HL Deb 10 November 1983 vol 444 cc1031-50

8.21 p.m.

Lord Ezra rose to ask Her Majesty's Government what steps they are taking to stimulate non-oil visible exports.

The noble Lord said: My Lords, I have put down this Question on the Order Paper because of the increasingly serious trends underlying the overall balance-of-payments position. On the face of it, we are doing quite well in the current balance with a surplus of £6½ billion in 1981 and a surplus of £5½ billion in 1982. There is the prospect of a further surplus this year although it will be considerably lower, perhaps £1½billion or less. But this satisfactory overall position conceals a very serious underlying prospect and in order to identify that it is necessary to analyse the figures. I have been helped in this by information, provided by the Department of Trade and Industry, which is in addition to that published in the normal returns.

If one takes the first nine months of this year we shall have earned, overall on our balance of payments, £568 million. That is the net balance and compares with £3,008 million for last year. Therefore, that has gone down quite substantially. If one then looks at the invisible balance it will be seen that this year we have earned some £1,800 million compared with about £2,000 million at the same time last year—more or less in line.

Here we should pay tribute to those who build up this invisible balance, because in gross terms it is very large indeed—about £30 billion. But the costs arising abroad due to defence and other commitments which have to be met reduce this to about £2 billion or £3 billion annually. That is a very important contribution to our balance of payments.

Much the most striking aspect of the balance of payments in recent years has been, of course, the increasing amount we have earned from North Sea oil. In the nine months of last year we earned £2.8 billion. This year it has gone up to £4.8 billion. So there is another £2 billion out of that. The problem of the North Sea, as we all know, is that it is a limited resource and figures provided by the Government in answer to a Question in another place suggest that the peak level of earnings from the North Sea could well come in 1985 or 1986. That is practically tomorrow. From then on, although there will continue to be earnings from oil for many years, the likelihood is that it will be on a diminishing scale.

I would now like to turn to the real nub of the issue; that is, the massive deficiency that has built up this year on our non-oil visibles. At the present time—that is, on the nine months figures—it stands at no less than a deficiency of £6 billion compared with less than £2 billion last year. If one looks within that figure it will be seen that, as has historically happened in this country, we have run a deficiency on food and beverages. We do not produce enough for our own needs. Moreover, we always have a deficiency on basic materials. But historically we have been able to pay for those things that we have to import by what we have earned on manufactures and on invisibles.

Invisibles are still showing us a benefit, but it is most regrettable to note that for the first time since 1931, according to information provided by the noble Lord, Lord Lyell, in response to a question put to him by the noble Lord, Lord Hatch, who is to speak later, we are running a very substantial deficit on manufactures. In fact, it is rather horrifying because for the first nine months of 1982 the surplus earned on manufactures was £1.8 billion. For the first nine months of 1983 the deficit on our manufactured balance of trade is practically the same: namely, £1¾ billion.

It does not take much imagination to consider what could happen if this sort of situation continues on manufactures, or perhaps even gets worse, and at the same time the benefit we have derived, and are deriving, from the oil balance diminishes. I am afraid that the prospect that that opens up is that, within a very limited period of time, we could be back into a chronic balance-of-payments deficiency. We all know what that means: the tightening of the belt; the loans from the IMF; the stringent conditions we would have to observe and the reduction in living standards. That is, of course, one possibility. I am with all those who hope that it will never happen. But the importance of this debate tonight is to make it quite clear that this could be on the cards and that the positive results in our overall balance of payments masks this potentially very serious situation.

I know that the noble Lord, Lord Lyell, will he replying and I would at this late hour like to lighten his task by suggesting certain measures which I believe should now be taken to try to deal with this situation. I think it would be improvident in the extreme not to be taking measures to deal with the situation, with these possible difficulties ahead of us.

Obviously, in order to compete more effectively with our manufactured goods exports we need to be as productive as possible. According to all the evidence, productivity has undoubtedly risen in British industry in recent years. But the nature of, and the reason for, that improvement in productivity is very largely that less efficient capacity has been cut out and very little of it, or relatively little, has been due to new investment. In fact, investment performance in British industry has gone down year by year. The Economist in a recent article calculated that investment in manufacturing industry has fallen in Britain by no less than 33 per cent. between 1979 and 1982. It states in this same article dated 3rd September that, "Britain has increased its productivity by sacking redundant workers and not by installing new machines".

We have come to the stage when we have to start installing new machines. We have to do that in ways which provide more of a stimulus and an inducement for industrialists to invest. This point was made repeatedly at the recent annual meeting in Glasgow of the Confederation of British Industry, which wants to see a climate which is more conducive to investment. That can be achieved by reducing interest rates, which at present in this country stand 40 per cent. higher than in Germany and 80 per cent. higher than in Japan. We are strongly in competition with both those countries. It must be done by reducing other imposts such as the national insurance surcharge and unduly high local rates.

These moves should be accompanied by a major increase in investment in the infrastructure. This has been referred to repeatedly in recent debates. Increasing investment in the infrastructure has a considerable relevance to exporting more effectively. Had the industries which have been adversely affected by the diminution in investment in the infrastructure—notably the construction and heavy engineering industries—had a sufficient home base, they could have competed with greater strength abroad for the opportunities which are coming forward rather more plentifully now that the world economy is recovering. We have to take a close look at the whole investment situation in industry not only for wider economic reasons but for export reasons also.

