Industrial Resources—Redeployment: EC Coal Policy

HL Deb 22 February 1984 vol 448 cc782-832

Debate resumed.

4 p.m.

The Chancellor of the Duchy of Lancaster (Lord Cockfield)

My Lords, I propose taking a broad view of the canvas which my noble friend Lord Lauderdale has painted in a speech of great interest and insight and, indeed, prophetic quality. There was much, too, in what the noble Lord, Lord Kearton, said with which I would agree—not quite everything—but he speaks from an enormous fund of practical experience.

We do, indeed, need to look to the future and to be quick to seize the opportunities which open up before us. We have lived through a period of severe recession and a period characterised by great changes in the economic structure of the developed and the undeveloped world alike. Adaptation to change is difficult, even in times of prosperity. It is doubly difficult in times of recession. It is particularly helpful, therefore, to have this debate at a time when there are encouraging signs of economic recovery, when we can ensure that as the economy recovers it is pointed in the right direction.

Recovery is certainly now well under way. Growth of GDP in the first three-quarters of 1983 was 3 per cent. above the same period in 1982. Industrial output is well up—some 6¾ per cent. higher than at the bottom of the trough in 1981. Output of chemicals, electrical and instrument engineering, car production and private sector housing all show very healthy increases.

Our rate of growth in 1983 was higher than in any other country in the European Community, and we expect it to be higher also in 1984. It is unusual for the United Kingdom's economy to be pointing the way. It is particularly encouraging that in this instance it is. Hitherto, consumer expenditure has been the mainspring of that growth. This is normal in the early stages of recovery. Henceforth, we should expect to see investment and exports take up the running. Indeed, total fixed investment is now 10 per cent. higher than at the trough of the recession. Exports are rising strongly, corporate profits are rising and liquidity is improving rapidly. These are healthy developments which bode well for investment and for the future.

The Motion stresses the importance of structural change in the economy. No economy can be static. Patterns of economic activity and employment are under constant change. About 350,000 people enter and leave employment every month. There are some 6 million job changes in every year. These changes require people to change the industries they work in, the places where they work, their skills and occupations and their working practices. The pace of change is quickening—the evidence is all around us—and it will continue to quicken.

Market economies have a great capacity to cope with change. This is their great strength compared with planned economies. Experience shows that no planning techniques can match the efficiency of the market economy as a means of satisfying customer demands and adapting to changes in those demands.

Within the manufacturing sector itself there have been major structural changes, but the picture is far from one of universal decline. Expanding manufacturing industries over the last decade include aerospace, chemicals, instrument and electrical engineering and particularly electronics, which are up by some 56 per cent. in real terms over the period, and pharmaceuticals which are up by 73 per cent. Of the sectors whose output has declined over the last decade by more than average, there are a number of heavy industries—metal manufacture, which includes steel, down 34 per cent.; shipbuilding down 25 per cent. and mechanical engineering, not all of it "heavy", down by 17 per cent. Because of our history, it was inevitable that many of the older industries would decline. Their problems have been worsened by the severe world recession that followed the second oil crisis in 1979 and by the spread of industrialisation in the third world. There is, indeed, a price to be paid for support to the third world.

The lack of competitiveness of many of our industries has also been a factor. This has been seen in a reluctance to accept change by both management and labour, leading to a refusal to adopt working practices or new technology which are commonplace among our competitors, or to recognise the imperative of closing uneconomic units and concentrating investment and output where efficiency is highest.

My noble friend's Motion calls attention to the need for resources to be transferred from the declining industries to the growth points of the economy. I agree with the sentiment behind the Motion. The recovery upon which the economy is now embarked will develop into sustained growth only if British industry further improves its competitiveness, and if unnecessary restrictions on the processes of adjustment and change are swept away.

The task of raising competitiveness is one for industry itself. The main contribution of this Government has been their determined fight to bring inflation under control by strict control of public expenditure and monetary growth. The success of this policy is there for all to see. Prices actually fell last month for the first time in 14 years and the inflation rate is now on course to drop below 5 per cent.—better than almost all of our competitors.

Provided the Government themselves follow responsible monetary and financial policies, the key to continuing success is moderation in wage settlements as the recovery picks up and as the demand for labour increases. And there are encouraging signs that people really do now understand that excessive wage settlements reduce employment opportunities. In contrast, falling unit labour costs and increasing productivity mean increased competitiveness, higher output and greater employment. There is still a long way to go to improve British industry's competitiveness, if we are to match the best in the world, and further structural change will certainly occur and, indeed, will need to occur.

The Motion draws specific attention to the problem of the heavy, high-cost industries with surplus capacity. Many of these industries are located in areas where unemployment is high. The skills of their labour forces are in limited demand in the growing parts of the economy. It is this which makes their contraction so painful.

My noble friend's Motion is coupled with a debate on the Select Committee's report on the coal industry. We all recognise the importance of that industry; the opportunities that are open to it and the problems that it faces. In many respects, it illustrates better than anything else the problems associated with change in an industry with a long history and one which, given the right policies and the right attitudes, has an equally long future. I will leave detailed comment on the coal industry to my noble friend Lord Avon, who will be speaking at the end of the debate when he has had the opportunity of listening to the contributions made by your Lordships. I myself will choose as illustrations two other heavy industries which have had to undergo a period of reconstruction; namely, steel and shipbuilding.

The steel industry is the locus classicus of misdirected public investment. Huge sums of money were invested in facilities which were not, and never would be, required. No better illustration exists of the fact that capital expenditure, whether public or private, is of no avail unless it is properly directed and profitable, otherwise it is simply a waste of the nation's resources. This misdirected investment, coupled with poor productivity and overmanning, left the industry ill-equipped to face the appalling problems brought by the world recession. But vigorous measures have been taken. They are now hearing fruit in markedly higher productivity and a sharp reduction in losses. Manpower has been halved. Output is now rising. But we have to accept the fact that the industry will be much smaller than it was—as, indeed, is true for Western Europe as a whole. But at least on this basis we have the opportunity of establishing a viable industry with a long term future. This is the most interesting and, indeed, heartening illustration of the way that an industry, which at one time seemed to be on the brink of disaster, can be saved and offered real hope for the future as a result of the combination of vigorous management and a workforce prepared to adapt to change.

While, for steel, there is real promise for the future, the picture in shipbuilding—particularly in merchant shipbuilding—remains clouded. Here again, we have an old industry, bedevilled by restrictive practices, characterised by overmanning and with an appalling record of productivity which no one now, on either side of the industry, would seek to defend. The Government have been generous in their help. We have provided nearly £1,000 million since we took office. But there is a very long way to go in improving productivity and reducing overmanning if orders are to be secured and the investment justified. But the industry does now have a vigorous new chairman, and therein lies its best hope.

While then we must make every effort to improve the efficiency and viability of the old industries, for the future we must look increasingly to the sectors of the economy which are expanding. This is where the new jobs and the new prosperity will come from. These are the industries producing and using the advanced technologies—in manufacture, in communications and in the service industries. I have already given a number of examples. We need to be ready to adapt to changes in technology and to changes in the pattern of demand for goods and services. That adaptation needs to take place at all levels. As individual employees and managers we need to be prepared to embrace changes in technology and the alterations in our attitudes and working practices which must follow. And as a country we must also take full advantage of the growth in the services sector which has been taking place over the last decade.

The term "service industries" has begun to acquire in some quarters a somewhat disparaging connotation. This is based on old folk memories going back to the days before Adam Smith wrote The Wealth of Nations. The term "service industries" tends to be associated in many people's minds with hotels and tourists, with leisure activities and so on. These are important, both in terms of domestic industry and in terms of exports. But the really important point to make is this: the emerging new technologies—in the North Sea, in communications, in electronics and in computers—frequently reside in what are called "service industries". Even British Telecom, if I may be forgiven for quoting that example, is a "service industry". London, too, remains the centre of the financial world: banking, insurance, consultancy and a host of other services which strengthen our economy at home and abroad. Manufacture could not exist without the service industries to support it. There is no conflict—except artificial conflict created for the purposes of debate—between "manufacture" and "services". They are a partnership, but a partnership where, not just in this country but in all advanced economies and particularly in the United States, the services partner is showing the greatest vigour.

For every 20,000 jobs which are shed by manufacturing industry, 25,000 are created in the service industries. This is partly a direct response to the fact that advancing technology and changes in the pattern of tastes and incomes mean that we spend more of our income on services. But it also reflects the fact that the increasing complexity of manufacturing processes and of the market mean that more and more aspects of development, of production, of design, of distribution and of marketing are now being supplied as specialist services instead of being supplied in-house. Part of the apparent decline in manufacturing activity is accounted for by a transfer of some of that activity to the services sector. The same trends are responsible, at least in part, for the growth of self-employment which replaces conventional employment. The "lump" in the building industry is a familiar example, but we are seeing the same development elsewhere.

These changes in the pattern of our economy are well illustrated by the fact that total employment in services has grown by some 1¼ million in the last 10 years. An extra half million of these jobs were created in professional and scientific services, and a further 0.3 million in insurance, banking, finance and business services. No less than 210,000 new jobs were created in the service sector in the first three quarters of 1983. In all, some 63 per cent. of the total labour force is now employed in the service industries and they account for about the same percentage of total output.

The Government's primary responsibility is to set the right framework within which industry operates, but in addition the Government do spend substantial sums in various forms of financial assistance to industry. The objective is the promotion of an efficient and profitable industrial sector and an expanding private sector of the economy. Financial assistance is intended to help industry to adapt and respond to new pressures and new opportunities. Our aim is to make this spending more cost effective and more conducive to enterprise and growth and, therefore, to the creation of new jobs in new fields.

An important part of our financial assistance is devoted to regional policy. We are committed to an effective regional policy to ease the process of change in hard hit areas and to encourage new businesses in those areas. But we are reshaping regional policy to make it more cost effective, more attuned to the need to improve our competitiveness and, in particular, more effective in creating genuine and lasting new jobs.

A rising proportion of our financial assistance is directed towards the encouragement of research and development and innovation. It is our policy to encourage innovation in all sectors—in mature industries as well as in the so-called "sunrise" industries. Expenditure on the "Support for Innovation" programme is currently running at a rate of £330 million per annum.

Also vital to the process of adjustment and growth is the reduction of the many barriers to change which seem to be so much a feature of British society and its institutions. While, again, much of the responsibility must lie with industry itself, the Government are playing their part. We have dismantled a whole host of controls—dividend controls, exchange controls, price controls, hire-purchase controls—which inhibited and distorted the efficient working of the competitive market system.

Of particular significance is the major programme of privatisation which will free many industries now unnecessarily in the public sector from the constraints of Government control, and expose them to the challenges, disciplines and, above all, the opportunities of the market place.

We have taken important steps to make the labour market work more efficiently. This is vital to the process of helping resources move from the declining to the growing parts of the economy. Our education and training system must be more responsive to industry's needs. The technical and vocational education initiative promotes experiment in schools, while the youth training scheme assists with the transition from school to work. The new training initiative will reform skill training by replacing traditional time-serving apprenticeships by a system of standards, and will open up training opportunities for adults.

It is through greater adaptability, mobility and entrepreneurship that the future of our industry, and therefore of our standards and way of life, depends. As I have said, the Government's responsibility is to provide the right framework within which economic change can take place more smoothly and more quickly. Government cannot determine the process of change. Still less can they determine the manner and places in which change will happen, The future structure of industry, and therefore the future pattern of jobs and employment, depends upon the individual choices of employers, employees and customers—above all, upon the choices of customers. It is when industries have neglected to recognise and respond to their customers' needs that industries have been forced into decline. Conversely, growth and output follow success in meeting the needs of customers. My Lords, my noble friend's Motion is timely; I am sure it will stimulate an interesting and constructive debate.

4.23 p.m.

Lord Stoddart of Swindon

My Lords. I, too, would like to congratulate the noble Earl, Lord Lauderdale, upon introducing this subject. Indeed, I should like to congratulate him on the manner in which he moved his Motion. It showed an erudition and great knowledge of the subject. I very much enjoyed his speech and I hope that the House will learn from it. I was impressed also by the introduction to his report by the noble Lord, Lord Kearton. Again, he showed not only a knowledge of the oil and coal industries—indeed, of all the fuel industries—but also that he has an enormous grasp of the economic problems and industrial policies which face us at the present time.

The noble Earl, Lord Lauderdale, drew the attention of the House to the fact that we had a visible trade deficit last year of some £5,000 million. He rightly said that that was a disaster for this country. Most of that visible deficit occurred in the EEC; the visible trade deficit for the EEC last year was £6,000 million. I merely mention that to point to the fact that in other markets of the world we are still creating surpluses although—because we do not import their goods—we have taken away their ability to buy our own manufactures. Therein may lie one of the keys to future success. In other words, we should broaden our approach to the world market.

The noble Earl was also concerned that by the end of the century we may be suffering blackouts. I do not happen to agree with him, and I shall seek to show why when I come to deal with the Select Committee's report. He mentioned also the PWR in France. He felt that that was a great, forward-looking programme of investment in a modern industry, and that France will be seeking to export her electricity elsewhere.

In the latter of those contentions, I believe that the noble Earl may be right—because the French have over-stretched themselves in the provision of nuclear energy. Indeed, there was a recent report in the Financial Guardian headed, The Great French Nuclear Disaster". It has been a disaster because the French have invested in a programme of nuclear power stations far in excess of any demand which exists now or is likely to exist in the future. Indeed, about half of French nuclear power plants are standing idle at the present time.

If nuclear plants are good for anything at all, they are good for base load. They are not flexible enough to deal with loads which are fluctuating. Therefore, the French nuclear power industry is now carrying—or the consumers are now carrying—the burden of enormous capital expenditure which is lying idle. I hope that we shall be very careful before we embark on a similar adventure.

The noble Lord, Lord Kearton, broadened this discussion to an extent which I would not have dared to contemplate, lest I was accused of being party political. Nevertheless, I am glad that the noble Lord did broaden the debate to that extent, because everything he said was so absolutely right. He pointed to the difficulties, and he almost rehearsed the debate which the noble Lord, Lord Cockfield, and myself had last night over the future prospects of our country when North Sea oil revenues stop coming into the Exchequer and no longer enable our balance of payments to be in credit. The noble Lord, Lord Kearton, described very graphically how, when North Sea oil revenue ceased to flow, and if we have not by then recovered our manufacturing industry, this country will be in a very difficult situation. He was absolutely right, and I sincerely hope that the Government will take note of what he said.

