Employment Measures and Inflation

HL Deb 16 November 1983 vol 444 cc1317-48

5.24 p.m.

Lord Jacques rose to call attention to the necessity of reducing unemployment without increasing inflation; and to move for Papers.

The noble Lord said: My Lords, I look forward to the debate with some pleasure and especially to the maiden speech of my noble friend Lord Dean of Beswick. The Family Expenditure Survey shows that whereas in 1971 there were 11½ million people living on the margins of poverty, by 1981 that number had increased to 15 million. The greatest increase was in those families where the head of the household was unemployed. There is also little evidence that the benefits that are paid to the unemployed act as a disincentive in their seeking work. Fifty-nine per cent. of the men who have been out of work for more than a year are receiving benefits which are less than one half of the wages that they received when they were last in work. Those who are receiving a greater proportion of benefits are doing so because they were receiving exceptionally low wages.

The poverty caused by unemployment is only one aspect. The demoralisation is probably more important, especially for the young—for the school-leaver who is ready to join the adult world and finds there is no place for him. He has little incentive to obey the rules of the society which cannot find a place for him and he has plenty of time in which to break those rules. That is a danger. Unemployment is demoralising even among the adult population. The great bulk of our men and women want to go to work. They regard the benefits they are receiving as handouts and do not like living on handouts; and many of them feel rejected by our society.

Even on the fringe where you have the idle, they are also demoralised because they are encouraged to be idle. I claim that all unemployment, regardless of the circumstances, is demoralising.

We cannot solve this problem by the application of Victorian prescriptions. Our economy is quite different from that of the nineteenth century. First of all, there is a much greater willingness on the part of the public to take responsibility. Consequently, there is far greater public investment and public expenditure. What is equally important is that both sides of industry are now organised in a way in which they were not organised in the nineteenth century, and without formal agreement they can quite easily synchronise their actions. Consequently, our markets are quite different. We have no laissez-faire markets. In all our markets there are institutions which have got enormous market power. Those are the new circumstances and it is no use applying pre-Keynesian economics to those circumstances. If we are going to solve this problem we shall need post-Keynesian economics and not pre-Keynesian economics.

I believe that in the long run, if we are ever going to get full employment and maintain it, we must have quite different industrial relations from those which we have now. We need industrial relations in which the worker is not regarded as a worker but as a partner in the business. I believe that the Japanese in our midst are demonstrating what our Government should be sponsoring. In the words of the general secretary of the TUC in Wales, the Japanese inform the workforce, they consult with them and they regard them as partners in the business, not just as servants. They do not take the attitude that they themselves are the bosses. They seek not to offend. They avoid threats and laying blame. They try to carry people along with them. Because of that they are able to achieve things which many employers cannot. For example, there are very tough terms for lateness and for absenteeism.

The Japanese get complete flexibility in the workforce by agreement with the workers, and because they treat workers as responsible people, they get a responsible response. In one agreement between the electricians' union and the Toshiba company, there is a provision that, should there be a difference between the union and the company, it will be referred to an independent arbitrator, that both sides will represent their case and that the arbitrator will make an award either to the company or to the union. There is no compromise and both parties agree to accept the result. That is the kind of industrial relations that is needed if we are going to have full employment and to maintain it. With that kind of arbitration, you get a responsibility that you do not get in the ordinary course of events. Neither side can afford to make extravagant claims or counter-claims because the arbitrator will make his award to the other party. It brings a new discipline into industrial relations. That is what is needed if we are ever to have full employment.

I should also emphasise that we need to have full employment. It should always be remembered that Beveridge made his calculations about the welfare state on the basis of 2½ to 3 per cent. unemployment, not on the present figure of 12 to 13 per cent. We are being carried along at the moment by North Sea oil taxation. When that oil dries up, we shall have great difficulty in maintaining our welfare state unless there is full employment with people paying taxes instead of drawing benefits. We have gradually to prepare for that situation. In the meantime, there are things that the Government ought to do. Both sides of industry—not just one side—are pleading with the Government for actions that are needed to prevent a continued increase in unemployment. First, the most elementary step is that the insurance surcharge should go. That is a tax on employment. It was all right when we had full employment, but it is no longer tenable.

Secondly, we are a nation endowed with rich deposits of energy—our coal and now North Sea oil. We know how to use the raw materials of energy because of long experience. We are in a very advantageous position. We also have industries that use a great deal of energy, for example, paper, chemicals and glass. In the case of glass, energy costs are 23 per cent. of the total. They are very important costs. If we are endowed with this great resource of energy, we could use it to make our industries more competitive. Instead, we find that our industries, which are heavy users of energy, are failing to compete, especially with European countries. This is because, in some cases, competitors are getting energy cheaper, even though those countries have not been endowed, as we are, with plentiful supplies.

The Government are giving too much attention to the immediate effects of the public sector borrowing requirement. It would be better, in the interests not merely of the unemployed but of the whole country, to take a longer view and to make those industries more competitive. Because of the multiplying effect, there would eventually be more people paying taxes and fewer people drawing benefit. The PSBR would be enhanced to a far greater extent than if we take a narrow and immediate view.

Thirdly, there is the issue of interest rates. If we are to solve our unemployment problem, the sooner we realise that we have to invest in this country on a far greater scale than for many years, the better. We know, like the Government, what has to be done to get interest rates down. We have to control the exchange rate. It is important to control the exchange rate and not to facilitate investment in Japan and the United States. We have to encourage employment in this country. These are things that can be done without greatly increasing inflation. There are public works that ought to be done. We are behind with them: they need doing. It is known that we shall have to do them sooner or later. To do those public works now would mean, at the very least, that we have a huge discount through saving on unemployment benefit. Every businessman knows that, when you have a substantial discount, that is the time to buy.

The multiplying effect of a moderate investment of the kind I have described would increase considerably the number of people paying taxes and reduce greatly the number receiving benefit. I remind the Government that they are in a better position than any postwar Government to deal with Britain's problems. The Governments of the 1970s had to bear the consequences of importing the hardware to enable the oil to be produced. Paying for the hardware led to balance-of-payments problems. Let there be no mistake. Many of the balance-of-payments problems of the Governments of the 1970s were incurred to enable oil to be produced in the 1980s.

The Government now are in a much more favourable position. The oil is now flowing. The balance of payments is protected rather than jeopardised, as it was in the 1970s by the import of hardware to produce oil. Furthermore, the Government have a huge income in taxation from oil. No Government in the post-war period have had those facilities to help in dealing with the problems of our country.

What are we doing with this bonanza? We are using the money to keep people unemployed instead of using it to employ them. If we continue in this manner, when the oil dries up, we shall have only one thing to show for that bonanza—an airport in the Falklands that is under-used. My Lords, I beg to move for papers.

5.40 p.m.

Lord Rochester

My Lords, I am sure that the whole House will be grateful to the noble Lord, Lord Jacques, for having introduced this Motion. It will not be possible for anyone on these Benches to speak after the noble Lord, Lord Dean of Beswick, has made his maiden speech, and so I should like to say how much we are looking forward to hearing him.

I want to compliment the Government on their achievement in reducing the rate of inflation, even though it has been done at a cost in terms of increased unemployment, in particular among young people, which in my view is no longer tolerable. Indeed, I wonder whether the House is fully aware of how the composition of unemployment continues to worsen. In the first place, more than one in three of those on the register have been unemployed for more than a year, and that proportion is rising all the time. As the Economist pointed out two weeks ago, in the last three years it has in fact doubled. That is bad enough, but even worse is the fact that about one in four of the long-term unemployed are aged under 25.

Of the few Government schemes available to the 1,200,000 people who have been out of work for more than 12 months, I suppose that the most significant is the community programmed, which is providing temporary employment for only about one in 10 of them. It is reasonable to suppose that the great majority of all these people are unskilled, and as recent research by the Policy Studies Institute has shown, the longer particular individuals are out of work the less likely they are to find jobs and the more rusty become such skills as they possess. The social cost of this sustained unemployment in terms of crime, physical and mental sickness, and the general demoralisation—to which the noble Lord, Lord Jacques, has already referred—may not be quantifiable. However, I fear that its long-term consequences could nevertheless prove catastrophic.

I am a strong supporter of the youth training scheme, which is struggling to provide school-leavers with certain basic skills. But increasingly the heart of the problem is shifting to those aged between 18 and 25. At this stage I should like to ask the noble Lord, Lord Cockfield, a specific question: What plans do the Government have to follow up the youth training scheme in 1984, and to cope with the increasing proportion of unemployed people who are aged under 25 and who have been out of work for more than a year? In this connection I suggest that it might be preferable—and I look for no answer on this point this afternoon—to alter the conditions of the young workers' scheme so that it no longer competes with the youth training scheme, but applies only to those who have left the YTS and are looking for a permanent job.

Although today he made little or no reference to the point, the noble Lord, Lord Jacques, has consistently advocated in this House an incomes policy as a means by which unemployment can be reduced without increasing inflation. The noble Lord knows that for my part I have often joined with him in arguing that there is need for consultation between Government, employers and unions, aimed at securing the widest possible understanding and acceptance of the overall increase in incomes which at periodic intervals the country can afford. The noble Lord, Lord Cockfield, does not see it that way, and I am realistic enough to recognise that for the next four years at least no progress is likely to be made on those lines, although I am fearful about what will happen to the Government's pay policy—or the lack of it—if and when recovery is fully under way.

