HL Deb 03 December 1985 vol 468 cc1191-294

3.1 p.m.

Lord Aldington rose to move, That this House takes note of the report from the Select Committee on Overseas Trade (1984–85, H.L. 238).

The noble Lord said: My Lords, I have the honour to ask the House to take note of a report which has had an interesting reception: some shock, widespread relief that the facts and arguments have been clearly stated, and a good bit of controversy. There have in fact been five editions of this report, which I believe is nearly a record. I look forward to the debate and particularly to the maiden speech of my noble friend Lord Clitheroe, whose father I so greatly admired and whose friend and colleague I was so honoured to be both in politics and in business. I am very sad that the noble Lord, Lord Beswick, is ill and will not be here today. We were very fortunate to have him on the committee. The noble Lord worked very hard for us and helped us a great deal and I am grateful to him.

The report is about Britain's manufacturing industry in a highly competitive world and about the importance of its success to Britain's future. Our standard of living will depend on it as it has in the past. The report's message is addressed to the nation—all of it. The report sets out the facts and some history from which it draws its conclusions. Its concern is for the future; its warnings are about the future; but its message is urgent and for today. There is a serious problem which will not solve itself.

That message is a challenge, not a message of gloom and doom. Certainly there is a threat to our standard of living, a real danger, if we do nothing to meet that challenge. The committee has confidence that the challenge can and will be met and points the way in its recommendations. There needs urgently to be a change in national attitudes. We need, all of us, to give a higher priority to our manufacturing industry in education and training, in our economic understanding, in policies, and in esteem. The first essential is for public opinion to understand the realities. That has started in the public debate but the momentum has to be sustained. This debate will prove, I believe, that this House is a splendid forum in which to clear the decks for the opinion formers on great issues.

Lest there be an impression in some of your Lordships' minds that the report has had a poor reception, I can say that we have sought the comments of all those who gave us evidence, and that from outside the Government orbit there is a massive welcome for the report's analysis and conclusions. The main theme of the recommendations has been widely blessed. Some have added some useful criticisms of the details and some have reserved judgments on particular points. I would hope that all these replies could be published, as will be the considered comments of the Government that only became available yesterday—seven weeks after they issued those very immediate press statements "rubbishing" the whole report.

I am heartened, however, by the introduction to the Government's reply: The Government welcomes the report…as a contribution to discussion".

Faint praise, but what a change from the 13th November when, in the other place, the Chancellor of the Exchequer said that on the whole the report does not form a helpful contribution to the debate. That itself was a long way in improvement from the Mansion House speech when the Chancellor wholly rejected the mixture of special pleading dressed up as analysis and masquerading as evidence. Oh dear, oh dear!

A word about the committee itself. The Select Committee was set up in July 1984 by your Lordships in response to concern expressed about the trade balance of manufactured goods and the inevitable runoff of the surplus on the oil account. Our terms of reference need stating. They were: To consider the causes and implications of the deficit in the United Kingdom's balance of trade in manufactures; and to make recommendations".

We received written evidence from 118 persons with over 160 papers. We examined orally 39 distinguished witnesses. In addition, we thought it right to visit Japan, Germany and France to enhance our understanding of attitudes to manufacturing industry there. We received a valuable paper from Sir Oliver Wright in Washington about the United States of America in response to our inquiries. We offer our thanks again to all who helped us.

To complete a thorough study of this evidence imposed a heavy burden on my colleagues and particularly on those with regular duties in this Chamber. It was only possible because of the devoted support of the Clerk, Dr. Walters, and our adviser, Dr. David Mayes. The quality of the work of each of them is quite beyond praise, and I say this without any surprise because I am well aware of the high quality of those who serve the Houses of Parliament.

I must now ask the House to have in mind and in perspective the relevant facts about our manufacturing industry which have led to our conclusions. British exports' share of world trade in manufactured goods has declined steadily throughout this century, with some short pick-ups. The actual volume of exports of manufactured goods has risen substantially in the last 12 years, with some decline in 1975 and in the years 1980 to 1983. The volume is happily now at a record level. Our share of world trade had, however, fallen to 7.6 per cent. in 1984; it was 14.2 per cent. in 1964; and of course in earlier years much higher.