The noble Lord was also right to draw attention to the blatant overpricing of gas and electricity. Again, the noble Lord is so right. Only today his view was confirmed by House of Commons Select Committee on Energy which produced its report on energy pricing in the gas and electricity industries. I would like to quote what they said about electricity prices: We would summarise our conclusions on the proposed electricity price increase as follows. It is not justified on the grounds either of the industry's financial target or the Government's economic pricing policy. The only plausible reason for it is the Government's desire to raise additional revenue for macro-economic purposes. This being the case the Treasury should have the honesty to say so rather than retreating behind a smokescreen of economic pricing. Finally, the manner in which the 1984–85 EFL was imposed on the industry is in conflict with the agreed framework within which the Government and nationalised industries are supposed to operate". That absolutely confirms what the noble Lord, Lord Kearton, said. I would draw attention to the fact that that was not a report produced by the Labour Party or the Liberal Party; it was produced by the all-party Select Committee on Energy, on which, of course, a majority of Conservatives serve.

The noble Lord, Lord Cockfield, made an interesting speech and my noble friend Lord Bruce will deal with that when he comes to wind up later this evening. I say this: the noble Lord, Lord Cockfield, painted a rosy picture of Britain in 1984. But the facts, my Lords, are quite the reverse; it is not a very rosy picture at all. He pointed to a rise in output, but the fact is that total output is still 10 per cent. below that of 1979. And industrial investment, although rising slightly, is nearly one-third below that in 1979, while we still have over 3 million unemployed. He boasted about the inflation rate of 5 per cent., but I would submit that it is very simple to have a low inflation rate when you have the lash of mass unemployment and steady or falling commodity prices abroad. But, as I have said, my noble friend Lord Bruce, who has proved to be a great sparring partner for the noble Lord, Lord Cockfield, will be dealing with other aspects of his speech later on this evening.

I would like now to come to the report of the Select Committee itself; that is the report on European Community Coal Policy. I would like to welcome the report because it has dealt with a difficult and complex problem in a clear-minded and sensitive manner. I am particularly pleased that the Select Committee recognised the need to handle any closure problem humanely and with proper regard for industrial relations and social consequences. That is not to say that we necessarily agree with any closure programme which goes beyond the need to close pits on grounds of exhaustion, and any programme of closures beyond that must take into account the very pertinent point made by the National Union of Mineworkers, that the total cost of closing mines other than on grounds of exhaustion could well cost the taxpayer more than if such pits were kept in production.

In this connection I would like to ask the noble Earl, Lord Avon, who will be speaking later, if he could give us some news about future pit expansion. As he will know, South Wales will be particularly hit by closures, but nevertheless there are good reserves of coal at Margam. I would like him in particular, if he can do so, to make some announcement about that during his winding-up speech tonight.

It is of course a cause for concern that stocks of coal are at record levels and it would clearly be beneficial if stocks could be lowered. However, that need not be achieved by reducing coal production. Indeed, from the long-term point of view that could be a disastrous course. There is a much better way, and that is by increasing demand for coal, both in the United Kingdom and in the EEC, by increasing industrial production and ensuring that coal-using industries in Britain are given a fair share of the European market. One could argue in general terms that the present Government's total economic policies have depressed demand at home for British goods, and have opened the floodgates to a tidal wave of imports which have hurt not only the coal industry but many other industries, particularly in manufacturing, forcing a record number into bankruptcy. But that ought to be the occasion for another and wide-ranging debate on the economy generally, and I hope that we shall have such a debate in the not too distant future.

I want therefore to concentrate on one industry whose fortunes over the last five years have directly affected the coal industry and the demand for coal. I refer to the steel industry, where crude capacity has fallen dramatically among EC steel producing countries, and Britain, I find, is alone in reducing capacity below what it was in 1973. For example, we find that in West Germany there has been a percentage change of plus 15 per cent., in Italy plus 41 per cent., in France plus 0.5 per cent., in Belgium plus 10 per cent.; and in the United Kingdom minus 16 per cent. That of course, has caused great difficulties for the coal industry. The Government in this country have accepted targets for cutting steel production and closing steel plants which other nations have not been prepared to accept.

Even when considering the financing of the coal industry in this country, the support given has to be brought into proper perspective. According to the Select Committee's report, the total subsidy per tonne paid in respect of British coal in 1982 was 5.76 ECUs. Yet in the Federal Republic of Germany it was 15.37 ECUs per tonne, in France 30.77 ECUs per tonne and in Belgium 31.68 ECUs per tonne. On that comparison British coal gets the least support, and yet it has the cheapest deep-mined coal produced in the EEC.

Table 5 of the Select Committee's report sets out the total grants to the NCB between 1974–75 and 1983–84. They set out a total of £2,643 million. Certainly that is a formidable sum, but again it has to be seen in perspective. For example, let us compare that sum with agricultural support. To be completely fair, I have extrapolated the figures for coal support between 1979–80 and 1983–84, the worst case figures as far as coal is concerned. I have done a similar exercise for agricultural support. The total support for coal, including social grants, was £2,142 million. For agriculture the total grants—that is, through CAP and national sources—over the same period amounted to £5,783 million, of which £2,125.4 million was paid by our own national Exchequer. In other words, from national sources alone financial support for coal and for agriculture are virtually the same.

In spite of that identity of support, the attitudes to both industries are completely different. In the case of coal, because stocks are high and demand low, there is pressure for closure and retrenchment, but in the case of agriculture, where stocks in intervention, particularly of grain and dairy products, are a positive embarrassment, and demand is low, production is allowed to go on unchecked and surpluses are sold at rockbottom prices on the world markets. I make this point not to attack the farming community but merely to show the difference in attitude towards the two industries, which is puzzling and potentially damaging to our future economic wellbeing. Mistakes made now about the coal industry could cost us dearly a decade hence and on a long-term basis, whereas the nature of agricultural production allows more flexibility in planning.

If it is desirable that the Community should be self-sufficient in food supplies, it is even more necessary that it should be as near as possible self-sufficient in coal supplies. That is why I am so concerned that the report seems to accept quite readily that the shortfall in coal supplies in the European Community should be met from outside the Community rather than by an expansion of coal production within the Community, particularly from British coalmines. That is an issue which must be further examined and provides an opportunity for Britain to obtain some recompense from the EC for our unfavourable treatment through the CAP.

I now turn to nuclear energy. First, I want to make the point that on the basis of demand there is no need to build any new power stations for some while yet. We have a surplus capacity in England and Wales of 30 per cent. and in the south of Scotland a surplus capacity of over 100 per cent. That is the present situation, before the AGRs at Heysham and Torness come on stream and certainly before Sizewell comes on stream. Therefore, I believe that it would be a mistake to proceed with the building of a PWR at Sizewell. It would be far better to re-plant the coal-fired stations as they come to the end of their useful lives, convert existing power stations and build new smaller power stations on the basis of CHP district heating. That would have many advantages. It would give a much better flexibility on the total electricity system and, what is more, it would be a much more efficient use of our coal and other energy resources throughout the country. I hope that very soon the noble Earl, Lord Avon, will be able to make an announcement about the first CHP scheme as recommended by Atkins.

That is not to say that we are against nuclear power, but it would be absurd to introduce the PWR at this or any stage, especially bearing in mind current experience in the United States. In my view, if a programme of nuclear power is necessary we should concentrate on the fast reactor programme. The noble Earl, Lord Lauderdale, raised that point; that this is perhaps the new form of nuclear energy that should be concentrated upon. It is likely that a competitive commercial fast reactor could go on stream by the turn of the century. We already have 20,000 tonnes of depleted uranium in stock, which is sufficient to meet electricity demand at current levels for 400 years—I repeat, 400 years. This will be added to over the next 30 years as further supplies of depleted uranium becomes available from the operation of existing fission power stations—namely, the Magnox and AGR stations. There would he the further benefit from this of ending our reliance on imported uranium supplies.

Therefore, the Government should take particular note of the report's conclusions; that there are good long-term prospects for the coal industry and that action should be taken to ensure that there is continued coal production in the EC to ensure security of supplies. They should also take note of the report's call for the capital reconstruction of the coal industry, particularly in respect of writing off the whole, or a substantial part, of the outstanding debt, which, as the report says, would help give the industry a new start and improve morale.

Finally, I hope that the Government will pay heed to the general ethos of the report, which is sympathetic to the mining industry, to those who work in it and to the communities who depend on coal mining for their survival. The report gives the Government an opportunity for a fresh start through a new tripartite partnership between the Government, the NCB, and the NUM and the other coal industry unions. If that opportunity is grasped, it could herald a new and prosperous era for the coal industry itself and the country as a whole.

4.45 p.m.

Lord Ezra

My Lords, in rising to speak in this important debate I should like to crave the indulgence of the House if I leave before it is terminated because some months ago I committed myself to going to Eastbourne to speak to a large gathering on the subject of industrial investment, which is not far removed from the present subject. Therefore, I shall journey to Eastbourne carrying the wisdom of this House on this subject.

I add my appreciation to that already expressed by noble Lords who have already spoken, to the noble Earl, Lord Lauderdale, and to the noble Lord, Lord Kearton, for introducing these two very important related subjects. They have raised one of the most fundamental issues which confront our society: the problem of restructuring, to put it in shorthand. We are facing perhaps one of the most serious and important choices that we have had for many decades: in which direction do we go economically and socially? To be quite fair and to take an objective view, as is the practice in this noble House, there are certain positive elements in the situation. We are coming out of the deep recession which set in during 1979. Inflation is much lower than it was.

On the other had, we are faced with two very serious longer term problems. There is the question of unemployment, the figures for which were announced to this House yesterday in answer to a Question—13.4 per cent.; and it does not show much sign of coming down. There is the related problem, to which many noble Lords referred; namely, the balance of payments, For the moment it is still showing a positive aspect, but it masks the serious problem of the deficit on our manufactured trade, which in 1983, on the figures so far published, exceeded £5 billion. If, with the projected peaking of North Sea oil in a couple of years and, therefore, the diminution of the revenues that we can earn from exporting that valuable commodity, we see a continuance or even an acceleration of that loss of earnings on manufactured exports, then we should be facing a very serious situation.

I mention these two problems because they relate hack to our attitude to manufacturing industry. That is the real issue. We are moving out of a manufacturing situation into what the noble Lord, Lord Cockfield, referred to as a "service situation." He gave a modern definition of what the service industries mean, and we are beholden to him for that. But, as the noble Lord, Lord Weinstock, made clear during the Committee stage of the Telecommunications Bill, services are, however one defines them, there to serve. There is an inter-relationship between the service industries and manufacturing industries, and there must he a right balance between the two. Some of us fear—I happen to be one—that we are perhaps moving away from the right balance and that we are allowing our manufacturing base to diminish more than it should. If we go on allowing it to diminish at this rate we shall still need the products of its activity, and if we cannot get them from home manufacturers we must get them from abroad. If we do that we will inevitably slide into a chronic balance of payments crisis—and from past experience we know what that means.

That therefore raises the question of our attitude to future manufacturing development and whether we should be so quick and ready as we have been in recent years to depart from established industries and move into new ones. Of course we must seize on the new opportunities. But have we done enough to consider how the existing established industries could be revitalised? Have we paid sufficient attention to the application of the great new technologies that we all talk about—in particular, in communications, control equipment, and so on—to the existing industries? That is one of the fundamental issues that we need to face.

In a few moments time I should like to mention how I believe we should be approaching the coal industry's problems, in the light of what was said in the report that we are debating. But before that, with your Lordships' agreement, I should like to say a few words about the electricity industry, in particular in regard to the remarks made by the noble Earl, Lord Lauderdale, and the noble Lord, Lord Stoddart of Swindon.

The noble Earl, Lord Lauderdale, told us that he considered that a large proportion of the electricity generating capacity in this country was outdated, and he implied that it should be replaced. I think I have represented him fairly. But the noble Lord, Lord Stoddart, made what I considered to be a most important point. It is a point that I personally have been making for some years; namely, that we should consider the question of refurbishment as well as that of outright replacement. What is tending to happen in the British electricity generating industry is that a number of small stations, necessarily less efficient than the very big new ones, are being replaced with these big new stations. The big new ones cost an enormous amount of money. They have to be located way out in the countryside, and they replace a very large number of small stations. No doubt in terms of generating efficiency they have the edge on the small stations. But if we were progressively to refurbish some of the smaller stations and in particular introduce combined heat and power generation, there could be substantial benefits.

Let us recall that the smaller stations are located quite near the centres of population, and therefore the cost of generating combined heat and power from them would be very much less than it would be for many of the bigger stations, if indeed that were ever feasible. So I believe that in the case of the electricity industry we ought to be very seriously considering making good use of the location of the smaller stations and carrying out what appears to be the declared policy of the Government in the recently enacted Energy Act to introduce combined heat and power generation. There could be no better place for the combined heat and power plants than at the smaller stations which are on the list for closure.

Turning to the coal industry, as someone who has worked in it for so many years I should first of all like to express my appreciation of the sympathetic way in which the noble Earl and the noble Lord who introduced today's Motions referred to it. Indeed, I should be surprised if reference to the coal industry during the rest of the debate is made in any other way. I believe that everyone recognises that the coal industry has had a great past, is assured of an important future, but has substantial problems. Having defined the coal industry in that way, I wonder whether the definition is not appropriate to the United Kingdom as a whole: a great past, present problems, and good prospects. That seems to me to be a sound basis from which to tackle the issue.

Without any doubt we have at present a surplus of coal production; nobody can deny that. The question is, what do we do about it? If we were to say merely that the size of the coal industry must be progressively reduced to fit into what the present situation of demand seems to represent, that could be a serious mistake. Having been in the industry for several decades, I have known situations change very rapidly. If there was one area in which I took issue to a certain degree with my eminent colleagues on the committee which produced the report before us, it was on the question of exports. I felt that the time could come when there would be a greater potential than some of them seemed to feel for exports of British coal. In this country we happen to be on top of one of the world's most important coal markets, and economic circumstances, as well as freight rates and exchange rates, change. I am very glad that in the report reference is made to the security element provided by the indigenous European coal-producing industry. It is a matter of nice judgment as to how much you should pay for security, how much you should pay for an insurance policy. But that you should have them there is no doubt, and I am glad that there is general agreement on that.

I am also pleased at the way in which the whole question of closures has been treated. After all, mining is an extractive industry. Once the product has been taken out of a particular hole in the ground, it is not there any more; that is a stark fact of life. But before it all disappears difficulties arise. That is where the argument comes in. I had many an argument with the unions over this. Each of us in his own way tries to do the best for the industry. However, obviously from the mining engineer's point of view, as soon as one started getting into difficulties which one considered were going to get worse one wanted to get out of that situation and into a better one. But, of course, with all their social connections of the mining village, and so on, the mineworkers were less prepared to accept that. We must realise that this is the way things are, and these matters must continue to be treated carefully, as they have been in the past and as I am convinced they will be in the future.

However, in my opinion there is no doubt that the future of the coal industry resides in progressively replacing capacity which is running out of steam (if I may put it that way) with capacity which will enable us to use to the full extent the great skills of the British mining industry. That is what we need to do. Therefore, I hope that when he replies to the debate the noble Earl, Lord Avon, will be able to give us an assurance that the present high level of investment in the mining industry will be continued, and that the determined efforts that we have shown over many recent years will be continued to make sure that the technology of the British mining industry will at least remain in line with the best anywhere else in the world, if not be better. Those are important matters.