The noble Lord, Lord Jacques, talked about the need for partnership in industry. What I would urge is that, in support of their own desire to ensure that increases in pay are limited to those justified by improved productivity, the Government will do all that they can to further the cause of employee participation. This can be done in keeping with the spirit of Section 1 of the Employment Act 1982 (which I was able to play some part in introducing) by encouraging the development of arrangements aimed at increasing the involvement of employees through share schemes and, even more important in my view, achieving a common awareness among managers and other employees of the financial and economic factors affecting the performance of their company. What is more, I should like to see much more being done to promote a clearer understanding among those employed in the public sector—where the Government can give a direct lead—of the relationship between pay, prices, productivity, investment and employment.

Last week the CBI held its annual conference, and I was much impressed by remarks reported to have been made there—and highly relevant to the Motion before us—by the president and the director general of that organisation. Sir Campbell Fraser, a well known supporter of the present Government, observed that the calm acceptance of 3 million people out of work was just not good enough. Sir Terence Beckett expressed the hope that the next Budget would help to increase public investment and said that the structure of the economy was not being maintained intact, but was increasingly shabby and expensive to operate. He added that business was slowly getting better, but that recovery was patchy and there was a possibility that the economy would run out of steam in the second half of next year. He urged the Chancellor of the Exchequer—asthe noble Lord, Lord Jacques, has already done this afternoon—to announce the early removal of the remaining 1 per cent. national insurance surcharge. The earliest opportunity to do that looks like coming tomorrow, and I very much hope that it will be grasped.

Along with the noble Lord, Lord Jacques, I am alarmed by the prospect of general increases in the price of gas and electricity and their effect on inflation and unemployment, and in particular on poor people who have to spend a higher proportion of their income on fuel than do other people. As one who was earlier employed in a part of the chemical industry of which the main business is the production of chlorine, I have good reason to fear the effects of an increase in the price of electricity in that energy-intensive industry where the price which is having to be paid for electricity is still well above that payable by most of this country's European competitors. At this point I should like to ask the noble Lord, Lord Cockfield, another direct question. Are the Government willing to seek some means of sparing industries, such as chemicals, steel and paper, from increases in the price of energy which are bound to damage further their international competitiveness?

In a letter to The Times published on 10th November Sir Terence Beckett wrote: What British business needs now is a reduction in those overhead costs which it is not itself responsible for. That is all we are asking the Government to do; the rest we will look after ourselves". Later in the same letter Sir Terence added: total manufacturing employment is still declining, for the record, by nearly 14,000 a month on average. And company liquidations in the third quarter of this year, 17 per cent. up on a year earlier, were at the highest ever recorded level". I hope that the Government will heed those words.

Short of agreed pay determination arrangements, neither we on these Benches nor, indeed, your Lordships' Select Committee on Unemployment, have ever claimed that proposals aimed at reducing unemployment can be introduced without any cost at all. What we do say, and what the unemployment committee recommended, is that carefully selected schemes for increasing employment opportunities should he introduced at a cost that would be well within the margin of error of the public sector borrowing requirement. There cannot be a substantial increase in investment within the private sector until there is a rise in orders and in profits. It can be done only in the public sector, and in my view timing is crucial.

Investment in such industrial necessities as road building and maintenance cannot be delayed indefinitely. If we wait until recovery is in full swing and there is a surge in the demand for labour, the effect will be bound to be inflationary. Why, therefore, do we not start now, while labour, plant capacity and savings are all available? Such essential investment in this country's infrastructure would have over consumer expenditure the great advantage that it would not involve the risk of purchasing power going into imports. It would provide jobs, both skilled and unskilled, in our hard pressed building and construction industries and I suggest that in the private sector generally it would increase the volume of orders, unit costs would fall, and profits and investments would rise.

For my part, I cannot believe that there are not identifiable projects of this kind in the public sector which would provide an adequate return on capital in just the same way as in the private sector. If such a policy continues to be unacceptable to the Government, then, as Mr. Ian MacGregor was advocating only yesterday, surely it should not be beyond the ingenuity of the City of London to select for investment a number of infrastructure projects, harnessing people and resources for the purpose in a way which might eliminate altogether the need for public borrowing.

In all fairness, I have already congratulated the Government on their achievement in reducing the rate of inflation. I beg them now to exploit that success by heeding not only my words, but the advice of many of their own supporters in the front line of industry who, in this matter of investment in the public sector, are imploring them in some way or other to give the country an imaginative lead.

5.52 p.m.

Lord Mancroft

My Lords, we have a wide field to cover and time is at a premium, so I propose to confine myself to one aspect only, and that is the number of illusions about this problem which are hindering our attempt to solve it. The noble Lord, Lord Jacques—and I found very little to disagree with in what he had to say to us drew attention to the fact that it is not only a national problem but also an individual tragedy. I add to that that it is a worldwide problem. All manufacturing countries are suffering the same difficulty.

I think we are agreed that it is no good shouting political dogmas at each other and that it is no good trying to solve the problem by soap box catcalls. I think that the last general election proved that we must all try to solve the problem together. I should like to add my words of tribute to those of the noble Lord, Lord Rochester, to the very vigorous attempts of the Government to solve the problem and in no way to minimise the dangers that we face.

However, when we look, on the one hand, at the size of the problem, we look, on the other hand, at the calls for greater modernisation, for greater streamlining of managerial and work force activities, and for the need for greater technology, computerisation and dataprocessing. What does a worker in one of the Rover company factories that are situated around the Midlands, who is about to be thrown out of work, think about that? He says, "You are asking me to support this programme of modernisation; you are asking me to work myself out of a job; you can hardly blame me for not giving it much enthusiastic support". But this is an illusion, and it is a very old one. He is not working himself out of a job by supporting modernisation.

I am happy to see the noble Lord, Lord Sainsbury, in his place. He gives his name to that distinguished firm which last week published a report in which we are informed that after 20 years' hard work at modernisation Sainsbury's have produced 30,000 more jobs. Surely that is a satisfactory answer from a firm of that calibre. The firm goes on to add—and I hasten to add that I do not own any shares in it; this is purely gratuitous—that it is seeking profitability, but a profitability with a social purpose, which is a cliché—perhaps like all clichés—very soundly based.

This illusion is not new. Exactly 500 years ago this year in the great city of Florence in 1483 the wool workers burnt Somerset wool because they thought that its greater workability would put them out of work. It did not; it gave them much more work. The Luddites—the followers of Ned Ludd in the Midlands—in 1815 broke their looms because they thought that this modernisation, this mediaeval computerisation, would put them out of work. It did no such thing. I can only hope that the employees of Rover will realise that if they follow this policy of modernisation, it may help them to put more Rover cars on the roads and fewer Japanese and German ones.

Between the wars, when I was first taking an interest in politics, there was a hideous slander that used to go around that you could not give certain people bathrooms in their houses because they would only keep coals in the bath. I never knew anybody who kept coals in the bath, and I never knew anybody who knew anybody who kept coals in the bath. Perhaps I moved in the wrong social circle!

But today we hear another slander (to which the noble Lord, Lord Jacques, referred), suggesting that people will not look for a job because it is simpler to go on the dole; that you can get nearly as much money with much less work by going on the dole. I have never met anybody who actually wanted to stay unemployed and on the dole. I have never met anybody who has met anybody who wanted to do that; but that is something which, if it is true, ought to be put right, and put right soon.

For the past 25 or 30 years I have worked in service industries, and one notes—and other people note it too—the other illusion: why is it that, with 3½ million people unemployed, we find shortages all round in the catering industry? One seldom—if ever—sees an English waiter. When I went to get my train home the other evening from the Parliament Square tube station there was a notice saying that they regretted delay on the Circle line. I asked why and was told that it was due to a shortage of guards and drivers. A puzzle! Have noble Lords ever tried dialling for the Directory Inquiries' service at the weekend when you could not find a telephone number? Have you ever wondered why you cannot get an answer? It is due to shortage of staff. That is an illusion that needs to be put right.

The word "moonlighting" is well known to all of us. I have never actually met a moonlighter, although I read about them all the time. They are called "cowboys"—a sad reflection on the very honourable and hardworking cowboys. However, the other day in a case of tax evasion and avoidance and generally fiddling of VAT which was being heard in Bristol Crown Court, I noticed that the defendent said: "Why shouldn't I? Look what is going on in the City of London. Look at Lloyd's and at the Stock Exchange". That was a little harsh, but it is an illusion that needs putting right. That is not the social welfare to which the annual report of Sainsbury's refers. There is no sense of social purpose there.

I should like to refer to another illusion. Did noble Lords see two or three days ago in the newspapers that London Weekend Television is paying between £60,000and £80,000 a year to some of its employees whose job is to edit football video film? I wonder what the future unemployed workers of Rover think about that. I do not even know what editing football video film involves. I suppose it means cutting out the respectable parts of the play, concentrating on the rioting in the streets of Luxembourg and those terrible pictures when a goal is scored of players jumping about, hugging and kissing each other. If I had done that when I played outside right for my school's second XI, I should have been expelled at once. That is another illusion that needs contradicting.

