HL Deb 03 April 1985 vol 462 cc230-47

2.58 p.m.

Lord Barnett rose to call attention to the Budget and its consequences for future levels of unemployment; and to move for Papers.

The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper.

It is customary when replying to a Chancellor's Budget to say what a marvellous delivery there was of the Budget speech, congratulate him generally, and then proceed to attack every word in it. I praise the Chancellor's delivery and I do not propose to attack every word in it. There are at least a few in it with which I agree, but there is much with which I do not agree; namely, what was not in it. It seems to me that at a time when unemployment is in the region of 4 million, to have a Budget with a net tax reduction of some £750 million out of a total gross domestic product or national income of £354 billion, frankly, is something about which we should all be extremely concerned. By the very nature of things, with that tiny bit of relief, it cannot do anything in economic terms to reduce the level of unemployment in this country. I believe that it is a non-Budget, a tinkering Budget which gave less in relief than the Chancellor and the Government have already taken away during the course of the last year and the years prior to that.

I should like to give a few examples. The Treasury supplement to the National Insurance Fund in 1984–85 was reduced by £416 million, which will effectively mean in due course that there will have to be greater increases in national insurance contributions for employers and employees than would otherwise have been the case. Perhaps I may refer to rates, a subject about which I gather the Prime Minister is concerned. The rate support grant has been gradually reduced to local authorities consistently ever since this Government took office. In the last year of 1985–86 over 1984–85 there was a further reduction of £144 million. Then there was a tax through increases in prescription charges and dental charges which will raise some £74 million. On top of all that, gas, electricity, post office charges and water charges have been increased not because the increases were required by the industries concerned but because the Chancellor of the Exchequer thought it was the best way in which he could increase taxes and have a negative growth in public expenditure.

For example, in recent years there has been £2 billion taken in gas levy. Sir Terence Beckett, not the most notable supporter of those who criticise the Government, has estimated that water charges alone this year will cost industry £100 million. That is not counting what it would cost the consumer. Therefore, all in all, the charges and changes in benefit that the Chancellor and the Government have taken out in the past 12 months clearly indicate that what the Chancellor has done in the Budget is tiny by comparison.

I have never argued that it is possible to run an economy the size of ours with one Budget a year, and then a budget which deals with the revenue side only. Of course that cannot be done. That is why I was always somewhat sceptical of the criticism that we used to receive about the number of budgets during the course of a year. Given the Budget that we have just seen, it might be helpful if we had a few more in order to be able to do something.

I am bound to say to the Government that, as I have indicated, £750 million out of a total GDP of £354 billion, with present levels of unemployment, is quite frankly an abdication of responsibility. I should make it clear to your Lordships that I welcome a number of matters in the Budget. Particularly, I welcome the changes in the national insurance contributions. I believe they will be of some help. But I do not think we should exaggerate the help. I believe that at best the help will be on the margin. The idea that employers will take on thousands of additional workers, whether part-time workers or young people, when the cost of that young person or part-timer will be reduced from £55 per week to say £52 per week, frankly fails to understand the attitude of employers who, quite understandably, will take on extra staff only when they see increased demand for their product or service and not because there is £3 a week less in the total cost of the wage that may be paid.

The basic emotion that I have about this Budget is one of sadness. That is on two counts. The first is this. Last year the Chancellor showed himself to be a radical, tax-reforming Chancellor, though I did not agree with everything in that Budget. But that radical, tax-reforming Chancellor has now vanished without trace. All we can see in his place is a man dressed in Green Papers, or at least Green Papers to come. We are to have more Green Papers and more White Papers. I gather that there is to be a White Paper published today. We had one recently that was perhaps best summed-up for your Lordships by a national newspaper not noted for its support for the Labour Party. I refer to the Financial Times. It might be interesting for the noble Lord the Minister who is winding-up tonight to compare this comment on the last White Paper last week, with the one that is being issued today. This is what the Financial Times said on 29th March: White Papers which are in effect sermons come oddly from a government which proclaims its faith in market forces. In the event, the White Paper fails to measure up as a persuasive exercise, for it is not at all clear what its readers are supposed to do about it. It will no doubt be very useful as a handbook for Conservative speakers during the Easter recess, but it seems unlikely to achieve much more". I hope today's White Paper will do a little more than that. I am sure we shall hear from the noble Lord. He might even receive a more complimentary comment from the Financial Times.

In practice, what the Chancellor—this once radical, tax-reforming Chancellor—has done is to be effectively reduced to issuing Green Papers and White Papers, and any further reform has quite clearly been killed off by an unnecessary fear for sterling against the dollar. Above all, sensible ideas on fiscal neutrality have been killed off by the Prime Minister and a group of scared Back-Benchers. Once mortgages and pension funds become untouchable, there really is nothing left for a tax-reforming Chancellor; especially when, quite gratuitously, even on VAT we had the quite remarkable commitment never to touch it at all throughout the length and breadth of this Parliament. Therefore, fiscal neutrality is dead and buried, and, I suspect, the present Chancellor along with it.

