.15 p.m.

Lord Monson

My Lords, two or three speakers in yesterday's debate touched upon the question of rates, but it seemed to me that taxation, whether it be local government taxation in the form of rates or central Government taxation, is essentially an economic rather than a social matter. I was glad to note today that the noble Lord, Lord Boyd-Carpenter, apparently took the same view. Therefore, I make no apologies for bringing up this subject again this evening.

I heartily welcome that section of the gracious Speech which foreshadows the introduction of a general power for the limitation of rate increases for all local authorities, wherever this may be necessary in order to protect the ratepayer. I welcome it all the more because in October 1980 I moved amendments to the Local Government Planning and Land (No. 2) Bill with exactly this purpose in mind. On that occasion my sole supporter from the Conservative Benches—although I hasten to say a most able supporter—was the noble Lord, Lord Ellenborough, who I am glad to see in his place this evening.

The Government, in the person of the noble Lord, Lord Bellwin, expressed some sympathy with the motives behind the amendments, but then went on to pour a large bucket of cold water on them, albeit in the most courteous and patient manner which we have come to expect from the noble Lord. Lord Bellwin. Some objections, doubtless entirely valid, were of a technical or drafting nature; but the main objections were ones of principle. The amendments were described as a severe step which would have significant implications for local democratic responsibility for determining levels of expenditure, and which would lead to central Government usurping the traditions of local democracy.

Yet now, lo and behold, 32 months later, the unthinkable has become not only thinkable but feasible and, indeed, desirable. It is good to know that ideas put forward from these Benches occasionally fall upon fertile ground, and good to know that the Conservatives are sometimes prepared to execute a graceful U-turn in a good cause. For, make no mistake, about it, it is a good cause. People who are affected only marginally or not at all can afford to laugh; indeed, they can afford to derive enormous amusement from the spectacle of extremist-dominated local authorities making lavish grants to organisations with names—and here I continue a tradition recently inaugurated by the noble Lord, Lord Marsh, from these Benches—like "Penge Pederasts against Polaris" or "Finsbury. Foot-Fetishists against the Falkland Islanders". But it is not so funny if you happen to live in a modest house or flat in one of the less affluent parts of London and are obliged to pay rate increases—not rates—in the region of £250 to £300 per annum in consequence of these and other extravagances.

I have here a letter, published in the Evening Standard, from someone who has a small two-bedroomed flat located in the London borough of Haringey who has just had his rates increased by £3.50 to almost £25 a week. This is by no means the most extreme example of the sort of thing which has been happening. It is very curious that whenever a Chancellor of the Exchequer, of whatever political persuasion, rises on Budget Day to impose—as chancellors tend to do—an extra 2p on a packet of 20 cigarettes, plus an extra 4p on a gallon of petrol, and an extra £5 per annum on the annual road fund licence, the balloon goes up. There are banner headlines in the popular press and frequently outraged leading articles. There is much fury and indignation (whether synthetic or genuine, I cannot tell) in Parliament, even though—and this is the point—these measures add no more than perhaps £25 a year to the average family's expenditure.

Yet, when that very same family has its rates bill increased by no less than 10 times that amount, they, that is to say the family, are expected to grin and hear it. and the media and Parliament for the most part remain mute. Protection for these unfortunate ratepayers cannot come quickly enough, and I very much hope that the proposed law will come into force in April 1984 rather than in April 1985, as predicted in the press.

This leads naturally to the question of central Government taxation, also touched upon in the gracious Speech by reference to a forthcoming Finance Bill. One can wholeheartedly welcome the reductions in the tax burden on higher incomes since 1979, extolled by the noble Lord, Lord Cockfield. One can welcome them objectively as well as subjectively, since the reductions do no more than bring Britain into line with other civilised industrialised nations as regards tax rates on higher incomes.

Where the Conservatives have done far less well is in their treatment of those at the lower end of the earnings scale. There can be very few industrialised countries in Europe or elsewhere where a single person pays tax and National Insurance at a combined rate of 39 per cent. on every pound earned in excess of £35 a week. Married people do not fare very much better.

Such is the burden of earnings-related National Insurance contributions now that, taken in conjunction with the substantial concessions on unearned income made in this year's Finance Bills, we have the unusual situation whereby anyone with an income of between £49 a week and £248 a week is actually better off receiving it in the form of unearned—that is to say, investment—income than as earned income, even on the assumption that the recipient of the unearned income pays optional Class 2 National Insurance contributions.

I am sure that the Government will have to abandon their objective of a standard rate of income tax of 25 per cent. What with the time bomb of an aging population, with fewer and fewer people of working age having to support more and more dependants, taken in conjunction with the twin time bombs of the ever rising costs of medical care in real terms and ever rising defence costs in real terms. I believe that the 25 per cent. standard rate must be a pipe dream. A gimmicky, and incidentally highly inconvenient, reduction of the standard rate by 1 per cent. or 2 per cent. to, say, 28 per cent. or 29 per cent. would fool nobody and please almost nobody.

No, my Lords, any funds that the Chancellor can find for income tax relief over and above the annual indexation which we have now rightly come to expect ought to be directed at easing the direct tax burden on those at the bottom end of the earnings scale. I was delighted to hear eminent economists such as the noble Lord, Lord Bauer, and my noble friend Lord Harris of High Cross agree with me on this point. This might best be done by reintroducing the lower rate band of income tax as both the Liberal Benches, mainly in the person of the noble Baroness, Lady Seear, and I have often urged in this House since the regrettable abolition of the lower rate band about three years ago. I suggest that a rate of 20 per cent. on the first £1.000 of taxable income would be the ideal to aim for here.

Another possibility would be some abatement of national insurance contributions at the lower end of the scale. It is after all ridiculous, is it not? that someone earning £32 for, say, a 20-hour week and who was given a rise of £1 per week must effectively pay tax at 300 per cent. on that extra pound—because his national insurance contribution rises from nil to £2.99. Whatever method, or combination of methods, is chosen, reduction of the direct tax burden on the lower paid must surely be the Chancellor's top priority when he comes to frame his next Budget. Not only do the well-known disincentive effects of the poverty trap make this imperative, but also the simple demands of natural justice.

8.25 p.m.

Viscount Chandos

My Lords, I must first apologise for being unable to attend the beginning of this debate, which was due not to a faint heart when faced with a long but distinguished list of speakers but a commitment at work which I could not break. I am sure I shall read the speeches which I missed with as much enjoyment as I have had listening to the speeches I have heard today. With 12 more noble Lords due to speak tonight before this debate can be wound up, I shall be very brief. Another reason for being so brief is that the gracious Speech comes after an intensive and wordy election campaign in which the economic record of the Government was a central focus of attention.

My noble colleagues and allies, and many other noble Lords on this side of the House, have already pointed out to your Lordships that fewer people gave a vote of confidence to the Government's record and anodyne manifesto than voted for their brave new world in 1979. Nonetheless, whatever allowances are made for the effect of the Government's scare tactics about voting for the Alliance, of the Labour Party's disarray, and of the confusion created by the cockeyed electoral system, a substantial number of people, rightly or wrongly, were persuaded that a further term would produce the prosperity that a first term had not.

The noble Lord, Lord Boyd-Carpenter, reminded your Lordships that the Prime Minister had always said that she needed two terms to achieve economic success, and that it would be unfair to judge her after less. I therefore propose on this occasion to leave your Lordships, along with the rest of the country, to wait not perhaps four or five years but at least a little longer to judge whether the undoubted costs of the Government's programme bring forth any, or all, of the promised fruits. I doubt that they will, and all the evidence from industry suggests that they will not. I fear that in two terms the Government will merely do twice, or three, or four times the damage they have done in one.

Not everyone in the country, moreover, will be able to await and watch the outcome with the same equanimity or in the same comfort as those who will still have employment or other means of support. I hope moreover that the country will at least in the months and years to come be given the chance to judge the facts more fairly and accurately than occurred during the election campaign.

At the beginning of the campaign a Conservative Party political broadcast on television claimed that unemployment had risen much faster in West Germany over the last year than in the United Kingdom. What the Government neglected to tell their audience was that in the previous three years unemployment in the United Kingdom had increased twice as fast as in West Germany, and twice as fast as the average for the whole of the European Community. It seems to me in this case, therefore, that the Government manipulated figures and made selective comparisons so blatantly that it makes the author of the supposed Hitler diaries look like a diligent historian.

Manipulation of figures and selective quotations sounds a familiar phrase. They were the words used by the Prime Minister on "Panorama" during the campaign, not about her own party's deeds but those of her opponents. The Prime Minister said that she hated phoney figures. phoney and dishonest figures designed to mislead. Your Lordships can see quite clearly how she and her Government have indulged in that very selective quotation and use of dishonest statistics.

For example, in the same programme Mrs. Thatcher claimed that the need to increase prescription charges in 1979. only weeks after she had said that she had no intention of doing so, resulted from her discovering that the books left by the outgoing Government were so much worse than she had expected. There was, for instance, 22 billion dollars of foreign debt. Not only was that figure available publicly to any A-level student of economics, but I am sure the distinguished economists in your Lordships' House would confirm that foreign debt is totally irrelevant to the financing of domestic expenditure.

I fully support the amendment proposed by my ally, the noble Baroness, Lady Seear, and urge your Lordships to support it, too. I should like to add one specific regret to the general one included in the amendment. and that is that the gracious Speech made no reference to any proposals for industrial democracy, apart from the suggested union reforms. The Government placed great weight during the election campaign on their support for multilateral disarmament rather than unilateral disarmament. It is. Therefore, doubly sad that they so resolutely advocate unilateral reform of restrictive practices and not multilateral reform. Whatever changes are needed in the working of the trade unions can and should be matched. at least one for one, with changes in the role which employees can play at work in management and decision-making, and, in turn, with a higher share in the consequent benefits and profits.

Last night I saw the noble Lord, Lord Harris of High Cross, explaining on television the apparent support in the country for the policies of the new radical Right. I am sorry I missed the noble Lord's contribution this evening, because perhaps he enlarged on those reasons. The noble Lord said on television that collectivism and socialism were dead and that young people were excited by libertarianism. I would not presume to use my comparative youth to contradict the noble Lord, Lord Harris, but I would ask your Lordships whether the evidence you have found, during the election campaign and otherwise, confirmed that view. For my part I have found many young people—for example, those 50 per cent. of school-leavers who will not get a job this year—facing little excitement and a great deal of dull. demoralising depression. I suggest to your Lordships, as my colleagues in the Alliance have done incessantly, that there need not be such a stark choice between crude collectivism and unbridled libertarianism. The policies advocated by the radical Right were enumerated on the television programme last night and the influence of their proponents on this Government was demonstrated. The Adam Smith Institute, for instance, apparently recommends that BBC Radio I be sold off. Perhaps the Prime Minister would also like Sir Robin Day to be sold to the highest bidder.

The only significant omission from last night's programme was the most recent addition to the radical Right's illustrious ranks—the Kenny Everett school of economic affairs. It has added to its forward-looking defence policy a recommendation that combines the promotion of free markets with the principle of privatisation to produce a radical type of electoral reform. The sheer efficiency of the free markets will, by the end of the Government's second term, allow the population of the country to express quite adequately all their preferences and wishes without the expensive, inefficient process of general elections. I am sure that this school will not have the influence on the Government that other members of the radical Right appear to have. But I urge your Lordships to support the amendment of the noble Baroness, Lady Seear, to demonstrate unease at the proposals of all the radical Right and to warn the Government to tread carefully and temperately.

8.35 p.m.

Lord Vaizey

My Lords, following the speech of the noble Viscount. I urge your Lordships to vote in exactly the opposite direction on the Motion standing in the name of the noble Baroness, Lady Seear, on the Order Paper. It is to that amendment that I wish to devote the greater part of the few remarks with which, at this late hour. I shall detain your Lordships. It is not right and proper in the present sad condition of the Labour party to address one's remarks to the amendment standing in its name on the Paper.

When I listened to the eloquence of the speech of my noble friend Lord Cockfield, I was persuaded that the Government's policies for economic growth rested largely upon the basis that economic and social improvement in this country, as in any other country, depended largely upon the nerve and initiative of new and up-and-coming business people who would bring better management and raise productivity by allocating resources wheresoever it seemed they could productively be used. Clearly here there is a divide between people on one side of the House and those on the other, but I am convinced that this is and always has been the main engine of economic growth. Moreover, I think there is substantial evidence about us that those businesses that have attempted to follow this course have proved successful and have proved to be extremely popular. The name of Marks and Spencer springs to mind, but there are many other firms big and small throughout the kingdom that have never sought to defend their business profits upon the basis of monopolistic regulation.

I also took great heart from the speech of my noble friend Lord Cock field and from the gracious Speech itself that we would begin to see, at last, the break up of this great monolithic iceberg of the nationalised industries which have managed to provide such a degree of disillusionment to those who supported the ideals of worker participation. of worker support and of broad general public service which accompanied the passage of the nationalisation Acts through Parliament in the 1940s.