However, the one that worries me most of all is the size of the golden handshakes which are handed out now and again to those whom the law prevents you from sacking. What do the unemployed workers at Rover think about the size of the golden handshakes? What do they think about the enormous salaries that are paid to some managing directors and chairmen of companies? I am sure that the labourer is worthy of his hire. I know all about taxation; I know that he takes home very little but pays an enormous amount of tax. Many companies include in their reports figures of take-home pay and taxation paid. But how many unemployed workers at Rover actually read company reports?

I hope that this debate will help to dispel some of these illusions which are I think making it difficult for us to tackle the problem as sincerely as we should all wish. They may be small points, but they are damaging and I hope that we can put them right.

6 p.m.

Lord Dean of Beswick

My Lords, rising to make a maiden speech in this illustrious Chamber is something of an ordeal, even though one has made numerous speeches in another place along the corridor. First, may I thank noble Lords from all sides of the Chamber for the kindness and consideration they have shown me since I took my seat a fortnight ago. Perhaps I may digress for a few moments from the subject under debate to compliment the noble Viscount, Lord Tonypandy (although unfortunately he has had to leave the Chamber) on his maiden speech. Mine, as your Lordships are aware, is the second one today. I should also like, in complimenting him on his speech, to place on record my appreciation of his services in another place, and for the kind and considerate way he dealt with Back-Benchers like myself. He had no favourites, and both the most powerful in that Chamber and the humblest BackBencher received the same consideration. He left a record there as Speaker that any of his successors will have a job to live up to.

May I also thank the noble Lord, Lord Rochester, for his kind wishes when speaking in this debate earlier; and also the noble Lord, Lord Jacques, for the subject he has introduced for debate. Unemployment is the subject which, if judged in a social context, is the most vital and urgent problem facing us as a nation today. I had the good fortune, when a Member of another place, to obtain an adjournment debate on unemployment in the city of Leeds travel-to-work area. This was on Thursday, 28th April this year. I cite the city of Leeds because it is an area in which my former constituency was included, and also because what happened in that great city, both industrially and commercially, can be applied to the nation as a whole.

It is an area of diverse industry mainly relying on the clothing, engineering and chemical industries for its industrial base. It has an excellent record of industrial relations. It is by no means a high wage area, with normally a below national average number of unemployed in percentage terms. I was able to show, however, despite its record, that between 1979 and 1983 unemployment in Leeds doubled and was equal to the national average at the end of that period. Two of the most alarming features were the increased unemployment among young people and the steady and ominous increase in the long-term unemployed.

Little did I realise, when speaking in that debate in April, that in less than two months I would myself be joining the dole queue. I can tell your Lordships that it is a shattering experience for one who, since leaving school at the age of 14, has never been unemployed. We can debate unemployment in this Chamber today, and we can debate it again; they will debate it in another place, and debate it again. But the trauma of standing among young people at the Job Centres and watching the despair registered on their faces, and the trauma of having middle-aged, highly-skilled people come to you who know they will never work again, is an experience I do not want to repeat. It certainly taught me something about the problem.

Before becoming involved full time in politics I spent the whole of my working life in Manchester, another great city of the North. The area in which I grew up and learned my trade was the largest engineering centre in Europe just prior to and after the Second World War. Manchester now stands almost deserted in industrial terms. Factory after factory and company after company have gone out of existence despite a first-class record for industrial behaviour, quality of goods and moderate wage settlements. It is a fallacy to blame high wages for this process taking place. It is accepted that in engineering some of the most skilled workers, such as people who manufacture machine tools, were in fact suffering the lowest wage rates.

I see my old friend and colleague, the noble Lord, Lord Lee of Newton, here. During the period I mentioned, which is when Manchester was perhaps industrially at its busiest, he was heavily engaged in organising the largest engineering factory in the Greater Manchester area. I believe that there were about 24,000 people employed at that time. It must sadden him to know that that number is now down to less than 5,000, and that they will suffer another blow following the announcement today that 650 more jobs are going in the turbine generating division of the General Electric Company. Those jobs will be lost between Rugby, Manchester, and Larne. I say that to kill some of the optimism that there has been that things are on the upturn, because if things are bad in the turbine manufacturing industry then it is the base that is bad; and therefore those predictions cannot be too great when looked at from that angle.

I welcome the Government's initiatives for the young unemployed, but I believe that they are, at best, a cosmetic exercise, with no firm hope at the end of the tunnel. Only an expanding economy providing real jobs can alter that. As for the adult group of unemployed, to which I have already referred, unless urgent action is taken some of them may never work again.

It is within the power of the Government to expand the public sector in a way which will make a significant impact on the present disastrous situation. The noble Lord, Lord Jacques, in opening the debate, referred to the public sector and the jobs that it could provide. It seems ludicrous that with 400,000 building trade workers drawing unemployment benefit there are growing queues and waiting lists. It seems nonsense that we under fund our railway system to a greater extent than any of our sophisticated competitors. I know that perhaps this is a simple equation, but it would be far better to transfer the £17 billion which is being spent on unemployment and related benefits to the creation of jobs by house building, road building, repair and extension of our railway system, roads, hospitals—you name it. The jobs are there if we will only put the money into them.

There is no point in the Government wringing their hands and saying, "It is not our fault". I would not for one moment ascribe to them the total fault of the unemployment situation today in a world recession. But I have seen figures from responsible people showing fairly and squarely that 50 per cent. of the increase in unemployment is directly attributable to present Government policies. The sooner they start to move away from those policies, the better. It is on record—and I think that the noble Lord, Lord Jacques, referred to this—that both the CBI and the TUC have recently, in varying degrees, called for such a policy. The reports from some quarters that the economy is improving are viewed with skepticism, and certainly are not believed by most people concerned.

There was another important debate in this Chamber yesterday, and it was on the increase in crime. There is a correlation between that debate and what is causing that increase and what we are talking about today. Police chief after police chief in the country has come out firmly with the opinion, with figures, that where there is an increase in unemployment then, correspondingly, there is an increase in crime in the area. The Law Lords, the courts and the legislative bodies can pass and administer all the laws they want, but one of the best ways to start to get those figures moving downwards immediately would be to get the young people to work with some fulfilment in life.

I do not wish to take the full 14 minutes, and I do not want to make too controversial a speech on a day like this. I am most grateful for the hearing that I have been given, and I close on a warning note. Unless we take action now, it may well be that those people who are bearing the adversity of unemployment with patience may cease to do so—and I do not think that they will wait forever—and may resort to action both through the ballot box and by other means alien to us as a democratic nation. Time is not on our side. The time to act is now, to stop the present situation before it gets any worse. I thank noble Lords for the kind and considerate hearing they have given to me.

6.10 p.m.

Lord Harris of High Cross

My Lords, it is my pleasant duty on behalf of the whole House to congratulate the noble Lord, Lord Dean of Beswick, on his quite admirable maiden speech. I am sure we are all glad to hear and to see that he already feels so much at home among us after his escape from the other place. His speech was succinct, was well argued, was well informed, was plainly heartfelt and was gracefully delivered. He comes here with wide knowledge of local government and trade unions and I am sure we all look forward to hearing his contributions to our future debates.

I should also like warmly to congratulate the noble Lord, Lord Jacques, on the delightful way that he opened this short debate. I commend him especially on the progress I detect in his emphasis on the need to tackle unemployment without increasing inflation. I wonder whether we may hope this initiative from the Labour Benches marks a move towards a new and much needed consensus. If so, I should like to put forward with my usual humility four propositions to open the way for the expansion of employment.

My first proposition which the noble Lord, Lord Jacques, agrees with is simply that unemployment can be reduced. I assert this against the Jeremiahs like Mr. Francis Pym, who recently argued that the new technology must permanently reduce the demand for labour. As Mr. Samuel Brittan never tires of pointing out, this unhistorical view rests on what he calls "the age-old lump of labour fallacy" which, in plain terms, fails to allow for the almost limitless possibilities of increasing standards of living. No doubt we shall continue in future to benefit from shorter hours, longer holidays and perhaps from earlier voluntary retirement. But such developments will create an enormous additional demand for more leisure goods and services, including more education, entertainment, travel, tourism, transport, more yachts, to say nothing of such minority indulgences as swimming pools and holiday homes, and what about more hunting, shooting and fishing?

My second proposition which is also implicit in the noble Lord's Motion is that inflation is not the friend of employment, but its enemy. Even Left-wing economists, I see, are now less inclined than recently to favour the easy panacea of boosting monetary demand. This is for the simple reason that experience around the world has taught that its lasting effect is to raise costs and prices rather than to increase output and employment.

Today, under the Government's medium-term financial strategy, there is no shortage of monetary demand. Whichever measure is taken, the money supply is increasing sufficiently to finance demand for more production. Indeed, there is plenty of British demand for foreign cars, kitchen equipment, ships; we may have noticed in shipbuilding recently a demand that British industry could supply if it were more competitive. If British prices were lower existing purchasing power would buy more of the products of British labour. Despite the remarkable progress in productivity over the last two or three years, we still have a long way to go in reducing costs. We cannot dodge the fact that approaching 90 per cent. of all costs, 90 per cent. of the value added in British industry, is accounted for by wages and other expenses of employment.

The need is not crudely to reduce wages, but rather to reduce the labour costs per unit of output so that, as the noble Lord has said, we can rebuild profit margins without pushing up prices. The moment employing more people is more profitable, more people will be employed.