My other main cause for sadness is that there is nothing left of the Chancellor's policies but a continuation of what he calls his supply side strategy. That is a strategy that has steadily increased unemployment to what effectively is 4 million after six long, weary years. One is bound to recall that last year's Budget was also a budget for jobs, and a year later unemployment is 136,000 higher. That is the situation.

As for the overall Budget strategy, it depressingly insists on the importance of the public sector borrowing requirement as a measure of fiscal purity, and vital to prevent a slide in the exchange rate, a surge of inflation and excessively high interest rates. This, despite the obvious fact that the level of the borrowing requirement is clearly seen not of itself to be a major factor in any of those three areas. First, the exchange rate of sterling against the dollar clearly has nothing to do with the public sector borrowing requirement. I agree with the Government and with the Prime Minister. It is not the weakness of the pound against the dollar for which one should criticise the Government. It is not their fault. The Prime Minister was absolutely right. It is entirely due to the irrational strength of the dollar. Recent changes have more to do with events in the United States than with the Chancellor's Budget. How much better it would have been if the Chancellor and the Government had sought co-operation to avoid the wild fluctuations we are seeing that do so much damage to trade and jobs.

Equally, inflation has remained around 5 per cent. I believe that the Government are right when they say it is likely to stay around that level. I give the Government full credit for that. But that is despite a 50 per cent. increase in the public sector borrowing requirement over the figure of £7 billion that the Chancellor forecast in last year's Budget. In other words, it went to £10.5 billion. Despite that, we have inflation around the 5 per cent. level, so it was nothing whatsoever to do with the public sector borrowing requirement.

That applies equally to interest rates. They are at the present level not because of the £10.5 billion borrowing requirement; they are at that level because the Chancellor puts as his highest priority—wrongly in my view—protecting the pound against the dollar, when, as has been clearly stated and is clearly indicated, it has nothing to do with the weakness of the pound. Therefore the Chancellor is ignoring the reality of the situation and has once again gone for a very tight public sector borrowing requirement in 1985–86, a borrowing requirement of £7 billion or 2 per cent. of GDP.

If your Lordships read the Chancellor's Budget Statement very carefully, as I have tried to do, the only case he has made for that is that this is not the year to increase the borrowing requirement—not because it would conflict with his medium-term financial strategy but because this is not the year. However, with unemployment at these levels, this is precisely the year when he should have been increasing it. Even so, he has arrived at a £7 billion borrowing requirement (if I may say so, with a little knowledge of the situation) by some dubious accounting. As your Lordships will know, I, having done a little, am always suspicious of creative accounting. However, certainly a fair amount has gone into this year's figure. I am suspicious when a Chancellor arrives at the figure he first thought of by, as I say, somewhat dubious means.

There are one or two assumptions to which I should like to refer. There are many others, but the assumption within the Financial Statement and Budget Report on the central issue of the exchange rate and North Sea oil is that it will remain at the level it was in January and February. We already know that it is not at that level. Indeed, we do not know and, in fairness to the Chancellor, he does not know, and nobody knows, what it will be during the course of this coming year. I should, however, be grateful if the noble Earl, when he replies, would tell us what will be the effective change in the borrowing requirement if it stays at its present level. Equally, the Chancellor, somewhat unusually at this time of the year, has increased the contingency reserve from £3 billion to £5 billion. I used to have trouble with my colleagues in the Cabinet if I tried to get it to £2 billion. They thought that I was hiding something up my sleeve. I can only say that I hope that the present Cabinet Ministers will make sure that they at least spend the £5 billion. It is most unusual for me—I appreciate the noble Earl's muttered comment—but I hope they will, because without it, if they only spend £3 billion of the contingency reserve, then the borrowing requirement for the coming year 1985–86 will he as low as £5 billion.

It seems to me that we really need a new definition of the borrowing requirement. As I say, it was bad enough when I juggled it. It is now crazy. Now that we have this whole series of privatisation measures, if something is added to the expenditure of a company a day before it is privatised—say £1 billion—that is added to the public sector borrowing requirement. If it is done the day after the company is privatised, it is counted as a new asset. There is something a bit nonsensical about that in economic terms. I hope that the Government will look at it again.

I should have hoped that there was something to be learnt from all our past mistakes. Certainly, one lesson must surely be learnt—that a higher PSBR will not of itself affect the exchange rate or inflation. In particular, it will not affect the interest rates, although I hasten to add that I should he the first to concede that one cannot have an unlimited level of borrowing requirement. But, certainly, at the current time, to have one that is £3 billion more—that is, the same as it was in 1984–85—would not be out of the way. Quite apart from the reasons I have given for a higher borrowing requirement in current circumstances, one needs only to glance at previous evidence in the United Kingdom and other countries. In the United Kingdom, for example, in 1976—a somewhat difficult year: "the year of the IMF," as it is called—we had a deficit of 4.9 per cent. of GDP. The interest rates at the end of the year were 14.25 per cent. But at the end of 1979, more than six months after the present Government came to office, they were 17 per cent. and the deficit was only 3.2 per cent. I hope therefore that the noble Earl will not say that adding another £3 billion to the borrowing requirement will, in current circumstances, mean that we shall have to have higher interest charges.