On the other hand, imports of manufactured goods into Britain have risen in the last 20 years by much more than have our exports. We show on page 8 a figure which sets out the way in which our exports as a percentage of imports have fallen from 220 per cent. in 1963 to under 100 per cent. in the 1983, and lower since. On page 9 we show the very sharp rise in the volume of imports in the periods 1975 to 1979 and 1981 to 1985.

Hence, the balance of trade in manufactured goods has changed from a surplus of between £1½ billion and £6 billion in each of the years 1963 to 1982, to a deficit in 1983 reaching nearly £4 billion in 1984. There is no sign of a significant improvement in 1985—despite the splendid export achievements. If one analyses the classes of industry, which we do on pages 17 to 20, one will notice that more modern classes of industry—for example, electronics—as well as the traditional classes are in deficit.

Manufacturing output in Britain continued to increase until 1973; but, after some ups and downs, it was nearly 12 per cent. lower in 1984 than it was in 1973 despite the two previous years of recovery; while in the rest of the European Community, the United States and Japan manufacturing output was substantially higher last year than it was in 1973.

Ministers keep on saying that output has risen by 11 per cent. since 1981–82. That is true and it is good; but we should look at the larger rises in the United States, Japan and the European community in that period. That can be found on page 13 of the report. In all developed countries value added in manufacturing as a proportion of gross domestic product has been falling, and in Britain there has been the sharpest fall. However, although manufacturing now represents only just over one-fifth of activity, it provides over 40 per cent. of our overseas earnings.

As Ministers have said, productivity has indeed improved, particularly in recent years; but so has the productivity of our competitors. Therefore, our relative productivity to that of other countries, though better than it was in 1980, is worse than it was in 1973.

Table 3.3 of the report shows some useful measures of competitiveness. In a common currency we have improved competitiveness since 1980 because of the fall in the exchange rate; but excluding the exchange rate there has, I am sorry to say, been no improvement because our labour costs have risen more than others.

The causes of the situation are analysed in Chapter 3 of the report. Of these, competitiveness, or lack of it, is the principal: price and non-price competitiveness. Events, the high pound and policies thought right for others reasons in recent years have accelerated the decline, and the valuable earnings from North Sea oil have masked the seriousness of it. However, the real cause is that of the longer term, and it is to competitiveness that the main theme of the report turns. The lack of competitiveness is responsible both for the decline in our share of world trade and for the increase in imports of manufactured goods.

However, we were impressed with the evidence that Britain has tended to devote a larger proportion of her resources to imports than other countries—there is a propensity to prefer imports.

We were of course concerned both with the trade balance and with the size of our manufacturing base. Indeed, the two are interrelated. We cannot sustain a growing industry unless it is competitive in the world, and we cannot repel import penetration unless output grows substantially.

We then carefully examined the argument that, despite the statistics and the facts that I have just given your Lordships, there is not a problem. That is a view held by some. How long will the surplus from North Sea oil continue? No one argues that the present large surplus of over £8 billion will last for many years; but will the surplus vanish in five, 10 or 15 years? We thought it would be prudent to base policies on lower rather than higher levels of production and so we assumed a balance to the oil account in 1990, giving five years for the other parts of the trade account to fill a gap of around £8 billion. Others may argue that there are not five but 10 years in hand; but given the formidable nature of the problem, even that period calls for urgency.

Some ask will the gap of £8 billion not be filled by other parts of the non-oil trade account—namely, by what are called "services"? However, we were told that the British Invisible Exports Council did not see the growth of invisible services as being to a major extent a substitute for decline in general industrial activity. My noble friend Lord Limerick told us that, and I am glad that he is present today. Services are of course very important to our economy, and quite a part of their growth is interrelated with that of manufacturing.

Then it is asked: as the oil surplus goes away, will manufacturing activity not automatically recover as though it were on a kind of autopilot? We discuss this question at paragraphs 75 to 79, and later in Chapter 4. We do not accept the autopilot argument any more than we accept that it was inevitable for manufacturing industry to decline as the oil surplus grew. The industrial base has been substantially reduced; and the time cycle required both for a large increase in capacity and for the development of new products has not been given proper attention by those who argue for what I call the autopilot. This theory fails altogether to take account of the many elements in competitiveness which urgently need tackling.