My third proposition is that a large part of the official statistics of those without jobs is explained by what economists have described as voluntary unemployment. I fear this will come as a shock to noble Lords, but I turn to The General Theory of Lord Keynes, which I know many of your Lordships still hold in high regard. In the second chapter of Keynes' great work he described voluntary unemployment as arising from, The refusal or inability of a unit of labour … to accept a reward corresponding to the value of the product attributable to its marginal productivity". In plain English what that means is that workers are voluntarily unemployed if they hold out for a wage above the market value of their labour. Keynes went on to explain that such excessive wages might be due to trade unions, to the level of social benefits, to legislation on minimum wages or even to what he called "mere human obstinacy". Alas, there is still a good deal of that about, and not only on the Labour Benches.

This leads me to my fourth proposition which is that a consensus favourable to the reduction of unemployment must ceaselessly proclaim the logical link between jobs, productivity and pay. A recent vivid example is provided by the continued tragic decline in British shipbuilding. At Swan Hunter's the workers voted against a survival plan because it would require the ending of demarcation rules. I thought the most revealing episode on that occasion was the candid admission of a trade union leader who said: It would mean the destruction of the trade union structure". I can only say, in that case, the sooner the better. I would certainly welcome an increase in partnership and a selective advance in co-operative ownership along the lines that the noble Lord, Lord Jacques, favours. But I should not wish to blame shortsighted and obstinate trade unions as the only reason labour is priced into voluntary unemployment.

It seems to me absolutely incontestible that wages councils have forced up pay, especially for school-leavers and part-time workers, so as to destroy jobs and the associated opportunities for training and promotion. From such clear-cut examples, it follows that anything which adds to the cost of employment without increasing production reduces the prospects of getting people hack to work.

From this vantage point, I would still say that the burden of government is the greatest destroyer of jobs. If we just take income tax, and include the employers' national insurance contribution, the marginal cost is more than 50 per cent. starting on earnings little above supplementary benefit levels. Such a levy simultaneously raises the charges against production that must be covered from prices and reduces the take-home pay of workers so as to make employment relatively less attractive for many low paid workers than social benefits. I insist, against all the protestations that we have heard and will hear in this debate, that high income tax operates perversely both to depress the demand and the supply of labour. The noble Lord singled out the national insurance surcharge as a tax on jobs. In this respect, it is no different from other taxes paid by employers which have to be incorporated into their costs.

In conclusion, I would say that if the Government cannot help by cutting taxes, especially on low earnings, we have no alternative but to slog it out by reducing total costs per unit of output and restoring profit margins as the best inducement for firms to take on more labour. Meanwhile, let the Government and their critics ponder that we see in many countries, if we look around the world, that unprecedented unemployment has been associated with an unparalleled volume of legislation and regulation to protect employment, to enforce minimum wages, to improve working conditions, to raise social benefits and to obstruct the flexibility of the labour market.

I have no doubt that if we could sweep away most of this well-intended interference and even abolish the Manpower Services Commission, and radically reduce income tax on wage earners and their employers, it would have at least two beneficial results. In the first place, it might temporarily deprive noble Lords on the Labour Benches of the power of speech—but I am not too confident that would work with the noble Lord, Lord Molloy. But that would be a temporary phase and they would undoubtedly recover their powers of speech in time to welcome the second effect which would be a powerful reinforcement of economic recovery and higher employment.

6.20 p.m.

Viscount Hanworth

My Lords, on two previous occasions I wanted to give the speech that I am going to give on much the same lines as it is today. Today, I almost wondered whether I was going to be able to give it because I have either a very bad cold or 'flu. I start with the proposition which I believe cannot be challenged by any economist. It is that the more people can work usefully for the longest possible time, the richer a nation should be. Theword "usefully" of course needs to be underlined. It is therefore clear that there is something unsatisfactory in the working or the side effects of our western capitalist system. Economists should focus their attention on this problem and also on the still wider problems of the world economy in relation to the developing and poorer nations. If we cannot at least alleviate the latter situation on a permanent basis, then our western monetary system—and much else in my view—is doomed.

Secondly, returning to the immediate, unacceptable level of unemployment, we should put in the forefront of our minds the proposition that keeping people unemployed, taking into account unemployment benefit, loss of tax revenue and other less obvious factors, costs the nation around 75 per cent. as much as it does to employ them. My third proposition is that unemployment could be reduced to under a million quite quickly if we were prepared to accept the side effects and disadvantages of possible methods of doing so. An obvious and hardly useful truism, one may say. Nevertheless, I believe that every possible solution must be kept under review because the side effects, disadvantages and opposition to a possible course of action may become less than it is in the present case.

There are several courses which come in this category. The obvious one is a degree of re-inflation which, if carefully controlled, my party and many others believe could be done without appreciably increasing inflation. One of the ways of doing this would be to increase public spending on essential work such as the renovation of our sewers; but there are many other areas which do not require increased imports or infrastructure. Other possibilities are abandoning chronic overtime and early retirement. These two were considered in the report by our Select Committee and there is likely to be a financial penalty unless those concerned accept some financial loss.

I believe, however, that there is an immediate possibility, with job sharing and part-time working, if the Government make it easier both for the employer and the employed. Many people these days, particularly married couples with children, would be prepared to accept less than full-time jobs for both husband and wife. Job sharing with an otherwise unemployed person needs thinking about. Two men working on a three-quarter time basis should produce one and a half times the work of one man. If the firm was paying the one man full wages and the Government chipped in at 75 per cent. of the cost of keeping the other man unemployed, both men could receive full wages.

Yes, I know that the flaw in this idea is that you cannot have some people working full time and others three-quarter time for the same wages. But there may be ways round the problem. If something on these lines could be worked out, we could almost solve our unemployment problem overnight.

This leads me on to the education field. I know that the number of pupils and students has decreased; but for years we have wanted to decrease the size of classes. Why not an agreed proportion of teachers on a three-quarter time and pay basis? In the manufacturing and export industry, we must remain competitive with foreign nations who have lower wages. It follows that all methods of increasing productivity must be accepted, both for export and also for home consumption, unless tariff barriers are erected against imports. There is then regrettably a direct equation between increased productivity and increased sales.

If the two do not match, then redundancy is inevitable. The same does not apply to purely domestic projects and services; and it is here where I believe there is the possibility for real, worthwhile reductions in unemployment—which, as I have said, might be on a no-cost basis to the Government. In all this, it should be said that we still face the 19th century attitude of some people, and of course of the unions. I hope that the unions will increasingly look to the long-term benefits of their members because at present many think only of the immediate and short-term future.

Finally, I should like to sound a note of warning for the future. It is to be hoped that our present problem of unemployment may be soluble; but what I believe will be a far more intractable problem in the future is that of finding work or occupation for those of low or lower IQs. Laborers, in the simple sense, are being replaced by mechanical diggers; petrol pumps are being automated—and who wants a dumb waiter except in an auction?

6.30 p.m.

Lord Molloy

My Lords, I should like during my few remarks to express my appreciation to my noble friend Lord Jacques for opening this debate. I should like also to express appreciation, gratitude and congratulations to my noble friend Lord Dean of Beswick. I could well have made that kind of speech a couple of years ago. The fundamentals are precisely the same, and, like him, I speak from some experience.

I do not mean this in a particularly nasty way, but it seems to be an awful coincidence that, along with a few millions of my fellow Britons, I have to remark that the only time we experience unemployment of this size is when there is a Tory Government. People scratch their heads and ask, "Why is it that this sort of thing happens to us with a Government of businessmen?" Even now Conservatives are asking that. I think that this might perhaps be a subject suitable for examination by the noble Lord, Lord Harris of High Cross. I go out of my way to listen to the noble Lord every time he speaks in this House, not because I agree with everything that he says but because he compels me to think; and he is very challenging when he takes one tiny aspect of, say, industrial relations. Although the point may be small, by the time he has finished with it, it is fairly massive.

The noble Lord reminds me of the rugby commentator who, when the Welsh captain, J. P. R. Williams, scored a brilliant solo try against the English rugby team, criticised him for the fact that for half the distance he ran he had his socks down. When the noble Lord, Lord Harris, talks about the wicked, awful people in the shipbuilding industry of our nation, I think of them as the men who built the Royal Navy and who, in the Falklands crisis, rapidly converted large ships so that they could join that magnificent force. Of course, lines of demarcation have been sources of irritation and have been the causes, I think, of unnecessary strikes. But we have to say to ourselves that this situation arises not because a particular trade in this complicated industry is afraid of being wiped out, but simply because it is afraid of how many of its workers will no longer be able to contribute, to build ships for the British Navy—I do not think that it is a had thing to get worried about—or the British Mercantile Marine, due to some change in method. Also, those workers are not prepared too lightly to accept that the alternative to that great craft and skill is the dole queue.

While we are on the subject of shipbuilding, I would point out that the noble Lord, Lord Harris of High Cross, forgot to mention the massive irritation that was caused in the shipbuilding industry regarding a ship that was converted into a very necessary form of cargo vessel. It went to the Falklands, and later returned home. Instead of the same British shipwrights and shipbuilders converting it back again, it was sent by the Government to the Malta shipyards. There is patriotism for you! So do not let us think it is all on one side.