The second aspect of the problem is the exchange rate. It does not matter how productive industry is. If the exchange rate is over-valued it cannot sell its goods abroad. In recent years we have suffered by becoming a petro-currency. The fantastic swings that we noticed in the value of the currency a couple of years ago caused enormous harm to our export effort. The uncertainty of the currency, and its relatively high standing even now in relation to our competitive position, is one of the major factors leading to the difficulties that we are experiencing in our visible balance of trade. There is to be a debate on this subject on Monday, when the noble Lord, Lord O'Brien of Lothbury, will be introducing a Motion on the whole question of the monetary situation. I hope that the occasion will be used to consider what should be done to make sure that we have an exchange rate which is not only related to our competitive position and would help us to compete more abroad but which would be a good deal more stable in the future than it has been in the past.

The third matter to which we should turn our attention in trying to build up again our positive balance in visibles other than oil is import substitution. That is the other side of the coin of the balance of payments. Looking at the figures for manufactures, it is interesting to see that what has happened so far this year is not that our export earnings have gone down—on the contrary, they have continued to go up—but that we have suffered a very much more substantial increase in imports. The consumer boom which took place some months ago is still continuing to some degree, but I am afraid that it did what it has done ever since the war in this country. Instead of absorbing more goods produced here it has tended to suck in more from abroad.

I would relate that situation partly back to our inadequate investment. The size and capability of British industry does not seem to be there to meet the increase in demand. We need to stimulate competitive import substitution by such means as were described so eloquently by the noble Lord, Lord Sieff of Brimpton, in a recent debate in this Chamber. The organisations represented by the nationalised industries have made great progress in this field. I was personally involved in this not only in the Coal Board but in presiding over the grouping of nationalised industries to ensure that we stimulated through our very considerable purchasing power the maximum possible competitive development of our suppliers. We are talking here of a combined purchasing power for the nationalised industries alone of something of the order of £10 billion. In their direct purchasing if the Government and the larger enterprises in the private sector were to pursue this line—as some are doing—this could have a dramatic impact on the import situation and also have a good pay-off in creating a much more effective export operation. If we can sell competitively at home, we can sell competitively abroad as well.

I turn finally to export services and in particular to the British Overseas Trade Board with which I was connected for a number of years. I pay tribute to the way in which it operates. I recall that it was difficult to get it going in the early days in 1972 when I first joined it. It is a combination of Government services on the one hand and industrialists and others, including some trade union representatives, on the other. It has worked well and some very effective services have been established, such as the help given to British enterprises to exhibit abroad, the inward and outward trade missions and, above all in my opinion, the export intelligence service. Regrettably in the past few years, at a time when we needed to deploy every possible effort to expand our exports, this service, along with all other items of Government expenditure, has been cut back. It is worth noting that in the last annual report of the British Overseas Trade Board its then chairman, the noble Earl, Lord Limerick, drew attention to this. He said that if further cuts were made it would reduce substantially the contribution which these highly developed and skilled services could render.

Another aspect of these cuts concerns me very greatly. During the time that I spent trying to stimulate exports I visited many of our posts abroad. Those missions were getting more and more attuned to helping with the export drive. One way in which they did this was by collecting information on business available abroad and filtering it through the export intelligence service so that the people concerned in this country would get, on a selective basis, what was of interest to them. I am told that this service is diminishing because of the reduction in the staffs doing this work in our missions abroad and particularly the locally recruited staff. I may say that these are the very best people to collect and ferret out this information—the locals in the countries concerned. I regard as something that badly needs to be put right that these cuts should have been applied in such an apparently unselective way. We must recognise that in this business of exporting a certain skill is required. A skilled team was built up and unfortunately it is now being diminished.

I have identified what I consider to be one of the most serious potential problems that we face in this country. It is important to identify these things in good time so that we can do something about them. I have made a few suggestions about what I believe should be done. But we have only a very short time at our disposal for this debate, and I do not believe that it is enough just to leave the question there so far as this House is concerned. Therefore I should like to propose that this would be a proper subject for a wide-ranging inquiry by a Select Committee on overseas trade which, with all the undoubted skill and objectivity which this House deploys in these matters, could identify the nature of the problem more clearly, come forward with many more proposals as to how it should be dealt with, and give rise to a more searching and comprehensive debate than we have time for this evening.

8.40 p.m.

Lord Hatch of Lusby

My Lords, the noble Lord, Lord Ezra, has done the House a great service in putting down this Question to the Government and giving us the opportunity of debating one of the central issues which will determine the standard and character of life in this country for the rest of this century and into the 21st century. I think that the first thing that the noble Lord, Lord Lyell, who is to wind up, has to do in answering the debate is to explain why those who are characterised by his party as the wealth-producers of the country, those who are constantly criticising the restrictive practices of the trade unions, those who are blaming the trade union movement for the decline in the economy of this country, are so markedly absent from the Benches behind him. Not a single Conservative Bank-Bencher considers it to be of sufficient importance to debate the very subject which relates to that which has provided for them the capital which they so generously supply to the party of which the noble Lord is a member.

Where are all the businessmen who are constantly preaching to us about the evils of the trade union movement and the virtues of the Government's economy policy? Why are they not here to explain why, as the noble Lord, Lord Ezra, has pointed out, for the first time since 1931 there has been a deficit in manufactures? And that was only a conditional answer. The Minister was not really sure whether it was 1931 or 1913; he was not sure whether the figures were reversed. According to my information, it is the first time since the beginning of the Industrial Revolution that, so far as the United Kingdom is concerned, there has been in manufacturing industry a deficit as between exports and imports. Perhaps since I asked my question two days ago the Minister has found out which year it was, and whether in fact there was such a year.

I should make one reservation regarding what the noble Lord, Lord Ezra, has said. He has removed any necessity for me to go through the figures which he has detailed so ably. But I was a little worried when he began to introduce the subject of import substitution, and I shall explain why. I imagine that my interpretation of what he was saying is incorrect, and I have no doubt that, if the flow of my argument is found to misrepresent him, he will intervene. I shall gladly give way. In this country there is a myth—a myth which I tried to tackle in debate only last week, but which still persists, and which I hope the Government themselves will participate in laying for all time. It is the myth that the imports which we have seen sucked in by the 7 per cent. increase in consumer spending during this year are imports from the poorer countries of the world, the developing countries.