We know that fossil fuels will remain a very important energy commodity for as far ahead as we can see, because renewable resources—nuclear energy and so on—cannot entirely replace fossil fuels in all their uses: in the chemical industry, the transport industry and the processing industries. We happen to be blessed with one of the most important and richest resources of fossil fuels in Western Europe, if not in the world, in relation to our size. Therefore, this is something to be developed for the future. We must not allow ourselves to be deflected from that long-term task by what appear to be the great difficulties of the present. They could change at almost any time.

I am very pleased that in the report reference is made to the Community's energy proposals and the proposals put forward by the commission for diverting some of the Community's resources to the coal industry. Regrettably, agreement has not yet been reached at the Council of Ministers. I should like to pay tribute to British Ministers who have attended those meetings. Having been involved at consultative level for many years, I know that they have fought strenuously and consistently—there is reference to this in the report—to make sure that we could get relatively more of the financial resources of the Community devoted to the development and the modernisation of the coal industry.

A great deal of the report that we are considering—and we are indebted to the skilful chairmanship of the noble Lord, Lord Kearton—is positive and requires pondering over, not least the proposition that the noble Lord indicated about the need for a degree of financial reconstruction in the mining industry. That need, to my mind, is justified because of the massive change that has had to be introduced in the industry over the past decade. There have been enormous social and technical problems to be overcome. The need now is to enable the industry to move forward from a new, more rational and acceptable base.

In conclusion, I should like to reiterate my belief that these two Motions have been of enormous importance and that they are very timely. I believe that we as a country have been through a prolonged period of industrial attenuation. We now need to move into a period of industrial revitalisation.

5.1 p.m.

The Duke of Portland

My Lords, I should like in the first place to comment on paragraphs 27 to 30 and paragraph 42 of the report. As was implicit in the evidence given by the Institute of Geological Sciences, reserves require to be defined by reference to the cost of extraction. We must therefore bear in mind that reserves which are likely to prove uneconomic owing to the high cost of extraction are in fact no reserves. Paragraphs 73 and 77 comment on the environmental impact of the increased use of coal, in particular acid rain. This has formed and continues to form the subject of numerous reports, the majority of which blame the emission of carbon or sulphur dioxide as the principal source of this evil.

When the committee's report was being drawn up, a long report on combating acid rain that was prepared last year by the European Parliament Committee on the Environment had not been received; nor had we heard of the two reports which had been supplied to the United States Government. Both reports establish a direct link between the quantity of flue gases emitted and the quantity of acid rain or deposited gases. I shall quote their general conclusion: Acid rain is a problem and a reduction of emissions is the solution. You cannot go on belching out tons of toxic substances and gases, some of which produce acids, year after year without consequences.". The United States Government appear reluctant to compel power stations to control their emissions before the presidential election as this would inevitably raise the cost of electricity. But the committee of the Royal Society which has also been examining this problem has come to the conclusion that there is an urgent need for further research into acid rain and is of the opinion that the case against coal is as yet unproven. I think that here I must declare to your Lordships an interest in that I have acted for a number of years as consultant to the Uranium Institute.

It seems to me that there is a practically worldwide tendency on the part of the media to magnify any incident connected with nuclear power and, at the same time, to give the impression that nuclear power is excessively dangerous and no more economic than coal. The relative costs of generating electricity in nuclear and coal-fired power stations has formed the subject of a report published last year by the Nuclear Energy Agency, which is part of the Organisation for Economic Co-operation and Development, OECD.

This report states that nuclear power has a very clear economic advantage over coal for baseload electricity generation except where cheap coal is readily available close to a load centre, as in parts of the United States and Canada. In Europe, Japan and central Canada, the economic advantage would still hold even with a 50 per cent. increase in the nuclear cycle costs or for the operation of a nuclear station at below a 50 per cent. load factor. The magnitude of the ratio of nuclear and coal-fuelled electricity costs is highly dependent on nuclear capital costs which are considerably influenced by construction lead times, by the ability to replicate design and to place several reactors on sites with common services. The availability of the plants is also a key factor. Overall, nuclear fuel price changes have a relatively small impact on comparative economics. In general, countries projected no significant real cost increases for nuclear fuel over the next 30 years.

I wish to give figures showing the advance of nuclear power in recent years. In the United States, in 1983, a record 300 billion kilowatt hours was generated by 80 reactors operating in the United States. In 1984, 14 new reactor plants will be ready to receive authority to operate and a further 10 in 1985, one of which will have been completed within six years. In France, in 1981, eight 900 megawatt pressurised water reactors were connected to the grid and 10 more were commissioned. After this, the new government froze all further nuclear construction for a year. Thereafter, they decided to resume work on the five sites that had been frozen. There are now a total of 32 stations in France that are either under construction or planned. Here, I should like to mention that at the time when the French decided on the pressurised water reactor, I happened to be a member of a Franco-Belgian fuel company board. I witnessed the extreme distaste with which the French went to Westinghouse for know-how and to take up their models. They saw clearly that it was what they considered the best buy. They were quite shrewd buyers.

In Germany, in July and August 1982, the first construction permits were issued since 1977 for three nuclear power stations and also for a nuclear enrichment plant and a dry radiated fuel store. The construction of all these has been proceeding according to plan. In Italy, sites are being designated for two pressurised water reactors. In Belgium, between June 1982 and March 1983, there was a prolonged parliamentary debate on how nuclear power should develop in Belgium. It concluded that nuclear power must remain a viable option for the energy supply of Belgium.

I turn to Spain. In 1982 and 1983 Spain pushed ahead with its national energy plan which now foresees a further 9,500 megawatts of electric power by 1987. As regards Sweden and Switzerland, 37 per cent. of Sweden's electric power is now nuclear, and in Switzerland, 28.6 per cent. Japan is steadily continuing an important nuclear programme. I mention the fact that a great majority of these reactors are pressurised water reactors.

Here, in the United Kingdom, no advance appears to be permitted pending completion of the Sizewell Inquiry. According to a press report that I have read, the inquiry will not be completed for a further 18 months. Any effort made for speeding up the programme after the completion of the inquiry gives rise to a parliamentary hue and cry. If in fact a further year and a half is to elapse, the United Kingdom will be trailing far behind all the other participants in the nuclear stakes.

5.11 p.m.

Lord Kaldor

My Lords, when I first read the Motion put forward by the noble Earl, Lord Lauderdale, I thought that it was thoroughly misguided. However, when I listened to the noble Earl today he did not seem to speak very much to his Motion and what he said, if I understood him correctly—and I am sorry that he is not in his place at the moment—concerned the replacement of obsolete plant in the electricity and various other industries, such as steel and shipbuilding, with new plant. He did not talk about the transfer of resources from the heavy industries to unspecified other industries where continuing employment opportunities are to be found. I was in danger of my prepared remarks being taken as "fighting windmills", meaning criticising views which nobody put forward. But, luckily, the noble Lord, Lord Cockfield, came to my rescue and said all the things which I am going to criticise and thereby he has justified the speech I am about to make.

"Resources" is a vague word, but what is meant by "resources" is labour, and nothing else. Clearly, one cannot make a disused coalmine or an obsolete steel plant into the plant and machinery required for a computer factory or a supermarket. The only thing one could transfer is labour. To suggest that we should transfer the labour means that the 3 million unemployed that we have at present must be left untouched and any increase in the demand for labour in one sector of the economy must be balanced by the release of labour in other sectors.

The noble Lord, Lord Cockfield, in his long list of praise for the achievements of the present Government, did not mention unemployment; neither did the noble Earl, Lord Lauderdale. However, I took the noble Earl's Motion (however wrongly) as a more modest version of the oft repeated claim which we constantly come across in the right wing press and, indeed from all kinds of sources, that Britain ought to abandon the idea of being a country that produces manufactured goods, of being a manufacturing country, because we are bad at it, and we ought to concentrate instead on services which we are comparatively good at. I submit that anyone who says that has not the foggiest notion of what he is talking about.

Let us turn to services. One of the services of which we are most proud in our great national heritage and which is of worldwide distinction, is the City. Indeed, in the Balance of Payments Year Book there is a special table entitled, "The earnings of the City". That table is artificially blown up because the investment income of insurance companies, investment trusts and unit trusts are all included as the earnings of the City, whereas in fact they are interest and dividends received from abroad—not payment for services currently provided. If I buy a share abroad, it comes under the heading, "interest received from abroad", but if I buy it through an investment trust then it increases the earnings of the City. However, if we strip the table of its bogus elements, we find that the net income from all the real activities of the City, which consist of commodity trading, brokerage of all kinds and banking services, comes to £1 billion and no more. If we add all the other services—and they are of the most varied kind, including construction services carried out abroad by British firms; consultancy fees; royalties of playwrights and authors, and many other things besides—they together add up to £2.5 billion, according to the Balance of Payments Year Book. Air and sea transport add another £½ billion. If we add it all together, it comes to something like £5 billion, which would pay for less than 10 per cent. of our annual import bill, with our manufacturing industries at their present size. However, it would become very much larger as our manufacturing industries are allowed to run down.

There is a type of service, in which it can be said that we lead the world—and that is higher education. Our universities—particularly Oxford and Cambridge, but by no means only Oxford and Cambridge—provide services to undergraduates which have no equivalent in any other country, no equivalent either in America or any country of continental Europe. Instead of promoting the export of such services, we impose prohibitive fees on foreign undergraduate students to come here and discourage in every possible way these services being a source of foreign earnings.

Another potentially important source of service employment is domestic service, which, as late as 1891, provided employment for 16½ per cent. of the total occupied population of the country, but which now provides practically nothing. If we could recreate the Dickensian distribution of income, there is a possibility of increased employment opportunities in that respect. I am sure that even Mrs. Thatcher has no clue about how to bring that about. The suggestion that we could or should live on services is just not on. There is no earthly possibility that we could live on services.

However, the Motion could also be taken to refer to new and promising industries of which, as I mentioned, there are a few. Unfortunately in all these industries we start at a considerable disadvantage because the Americans and the Japanese are miles ahead of us. It will take a long time to develop these industries to the point where they would be a considerable source of export earnings. Moreover, the Japanese and Americans make use of very cheap labour—a fact which is not always known—not in their own countries, but by sub-contracting the really labour-intensive parts of the production process (such as the intricate wiring involved in making a small computer or a small calculator) to countries of South-East Asia, such a Taiwan or Hong Kong, where labour is very cheap.

Here again, rightly or wrongly, we start with an innate disadvantage. It would take a very long time to bring British wages down to the level of those of South-East Asian countries, even if anyone would regard such a development as something to be promoted and not something to avoid. I am convinced that Britain, with its present population density and its present status as one of the leading powers of the world—for we are still one of the leading powers of the world if the super powers are excluded—cannot do without a large, balanced and comprehensive manufacturing industry, a vital part of which are the heavy industries producing capital goods. It is nonsensical to suggest that we are potentially at a natural disadvantage in producing steel, coal or engineering goods or that we produce useless energy products, presumably in the form of coal.

Why are we at a natural disadvantage in producing steel? We have any amount of coal and we can import iron-ore over short distances from Sweden or Norway. The Japanese increased their steel capacity from 5 million tonnes to 125 million tonnes during the post-war period (a period in which our steel capacity rose from 24 million tonnes to 29 million tonnes) importing both coal and iron ore from 10,000-mile distance. The Japanese do not say that they are naturally suited to produce steel and that we are not. We are in fact much better suited to produce steel than the Japanese. When I was in Japan and I asked the Japanese how on earth they managed to find markets for all this steel I invariably received the answer: "It is simple; we just took over all your markets which you were either unable or unwilling to supply" that is, the traditional markets of Britain in the Far East. There is no doubt that if we had expanded our steel industry after the war very much more than we did we could have found markets for it. For one thing we could have competed with the Japanese, whose annual exports of steel amount to 40 million tonnes, or three times our total capacity.

Then the noble Lord, Lord Cockfield, said that we must slim down our steel industry to what is profitable. It is a matter of economic policy what is profitable or what is not. Obviously, we must get rid of our obsolete steel plants and replace them with more modern plants. I do not know what the noble Lord, Lord Cockfield, was talking about when he said that during the period of nationalisation vast sums were wasted and sunk into the steel industry. The fact remains that there was talk of producing one really up-to-date, integrated steel plant of 6 million tonnes capacity, but that plan never materialised because at that time it would have cost £4 billion. That was many years ago. Now, of course, it would cost much more.

We never invested the sums required to keep our capital goods sector in line with that of other countries, for example, the Germans, let alone the Japanese. Since the beginning of the last war the Germans have increased their steel capacity from just over 20 million tonnes to well over 50 million tonnes. Of all the countries in Europe, ours more than others was possibly the one which held down the expansion of the steel industry.

The same applies to shipbuilding. As recently as the early 1930s we produced all but 3 per cent. of the world's tonnage. Now we produce only a small proportion of the annual addition to the world's tonnage. There is nothing in shipbuilding as such which makes Britain a more unsuitable country to produce ships than other countries.

The steel and engineering industries are absolutely basic because they provide the means for enlarging their own capacity and they also prove the means of enlarging capacity of all other industries. Countries which possess only light industries and import capital goods from other countries—which is what the noble Earl's original Motion suggested—are in a natural position of inferiority, as they are likely to need capital goods in times of boom just when eveybody else needs them and when they can only be had at a high price and with long delivery delays.

There is another reason why heavy industries are so important, and I am surprised that no one on either side of the House has mentioned it. They are absolutely vital for national defence. When it is a question of making ships, aircraft, guns or tanks it is the heavy industries—the steel and engineering industries—which provide the goods. Without them we could not carry on a war, except perhaps a brief nuclear exchange which would put an end to everything.

Of course, after 10 years of worldwide stagnation there is a large over-capacity in steel. Of course, our costs of production are comparatively high because we allowed the exchange rate to go up too much and because our techniques are obsolete and our productivity is comparatively low. But so far from this being a justification for further liquidation, we ought to use the unique opportunity provided by North Sea oil to invest large sums of money in creating a modern industry with the latest techniques. That is what we have singularly failed to do. In the last four years we have accumulated savings due to North Sea oil in the form of an unrequited surplus in the current account of the balance of payments, totalling £17 billion. If that £17 billion had been invested in Britain, it would have doubled the gross investment in manufacturing industry and would have largely modernised our manufacturing industry. As it is, the present Government allowed it all to be wasted in the purchase of portfolio investment abroad, which may provide some additional income to a narrow group of the community—the shareholders—but it does not do the slightest bit of good to the British economy.