When I listened to the speech of the noble Baroness, Lady Seear—which I did with such attention that I was moved to rise to my feet twice to interrupt her flow of eloquence-I found myself in substantial agreement with the first part of what she had to say. If one is seeking to encourage enterprise and productivity in the economy, it is essential to reduce inflation and. if possible, to eliminate it, for stability in expectation of the value of money is, in many respects, a precondition of any successfully operating free market system. Sustained experience of inflation over lengthy periods is hound to be destructive of the basis on which free business can conduct its affairs or individuals can either save or make arrangements for their own future. which is the aim of the radical Right. as I understand it, and of those who support the present Government.

I was also in great sympathy with the noble Baroness when she spoke of the overwhelming vote of the people of this country against protective measures. It was my impression as I went around during the election that in the first week of the election campaign we on this side of the House won the defence issue overwhelmingly and in the second week I think we won the unemployment debate. I very much agreed with the noble Lord. Lord Boyd-Carpenter, when he referred to the sophistication of the electorate. Certainly the members of the electorate with whom I spoke all seemed to have a pretty shrewd idea of what was at issue, whether or not they were for or against the Conservative party.

However, I departed from the noble Baroness's proposals, which are embodied substantially in the amendment, though not in specific detail, on three or four major points. First, I genuinely disagree with the phrase that she used that there are about four million unemployed. It is all a matter of definition. No one really knows how many people actually are unemployed in the sense that they are actively seeking work at the prevailing wage rates, partly because of the extent of the black economy, partly because of married women who might or might not choose to go out to work if work were available at a suitable time and place, and a whole range of examples which the noble Baroness and other members of her Select Committee went over for Session after Session in your Lordships' committee rooms.

Personally, I think that the whole question of unemployment is fundamentally misconceived of when people talk about 3 million or 4 million: we were presented with an abundance of evidence that unemployment is a residual, it is a flow and not a stock, and it is better measured as a period between which a person loses employment and a person gets another job rather than as so many millions. It would be much clearer if we were to say that it takes a person on average three weeks, or three months or three years to get a job. That is the reality of the situation. It is towards the greater efficiency in the working of that labour market, it seems to me, that the ultimate solution of the problem of unemployment lies. That is my first point of disagreement with the noble Baroness.

Secondly, although personally I am persuaded by the arguments that one hears in Sub-Committee A of your Lordships' Committee on European Communities on the European money supply, which is currently sitting, that full membership of the European Monetary System for the United Kingdom would probably be in the better interests of our country, it is a very narrow balance, a very technical affair, and I am by no means persuaded that the fact that the Government have not belonged to it in the full sense in the past four years is of any great significance. Of far greater significance, I think, has been the Government's courage and boldness in abolishing exchange control—which has been strongly attacked by the Opposition on the grounds that it takes jobs away from this country and hands them to foreigners. But I think that in the long run it has done an enormous amount for confidence in British business and British enterprise and, above all, in the standard of living of British people because it must necessarily follow that, by putting our money where there is the biggest return, in the long run the economy as a whole does better.

Baroness Seear

My Lords, I promise not to interrupt the noble Lord more than once. I should like to point out, since he is opposing my amendment specifically, that at no point did I mention exchange control and, in fact, at no time has the fact that my Party opposed exchange control ever come into the argument. I am glad to hear that he marginally agrees with my arguments about the EMS.

Lord Vaizey

My Lords, it is a great delight to find the noble Baroness and myself on the same side. I am delighted that the Alliance now declares that it would not reintroduce exchange controls in any circumstances. That is an important statement if the serious debate is to be between the Alliance and the Conservative Government, as I think it will be increasingly in the future.

Perhaps I may apologise if I misunderstood the noble Baroness. I thought that she was arguing that membership of the European Monetary System would have helped us substantially. I was trying to point out that the one major step which the Government actually took right at the start of their period in office had been of far greater significance than the comparatively minor matter of joining the European Monetary System. That, I think, is an essential point. If the noble Baroness did not make it, then I rather wish that she had.

I should like to turn to a point that she made, substantially, which is the need to pour more public money into the construction industry. I am glad that the noble Baroness did not raise the other red herring which was raised in the report of the Select Committee, from which I myself dissented, that we should employ hundreds of thousands more people in the National Health Service at the going rate determined by COHSE. That, I think, would have been a source of even lower productivity in the National Health Service. In the construction industry, into which it is alleged that public money should he poured, one must begin to ask on what criteria public money would he allocated—presumably at less than the going rate; in other words, earning less than the return that it would get now if the market put it in.

The noble Baroness specifically mentioned the railways. Apart from a few railway fanatics, who believes that there is a long-run future for the whole British Rail empire as it at present exists? No serious economic case has yet been made out for railway electrification. What we are asking the Government to do in this case is to override the commercial judgment even of British Rail, which one would not put all that high in the list of managerial genius, in order to create work in an industry which undoubtedly has a very dubious future—for the very simple reason that the consumers have voted with their feet away from the railway towards the roads, which may be something that the pro-railway lobby is against but is a fact both on the freight side and the passenger side.

Another example which is repeatedly brought up is sewers. I really possibly positively doubt whether the cure of unemployment will depend entirely on the replacement of the inner London sewers, in connection with which the noble Lord, Lord Bowden, frequently suggests that, if a Salvation Army band marks time, it will disappear downwards because the road will collapse.

Nor do I think that the money should go into council houses. All the evidence is that people want less council housing and more private housing. There is a whole series of cases which one goes through individually case by case; and the general case for supporting the construction industry by large-scale public intervention on any individual level fails to meet the criteria of commercial viability upon which the whole of the Government's present programme is, I think, soundly and solidly based.

Lord Molloy

My Lords, I should like to refer to the point that the noble Lord made about people wanting to have houses but not council houses. In the past 150 years since Disraeli really organised the first principle of council housing, there was nothing whatsoever to stop the private sector from building homes, if they could do so at prices which the ordinary folk could afford. They failed on that. That was recognised by Disraeli and by subsequent Governments and. to house our people, the council house was introduced because of the total, complete and absolute failure of the private sector. Is that right or wrong?

Lord Vaizey

My Lords, I have an enormous respect and affection for the noble Lord, Lord Molloy, but he is completely and utterly wrong. The great majority of the people of this nation are actually housed in houses which have been built privately by speculative builders and. given the chance, anybody who can buy a council house in which they happen to live will do so as soon as he possibly can in the face of the opposition, sometimes, of the local authority.

I was trying to see how far the Alliance programme would fit in with the major structure of the Government's policy as I understood it, which I supported. I certainly agree with what the noble Baroness said: that regional policy in this country is out of date and has almost certainly been a failure. The unemployment black spots to which she referred are the same now as at the time of the Jarrow marches. Since that time, we have had incessant Government regional policies under Governments of all colours. I agree with her strongly that a policy review of regional support is urgently needed: but it certainly does not argue for greater public intervention.

The area of the country with the most massive unemployment is Northern Ireland, which, as the noble Earl who is to reply to the debate very well knows, is, in public expenditure terms, one of the most socialised states this side of the Iron Curtain. If public expenditure cures problems, Northern Ireland should be as a prosperous as Switzerland. When one looks at the case for further expanding public expenditure. I seriously think it is weak.

If I may, I will refer to the speech of the noble Baroness, Lady Lockwood, with much of which I agreed. She said that the Government must devote more to education and training, whereas they have in fact pursued a policy of cuts. That means really that the noble Baroness has swallowed propaganda and not facts. The expenditure per head on education has risen inexorably year in, year out, under the Government, and the massive new training programme is the largest training programme which has ever been introduced. A much more interesting question, to which your Lordships have from time to time devoted your attention, is whether or not all the money that we have spent on education has proved worth while. I think that I can speak with some authority on this as I have gone into the figures inexorably year after year. It has been one of the great disappointments of the whole post-war period that the millions and millions and millions which successive Governments have sunk into the educational system have literally sunk, without any major positive benefit to a very large section—a deprived section—of the manual working class who leave school at the minimum leaving age. That is the area to which, with great respect to the noble Baroness, we would be wiser to devote our attention.

I would conclude this speech (which is already overlong) by referring, if I may, to the eloquent speech of the right reverend Prelate the Bishop of Lincoln, to which I listened with great respect and with much of which I sympathised. I almost said inadvertently "subsidised"—and of course as a loyal Anglican, I actually do subsidise indirectly the Bishop's heavy expenses. What he asked the Government to do was to weigh the benefits of its economic success, if I may briefly summarise his speech, against the costs of its policies. In this context, I take it that by "costs" he means the costs of having a substantial number of unemployed persons. He then referred in very eloquent terms to such abstractions as "market forces".

We have tried now, for years and years, since the outbreak of the Second World War, to deal with the economic problem of this country and the misallocation of resources by Government intervention, by the bureaucratic process. If experience has told us anything, it has told us that on the whole that system has not worked. Experience has shown us—and it is all around us to see—that on the whole the market system has worked. I know that no system is perfect, whether it be a bureaucratic or a market system; but this is the first Government we have had for many years which has said: "For goodness' sake, let the forces of the market try to clear the market and try to satisfy the consumers' needs".

I am personally absolutely convinced that this is the right way to tread. I should like the Government to march a little faster but, on the other hand, the alternative seems to me to he a combination of muddle, of ideas drawn from hither and thither, which make no coherent programme at all and which are based purely upon the assumption that public expenditure increases on a very large scale would he wrong but that public expenditure increases on half that scale would be right. I fail to see the logic of that course of reasoning, and for that reason alone I ask Your Lordships to reject the noble Baroness's amendment.

8.53 p.m.

Lord Spens

My Lords, by this time of night most of the points I wanted to make have already been covered, so I shall not he all that long. But I do want to make reference to both the maiden speeches we have heard tonight. The noble Lord, Lord Ingrow, who I see is not here at the moment, declared himself in favour of small businesses, and that warmed me very much because that is an area in which I have tried to do something to help. The noble Lord, Lord Bauer, said things about the welfare state with which I am very much in sympathy. But, much more than that, what pleased me about the fact that he has made his maiden speech is that this now frees him to become an active member of our little all-party repeals group, in which I hope and believe he is going to play a very prominent part.

One thing has not yet been mentioned so far as I know, and that is the position of the self-employed. I just want to say this about the self-employed—who I think number something like 2 million of the working population. For several years now, from the beginning of 1981 in fact, I have been trying to get a review made of the Class IV national insurance contribution. When I raised this subject in, I think, 1981, the noble Lord, Lord Cockfield, referred me to a discussion paper which was going to solve the problem. I raised the question again in January 1982, and the problem was still under discussion. So far as I know, it is still under discussion now, in June 1983, and we have not heard how the Class IV national insurance contributions are going to he dealt with. So I just want to give notice that I shall he raising the question again during the course of this Session unless I hear that some alleviation is going to be made to the self-employed on this particular matter.

Going back to matters which have already been raised on trade union reform, the gracious Speech says that a Bill will be presented to help to encourage members to take more responsibility for their unions; and that is excellent so far as it goes. I think we were warned by the noble Lord, Lord Campbell of Alloway, that we ought not to anticipate the White Paper which is shortly to come out on this, but I do not think that is right. I want to anticipate that White Paper, because I believe that it ought to contain at least three points, the first one being that secret ballots should be held for all important appointments inside the unions and that those appointments should not run for more than a reasonable period of years. The second one is that full negotiating procedures ought to be complied with by the unions before they call a strike. The third one is that in the case of any important strike which is going to hurt the general public there should be a secret ballot before that strike is called.

If those three points appear in the White Paper, I shall he happy; but, of course, we are not going nearly far enough in our reform of the unions, and I do support very much the speech which was made by my noble colleague Lord Marsh on this subject. I had to lunch with me today an American attorney and his delightful wife. I asked the attorney what the situation was in the United States about union immunity from tort and contract. He said there was no immunity, and he was very surprised to hear that unions have complete immunity in this country. That, I am sure, is something that we really have got to get put right. At the moment, any member of the public can have his whole business ruined because of some strike by some union which has nothing to do with him. I see that my noble friend Lord McCarthy wants to ask me a question.

Lord McCarthy

My Lords, the noble Lord is being unfair to the Government, Surely he would accept that as a result of the 1982 Act there is no immunity in tort and there is no immunity for individuals any more.

Lord Spens

No, my Lords, I am not a practising lawyer any more these days; so I will not argue on that. But surely the immunity is still there so far as third parties are concerned, and those are the people I worry about because I am one of them—and so are all of you, at times.

I turn now to unemployment. I have been anticipated by the noble Viscount, Lord St. Davids, who unfortunately started to speak while I was out of the Chamber. However, he made a point which I want to emphasise. Despite agreeing very much with my noble friend Lord Vaizey in his description of unemployment as a flow rather than as a mere statistic at any point in time, I want to press the point made by the noble Viscount, Lord St. Davids. I do not believe that we shall ever get back to full employment in the foreseeable future.

Four years ago, almost to the day, I made a speech in this House on unemployment. I stuck my neck out and said that unless the Government did something about it (this was at the beginning of the first Administration of our present Prime Minister) there would he at least 3 million unemployed by 1984. That figure has been reached a little earlier than 1984. Unless the Government do something about unemployment, I think there will he 5 million unemployed by 1988.

The total number of jobs in this country is declining. The technological advances that we make are all aimed at removing the human element from manufacturing. The argument is that there will be sufficient new service industries coming along to mop up the lost jobs, but even those service industries will not employ very many humans. The time has come when we ought seriously to think about how we are going to treat a permanent number of persons who may never get a job during the whole of their working lives. I do not believe we can leave that just to chance. I should like a new Beveridge plan to be created. I respectfully put that point to the Government as one of their objectives in this Parliament.