I shall take again, as I have done previously, the classic case of textiles. If we are going to build up the new economy of this country, certainly it must be accepted that the nature of manufacturing may well have to change; that there will be required a training system which is very expensive and which calls for the spending of considerable capital on higher education, which the present Government appear to be unwilling to provide. There will have to be greater labour mobility, and there will have to be much more Government investment in new industries. If I take the case of textiles, it is because it has always been used as the stereotyped instance to show how textile imports into this country have been putting textile workers in Britain out of jobs and closing down mills: this is simply untrue. I have constantly given the figures, and I hope that the Minister will respond to them tonight.

Let me point out to the House that last March the British Textile Confederation published a booklet entitled, A Plan of Action. The booklet appealed to the Government for greater investment in the textile industry, and it pointed out that 7 per cent. of the manufacturing output of Britain is in textiles, and that the textile industry is the third biggest exporter and employs half a million people.

The booklet went on to state that the trend in imports of textiles is expected to increase and that exports and consumption will stagnate. But where are these imports coming from? They are coming mainly from the EEC. They are coming from the developed world, not the developing world. I have previously given figures to show how, during the lifetime of the Conservative Administration since 1979, the proportion of textile imports from the developing world has declined and the proportion of textile imports from the developed world—in other words, from our competitors—has steadily increased.

What does that mean? Let us take the case of the multifibre arrangement, which restricts imports by various means—but which certainly restricts imports from the developing world and therefore prevents them from developing their manufacturing base, which has always been, in all countries, first of all in textiles. I agree that the multifibre arrangement goes back to 1974, and I hope that the noble Lord will not waste time in making that point. But, those imports having been restricted through the multifibre arrangement, what has happened? The imports from the EEC have jumped from 47 per cent. to 64 per cent. in four years; and these are just our competitors.

I know that there is a problem. I know that there is the problem of changing the character of manufacturing industry. I know that there is the problem of labour mobility and the development of new industries. In some ways—and I am sure that the noble Lord will be surprised at this—I can give an encouraging sign. Let us take one instance. Let us take the case of Acorn, the Cambridge-based group which launched the electron home computer at a very cheap price; I think £199. What has Acorn done? It has risen within one year between 1981 and 1982 from a turnover of nothing to a turnover of £42 million a year. Last year, turnover rose to £100 million a year. What is interesting about Acorn is that it really has depended upon Government support, partly in subsidies, because it qualifies under the Department of Industry, but even more importantly, by having a domestic base on which to build from the foundations. This wide consumer base here is the foundation stone from which it can extend its activities into exports.

This is the Japanese type of industrial policy—of Government aid for the development of new industries on the domestic base with the encouragement to advance from the domestic base to the export base. What have the Government done about this? Incidentally, I might say that there is one catch about Acorn. It is a Cambridge based group but it makes its famous computer, the electron, in Malaysia. That is another issue which we do not have time to discuss tonight but which is certainly worth taking note of.

What have the Government done in this situation to change the manufacturing character of this country to face the future rather than to moan about the past? What have they done to stem the effects of their own monetarist policy, their own fiscal policy and their own employment, or unemployment, policy? What they have done so far as I can see is, first, as I have said so often in the House, to reduce overseas aid by about 20 per cent. I am not going to take this up now because I know that no Government Minister will answer. I have asked many of them. Not one is prepared to face it. I am not going to argue that reduced aid in itself reduces employment here. I believe that it does. I believe that it can be proved that it does, but the Government will not admit so. What reduced aid does do is to reduce the type of infrastructure and encouragement in the developing world that could provide the kind of market in which British exports could find new homes.

The reduction in aid is damming the stream that could be flowing. I give two short instances. In November 1978, I was in the State Department in Washington talking to some of the African experts there. What were they talking about? They were talking about the change in the attitude of the Government of Guinea under President Sékou Touré, who had just broken away from the monopoly into which he had been originally forced by the cold shouldering of the West, breaking away from the monopoly of Soviet domination and opening up his markets, his economy and his political life to the rest of the world. The State Department had a top level delegation at his conference. The French were there, and a French State visit took place shortly afterwards. The Japanese were there. The Germans were there. The Italians were there. Where were we? We sent an ambassador from Dakar in Senegal, who did not stay for the conference and who never even met President Sékou Touré. Yet it is potentially one of the wealthiest countries in Africa. Here was an opportunity, and here has been an opportunity ever since. As the noble Lord may know, I have constantly been asking questions of the Government as to what they are going to do about the potential value both to Guinea and to Britain of economic initiatives within that country which I know that President Sékou Touré would welcome from Britain.

The other example is the straightforward example of Zambia. How on earth can Zambia buy British goods? Look at the price of copper! The price of copper has dropped during that last three months by something like £150 per tonne. The price of copper today at just over £900 a tonne is less than the cost of production. So how does Zambia accumulate the foreign reserves to buy British goods? How can British goods be exported to Zambia unless the Zambians are enabled to sell to us? This is the vicious circle which the Government so far have refused to face. What are they doing now? Not only are they reducing aid but they are also saying that they intend to reduce their contribution to the International Development Agency. That agency provides to Britain twice as much in its contracts as our contributions to the agency. In other words, it is an investment for us and the Government are cutting it. Does this make any sense?