We also took note of the argument that the nation's accounts must inevitably balance, and that just as when the oil account is in surplus, other accounts must compensate, so when the oil account has no surplus, the other accounts will compensate for that too. Even if this determinism were correct, at what level would the balance be—high with a good contribution from manufacturing or low without it? Perhaps I may be allowed to remind your Lordships that in the latest international league table for gross domestic product per head of the population—the 1985 OFCD figures—we rank seventeenth. We want surely to be higher, not lower than that.

The committee also examined forecasts, assuming present policies, both of the whole trade account and of manufactured products. None of them gives comfort and the decade ahead forecast, given on page 41, shows a current account deficit of over £13 billion in 1990.

We need, as I have said, a greater manufacturing output and a favourable manufacturing balance to pay our way. Having considered all these points, we concluded decisively that there is a problem, and a serious one. It is so serious that if we do not start solving it at once, we risk a major social and economic crisis in the foreseeable future. I have found no reason to alter that opinion since July. The latest national institute forecast foresees low growth for our manufacturing industry, and the Chancellor's Autumn Statement forecasts only a small manufacturing growth this year and next. We cannot leave the nation's future to an imaginary autopilot. We have fallen behind in world competition and we have to seize control to catch up. Therefore, we call for urgent action.

We seek to point the way rather than produce a detailed costed plan. All our recommendations are directed to make manufacturing more competitive. Some will take time to bear full fruit; others, often by priming the pump, can have early effect. Increased Government spending is only recommended to match the help given to competitors by other governments, or in the case of the infrastructure to increase efficiency and reduce costs.

We put first the need for a change in the attitude of our nation towards manufacturing and those who work in it. I should like to read exactly what we said: All people—in governments and political parties, managers and the workforce, industry and financial institutions, the media and consumers—must recognise that their future prosperity depends on the success of manufacturing and trade and act accordingly".

That does not of course mean that other activities are unimportant. It means that manufacturing must be given a higher priority than it has been both by governments and by private people. "Vague", we are told. Yes, it is vague, it is general, but the message is clear and important. And some of those who say it is vague say so because they do not like it. "What is there special about manufacturing?" is a question that no Treasury would ask in France, Germany, or Japan.

Education has a crucial role to play in bringing about this recognition, as well as in the improvement of the skills and understanding of all who go into industry. We did not pursue this further because of the valuable work done by the Select Committee on Science and Technology, which has our full support. We also welcomed the steps being taken in this direction by the Secretary of State for Education, and made a few suggestions to him.

Industry itself has the key role both in improving its own efficiency and in attracting more support from public opinion and raising the esteem in which it is held, including in schools. Its leaders know this very well, and the reports of the CBI's recent conference are encouraging. That 1986 is to be Industry Year is timely. It has been proclaimed for decades that there is insufficient unity of purpose, and too adversarial a climate in industry. We say it. Nothing new; but still, my Lords, very true. Good men and good women are not going to be attracted into manufacturing in sufficient numbers, nor is investment going to be high enough, or fully used, unless that is corrected.

It is of course industry itself which has to tackle its own costs, both by increasing productivity, as it has been, and by ensuring that the advantages gained from that are not eroded, as they have been, by pay settlements throughout the enterprise paying no attention to the competitiveness of the product. Here I really would have thought that the Chancellor of the Exchequer would have cheered me, had he been listening! And he would cheer at what we say about more training in industry.

So, too, it is industry which has to improve quality control, design, delivery on time, reliability, service and all the elements of what is called non-price competitiveness for which Britain does not have the reputation she should have, despite the excellent performance of some. We spell all those points out in paragraphs that have been welcomed by industry, but have been neglected by those critics who seek to show that the report is only concerned with begging from the Government.

Certainly we make some recommendations for Government attention. First, we ask for the same change of attitude as for the nation as a whole. Their reply rejects this, though it backs the change of attitude by the nation as a whole. "Not my fault—yours" is the apparent attitude. "All of you chaps are doing badly. Only we are right". This, I have to say to my noble friends, reminds me of a much-loved lady in my family who died 30 years ago who was known as, "I am right, I know I am".