We could still invest. Also, in all these comparisons, which the noble Lord, Lord Cockfield, is so carefully making, and he has done it today at greater length than before, of how much better we do than our partners in Europe—3 per cent. last year and 2 per cent. the year before—we are so much ahead of the record of Germany and continental countries. However, in other countries production has never fallen absolutely, whereas in our case industrial production is 20 per cent. down from what it was 10 years ago. In all the other countries it is higher than it was 10 years ago.

Secondly, the noble Lord completely forgot the modest little fact that we are selling oil and they are buying it. Because of the need to buy oil at very high prices there is an absolute bar on the expansion of employment and production in countries like Germany and France. There is no such bar here: only the Government's obsolete and ludicrous ideology which regards any kind of reflation as creating an unsound development—and that is combined with an attitude of indifference, if not of callousness, about mass unemployment which I find the most distressing feature of the present British scene.

Enforced idleness is very demoralising, not only for those made redundant in the middle of their working lives, but also for the young people leaving school who lose all ambition for further learning or for the further acquisition of skills when they see that their extra effort does not improve their employment prospects. This indifference to mass unemployment is something new. It is by no means the traditional attitude of the Conservative Party; it is not the attitude of people like Joseph Chamberlain, Churchill or Macmillan, to mention only a few.

If noble Lords will permit me, I would like to quote a few lines from something which Winston Churchill wrote, with which not many are familiar because it was an internal Treasury memorandum only released to the public when these files were transferred to the Public Record Office a few years ago. This originates from 1925, from the discussions on whether we should return to the gold standard: The Governor"— he was referring to Montagu Norman— shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed. This is the only country in the world where this condition exists. The Treasury and the Bank of England policy has been the only policy consistently pursued. It was a terrible responsibility for those who shaped it unless they can be sure that there is no connection between the unique British phenomenon of chronic unemployment and a long resolute consistency of a particular financial policy. It may be that you will argue that unemployment would have been much greater but for the financial policy pursued: that there is no sufficient demand for commodities either internally or externally to require the services of this million and a quarter people: that there is nothing for them but to hang like a millstone round the neck of industry and on the public revenue until they are permanently demoralised. You may be right, but if so it is one of the most sombre conclusions ever reached". The only difference is that for "Montague Norman" read "Margaret Thatcher" and for "a million and a quarter unemployed" read "3 million and a quarter unemployed".

My Lords, those of us who were strongly against Britain's entry into the Common Market were so because we feared that as a result employment opportunities in Britain might be greatly reduced, and that by joining the Community we would deprive ourselves of the freedom to pursue full employment policies in Britain. While we remain in the Community our capacity to provide work for the people of these islands is likely to become progressively smaller, until we end up as an unimportant offshore island with an increasing part of our workforce finding employment in other countries. The best way of promoting such developments is to start by abandoning our so-called "heavy industries".

5.35 p.m.

Lord McAlpine of Moffat

My Lords, in giving my wholehearted support to the policies and thoughts of the noble Lord, Lord Cockfield, it is only fair to inform the House that we must realise that he does not have these imaginative ideas for the fun of it, but because he is forced to do it. We do not just own this world, we have to fit in with it as it is there, and I think the noble Lord is making a splendid effort at doing so. It is not going to be easy and it is up to everyone in this country to struggle to help him.

My Lords, if we are going to look forward it is no had thing to study history. I was particularly shaken the other morning, when I was coming up in my car and listening to the radio, to hear a lady talking about how astonished she was with regard to her daughter setting up a new home. She had splendid scissors for the kitchen made in England by Wilkinson Sword; she had a Singer sewing machine manufactured in Taiwan. My goodness! that went right to my heart, because 100 years ago the Americans came to England, to Clydebank, to build a factory, and my family were the fortunate contractors. We continued to be fortunate contractors, building and building and building until World War II.

Many years later I asked my father about this. We do not hold it against Singer but I think they were the midwife, as it were, who created McAlpine's Construction company. They were always developing and they were ahead of everybody and everything. They had inventions. They did not use the new patents until someone else was near them. I asked my father why they were like that. I asked him why they came to Clydebank. He said it was because they had done worldwide research and they could manufacture, in Clydebank, next to John Brown's who were building great big transatlantic ships, cheaper than anywhere else in Europe. That went on until the terror started to come in the late 1920s, and then they went to Italy and France and built factories there.

When I went back to them in the 1950s there was a different atmosphere. There was not the enthusiasm or the labour relations of former days. There was not the understanding or the creativity. The place was full of shop stewards arguing how they could get the better of the new management, which was made up mostly of lawyers and accountants. In the imagination of the noble Lord, Lord Cockfield, we have to have the right people doing the right thing in the right way. That is history. I think we were right.

Now we come to the nuclear world. Here I must declare an interest because I was deputy chairman and then chairman of one of the first groups over 30 years ago—and I am still involved in BNA. My family firm are still designing and building nuclear power stations.

It was music to my ears to hear the noble Lord, Lord Kearton, say that Torness and Heysham were in budget and up to time. He is right. I was going to say it but it is much nicer to hear it said by the noble Lord.

We have done a wonderful job in this country with our British gas-cooled reactors. One of the things I learned through working with these people is that I cannot argue technically with them because I have never believed in keeping a dog and harking myself. I have been lucky to have good barking dogs which barked in the right direction and guided me in the right decision. At the moment the Government have naughty dogs leading them in the wrong direction. Personally, I regard the Sizewell Inquiry as a tragic charade. It is so pathetic. The noble Earl, Lord Avon, will not be expected to answer this, hut I would ask that he look into this matter and get more information, because by the time the design for Sizewell is approved and that station is built, it will be out of date; so we can forget any possibility of marketing it abroad. Whereas people who are taking a slight interest in AGRs and particularly smaller stations, may well come to us, and we may well have an export.

Another thing that shocked me is this, I understand that some ill-advised witness at the inquiry said that the PWR had to be designed by Government servants and not private enterprise. Is that not perhaps nationalisation by stealth? I do not know. It rather shocked me. It seemed to me that it would put the private designers out of business.

When I made my maiden speech two years ago I boasted about the fantastic invisible export that this country had through its wonderful consulting engineers. We led the world with our electrical engineers. The CEGB has made enormous commitments before this inquiry has finished. They have employed American consultants. They have placed orders. If we build British AGRs it will all be British material. If we have PWR then we will have a lot of foreign material.

I do not want to go on the long way. I would beg that this Sizewell Inquiry be stopped, and that we wait to see whether Torness and Heysham are as successful as we hope they will be, and then repeat them and be British. I do not want to take too long, and perhaps your Lordships will forgive me if I am philosophical. I believe that all progress is circular, and it is up to mankind to decide whether it is going to be a corkscrew into the ground, or whether it is going to be a spiral staircase taking us up to heaven. We have a choice with our reactors. Let us have an AGR and go up to heaven.

5.41 p.m.

The Earl of Halsbury

My Lords, in thanking the noble Earl, Lord Lauderdale, and my noble friend Lord Kearton for introducing this subject this evening in their joint Motion, I see nothing to disagree with in all the distinguished speakers who have preceded me, and therefore see little point in repeating what they have said. Instead I should like to turn to some of the priorities involved in this, because these are really the practical working points that we have to consider. Priorities of course are priorities in time. It is a question of what you feel you must do today as opposed to what you can put off until tomorrow.

Talking of tomorrow, may I invite your Lordships to excise from your minds that fossilised phrase "the year 2000"? It is only 16 years away. Anything you propose to do in the year 2000 would have a ten-year lead time. It is only concerned with the decisions you will be taking in the next six years. We must learn to think of a 25-years' roll forward as opposed to a fossilised formula like the year 2000. When talking of time, one must have a beginning. In historical processes it is often difficult to find a beginning, but with the Industrial Revolution I think one can find a point in time at which it began. That was the building of the first coke-fired blast-furnace by Abraham Darby in Coalbrookdale, which took place in the middle of the 18th century, 200 years ago.

When we talk about 400 years' coal reserves, or 400 years' reserves of depleted uranium, we are thinking of something that stretches twice as far into the future as the beginnings of the Industrial Revolution stretch backwards. It is possible to launch oneself into time-wasting controversies as to whether the figure is right. It is possible for the geological survey to take a different view of what is first of all accessible and then recoverable of our coal reserves, and to get into controversy with, say, the National Coal Board. But I do not care whether the figure is right or wrong. It may be 300, 400 or 500 years, but the problem that that involves will be solved by my great, great, great, great grandchildren 200 years from now, and I shall leave it to them and not get into an anxiety state about it.

The same to some extent applies to projects for making SNG—that is, substitute natural gas—and the oilification of coal, which again cannot be made economic in this day and age because all of them require one to put more calories in as coal than you will ever get out as oil. Assuming any sort of parity for a calorie derived from oil and one derived from coal, they can never be made to work economically at the present point in time. But the supplies of oil will last for so much shorter a period than the supplies of coal that we ought to be studying it.

There is a case for making pilot plants and learning how to train the engineering industry to build them. Possibly a lot more oil is going to be discovered than we now know about. People are making the same sort of exciting noises about what is in the China Sea as they did about what was in the North Sea 20 years ago. In that case, the horizon for oil depletion will go forward and the building of pilot plants will, to that extent, become less urgent.

I thought that the remarks of the noble Lord, Lord Stoddart of Swindon—and I am sorry he is not in his place—were a trifle one-dimensional in the sense of what we ought to he building or constructing here and now. You have to have a minimum constructional programme on a roll forward basis to keep the engineering industry in being. If it takes 10 years to build a nuclear power station, then you ought to order one about once per decade. If you do not do that then the engineering team will he dispersed, and, once dispersed, will be difficult to get together again, because the different layers of experience and lore—and I spell "l-o-r-e" and not "l-a-w"—involved in a team of all ages representing the complete spectrum from apprentices to managing directors on the retiring list is not something you can assemble from scratch. It is something that grows up on the spot.

It may well be that the economy of this country could not tolerate building one nuclear power station per decade. In that case we have too many nuclear power syndicates in Europe. We ought to remember that we are members of the European Economic Community and set up, let us say, two competitive international syndicates to design and supervise the construction, with contracts placed with local industries, of nuclear power stations all over Europe. That is the way to approach it, rather than saying "Let us abandon the whole thing".

I turn now to some of the remarks of the noble Lord, Lord Cockfield, with which I was in profound agreement. There is a time factor—I keep on about time factors—in all our lives; it is the limit of our careers. It may he 50 years, which means a 2 per cent. retirement rate per year; it may be 40 years for professional people, which means a 2½ per cent. retirement rate per year. But, by the time you have mixed all classes and allowed for wastage, premature death, retirement, and so on, you have a retiral rate of something like 3 per cent per annum.

In one decade you could redeploy 30 per cent. of your labour force if you knew how to do it. A 30 per cent. redeployment of a labour force would be a significant contribution to the problem that the noble Earl raised of how we are to redeploy from some of our industries which are no longer in balance with our requirements. During the decade of the 1960s we redeployed across the economy about 12½ per cent. of the labour force from productive industry to the service industries, and at the same time kept the productivity of industry advancing so that the standard of living was higher, and gross national product per head higher, at the end of the decade than it was at the beginning. We did it during the 1960s so it can be done. We stopped doing it in the 1970s largely because of inflation, and we have to learn how to get back and do it again. Perhaps it may fall to me to make a quotation from Winston Churchill addressing some of his assistants, when he said, "The difficulties speak for themselves. Tell me how it may be done."

There is one matter I have come across recently which is not referred to in the report but which is important and should receive more study and detailed understanding. There ought to be a sort of notional international price for a calorie as a calorie. Think of a flight of stairs, and the notional international price is around, say, waist level. Above that would be motor spirit. Calories, yes, but calories coupled to mobility. More than just calories, more than bare calories, calories coupled to mobility. Not the kind of mobility in a railway engine that can be fired with coal, but the kind of mobility you can have in a run-about car. Then, also at a premium, a little further up the staircase, there would be petrochemical feedstocks which are used for entirely different purposes, not because of their calorie content but because we can turn them into nylon, polyvinyl chloride, and so on.

Then, below waist level, somewhere around the bottom of the staircase, there would be calories at a discount. Calories that are difficult to get at which would not command the price of the readily handleable oil that is so easily pumpable from one place to another. Calories in coal which you have to get from, first of all, surface outcrops and, then, deep mining.

This ought to make a rational price structure; a transparent price structure. But it does not. It does not make a transparent price structure because of continual interference with economic prices by domestic rules and regulations of different countries. It goes not make a rational structure because this waist-high level I have been postulating I have been told by witness after witness does not exist. The basic price of a calorie as coal and the basic price of a calorie as oil are uncoupled. I do not see under those conditions how one can have a rational international structure for prices. This is a real problem deserving of more attention than it is getting. I shall pursue my inquiries and perhaps in a later debate I shall be able to report to your Lordships.

5.51 p.m.

Viscount Torrington

My Lords, I too should like to pay tribute to the way in which the noble Lord, Lord Kearton, introduced the coal report and thank my noble friend Lord Lauderdale, for giving us the chance to broaden the debate. Without this there would be little else to do but to reiterate the conclusions of the report which are eminently self-obvious.

In approaching today's debate, I tried to consider energy in an historical context. The earliest references I could find to oil involved virgins' lamps, so I thought that was perhaps unsuitable to follow. It seems odd to me that we talk about coal as an old, mature industry and we look towards potentially new sources such as wind and solar power. But the wind has been blowing for a long time and carried the Union Jack to the far corners of the earth before the first coal-fired steamship ever made way. I was interested to read recently that a British firm is to launch a new commercial sailing vessel. What I fear is that our competitors will be looking at this like so many British inventions or British developments and improving on it when we have been through the learning process.

With apologies to David Attenborough, solar energy is the very source of life on earth and the earliest attempts to capitalise on solar energy were the humble greenhouse, in which one can grow things which are not intended to grow in the British climate and to grow them cost-effectively—or we could until the Dutch started cheating with cut-price natural gas. For example, we could have a strategic core of industry in banana growing in this country under glass. No doubt it would provide some employment and protect us against unreasonable behaviour by the Organisation of Banana-Exporting Countries, but I doubt that the economic environment or the climate would permit that.

The economic climate has been changing for the coal industry. We undoubtedly can, do and will continue to have an economically viable strategic core coal industry. Unfortunately, this industry is weighed down with a tale of mines that lose money, some of which are wholly uneconomic. I should like to draw an analogy with the rest of the mining industry, so I hope your Lordships will forgive me if I flip between the words "seams" and "lodes" or "ore". In any given mining enterprise there will be particularly profitable ores. Elsewhere within the same mine there will be less valuable ores. It is simple, sensible practice to blend the best with the worst, or with lower grades, within a single mine to produce a grade which allows for the maximum amount of ore to be extracted consistent with producing it at a rate of profitability which allows a reasonable return of capital.