As I mentioned last week, we have seen just this year, first, a battle between the Treasury and the Department of Trade in which the Treasury was trying to cut down the expenditure, and therefore the investment, of the Department of Trade—investment that is essential and which, as the noble Lord, Lord Ezra, points out, the CBI itself says is essential for the preservation and development of British industry.

What have the Government done about the Export Credits Guarantee Department? Surely, this is today so out of date that it is really playing no part in what it was originally designed to do—that is, to help this country export and to give Government backing to those who were going out, as the noble Lord said, seeking British exports. It is no good the Government saying, as they have been saying so piously for four years now, that when things improve we shall go back to increasing aid. The idea that we cannot get out of the Government's mind is that aid is charity and not investment. Let the Government ask themselves: why are we cutting aid in Britain whereas Denmark, Norway, Sweden and the Netherlands have all exceeded the 0.7 per cent. target and some of them now have exceeded the 1 per cent. target? All I can say is that the Labour Party has gone on record saying that the next Labour Government will achieve the 0.7 per cent. target within their own lifetime and will then proceed to the 1 per cent. target, not because it is particularly charitable but because this is the future for Britain.

The future lies in an increase in the purchasing power of the half of the world's population who today cannot afford to buy British goods but who could be the market for the future—a market in co-operation, supplying our needs as well as our supplying theirs. I beg the Minister to address himself to these real problems. I support wholeheartedly the plea made by the noble Lord, Lord Ezra, that we should not just state these views among a handful of ourselves sitting in these Benches. We should state them on behalf of the House itself, and state them in such a way that we can call in expert witnesses and civil servants and report back to the House and thus face the major challenge of the future of the economic life of Britain during the rest of this century and into the following century.

9 p.m.

Lord Bruce of Donington

My Lords, the House will be most grateful to the noble Lord, Lord Ezra, for having made such a concise and thoughtful speech on this very important Question. We are very grateful to him for giving the Government an opportunity to reply to the Unstarred Question that he has put directly to them as to what steps they are going to take to stimulate non-oil visible exports.

I have no doubt that the noble Lord, Lord Lyell, when he replies, will be able to list a number of measures that the Government have taken by way of aiding industry. Those measures, however inadequate many of us may consider them to be, may be impressive. But nothing that the Government can do while they remain confined within the ideological shackles imposed on them by the Prime Minister and her Treasury Ministers can possibly do anything substantial to deal with the problem raised by the noble Lord, Lord Ezra, supported by my noble friend Lord Hatch of Lusby.

The figures that the noble Lord, Lord Ezra, raised are horrendous. They show the quite disastrous state into which British industry has been allowed to fall. It is perhaps unfortunate that when the figures are published, as they are month by month, the main section of the press is concerned only with the total balance of trade, including oil. The Government themselves show much jubilation when there is a surplus taking oil and non-oil visible trade together.

The public at large do not, I think, realise the perilous state into which the nation has been allowed to sink—a state in which, as the noble Lord, Lord Ezra, so succinctly pointed out, once the oil flow begins to slow down, in order to achieve the balance of trade necessary to sustain the basic needs of the entire population of this country there will need to be such a manufacturing effort as so far we have not seen. The Government show no consciousness of this. We have only to go back to the beginning of this Government's term of office to find out exactly why it has happened.

In the last four years the volume of exports from this country has declined by 15 per cent. Volume figures are much more reliable than the figures that have to be adjusted for inflation. Manufactured exports have declined in volume by 15 per cent. since this Government have been in office, and manufactured imports have, during the same time, increased in volume by 25 per cent. Why is that so? It is said by the Government that the main reason why there has been this decline is that British industry is not competitive compared with overseas countries. They sought to deal with that by giving vast taxation concessions in successive Budgets, on the grounds that taxation concessions, particularly as they affected those in the higher income groups, would inspire the leaders of industry to far greater effort and would produce increased prosperity in the country.

At the same time, in an act of what must now be known as supreme folly, they raised the interest rates in this country at one fell swoop by some 4 per cent., and they drove up the rate of exchange to a point where it was 2.42 dollars to the pound. The Prime Minister was euphoric about this, as any glance at her speeches will reveal. She said that at last the pound could look the dollar in the face. She could not have realised at that time what damage it was going to do to our exports from this country.

As the noble Lord, Lord Ezra, has pointed out, one of the most substantial reasons for exports from this country being regarded as uncompetitive is the grossly inflated exchange rate, which subsided only very gradually from the level it reached in early 1980. It almost decimated the export effort. That is not to say that certain industries, and in particular certain companies, have not been able to survive. There are many reasons for that. The larger enterprises in this country, particularly the multi-national companies, are able because of their size to produce in very large batches.

They are also able to produce in their subsidiaries overseas, where wage rates are very much lower, and, by a system of transfer pricing, they can in fact sustain a fairly high level of exports—one country, one subsidiary, sustaining another. Indeed, there are many instances in which the export efforts of the larger companies have been increasing over this period. But that is not true of the great bulk of British industry—the smaller firms and the medium-sized firms—save in those instances where the supply of capital goods of a highly specialised quality (for which this country has been renowned for a long time) succeeds in finding buyers without over-much regard for price. But those are very limited areas.

It has for a long time been held that successful manufacturing export from a country can in the long run best be sustained by a substantial domestic market. One of the characteristics of the grossly excessive value of the pound, which was deliberately set by the Government—there is no question of it being due to market forces, as the noble Lord, Lord Cockfield, no doubt knows by now—not only makes it more difficult for exports to compete in the overseas market (and I am talking now of the small and the medium-sized firms producing the manufactures for export overseas) but at the same time subsidises imports into the country. So it works both ways.

The artificially high rate of exchange has enabled the other countries—particularly those in Europe—to compete on an exchange rate subsidy basis too successfully with British companies. Therefore, it has reduced the domestic manufacture of articles for domestic consumption and has progressively destroyed the domestic market basis that always lies at the root of a successful export effort. Until the Government realise that, there is no hope.