The Government have a very difficult task; in particular, so do those Ministers, such as the noble Lord, Lord Cockfield, who every day, I am quite certain, are trying to find some answer to this problem. It would be absurd stupidity to say that the Government do not care, or that people such as the noble Lord, LordCockfield, and other Ministers with similar responsibilities, do not care. But some of us on this side of the House feel that we need a new tack. When the Government have departed from monetarism to some degree, as they have, it has been to the benefit of the CBI, small businessmen, the nation, and the unemployed; so why be afraid? Why not move further away from this awful system? The Motion calls for what is almost an impossibility: the necessity of increasing employment without increasing inflation. Quite frankly, I do not know whether that can be done, but I believe that it would help the nation if it were seriously attempted.

I have said in your Lordships' House on many occasions that we still ought to look to see whether the situation that now confronts our island race has occurred before. The answer is, yes. I was one of the young, skilled artisans who were on the dole at the time; and this is what frustrates some students in our universities when they read about the 'thirties. How did we overcome it? One answer is immediately on everybody's lips. It was not a perfect answer, and it did not immediately create full employment without any form of inflation. Of course not. However, it got us back on the road to solid government and lifted up the morale of a great people—that is, the great people of the United States under Franklin Delano Roosevelt.

If we were to look more closely at what was achieved—and, if I may say so, speaking parenthetically, I have searched; and I am sure that the noble Lord, Lord Harris, and many other notable economists in this House could help us here—since the years of the New Deal, we should see that there has been only one evaluation by an historic scholar and economist of repute that has in any way been condemnatory of the New Deal. Democrats and Republicans have built their new America on the foundations of the New Deal.

The crisis in 1928, when Roosevelt was Governor of New York, was absolutely appalling. One discovers that poverty-striken Arabs in the streets of Cairo were collecting money to send to starving children in New York. Yet they overcame it; and they did so because they were prepared to do something about the economic "polio" which the nation had, and which unfortunately their great President had. I find it absolutely remarkable that the United States could throw up a leader from the upper classes such as Roosevelt—struck down in the middle of his second presidency with polio—and that he was able to carry on building up a nation, when millions of unemployed, and even more millions on short-time work, were it seemed, slowly suffocating that nation. In the United States corn was burnt to keep people warm; 7,000 farmers lost their farms in six months; local authorities just had no money at all. No equivalent of rates came in: they had nothing.

We do not suffer that situation in this country—at least, not yet—and I hope to God that we never shall. The noble Lord, Lord Mancroft, made a point about morale which I think is very important. It may not be an important economic argument, but I have heard in working men's clubs and on the terraces of rugby-football grounds the argument which has been submitted by the noble Lord, Lord Mancroft, put forward by those who are on the dole. Why do we not deal with it? Did your Lordships read in the paper the other day about a golden handshake that a bloke had got? What do they call the thing? Is it a review body? When I was working I would have had to work 10 years to get his increase in pay in that situation. When people see what is happening, of course they get upset and angry. It is understandable. One would think that people on a couple of hundred thousand a year would say, "Hold—we will not have one halfpenny more." I would deplore any evil person being given a chance to get among our unemployed and whip up frenzy and hate against our Government. I am not a supporter of the present Government, but I would deplore that kind of activity, and I hope that they will heed very carefully the submission of the noble Lord, Lord Mancroft, this evening.

I think that my country is entitled to a New Deal, and I believe that even the present Administration, if they had the courage, could present a new deal for Britain. I should support them the moment they embarked upon it, if they were simply to design a broad programme to stimulate recovery by giving relief to small businessmen, to parts of industry, and to working people. America got out of the mess. If I may say so, I was doing some reading only the other day in preparing for this debate. Lord Mancroft's speech reminded me that in the United States of America it was compulsory for the upper echelons not to have massive increases in their top salaries. I hope it will not be necessary for us to introduce legislation. I hope we shall be able to appeal to those in the top salary echelons to do this; but they must remember that, if necessary, we shall legislate to prevent any form of greed.

Public spending increased in the USA, especially for the needy. There was the development of public works and the creation of the Tennessee Valley Authority. At the very beginning, there was a national recovery administration plan which protected wages in the United States. During the early 1930s Roosevelt decided that child labour should he abolished. We shall not have to abolish child labour; that is not the size of our problem. But it was the size of the Americans' problem, and they overcame it. Guarantees were given that workers would be allowed to join unions, and all forms of collective bargaining were encouraged. Once everything got under way the result was amazing. The building industry completed the Great Boulder Dam and hospitals, town halls and schools were built. Picks, shovels and machinery had to he manufactured. On and on went this run-away return to full employment. An examination was carried out into what this meant for industries associated with the building industry in the United States. When full employment returned it meant that machinery, chisels and hammers had to be manufactured. The wheels of industry started to turn again. Families were then able to buy clothes for themselves; they had been unable to buy any for 10 years. So the clothing industry started up again. There was inflation at the beginning, but in the end it evened out. We know today that that despairing nation in 1933 is now the richest and most powerful nation in the world. I want my country to be the richest and the most powerful country in the world in terms of sane, sensible thinking. I believe we can quite easily achieve that objective.

I end with one appeal. The Government are beginning to realise that they can no longer entirely worship monetarism. A great deal has been said about "spend and prosper". An examination of the new deal in the United States shows that in the end "spend and prosper" works. I do not believe that any Government can generate recovery and abolish unemployment in a couple of years. However, I believe that a Government who are determined to do it will have the courage to look at every alternative to see whether they can pick from the best what will achieve the one thing which unites us all in this Chamber: the abolition of mass unemployment and the economic recovery of our nation.

6.44 p.m.

Baroness Vickers

My Lords, first I should like to thank the noble Lord, Lord Dean of Beswick, for his maiden speech. Regrettably, I was not in the other place at the same time as he was, but I shall have the pleasure of catching up on him here. I should also like to say a word about the noble Viscount, Lord Tonypandy. I served under him for so many years. Not only was he very gracious to one in the House; he even came down to Plymouth to preach a sermon in the Central Methodist Church in order to save my soul. So I am very grateful to him. It is very nice to see the noble Lord, Lord Barnett, on the Opposition Front Bench, because, even though we have always been in opposition, everything he has said has always been extremely pleasant.

We are grateful to the noble Lord, Lord Jacques, for the way he has drafted his Motion. It has given us so many opportunities to express different points of view. I want to draw attention to unemployment in rural areas, especially unemployment among the young. In previous years, particularly before the war, it was normal for many young people to follow their parents and go into farming, in the same way as miners' sons followed their fathers down the mines. However, as a result of mechanisation in all forms and different attitudes towards work on farms, employment has been greatly reduced. A job which used to employ several men—I am thinking in particular of harvest time—can now be done by one or two machines in only a few days. And jobs outside farms—hedgecutting, for example, on the side of roads—are now done mechanically; but hedge cutting used to give a great many people excellent employment. We now have very few blacksmiths, gamekeepers, river keepers, full-time gardeners or village shops.

I have here a few figures from Devizes in Wiltshire which relate to permanent jobs obtained by young people. In 1980–81, 43 per cent. obtained permanent jobs. In 1981–82, the percentage went down to 41. Regrettably. in 1982–83—from April to October—the figure went down to 35 per cent., but I am glad to say that at the moment the current figure is 46 per cent. This is not at all satisfactory. It means that a great many young people are leaving the countryside and going to the towns, as they did in the days of the industrial revolution—though, I am glad to say, in not quite such large numbers.

I like to be practical, so I lent my vegetable garden to the job centre. I have had many young men working in it for several years now. I have never taken a penny in rent nor any of the seeds, because I believe that they should be ploughed back and the produce sold. Unfortunately, however, not one of them wanted to take a permanent job as my gardener. This was nothing to do with me personally. It was not that they had taken a dislike to me. I am glad to say; but they did not want to take a permanent job with anybody as a gardener. This makes me wonder how well we choose people for these jobs. I have had to employ a part-time gardener. He has another job during the week and comes to me at the weekend. A young fireman comes to cut the grass on his days off. My object was not to employ people who already had jobs. I wanted to employ somebody who had been trained and who therefore was a new recruit to work experience.

I should like to discuss how these work projects are arranged. In Wiltshire, there are 10 project teams, based in selected towns, each consisting of an adult and four trainees. They carry out various tasks, enumerated as tasks of benefit to the community, skill training, painting, decorating, bricklaying, minor construction and horticultural work; and also work of an environmental nature. Furthermore, there is catering, which was mentioned by the noble Lord, Lord Mancroft, and caring skills, office practice and needlework. There is also a theatre workshop in which the young generation do scenery painting.

On the other hand, we have very industrious young people. I should like to mention one family consisting of eight children. The mother has had to bring them up alone; the father deserted them. There are five girls and three boys. Every one of them has a job. One of the boys was a chef but unfortunately he lost his job. What did he do? He went off to Greenham and laid bricks there for £100 a week. When that job finished he went to another situation, where he also earned good money. I am glad to say that now he is a chef again. He is in a very good restaurant in Wiltshire, has a flat of his own and earns £120 a week.