9.3 p.m.

Lord Molloy

My Lords, I rise to support the amendment so ably moved by my noble friend Lord Bruce of Donington: but deplore that the gracious Speech contains no relevant proposals to assist manufacturing industry or to reduce unemployment". I believe that is vital. Unless we rebuild our manufacturing industry and get it out of the mess that this Government have got it into, we shall never be able to do anything about unemployment and build the kind of society which was outlined so admirably this afternoon by the right reverend Prelate. In his speech the right reverend Prelate directed us along the path we have to traverse in order to build a civilised society. Many of his criticisms are applicable to the Labour Party, the Conservative Party and the Liberal Party Therefore, we should take serious note of what the right reverend Prelate had to say.

I want to comment briefly on two contributions, one from the noble Lord, Lord Boyd-Carpenter, the other from the noble Lord, Lord Vaizey. I am absolutely amazed that the noble Lord, Lord Vaizey, disagreed with me. He has great experience of local government. I know that, like me, he has spent hours trying to knock down filthy, wretched, stinking slums in Fulham and Hammersmith in order to provide homes for people who cannot afford to buy their own homes. It was Disraeli, a Conservative Prime Minister, who first thought of council houses. The noble Lord, Lord Vaizey, did not know that when he was lecturing at Brunel. He knows that now. He can take back some other information with him. One hopes he will no longer mislead students up there. The point is that people could not afford to buy their own homes but that local authorities could buy homes for them. Those people paid it back in rent, through the council.

Noble Lords, in particular the noble Lord, Lord Vaizey, ought to note that when I was in local government 50 per cent. of British families in this realm of ours were housed by local authorities. It hurts me when I realise that under this Government our building programme has slipped below the standards of 1925. But I do not suppose it gives many of your Lordships a great deal of trouble. We all have somewhere nice and comfortable to go home to. But there are tens of thousands of people in this realm of ours today who have nowhere to go home to. Many families—I beg your Lordships to listen to this, in particular the noble Lord, Lord Vaizey—in the queen of the suburbs, the London Borough of Ealing, are this night living in the backs of wrecked motor cars. I do not think that that is either amusing or anything to be proud of.

The other point I wish to make refers to the battle against inflation. It is said that this is a great victory. Is it? It is a victory, but it is very much a Pyrrhic victory. The trouble with our debate tonight is that it seems to have been dominated by economics—a dry subject. After my noble friend sat down, with the exception of the speech of the right reverend Prelate, there was hardly a spark of humanity or concern. We are talking about people. We are not talking about inflation just for the sake of it. As unemployment increases—I hope that the noble Earl, Lord Gowrie, does not think that this is amusing—

The Earl of Gowrie

My Lords, I was not laughing; I was blowing my nose.

Lord Molloy

My Lords, I am glad that the noble Earl has finished blowing his nose. He can listen to this. The creation of unemployment has led to an increase in the number of suicides. Economists always seem to miss out on these statistics. The number of suicides has increased. So has the number of divorces and the number of split families. I believe that it is this kind of thing which can destroy our nation. It is not so much an economic problem as the evil effects of the appalling inefficiency in running this country that we have had from the Tory Party. They are the great inaugurators. They have inaugurated, all right. Under their stewardship we have seen the lowest production, the highest imports, the highest number of bankruptcies, and the highest unemployment. It is not so much a black economic death but a true blue one from which we have been suffering.

Another element that causes me great concern is the sins of the Labour Party, which allowed the party to be thrashed most soundly. It is not a bit of use saving that the Government did not have so many people voting for them this time. The fact of the matter is that under our system, it does not matter which party won and which party had the same majority as that achieved by the present Government, they all would have said, "That is the system and we are entitled to our majority". The present Government are quite entitled to say that too, because they achieved a massive majority.

One of the crimes of the Labour Party is that they have not yet established themselves—although I hope they will in due course—in the role of being Her Majesty's official Opposition. I am disturbed, too, at the massive domination that the Prime Minister has over her Government and over her Cabinet. I will not take any thing away from her in that she has remarkable powers of leadership, but it is almost growing into something dictatorial. I am reminded of what Alexander Pope had to say in one of his poems: Yes: I am proud, I must he proud to see Men not afraid of God, afraid of me.". That is not a healthy comment for me to be able to make about the Cabinet, because there is a reply: The great honour of that boast is such. That hornets and mad dogs may boast as much.". Therefore, I believe that it is in this House that we can muster an Opposition not simply to oppose but able to propose another point of view so that Ministers in this House will be able to say, "There is something in that point of view and we ought to take this point back to ministerial meetings of the Cabinet". That is the great advantage of this particular House and the great role that we have to play. That is a compliment to all sides of the House.

We have suffered under four years of Toryism and under three years of monetarism, although they have abandoned that line now. But that was a blight that put Britain in the worst position among any of our competitors, notwithstanding the world recession. The claim that Britain had weathered the storm better than most of our competitors has been shown during this debate to be wholly untrue. According to the OECD, British industrial output fell by 11 per cent. whereas the average in developed countries was only 4 per cent. The savage effect of the tax on our health and education services has produced, even since the general election, new figures which show that another thousand doctors are on the dole. That cannot be right, can it? There must be something wrong if this sort of thing happens. The worst aspect of this kind of unemployment is not merely people being out of work but that jobs have been destroyed; families have been smitten, and the nation is in very great danger.

The Government won their first general election in 1979 with the slogan "Labour Isn't Working". Immediately they won, they presided over the steepest rise in British unemployment since the early 1930s. I find it remarkable that they won this election with the aid of possibly the most biased media outside the Soviet Union—that in my country. That helped enormously to blind people to the real truth—together with the inability of my party, although I regret having to say this, to put their case properly.

In the 1979 Budget, a rise in VAT—a measure needed to balance the effect of cuts in income tax to help the rich—meant a severe attack on the poor and ordinary people. It meant an increase in the cost of living to the poor—and then the unions were chastised for attempting to defend their members. Many things have been said today by the noble Lord, Lord Marsh about the trade unions—about them being so myopic and conservative—and I agree with a great deal of that which he said. But I cannot and will not agree, after the Chancellor of the Exchequer made a savage attack and lowered the standard of' living of millions of people in the same Budget that gave massive tax cuts of thousands of pounds a year to the well off, that the trade unions should remain silent. Had they done so they would have been despised by anyone with a bit of guts under his belt.

I want to deal very briefly with a few items concerning public ownership and privatisation. Time will not allow me to go into detail, but I want to deal with the principle of North Sea oil and gas and the fact mentioned in the gracious Speech that there will he further development of these. I think we are all agreed that North Sea oil and gas play a vital role in the economics of our country. Since 1979 we have received£20½billion from North Sea oil revenues. What have the Government done with it? Have they used it to prime the pump of our economy so that it could get more efficient, to develop new techniques and technologies, to support our social services? No, none of these things were done. With all that£20 billion none of that was done; not a halfpenny was spent on new technology, not a halfpenny on our universities, not even a halfpenny to support our social services. Were there tax concessions, apart from their friends being given nice big handouts? Was there help for either public or private use in the economy? None of these things were done.

The whole lot went to pay for the unemployment that the Government created, the businessman's Government;£20 billion pouring in from North Sea oil went to pay for the unemployment that they set out to create. If the cost of an unemployed person is£5,000 and the increase in unemployment is two million over a given period of years, the cost equals£10 billion a year, which soaks up all our North Sea oil revenues. That means—and I think most economists would agree—a profligate form of housekeeping. Nothing was invested in new industry and technologies.

And we have seen that there is even worse to come, because to pay for unemployment we are rapidly overproducing North Sea oil. It seems to me that the Government have anticipated more unemployment and that is why they are seeing to it that there is quicker development of North Sea oil. This is no prudent measure to extend oil energy self-sufficiency for years ahead, but rather to have enough money to pay for the increase in unemployment.

There is also the incident of the British National Oil Corporation making hundreds of millions a year for the British taxpayer, and that meant that North Sea oil was caring for our future. Surely there is nothing wrong in that, It is no good hating a thing because it is publicly owned. Do we really say that if something belongs to the state we are "agin" it? Who is anti-Royal Air Force, anti-army, anti-navy, anti-police? Let us have a balanced approach. There are some things which the Labour Party think about nationalising which I believe are an absurdity, but there is an equal absurdity in the Conservative Party when they look at certain vital aspects which in my judgment ought to be under public control and under proper democratic control by the Parliament of the people.

There are so many things I would like to go into, but time will not allow. I just say in conclusion, in regard to the criticisms poured on the Government when one realises that we are suffering from a terrible economic sickness, that it might be easy to quote, now the election is over, from newspapers which would normally support the Opposition parties, but I want to give one quote from the Daily Telegraph: From the age of the smokestack to the era of the microchip. That is how the Tory manifesto describes the problems of transformation facing Western economies today. Sadly, for parts of the British economy, the last four years have seen a different kind of transformation—from the age of the smokestack to the era of the demolition gang. Yet the Government seems so apparently satisfied with its first term that its programme for re-election can he summarised in just three words—'same again, please'. That, my Lords, I believe is the thing that is really frightening; that is the thing which is most perturbing. That is the reason why I support, and I hope the House will support, my noble friend's amendment to the Motion.

I conclude with this word of warning to my own party. I want to be as fair as I can. I have criticised the Government and, in the interest of true democracy, I should forthrightly point out some of the errors I have seen in my party. We in the Labour party should not seek universality nor immortality for our ideas. Integrity and vitality are more important. Our Holy Grail is the living truth which is alive and can change.

We have a heavy responsibility on this side of the House and I hope that we shall have co-operation. Only in this country could a Member of the Oppositition make this plea. That is what I mean when I talk about Great Britain—that I can say this sort of thing. Despite the massive majority in the other place, we shall not have to appeal but shall be entitled to expect that the party opposite will see that our entitlements as Her Majesty's loyal Opposition are filled to the point where there can be no complaint. That, perhaps, is where this Chamber might flourish longer; or if not longer, can give a better example than some of the things that have already started happening in another place.

If my party does not cherish integrity when it has this responsibility in Opposition, we shall see in change an excuse to eschew our socialist philosophies. I have no time whatsoever for the militant extremists. No man in my party is a true democratic socialist if he has no sense of decent patriotism for this island race. I want to make that quite clear. At the same time, I do not want us to get rid of our socialist philosophy for opportunism. If we do that we will simply exchange the inspiration of the pioneer for the reward of the lackey. In doing that we shall not release the fetters that hind us in Opposition. They are fetters to which we are entitled. But they will only fetter us to a certain degree, because in a proper democratic society we shall accept them until the people free us from them and then, one day, we shall take over as the Government.

That is the spirit and the message that this House can send not only to the country and not only to the other place. Even at this moment where we are facing grave danger, let the principles and spirit of British democracy in all our parties shine forth with, at all times, a fundamental benediction that we can confer on our thinkings with the grace of any form of Almighty help. But in all our debates it is people and the individual who must be at the centres. There should be no particular "ism", whether socialism or capitalism, and no particular party. When we can do that we will build up the economic strength of our country and at the same time give the courage which our people need and which they in their endeavours can then show as an example to the rest of the world.

9.24 p.m.

Lord Thomas of Swynnerton

My Lords, I express my regret that I was not here earlier this afternoon to listen to the many distinguished speakers, and particularly the maiden speech of my noble friend Lord Bauer. I shall read his speech with great care, and look forward to his future contributions. I shall certainly look forward to reading the first speech made by a Hungarian-born Peer—I speak with no disrespect—who is not an economist.

I wish to make three points. One is a debating point, the second is a point which your Lordships may well think sanctimonious, and the third is a liberal point in the broadest sense of that sometimes rather over-used word. My first point derives from the concluding words of the noble and learned Lord, Lord Elwyn-Jones, in his speech yesterday, which formally was on a different topic but which nevertheless seemed to colour a good many of the speeches made from the other side of the House today. He suggested, deriving from a remark which he said he had heard from the late Lord Butler, that the Conservative Party had lost its heart. If that remark was indeed made by the late Lord Butler it is a formidable accusation, particularly since it apparently comes from someone who, whatever his heart was, certainly had a very good head. That suggestion has been made so often that it deserves a very vigorous response.

Is it heartless to consider that the only way in which the problem of unemployment can be solved is to recreate a climate in which jobs can be provided? Is it heartless to suggest that inflation causes as much damage to society as any other complaint, including unemployment? Is it heartless to question the validity of nationalisation, bearing in mind that the nationalised industries have not had a very good record in terms of production or of labour relations? Is it heartless, therefore, to put forward the idea that denationalisation might be a very good thing on a large scale, thereby increasing competition and serving the consumer? Surely those are not heartless suggestions.

Equally, it does not seem to be particularly heartless to think that competition and choice can play a part in medicine. I also think that it is quite wrong to suggest that all the old shibboleths of the 1940s and 1950s should not he re-examined. Surely that is exactly the sort of thing that the late Lord Butler would have demanded at an earlier stage in his life. Whatever he may have said in 1979 when he was out of power, certainly so far as I remember, he did not seem at all reluctant to warm his hands at the bonfire of controls which he himself had lit in 1951. Although that may seem a debating point. I think it is a very important one.