One can apply the same thing to a group of mines like the National Coal Board. One can have an element of sensible cross-subsidisation. The most profitable mines should he used or can be used to subsidise the gentle loss-makers. One can take the loss-makers in turn until the return on capital is lowered to a minimum acceptable level. In the case of a group of mines, any single mine (as with any ore in the case of one mine) which loses more than that and which has higher unit costs is not really a mine but a hole in the ground with a social problem. We have to recognise this. When we talk about shifting of financial resources to the coal industry we should be honest about the headings under which we are applying those resources. Undoubtedly there is an appalling social problem in the older coal-mining areas which must be solved, but let us recognise it as such and not cloak it in spurious debate about what constitutes an exhausted mine.

Before I move away from coal I have one other reservation about the report. I am somewhat worried about the application of resources and financial incentives to the greater use of coal throughout industry. Like my noble friend the Duke of Portland, I am worried about acid rain. I am a little younger than the noble Duke, but I remember the blackened streets of postwar London and pea-soup fogs. Thank heavens we have been enlightened enough to bring in smokeless zone rules to obviate those problems. But we do not understand the implications of acid rain in full and we do not really understand how fast we are generating the pollutants which give rise to it. We should be a little careful about any attempt massively to increase coal production.

The new industries such as wind and solar power always seem to me to remain tantalisingly in the future. They are never quite economic. As the cost of electricity rises so do the costs of trying to create these sources. Oil and gas are here today, but will run down and will have to be increasingly reserved for the non-fuel uses. It is an inescapable conclusion that the energy supplies of the future will have to rely heavily on nuclear energy. I am not technically minded about AGRs versus PWRs, but like most members of the public I have read of the Three Mile Island problem. I have a suspicion that it is the public perception of dangers which is liable to turn the Sizewell inquiry into a rival to "The Mousetrap". But it seems desperately important to me that we apply resources not just to the debate over which is best, the PWR or the AGR, but to solving the problems that are perceived by the public, and demonstrably to solving them, by educating the public.

The noble Lord, Lord Rothschild, gave an interesting talk a few years ago on the television—I wish I could remember the exact statistics—but he said that living next door to a nuclear power station was considerably less dangerous than walking in Hyde Park.

I have just one simple thought that the answer may be to take the nuclear power stations of the future away from the people. We have a major problem in considering the idea of burying nuclear waste. I wonder whether we should not bury the nuclear power stations—and what better location, perhaps, than the bottom of the coal mines we must close in the future?

6 p.m.

Lord Dean of Beswick

My Lords, may I commence, as have other noble Lords, by paying tribute to the noble Earl, Lord Lauderdale, and the noble Lord, Lord Kearton, for the way in which they introduced the subject under discussion and for the facts that they were able to disclose during their speeches, which I am sure are of tremendous assistance to other noble Lords in debating this subject. I do not want to dwell too much on the coal industry because I think that that has been adequately covered by such previous speakers as the noble Lord, Lord Ezra, with his expertise, which certainly I could not match. I found the comments of the noble Earl, Lord Lauderdale, on the electricity supply industry very illuminating, having worked in that industry myself for nearly 20 years.

Some 10 to 15 years ago, the same arguments were taking place in this country on the question of electricity supplies as are taking place now as to what should be the future policy. I do not know whether it was the noble Earl, Lord Lauderdale, or the noble Lord, Lord Kearton, who made the point that the French were almost at the point of being ready to move into the export market on the exportation of nuclear power for peaceful purposes. I have some little reservation about our holding our horses for too long on that issue and of our opting out. I am fully aware that it would be nonsense not to have coal as our overwhelming basic for the supply of energy to our power stations; but there is now a selling technique abroad where, if you want to get into this commodity export market, a market of millions, and sometimes billions, of pounds, you do not sell them by means of exhibiting drawings on paper or plans but you let the would-be buyer see one working. I think that the case is overwhelming for our not opting out now of an export programme, funded perhaps in some respects by the Government, to assist us in keeping the door open for our exports in the future.

Let me make it clear that I do not think that there is an export market for coal-fired power stations. They are of domestic benefit to us, but, on selling abroad. I say, "No!" I think that that was the position 10 to 15 years ago, and it has not altered. There was an on-going debate at that time as to whether Drax B ought to have been built or whether there ought to have been a showpiece nuclear power station built that was marketable abroad.

One of the points that interesed me was when both the noble Earl, Lord Lauderdale, and the noble Lord, Lord Kearton, referred to the question of the ageing power stations. I had been lobbied in another place quite a few years ago—and I supported the views of the people who were lobbying us—to the effect that at that time the CEGB ought to have been undertaking a massive refurbishing programme of its old power stations, the present ageing power stations. I am not talking about those that were completely uneconomical—most of which were small ones of 60 megawatts, built just after the war to a standard plan. But, especially in the 1950s, there were a large number of power stations some of which in my opinion, could have been rescued by major refurbishing, whereas now they are perhaps due only for demolition.

I noted the point made by the noble Lord, Lord Ezra, on the matter of district heating and relating it to some of these power stations. There is no question at all that that is a subject worth looking at. When we talk of the reduction in manufacturing output and the manufacturing labour force of this country, there is no question that, had the CEGB been allowed (and I do not think they were allowed to do so at the time because successive Governments placed monetary limits on what they could spend) to indulge in a refurbishing programme of their existing power stations, it would have been very intensive in job creation or maintaining the industry that then existed. That industry has been hit more alarmingly than any other. The factory where I worked 20 years ago employed 24,000 people, mostly on the manufacturing end of power stations. They are moving up in size now with larger power stations, larger turbines et cetera. But there are less than 8,000 people in that factory now.

That is a situation multiplied throughout the whole of the manufacturing industry which used to manufacture or help to manufacture or build power stations. If there is a possibility—and I am not technically equipped to say whether there is so or not—that a lot of the existing power stations can he made serviceable with a reasonable expectancy of life and can be made economically viable by a refurbishing programme, I would suggest that we ought to be getting on with it. I have to take to task a little the noble Lord, Lord Cock field, for his remarks. I think he was a little unfair. I think people could have drawn the conclusion when he talked about the tens of thousands and hundreds of thousands of jobs that had been lost in the manufacturing industry, that it was all the fault of the workers for their asking for too much money; and it was all the fault of the workers' trade unions. I do not think that he dare go to West Yorkshire and East Lancashire and tell the textile workers there that it was their high wages that put them out of business. I do not think that he dare tell that to the workers in the general engineering industry—which over the last 20 years has lost more jobs than steel, coal and a host of other industries together. I do not think he dare tell those men in those industries that they were overpaid. The fact is that some of the most skilled artisan engineers in this country, such as tool makers, were among the lowest paid. One of the myths of engineering workers here is that historically they all had high wages.

Let me say clearly now that that strictly is a fallacy, a fallacy to be attributed to the car industry where and when they were on high wages. The significance of their high wages in the car industry was that the wages were those of the semi-skilled people and not the skilled engineers. As an ex-engineer off the shopfloor, I completely refute that I ever was able to extract from my employer high wages. I was a skilled engineer who worked at Thorpe Marsh and Egborough, at some of the big power stations. I never had the benefit of high wages. I think that it was a little bit unfair to talk in those terms about that.

One of the things that I think we shall have to look at is the balance between manufacturing industry and the public sector service industry. Speakers have made reference to that and said that there will have to be an increase in the numbers of jobs found in the public service sector. That is undeniable; but what is even more undeniable is that if we do not refurbish our industrial bases and get back to the point where they are in credit as a manufacturing industry, we shall not be able to expand the service industries either. My own party and the TUC made a declaration some time ago that the absolute priority in any investment programme of Government money would be to improve, refurbish or encourage those emerging industries which had a future in order to restore our position as a manufacturing country. I think that it is sad to say that the Government at present show no sign of taking heed of these arguments.

On Wednesday last, there was a debate in the other place on a similar subject to this. It was about future industry—about industries of the future, industries of excellence, that type of thing, industries that were going to be money spinners. We have been talking about energy, without which no industry can run. But patterns are changing in all industries as to components and eventually as to how you produce the goods that you want. One thing which has emerged over the past few years is the rapid approach of the silicon chip industry and techniques, with all that that implies. This country has been pretty successful in some of the moves it has made.

An organisation was set up in 1978, as probably most of your Lordships know, which is known as Inmos. These are the present facts. It is 75 per cent. owned by the Government through the British Technology Group. In the past six years the Government have invested about £110 million in research and development in Inmos and have given £30 million to £40 million loan guarantees. The rest of the shares are owned by the founders and employees, 750 of whom are in Britain, with nearly 800 in the United States. Last year Inmos lost £15 million on a turnover of £30 million, but there are predictions of profit in the near future. Part of the reason for this is that the firm recently unveiled a so-called transputer, a 32-bit microprocessor named T424. There was a Guardian article on 2nd November last and an item in the New Scientist on 10th November which analysed the significance of this device.

One other reason for the expected profit is the huge market for microprocessors and memory chips in this country. A Guardian article on 13th February said that Britain urgently needs 30 per cent. more chips than it can buy and it blames the fact that Inmos cannot fill this gap on the Government, who delayed development funds for Inmos. Several articles have appeared in the press, hinting that the Government may well sell Inmos off to AT & T, an American company, or to Western Electric of America or to Britain's GEC. Inmos is known to be short of cash since the last Government injection of £ 15 million in spring 1983. They are now seeking another £15 million.

I would put it to the noble Lord that for that industry, which is emerging now and can take us into the future—almost a guaranteed winner—to be "flogged off", just for a political ideology, to an American company is an absolute, complete and utter nonsense. It is almost like selling your coalmines and the whole of your basic steel; in fact. I think we would be selling at a knock-down price our best seed corn for the future. I think it would be completely rejected and resented by most of the people in this country. For an industry like that—which was originally sponsored publicly, having got through its teething troubles and starting to emerge as a best seller, creating jobs for our youngsters who are now on the dole, refurbishing our industry—to go abroad would be an appalling blunder and not accepted lightly by the people of this country. I would hope that the Minister in his reply may be a bit more positive in saying what are the Government's intentions about Inmos than was the Secretary of State in another place.

6.14 p.m.

Viscount Hood

My Lords, may I add my thanks to my noble friend Lord Lauderdale for initiating this wide-ranging debate on industry, with a particular application to energy. I also listened with great interest to the noble Lord, Lord Kearton; I have had the pleasure of sitting on his committee when preparing the report on the European Community Coal Policy.

In order to improve opportunities in industry and to provide more jobs and greater profitability, it is essential that industry should be competitive. And for industry to be competitive, it is essential that its costs should be competitive. Energy is a cost, to a greater or lesser extent, in every product manufactured in this country. It is unfortunately true that our energy costs are not competitive.

I think that the blame does not lie with petroleum. Crude oil prices are kept strictly in line with the world markets, high as they may be; and that is after providing a very large tax revenue for the Government. The retail prices, likewise, are competitive. Indeed, I know of no more competitive business than petrol at the petrol pumps and fuel oil for housing.

The problem, as has been said by many speakers during this debate, lies with electricity, where the prices are clearly not competitive. The noble Earl, Lord Lauderdale, said that electricity prices in France are 30 per cent. below ours. That may be an exaggeration, but certainly it is true that prices are lower on the Continent and also elsewhere in the world.

The problem, primarily, is one of the price of coal. Three-quarters of the coal consumed in this country is for power generation and 80 per cent. of electricity is generated from coal stations. There are problems of both pricing and of price. Prices are averaged countrywide. It is an extraordinary thing to me that it is not possible to build a modern coal station on an efficient coalmine and pass on the correspondingly low electricity price to industry. That is done elsewhere, of course—notably in the United States.

The prices are about £40 a tonne as compared with world prices of about £30 but, even so, we are faced with a subsidy which in the current year, for social needs and trading losses, will be of the order of £540 million. If £10 of the higher price is related to production, one reaches a very large figure of well over £1 billion. These are strains on the country and, still more, strains on industry.

The noble Earl, Lord Lauderdale, has mentioned the problem of the losing mines and the figures are so striking that I should like to state them also, in a different way. If the surplus coal production, the difference between coal produced and coal currently consumed, could he removed by closing the worst losers, it would save something of the order of £350 million or £400 million of trading losses. If all the losers were closed, those figures would probably be doubled.

The social problems we all recognise. It is an unfortunate fact that the losers, if I may use that term, are in difficult areas of unemployment and social distress. The main area, of course, is South Wales, where a large number of mines are losing great sums of money even though they represent only 25 per cent. of the mines that were in production in the 1960s. I believe it to be true that no mine in the Scottish area is making a trading profit. This is a problem for the coal board but it is also a national problem, and it is to be hoped that this will be tackled with great activity by the Government and by the coal board.

There is a sentence in the report which I feel expresses the problem as well as it can be done. It states: There must be better ways of spending money than paying out large sums over and above their wages to keep men working underground to mine coal which cannot be sold. The problem of coal here carries across the Channel. There is only one member of the Community who is still depending on coal in a major way and that is West Germany. The other countries have, to a large extent, dealt with the problem of high-priced coal and I believe that there is not the slightest chance of their coming over here to buy high-priced coal or providing help to us by subsidising our high-cost coalmines. As the head of the Italian CEGB—or whatever it is called—said, the European coal lies in Colorado.

On the nuclear matter, I am no expert in the different forms of power, but I am struck by the percentages and 80 per cent. is a large dependence on coal. I do not doubt that it will be a high percentage for the foreseeable future, but I should have thought that a higher percentage of nuclear was desirable. It is extremely difficult to get an accurate comparison for the future generation of electricity, by coal or by nuclear stations. In the case of nuclear, there is an enormous capital expenditure at the beginning and very low operating costs thereafter. A coal station is much cheaper to build: but, inevitably, it is not possible to predict what the operation costs will be in 10 years' time. However, be that as it may, I should have thought that the Government would be wise to support the CEGB in a nuclear programme, and I hope that support will not be deterred by the emotions which one can see here and still more in other countries.

To conclude, if British industry is to flourish it is necessary that its energy should be competitive. To this end, it is essential that obsolete coalmines should be closed, with firmness combined with humanity, and that the country's nuclear policy should be based on reality and not on emotion.

6.23 p.m.

Lord Bowden

My Lords, so much has already been said this evening that I do not know how best to make my own contribution. I should like to begin by thanking the noble Earl, Lord Lauderdale, and the noble Lord, Lord Kearton, who spoke so very clearly and went into such detail, but I want to make one point which may help. I should like to link this debate with a debate that we held in this House about a month ago on the subject of the infrastructure of the community. We realised then that the neglect of the infrastructure was causing devastation in many parts of England. We talked about the collapse of the sewers in Manchester, we talked about the risk that the sewers of Islington may fall in and we talked about the neglect of some of the secondary road surfaces. We realised that this might have an absolutely devastating effect on the whole of our civilised living.