We are not asking the Government to do down other activities by giving manufacturing a higher priority, any more, I suppose, than the Government were deliberately doing down manufacturing by their exchange rate policy in 1980. Just look at what we said. We ask that the Government, all governments, should be mindful of industry's needs when setting their macro-economic policy, and should apply their policies consistently. We specifically welcome the control of inflation, the easing of burdens on enterprise—in which my noble friend who is to speak shortly has taken a lead—and the encouragement of new businesses.

We approve fully of the principle of support for innovation and for exports; and I was delighted to hear my noble friend the Secretary of State for Employment in his reply to my noble friend Lord Stockton speak warmly of the Department of Trade and Industry support for new technologies. I wondered when his right honourable friends were going to accuse him of cocooning industry with subsidies, as they have accused us! And come, come my noble friend, is this support not breaching Treasury writ and giving some priority to manufacturers! What humbug that Treasury nonsense is!

More seriously, we have to ensure that our manufacturers are competing on equal terms overseas and at home against manufacturers whose research and development and export financial terms are much supported by other governments. I repeat: we are behind in the race; we need our Government to do more to help in these respects, not less. Certainly it is right to try to get other countries to reduce their support or subsidies to their industries, but while doing that we should not weaken our support for our own industry.

We have something to say on the exchange rate, which in 1980–81 did much damage to competitiveness, and helped, with other policies, to reduce the industrial base in a damaging way. The evidence given to us indicated a general demand for stability of the pound exchange rate in whatever way seems best. There was also evidence that for some important products the pound is too high in relation to European currencies, particularly the German mark.

If industry needs a lower pound now, following continuing increases in pay, and therefore costs, in our view it would be wrong for the Government to base their future strategy on a depreciating currency, and we set that out in paragraph 80. I hope that the Government will attend to the exchange rate of the pound and the needs of our industry, as they have attended internationally to the exchange rate of the dollar to help the United States' manufacturing industry.

Whatever the other benefits may be, there is no doubt that high real rates of interest are a burden on industry, and that higher nominal rates increase costs, may delay investment, and damage competitiveness.

Interest rates need to come down pretty soon if industry is to compete better overseas. There is a special point affecting small businesses. There is a demand, of that we were clear, for some system of low rates of interest for small businesses.

Others will talk about investment. I am taking too much of your Lordships' time. However, I have to say that our record has been poor in investment. Recently there has been a welcome rise, and I am sure that the Government will agree that in part this is due to the bringing forward of schemes before the tax allowances run off, but evidence to us indicated that only a small part of recent investment in industry has been for expansion, rather than for improvement of efficiency at the present level of capacity. That has to be improved. The Government should consider again, we think, whether the tax régime should not deliberately encourage profitable investment; and we ask that financial circles should, on the evidence given to us, take more of a long-term view of industry's needs.

There was an important speech made by Mr. David Walker of the Bank of England a few weeks ago in which he talked about long-term attitudes in investment. Attitudes in Japan, France and Germany seem to be longer-term than ours. We know that to help this forward manufacturers would be wise to take their financial partners more into their confidence.

We discussed in a number of paragraphs the coordination of public policy towards industry. We assumed that the Government not only have, as indeed they do have, an industrial policy, but that they are willing to discuss its priorities with others. Sir Hector Laing, who by no stretch of imagination can be described as a "wet"—my noble friends might have noted that—called for some Government leadership here and for consultation with the CBI and the TUC perhaps, he said, through the NEDO organisation and the Council.

Sir Charles Villiers, who has studied this whole matter I think more than any, and whose excellent book Start AgainBritain helped us greatly, thinks that co-ordination should be inside the government structure. A number of people think that the Neddy Council can be just a talking shop. That is most definitely not what is wanted now. We hope that with a greater sense of purpose and a clear directive as to what is required the council, the little Neddies and NEDO, will bring a dynamic approach to the working-out and supervision of public policies aimed at the greater competiveness, growth, and success of manufacturing industry.