That there is an alternative has been stressed by many people of all parties. It must clearly be obvious now to the Government. They could have used the £2 billion that the Chancellor—I hesitate to use an adjective—has added to the contingency reserve and could have specifically spent it along with another £3 billion on manufacturing investment and on the infrastructure that would have fed straight through into private industry. And the Government would still have the same nominal PSBR as they had last year. Actually, at this late stage, it is probable that it would have been possible to spend the whole £5 billion. Even if it had been spent, I call it a nominal PSBR as, even on present accountancy methods, a substantial part of that extra £5 billion would come back in higher tax and national insurance contributions and revenue, and a reduction in unemployment benefit and social security.

Of course, I accept that if much of the £5 billion simply went into higher pay it would increase inflation and there would be fewer jobs. I do not dispute that. But that surely strengthens the case for seeking the co-operation of the trade union movement rather than the present state of almost permanent conflict between the Government and the most moderate of trade unions. I do not pretend that this additional expenditure offers magical solutions for reducing the tragically high levels of unemployment. It seems to me that it would be better if all of us stopped misleading the unemployed and those who, sadly, are going to be made unemployed. There are many factors such as the new technology and still too many industries that are overmanned that are bound to make the task of cutting unemployment difficult for any Government. However, that being said, the social consequences of these levels of unemployment are too serious to say that there is no alternative.

As I have indicated, there are ways to help to start to bring the levels down. The United States has shown how it can be done, how it is possible to bring down these sadly too high levels of unemployment. I believe therefore that this Chancellor deserves to be condemned because his policies have condemned some 4 million of our fellow citizens to be unemployed. But the Chancellor—

Lord Harmar-Nicholls

My Lords, may I ask—

Lord Barnett

—particularly deserves to be condemned because he has, I regret to say—I very much regret to say—planned a Budget that will leave 4 million if not more, unemployed a year from today. That is why, although not asking all your Lordships to agree to that proposition, I hope that you will agree with what I have had to say. My Lords, I beg to move for Papers.

3.16 p.m.

The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)

My Lords, it is indeed ironic that this House, which has no role in financial legislation, can debate the Budget on television while another place, the source of all supply, cannot. I was an initial sceptic but, to my mind, this alone vindicates the long struggle of my noble friend Lord Whitelaw to pilot the televising of Parliament.

I congratulate the noble Lord, Lord Barnett, on initiating the debate in his usual good humoured way. I am looking forward very much to the maiden speech of the noble Lord, Lord Murray of Epping Forest. When I went as a maiden Minister to the Department of Employment, I was something of a culture shock to the noble Lord, Lord Murray. He made me feel most welcome and I have been enduringly grateful to him.

I am sometimes asked what on earth are my qualifications for talking on economic affairs in your Lordships' House. The answer is very simple. I shadowed Mr. Denis Healey, as he still is, and Mr. Joel Barnett, as he then was, when they were at the Treasury during the last Labour Government. They were my mentors and the things that they did and the things that happened to them were my lessons. They did wise things that worked; and they did foolish things that did not work. If I care about money targets, or what is loosely called monetarism, it is because the Healey-Barnett partnership demonstrated the connection between money targets and such humanly and politically rather more attractive matters as greater output and investment and new jobs.

This Budget, the present Chancellor's Budget, has, as part of its strategy, the reduction of public borrowing swollen by the miners' dispute. The noble Lord is indeed right in saying that it is rather a small Budget. Without that dispute, we could have done much more. And now, without that dispute, we will do much more. It is part of the Government's intention: to reduce the share of resources taken by public expenditure. It is also part of this strategy to reduce the public sector borrowing requirement so as to establish monetary conditions which will help the growth in output and the control of inflation". Your Lordships will recognise my quotation: it is from Mr. Healey's letter to the IMF in December, 1976. That strategy had a great effect on my party in opposition. It was producing real dividends for this economy. But, unfortunately, as North Sea oil came on stream the Labour Party abandoned it. The nation's overdraft soared and inflation took off again as the Government tried to spend their way out of a rising unemployment that was no more resistible than the tide. Tremendous nonsense is sometimes talked about the breakdown of consensus politics over modern economic management. My noble friend, Lord Alport, I am sorry to say, sometimes errs in this direction, and so, I suspect, on previous form, does the noble Viscount, Lord Chandos.

However, everyone with experience of government in today's post-OPEC world—socialist France or conservative Germany—knows perfectly well that you cannot borrow your way into prosperity any more. The United States is the great exception. But the United States is not the United Kingdom. The dollar is the world's major trading and reserve currency. The idea that people all over the world are going to fall over themselves to lend Britain money if only we increase our overdraft does not bear scrutiny. In my view—and this is shared by the American equivalent of the Governor of the Bank of England—the world will not indefinitely underwrite the United States either. I am not saying that there are no lessons to be learned from the United States. The United States has the much more flexible labour market that my noble friend Lord Young is toiling to achieve here, and the rates of pay in the United States are much more closely related to performance than to union bargaining power. That helps jobs in a way which Mr. Kinnock cannot seem to understand.