But if ever there was a part of the infrastructure which we ought to consider, it is the primary industries of coal and steel. We cannot assess the problem without realising that this must be our primary concern. I was therefore almost devastated when I read this document for the first time and realised that, in a sense, it was an attempt to make the proces of change respectable. It was almost an apology for the whole process of closing down some of our main industries, which have such an enormously important part to play as an aspect of the infrastructure.

I felt this to be the case particularly because, some long time ago when we were trying to become a member of the Common Market, I happened to be in France. M. Pompidou was lecturing French farmers about the circumstances which would make it reasonable for them, in the referendum which they were about to hold, to vote for the admission of this country to the Common Market. He said, quite clearly and distinctly, "As far as I am concerned, the primary purpose of the Common Market is to maintain the way of life of French farmers".

I thought to myself that that was quite splendid and I presumed that, in due course, we would announce that it was our primary intention to maintain the way of life of manufacturing industry in this country. But not at all. We, too, have been devoting ourselves primarily to the maintenance of the way of life of French farmers. As a result of this, last year they spent something like 30 times as much on the basic problems of the Common Market, and in the support of French farmers in particular, as they did on research into all forms of energy and all the problems with which we have been concerned tonight. This is the beginning and end of much of our problem.

The countries of Europe ought to be sharing with us in solving the basic problems of the steel industry and the basic problems of all the other manufacturing industries. But resources have been diverted, perpetually and continuously, to the support of the French farmers' way of life, as a result of which funds have not been available, as they should have been, for what I regard as our problems. They have been devoted entirely to theirs. That is my first point.

It has already been said that we are now to make about one-tenth of the steel that the Japanese are making. This is quite preposterous. We were once the leaders of the steel industry in the world, and it is ridiculous that we should allow ourselves to be pushed into a position of relative inferiority and insignificance, dependent on outside suppliers for some of our primary and essential raw materials. We cannot manage without steel for building houses and other structures and for every other type of industrial plant. We must have it and we shall need more of it in future. Unless something dramatic is done to increase our potential we shall have to import it, and we should never have to import steel on a large scale. We ought to be exporting it to the world, as we could have done if we had devoted sufficient resources to capital investment in that very important industry, which is part of our great infrastructure.

So much for the question of our infrastructure and the importance of developing it. I now turn to the question of electricity supply. This is a most complicated story but there is one very simple problem which is never adequately considered. How reliable are the stations when they have been built? This is one parameter which is never normally considered. A nuclear power station is a very expensive item, and when it is not actually generating electricity it is still consuming interest on the capital which paid for it.

One particular type of nuclear power station has been much more reliable in the world than any other, and it has therefore generated electricity more cheaply than any other type of nuclear power station; much more cheaply, for example, than any coal-fired station or any PWR in the United States. Believe it or not, that is a system which the Canadians have produced and which we and the CEGB have totally ignored. We have ignored it, not because of arguments about its intrinsic merit but because we have never considered the fact that it works much more reliably than any other type of power station. Its performance has been quite extraordinary. It is not commonly realised, for example, that the nuclear furnaces in the great stations of Toronto are more reliable than any coal-fired furnaces that have ever been built. A coal-fired furnace nearly always has to be taken out of service and repaired after it has worked for 75 or, at the very most, 80 per cent. of total time. Some of the nuclear powered stations, on the other hand, have gone on for 95 per cent. of total time, which is quite extra-ordinary—much, much better than a coal-fired station has ever done and much, much better than any PWR has ever done. Their record is about 80 per cent., which is very good, but not so good as the best stations in Canada.

It is extraordinary to me that the result is that they are selling electricity more cheaply than anywhere else in the whole of North America, with the exception of one or two hydro-stations like Niagara. Even there the discrepancy is very small. The reason is that the greatest part of the cost of any nuclear powered station—about 80 per cent. of it—pays for the turbines, the alternators, the switch gear and in particular for the civil engineering, which can be very expensive. They have found—again in Toronto, which I know—that the cost of electricity from their nuclear powered station is about as great as the cost of electricity from a hydro-station where the power has to be taken about 200 miles across country. The cost of transporting the power is about equal to the difference between the cost of generating power by a nuclear station and by a hydro-station.

There is available, therefore, a system which would provide electricity cheaply and reliably; but we have wilfully neglected it, the reason being the simple one, that comparisons between the reliability of the stations have never been made. I have made this point more than once. I gave evidence to the Sizewell inquiry about it and tried to persuade them, too, of the enormous importance of making those comparisons.

There are other slight advantages which Candu has. First, its fuel is less expensive than that for a PWR. Even supposing that the PWR were made as reliable as a Candu station, its electricity would cost significantly more. When one taxes some of the Americans with the fact that the Candu station is so reliable, they very modestly say that the Canadians are very good engineers. Furthermore, they say that their maintenance crews are superbly well trained. That is true. I am fairly certain that if the Canadians had built the station at Three Mile Island, it would never have blown up; furthermore, had they had a Canadian crew in charge when the accident occurred they would probably have fixed it. This is true, but it by no means accounts for the fact that on balance, allowing for everything, these stations have been extraordinarily good. They are well built, well engineered and very well maintained, all of which is part of the process. Goodness knows how good our AGRs have been, and goodness knows how good the stations we are going to have will be. But they have not been so reliable as the Candu stations. Nor have any of the stations which have been built in France. They are quite good. They are better than the Westinghouse stations which are being built by Bechtel, but they are not so good as the Candu stations in terms of sheer reliability. I shall be happy to give the figures to the Minister, but the fact is that they are not so reliable and, in the end, it is reliability which dominates the question of cost.

My last point—perhaps a rather foolish one—is that we talk about the importance of combined heat and power stations. For a long time the CEGB was not empowered to sell heat. This is extraordinary. The CEGB was required to sell power but it had no right to sell heat. I believe I am right in saying that the position has been changed by the latest Act. But we had an extraordinarily good system in London for combined heat and power. It was at Battersea. Your Lordships will remember that that great station, by means of a pipeline under the Thames, heated the whole of a very large area immediately on this side of the river. It was scrapped because it did not pay. The reason it did not pay was because the concept of selling both the heat and the electricity could not be maintained. If they were to rebuild it where it was we should have one of the best combined heat and power stations in the world. I shall never understand why we do not do this. May I ask the Minister to request his officials to take this on board as a very sensible proposition and as a very nice way of reviving something which has already been in existence and which ought never to have been scrapped.

Mine is, perhaps, a rather curious contribution. I beg your Lordships to believe that nuclear power can work, has worked and could work again. I doubt very much whether our plans for it will work. I would make the point which has already been hinted at: that if ever we get our large scale PWR working it will by then be obsolete. It will be a prototype. It will have been redesigned, because the Nuclear Inspectorate said that it would not be safe, and redesigned again because the Government decided that it would be too expensive. It will therefore be a prototype. It ought to he tested for at least five years before we decide whether it is any good. By then it will be much too late ever to copy it. Therefore our policy to build PWRs, based on the Sizewell model, seems to me to be foredoomed to failure.

We have embarked on a project which seems to me to be unlikely to succeed. Even at this late stage we could change our policy and work to a design which is known to be effective. There is only one curious reason why we could not do it. It has been said that the Nuclear Inspectorate could not license it. I talked to the inspectorate about it. They told me that of course they could not license it because they have not looked at it yet and do not possess a single file upon it. There cannot be a worse reason for determining British nuclear policy than the fact that the Nuclear Inspectorate has never been instructed to look at what is undoubtedly one of the best and probably the safest design in the world. It takes time to inspect a new design. The staff of the Nuclear Inspectorate should, if need be, be increased in number to allow them to look at it. I cannot imagine a worse way of defining our nuclear strategy than to overload the Nuclear Inspectorate with the PWR and then say that for this reason they cannot inspect what is undoubtedly a very much better design.

6.39 p.m.

Baroness Airey of Abingdon

My Lords, your Lordships may think it strange that I should speak on a Motion such as the one which is being debated this evening, but the congratulations which have been extended this evening to my noble friend Lord Lauderdale, to which I should like to add mine, show how very wide-ranging is this Motion. Speaking, as I do, rather late in the debate, it has struck me forcibly that many brilliant speeches have been made from the heart this evening and, even more, from experience by men of great knowledge in this particular field.

I should like to support my noble friend Lord McAlpine of Moffat who made a heartfelt speech without any notes—unlike me. My noble friend made the point to your Lordships that heavy industry, in particular the nuclear industry, is needed to maintain scientists, engineers and jobs. The subject of jobs was originally put in the Motion of my noble friend Lord Lauderdale, and it is one of great importance to us all.

I also speak from experience, which, again, may appear strange to your Lordships. For nearly half my life, I seem to have been engulfed and surrounded by talk of the genius of British inventiveness in the field of nuclear power stations, built by British workers and backed and encouraged by the Government of this country—confident that we would thus benefit from our own inventiveness, maintain our workforce, and export to the world. An earlier generation was thrilled by the inventions of Barnes Wallis who, against seemingly impossible odds, succeeded with the project of his "bouncing bomb". He had to convince the Government. He had to convince the Prime Minister of the day, Winston Churchill—and we know to what effect. Not so, alas, the story of his equally brilliant invention the swing-wing aeroplane, with which I am sure your Lordships are familiar.

Is there not a parallel today in the Sizewell inquiry, which has spent a period of 13 months—to which so many of your Lordships have referred—on a deliberations, at enormous cost, to assess the effectiveness of the American system? One does not, or should not, know the outcome of a committee until it has finished its deliberations. How, then, can the CEGB be entitled to spend in the region of £100 million on services and parts ordered in anticipation that the American PWR will be accepted? That sum is attributed to the CEGB in an article in the universally respected Financial Times. I do not have the whole newspaper here but I have the extract containing that article, which was published on 8th February 1984.

I ask your Lordships this question: does not this make a mockery of the inquiry? What would the compensation be to those firms if the discussion went the other way, to the British AGR system, and if that should be preferred to the American system?

Most other countries have faith in their own industries and are prepared to back them. Heavy electrical industry will wither, and jobs will be lost if we do not back our own industries. This country stands on an unrivalled record from the past, and it should put its faith in the future.

6.44 p.m.

Lord Pennock

My Lords, may I begin by offering my apologies—especially to the noble Earl, Lord Lauderdale, and to the noble Lord, Lord Kearton—for not being present at the outset of this debate. Unfortunately, like the noble Lord, Lord Ezra, I had a long-standing prior public commitment which was quite inescapable and which prevented me from being here. I also wish to offer my thanks to the noble Earl, Lord Lauderdale, for introducing to your Lordships an important debate, just when it is particularly timely and opportune. I wish also to congratulate the noble Lord, Lord Kearton, for presenting a report which shows scientific analysis, business acumen, and, most important of all, the fearless presentation of economic implications in a manner which we would expect from him.

This debate is timely and opportune, because underlying the suggestion that we should transfer resources from heavy industry elsewhere there lurks a myth which is gaining, I regret to say, increasing credence in our society—the myth that our economic future depends upon replacing the basic manufacturing industry we have by movement into the services sector, on the one hand, and into high technology industries, on the other. I believe that argument is based on a false premise. I believe that it has been developed and embroidered with false logic, and I believe that it finally comes to a false conclusion because it often depends on misleading and inaccurate information that comes from the countries from which it is alleged to have originated.

In the past two or three decades, we have often had changes in the direction of our economic development which, because they have corrected earlier distortions, had some validity at the outset; revolving on the fly-wheel of fashion and economic discussion, they speedily represented the sovereign remedies upon which our future depended and without which our salvation would be lost. Then, because in the outcome this did not happen, those originally creditable theories became discredited and fell into disrepute.

In the 1960s we had, first, devaluation and then the incandescent glow of white hot technological revolution. In the 1970s we had fine tuning, and then the dash for growth. Later in the 1970s we had industrial democracy, from which would come economic reality—which would become a recognition of the importance of competitiveness, and everything in the garden would be beautiful. More recently we have had the sanctity and pre-eminence of the PSBR. Now we have a suggestion that our future depends in moving out of the basic manufacturing industries and into service industries, on the one hand, and high technology, on the other. There is nothing wrong in those movements, but to suggest that the two can replace the former is a fundamental misconception which should be exposed.

The argument is a familiar one. We know that in the past 10 years in the United States, 12 million new jobs have been created. I understand that in the past nine months, 2½million new jobs have been created; in fact, even more impressive, 2½ million more people have been employed—allegedly, mainly in the service industries and in high technology developments. In Japan, similarly, there has been a vast growth on both fronts.

I recall travelling not so long ago on the Silver Bullet train from Tokyo to Osaka. I noticed that when the ticket collector came to take my ticket he was preceded by a charming "air hostess" young lady, wearing white gloves, who took the ticket from me and handed it to the ticket collector. He punched the ticket, passed it back to the young lady, and she handed it to me. I marvelled at the fact that the lack of productivity was so immense, and at the fact that in Japan the services sector was expanding so rapidly that they could afford it.

That is the key to the whole question; they could afford it. The developments in the services sector has not replaced basic manufacturing industry. It is based on the success which the Japanese have had in basic manufacturing industry—particularly those basic manufacturing industries which they have been able to export and expand around the world. The distinctions between manufacturing and service industries, between heavy industry and light industry, and between light industry and electronic industry, are false distinctions.

In basic industries, high technology is now essential if we are to remain competitive. How many of our manufacturing processes are now being developed by CADMAT and by computer developments? In my own industry, more and more of the elements which go to make the cables are controlled by computers and the highest technology is used. How many of the service industries—whether they are concerned with finance, distribution, transport or even information technology—are not being used in the basic manufacturing industries? I submit that this is a false distinction in the first place.

In the cable industry, where I have the privilege and satisfaction to work, we have a cable heartland. We make cables for energy. We make cables for power. We make cables for telecommunications. We make fine enamel wires, and so on. That is our basic cable heartland. Because cables last a long time, take a long time to wear out, it is a comparatively slow-growing business, except in the developing countries of the world, where the growth is much faster. So, not unexpectedly, we have moved into faster-moving growth areas, the developments that happen at the end of the cable before the cable goes into the computer, the world of connectors, the world of power service units.

We have moved, not unnaturally, into the development of optical fibre cable, recognising, with the development of CATV and the development of junction routes for fibre cable development, that this is an area of great growth for the future. These are modern high technology developments. But if we neglected our basic cable heartland we should neglect it at our peril, and we should lose the resource whereby we are able to expand in the faster-growing and new developing electronic industries.