I have only one more point to mention. In paragraphs 210 to 220 we discuss import substitution and foreign sourcing. I note the Government's approval of these paragraphs. Evidence persuaded us that too many have lost the habit of buying British; whether cars, consumer goods or plant and machinery. There seems to have developed a subconscious bias against British products with some people. We were greatly impressed by the successes of Marks and Spencer in finding new British sources, and by the CEGB's success with their British suppliers, in each case without sacrificing quality. In advocating that buyers should use their critical judgments in favour of British products we have not gone protectionist. We are backing, thinking, British. We aim to turn any bias against British products to a bias for them.

Let me close as I began. This report shows that the decline of manufacturing industry has produced a serious problem, which will not solve itself. Maybe it will take time for people to accept the facts of the situation. There is no danger once they have The danger is that we do nothing till too late to avoid crisis action, which will in due course produce the improvement that can be achieved without a crisis. I hope that noble Lords will help us in getting the truth understood, and, of course, will help us by correcting us where we have been wrong. My Lords, I beg to move.

Moved, That this House takes note of the Report from the Select Committee on Overseas Trade (1984–85, H.L. 238).—(Lord Aldington.)

3.32 p.m.

Lord Bruce of Donington

My Lords, we on this side of the House should like to congratulate the Select Committee and in particular its chairman and its staff on having produced such a thoughtful, moderate and factual report. In Government circles the word "consensus" has become a dirty word. It is referred to in terms of blurring the issues, of fudging the philosophies, and so on.

This report, which is an all-party report, reveals how sensible men getting together round a table, hearing witnesses, discussing with one another the various issues involved, visiting other installations and other countries, can, at the end of the day, come out with an agreed report of very considerable incisiveness—sufficiently incisive to incur pre-emptive efforts by the Government, to which the noble Lord himself referred, to denigrate it in advance.

One thing should perhaps be made quite clear, because among the columnists and sometimes in the corridors of Westminster the word goes round that, after all, your Lordships' House is populated by people who they refer to somewhat disrespectfully as geriatrics. I am quite sure that none of your Lordships would remotely countenance such a suggestion. But for the avoidance of doubt and for the information of the public, who are not always so well informed, it should be said that the average age of the committee was 65½ years, as against the average age of the Cabinet which is 55; but we know that the Cabinet is as yet a little immature and will eventually grow up to have rather more sage attitudes. Suffice it to say that the age of every Member of this Select Committee was under the age of the noble Viscount, Lord Whitelaw (who, as we know, is eternally youthful) and below that of Sir Keith Joseph, who can be similarly described—much younger in both physical frame and mental agility than, for example, well-known septuagenarians such as Mr. MacGregor and President Reagan. So we can dismiss any allegation or any suggestion, which certainly would not be made in this House, that the minds that have been applied to this problem have been anything other than alert and businesslike and. as the reference books may show, have been backed by considerable business and professional expertise—quite as good as any of those admirable qualities within the Cabinet.

It was originally complained that the report somehow was made out of context, that it had not taken all the factors into account. It is not my purpose to recite any of the matters that are dealt with in the report, because so many Members of the Select Committee have their own contributions to make. We look forward with eager anticipation to the maiden speech of the noble Lord, Lord Clitheroe, and on the basis of his experience we know that he will be able to make a very useful contribution.

What then is the context? The context expressed in only a few heads is, first, that the non-oil deficit on the balance of payments has been running for the past two years at £ 11 billion and is currently running at a rate of £12 billion per annum. This, I am afraid, is an indisputable fact. I am relying not upon any publication by Militant Tendency, but on one by the Shell company itself, and I see that from this year the output of oil will progressively decrease. There is some doubt about when it will reach the point when we are no longer self-sufficient. The Shell report gives us two options—one of them based upon anticipated new discoveries. But the fact is that from next year onwards the oil contribution will begin to tail off.

Simultaneously with that we have to take note of the fact that manufacturing output in the United Kingdom is still 8 per cent. below what it was in 1979. As the noble Lord said, the manufacturing industry associated with the new information technology is running at an ever increasing deficit. That 25 per cent. roughly of our former manufacturing capacity as at 1979 has either been destroyed or disposed of. Investment in manufacturing industry has declined by some 20 per cent. It is still some 20 per cent. behind what it was in 1979. Simultaneously with that, as your Lordships well know, the infrastructure of this country in terms of roads, sewers and all the rest, needs some £20 billion spent on it to bring it up to anything like a reasonable standard.