This Budget builds steadily and sensibly on every other Budget since the Government came into office. We did indeed reduce our overdraft in this Budget; interest rates have come down, and that trend should continue. Our strategy builds on the Healey-Barnett strategy before they lost both their nerve and their office. The strategy is nothing to do with dogma, only with the observation of positive results: the observation of what the strategy has achieved so far.

All the economic evidence of the past four years and all the economic indicators of the next two or three years are in favour of what—copying Mr. Healey—we call the medium-term financial strategy. All, that is to say, except one. That exceptional piece of evidence is the number of registered unemployed. Our case is that that problem—the greatest headache and heartache of this society and of governments all over Europe—needs to be tackled in an exceptional way. Pumping more money into an already buoyant economy will not solve it. Borrowing more money for an already massive programme of capital projects like roads or infrastructural improvements, will not solve it. Using the power of the state to control wages across the economy will not solve it. We have had the lessons of three Wilson Governments, one Heath Government and one Callaghan Government to teach us that. Yet that is what the noble Lord, Lord Barnett, wants us to do and what his right honourable friend Mr. Hattersley wants us to do, only they cannot quite yet come out of their pay policy closet. That is what Mr. Steel wants to do, only he cannot get Dr. Owen to come out of his closet.

In my judgment the great national and international problem of unemployment has only two chances of real improvement. One is to continue with policies, admittedly flexible ones, that bring growth to this economy, that make us steadily and sustainably better off every year. The other is to try to clear away the obstacles to employment, by which I mean the things which discourage employers from employing people and the unemployed from taking work. This Budget does both.

Let us look at the record, at the facts which the noble Lord, Lord Barnett, has not challenged in his speech and which every speaker in this debate must in my judgment successfully challenge if they are to sustain a different case. The year 1984 was predominantly the year of the dispute with the NUM. Yet even that tragic own-goal failed to disrupt very seriously the continued recovery during last year. Our national firm grew by 2.5 per cent. in real terms—that is, after inflation. The manufacturing sector experienced its fastest growth since 1973 when our world changed irrevocably. Non-oil exports grew by 9 per cent. Inflation remained firmly under control. My Lords, 1984 was a bad year. If we can perform like that with Mr. Scargill, think what we can do without him! In 1985 we shall do substantially better. The Treasury forecasters expect the economy to grow by 3.5 per cent. A more recent CBI forecast suggests that they are being much too cautious and puts the figure at 4 per cent. Whichever is right, this summer will see us enter our fifth consecutive year of growth, of getting steadily better off as a nation.

This improvement has already delivered new jobs to the economy. It will, so long as we do not scupper it, deliver more. The Opposition parties, led by Mr. Kinnock but supported by those like the noble Lord who know a great deal better, choose to ignore the rise in employment. Between the election and September of last year alone, nearly half a million extra jobs were created at a time when employment was contracting in most of our major European competitor countries. This increase shows that the Government's strategy is a successful strategy for jobs as well as for growth.

Too many people conveniently overlook a very special and curious fact about Britain. With 65 per cent. of those of working age in jobs, Britain has one of the largest workforces relative to population in the developed world. We are only one percentage point behind the Americans and we are well ahead of France and Germany. The fact that in common with other European countries we still have far too many people out of work, does not argue that a strategy providing both growth and jobs is wrong. It argues that we must strengthen it and do it better. The Budget does both. It strengthens the recovery with radical and constructive tax and national insurance proposals.

There is the substantial real increase in income tax allowances and the re-casting of national insurance contributions for those on low wages. This will create many new jobs for those who most need them, and I notice that the London Business School has estimated that it could be more than 150,000. As the noble Lord, Lord Barnett, wrote of the 1978 Budget in his admirable book: Wanting to make the biggest impression on the lower end of the income scale, we looked at the threshold at which tax started to be paid". Our Chancellor has done rather more than look.

Then there is a variety of proposals to simplify business life, remove obstacles to enterprise and stimulate innovation. Development land tax is going completely. Capital gains tax is simplified and lightened. Fifteen stamp duties are abolished, nearly halving the number of documents needing stamping. The Business Expansion Scheme is now to cover R & D companies and exclude property. The national insurance contributions from over 1.5 million self-employed people—and I am very glad to say that that number, which is most important, is increasing rapidly—are lightened and put on an equitable basis at last. There is a major stimulus to more profit-sharing schemes.

Then there are the measures which supplement the strategy and which tackle unemployment directly. I am short of time but these matters will be covered in detail by my noble friend Lord Young both when he repeats a Statement later this afternoon and when he comes to wind up. The successful YTS is to be expanded to give youngsters two years' intensive training instead of one year as at present. The community programme for the long-term unemployed is to be nearly doubled with 100,000 extra places. Together with the clearing away of obstacles to employers taking people on—and this is very important and no less acute as a problem in this economy—these aspects of the Budget attack the promblem of unemployment among the young and unskilled of our country, where it is most acute.