Perhaps I can address the noble Lord, Lord Lyell, in terms with which he is a little more familiar than his noble friend, the noble Lord, Lord Cockfield. The noble Lord will know that, when you get large batch production based on a large consumer demand, you in fact reduce unit costs. The finest way of reducing unit costs and, therefore, of making your price more competitive is to get longer runs, longer batches, because you get a greater overhead recovery. The noble Lord, as a distinguished accountant himself, knows that perfectly well. All these conditions have been debilitated by the Government's policies. In fact, they have been responsible—and they must realise it—for a massive decline in the manufacturing capacity of this country at competitive rates, not only because of the artificially high rate of exchange, but also because of the high interest rates which must, in themselves, ultimately enter into unit costs. Even today, interest rates in the United Kingdom are 40 per cent. higher than they are in Germany and 80 per cent. higher than they are in Japan, as the noble Lord knows perfectly well.

Against these dominant factors—the dominant factors in the way in which the Government have conducted, or rather not conducted, the economy—the other measures that are so very desirable and the measures that are being taken by the Government themselves, albeit grudgingly, are merely a drop in the ocean compared with the results that would have ensued had intelligent economic policies been followed and indeed—as my noble friend Lord Hatch of Lusby pointed out—had there been intelligent policies in regard to other overseas countries as well. This is the really massive contribution that they can make. If they wish, they can change the whole climate within which manufacturing industry operates at this time.

Some noble Lords have sometime advanced the views of the CBI in this House, but none of them is present this evening. But it is not true or sufficient to say that the actual taxation costs borne by our competitors in, for example, Europe, are lower than ours. In point of fact, the taxes based upon labour in this country are the lowest in Europe, and our actual wage rates in this country are towards the bottom end of the wage rates in Europe. Therefore, these things will not wash.

What is required—and in view of the continued pressure by the Government to achieve entirely irrelevant changes in the ownership of industry—is a programme of import substitution, bearing in mind the considerations also that have been raised by my noble friend Lord Hatch of Lusby. If private capital is not prepared to invest, there could be established by the Government themselves, by aid to firms or to managements that were prepared to undertake it, industries that could readily compete with industries abroad and could begin once again to turn us into the manufacturing nation that we always have been.

The danger is that we shall develop our communications industry so much that ultimately we shall be communicating with one another about material manufactures that we no longer manufacture ourselves at all. We shall talk to one another about material objects which we are no longer making ourselves in any event. That will not solve the problems of the nation. True enough, we want increased communications; true enough, we want to get the maximum export income we can from our new communications industries. We want all these things, but we must—and the arguments advanced by the noble Lord, Lord Ezra, are irrefutable in this—take steps quickly and urgently to revitalise the manufacturing section of our industry in the United Kingdom.

If it be the case that private capital will not invest in it but will still prefer to invest its money overseas for a quick profit where labour charges are, under different conditions, about 40 per cent. of what they are in the United Kingdom, then any Government of the day with the future of the country, as distinct from party, firmly in their mind must take constructive steps to ensure the re-establishment of manufacturing industry in the United Kingdom.

It is tragic that, when it comes to questions affecting agriculture, the competitive mind of the Government goes into a lock. It becomes completely paralysed. It declines, and considers quite unimaginable that the same competitive laws that it tries to lay down for industry should in fact apply to agriculture. In fact, agriculture receives massive subsidies not only from the people in unnecessarily high prices but in the net contribution, amounting to over £1,000 million, which this country pays into the EEC for agricultural support. Why should not the Government pay the same attention, devote the same interest, and show the same undying affection for the manufacturing industries of our country as they do for agriculture, and as they do for finance?

The real answer of course is that there is no government so far as industry is concerned. The Government have abdicated from government so far as the future of British industry is concerned. They are content to leave it to the finance houses of the City. They are content to leave it to the institutions. Such care and such effort as they put into the promotion of British industry is, I am bound to say, the minimum they can put in—and I emphasise that—in fear of further and almost unendurable unemployment. They are just keeping industry quiet. They are not stimulating industry. If a truthful answer were given to the steps to be taken by the Government to stimulate British industry—and without the slightest offence to the noble Lord, Lord Lyell, who I am sure will put forward a number of interesting figures as to what the Government are doing—I am bound to say that the best way for the Government to stimulate British industry would be for them to resign.

9.21 p.m.

Lord Lyell

My Lords, we have had a fascinating and, indeed, stimulating debate this evening, worthy of the highest standards of your Lordships' House. It has been of great interest to your Lordships, and I am sure that it will be of great interest to those noble Lords who, for one reason or another, have been absent from the House. Those of your Lordships who sat through the long hours of last night and the night before possibly have not got the aggressiveness, youth and spring in the step of those who have spoken this evening. Nor, indeed, have they the expertise of the noble Lord, Lord Ezra, to whom we are so grateful for initiating the debate this evening and for asking the Unstarred Question, as well as for raising so many interesting points and new ideas, about which I shall have a little to say later in my remarks.

I shall attempt to restrict myself to answering the Unstarred Question of the noble Lord, Lord Ezra. In commencing this task, your Lordships will not need me to tell you that there have been enormous changes in the pattern of world trade—and this is the nub of the Question which is being asked this evening—together with changes in the trade of the United Kingdom in the last decade. If we take two of the major factors in this period, we find not one but two great oil price increases in the early 1970s and in 1979–1980. The second thing we find is the membership of this country of the Common Market. As Lord Ezra and your Lordships, who are all experts in trade and industry and economics, will be aware, our exporters have had to adjust to the new circumstances; but we are proud to see that they have responded to that challenge.