So there are methods, if you have the will, by which to obtain jobs. This boy had many disappointments over the jobs for which he applied. Very often the problem is that young people are not taught at school how to set about looking for a job. I have here a leaflet, again from Wiltshire, which says, "How will I start on the scheme?" The answer is, After an initial interview you will join a one week introduction course during which time you will be told all about the scheme and what work experience and training courses are available. We will then decide how you will spend your 12 months on the scheme". I must say that I would be very scared if it was my first interview and I was told that I had to make up my own mind in that way. The difficulty is that we do not have enough career officers. I am not blaming the career officers themselves because they often have another job to do and undertake career training and advice only in their spare time. But I also believe we do not obtain enough outside help in regard to finding jobs for young people at an early time.

More employers—more industrialists—should visit schools and should explain in detail what their type of work is. Farmers should go along and do the same. There are plenty of other people—from the nursing service and so on—who could talk to young people and give them some insight into what their future lives might be. This would give them a chance to consider a career and make a suitable choice. In other words, they would gain confidence in choosing. First, the young people should meet at an early time a careers officer in schools, and I hope that we shall get more fully trained career officers. They should also have adequate, accessible information, and an appropriate range of opportunities in their local environment.

The Further Education Unit, through the work of the National Institute of Careers Education and Counselling, sponsored an exploration of the concept of a personal guidance base. I hope that this may be carried out because employment will be increasingly difficult for a young generation, and they do need considerable counselling by people with real knowledge of the subject. The Further Education Unit went on to mention the various terms they were considering, the progress that might be made by young people, and how such schemes might be assessed. One suggestion was in terms of motivating young people to learn to contribute to society. Providing them with a valuable range of skills was another. Preparing them for employment and for periods of unemployment, and for continuing their learning, was yet another. The importance of recognising the risk of future unemployment and understanding its cause was a point raised by the noble Lord, Lord Molloy.

I should also like to mention the subject of apprenticeships because I believe they should be discussed, especially in the case of rural workers. Most apprenticeships nowadays, I consider, are too long because education in schools has greatly improved. I know, for instance, that in the Royal Dockyards they cut the length of their apprenticeships when they found out how much better educated young people were. For those working on farms, it is absolutely essential to have an apprenticeship in engineering because the vast number of accidents on farms is very frightening. This is because farm workers do not have a thorough knowledge of the machinery they have to use or of how to repair it. I would like to see a good apprenticeship for all farm workers who will have to manipulate machinery.

One might also consider whether young people should be given some kind of award. Many suggestions have been made about certificates saying what a person has done and has not done. I should like to see a scheme on the scale of the Duke of Edinburgh Award so that young people have something to show for all the hard work they have done—something to show their parents and their friends; everyone likes to receive a little reward.

In rural areas, the youth training schemes should aim to encourage young people to gain employment in their own rural environment, in order to help build up the country communities again. It is very depressing to find, in village after village, weekend cottages belonging to people who just come to stay in them from Friday to Monday. That sort of thing spoils the community because it does not create extra work for the local people. If we can achieve more employment for young people in rural areas we may be able to keep such areas alive.

I hope that the suggestions I have made will not offend those who are at present working in the various training schemes. I admire what they are doing despite many difficulties, but I should like to see action taken which would strengthen organisations for the training of the young in rural areas, in order to reduce unemployment.

6.55 p.m.

Lord Barnett

My Lords, I hope that your Lordships will forgive me for making another "maiden speech" so early after my first from the Back-Benches. I do not know whether it has anything to do with the fact that my first maiden speech did not entirely agree with everything that is in my own party's policy!

I am delighted to have this opportunity to speak because, apart from anything else, it enables me to congratulate, first, my noble friend Lord Jacques for having introduced in so excellent and constructive a way this debate on such an important topic. Secondly, I am particularly delighted to have a chance to pay a personal tribute to my noble friend Lord Dean of Beswick for his maiden speech. Almost anyone hearing it would have been as moved as I was—and I am sure all noble Lords on this side of the House and, I imagine, many Lords opposite were moved—to hear about his personal experiences upon finding himself unemployed so recently. We have debates about unemployment both in another place and in your Lordships' House but most of us have no real experience, fortunately, of that particular situation. We are very grateful for that.

For my part, I have found the debates in this House to be much easier, one might say. I was grateful to the noble Baroness, Lady Vickers, for her kind remarks about my manner in another place when we were together there. I must say that it will be even easier to be pleasant in this place, it seems to me.

I agree with much of what has been said in this debate although not with everything; that will not surprise your Lordships. I did not quite agree with everything said by the noble Lord, Lord Harris of High Cross, although not necessarily in the way he would imagine, when he spoke about the disincentive effect of high national insurance contributions and high taxation at low levels of income. There is some truth in that, and to some extent I disagree with the recent findings of the Policies Study Institute in a study they did for the Department of Employment. They said—and I quote: The level of benefits was not found to have any relationship with labour market activity". There may be some little effect, but on the other hand I feel that the noble Lord, Lord Harris of High Cross, tended to exaggerate the effect of the levels of tax and national insurance contribution as an important factor in the level of unemployment.

I certainly agreed with many of the illusions about which the noble Lord, Lord Mancroft, spoke—particularly the illusion about the effect of modernisation. I hope that many of my old friends and colleagues in the trade union movement will recognise that modernisation and cash limits—which I had a little to do with—were not intended to work and are not working against their interests but rather in their interests; in improving the industrial scene, making us as a nation more productive, and ultimately finding more jobs for our people.

On the other hand, as the noble Lord pointed out, it is also understandable that while we in this place may be able to consider this matter in broad terms, for the one man who is made unemployed in the interests of modernisation it is 100 per cent. unemployment for him and it is not easy for him—or for her—to take a broader view. He or she can only be concerned—understandably—with his or her situation and wants to see us in this House and those in another place do something about it.

I take it that everyone who has spoken in this debate—and indeed those noble Lords who have not done so—would agree with the vital need stated in the Motion moved by my noble friend Lord Jacques to reduce the appallingly high number of the unemployed; and to do so in a sustained and steady way while avoiding inflation taking off again. One has to concede that no Government-certainly not one of which I had the honour to be a member—have been able to find an answer to the three economic problems that have faced all Governments. They have not been able (as a juggler might say) to keep the three balls of employment, inflation and economic growth all in the air, and dealt with, at the same time. Nobody has managed to achieve it yet, and it would be as well for all of us who are critical of what any Government do to bear that in mind.

On the other hand, I am bound to say from what has happened in the last four years that I fear that the Government appear to have taken the view that bringing down the rate of inflation will of itself, as it were, cure unemployment and create the right conditions for higher growth. I am bound to say to your Lordships and to the Government that there is absolutely no evidence from experience here or elsewhere to justify such a conclusion. In any event, if there were need for further evidence we have the proof, and we have it in abundance, from what has happened in the last four years. We have seen that during the process of bringing down the rate of inflation there has not only been no economic growth but at times there have been negative rates of economic growth, and unemployment has risen to its present appalling level. So we can see for ourselves what that kind of policy has achieved.

In the short term there may well be some increase in economic growth(indeed, I hope there is) and there may be (indeed, I hope there is) some fall in unemployment during the course of, for example, the next 12 months. In this Short Debate I do not want to get bogged down in what I would consider to be a futile argument about whether growth in the next 12 months will be 1 per cent., 2 per cent., 2½ per cent. or 3 per cent. I just hope that the Government are right and that we shall have 2 to 3 per cent. growth, and that unemployment will to some extent come down.

But I want to deal with two questions arising from that assumption, and not, as I say, with what rate of growth we shall have next year. First, if the Government are right, what are the reasons for that growth; and secondly, what are the long-term prospects if the Government are right and we get that level of growth in the coming year? As to the first question, I start with where growth is not likely to be coming from. Sadly, if the Government are right, the source of growth will certainly not be from exports. We cannot foresee—I certainly do not think the Government can foresee—an export-led growth in the next 12 months. The figures are quite clear. This is a Short Debate, so I will not bore the House with the figures, but the volumes of exports in recent months have mostly been down on the 1982 figures, while imports have been well up. So it does not look likely that the growth we are going to see is going to be led by exports.

Then, again, the source does not seem likely to be from a substantial increase in the growth of private capital investment. I wish it were otherwise; I wish there were going to be a growth in private capital investment. There might be some: indeed, I hope so, because unless we see a substantial growth in manufacturing investment then the growth in the next 12 months is hardly likely to be sustained. Again, the figures are not helpful. Total fixed capital formation was lower in 1982 than it was even in 1979. The same applied to the first half of 1983, which was down on the same period in 1979. I hope—and it seems possible—that there will be some small increase in manufacturing investment; but it will be so small (and I doubt whether the noble Lord, Lord Cockfield, will be able to tell us anything different), certainly as a proportion of total demand, as to have little or no impact in making us believe that growth is going to be led by a huge increase in private capital investment.

Certainly the growth is not going to come from the public sector capital investment. We do not yet know the results of the public expenditure exercise, but I do not know that anyone in your Lordships' House will be expecting to see that the Government have managed to bring down the level of public expenditure as previously envisaged while allowing capital expenditure to increase. To put it mildly, it is unlikely, I fear, for the same reasons as those for which I was criticised by the present Chancellor when I was Chief Secretary to the Treasury and when I made substantial cuts in public expenditure, and for the same reasons as those for which I was criticised when cutting capital expenditure rather than current. But even without any new cuts the figures we have for public sector capital expenditure again show that in 1982 the figures were down even on 1979, and that the same applies again in respect of the first half of 1983.