The second point I want to make derives from something that has been referred to in the course of today. It does not actually derive from the gracious Speech, but, as those who have referred to it have suggested. I believe that it should. I am referring to what Neville Chamberlain might have called, if I may paraphrase him, a near-at-hand country of which we know nothing. It is a country whose wealth is extremely obscure, and we are quite undecided whether it is a good country or a bad one. If your Lordships are thinking that I should have made this speech in the foreign affairs section of the debate on the Address in reply to the gracious Speech, you are misunderstanding me. The country to which I am referring is that to which the noble Baroness, Lady Seear, referred; namely, the black economy—a country of great importance.

It is important because of its connection, as the noble Baroness suggested, with unemployment. It is important because of its connection with industry. Perfectly plainly there are new industries which will derive from this sector of the economy. It is important from the point of view of statistices. After all, if the noble Lord, Lord Cockfield, is right in a reply to me in this House not long ago, something like 7½ per cent. of the GNP may be supposed to be in the black economy. That is a very large percentage, although it is not as large as that which was suggested by some American economists, including Mr Milton Friedman, who no doubt, had he been an Englishman, would be in this House and who is certainly an adviser to this Government. They have suggested that this figure may be as large as 14 per cent. It may be even larger than that. These are enormous figures. The total may be as much as £30,000 million, or £30 billion, which, if correct, would give a tax return of at least £8,000 million—if I am not doing my arithmetic wrongly. If these figures are completely excluded from the statistics, surely a very strange game is being played by economists, statisticians, and those who draw conclusions from them.

This subject is also important because of its relation to law and crime. Here I differ strongly from the inference drawn by the noble Baroness, Lady Seear. In his speech yesterday, my noble and learned friend the Lord Chancellor, pointed out that a country riddled with dishonesty is unlikely to be effective. I am not suggesting that we are riddled with dishonesty, but it certainly seems as though we are wriggling with it.

I know that there are many people who consider that the black economy is a sign of life and vitality and an indication that even in the most overtaxed community the enterprising will survive. Nevertheless, I think it also is an indication of the fact that the state can create very strange objets d'art indeed, because in my opinion the black economy is an indication of just how far we as a nation have slipped from standards that we had in the past.

I have one example, which I think is an overwhelming one. When, like many other countries, this country abolished the slave trade in the early part of the 19th century, it was vigorously fought in this House and in another place. It was so fought because the slave trade was by far and away the must advantageous export trade in the nation at the time. However, in 1808 the slave trade was abolished, and immediately afterwards it was completely abandoned. There are no instances of charges made under the Slave Trade Act, and indeed no instances of historians suggesting that British traders continued with that traffic after the Act abolishing it. In every single European country—France, Spain. or Portugal—which also carried on the slave trade at that time there was no such universal indication that the law was being properly carried out. I suspect that now we should be in a very different position, since in terms of abiding by the law we are at least no better than many of our neighbours.

There have been made various suggestions—some made by the noble Baroness, Lady Seear—as to what should be done about it. Mr. Arthur Seldon, the luminous colleague of one of our most luminous noble Lords here, the noble Lord, Lord Harris of High Cross, has suggested that the whole problem could be very effectively solved by having what one might call a two-tier day, whereby up to four o'clock one worked on taxed endeavour, and what one did after that would be free of tax.

A Minister in another place has suggested that perhaps the solution would be to cut the maximum rate of tax to 50 per cent. or even 40 per cent. and impose very high levels of penalties on anyone who broke the rules. Others have suggested that it might be beneficial to introduce a standard rate of tax of about 18 per cent. with no perks at all—a very important point. There are all kinds of very good suggestions.

My suggestion is one of, I should have thought, suitable gravity for the lateness of the hour. Your Lordships will be aware that the Conservative Government elected in 1979 were remarkably reticent in their use of a well-known instrument, the Royal Commission. I believe that a Royal Commission on this subject would serve the nation extremely well. The complete uncertainty of the size of the problem, the entire division on whether the practice is a disgrace or an invigorating sign, the overall uncertainty as to what to do about it, and the obvious fact that, whatever is done about it, it cannot be done very quickly, would suggest that it is a good subject for that particular, rather heavy, mechanism.

My third point, which I mentioned initially as being a liberal one, derives, you will be relieved to know, my Lords, from the Queen's Speech. You will observe that on the first substantive page, there is a commitment by Her Majesty's Government in these words: They will urge the need to preserve and strengthen an open world trading system". Those are firm and invigorating words. This is a subject on which we could have many debates of great length. Very often, Governments—even Conservative Governments and. I must say, even Conservative Governments elected in 1979—find a number of reasons to avoid carrying out the principles of which they were completely convinced. I remember one of my favourite quotations from the late Lord Shelburne which I find, alas, increasing reason to use in politics. He wrote in his memoirs that, it requires no small labour to open the eyes of either the public or of individuals but, when that is accomplished, you are not got a third of the way. The real difficulty remains in getting people to apply the principles which they have admitted and of which they are now so fully convinced. Then springs the mine composed of private interests and personal animosity". In a world and a nation that has seen a good deal of its food removed from the open market, for very good reasons, no doubt, through the European Economic Community, and which has seen, through the multifibre arrangement, a certain percentage of its clothing removed from the open market; that has begun voluntary export restraint in a variety of ways and that has continued the export credit guarantees regardless, there is no doubt that a good deal of room exists for reconsideration. This is particularly desirable, surely, in a country that, after all, still depends for 30 per cent. of its GNP on exports—a remarkable and unique percentage in the world, bearing in mind that such a country, so dependent, is surely more interested in the promotion of an open trading system than any other country in the world.

9.38 p.m.

Lord Ezra

My Lords, I had not intended to come along tonight and speak about nationalised industry but to range more widely on our economic affairs. However, as a number of noble Lords opposite have severely criticised the nationalised industries—particularly the noble Lords, Lord Cocklield, Lord Boyd-Carpenter and Lord Vaizey—and as I appear to be the only speaker in today's debate with first-hand experience of nationalised industry. I feel that I should say something about it. I hope very much that their criticisms were not directed at people who work in the nationalised industries. I can say, from my long years of experience that the management and the people who work in those industries are as good, as efficient and as effective as those who work in any other part of British industry. If there was any suggestion that those who happen, by chance or desire, to work in nationalised industry are somehow second-class industrial citizens of our country, I hope that the noble Earl, Lord Gowrie, will make clear that this is not in the Government's mind to say.

I am worried, too, about the approach to the nationalised industries that supposes that somehow, by waving the magic wand of privatisation, all problems will disappear. That is a complete over-simplification. What noble Lords opposite need to do before they criticise the nationalised industries too severely, is to address themselves to the sectors in which the nationalised industries happen to be operating.

As a matter of fact it is only a limited number of the nationalised industries that are in great difficulty. No word was said by the noble Lords opposite who joined in this criticism, about those that are making a success of their affairs such as the gas industry: the ports industry, recently transferred to the private sector; the telecommunications industry, about to be transferred; the airports industry and so on. What needs to be recognised, particularly in the case of coal, the railways and steel, is that they happen to be in sectors which the world over are in difficulty, What we must face up to is the basic problem in those sectors. It is not the accident of ownership which has created those problems.

If we compare the British coal industry with the coal industries in Germany, Belgium and France, which is a fair comparison to make because we are operating in similar conditions, similar geologies, it will be seen that in financial terms the cost to the country of producing a tonne of coal in Britain is far less than it is in those other countries. Yet two of those industries are theoretically in the private sector.

Let us take the steel industry and compare it with the steel industries in the other countries of the Community. Let us take Belgium and the Cockerill Company which is theoretically privately owned, and yet for per tonne of liquid steel produced in Belgium there is far more public money infused than in the case of Britain. What that proves is that in those particular sectors it is not a question of ownership; there happen to be real problems in those sectors.

Where I fear we tend to be going wrong from time to time in this great country of ours is that we do not properly identify the problems. Let us take the state of the economy at the moment. References have been made to the recent CBI survey. I happen to have taken the trouble actually to read it. They certainly say that: The overall improvement in the economic situation noted last month is reported to have continued.… However"— and this was not referred to on the other side"— sectoral and regional variations remain. Output levels in total appear to be rising from a low base, although capacity utilisation is reported to remain low for most firms", and so on. In other words there is a very real qualification in the report that is made.

Let us look at the regional position. As regards the South-East it says: There is optimism over prospects for the next six months, although wide variations between sectors and companies remain". Let us move further North and see what they say as regards Yorkshire and Humberside: The slow improvement in orders and output appears to he improving but progress is patchy and hesitant in general engineering, metal fabrication, and civil engineering". Let us take the North-West which will be my final quotation because of the hour. It says: The North West seems to be marking time with only isolated signs of recovery apparent". The situation to which we need to address ourselves at present in Britain is that there is a very delicate amount of recovery and that it varies according to sectors and according to regions. The most marked regional improvement is in the South-East and as we move north it diminishes. The most marked sectoral improvement is in retailing and high technology. As you move into the heavier end of industry it is not yet very noticeable. Of course, there are individual firm exceptions, but that is the broad picture. I contend that that is the situation to which we ought to be addressing our minds. We ought to be seeking to galvanise this delicate plant so that we can spread the measure of recovery. I am sorry that this should appear to be amusing.

Lord Vaizey

My Lords, I was amused because if you galvanise a delicate plant it will inevitably die.

Lord Ezra

My Lords, I shall consult the noble Lord, Lord Vaizey, on my horticultural phraseology. All I was saying was that I thought this delicate state of affairs needs to be dealt with in such a way that we can spread—I hope that that will be permissible—the degree of improvement that is apparent in certain regions and in certain sectors.

Matters have been mentioned in the course of this long debate which I believe need to be attended to rather more seriously than the Government suggest they would like to. Let us take the question of the cost of money. Although the rate of interest has come down, it is still more than twice as much as the rate of inflation. On that basis it is very difficult to see how the normal industrial concern can borrow and invest money. Let us take the question of the rate of exchange. It has been contended that there is very little that the Government can do about it. But what worried me about the recent Williamsburg conference was that there was an opening there to raise this whole issue of getting more stability in rates of exchange throughout the world, and it was apparently deliberately not taken up by our Government. Take the question of the tax on employment, which the Government have quite rightly, reduced by a substantial degree. This national insurance surcharge should be totally eliminated. It is quite wrong that we should have any tax on employment at a time of gross unemployment. Therefore, here are three areas which I believe should very seriously be tackled.

The final area, which I think should be looked at in connection with getting industry moving again, is the infrastructure. Of course, nobody would recommend—certainly not from these Benches—that there should be an unlimited capital expenditure splurge. But debates in your Lordships' House have shown that there are parts of the infrastructure—the water and sewerage industries, the road undustry, the railways and housing—which need a certain degree of improvement. That improvement should be undertaken now. Let us get the fabric of our country right so that we can participate in the developing improvement in the world economy, and so that we can provide worthwhile additional employment.

In conclusion, I should like to contend—and I have kept myself strictly to 10 minutes—that, first, we address ourselves to the real problems and that we try to put out of our minds doctrinal considerations. We are faced with a situation far more serious in our country than that. We have the real chance of recovery—I will not deny it—but it is a delicate proposition; it needs to be handled with care, but also with determination. I hope that both in our public enterprises and in our private enterprises the Government will seek to make sure that they apply policies which will push forward this developing situation in a sensitive but effective manner.

9.50 p.m.

The Lord Bishop of Norwich

My, Lords, I am glad to follow the thoughtful and irenic speech of the noble Lord, Lord Ezra, because he has brought us to the seriousness of our debate. We are of course debating in fact what is in the Queen's Speech and coming towards the conclusion of long days of debate. I want to draw particular attention to a phrase in the Speech: My Government will pursue policies designed to increase economic prosperity and to reduce unemployment". Clearly those go together. My Government will promote growth in output and opportunities for employment". Again they go together. But I want to draw particular attention, and to one specific instance as an example, to. The improvement in training will he sustained. The special employment measures will continue to assist those out of work". First, I must ask your Lordships if I may make my apologies for not being here in the first half of the debate. I had to preach in Peterborough Cathedral for their St. Petertide annual festival for the whole diocese. For reasons unknown to myself the whole diocese of Peterborough appeared to need heartening, and they felt that they could not be heartened without the presence of one of your Lordships from this Bench. Therefore, with your permission I went to hearten them and came straight back, aided immensely by the speed and power of the nationalised industry called British Rail, which helped me tremendously and got me here only a mere 14 minutes late on my arrival. I therefore missed 14 brilliant minutes of an earlier speech, and I am sorry.

I should like to draw attention to one particular instance which I believe illustrates the breadth of what we are doing. If I am accused of a constituency speech, as I believe in the other House that sort of thing is called, I only plead that I speak from particular knowledge. Some years ago, in 1979, at the beginning of the Youth Opportunities Programme and projects, we set up in Norwich, with the aid of the community, with the support of the city, and particularly with the energetic support of our own diocese and of the five clergy of our diocesan industrial mission, a Youth Opportunities scheme which has led now to a pilot scheme of the new Youth Training Scheme, which is really only just about coming into action now. Because we are ahead I wanted to share this one vignette, with your Lordships, because I believe that we are always tempted to speak in the widest terms, and I am coming to distrust generalities and to prefer actualities. I wanted therefore to make one comment in this way.