Your Lordships will be interested to know—the noble Lord, Lord Bruce, tempted me by saying I would produce some figures, and I shall, but very few—the percentage of our exports going to the European Community markets during the last 10 years has risen from 31 per cent. to 42 per cent., while the percentage going to OPEC countries has risen from 7 per cent. to 12per cent. My point in producing these small examples is that Britain's exporters have responded to the changes in the past, and we are particularly optimistic that they will do so again in the future.

On the theme of change, I would point out that the Government are considering with great interest the report on trade patterns by the Select Committee on the European Communities. I have it in my hand. It is a very useful exercise; and the report is quite a heavy weight. I am sure that Lord Bruce will be thumbing through it, as will many other Members of your Lordships' House. Your Lordships will be aware that this report will be debated in this House on 29th November. We are quite sure it will give rise to a particularly good debate. When we come to examine this report, we shall see that it looks into the change in trade patterns in the United Kingdom subsequent to our joining the EEC.

I promised that I would stick to the subject of the Unstarred Question in this evening's debate. The noble Lord, Lord Ezra, rightly pointed out that among the challenges that will be with us very soon will be that of adjusting to the run-down of North Sea oil revenues. Of course, the run-down will not happen overnight. We believe that Britain may well remain self-sufficient in oil right into the 1990s and indeed may remain a major producer beyond the year 2000. But there is a challenge and the Government are preparing for it by creating a climate which is favourable for industrial and commercial growth, and by encouraging efficiency, enterprise and innovation so that companies in the manufacturing and service sectors can compete profitably at home and abroad.

I include the services sector deliberately because the growth of this sector is a significant and very welcome development. Investment in the service industries is expected to be the highest ever this year, while service industry employment rose by nearly 150,000 in the first half of this year. I would stress that this is real growth, and the British economy is responding to the changing pattern of world demand by supplying the services that the world wants, including financial, professional, technical and consultancy services. The overseas earnings of United Kingdom consultants, for example, have risen nine times since 1972 to their present level of around one billion pounds.

The Government's support for profitable trading abroad is not limited to the creation of a favourable economic climate but includes a vigorous programme of tangible export assistance by the British Overseas Trade Board. The BOTB's services tend to be focused on smaller companies, on first-time exporters, and on companies tackling new export markets. They are providing the seed corn from which in the next decade we believe that a harvest of profitable long-term export business will be reaped. One important BOTB service is the provision of a very great deal of information to exporters about specific export opportunities reported by the United Kingdom's diplomatic posts overseas. A recent independent survey indicated that United Kingdom companies obtained £1 billion of export business a year as a result of leads obtained through this service.

Through the BOTB, and in particular through the activities and projects of the export policy division, the Government also provide support in a variety of ways to companies bidding for major projects overseas. Last year, as I am sure the noble Lord, Lord Ezra, will be aware, the division helped British firms to win major contracts worth £1.3 billion in United Kingdom content alone, four of which were valued at over £100 million. There are also many many other excellent examples of cases where the Aid and Trade Provision has enabled British companies to obtain major orders against foreign competition. In one recent case the willingness of the United Kingdom to use the provision to match another country's terms itself caused the competitor to decline from using mixed credit; and the United Kingdom bidder won the contract on straight commercial terms. And we should not forget the very considerable support provided for exporters by ECGD, which last year insured some £19 billion worth of exports and signed up more than £7 billion worth of long-term guarantees to banks, who will now provide finance for capital goods exports in the future.

I should like to pay a tribute to the work which has been done by the noble Lord, Lord Ezra. My knowledge of his work, until I began to brief myself for his Unstarred Question this evening, was limited to what I had heard and read in the media. I was not aware that he was a founder member of the BOTB when it was set up in 1972; and, as your Lordships will be aware, he served until July this year. The noble Lord was also chairman of the European Trade Committee, which was one of the BOTB's area advisory groups during this period. It is thanks to his efforts that the BOTB has been so successful, and why it is so appropriate that he should ask this very important Question this evening. The noble Lord was also very closely involved, during his chairmanship of a very great nationalised industry, in what we call positive purchasing activities, whereby leading United Kingdom purchasers are urged to build up more effective links with their United Kingdom suppliers. We believe that the noble Lord, Lord Ezra, has done tremendous work in this field.

I shall now continue attempting to answer the important points that he has raised. I mentioned that the Government are seeking to create a favourable climate for industrial growth. This includes continued restraint on public expenditure, in order to make further advances in the successful fight against inflation. The BOTB has contributed to Government targets in this area by reducing its manpower. But its services have remained intact, and, indeed, in some cases their take-up by exporters has increased significantly. BOTB productivity has been substantially improved. We believe—

Lord Ezra

My Lords, may I—

Lord Lyell

My Lords, may I just finish this paragraph? It is the exporters who, in the end, do the exporting. But we are firmly of the opinion that the BOTB is putting its resources to good use and helping to ensure that Britain has, and will continue to have, a strong base of manufacturers providing employment at home and competing successfully in overseas markets. I yield briefly to the noble Lord.

Lord Ezra

My Lords, it is a very brief question. I should just like to ask whether the Government are contemplating any further reductions in the manpower of the BOTB.

Lord Lyell

My Lords, I shall be as brief and as accurate as I can and say, not so far as I am aware. That is all I have. If I am in any way in error, we can certainly discuss this. If I am in gross error, I will write swiftly to the noble Lord, and I hope more swiftly than I have done in the past week. I shall certainly take that point.

I have concentrated my remarks on the BOTB but, of course, there are many other Government activities with the same objective. I mention briefly just two. The first is the national quality campaign, where the Government's contribution includes financial help to companies to review and strengthen their approach to quality management. It also includes a wide range of initiatives to enhance the market status of the supporting national standards system.