It is fashionable, whenever a trend of this nature is presented, to point to Japan, to Germany, to the US as exemplars which we should follow. If one examines—and I have examined—the proportion of GDP which is now expended in manufacturing industry, in the years 1972 to 1982, you discover that already our manufacturing industry in the United Kingdom has declined more rapidly than that in those countries. In the UK over that period, manufacturing industry as a percentage of GDP has declined from 37 per cent. to 24 per cent., a significant reduction; in the US it has remained at about 24 to 22 or 23 per cent.; in Western Germany it has declined much less, from 37 per cent. to 32 per cent., and in Japan from 35 per cent. to 30 per cent. So in both those countries you still have a much higher percentage of GDP covered by manufacturing industry. Conversely, as a percentage of GDP, our service industries have already increased more rapidly than in those countries—in the UK over this period they have gone from 53 per cent. to 62 per cent.; in the US again the service industries have remained static around 62 to 63 per cent.; in Western Germany the increase has been much smaller, from 48 per cent. to 54 per cent., and in Japan similarly from 48 per cent. to 53 per cent. Having, therefore, moved more swiftly than our competitors in, on the one hand, the downward development of manufacturing industry as a percentage of GDP, and, on the other hand, the growth of service industry as a percentage of GDP, and still having had a lower overall growth rate throughout the decade, it would seem difficult to argue that we shall be successful if we pursue this change even faster and achieve an even greater rate of change than those whom we have already passed, with this deleterious effect.

I noticed earlier in the week another suggestion that there lurks this myth: an interesting article by Sarah Hogg in The Times of Monday entitled "Does manufacturing matter?" in which she stated: To the prosperity of Great Britain it is value added that matters. I have taken out the figures to show that, if we take the value added of our goods and services exported in recent years, we discover that half still comes from manufacturing industry, a further quarter comes from the services which are supporting manufacturing industry—finance, transport, distribution and so on—and only a quarter from the service industries on their own.

So, in conclusion, the burden of my remarks is that what matters is not that we move out of manufacturing into service and into high technology industries; what we must do is to have a balance and expand in all these fields. Over the last few years, manufacturing industry has, I believe, achieved a quite prodigious improvement in productivity, a faster improvement in productivity than has happened in the services sector. So far as manpower is concerned, it has achieved a very satisfactory improvement indeed. There has, however, been a notorious lack of expenditure on investment, simply because the profits to produce the investment have not been there. We have now moved into an area where we have a growth rate, hopefully, of 3 per cent. We certainly have control of our wage increases and a reasonable control of inflation. It would be reasonable, therefore, to expect that profitability will now begin to assume proportions which will allow us to expand and to develop in the manufacturing field in new investment as we have developed our productivity in the way of using our people. So my conclusion is not that we should move from heavy industry into these new areas but that we must continue in the former because they are the basis on which the other developments exist, and we shall neglect manufacturing industry at our peril.

6.58 p.m.

Lord Bruce of Donington

My Lords, the House will be extremely grateful to the noble Earl, Lord Lauderdale, and to the noble Lord, Lord Kearton, for having made it possible for us to have such a comprehensive debate here today, with a number of extremely thoughtful and well-informed contributions, if I may say so, and notably that of the noble Lord, Lord Pennock. I cannot recall in my nine years' experience in your Lordships' House having been in so substantial agreement with a noble Lord sitting on the Back-Benches opposite. It is my very great hope that his speech will be studied by members of Her Majesty's Government at Cabinet level, who seem to be singularly oblivious of the extremely cogent arguments that he put forward.

I thought the noble Lord, Lord Kearton, was being a little generous to the Government when he referred to the complacency with which they viewed the exchange rate which, as he said, brought very substantial sections of British industry to its knees during the period 1980–1981. "complacency" is really not the word. I have the speeches of the Prime Minister at the time, and they are all carefully filed. In them, the Prime Minister was boasting of the high rate of exchange, "looking the dollar in the face", and completely ignorant of the fact that that very high rate of exchange and the monetarist policies that caused it were wreaking such havoc in considerable sections of our industry, and not least in heavy industry.

The noble Lord, Lord Cockfield, in his list of achievements of the Government carefully did not claim the high interest rates and the high exchange rates that flow from them as being any kind of credit record. However, the noble Lord's remaining arguments were of course, if he will forgive me saying so, very much a photocopy of the arguments and theories that he has honoured us with on so many previous occasions. I can only say that the remarks of my noble friend Lord Kaldor once again, I think, effectively demolished the economic theories which the noble Lord entertains us with from time to time, and one wonders when he is going to change his ideas a little in conformity with the times.

The noble Lord said that the policy of the Government was not to intervene in matters of this kind but to create the climate. The noble Lord is much too modest. Of course the Government intervene. The Government protest the virtues, as indeed the noble Lord did this afternoon, of competition and these are quite unexceptionable. The noble Lord, Lord Kearton, referred to them, as did the noble Lord, Lord Pennock, and others. But basically the Government do not believe in competition where their political interests are affected. They do not believe in competition in agriculture. They do not believe in it at all. Indeed, as my noble friend Lord Stoddart of Swindon was quick to point out, the Government pour massive subsidies into agriculture. I would not say that that is because farmers are so heavily represented in the Cabinet, as indeed they are also represented in your Lordship's House, but the Government's political interests lie there and they have not the slightest hesitation in pouring thousands of millions of pounds into agriculture whilst moaning and groaning the whole time when they are reluctantly compelled, for other reasons, to inject money into British industry.

The noble Lord, Lord Ezra, in what many will feel was a very informative and well argued speech, said that the real debate was about restructuring and revitalising. Inseparable from that problem essentially must be the future of manufacturing industry. I do not want to add too many examples to those given by the noble Lord, Lord Pennock, but as a prime piece of idiocy which surpasses the asininity of some editorials, The Times of 27th June 1983 could hardly achieve more sublime heights. After revealing that imports exceeded exports by £552 million in May, the editor said: Net imports of manufactures should be regarded as the logical, and indeed necessary, counterpart to net exports of oil and services. He continued: Britain's deficit on manufactured trade is an acceptable feature of the economy. It reflects our natural endowment and improves industrial efficiency. Even the noble Lord, Lord Cockfield, in all his glory could not possibly better that.

As I was listening to him today, and I was reminded of it when the noble Lord, Lord Ezra, spoke, I recalled the report of your Lordships' Select Committee on Science and Technology which this House debated only last year. It supports, right down to the letter, the argument of the noble Lord, Lord Pennock. This is what it said, or rather what the Minister for Information Technology said. I do not know whether the noble Lord, Lord Cockfield, has more than a passing acquaintance with the Minister for Information Technology or whether perhaps what the Minister said has not yet penetrated into the Cabinet, but this is what the Minister said: Manufacturing industry provides about 25 per cent. of our GDP and 25 per cent. of jobs but it provides 75 per cent. of our visible trade exports. If we were to replace the contributions made by manufacturing industries to the balance of payments, we would need to increase our exports of services by £60 to £70 billion a year. To do that we would have to increase our share of world exports of services quite dramatically from under 10 per cent. to over 50 per cent. and that is really a wholly impossible task at the moment. So without manufacturing industry Britain could not survive.". One hopes that observations of that kind made by a responsible Minister do penetrate somehow into the philosophy of Government, because unless that is done the noble Lord, Lord Cockfield, will remain convinced of his own wisdom. This is very dangerous for him. He should concede the feasibility of error. All mankind has to concede the feasibility of error because it is only in that way that we learn.

The noble Lord said, and most noble Lords agree, that the future of British industry, and the future of the heavy industry within it, depends on competitiveness. The noble Lord himself narrowed down the argument—and as an accountant I was pleased that he did—to unit costs. But when the noble Lord thinks of unit costs he thinks only of one factor. Sometimes I feel he may forget that the production of wealth is the application of human effort to raw materials, semi-raw materials or sub-assemblies with the aid of machinery. In other words, there is the function of the machine as well as the function of the individual. As I said, I think that very often the noble Lord loses sight of that.

As the noble Lord, Lord Pennock, well realises, the function of investment in plant and equipment is vitally necessary for the reduction of unit costs. It is not only the human endeavour applied at the work place with the aid of machinery and plant and the various other technical facilities available, it is the quality of the investment and the improved nature of the investment, to which the noble Baroness obliquely referred when speaking of the achievements of Whittle and such people, for whose inventive genius the whole nation is so grateful. That is what it is all about. But if one takes too narrow a view and says that the unit costs are essentially the sole function of the cost of the labour, the cost of the human effort that goes into it, one can never, never arrive at any logical and viable conclusion. It is the product of them both.

This brings me back again to a factor that we often do not realise when we are talking of restructuring, whether it is restructuring on an international scale—and that has its implications, as the noble Lord, Lord Cockfield, knows well—or on a national scale. What we sometimes tend to forget is that one of the vital components in the creation of wealth is capital. Capital is necessary to buy plant and equipment, to erect factories or whatever it may be. Capital is highly mobile. It can be transferred like lightning, particularly with modern computer technology, from one side of the earth to the other. The transfer of a million pounds takes a couple of seconds provided it is properly authenticated. Since the motivation of capital—and I am not decrying this—is to earn a profit, capital will seek out the most profitable areas into which its investment is to take place. The human individuals, whether they be managers, executives, accountants, lawyers, supervisors, or the works operatives, are immobile, and are essentially immobile except within a comparatively small area. Therefore, it follows that with the varying speed of the developments of various parts of the world at different rates, with different standards of life, whereas capital can move like lightning it can very often leave labour behind.

That is exactly what has happened with a large number of our industries. Vast sums of capital have gone out of this country to the newly-industrialised countries to which the noble Lord referred. There is no reason why that should not happen, because due to the state of social and economic developments in those countries, labour rates are only 30 per cent. of what they are in the United Kingdom. So capital flows into those countries, and labour—the ordinary, human individual—is left stranded behind. Any restructuring of British industry must take account of that factor.

If we are to consider this question as a nation, as one people, as, perhaps I may say, Britons, we must ask ourselves whether capital has any responsibility to the nation of human individuals who provide the human effort? This is a fundamental problem not only of ethics, but also of politics. There is of course a dim realisation of this. The battle of the mind is fought as to whether it is patriotic to invest here or elsewhere, and the result is very often an uneasy compromise, dependent upon political considerations and very often electoral considerations, too.

But this much must be said: No matter what may be the political complexion of the Government, no matter what may be the political acerbities that are exchanged in another place and here, (though doubtless in a friendly spirit), the problem is our problem. The problem which any Government in Britain must face is to decide what they, as a Government, can do to help the industries concerned, whether or not that violates some fondly held and now considerably disproved monetarist theories.

I should like to give an example, which I had very much in mind when I was listening to the speech of the noble Lord, Lord McAlpine of Moffat. The Government could make considerable public investment in the infrastructure of the United Kingdom in terms of roads, sewers, housing and a whole series of other projects of that kind. In doing that they would probably save money because they are already spending many millions enforcedly on unemployment pay. It is not as though there is not the need for steel in the United Kingdom. It is not as though the demand for steel is at the bottom of the problem. Once the Government started to do what even some of their own supporters are now advocating—to make an immediate investment in the infrastructure, in a constructive and planned way, by putting to work the construction industry and the mechanical engineering side of the United Kingdom's economy—that would itself begin to provide the grounds for the recovery of the heavy industries themselves. The demand for steel would then go up and unit costs would come down. As the noble Lord opposite knows perfectly well, one cannot do much about fixed overheads, but if one increases turnover, unit costs go down automatically, even though the overhead loading remains substantially the same. The Government could play a constructive part in this move.

They could also, I fear, embark upon a policy which in some ways they find repellent, but in other ways attractive. They will bend over backwards to protect their agricultural lobby. They will break every canon of competition, free trade and anything else in support of their basic political hinterland. They will do that all the time. In fairness, when formulating their public purchasing policies, they ought to consider whether it really is in the national interest to seek out the cheapest product when that product comes from a country that pays labour rates of about 30 per cent. of those obtaining not only in this country, but also in Western Europe. A Government convinced that the necessities of their country's economy demanded that would do it. The Government cannot plead all the virtues of free trade and free competition throughout the whole of industry while violating every one of them in relation to agriculture; and they know that perfectly well. Common sense would dictate that what I suggest is what they should do.

The case for aiding and investing in heavy industry is overwhelming, for precisely the reasons which the noble Lord, Lord Pennock, has given this evening, and the Government ought not to be prissy as to the source from which that investment comes. They ought not as a matter of political dogma stipulate that it must come from private sources. They need not insist that their rentier supporters get their cut first before the national interest is considered. Private industry is very welcome to invest in these sectors, and indeed ought to do so. That would be a preferable exercise to the vast exchange of money that at present takes place by way of investment in taking over companies which already exist—an activity which today occupies the bulk of the time on the Stock Exchange.

In the national interest the Government ought on their own account to invest instead of considering what my noble friend Lord Dean of Beswick referred to in relation to Inmos. That is part of a new industry that must be dear to the noble Lord's heart. It is one of his new, expanding industries; an industry over which Sir Keith Joseph dithered for at least two years before he made the investment. Now that the investment has been made and is beginning to yield results, the first thought is not to encourage the industry further, not to ensure that it makes a profit that would provide relief for the taxpayer by way of payments into the Consolidated Fund. The first thought is that it should be "flogged" off, and as my noble friend Lord Dean very well knows, one of the figures that has been mentioned is £40 million, which United States experts are already ridiculing, saying that it is worth at least £200 million. I hestitate to repeat the figure in case it encourages the rapacity of the Chancellor of the Excheque and advances his privatisation plans.

These are the ways that a nation should function. If the national interest demands it, political dogma should not prevent the Government from investing where private capital's caprice (to which it is entitled) means that it is unwilling to invest, for a variety of reasons, such as competition overseas, the desirability of investing in Florida, or something like that. This is the way forward, and this is the course which I commend to the House.

7.19 p.m.

The Parliamentary Under-Secretary of State, Department of Energy (The Earl of Avon)

My Lords, I had intended to open by saying that the Motion which we have been debating today touches upon one of the major issues facing the United Kingdom at the present time. In fact, I think, having listened to the debate, I could say that one speaker or another has touched on virtually every issue that faces our country today. I believe that, if there were any gaps, the last speaker, the noble Lord, Lord Bruce of Donington, has certainly plugged them.

In the past, we have too often devoted large portions of our capital finances to parts of the economy which face decline. The intention has often been well motivated—the protection of a threatened section of our industrial society. But the outcome has frequently been waste. The changing patterns of market demand have worked inexorably to make the protected unprotectable. Finance that might have been used to create new opportunities, generating new jobs and new profit for reinvestment, has been lost. My noble friend Lord Pennock, in his opening remarks, put this better than I could.

The breadth and depth of today's debate has illustrated forcefully the great concern that the House brings to this issue, inspired, as we are, by the Motion introduced so well by my noble friend Lord Lauderdale. My noble friend Lord Cockfield outlined, with his normal lucidity in his opening remarks, and, if I may use his own words, with a broad brush, the policies that the Government have adopted. He has made clear the general thrust of those policies and their relevance to the problems of the shipbuilding and steel industries.