So if it is achieved, if the Government are right and we do achieve some growth in the coming 12 months, there is only one source, and we all know what that is. It is going to be a consumer-led increase in economic growth. Indeed, we see the evidence all around us in the booming consumer durables; but if we do not trust our own eyes the figures are available to tell us the story. Volume expenditure in the first half of 1983 is well up on that for the similar period in 1982, and the money comes from some modest growth in earnings over and above the rate of inflation and from something which should concern the Government and certainly noble Lords in this House. A large amount of it comes from a substantial fall in personal savings as a percentage of GDP. We have seen it fall from 10.46 per cent. in 1980 to 6.25 per cent. in the first quarter of 1983. So the cause of any growth now achieved cannot by its very nature be sustained.

My second question about what happens in the longer term answers itself. The growth must inevitably decline, and I fear unemployment would rise again if those policies are persisted with. As I have said, I do not pretend it is easy to achieve the three economic objectives to which I referred at the outset. But I am bound to say that if we are going to continue with the kind of policies we have had in the last four years we not only cannot see an answer to the three conundrums, as you might say, but we can see the situation getting worse and worse—and this at a time when we have a Government that came into office with absolute certainty as to the solution they were offering the nation.

It is sad for the nation—and it is certainly sad for me—that they have failed. But it is much worse for the nation because of what they have done in the process of failing. I refer to the fact that, despite all the virtues to which this Government and the Prime Minister pay lip service, particularly that of ensuring that the nation lives within its means, in the last four years this Government have allowed the nation to live beyond its means with a vengeance. The Government have indeed led the nation in a great eating of the seed corn, with catastrophic consequences for the future. The disastrous increase in unemployment; the low, at times negative, rates of economic growth; and the cuts in public services, might have been understood, even accepted, if there were any evidence that the hair shirt the Government unevenly imposed had resulted in a dramatic improvement in economic performance, and if we could now look forward to sustained growth and a steady reduction in unemployment.

Whatever they may claim in the short term, the Government can make no such claim for the long-term consequences of their policies. Indeed, the miserable record of the past four years was itself only sustained, as I think my noble friend Lord Jacques said, by the use of the North Sea oil bonanza. One shudders to think what would have happened to our balance of payments without it. Yet North Sea oil production, we were told by the Minister for Energy in a recent Answer to a Question in another place, will peak in the next two years. Instead of using this great national benefit to boost capital expenditure in the public and private sectors and prepare for the day not so far off when the oil starts to run out, the Government have ensured that we have eaten that seed corn by allowing personal consumption to grow, for some, far beyond the rates of the economic growth they have achieved.

It is a policy that is the very opposite of everything that the Government are supposed to stand for. It is living beyond our means in the worst of all kinds of ways. The Chancellor said it himself. He has indicated that there are not likely to be any tax cuts next year. That is understandable, because personal tax cuts next year would give a further twist to the spiral of growth in personal consumption and the consumer-led boom we are now seeing. The Government have dug a hole, which they cannot now get out of, by their excessive views on public expenditure.

I make it clear to this House that I do not go back in any way on what I have done in the past as Chief Secretary to the Treasury or on what I have said at any other time. We must control levels of public expenditure. But there is an enormous difference in resource terms; in finding resources, at the present time and with the present state of our economy, for increases in capital expenditure without allowing public expenditure to get out of control. There is enormous difference. I accept responsibility for what I have said, notwithstanding what the noble Lord said recently in answer to another Chief Secretary when he spoke—wrongly, as I am sure he now recognises—on the question of how revenue is used. To some extent I accept the responsibility of introducing cash limits in the way that I did which did not distinguish between capital and current expenditure. But that is no excuse for the current situation, because if the Government cannot get us out of the hole they have dug by increasing personal consumption and by getting us into an export-led boom there is no other way than through increasing capital expenditure, as a number of noble Lords have said in this debate. Yet because of their obsession with a particular level of public expenditure they are unable, without eating their words, to do it. I very much regret to see that that is the situation into which they have led themselves by their, to say the least, somewhat dogmatic approach.

In a longer debate I should certainly hope to indicate other ways in which we might at least do better as a nation. For the moment it can only be said without fear of contradiction that, if the policies of the past four years are persisted with, there can he no long-term prospect for a sustained reduction in unemployment without increasing inflation. Indeed, the very reverse will be the case. This, despite the enormous misery that has been inflicted on millions of our fellow citizens.

I know this is a pleasant place where one does not make serious criticism, but I hope that I may conclude by saying, in as non-controversial a way as I can, that Ministers with any responsibility would need to be pretty insensitive not to feel some sense of shame for what their policies have achieved in the past four years.

7.14 p.m.

Lord Cockfield

My Lords, this has been an interesting and instructive debate and it has been marked by a number of distinguished and thoughtful contributions. The discipline exercised by the time limit has, I think, noticeably improved the quality of the debate even if it has somewhat reduced the quantity.

May I in particular congratulate the noble Lord, Lord Dean of Besvvick, on a distinguished maiden speech. We all listened to him with very great interest and his description of the problems facing the cities of Leeds and Manchester, of which he has very close personal knowledge, was particularly interesting. We look forward to the opportunity of hearing from him again on many occasions in the future.

I was glad to see from the Motion on the Order Paper that the noble Lord, Lord Jacques, now recognises that the Government are entirely right in their policy of ensuring that inflation should not be increased. Of course, we go somewhat further than the noble Lord and believe that inflation should be reduced. But we welcome his conversion so far as it goes. We share, of course, the noble Lord's concern at the position of the unemployed. I would not accept some of the noble Lord's descriptive material. In particular, perhaps I might say that unemployment benefit will be increased by 8½ per cent. in November and it will then stand, in real terms, at a higher level than it did at the time we took office.

If by saying, as he does in his Motion, that unemployment needs to be reduced he means that we would all most sincerely wish to see unemployment reduced, then so far as this objective is concerned there is nothing between us. Where we part company is in our analysis of the part that Government can and ought to play. In this connection I was particularly struck by the speech of my noble friend Lord Mancroft with his reference to the illusions which hinder our attempts to deal with these problems. I entirely agreed with him when he said that modernisation and new technologies create jobs and do not destroy them. Very much the same point was made by the noble Viscount, Lord Hanworth, in what he described as his four-times delayed speech.

I start by defining the role of Government and the role of industry as we see them. The function of Government is to provide the right framework within which the economy has to operate. It is the function and responsibility of commerce and industry, of management and of workers, of businessmen and entrepreneurs, to seize the opportunities, to improve productivity and competitiveness, to expand output and thus to create more employment and new employment. That is the way that unemployment is reduced.

At this point may I dispose of what I describe as the old fallacious solutions, many of which have been paraded once again this evening. First, reflation; that is, a substantial increase in Government expenditure. The only conceivable result of such a policy would be to increase inflation, push up interest rates and thus, after a brief period, reduce output and increase unemployment. I entirely agree with the comments of the noble Lord, Lord Harris of High Cross, on this point. We cannot dismiss the consequences of an increase in Government expenditure of this character. We cannot simply dismiss them as side effects which ought to be tolerated, as the noble Lord, Lord Han worth. suggested.

Viscount Hanworth

My Lords, I did not say that. I said that there were side effects and we ought to go on considering whether these side effects were acceptable. I did not say that they were acceptable.

Lord Cocktield

My Lords, if the noble Lord agrees that they are not acceptable, there is nothing between us. It is very important in this connection to look at what has happened.

If one looks at the decade of the 1970s, money incomes increased by something like 345 per cent. During that period output increased by 17 per cent. only. This was a period in which repeated attempts were made to increase demand. There was no shortage of demand whatever: but virtually all the additional money which was pumped into the economy in this way simply came out in the form of inflation. The one thing that it did not do was to increase the level of output. There is no reason to suppose that precisely the same would not happen again. Indeed, as the noble Lord, Lord Hams of High Cross, said, there is no shortage of demand at present.

The second point is incomes policy. This is the spavined, broken winded nag of economic policy. It has been tried seven times, and seven- times it has failed. With that sort of form, if anybody wishes to put his shirt on it he is likely to lose it. The noble Lord, Lord Rochester, at least admitted—and I am glad that he did—that in the next four years we are not likely to see any reappearance of an incomes policy. Of course if his point is that it is highly desirable that people should understand the facts of economic life, I am entirely at one with him. The more that people understand the way that the economy works, the better it will be for all of us. The thing that one cannot do is to impose either by statute or under the guise of voluntary action a form of incomes policy of the kind which has been tried and which has repeatedly failed in the past.

May I take also the question of import controls? We export 30 per cent. of our total output of goods and services. This is one of the highest figures for any industrialised country in the world. If we went in for import controls we should be wide open to retaliation and we should be the losers from such a policy. There is no question about that at all. In certain instances where our industries are seriously damaged by imports from low cost countries, often employing unfair trading practices, we take action wherever it is legitimate for us to do so. But any form of generalised import control will make the position of this country more difficult and not easier. It will increase, and not reduce, unemployment. So much for the answers that we do not want.

I turn briefly to the answers that we do want. It is the proper function of the Government to provide these. It is the function of the Government to maintain sound money, to reduce inflation and to keep it on a downward path. This is essential if there is to be confidence, if people are to trust the future, if they are to be able to plan ahead and if they are to invest for the future. Reducing inflation requires sound financial and monetary policies. These we have followed. The success is there to be seen. Inflation has come down from a peak of 22 per cent. to 5 per cent. now. Next year inflation will resume its downward path. We must be resolute to keep it that way. I was grateful to the noble Lord, Lord Rochester, for his recognition of the importance of this point.