The second Government activity with the same objective as the BOTB is the Government's support for initiatives to help establish competitive British sources of supply. We believe that this is particularly dear to the heart of the noble Lord, Lord Ezra, and, indeed, to the heart of British industrialists. The Government are themselves active in promoting the best purchasing practices in the public sector, in order to assist positively the development of industrial competitiveness. The Government are doing this through their major public purchasing policy initiative, of which the noble Lord, Lord Ezra, is well aware, as we all are; and he was one of its strongest supporters.

The noble Lord, Lord Ezra, commenced asking his Question by paying tribute to the earners of invisibles overseas. We wish to add our tributes to those of the noble Lord. The noble Lord also mentioned, in passing—I shall study what he said in the Official Report tomorrow—food and beverages. As a Scot, I am particularly grateful for his mention of the very valuable export market for the liquid which is so dear to the heart of the noble Lord, Lord Ross, and many of us.

The noble Lord referred to some of the remarks made by me and other Members of your Lordships' House during the course of the Starred Question which was asked a week ago. I would ask the noble Lord, Lord Ezra, and the noble Lord, Lord Hatch of Lusby, to consult col. 629, where they will find that I made it fairly clear that we understood that the two years when Britain was in deficit on manufactures were putative. I stressed that the two years were theoretical—no more than that.

The noble Lord, Lord Ezra, presented four measures which he believed needed to be taken. He mentioned investment in the installation of new machinery. We believe that industry is attempting to do this itself, and the Government wish to give industry every encouragement they can.

The noble Lord, Lord Ezra, and also, I believe, the noble Lord, Lord Bruce of Donington, mentioned the exchange rate problem. As your Lordships will be aware, the exchange rate and its influence on the balance of trade is very important, but the policy of the United Kingdom is that, no matter what may be the opinion of the noble Lord, Lord Bruce of Donington, the exchange rate should be determined by market forces. Both the noble Lord, Lord Bruce of Donington, and I are on the same side of the fence when it comes to examining figures. At least, I hope we are.

I would stress to the noble Lord, Lord Bruce of Donington, and to your Lordships that the Government have only limited scope to influence the exchange rate, apart from what one might call short-term smoothing operations. Such a term does not endear itself to the hearts of accountants, notably the noble Lord, Lord Benson, and perhaps even the noble Lord, Lord Bruce of Donington. I would stress again to the noble Lord, Lord Bruce of Donington, and to the noble Lord, Lord Ezra, that any devaluation that was achieved through any fiscal or monetary laxity might provide a short-term benefit to exporters but, as I am sure noble Lords are aware, in the long run it would feed through into such things as higher costs by way of higher import prices and wage demands.

As noble Lords will be aware, the Government's main belief is that lasting improvements in the competitiveness of the United Kingdom depend, above all, upon continued moderation in such things as wage settlements and upon continued improvements in both productivity and aspects of non-price competitiveness in areas such as design, punctuality of delivery and product reliability, besides other factors which are also germane to exporting.

The noble Lord, Lord Ezra, also raised the very interesting point, which is so close to his heart, of import substitution. This is particularly relevant to all that he did relating to his public purchasing policy. For the last three and a half years this Government have been vigorously pursuing a major policy initiative which is aimed at encouraging the public sector to use its huge purchasing power in a positive manner to help develop and maintain suppliers' competitiveness. There are many facets to this initiative, including the development of a long-term dialogue between customers and suppliers, besides the encouragement and use of the appropriate standard of specification and the adoption of a value for money criterion which takes into account all sorts of factors, both long and short term. We are happy to report that some progress has been made, but your Lordships will be aware that much still remains to he done.

The noble Lord, Lord Ezra—this was one of the major points of his Question—wondered about the possibility of setting up a Select Committee of your Lordships' House on overseas trade to consider the matters which we have been debating this evening. As I am sure the noble Lord, Lord Ezra, the noble Lord, Lord Bruce of Donington, and those noble Lords who have thought about this matter will be aware, this proposal will have to be discussed by my noble friend the Leader of the House through the usual channels.

I would explain to your Lordships that such a committee could be a fairly major undertaking. My noble friend the Leader of the House would have to take into account the effect it would have on the staff resources of your Lordships' House, bearing in mind the needs of all the existing committees of your Lordships' House, including the committee which has only recently been set up to consider the two charity Bills. But I know that my noble friend the Leader of the House is sympathetic to this proposal and I will undertake that he will give it careful consideration. We are all very grateful to the noble Lord, Lord Ezra, for letting my noble friend know that the noble Lord would be raising this matter this evening.

The noble Lord, Lord Hatch of Lusby, raised many interesting points. It is my opinion that many of his points, interesting though they were, were more than a little wide of the strict terms of the Question being asked tonight. Nevertheless, I will attempt to answer several of them. First, the noble Lord, Lord Hatch of Lusby, raised the question of textiles; and also raised in aid the question of the Multi-Fibre Arrangement. He was not entirely satisfied with it; perhaps nobody is entirely satisfied with it, but I would stress—and I am sure that the noble Lord, Lord Ezra, would agree with me—that in the United Kingdom we have, and will continue to have, a healthy and vigorous textile industry. Any alterations to the pattern of our trade in textiles can only continue to be made under the aegis of the Multi-Fibre Arrangement.

The noble Lord, Lord Hatch of Lusby, wondered whether we could boost our imports. Whether he was thinking of purely substituting imports or increasing them, I am not entirely aware, but if he was thinking of substantially increasing them, then I wonder whether he will consider that such action might aggravate the problem that is at the root of the Question being asked by the noble Lord, Lord Ezra, tonight.