We built up this new youth training scheme from our own youth opportunity projects, and the MSC have put money into it. We have now got a magnificent factory at a very low rental, and there we are setting up the start of this new project which I shall have the privilege of opening next week at 12.30 on Thursday, 7th July. I should be delighted if some of those of you who have a strong concern for the employment of young people and a deep interest in youth training schemes, and a desire to be well informed about the ongoing throbbing life of East Anglia—and we throb as best we can: whether we can grow plants is a different matter, but we throb—could be there. You would then be on the television because we are making a video film of the whole thing, and this might help whatever party allegiance any of us have here. I of course from these Benches speak only in the national interest.

So far—and this is the encouraging thing I want to share with you—in our detailed study of how far we have got, within the three types of project groups that we have been working on amongst our youngsters—building, carpentry and painting and decorating—98 of our trainees left during the year and 49 of them went to full-time employment, having gained not only a little expertise but quite a hit of confidence. I believe that these small, local, not very enormous schemes, if they honeycomb the country under this imaginative Government scheme for youngsters, will help to overcome this tremendous sense of leaving school with a fear of no future. We are finding that our youngsters are overcoming that in that way. Placement trainees, who have been employed in a variety of community service organisations—homes for the elderly, hospitals and so on—achieved a higher rate of success with regard to employment, with 59 of them leaving for full-time jobs, and a further 10, making a total of 69 at the end of a 12-month training period. Of the 187 trainees who left during the year, 108 moved on to full-time employment: that is, approximately 58 per cent.

I give those facts and figures, which we may read more easily in Hansard than take in at this time of night, because I believe we have here a little light, a little flame, which is an example and which could catch across the country. We cannot just talk in the widest terms of the great movements of employment and economics, but we can do something where opportunities are given.

I want to pay my tribute to the work of the Manpower Services Commission, which has set us up, and also to my own five industrial missioners. The right reverend Prelate the Bishop of Lincoln knows more about industrial mission than I do: he has been in it for years and years, and understands how these things work. The youngsters are gaining confidence in this work. The two points I should like to make to the Government in that respect is that the sum we give to the young trainees has, as far as I can see, not changed since the YOP was set up. In the very useful paper (which was read as a Statement in this House) concerning the compassionate development of grants in the social security benefits, and the uprating of them, there were five areas which the Minister will remember were mentioned, but still the youngsters in the first YOP, and now in the youth training scheme, have not had their small, modest amount of money increased. As some of those youngsters come from villages outside a big city such as ours, quite often the modest sum given to them is eaten up by transport into a centre. I think that if one could consider even a small allowance area within a grant to these youngsters, that would be helpful.

The other point at which I hope the Government will look is the question of those who train our youngsters. They are paid a very small sum, and, because they are drawn from those who are out of work, the salaries that are paid are approximately 50 to 75 per cent. of the sort of salaries they could command if they had been in work or if they were in work.

In general terms, I believe that the YTS projects, as they begin to grip across the country, will be a true part of what the gracious Speech suggests will be done about training and about our youngsters, and will bring hope and encouragement to the boys and girls on which the future of our nation depends. My Lords, I stop at nine minutes, one minute before the noble Lord, Lord Ezra, by which I hope I gain some merit on earth if not in heaven; and once again I invite your Lordships to a buffet lunch on Thursday.

10 p.m.

The Earl of Onslow

My Lords, how pleasant it is to agree with the right reverend Prelate the Bishop of Norwich. He must be very right when he speaks of the importance of youth training, the importance of small businesses and the importance of small things. Perhaps the Church of England is coming back to being the Tory Party at prayer—and I bet he did not vote, as well. Edward Crankshaw, in an excellent book. The Fill of the House of Hapsburg said that Hungary produced nothing but beautiful women and dashing regiments of light cavalry. My noble friend Lord Bauer disproved that theory with an excellent maiden speech on the subject of the social services.

The noble Lord, Lord Ezra, was saying that he hoped my noble friends Lord Boyd-Carpenter, Lord Vaizev and Lord Cockfield were not attacking the people who worked in the nationalised industries. Of course, they were. Trains do not run by themselves; coal does not come out of the ground as if by deus ex machine: it is produced by people who work in it and organise it. If one is attacking an institution, then of course one is attacking the people. We cannot separate an attack on the people from an attack on the industry —or perhaps "criticism" is a better word.

Her Majesty's Government are very proud of their record on inflation, and very rightly so. They are proud of the increase in productivity in the private sector, and very rightly so. My noble friend Lord Ingrow pointed out that the growth of small businesses was a major factor in the taking up of unemployment, and it is absolutely right that this should be emphasised. My noble friend Lord Cockfield emphasised that wages are part of the pressure on price rises. Wages are part of the causes of unemployment. Why then are we, with our tax and social security systems, so muddled that the cost of employing a worker can under certain circumstances double, but that worker's weekly spending power can increase by perhaps£5 or even nothing, or in certain circumstances decrease?

According to tables in the Treasury and Civil Service Committee of another place, a man with a wife and two children, if he is paid£60 per week, has a net spending power of£72.53. If he is paid£120 per week it increases to£77.92: in other words, the equivalent of an over 90 per cent. marginal rate of tax. The situation is even worse at the bottom end. Net weekly spending power actually decreases with every£10 per week increase up to£100: that is, a£70 wage produces£72 net weekly spending;£80 produces£71.48;£90,£71.02, At£100, it goes back to£72.77.

Slightly different calculations perhaps, ones actually updated by DHSS, tax benefit model tables as at April, refer to a married man in work with two children aged 4 and 6. His income falls from£74.12 when his wage is£54 per week to£72 when his wage is£90 a week. The increase starts to rise again, but for some extraordinary, reason hiccups between£94 and£95 by falling£1.14. With three children, the increase falls between£54 and£99 and does not reach its old level until the wage is doubled to£108. The same table shows that there is another glorious drop in it. A married man, unemployed, with two children, with a previous wage of£50 has a benefit of£84.68. However, if his previous wage was£100, his benefit is down to£64.97. How on earth do we get ourselves into such a ridiculous situation? It is neither sensible, nor equitable nor anything but crass stupidity.

We all know that this poverty trap, together with the unemployemnt trap and the pension trap, is caused by the meeting of tax thresholds, indexed benefits such as family income supplement. Supplementary, benefit, free school milk et cetara, and work expenses. The Treasury and Civil Service Committee pointed out in paragraph 4.25: In all, the total United Kingdom figures for 1979 must he nearer 10 million and today it must he higher still". We are talking now in terms of around 25 per cent. of the adult population for whom the reward mechanism has ceased to function properly. My noble friend Lord Trefgarne, at column 940 of Hansard on 24th November last, said it was 3½per cent. I regret to inform my noble friend that he was very badly advised.

No one has attempted to deny those figures. The Treasury admitted in evidence to the committee that the number of families facing marginal rates of 100 per cent., or even more, was 30,000. If extra benefits such as free school milk are taken into account the figure rises to 50,000. Nearly 700,000 families face 50 per cent.; nearly 5,000 families pay 60 per cent. or more at marginal rates. For comparison with high income families, there are 270,000 families in the 50 per cent. hand and there are only 70,000 in the 60 per cent. hand. My Lords, please do not think I am in any way advocating that we should reduce those top bands.

What I am advocating is that the present financial disincentive to work must be changed. If a basic income guarantee scheme were to be introduced, or a tax credit scheme—after all they were part of the Tory pledges in the 1974 election. I think—it would really pay to work. It would be possible, with the abolition of all social security benefits and the abolition of all tax allowances and thresholds, to produce a scheme which was cash negative. In other words, I think in the year 1982 we are talking about£68 billion worth of income transfer which was cash negative, in the jargon of the economists. For example, taking a married man with two children and one on the way, there would he two adults at£15 a week and one householder at£17 per week and one expectant mother at £12 a week. In other words, the child's basic income guarantee is payable from the thirteenth week of pregnancy. There would also be two children at £12. This would produce an income of £83 per week. Any income at all over that would be taxed on a sliding scale from 30 per cent. to 60 per cent. together with a £10 wage tax. This would also have the benefit of making part-time working profitable; it would make work sharing profitable; it would make retirement work profitable and it would make wage increases real wage increases. You cannot have a system where somebody's wage goes from £54 to £100 and he gets absolutely nothing in his pocket and the poor wretched employer gets a 100 per cent. increase on his wages. That is dotty. So what one is asking for is a real increase in the worker's wage at lower cost to the employer. This would have a magic effect on inflation and would be a real incentive for working people.

The present system is unfair and unjust to 25 per cent. of the adult working population. The Government, as my noble friend Lord Thomas of Swynnerton said, and contrary to what the opponents say, are a compassionate, caring and intelligent Government. Will they not bend their collective mind to cleansing this Augean stable and recognising that an efficient and streamlined industry is vital to our welfare? I suggest that a streamlined and efficient tax credit s system is also vital for our welfare. I would remind Her Majesty's present advisers of the words of St. Augustine: Remora Jusficia old quid regna nisi-magna latrocinia". My Lords, I did not know the quotation: I was told of it, and I will translate it. It says: If you omit justice, governmental rule becomes little better than robbery". The present tax benefit scheme omits justice and in some cases verges on "latrocinia".

10.9 p.m.

Lord Diamond

My Lords, the noble Earl will be glad to know that in the proposals made by the Alliance at the recent general election we put forward a scheme which would go so far as is practicable and possible to meet the difficulties which he himself has so well illustrated. He will appeciate from the fact that the scheme which his own Government proposed nearly 10 years ago has not been implemented that there are many practical difficulties, which are well understood in your Lordships' House, if we are to provide a net below which those on very low incomes cannot fall. Nevertheless, we attempted this, and much more, in the proposals which we made.

I know that everybody is very anxious to reach the stage of coming to a vote on our proceedings. Nevertheless, I hope that noble Lords will bear with me for two minutes while I express on behalf of my colleagues, as this is the first opportunity we have had to do so, our deep appreciation of the way in which the noble Baroness, Lady Young, carried out her responsibilities as Leader of this House, and in particular our appreciation of the deep understanding which she had of her trustee position as guardian of our conventions and interpreter of our wishes. It is only in that way that the unique and precious quality which we enjoy in this House, of being able to govern ourselves by our own self-discipline, is maintained.

I wish also to extend a very warm welcome—I am speaking to a fairly empty Bench, but I am sure that these remarks, which are meant just as sincerely, will be conveyed to him (we understand very well the absence of Ministers at this hour)—to the noble Viscount who is to he our new Leader. I have known him for very many years. On the basis of that knowledge, I want to assure him that he has our full respect and our total confidence in his ability to lead this House.

I now want to turn, following the excellent precedent set by the noble and learned Lord the Lord Chancellor, to one or two of the points which have been established by the recent general election. The first point which has been established beyond question is that there is no longer any possibility of our withdrawing, in the foreseeable future, from the European Community. I am sure that this is welcomed by most of your Lordships.

The next point which the general election established is that the abolition of your Lordships' House is no longer an issue. Indeed, as I understand it from the BBC, the only outstanding question is whether the Prime Minister is prepared to recommend the record number of Labour aspirants which has been proposed by the right honourable gentleman who led his troops into the recent battle with banners flying, saying "Down with the House of Lords!"

What was also established by the general election was the firm position of the Alliance on the political map for all time. That could have been held in question by some who felt that a new party, in particular my own party, was perhaps a flash in the pan and that by-election results do not prove very much. But general election results do. It is now the case that every voter throughout the length and breadth of Great Britain has been made familiar with the phrase "the Alliance". Indeed, one in four of such voters voted for the Alliance, notwithstanding the fact that about one-half of the candidates and agents were without any previous experience and that we were denied, through lack of funds, many of the normal processes of communicating with the electorate. This is a matter to which the noble Lord, Lord Kaldor—whose attention I am sure I have—referred. In any event, this will go on the record in Hansard, and I can assure him that we spent in the Alliance about one quarter of the amount of money that the Labour Party spent and about one-tenth of the amount which the Conservative Party spent. The results were achieved against that background.

We enjoyed no paymaster either of the Right or the Left. What we did enjoy was the liberty to pipe tunes of our own calling. What has been established beyond argument is the injustice of the present voting system. That has been established in a way that no words or arguments could have underlined to the same persuasive extent. It has been shown to be a system under which at the last general election something like one-fifth of the electorate were effectively disenfranchised. In my view, it is no longer a question of whether we shall remove our present obstacle to democracy but simply, when?

I wish to make three fairly short points on the economic situation. I can think of nothing more important to our economic situation, as many of us pointed out in recent weeks, than the fact that we should continue our membership of the European Community, to which I have already referred in the context of this economic debate. I hope I may say once more that I felt it right to follow the precedent set by the noble and learned Lord who sits on the Woolsack and followed by so many other speakers in your Lordships' House.