I turn next to interest rates. The level of interest rates is determined by both international and domestic factors. We cannot control what happens in the international field but we are responsible for what happens at home. Excessive borrowing by the Government means high interest rates. Less borrowing means lower interest rates. We have reduced drastically the size of the Government's borrowing requirement as a proportion of total national product. Interest rates have come down by seven percentage points since the peak of 1981. Base rates now stand at their lowest level for five and half years.

The noble Lord, Lord Jacques, raised the question of fixing, stabilising or pegging exchange rates. We had a most interesting debate on this issue in your Lordships' House as recently as Monday. One of the major problems is that if you try to stabilise exchange rates by a device such as the exchange rate mechanism of the EMS or by some other device you shift the pressures from exchange to interest rates. If your domestic policies are right, you are likely to end up with the right mix of interest and exchange rates; but if you set out to control exchange rates when your domestic policies are wrong, or where there is a lack of convergence between your economy and the economies of other countries, you end up with instability of interest rates in place of instability of exchange rates. The CBI has argued with some justification that that instability is just as damaging as instability in exchange rates.

Next I come to Government expenditure. Over the years Government expenditure has absorbed too big a proportion of the national product. It grew after 1979 but never quite reached the peak of 46 per cent. scored under the LabourGovernment. But now at last Government expenditure is on a downward path. Much Government expenditure is unavoidable and provides services that people want. But you can have too much even of a good thing. Expenditure in the public sector has to be supported out of the wealth generated by the private sector. You simply cannot have a healthy economy where more and more has to be supported by less and less. So we have Government expenditure as a proportion of output on a downward path. It must continue that way.

I deal next with the labour market. If an economy is to operate efficiently it is essential to improve the operation of the labour market and to remove rigidities and artificial constraints. Our trade union legislation is directed to reducing the excessive power of trade unions to cause industrial disruption or to take action which prices their members out of jobs. There is an important—and indeed essential—part for both employers and workers to play here. Constructive trade unionism directed to looking after the true interests of its members rather than playing politics could make a substantial contribution to improving our competitiveness and creating new job opportunities.

Let us consider enterprise, initiative and innovation. We have abolished a whole string of controls on pay, prices, dividends, exchange control and hire purchase controls. We have introduced 100 measures to help trade and industry, particularly new small businesses. We have introduced enterprise zones, 24 of which have now been authorized. We give massive support to science and to research and development. Total Government expenditure on research and development this year will exceed £4 billion.

Training is a subject that was raised by a number of noble Lords. We need a skilled workforce to take advantage of the opportunities particularly in new industries and new technologies. The new youth training scheme will cost £1 billion a year and will bring nearly half a million employed and unemployed young people into a single integrated programme of high quality giving training for work. I can assure the noble Lord, Lord Rochester, who raised this point, that the youth training scheme will continue. The Manpower Services Commission will watch the position carefully to see whether any changes are necessary in the light of experience.

As for the long-term unemployed under 25, the community programme was started in October 1982 to provide employment opportunities for the long-term unemployed. By the end of October 1983, 106,000 places had been filled. This represents a considerable achievement on the part of the Manpower Services Commission. Places have been filled rather faster than expected, and my right honourable friend the Secretary of State for Employment will be proposing an additional £10 million for this service by means of adjustments made elsewhere. My right honourable friend has also announced that the programme will run for a further two years from October 1984 on the basis of 130,000 filled places for the long-term unemployed.

The noble Lord, Lord Jacques, suggested that the national insurance surcharge should be abolished. We have made clear our dislike for this particular tax. Perhaps it would be unkind to remind him that it was introduced and increased by the Labour Government. It stood at a rate of 3½ per cent. when we came into office. We have now reduced it to 1 per cent. and my right honourable friend the Prime Minister has said that we will abolish it during the lifetime of the present Government, but I cannot at this stage be more specific than that.

The noble Lord, Lord Rochester, raised the question of energy prices. The Government has already done a great deal to assist industry with energy costs. Industrial electricity prices have been frozen for 1983–84 and new load management schemes have been introduced which offer reduced tariffs. Gas contract renewal prices have risen only 3½ per cent. in the last three years. Heavy fuel oil duty has been frozen for the last three years.

It is essential that—I have been talking about the part played by Government—we improve our competitiveness. Here the level of pay settlements is crucial. In the last 20 years our share of world trade has been halved and import penetration of our home market increased dramatically. This has been one of the main reasons why unemployment in this country has been higher than in most other countries. But it is not sufficient for pay settlements to be modest. Other countries are improving their position, too. Pay settlements have come down substantially but they need to come down much further. Pay, of course, is not the only factor. We must improve productivity. We need better design; better quality; higher standards; more aggressive salesmanship at home and abroad. We need to produce the right goods; of the right design; of the right quality; and at the right price. All these are matters within the responsibility and competence of industry itself. Success here means success in export markets and in home markets alike and it is this success that we can build increased output and increased employment.

We are too much inclined as a nation to complain about our lot; too much inclined to dwell upon our difficulties and our failures. Complaints, once justified, continue to be trundled out long after they have ceased to have justification. Let us instead concentrate on the things that are right. Let us take credit for our achievement. Let us build upon our successes. The British economy is not plunging downhill into recession. On the contrary, our feet are now firmly on the path leading up and out of the recession. This is really the answer to the noble Lord, Lord Barnett, in his claim that Government policies were not producing the results. Just look at the record today compared with early 1981: output up by 5 per cent.; industrial output up by 6½ per cent.; output of chemicals and man-made fibers up by 10 per cent.

Lord Barnett

My Lords, would the noble Lord care to tell us why he is comparing the position with 1981 rather than with, say, an earlier year?

Lord Cockfield

My Lords, I am comparing it with 1981 for the very simple reason that that is when we reached the bottom of the recession. If you are looking at the path of the economy, you look at whether one is going up or down. The noble Lord's gaze is firmly fixed on the past when we were going down. The position for two years now is that the economy has been recovering and I hope this will give the noble Lord some encouragement because I am going on like this.

Output of chemicals and man-made fibers is up by 10 per cent.; output of engineering and allied industries up by 6 per cent.: total investment up by 7 per cent.; productivity in manufacture, up by 17 per cent.; inflation down to 5 per cent., the lowest rate since the 1960s; interest rates are down by 7 percentage points since the peak. All this adds up to recovery; not recession.

Unemployment, tragically., still remains much too high, but not as high, for example, as in Belgium, the Netherlands, Ireland or Spain. and only moderately above the EEC average. Even here there are encouraging signs. In many industries employment is now increasing—nearly 150.000 new jobs in the service industries, for example, in the first half of this year. Vacancies are at their highest level since early 1980. Short time working is less than a quarter of what it was two years ago. Overtime is on the increase. Total employment, including self-employment, is increasing and the underlying trend in unemployment may be leveling out.

No one would dissent from the aspirations expressed in the Motion itself. We are all against sin and in favour of virtue, but good intentions need to he backed by sound policy. We in this Government have those policies. The policies we are following are the right policies to maintain sound money, reduce inflation, and increase output and employment on a sound, enduring, long-term basis, and these policies are working.

The noble Lord, Lord Barnett, is a distinguished ornament in the City of Manchester. May I, therefore, quote to him the words used by Emerson nearly 140 years ago of the City of Manchester: This aged England: I see her not dispirited, not weak, but well remembering that she has seen dark days before: indeed, with a kind of instinct that she sees a little better on a cloudy day, that she has a secret vigor and a pulse like a cannon.

Viscount Hanworth

My Lords, before the noble Lord sits down, would he agree that this is a short debate and that he has not really dealt with the contributions of individual speakers in any great detail? All that he has usefully said could really have been said in 15 minutes.

Lord Cockfield

My Lords, I must take issue with the noble Viscount. I have endeavoured—admittedly in a comprehensive form—to answer most of the points that have been raised in the debate, including the points raised by the noble Viscount. There is a problem in a debate of this sort because there is some limitation on time. Although I have spoken longer than I would normally have done due to the courtesy of noble Lords in keeping their own speeches so brief, I felt that it was not really appropriate for me to go on at any much greater length.

Lord Molloy

My Lords, before the noble Lord sits down, does he not think that he might have mentioned the massive anguish among small businessmen? In the period that he talked so glowingly about, there has been a massive increase in suicides and the largest rise in bankruptcies since the First WorldWar. Was it not worth mentioning that that matter, too, is to be tackled?

Lord Cockfield

My Lords, so far as businesses are concerned, there are always casualties. One greatly regrets seeing this happen. The number of new businesses starting up is greater than the number of businesses that fail. We have gone to very great lengths to give help and encouragement to provide incentives for small businesses. As I mentioned in my speech, we have introduced 100 measures of this kind.

Lord Jacques

My Lords, as there is another debate to follow, I shall rest content with congratulating my noble friend Lord Dean of Beswick on a distinguished maiden speech, and also my noble friend Lord Barnett on his first speech from the Dispatch Box, which was indeed distinguished. I also wish to thank all those who have taken part in the debate. Although I am not wholly happy that there has been the amount of agreement which I had expected, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.