I do not like to be too scarey about this, but to all reasonable men and women these are matters of the utmost gravity. That is not all, because production, manufacturing industry, service industry or whatever it may be, does not take place in a vacuum; it takes place within society as a whole, it takes place within the population as a whole. It is bound up immediately with people themselves—people with feelings, people with aims, purposes, or the absence of them, people trying to live their ordinary, everyday lives as human beings, not necessarily luxuriously, but in a way with which I am quite sure most of your Lordships would immediately concur. They are entitled to have the freedom to live a full life; not necessarily a luxurious life but, nonetheless, a full one.

Within that context, within the industrial context that I have already ventured to summarise to your Lordships, is the appalling fact that 3 to 4 million of our citizens are without any work whatsoever, with purpose denied them, with dreams denied them and with hopes eluding them.

Contemporaneously with that, since this has an effect in terms of what the economists call expectations, one is faced with the fact—it is a social factor and therefore an economic factor—that the rich are becoming richer and the poor are becoming poorer, and that 50 per cent. of the population own only about 4 per cent. of the country's disposable wealth. On top of that there is inner city decay, which has already been dealt with by a Church of England report of which we shall hear more anon.

The picture is not all gloomy. I am pleased to note those efforts of the noble Lord, Lord Young of Graffham, and the Government which have gone some way towards solving the education and training problem. This is a positive factor, albeit about the only sign of life emanating from the Government at the present time.

Within that context the prospect is grim. Perhaps I may read to your Lordships the prospect that is put forward by at least one firm of very reputable City stockbrokers, Laing and Cruickshank—observations that are endorsed by evidence already given to the Select Committee. They say: We have been unable to replicate the Chancellor's rosy view of all-round economic success—brisk growth, low inflation and a burgeoning current surplus". The firm's economists forecast that, the growth rate of gross domestic product will fall from 3.9 per cent. this year to 1.8 per cent. next year and to 1.2 per cent. in 1987. Inflation will average 4.7 per cent. in 1986 but will be 6.3 per cent. in 1987". I know that forecasts cannot always be relied upon, particularly some of those that adhere to the monetarist theory, which has now been abandoned. However, such a prospect would be daunting enough, even if the economy were at the moment in equilibrium; however, as the noble Lord knows, it is not. As the Select Committee report makes quite clear, the nation is in fact in peril, and that peril is there for all to see.

One matter is quite clear—and in this we endorse the report and, indeed, the observations that the noble Lord has been kind enough to make this afternoon. While to get out of this peril requires specific action on the part of the Government, it also requires the restoration of some sense of national purpose. It is not sufficient for us to blame everything on the Government, any more than it is for the Government in their present disposition to blame our peril on everybody but themselves; we are all in it together.

However, what is frightening is the reaction of the Government to these various matters and, in particular, to the report itself. We see in the press, from time to time, that whenever a report comes out which is remotely critical of the Government the Prime Minister is said to be "angry". It is entirely irrelevant to the future of the nation whether or not the Prime Minister is angry. For myself, I could not care less. It is not a matter for public comment, and I do not see why, through official spokesmen, we should periodically be treated to accounts of the Prime Minister's emotional state at a particular time.

I think the reaction of the Government can be typified most of all by the kind of attitude taken to the recent report of the commission appointed by the most reverend Primate the Archbishop of Canterbury. We—in particular those on the Bishops' Bench—should take that very seriously because, according to the Government, beneath every mitre there lurks a Marxist, and I should think the stage will next be reached when——

The Secretary of State for Employment (Lord Young of Graffham)

My Lords, perhaps the noble Lord will excuse me, but I do not think that that remark about a Marxist was attributed to a Member of the Government.

Lord Bruce of Donington

My Lords, I shall stand on the record on that, and if the noble Lord can obtain authentic evidence to the contrary, he can produce it later.

Lord Young of Graffham

My Lords, in this country there is a presumption of innocence.