The first point I wish to make relates to the claim of the Government (and whenever we have a Government speech on these occasions we hear these great claims made) that they and their policies are responsible for the slight glimmer of improvement that we see in our economic situation. The simple fact is that that improvement, modest though it is—and it is certainly there—has been achieved in spite of and not because of the Government's policies. We entered this recession earlier than other countries and should have come out of it earlier than most other countries. As the noble Lord. Lord Cockfield, twice mentioned in his own speech. there has been an improvement in the world situation and we are lagging behind it. Had it not been for the obstacles put in the way of economic recovery by the Government's policies, I have no doubt that our expectation of growth would be much more in line with the Americans than the present miserable forecast which we are being given.

The second point I wish to make relates to the argument that is so frequently used by the Government, concerning the greater competitiveness which they claim has been achieved by their policies of denying industry the means of full development. Of course, there has been some improvement in efficiency, and of course we should all strive at all times for improvements in efficiency. But their idea of greater competitiveness depends on the extraordinary notion that those other nations which have already achieved a far higher level of efficiency than we have should simply sit down and wait for us to catch them up while we slowly improve our own efficiency. Of course, that has not happened. We have made some improvement, they have made some improvement, and our relative position is no better than it was.

The third point that I wanted to make was in relation to that part of the amendment to which I am now speaking—the amendment moved so well by my noble ally on the Liberal Front Bench, Lady Seear. In that amendment, we deliberately exclude the policies for revitalising industry and the economy proposed by the Labour Party. I want to go through the arguments shortly, stage by stage, as to why we have put that in our amendment, and why I particularly, who am not, unfortunately, lacking in experience on this sad topic, desire to underline it.

It is the sad but actual fact that when a Labour Government takes over in a Western country the international business and financial community is alerted. I would put it no higher than that. But there is created a greater sensitivity than previously existed. It is particularly the case that that is so in present times because of the French experience.

The Labour manifesto proposed, first, that there should be a contrived slide in the sterling exchange rate. My Lords, that is a most dangerous proceeding. It is very easy to start an avalanche; it is impossible to stop it. The second proposal was that there should be a measure of exchange control; that is to say, a warning to the potential foreign investor that if he were so incautious as to put his money into this country he might never be able to get it out.

It was against that background of sensitivity and lack of confidence that the Labour manifesto was proposing a level of borrowing of so many extra millions as would undoubtedly have resulted in gross inflation, and more than that, would have resulted in such a run on the pound as would have prevented any Labour Government, has it succeeded to office, being able to implement its policies. It is that experience which some of us enjoy—if that is the right word—and it is that danger which we wanted to underline in excluding from the proposals made in our amendment the quite ridiculously far-fetched inflationary proposals made during the general election by the Labour Party.

There is no doubt that we need a stimulus to the economy. There is no doubt that industry is begging the Government to give it. There is no doubt, therefore, that I hope that those of your Lordships who are able to do so will support the amendment put down in the name of the Alliance when it comes to a vote.

10.25 p.m.

Lord McCarthy

My Lords, I begin by congratulating our twin maidens this evening, the noble Lord, Lord Ingrow, and the noble Lord, Lord Bauer. They produced lucid and interesting speeches and I hope that we hear them often again. As regards the first noble Lord, I was particularly interested in the discussion that he gave us of the problems of aiding small businesses. As regards the second maiden speaker, I particularly enjoyed the distinction he drew between what he called non-controversial statements as against non-provocative statements. I hope that he tries to make that distinction again in this House, although I cannot promise that he will meet with the same result.

It is quite reasonable to expect the note of triumph, with touches of derision, which we had from Members of the party opposite in this debate. Theirs was an excellent result. Theirs was an excellent election and I am quite sure that if we had had an election result as excellent we should probably have been as insufferable as they were tonight. It was quite natural for them to congratulate themselves both generally and in particular.

I should like in particular to congratulate the noble Earl, Lord Gowrie, who is the only wet to come back from the Siberia of Northern Ireland: and not only to come back but to come back to the only job in the Government for which I think one should charge a fee. It appears to be a real transformation and is like those moments at the end of Shakespeare's late comedies when everything is suddenly transformed by a mixture of lyricism and mysticism and all the good men get their deserts. In any case I am glad that he has that job if for no other reason than he seems to be almost the only occupant of that job, certainly on his side of the House, as far as I know, who has seen the inside of Covent Garden on a non-opera night. That in itself is an achievement.

However, we have to get to the debate and it is only reasonable and natural for us to say why we are not satisfied with the gracious Speech. As my noble friend Lord Bruce of Donington said in his opening speech, it is because we have the mixture as before. The noble Lord, Lord Cockfield, told us that the Government once again are to proceed by controlling public expenditure and that once again they are to operate what they now call the medium term financial and monetary strategy. The Government are to continue to pursue, if not to overtake, tax cuts and they will continue to privatise areas of the public sector. In other words—and this is our problem—they are to continue with all those measures and all those approaches which in the last Parliament produced a 25 per cent. cut in manufacturing employment, an 18 per cent. cut in manufacturing output, the highest rate of bankruptcies in our history and the highest level of unemployment. All the forecasters now—not just those from this side of the House—including the mad monetarist from Merseyside, Professor Minford, say that this will produce an increase of between 1 million and 1.5 million in unemployment over the next two years.

Those are the policies that we are to have. We are bound to ask, if this is so—and the noble Lord, Lord Boyd-Carpenter, stressed the way that the Government and the Tory Party had told us that all this was coming to us—why did the Government not say so at the last general election? For example, why did they not say in 1979 that we were to have a doubling of the unemployment rate? As the noble Lord, Lord Molloy, said, why did they not say so in the 1979 general election? In particular the Government went around saying, "Labour is not working and the Conservatives will get you back to work". They never told the electorate then that they would have substantial increases—in fact doubling—in unemployment, with all the consequences that have been spelt out by noble Lords on this side of the House. They did not say at the last election how long this would continue. I ask the noble Earl who is to reply: until when?

We have been told from this side of the House—and it is right—that the previous Chancellor said that we would not have 3 million unemployed; and he was wrong. We have been told—and it is right—that the Prime Minister said that she did not think that there would be 4 million unemployed; she could be wrong. Let us suppose she is wrong and we got to 4 million, 4½ million, 5 million or 5½ million. This is my first question, and I have many more. Would the noble Lords on that side of the House still be coming to this House and saying that they had nothing to offer us but continuing control of public expenditure, continuation of the medium-term financial strategy, a continuation of the pursuit of tax cuts, and so on? Is that what they would be saying?

It seems that that is what the Prime Minister would be saying. In the present situation, with the present level of unemployment and the present policies, she made the most astonishing statement on 22nd June.

She said: There is plenty of demand in Britain"— I will say that again— There is plenty of demand in Britain and it is up to British industry to produce the right goods to meet it".—[0fficial Report, Commons, 22/6/83: col. 55]. That is her policy. Is it their policy at a time when the applicant-to-vacancy ratio is 30:1? We can blame ourselves, we can blame the trade unions, but we cannot blame the headmistress.

This is another question I should like to ask the noble Earl, because I want to know whether he goes along with it. The Prime Minister also sought to make a distinction between what she called "real" jobs as against, I suppose, unreal jobs, and "genuine" work as against, I suppose, fake work. She said that the Government were only interested in real or genuine jobs and not unreal or fake jobs. What is a real job and what is an unreal job? What is a fake job? What is real unemployment and what is fake unemployment?

I wish to put before the House today an agreement among the Opposition parties about what should be done at least so far as jobs are concerned. I thought that the noble Baroness, Lady Seear, was moving in that direction, although I must say that the last speaker, the noble Lord, Lord Diamond, went in the contrary direction. But, whatever he may say, there is an agreement on this side of the House that there are a lot of real, non-fake jobs which the Government could now begin to create. Does the noble Earl say they are all fake?

For example, what about a few more nurses to look after the chronically sick, the elderly and the disabled? Are those fake jobs? Is that what the Prime Minister says? What about a few more chaps, and ladies, too, to clean the public lavatories in our inner cities? Is that unreal work? There could be a few more tax inspectors. The Inland Revenue Staff Federation calculate (and they are careful men) that as a result of the loss of a few hundred tax collectors we have lost £3 billion a year in taxes through an increase in tax evasion. If we put a few thousand tax inspectors to chase some of the tax evaders, is that unreal or fake work? What is the view of the Government? Suppose that we had a few workers who had been declared redundant from our shipbuilding industry or elsewhere to fill in some of the holes in some of the roads on the North-East coast.

With great respect to the noble Lord, Lord Vaizey, suppose we did something about the sewers. I do not know why he is so totally unconcerned with the state of the sewers. I do not know what he does with the sewers and how frequently he uses them. I think that the sewers are very important, and they are in a very bad state. Suppose we employed a few people who had been declared redundant to look after the sewers, to repair them? Is that fake, unreal, work? Suppose, we had a few home helps to look after a few old people?. Suppose we had—a terrible thing—a few dinner ladies, whether with or without a trade union card. Is that fake?

If all these extremely interesting, important and vital tasks, all grossly undermanned, are all to be called unreal, we know why. There can be only one reason why. It is because at the moment they are all in the public service sector; and that is what the Prime Minister cannot stand—the public service sector. If by some accident of history some of them had been in the private service sector—and this is another of my questions—would that have been real, or fake? Is it not what these people do but who employs them that is the critical point for the present Government?

Of course, the noble Earl may say I am just picking up the Prime Minister's turn of phrase. The "Queen of the Night" has an unfortunate turn of phrase. I accept that; and it is not really the turn of phrase that we should listen to, it is what is behind it. What she is really saying is not that they are unreal or fake, but that we cannot afford any more of these people. This is the point. Here I would refer—and I am trying to build bridges—to the report of a Select Committee of your Lordships' House, under the chairmanship of the noble Baroness, Lady Seear, on the problems of long-term unemployment. That report showed that, bearing in mind the fact that every person on the register costs us £5,000 a year—a fact which your Lordships' Select Committee established and which the Treasury has not denied, though previously it was saying that they cost £3,000 a year—in net terms we could place 500,000 people in jobs for about £ 1½billion; in other words, half the money that we lose in tax evasion as a result of not having those tax inspectors. So it cannot be that we cannot afford it; at least, it cannot be that we cannot afford it in direct terms.

At this point it might be said by the noble Earl—I am trying to help him—that he is not saying that we cannot afford it in direct terms, but that we cannot afford it because it will have an inflationary consequence and will crowd out employment in the private sector. We could have a long argument about this. but at this time of night I would say only one thing. To say that, is to say that there is no hope of any significant reduction in unemployment for the foreseeable future; that even if we wait until 1988 there is no chance of any significant reduction in the level of unemployment.

As the noble Baroness said, there is a very real sense in which one can argue that the majority of the electorate do not agree with that view. In particular, if your Lordships read The Times and what Mr. Routledge says about the leaked minutes of the NEDO meeting on 4th May, you will see that the CBI does not agree. The House of Commons Treasury committee, on which there is a Conservative majority, does not agree; and I doubt whether the whole of the Cabinet agrees that, whatever the level of unemployment and however long it lasts, nothing can or should be done to increase jobs in this country if they must be jobs in the public sector. I doubt very much that the majority agrees.

I listened carefully to what the noble Lord, Lord Thomas of Swynnerton, said about the black economy. I agreed with much of what he said. I did not, however, agree with what appeared to be his attempt to argue that there were certain features of the black economy which meant that we should not worry so much as we might otherwise do about the level of unemployment. I say to him that the part of unemployment that we worry about mostly is the long-term unemployed. Most people in the black economy, God bless their hearts, are craftsmen—and craftsmen look after themselves. Most craftsmen have already got one job and are moonlighting. They have second jobs, third jobs and fourth jobs. Long may they survive. They are the kings of the black economy.

The people we are worried about and for whom we should like to find jobs in the public sector are the long-term unemployed. They include young people, disadvantaged people, coloured people and people aged 50 or over in development districts who have been declared redundant and who have no effective skills. These people have no scope for work in the black economy. Therefore, the black economy is no solution. The solution is a steady expansion of the kind of work in the public sector that I have mentioned and which your Select Committee suggested.

What stops it, my Lords? What stops it, I suggest, is an obsession among a minority of Ministers of this Government, all of whom, unfortunately, have central responsibility for the economic management of this Government, who believe that there must be further substantial tax cuts. They have a rather primitive and rigid approach to the size of the PSBR. They are equally committed to a 3 per cent. increase year by year in the size of our defence budget. If those three things are put together, there is no chance of any expansion of public employment. That is the combination that prevents our doing anything.

We do not say this because of any animus against the private sector. We have no animus against the private sector to match the animus against the public sector of some Members opposite. Quite the contrary, We would argue that the increase in productivity which is so essential in the private sector and which, I readily admit, has happened under this Government, has been the result for the most part of labour-shedding in the private sector. It has arisen from the fact that the rate of redundancies has been faster, sharper and longer than the rate of decline in output. If we are to get hack to anything like the levels of competitive labour loading of our major competitors, for example, in Germany and Japan there will have to be far more redundancy and a much greater reduction in the size of our manufacturing labour force than anything we have seen so far.

If one looks around the world, those countries that have done best—for example. Japan—have a smaller proportion of their total working population now employed in manufacturing industry than ourselves. There is no solution to the problem of unemployment, in overall terms, in thinking that one is going to raise the overall size of employment in the manufacturing sector. Indeed, even in the private service sector, as noble Lords on this side of the House have mentioned, the effect of capitalization, of investment and of all kinds of movement towards more capital intensive systems of production means that one cannot look to those areas to solve the problems of unemployment.