If I dare say so, wearing another hat as Minister for the Arts, perhaps we make too much of individual Budgets as if they were cultural events—and talking of culture by the way, thank you, Nigel, for no VAT on books, for doubling tax Convenants and for the heritage land provisions. This Budget is a single step in our sustained and proven progress towards steady growth and new jobs. It is part of a general strategy for training, innovation, technology, competition and restoring this country's ability to hold and win markets. Customers, after all, are what employment is all about. The problems we are tackling are familiar, as the noble Lord, Lord Barnett very fairly acknowledged. They were indentified and discussed in White Papers 20 or 30 years ago; by the noble Earl, Lord Stockton and Mr. Maudling and the NEDC; and by Lord George-Brown's National Plan as well as by the Heath, Wilson and Callaghan Governments. Throughout those long years we all did pitifully little to solve them.

It has taken this Government to act. We do not claim to have all the answers, or to be able to shift the country from its bad post-war habits in a short time, though I must say that I am amazed at the speed with which Britain has moved recently. Look at today's settlements on the industrial front. We are trying with all our might and main to bring our economy up to date in education, training, innovation and enterprise. This is a venture that all noble Lords will support in their hearts and I think it is fair to ask them for support in their words as well.

3.32 p.m.

Viscount Chandos

My Lords, your Lordships' House should be grateful to the noble Lord, Lord Barnett, for introducing the debate this afternoon on the effects of the Government's recent Budget. Since, as the noble Earl, Lord Gowrie, has just mentioned, normally your Lordships' House does not get a chance to debate the Budget until the end of the summer, when already the thoughts of outside commentators are turning to next year's Budget rather than the effect of this year's, I am particularly grateful to the noble Lord, Lord Barnett, for giving us the chance to discuss this subject even before the House rises for the Easter Recess.

I, too, very much look forward to hearing the maiden speech of the noble Lord, Lord Murray, since the contribution he has made to the country throughout my working life has been outstanding—not always, perhaps, with the support of all of his colleagues within the Labour movement. We should also be grateful to the noble Earl, Lord Gowrie, for once more putting his head in the jaws of the lion and setting out to explain and justify the Government's economic policy to your Lordships' House. Perhaps I, in turn, am about to put my head once more back in his jaws. Finally, perhaps we should be grateful to the Chancellor of the Exchequer for his unusually short Budget speech in another place last month, thereby allowing its contents to be more easily discussed in the debate today, limited as it is to a duration of five hours.

None of your Lordships, I am sure, would necessarily equate length with virtue—short and small is beautiful, perhaps—but I believe that your Lordships and Members of another place last month are probably the only people who should be grateful for the brevity of the Chancellor's Budget as it displayed, perhaps not surprisingly, a complacency about the prospects for long-term economic growth and increased unemployment which is matched by a pudding-like inertia in terms of introducing measures to expand and strengthen the economy. In the short term, the Government are prepared to regard a modest level of growth in recent years, and a slightly higher one in prospect for this coming year (though starting from a frighteningly depressed level of activity itself induced by the Government's earlier measures), as signs that all is well in the best of all possible worlds, while at the same time the Government skimp and squeeze, cut and hack, at all forms of investment, be it in capital goods or in areas such as education and research.

Early in the Chancellor's speech he summarised the strategy of the Conservative Government since 1979: The Government's economic strategy has two key components: a monetary policy designed to bring down inflation and a supply side policy designed to improve the competitive performance of the economy". [Official Report, Commons, 19/3/1985: col. 788.] There has been no U-turn in this respect by the Government, since we can re-read the speech of the previous Chancellor of the Exchequer in the Government's first Budget in 1979, when he said: The poor performance of the British economy in recent years has not been due to a shortage of demand. We are suffering from a growing series of failures on the supply side of the economy". [Official Report, Commons, 12/6/1979; Col. 240.] After nearly six years of Conservative government, with their unwavering commitment to improving the supply side of the economy and confident neglect of the demand side, unemployment has trebled and industrial production has remained static. So, rather than devote all my time to commenting on the tinkerings and the fiddlings represented by some of the measures in the Chancellor's self-proclaimed "Budget for jobs", I should like to question again the underlying economic strategy of the Government, upon which the Chancellor has justified the inaction he is proposing.

What exactly is the supply side of the economy, this impressive and technical sounding phrase that the Government have borrowed from America? It is all about freeing-up production, increasing incentives, removing obstacles, imperfections and anti-competitive practices in business and our whole economic life. Perhaps I could put it more graphically. When the Secretary of State for Trade and Industry, Mr. Tebbit, while serving in his earlier position as Secretary of State for Employment, advocated that the unemployed should follow the example of his father in the 1930s, who got on his bike to find work, supply side policies are intended to ensure that nobody chains the elder Mr. Tebbit's bicycle to the railings and throws the key away, or that nobody strews the road to full employment with tin-tacks.

Advocates of supply side economics will argue there is no need to take action to create jobs towards which the elder Mr. Tebbit could bicycle: instead, the freedom to bicycle over the horizon in search of jobs will actually create jobs. As more and more bicyclists cycle in ever-increasing circles, work will be created—at least for bicycle manufacturers and repairers. There are now, out of a total of four million unemployed, 100,000 people in this country who have been bicycling vainly for five years or more in search of a job.