Lord Hatch of Lusby

My Lords, I am afraid that the noble Lord, Lord Lyell, has totally misunderstood the point I was arguing. I was not arguing for increased imports; I was simply pointing out that the major competition for British textiles comes from the developed countries where British capital is being increasingly invested—not from the developing countries, which are being prevented from developing their manufacturing industry on the foundation of textiles.

Lord Lyell

My Lords, the noble Lord raised that point as well, about exports and trade with the developing countries. But I would stress again that in respect of any alteration in our pattern of trade in this especially sensitive area for the British textile industry we believe that the Multi-Fibre Arrangement is the best vehicle.

The noble Lord did a very useful advertising job for a telephone firm in Cambridge, and I am sure that particular firm will be pleased to know of the noble Lord's vigorous support, and might even read of it, for their tremendous efforts. I regret I must be the only spokesman from this position who has not had the pleasure of answering Lord Hatch of Lusby on overseas aid. He mentioned that he had heard from a variety of spokesmen from the Government and that none of them had satisfied him; I will only tell him that he can always wait and hope. The noble Lord also took us on a tour of southern Africa and he mentioned President Sékou Touré of Guinea. I am not able to follow him down that avenue—we can perhaps wait for another day.

As to copper prices and commodity prices, so vital to Zambia, I am afraid I have to say again that we cannot dicuss them at length tonight. The noble Lord will have opportunities to raise this in the future. The noble Lord, I thought, had one or two barbs for the Export Credits Guarantee Department. It may be his opinion that it does not do a particularly firm job, but we believe that certainly the ECGD is in no way out of date. The noble Lord and your Lordships will remember from various discussions we have had on this subject that the ECGD is not a bottomless pit of financial support. It is, indeed, supported by the exporting firms themselves.

I enjoyed Lord Hatch's fascinating prophesy of what a putative Labour Government would do, and of their share of national output and aid. That will go down with many other fascinating prophecies, and we shall be able to look at it in the very distant future to see the accuracy of the noble Lord's prophecy.

The noble Lord, Lord Bruce of Donington, in his warm-hearted and traditionally robust way, made a number of telling points. I enjoyed his emotive language, such as the shackles placed on all our activities by the Treasury. The noble Lord, of all people in your Lordships' House, as a particularly distinguished practising accountant, should know the vital nature of financial activities in the affairs of the Treasury; indeed, in the subject we are discussing tonight. The noble Lord was quite harsh, I thought, about what he called monetary policies, but some noble Lords might just cast their minds back to the autumn of 1976 and the policies which were followed by the noble Lord's Government subsequent to that date.

The noble Lord, Lord Bruce, and, indeed, other noble Lords, raised the question of sterling becoming a petro-currency. As the noble Lord will be aware, the price of oil nearly doubled between 1979 and 1980, and with the effect of the petro-currency factor on our exchange rate the combination was a major burden for our exporting industries to bear. But we salute them, and we support them in what they have done in overcoming this.

Lord Bruce of Donington

My Lords, if the noble Lord will permit me, he will be aware that the Select Committee of your Lordships' House which examined this question came to the conclusion, which has not been refuted, that it was not the rise in oil prices that had the effect on the rate of exchange but the interest rates. If the noble Lord refers to the report of your Lordships' Select Committee on Unemployment, he will find that very clearly set out.

Lord Lyell

My Lords, I wondered which Select Committee it was. I have not yet had an opportunity of going through this, but the noble Lord and I might go through it together; it might be quite instructive. The noble Lord says that the doubling in the oil price was not a factor in our problems as far as exporting was concerned, and he mentioned interest rates. That may be his opinion, but I think he will find plenty of other opinions, valid opinions, in your Lordships' House which believe that the one was a factor in the other.

The noble Lord referred to my noble friend Lord Cockfield mentioning what were described, I think, as batch runs. The noble Lord will know that my noble friend was, and still is, able to speak about such things, since in his previous incarnation he was managing director of a particularly large firm in a very considerable way of business in the United Kingdom economy. The noble Lord, Lord Bruce, also paid me a very kind encomium. I would stress to him that I am not a distinguished accountant yet; I am an humble Member of your Lordships' House, and certainly tonight I have the honour to sit on this Bench.

The noble Lord, Lord Bruce, raised one point which I can answer tonight. He asked about the reduction in our manufactured export volume by 15 per cent. since this Government came into office. The noble Lord will know, and statisticians in your Lordships' House will know, that, depending upon the numbers you choose, any of us can produce a figure like this. But, of course—as the noble Lord and, I am sure, the noble Lord, Lord Ezra, will be aware—these figures mainly reflect the world recession. One point that we believe bears repeating over and over again is that last year the volume of United Kingdom manufacturing exports rose slightly—I think by 1 per cent.—while world trade volume fell by 2 per cent. We believe, in view of all these tremendous problems that we have discussed this evening, that that is a magnificent achievement and the Government wish to continue paying our tribute to the manufacturing industry for obtaining such excellent figures.

I have spoken about what the Government are doing, but let us not forget the achievements of industry. The productivity performance of our manufacturers has improved significantly since 1979. In the three months to August this year it was 7 per cent. higher than in the same period last year—that is, 1982. The reports which we hear suggest that our exporters are putting up a far better performance these days on such aspects as delivery and reliability. So I am not pessimistic about the present. I stress that the nation is not importing manufactured goods that it cannot afford. I believe that that is absolutely vital. I stress that there are tremendous opportunities in the consultancy and service industries. We believe that the growth in these industries really does show that we may be importing but we certainly can afford it, at least at present. I am ever optimistic that in the future we in this country can adjust our trading pattern as successfully as we have always done in the past.

House adjourned at nine minutes before ten o'clock.