Why do the Government still resist this? I believe that there are three reasons. First, they have to say, as we admit, that, whatever the results of this policy economically, it has produced for them, in political terms, a magnificent victory. It has enabled them to say that in domestic policies, they have a parallel to the resolute approach that they adopted in respect of the Falklands.

Secondly, any alternative approach, any approach which went very far, which began to generate significantly increased levels of demand in the economy, would mean that one fine day they might have to ring up Mr. Lionel Murray—and the one thing that this Government do not want to do is that. But the main reason, as I have said before, is that the inner core of the Government, the economic Ministers of this Government, subscribe now to a particular view of the economic problem of this country which I call a simple version of the comparative cost theory combined with a labour theory of pricing. Basically, they believe that the main reason—indeed, sometimes when they talk it seems the only reason—why this country has fallen behind is that we are uncompetitive in terms of our relative costs, and most particularly and above all in terms of our labour costs. That is said to be the central reason for our economic decline.

Therefore, the long-term solution to this problem can only be found in a series of long-term measures. The date at which these long-term measures will solve this problem we are never told. Indeed, that is another question that I would like to ask the noble Earl. We have legislation against trade unions; we have the abolition of wages councils; we have a refusal to honour EEC directives to protect workers; and we have the use of youth unemployment to introduce measures such as the Young Workers' Scheme, in an attempt to drive down the general level of wages, and all because a lot of people in this Government, or the significant people in this Government, believe that the only way in which this country can survive is if we can lower our level of relative costs and in particular our level of relative labour costs.

Meanwhile, of course, nothing can be done. Nothing can be done until these long-term policies work their way out except, of course, to manipulate the exchange rate. The trouble with manipulating the exchange rate is that you are not quite certain which way you want to manipulate it. The governor is told to keep it high to restrain import prices and to protect the balance of payments, but not too high or we will destroy manufacturing industry and raise unemployment. Yet every other short-term measure, apart from these long-term measures, has in fact been disregarded and thrown out of the window by this Government. The assumption behind all this is that we face a cost competitive situation in which the main reason why we have not been cost competitive is labour costs.

I am sure that the noble Earl is tired of listening to me giving him quotes from books, in particular quotes from hooks about industrial relations and books about the labour market. Nevertheless, I am going to recommend finally to him one last book, because it enables me to answer some of these points. It is a recently published tome by three authors, Williams, Williams and Thomas and it is called, Why are the British Bad at Manufacturing? It is published by Routledge & Kegan Paul, Paperback, £7.75. This little book brings together a whole lot of surveys from a whole lot of people and they make a number of points. If the Government would take on board at least some of these points they would understand some of our complaints.

First, this book indicates that the relative uncompetitive nature of the British economy since the 1960s has had little to do with comparative labour costs, certainly since the 1967 devaluation, and certainly since the devaluation of the 1970s, because if we take into account the effect of devaluation we find that we have been competitive in terms of comparative costs for most of the time. Moreover, changes in labour costs and changes in comparative costs measured against changes in exchange rates are not related to improvements in relative market share. Germany held on and increased its market share when its cost position worsened throughout the 1970s. The United States lost 50 per cent. of its market share at a time when its relative cost position improved.

Furthermore, this study suggests that Britain's problems in manufacturing industry—and, after all, that is the subject of our amendment—arise very largely not because of price factors, not because of cost factors, but because of a whole series of non-cost factors: because of the fragmentation of our domestic market, because of the availability, or greater availability, of medium-term risk capital for most of our major competitors, because of the disastrous consequences of the merger boom of the 1950s and 1960s and, above all, because of the failure of successive Governments—both Labour and Conservative—to turn the National Economic Development Council into an effective planning mechanism.

If he reads this book, I do not ask the noble Earl to agree with all of it. All I am saying is that here is a respectable study which suggests that a large part of our trouble, both under the last Government and under this one, arises from the fact that the Government have an over-simple view of the operation of an advanced capitalist economy which over-stresses the role of labour costs, partly from prejudice and partly from ignorance, which over-stresses the effects of cost anyway, and which bears very little relationship to the kind of factors which have defeated the attempts of successive Governments to preserve and advance the interests of British manufacturing industry.

Therefore, in conclusion, although the Government can reasonably and naturally congratulate themselves on the results of their appeal to the country, it is one thing to win on a policy and it is another thing to show that that policy will work. We would argue that where that policy is not based on prejudice, on ignorance, it is founded on an over-simple cost -dominated view of the working of our economy. Those who agree with us will support us in the amendment that we have put down tonight.

10.53 p.m.

The Minister of State, Privy Council Office, and Minister for the Arts (The Earl of Gowrie)

My Lords, if I could chose a single text to put the Government's policy to the noble Lord, Lord McCarthy, succinctly and clearly. I would choose a sentence from the speech of our first maiden speaker, my noble friend Lord Ingrow, who said: If I could foresee stable costs, there would be benefits leading to employment. My noble friend speaks from experience there, and who am I to gainsay him? That is what we are about and I could not put it better than that. I also very much enjoyed the maiden speech of my other noble friend Lord Bauer, who I know slightly and look forward to meeting again on many occasions. At any rate, I did enjoy it while it was going on; later I became a bit rattled because my noble friend Lord Thomas congratulated the maiden speaker on not being an economist. Whereas, I understood that at last we had a Hungarian economist of our own!

It seems to me that the voice of opposition to the Government (at least at this stage in the Parliament) will most effectively come from those who take the view of my noble friend Lord Bauer and the noble Lord, Lord Harris of High Cross, who were attacking the way we have built into the system of the economic life of this country what, in a rather chilling phrase, Mr. Neil Kinnock called a dependable equity of organised compassion". Mr. Kinnock obviously thinks organised compassion a good thing. It certainly is very expensive and the recipients of the compassion are those who pay for it.

As this is the last day of the debate on the humble Address, I should like quickly to add my compliments to my noble friends who moved and seconded the Motion. I was delighted that both my noble friend the Duke of Norfolk and my noble friend Lady Airey gave time and emphasis to the problems of Northern Ireland. As an outgoing Minister there, I should like to thank them for the interest they took and the support that they gave me. I certainly found their private as well as their public counsel invaluable. Indeed, I remember an occasion when a public speech in your Lordships' House by my noble friend the Duke of Norfolk became a cause celebre in an Irish general election.

I note, too, that at the end of her delightful speech my noble friend Lady Airey talked great sense about the contribution of the world of the arts, which I now inhabit, to our national economy. How much I agree with what she said. Indeed, the connection of her remarks to today's debate is that, as manufacturing sheds labour as a result of the competitive pressures towards greater automation, the future of employment is woven into the worlds of creativity, play and leisure as well as more traditional concepts of employment. Surely we should not regret this but welcome it. Of course the period of transition brings the problems of transition. People are brought up in one way with a given set of expectations, and then as grown ups they find these inadequate or different and so adjustment is painful and difficult. There are then stresses and strains on the social and political system, but let us not forget that there can and must be immense gains in liberating ourselves from the old industrial economy as well.

If I do have a criticism of today's debate, for all its interest and expertise, it is that I felt that rather few speakers, with notable and honourable exceptions, faced up to a central truth about our economy in these last years of the 20th century. I certainly exempt from this my noble friends Lord Trenchard and Lord Vaizey, and indeed the noble Lord, Lord Spens, and the noble Viscount. Lord St. Davids, from the Cross- Benches. This central truth is that a new industrial revolution is taking place in this country. It is not ahead of us, it is under way. It is not confined to us, but is taking place in the open societies of the West, and among all our allies and competitors. It is having great effects on the close societies to the east of us, as it will surely have on the developing world.

If we can get the pace of our adaptation right, and if we can afford to ease the stresses and strains of transition, this revolution can be a benevolent one both at home and abroad, liberating us all from the dreary cycles of traditional production and consumption. and allowing more people that surplus of leisure on which civilisation has always depended. But if we get the pace of that adaptation wrong, we shall not be able to avoid those stresses and strains, because the new industrial revolution is with us in any case. Nor shall we be able to afford to ease them. As my noble friend Lord Thomas said, all the old shibboleths therefore need to be re-examined.

As the new Administration takes office and submits its programme to critical scrutiny by Parliament and people, it is, I think, fair to look at our proposals in terms of two questions. First, will this or that proposal, or this or that item of expenditure, allow us to participate competitively in the new industrial world and so continue to earn our standard of living, which includes of course our standards of welfare services, or, better still, to improve that standard of living? Secondly, will this or that proposal, or item of expenditure, ease the position of those who, through no fault of their own, are caught in the painful machinery of an economy changing gear? I believe that if we use these questions as the lens through which to examine policy, the debate can continue to be meaningful and useful. but it will not be so if we continue to hanker after the questions and answers that pertain to an altogether different industrial world, and therefore to a different political economy.

I do not want to be especially partisan this evening—we have all been able to indulge ourselves in this enjoyable form of politicking over the last month or so—but it seems to me that the really depressing thing about the party opposite in its present state is that it is simply not posing the relevant questions of policy, let alone finding the right answers. For all the nice things he said about me in my new job—for which I am grateful—I thought this very much as I listened to the interesting but, in my view, deeply conservative speech of the noble Lord, Lord McCarthy.

I come now to the issues put to me in this debate as I see them within this overall broad framework. I was asked by the noble Baroness, Lady Seear, about the issues connected with capital spending, and other noble Lords put these points to me. I shall be coming to the points made by the noble Lord, Lord Bruce of Donington, in a moment. This is a highly seductive argument. I think the short answer is that, as the wealth-creating sector grow, there is more money available for capital projects. I agree with those who feel that our infrastructure needs improvement, but the Prime Minister's point about sustainable employment—in answer to the noble Lord, Lord McCarthy—could not be better illustrated than by experience in Northern Ireland. Northern Ireland is a place where relatively small market towns are linked by major motorways, admirably produced and enjoyable to drive along, but not capable of sustaining jobs once the infrastructure has been improved in that way. It is not so much a distinction between real and fake jobs, as that all jobs must be sustained by the wealth generated to create them.

The noble Lord, Lord Bruce of Donington, asked me about the trade figures. Indeed these were disappointing, but rather less disappointing when one examines them, as the main reason for the deterioration was the large increase in the imports of what are called erratics, like precious stones, ships and aircraft. There is some substantial evidence, therefore, that the pick-up in the economy—a delicate plant, I would agree with the noble Lord, Lord Ezra—is causing companies to purchase at an increased rate.

The noble Baroness, Lady Seear, gave me notice that she would talk about the EMS. I think this argument was very nicely rehearsed by my noble friend Lord Vaizey. In the ranks I have always been a pro rather than a con, but I do not think that the argument in favour of going in is yet overwhelming. Certainly it is one that the Government keep under constant attention.

A substantial part of the debate was devoted to our work in terms of training. I said that a major item of the Government's philosophy and policy was that, while we cannot prevent changes from taking place, we can try to spend money to help those who are caught by the changes to adapt to them. Young people are obviously in the forefront here. Even the noble Baroness, Lady Lockwood, in quite a critical speech, conceded that much that has been done is excellent and the right reverend Prelate, the Bishop of Norwich, gave us an admirable commercial for the MSC's work in his area. It is a great pleasure to me to be back in this area of work as a spokesman on employment in your Lordships' House.

The Government understand that, if we are to compete effectively in domestic and international markets, we must have better training arrangements, flexible and adaptable to meet the new needs of industry and commerce. This new training initiative was the first time that training policy in this country had been considered as a whole. It makes the terms of the amendment in the names of the noble Lords, Lord Bruce and Lord McCarthy, rather astonishing when one thinks of the money and effort going into a training scheme on this scale—nearly £1 billion into the Youth Training Scheme and we can add to that the £800 million in regional policy and the Department of Trade and Industry provision of £230 million for innovative industries. I rather agreed—to score an own goal—with some of the strictures on regional policy which were made by the noble Baroness and I shall bring them to the attention of the new Minister.

The noble Lord, Lord Molloy, said that not a ha'penny was going into innovation or into the new industrial revolution. But we have over 100 information technology centres being established at present. We have the microprocessor application project, to which £85 million has been allocated: and we have the micros in schools scheme, which leads all primary schools, secondary schools and initial teacher-training colleges to obtain at least one micro computer for educational purposes. I am not sure, but I think that this is unique among the Western countries. It is certainly an achievement of the Department of Trade and Industry and of my right honourable friend the Secretary of State. We have, too, the new blood initiative, which involves the creation of over 200 new lectureships in universities in these hard-edged subjects, the majority of which will be in areas of direct relevance to manufacturing industry; and we are very aware of the fact that some of the great new industrial centres in America have grown up round university research and university work in this field.

I now come to another substantive part of the debate, which concerned our proposals for industrial relations legislation. My noble friend Lord Campbell seemed to suggest that the Government were being rather titillating and less than clear about what they were proposing. I am glad to try to rebut that charge. Broadly, the legislation will cover three issues. It will give trade union members the right to elect the members of their governing bodies, their executives, by voting in secret ballot; it will make immunity for calling a strike or other action in breach of contract conditional on a trade union holding a pre-strike ballot; and it will require unions with political funds to seek the approval of their members once every ten years for the retention of those funds and for the continuance of the union's political activities. My right honourable friend the Secretary of State for Employment will be inviting the TUC to discuss the steps which the union movement itself will take to ensure the right of union members to decide whether or not to contribute to a political party through their union subscriptions.