What, then, have the Government done to improve the supply side of the economy in six long years? Have they done a lot? If so, why has industry failed to grow and unemployment rocketed? If the Government have not done very much, what on earth have they been doing behind a subterfuge of busyness and reputed reform? The tax reforms of the last six years have brought some additional motivation for the most highly paid people in the working community, particularly where their pay has been increasingly linked to the profitability and general performance of their business. Entrepreneurial activity is, however, from my experience, remarkably insensitive to the levels of taxation, since the motivation of many entrepreneurs is often to build a business for its own sake, with the creation of personal wealth a secondary objective.

The real level of unemployment and other social security benefits has been held back, as the Govern- ment have said so often, to price people back into jobs. The emasculation and even abolition of the wages councils being considered by the Government is another step in the relentless return to Victorian values and Victorian values of labour. Within the context of an economy subject to indefinite slow growth, this prescription may well be the only option. But whether such a dire economic concept is inevitable and need therefore close other options, is a question to which I shall return in discussing the demand side of the economy.

Tax incentives have been introduced to encourage investment in small businesses, to supply the newly-liberated entrepreneurs with the capital to build their companies. I believe an estimated £5½ million was invested last year in fine wine under the EEC, which no doubt has created many new jobs in the United Kingdom. Perhaps it would be churlish as a supporter of the European ideal to ignore the maintenance of employment in the vineyards of Bordeaux. Money has flowed into old cars and into property development, which at least the Chancellor is proposing in this year's Budget to prevent, and even into some businesses which produce goods and new jobs.

Obstacles and inefficiencies have been removed by the Government but many more have been left and some new ones introduced. The changes to national insurance charges introduced by the Chancellor represent a helpful measure, and they can only be seen as promoting increased job prospects without asking those seeking them to accept any lower level of wages than already exists. However, we cannot believe that this alone will transform the employment prospects for the currently unemployed. The Chancellor proudly claimed that his measures would reduce the cost of employing a young person by £3 a week at a wage level of just below £90 a week. How many of your Lordships, in running your businesses, would see a £3 a week saving as the critical factor in deciding whether to hire more employees? How would that compare, for instance, with the prospects of a competitive and relatively stable exchange rate to assist you in exporting efforts and in challenging the importers who are taking the home market?

I believe that common sense challenges the exclusive reliance on supply-side economics, whereas action rather than immobility on the demand side of the economy, allied with continuing efforts to improve the supply side, make common sense and economic sense. The Prime Minister has made great appeals to the common sense of this country, and her expositions of economic policy in popular terms are widely seen as a reason for her successes in the past. Since there are rather more noble Baronesses in your Lordships' House than lady Members in the House of Commons, I have quite rightly to be particularly careful about the way I express my criticisms of the Prime Minister's economic policies.

Nobody should despise the economics of the housewife, or of any householder. Nobody should despise a businessman's approach to the financial and general management of his business. There are differences in the macro-economic management of a country's economy compared to the financial management of a business, but there are similarities, too.

Your Lordships' House includes within it on every side—notably the noble Lord, Lord Barnett—most distinguished and experienced accountants whose professional lives have been devoted to ensuring that companies and other businesses treat the difference between capital expenditure and current expenditure fairly and realistically; but the Government continue not to do this, and this must be changed.

I believe that the policies of this Government in restricting borrowing to the levels that they have chosen are damaging to the prospects of the economy, and I call on the House to show its approval of the Motion put forward by the noble Lord, Lord Barnett.

3.44 p.m.

Lord Murray of Epping Forest

My Lords, it was with a measure of trepidation that I chose to address your Lordships' House for the first time on this issue of employment and unemployment. However, this seems to me to be an issue on which no one can keep silent, even at the risk, which I hope I can avoid, of transgressing against the protocol of occasions such as this, and, indeed, incurring a fate which is too awful to contemplate. I count on the tolerance of your Lordships and, indeed, on your reputation for listening, even if not always agreeing, which has been so impressed on me since I came here a few short weeks ago.

I, too, am grateful to the noble Lord, Lord Barnett, for drawing our attention to a subject which, as he demonstrated in his speech, and as has, indeed, been demonstrated in the matters we have discussed this afternoon at Question Time, is important because of its consequences. This applies whether we are discussing drug abuse, which is not unconnected with the consequences of idleness and unemployment, or whether we are discussing the inadequacy of resources for investment in engineering faculties. As I say, I am grateful to the noble Lord, Lord Barnett.

I am also, up to a point, grateful to the authors of Employment—a Challenge to the Nation. Was it a blue book, a White Paper, or a report? I am certainly grateful to them for the title. The title seemed to me to be quite unexceptionable, a challenge to the nation, with the implication that we can tackle this appalling situation only collectively, together, and not by being separated and confronting each other.

I was disappointed—I hope that I was wrong in my disappointment—at not finding in the report a reference to the work being undertaken by the National Economic Development Council on where the new jobs are to come from. I hope that when the noble Lord, Lord Young, replies he can give us a progress report on that discussion within the NEDC.

My biggest debt to the authors of the White Paper lies in the fact that it drove me back to a paper which it selectively quotes, the 1944 White Paper on Employment Policy. Indeed, it drove me to my bookshelf to take down and re-read at least in part Beveridge's own report of the same year on Full Employment in a Free Society. I make no apology for referring to that outstanding work of analysis and prescription.