Much as I enjoy a good look into the future, I should like to turn in some detail to the great industry that faces problems all too germane to today's debate. It is an industry that has been referred to by virtually all speakers. It is the coal industry. Indeed, the noble Lord, Lord Kearton, has drawn our attention to another excellent report by the Select Committee on the European Communities, this time, on coal policy. The Government welcome the Select Committee report. I should like to add my congratulations both to the committee and to the noble Lord, Lord Kearton, for his introduction. I believe that it would be appropriate for me to reply in some detail to his report. It provides a trenchant analysis of the prospects and problems of the British coal industry and examines the industry in a realistic context, namely, within the European and world market environment.

I do not think that I can respond in the time available to all the points that have been raised but I shall endeavour to cover the main ground. Any assessment of the coal industry's future must start from the understanding that coal is now an international business and growing more so every year as the world market in coal expands. In the Government's view, the European Communities Committee has described the international position of the coal business with realism. Europe, outside the Unied Kingdom, will be turning increasingly to coal imports from low cost producers such as Australia and the United States and, as we have recently heard, even from Colombia.

World-wide reserves of coal are abundant, widely spread and highly competitive. Low cost international supplies can he expected to increase for many years to come. The future size of our own coal industry will depend largely on its ability to compete against these international supplies. But the prospects for the coal industry at home and in competitor countries are good, at least for those that achieve necessary levels of efficiency to command a place in the energy economy. I share the desire of the noble Lord, Lord Stoddart, in this respect, but I believe that this last sentence is very important.

As the committee says, the contribution of European Community policy on coal has been limited, one would even say minimal. The Government share the Committee's view that the Community proposals on solid fuel now being discussed are on broadly sound lines. They are new encouragement for investment in economic production, incentives to reduce loss making capacity and reduce stocks, increased aid with the social costs of rationalising the coal industry and further finance for energy demonstration projects. No real progress has yet been made on these proposals. This is particularly to be regretted because they would provide a welcome boost for Community production of indigenous coal.

The Government join with the Select Committee in regretting this lack of progress and we are continuing to press our partners and the European Commission to move forward and develop an effective Community policy without delay. But whatever the outcome of the community discussions, there is no escaping the realities that the coal industry faces at home. As the Committee recognises, the main market opportunities for our coal lie within the United Kingdom and this market is unlikely to change substantially from its present size. Industrial demand for coal will grow, aided by the Government's conversion grants, but demand for coal at power stations will tend to remain static. Perhaps it is worth noting, particularly as my noble friend Lord Lauderdale and the noble Lord, Lord Ezra, mentioned it, that despite the strength of international competition, our country exported 2 million tonnes of coal net last year. That is, I think, about 1 million tonnes down on the year before, but we are a net exporter.

One overall message of the committee is that the demand for home produced coal is unlikely to pick up fast enough to reduce the current massive surpluses in the supply of general purpose steam coal. The committee also points to very heavy losses which some of our collieries are incurring. It concludes that it cannot make sense to keep open every mine indefinitely, however uneconomic. This must make sense. In keeping with the central theme of today's Motion, the industry must avoid the easy option of letting good money shore up hopeless mining capacity. For this reason, the Government share the committee's view that a long-term view must be taken on coal.

The objectives that we have set for the management of the National Coal Board encourage them to develop a long-term viable strategy. The aim is to direct investment in the industry into sound projects with lasting prospects and value. New modern capacity such as the recently approved Asfordby mine is to be created. Existing mines with potential are to be further developed and modernised. But mines with no future must not be allowed to drag down the rest of the industry.

The Government are very conscious, as is the Select Committee, of the serious social problems that arise when mines are closed or their work force cut back. A number of noble Lords have touched upon this important aspect of industrial rationalisation today. It should always be in the forefront of our minds. The Government have taken important steps to alleviate these problems. My noble friend Lord Cockfield referred to regional incentives. In addition, the Government have worked closely with the coal industry to develop special redundancy, re-location and retraining assistance to reduce the problems which individual miners and their families face if their present jobs go. The Government believe that if the coal industry is successful both in carrying through the restructuring and re-investment now in progress and in bringing output into balance with demand, then the future for the industry will be secure. In answer to the noble Lord, Lord Ezra, may I say that we should not be helping to finance an investment programme costing over £800 million a year if we did not believe that the coal industry has a promising future beyond its current problems.

The noble Lord, Lord Stoddart, asked about high coal stocks and industrial demand. The National Coal Board is actively working to reduce the current very high stocks by pursuing new markets for coal and by reducing its costs in order to become more competitive. The Government's coal firing schemes providing up to 25 per cent. grants and exchange risk cover on ECSC loans have given the coal board constructive and practical help in its efforts to increase coal penetration in the industrial sector. The noble Lord, Lord Stoddart, mentioned at one stage the European subsidies. There was an exchange on 20th February in the other place when my right honourable friend gave the figures for production subsidies and investment finance in 1982. These show that the United Kingdom contributed in the longer term better than any other of our European partners. I understood the noble Lord to say that the Commons Select Committee on Energy had published its report. I do not believe that it has done so, and therefore I do not think that I should comment upon it.

Lord Stoddart of Swindon

My Lords, I am much obliged to the noble Lord for giving way. I think that I should say that I was in error in quoting from a report which has not been published. I had understood that it was to be published today; but I now understand that it is to be published next Wednesday. Let me take this opportunity to apologise to your Lordships for quoting a document which is clearly confidential and to apologise to the Select Committee on Energy and, indeed, to the Speaker of another place.

The Earl of Avon

My Lords, I am grateful to the noble Lord for his generous apology. It also makes my reply slightly easier because I was not quite sure what I ought to say!

The noble Lord, Lord Stoddart, and other noble Lords raised some points on electricity prices. I should like to draw attention to what my right honourable friend the Secretary of State pointed out to the Select Committee in his oral evidence, and that is, that the recommended price increase to domestic consumers is only 2 per cent., which is very small compared with the turnover of the electricity supply industry, and is a prudent provision for ensuring that they meet their external financing limit. The Electricity Council's recommendation for 1984–85 is that there should be no tariff increase to industry beyond any necessary fuel price adjustment.

The noble Lord, Lord Stoddart, also asked about new mines. As we know, the Government have recently given the go-ahead for the new mine at Asfordby. It is, of course, a matter for the board's commercial judgment to decide which particular projects they may wish to bring forward next.

There were also remarks made on financial structure and commitments, and I know that this is close to the heart of the noble Lord, Lord Ezra.

Lord Stoddart of Swindon

My Lords, I am most obliged to the noble Earl for giving way. Is it possible at all to give any indication as to when a decision about Margam is likely to be made? There is a great deal of anxiety in the area, and it would be helpful if those anxieties could be allayed at this stage.

The Earl of Avon

My Lords, my information is that at the moment the Government have received no proposals from the National Coal Board on Margam.

On the question of the financial structure and commitments, payments of deficit grants to the National Coal Board reduce the amounts which the board has to borrow, and have since 1981–82 exceeded the board's payments of interest. I do not believe that at the present time writing-off borrowing would help. The first priority must be for the board to concentrate their full attention on achieving viability. The board enjoy what amounts to a year-by-year capital reconstruction, because the deficit grants reduce the amount that they have to borrow. However, this is certainly something that we will consider when the industry becomes more viable.

My noble friend Lord Lauderdale expessed concern about CEGB's generation capacity replacement programme, and the noble Lord, Lord Stoddart, also spoke to this matter. I agree that neither of us shares the concern of my noble friend in this respect. Both the Government and the CEGB fully appreciate that, over the next 20 years, a large number of units will be reaching the end of their design lives. But the CEGB has nearly 10 gigawatt capacity under construction in 1983–84, which is about one-sixth of present total capacity.

One large, modern generating set has the capacity of 10 of the old ones now reaching the end of their economic lives. So for the next few years CEGB will have surplus capacity, not a shortage, and there is time to plan for the needs of the turn of the century when the outcome of the Sizewell Inquiry is known. I have taken the point made by the noble Earl, Lord Halsbury, to mind about not using the year 2000 as if it were a long way ahead.

One or two noble Lords gave me the impression that they thought that power stations were going to last for a shorter time than was originally envisaged. In point of fact, all indications are that the power stations, particularly the AGRs, will have a longer life than was originally anticipated. The noble Lord, Lord Dean of Beswick, talked about refurbishing. There is quite a lot of refurbishing taking place on the ones in merit order which have enough capacity to be refurbished. That is happening now.

The noble Lord, Lord Bowden, asked about Battersea Power Station. I do not particularly wish to be drawn into that matter. But as I believe the noble Lord said in his closing remarks, the Energy Act has enabled people now to sell power to the electricity boards and we are encouraging CHP in this field. Incidentally, if anybody wishes to buy a power station, it is open for them so to do. Moreover, to answer the noble Lord, Lord Dean of Beswick, perhaps the fact that they have not been rushing to buy them may show that it is not quite as economic a matter as we would all wish it to be.

I should like to welcome the contribution of my noble friend the Duke of Portland. We are fortunate that his wide knowledge and experience of the nuclear industry is available to the House. I also welcome the contribution of my noble friend Lord McAlpine and recognise his interest. I thought how privileged we are in this House to have three speaker—one promoting PWRs; one promoting AGRs and then the noble Lord, Lord Bowden, promoting Candu from the other Benches. We have certainly had all three options shown to us.

I thought that my noble friend Baroness Airey came down slightly anti as regards the PWR. Let me point out to her that the CEGB have made quite clear to the Sizewell Inquiry that the buying of the pre-consent ordering was a commercial decision, and they fully accept that it will not in any way influence the Secretary of State's eventual decision, nor in any way should it affect the inquiry. Also, I think that should the PWR ordering be accepted by Sizewell, a very high percentage will, of course, be placed in this country.

My noble friend Lord Torrington talked about wind and also solar energy. We are spending quite a lot of research funds at the moment both on wind and geothermal energy, as well as looking at tidal energy. So the Government have not lost their interest in this field.

The noble Lord, Lord Kearton, and the noble Earl, Lord Halsbury, also talked about coal liquefication and gasification. The National Coal Board's liquefaction process has progressed through the research stage and the Government are sharing with the coal board the cost of a design study for a 2,500 tonnes per day plant. I am told that the design study should be completed later this year. I was intrigued by the new ideas of the noble Earl, Lord Halsbury. One of the new aspects of the oil world is the new plans for oil extraction which may produce a little more oil than we thought we could get out previously. I was also pleased to have his acceptance of the plans for the fast breeder, which I believe is a very good step forward.

Finally, I should like to return to the more general issue raised in today's Motion and the questions posed for all our industries, not just coal, nor even just our traditional industries. The coal industry illustrates well that even within industries where there are problems of excess supply and financial loss, there can be substantial opportunities for viable operations and continuing jobs. But these opportunities can only be exploited to the full if we are prepared to make our industries sufficiently competitive to hold their own.

The United Kingdom is a trading nation. Our prosperity depends already to a very large extent on our success or failure in selling our products to other countries. In short, we have to be competitive to live. We cannot earn our living in the world if our basic energy costs or our finished goods are uncompetitive. So we must concentrate our efforts where there is demand for our products. We must not waste our resources in costly surplus capacity in stagnant or declining markets. We must put new resources into the growth areas. And we have to accept that even in the growth markets the competition is going to be strong.

There are many signs that our industries are winning more ground in export markets and facing up to competition at home. We are confident that this process will continue as our policies help to encourage the much-needed shift in productive resources that has been the subject or our debate today. I end my remarks by thanking my noble friend for introducing this Motion.

7.39 p.m.

The Earl of Lauderdale

My Lords, one lesson to be learnt from today's procedural arrangement is that the experiment has been valuable, in that we have managed to get a full day's debate at a reasonable hour and on a convenient day for a very important report from the scrutiny committee. Very often these admirable reports are taken at a late hour on a difficult day and do not receive the attention they deserve.

The whole House is indebted to the noble Lord, Lord Kearton, for agreeing to take what happened to be a type of second fiddle position in the pecking order, though not in quality. I should like to thank them. We are all grateful to him, because it has enabled us to look at the coal report in a much more satisfactory context.

I should like to thank all noble Lords who have joined in the debate today—several, to my certain knowledge, at considerable inconvenience and indeed at rather short notice. We have had some notable contributions from all sides of the House. It has been said that tomorrow's truths are today's blasphemies, so I am not altogether surprised that my anxiety about generating capacity has not been reflected by the Government or, indeed, anywhere else in the House. Those of us who are young enough to live long enough towards the end of the century will see.

However, that apart, there has been a surprising consensus; there has been general agreement all round that we must sustain heavy industry, no matter how imperious is the impulse to get into the new sunrise industries. Basic manufacture has to survive or else there is nothing. There was not much enthusiasm for the general Government stress on the service sector. As to the coal industry, this House has certainly made clear what the scrutiny report recommended: that there can be absolutely no question of stripping the coal industry, which is at the very heartland of our economy. On the other hand, the closure programme has to go ahead, sad though it is and sad as are the social consequences. I hope that there may be an opportunity to have a good debate on the social problems of closures and of replacing employment in Scotland, the North-East and South Wales.

On nuclear power, there has been the familiar interchange as between Candu, AGR and PWR, but we were mostly agreed that the nuclear programme must go ahead. There was fairly common agreement that at any rate the refurbishment of power stations would be needed, and some noble Lords thought that it could usefully be combined with CHP. I have certainly said enough and, once again, I should like to thank all noble Lords for their forbearance and participation, and at the same time beg leave to withdraw my Motion for Papers.

On Question, Motion for Papers, by leave, withdrawn.

Lord Kearton rose to move, That this House takes note of the Report of the European Communities Committee on European Community Coal Policy (10th Report, 1983–84, H.L. 80). The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. I must at once reassure your Lordships that I do not propose to start a second debate. As I mentioned in my opening remarks, and as the noble Earl, Lord Lauderdale, has confirmed, the debate on the report of the sub-committee of the Select Committee has been subsumed in the wider Motion standing in the name of the noble Earl, Lord Lauderdale.

On behalf of the committee, we are very grateful to the noble Earl for allowing us to tag along with his major Motion. I would also like to take this opportunity to thank all those who have spoken in the debate relevant to the committee's report and for the generally kind reception which the report has received. I should particularly like to say that the committee appreciates the reception which the Government have given to the report and the constructive and positive comments of the noble Earl, Lord Avon, on the report. The promise of further action will be a source of great satisfaction to the sub-committee.

I should like to thank all noble Lords who served on the committee, among whom the most prominent was the noble Earl, Lord Lauderdale, himself. I should also like to make special mention of the fact that the Chairman of the Select Committee, my noble friend Lady Llewelyn-Davies of Hastoe, gave us every encouragement; owing to the election, we had quite a major break after the inquiry had started but because of her encouragement we were able to complete it. Once again, I should like to thank all those who have been concerned with the report and who took part in the debate on the report. I beg to move.

On Question, Motion agreed to.