My Lords. I really cannot accept that this is a confrontation. I certainly agree with my noble friend Lord Boyd-Carpenter that this legislation is really overdue, and moderate in its proposals. The right reverend Prelate the Bishop of Lincoln, the noble Viscount, Lord Hanworth, and the noble Lord, Lord Spens, all seemed to give their approval to a step of this kind.

In a very entertaining and trenchant speech, the noble Lord, Lord Marsh, raised a point about industrial relations legislation. Could I just say to the noble Lord, Lord Ezra, that he was not the only person with experience of nationalised industry who took part in the debate today. I do not know how much joy I can give to the noble Lord, Lord Marsh—and I am sorry to say this because the Financial Times happens to be my favourite newspaper—but I think the noble Lord left out one difficulty about legislating along the lines of procedure agreements that I think he would like. We have done it before and we were let down, if I may put it that way, by the employers themselves. It seems to me that we have a wide scale of consent for our industrial relations legislation proposals among union members, as evidenced by the election result. I am not yet confident that we have that degree of consent from employers, and the whole difficult question of where power actually lies within a given industry or a given union is one which is side-stepped by proposals for procedure agreement legislation. But we should like to get on top of it, and, if the noble Lord and his colleagues can help us, I know that my right honourable friend is proposing to consult specifically on this matter before taking any further steps.

The noble Lord, Lord Hatch, the noble Lord, Lord McCarthy, and others asked the Government when things were going to get better. It has been the whole burden of our policy that we should set a framework and that after that it was up to our people, in whom we have every confidence, to make use of greater financial stability as well as, we hope, an improved world situation to take advantage of a better climate to produce more and sell more.

I think the point was answered by no one so well as by my noble friend Lord Trenchard—whom I should like to declare for these purposes "man of the match", if I may—when he, denied, as I deeply regret, access to formal Government statistics, nevertheless was able to inform me about the last two or three months' figures of industrial production and unemployment in comparative terms. In January 1983 they were up 0.4 per cent. and in February up 1.8 per cent., as against minus 2 per cent. in France, minus 3.8 per cent. in Germany, minus 6.4 per cent. in Italy, minus 3.5 per cent. in the EEC as a whole and minus 5.4 per cent. in the United States. I do not have figures for Japan, but the previous month was minus 1.7 per cent. and minus 4.1 per cent. in the OECD average. Again, turning to employment, in February in percentage terms we were up 11.9—much too much, I agree—while France was up 4.8; Germany was up 31.4; the United States, up 23.1, and Japan up 20 per cent. There I think we have some indicators, first, of the scale of the revolution—because this is not simply recessed unemployment, which I mentioned earlier. Secondly, it appears that our competitiveness is at last starting to improve. I am most grateful to my noble friend for the information he gave me.

Finally, may I come to the point made by my noble friend Lord Onslow. He was very eloquent about the poverty trap, and he is right to point to it, because it remains one of our most intractable problems and one of our greatest disincentives for getting more people off the benefit and unemployment register. The long-term solution of such traps is best achieved by maintaining public spending restraint, thus allowing tax thresholds to be increased, as well as by sustained economic performance leading to higher real earnings. I think what I have said about the poverty trap applies to the black economy as well. So long as in this country we elect to have the safety net, as it has been called, there will be difficulties of this kind at the margin.

We have had a long debate and I must come to an end. I apologise to those noble Lords whose points I may not have dealt with, but I will certainly write to them. I am aware that this Government, like all Governments, are permanently on trial and that they will be judged not just on what they achieve but on what the British people achieve during their period in office. I agree with the noble Lord, Lord Diamond, on that at least. I believe, however, that in our first term we achieved those conditions for greater financial stability without which the maintenance of our present standard of living—let alone any improvement in it—would be quite impossible. These conditions we are resolved to maintain.

In the mid and late 1970s, the period of our greatest inflation, commentators all round the world were observing us with fascination. We were, I remember reading, to be the first "drop-outs" of the new industrial world. Now we are still the subject of much fascinated commentary, but it is as a people with a new determination and purpose, a new style of political leadership, a new realisation of the hard facts of life in the late 20th century. I believe we can harness this new purposefulness as well as the discipline and indeed the difficulties that will continue to grow with it to the new industrial age, to the wealth it can generate and to the freeing of civilisation from drudgery and decline. Of course, it will not be easy, but there is no reason why it should not be fun—a quality much underestimated in economic as well political life.

I certainly find a lesson here in my own new Ministry. As a trading nation, we cannot afford decline, and as a pluralist country, but one underpinned by a Christian Constitution, we are firmly enjoined against despair. I hope your Lordships will feel purposeful and cheerful enough to follow the Government into Lobbies tonight.

Lord Bruce of Donington

My Lords, we on this side of the House are most grateful to the noble Earl and his noble friends for having confirmed the observations made yesterday by the noble and learned Lord on the Woolsack: that all we have is the mixture as before. I beg to move the amendment standing in my name.

11.16 p.m.

On Question. Whether the amendment (moved by the Lord Bruce of Donington) shall be agreed to?

Their Lordships divided: Contents, 38; Not-Contents, 112.

Ardwick, L. Llewelyn-Davies of Hastoe, B.
Bacon, B. Lockwood, B.
Balogh, L. Longford, E.
Beswick, L. McCarthy, L.
Birk, B. McIntosh of Haringey, L.
Bishopston, L. Mishcon, L.
Boston of Faversham, L. Molloy, L.
Brooks of Tremorfa, L. Oram, L.
Bruce of Donington, L. Pitt of Hampstead, L.
Caradon, L. Ponsonby of Shulbrede, L [Teller]
Cledwyn of Penrhos, L.
Collison, L. Rea, L.
David, B. [Teller] Shackleton, L.
Elwyn-Jones, L. Stewart of Alvechurch, B.
Galpern, L. Stewart of Fulham, L.
Hatch of Lusby, L. Stone, L.
Houghton of Sowerby, L. Strabolgi, L.
Jeger, B. Underhill, L.
Jenkins of Putney, L. Wedderburn of Charlton, L.
Kaldor, L.
Abinger, L. Brougham and Vaux, L.
Airey of Abingdon, B. Buxton of Alsa, L.
Avon, E. Caithness, E.
Bauer, L. Campbell of Alloway, L.
Belhaven and Stenton, L. Campbell of Croy, L.
Bellwin, L. Cathcart, E.
Beloff, L. Chelwood, L.
Belstead, L. Cockfield, L.
Bessborough, E. Coleraine, L.
Boardman, L. Colwyn, L.
Boyd-Carpenter, L. Cork and Orrery, E.
Brabazon of Tara, L. Craigmyle, L.
Crathorne, L. Masham of Ilton, B
Cullen of Ashbourne, L. Merrivale, L.
Davidson, V. Mersey, V.
De La Warr, E. Middleton, L.
Denham, L. [Teller] Molson, L.
Dilhorne, V. Mowbray and Stourton, L
Drumalbyn, L. Moyne, L.
Eccles, V. Murton of Lindisfarne, L.
Ellenborough, L. Norfolk, D.
Elton, L. Norwich, Bp.
Enniskillen, E. O'Hagan, L.
Forester, L. Onslow, E.
Fraser of Kilmorack, L. Orkney, E.
Gainford, L. Portland, D.
Gardner of Parkes, B. Rankeillour, L.
Gibson-Watt, L. Rawlinson of Ewell, L.
Gisborough, L. Redesdale, L.
Glenarthur, L. Renton, L.
Glenkinglas, L. Romney, E.
Gowrie, E. St. Davids, V.
Greenway, L. Salisbury, M.
Gridley, L. Sandys, L.
Hailsham of Saint Marylebone, L. Savile, L.
Skelmersdale, L.
Harris of High Cross, L. Spens, L.
Hastings, L. Stodart of Leaston, L.
Henley, L. Swinton, E. [Teller]
Home of the Hirsel, L. Teviot, L.
Hornsby-Smith, B. Thomas of Swynnerton, L.
Hylton-Foster, B. Thorneycroft, L.
Ingrow, L. Tranmire, L.
Killearn, L. Trefgarne, L.
Kinnaird, L. Trenchard, V.
Kitchener, E. Trumpington, B,
Lauderdale, E. Tryon, L.
Lincoln, Bp. Ullswater, V.
Lindsey and Abingdon, E. Vaizey, L.
Long, V. Vickers, B.
Lucas of Chilworth, L. Vivian, L.
Lyell, L. Weinstock, L.
Macleod of Borve, B. Whitelaw, V.
Mancrofrt, L. Windlesham, L.
Marley, L. Wynford, L.
Marsh, L. Young, B.
Marshall of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

11.24 p.m.

Baroness Seear

My Lords, I beg leave to move the amendment standing in my name on the Order Paper.

Moved, at the end of the Address to insert:

"but note that the Government obtained the support of only 31 per cent. of the electorate, and regret the absence of practical measures in both the public and the private sectors to give effect to the Government's stated aim to increase prosperity and reduce unemployment without recourse to the policies advocated in the Labour Party manifesto."

11.25 p.m.

On Question, whether the amendment (moved by the Baroness Seear) shall be agreed to?

Their Lordships divided; Contents, 46; Not-Contents, 112.

Airedale, L. Banks, L.
Amherst, E. Burton of Coventry. B
Amulree, L. Byers, L.
Avebury, L. Chandos, V.
Aylestone, L. Denbigh, E.
Diamond, L. Morris of Kenwood, L.
Donaldson of Kingsbridge, L. Ogmore, L.
Esher, V. Perry of Walton, L.
Evans of Claughton, L. Roberthall, L.
Ezra, L. Robson of Kiddington, B.
Flowers, L. Rocester, L.
Foot, L. Sainsbury, L.
Gladwyn, L. Seear, B.
Grey, E. Tordoff, L.
Hampton, L. Wade, L.
Hanworth, V. Weidenfeld, L.
Harris of Greenwich, L. Whaddon, L.
Kennet, L. [Teller] Wigoder, L. [Teller]
Kilmarnock, L. Winchilsea and Nottingham, E.
Kirkwood, L.
Lloyd of Kilgerran, L. Winstanley, L.
McGregor of Durris, L. Winterbottom, L.
McNair, L. Young of Dartington, L.
Mayhew, L.
Abinger, L. Lincoln, Bp.
Airey of Abington, B. Lindsey and Abingdon, E.
Avon, E. Long, V.
Bauer, L. Lucas of Chilworth, L.
Belhaven and Stenton, L. Lyell, L.
Bellwin, L. MacLeod of Borve, B.
Belstead, L. Mancroft, L.
Bessborough, E. Marley, L.
Boardman, L. Marsh, L.
Boyd-Carpenter, L. Marshall of Leeds, L.
Brabazon of Tara, L. Masham of Ilton, B.
Brougham and Vaux, L. Merrivale, L.
Buxton of Alsa, L. Mersey, V.
Caithness, E. Middleton, L.
Campbell of Alloway, L. Molson, L.
Campbell of Croy, L. Mountgarret, V.
Cathcart, E. Mowbray and Stourton, L.
Chelwood, L. Moyne, L.
Cockfield, L. Murton of Lindisfarne, L.
Coleraine, L. Norfolk, D.
Colwyn, L. Norwich, Bp.
Cork and Orrery, E. O'Hagan, L.
Craigmyle, L. Onslow, E.
Crathorne, L. Orkney, E.
Cullen of Ashbourne, L. Pitt of Hampstead, L.
Davidson, V. Portland, D.
De La Warr, E. Rankeillour, L.
Denham, L. [Teller] Rawlinson of Ewell, L.
Dilhorne, V. Redesdale, L.
Drumalbyn, L. Renton, L.
Eccles, V. Romney, E.
Ellenborough, L. St. Davids, V.
Elton, L. Salisbury, M.
Enniskillen, E. Sandys, L.
Forester, L. Savile, L.
Fraser of Kilmorack, L. Skelmersdale, L.
Gainford, L. Spens, L.
Gardner of Parkes, B. Stodart of Leaston, L.
Gibson-Watt, L. Swinton, E. [Teller]
Gisborough, L. Teviot, L.
Glenarthur, L. Thomas of Swynnerton, L
Glenkinglas, L. Thorneycroft, L.
Gowrie, E. Tranmire, L.
Greenway, L. Trefgarne, L.
Gridley, L. Trenchard, V.
Hailsham of Saint Marylebone, L. Trumpington, B.
Tryon, L.
Hastings, L. Ullswater, V.
Henley, L. Vaizey, L.
Home of the Hirsel, L. Vickers, B.
Hornsby-Smith, B. Vivian, L.
Hylton-Forster, B. Weinstock, L.
Ingrow, L. Whitelaw, V.
Killearn, L. Windlesham, L.
Kinnaird, L. Wynford, L.
Kitchener, E. Young, B.
Lauderdale, E.

Resolved in the negative, and amendment disagreed to accordingly.

On Question, Motion agreed to: the said Address to be presented to Her Majesty by the Lords with White Staves.

House adjourned at twenty-five minutes before midnight.