I went back to it not in a mood of nostalgia, though there must be many of us who, in those months after the war, were excited by the products of Beveridge in that field and by his thinking on the welfare state. As I say, I went to it not in a sense of nostalgia, but to ask myself yet again how it can be that we as a nation—not just the Government, because they have no monopoly of carelessness—find acceptable, find tolerable, the idea of 4 million people being unemployed.

The Chancellor told us in his speech that the present level of unemployment was unacceptable. It would be churlish not to welcome any signs of penitence from the Front Bench. It is progress, as it were, from the Front Bench to the penitents' bench, because it is not so long since we appeared to be hearing statements about inevitability and even necessity. Therefore I welcome the statement by the Chancellor that the present level of unemployment is, and must be, unacceptable to all of us.

I look forward to the noble Lord, Lord Young of Graffham, explaining to the House in perhaps a little more detail what the Government mean by saying that it is unacceptable. Perhaps he will also indicate to us what would be an acceptable level of unemployment and will tell the House, as my noble friend Lord Barnett suggested the Government should tell us, what they think the level of unemployment will be in 12 months' time and say whether it will be lower than it is now.

I put these questions to the noble Lord, Lord Young of Graffham, with much confidence because of the great skill he showed when chairman of the Manpower Services Commission in clarifying the most obscure of problems and in forecasting trends in employment. I am glad to pay tribute today to the noble Lord for what he did in his previous incarnation in the MSC, and to Sir Richard O'Brien, his predecessor, for the distinguished contribution which he made, and for the drive which virtually brought together employers, trade unionists, and civil servants to help shape and fashion a better system of using the nation's manpower. I believe that the Manpower Services Commission is by far and away the most important institution established in the field of industrial relations since the end of the war. It is inordinately better than the multifarious attempts which have been made at wage restraint and incomes policy. I profoundly believe that it is in finding better ways of using our manpower, in better and more extensive systems of training that we shall solve the problems of competitiveness and unit labour costs which no doubt, and properly, will run like a thread through the debate this afternoon.

It is right on occasion that we should ask the nation to restrict its income. It was right in 1975; and too many people forget that as a result of national determination, led by the trade union movement between 1975 and 1978, raging inflation of 25 per cent. or more was reduced to 8 per cent. by the middle of 1978. I am not portraying a vision of perfection, but do not let us forget the results of working together in those days.

Now again wages are at the centre of Government strategy not only to restrain increases but to cut real wages, and to cut them most deeply where they are lowest, in the public services and among the employees of industries which are subject to the wages councils. In the inflationary circumstances of 1975 it was right to ask for collective restraint. In the deflationary situation of 1985—if it is not deflationary, how do we account for 4 million people unemployed—it is not right to seek to cut into real incomes in that way? I believe it is right for the TUC to resist this. Far from affecting employment in the industries concerned, the wages councils have in the main affected trade union membership. I have heard trade unionists argue that the wages councils should be abolished so as to expose employers and employees to the chill winds of pressure. I am glad that the TUC has always resisted that argument. It has always asserted the need for legislation, even at the expense of trade union membership, to protect the weak. I look to the Government to take an equally broad view of their responsibilities and obligations. They have an obligation to take powers in order genuinely to demonstrate the unacceptability of the present level of unemployment by means of measures to reduce it and they have a duty to protect the weakest groups in our society.

Perhaps I may conclude with a final reference to the Beveridge Report. In reading Beveridge's report on fuller employment in a free society I chanced upon a quotation from Charlotte Brontë's Shirley about the lack of employment when a workman is talking to an employer. The workman says: Them that governs mun find a way to help us. Ye'll say that's hard to do. So much louder mun we shout then, for so much slacker will t'Parliamen men be to set on a tough job". Of course it is a tough job. Of course, as the noble Earl, Lord Gowrie, has said, there are no magic wands; we know that. Of course all of us collectively must seek to solve the problems for which in all our own ways we are responsible. But I believe that the nation referred to in the White Paper's title is in its turn not only being challenged but is challenging the Parliament men and women, the Parliament men and women of this House, to remind the Government of their proper and inescapable responsibilities.

3.55 p.m.

Viscount Watkinson

My Lords, I should like first warmly to congratulate the noble Lord, Lord Murray, on his speech. I am sure that all noble Lords will agree that it is a great benefit to your Lordships' House to hear someone with the unique experience of Lord Murray in industrial affairs. I hope that we shall often hear him again. I hope he will forgive me if I add as a personal note that over many years I have seen the noble Lord in his previous avocation and I never doubted that he was doing the best that he could for the nation in his own inimitable way. I hope that we shall often hear him again.

I support the Budget approach and I have one short point to make about the noble Lord, Lord Barnett, who I thought drew away from the Budget in its right context. After all, with a dollar going haywire and a pound subject to being kicked around by every currency speculator in the world, the Budget just had to be internationally acceptable. The fact that it was is shown in the level of the pound today and what all businessmen hope is that that level can be stable. What we want is not a kind of yo-yo but a stable value for the pound, and I think the Budget has made a considerable contribution. It was right that it should do so.

I want to turn to the point made by the noble Lord, Lord Murray, and I accept entirely his point that 4 million unemployed is not a matter that any of us can look on with any kind of disregard: it must be viewed with the utmost concern. It would be a very cruel deception to fudge the facts. I am sure that when the noble Lord, Lord Murray, addresses us again, as I hope he often will, he will not do this. This is no sudden storm. Nearly 10 years ago when I was president of the CBI it was obvious that if the nation did not mend its ways—I am not talking about political ways—we should have 3 million-plus unemployed. We said so at the time but nobody wanted to listen.

The 10-year causation of this grave problem means that one really must not try to imagine that it can be reversed by some sudden stroke of policy. It has taken a long time, a sadly long time, to happen. We have to face the fact that it may take a long time to get it under control. The main cause is still (and there is no other cause) that not enough customers are willing to buy British at home or abroad. That is the cause of unemployment; there is no other and there is no palliative. These emergency Government measures—the spending of £5 billion or any other sum that we hear so much about—are honestly meant, but I do not think they will cure the real problems of unemployment over the long term. Only selling more goods will do that. There is no other solution. The fact that we might run the risk of turning inflation the wrong way, we might spend money which we are not earning in finding some sort of temporary palliative, means that the Chancellor should resist and resist strongly, as he so far has done.

I think that the Budget correctly did what it could to adjust tax to help jobs. It will help, but I think that any honest man would ask how much it will help. Who knows? I must say this, particularly in your Lordships' House, where one can speak frankly: that again it depends on industry, it depends on managers and workers how they make the most of what the Chancellor has provided in the economic circumstances, which, I agree, are improving.

But another warning, if I may. The CBI have just announced yet again some reasonably good figures, although within them is the fact that 25 per cent. of companies in this country are still seriously underloaded for orders. But they are good figures. My noble friend Lord Gowrie, who has already spoken in the debate for the Government, has said that we look to a good year, with no miners' strike and, hopefully, no other major industrial troubles. I think that he is right. But we are still not competitive enough. The noble Lord, Lord Murray, knows this, and I support him entirely in what he has said about the NEDC. If you delve into the fairly impartial researches of that body you will find figures about our international competitiveness which ought to frighten all of us. If the Japanese are worried about the competition from South Korea, what should we be?

We still pay ourselves too much for doing too little; and although the industrial news this week is good—and I think it is splendid that it looks as though there will be a settlement on the railways and as though sense is being talked in the Post Office dispute—nonetheless we really cannot afford the kind of terrible, wasteful battle that we have had over this last year in the mining industry. We must see that joint consultation takes place before we have a strike, and then, if it is proper consultation, we will not have a strike.

If one looks at the nation as impartially as one can and from the standpoint of industry, there are many sectors in which we are still in severe industrial decline. If that decline is not arrested, then we shall have more unemployment and not less. In my view, in that sort of circumstance the Budget could do no more than to set the right frame and be consistent; and I think it did this. I think that now it is up to industry to make the most of the situation in which it finds itself, and it is up to the trade unions to try to work reasonably together. Of course, there has to be argument, but I hope that in the months to come, particularly now that the economy is beginning to expand again, if there is a chance to get more exports the trade unions will at least see that their people sit down with the employers around a table and try to hammer something out rather than have wasteful strikes which are only of value to our competitors. They are of no value to us.

There is one point on which I would follow the noble Lord, Lord Barnett. It is rather a hobbyhorse of mine, and whether the noble Lord, Lord Young, will be able to say anything about it at the end of the debate I know not. But, really, if we have an innovative Chancellor, could he not look at our Budget system, which is really geared to Mr. Gladstone? It is not geared to modern life at all. I suspect very strongly that if I had run any business with which I was connected in the way that our budgetary affairs are managed, the shareholders would have been after me, and rightly so—even, perhaps a prosecution for negligence; I do not know.

I think it is really absurd that we cannot, in Her Majesty's Treasury, differentiate between revenue and capital. Every business has to do this. I understand the problem. I understand that the Treasury is accountable, and that they cannot lose control of expenditure. That is right, and any Chancellor must see to it. But in regard to infrastructure so many things could be done in, for example, a Severn barrage scheme, which could take quite a lot of load off the electricity industry, in drainage, in housing, in so many things. If the economy begins to improve, in my view it would not be improper to consider some way of improving an infrastructure which in many cases is 50 years out of date and the capital spending could rightly be spread over a large number of years and not be subject to the Treasury's annual accounting.

We have some of the most brilliant brains in this country in the official Treasury and, no doubt, in the other "Government treasury" as well. There is an enormous capacity in the Treasury for thinking, examining and innovating. I hope that they will really see whether the Budget frame is right, whether the magic of the PSBR is entirely sensible, and whether, on the basis of a sound Budget, which I believe this one is, there is not a way, without necessarily spending within the Budget, of finding necessary capital works outside it that could help unemployment—though that is perhaps not the main reason—and could bring our country up to date again in many areas of its structure where that is sadly needed.