Lord Bruce of Donington

My Lords, I wish the Government would give the country some presumption of innocence sometime, instead of presuming that they themselves are always right.

From what I have just mentioned I have no doubt that it will be but a short step to hint that underneath every coronet there lies an incipient Communist; and, if one looks at the criticism in today's Financial Times, it seems that the abbreviation "FT" stands for "Fellow Traveller". There is no limit to the extension of the innuendos that are being put out by the Government.

The second reaction of the Government is not an emotional one; it is to minimise the contribution made to the British economy by manufacturing. The noble Lord has already dealt with that.

The third reaction to any criticism is immediate indignation. If we are to solve this problem, we must adopt a totally different attitude and so, indeed, must the Government. The Government at the moment are battening themselves down into the bunkers, hoping that something may happen, indulging in a frenzied attempt to sell off public assets in order both to balance the books and secure some benefit in any future election.

It is to this endeavour, not to British industry, that the Government's efforts are now directed. The effort that is required needs the same degree of consensus among the nation, including the Government, as has already been adopted by your Lordships' Select Committee. What is required of the Government more than anything is a purposeful and positive lead, untainted by any hectoring or any lecturing. It should be a lead of decent persuasion, based upon the arguments on the facts presented to them, including those that have been presented so well by your Lordships' Select Committee.

3.51 p.m.

Lord Young of Graffham

My Lords, I am grateful to the noble Lord, Lord Aldington, as I know is the House, for proposing a Motion today which raises issues of great importance. I look forward with all noble Lords to hearing the maiden speech of my noble friend Lord Clitheroe.

The Government felt that the weighty matters considered in the Select Committee's report warranted a written response. This was placed in the Library of the House yesterday and we ensured that each speaker in today's debate received a copy of this response. I hope that this has assisted your Lordships.

Some reports of Select Committees of this House have attracted less attention; but few have attracted more. I should like the House to be clear at the outset that there is much in the committee's analysis and in their recommendations with which the Government unreservedly agree. But we have serious misgivings about some parts of the report. Let me start by reviewing the committee's main recommendations, their call for action.

First—and I believe significantly first, as the noble Lord has said—is the need to change national attitudes, to recognise that our future prosperity depends on the success of industry. Yes. The creation of an enterprise culture is the most important goal we have. I also agree that the role of the education system is crucial. Indeed, it is precisely that viewpoint which has led to the development of such schemes as the two-year youth training scheme, TVEI and the encouragement of closer links between education and industry.

Second, the need to improve competitiveness. Yes, I endorse completely the committee's identification of the need to restrain pay settlements, to raise productivity, and to improve non-price competitiveness. And I would add, my Lords, that I do not think that industry today suffers from too adversarial a climate since so far this year we have had probably the lowest number of industrial disputes and strikes in any year since 1936; and the good sense of trade unionists and management should be recognised in that statistic.

Third, the need for consistent policies towards industry to create the right climate for growth and employment. Yes, I am sure your Lordships will recognise that no previous government has provided industry with such a consistent macroeconomic strategy. That consistency is important for industry, as is our priority of reducing inflation; for that provides the very bedrock on which they can plan. That strategy also aims to deliver lower taxes, although that depends largely on controlling public spending. That strategy also aims to reduce distortions in industrial decisions which had been encouraged by the tax system in the past to the detriment of employment. That strategy also aims to keep interest rates low but that needs lower inflation, too.

Fourth, the need to support innovation. Yes £430 million will be spent in this financial year by the Department of Trade and Industry to support industrial research and development and innovation. The combination of positive Government policy and industry commitment is bringing benefits in the Alvey programme and to users of new technology. Fifth, the need to attract high-quality entrants to industry. Yes, we support this aim and aim to encourage that through such policies as the "switch" and through programmes such as graduate enterprise, which will result in years to come in many more science graduates being in industry. Sixth, the need for investment. Yes, investment needs the spur of higher profitability. This year we expect to have the highest real rate of return in non-North Sea Companies in any year since 1973.

The quality of investment needs to be improved. That relates to better management and a less distorted tax regime.

Seventh, the need to increase output by raising exports, and competing successfully against imports. Yes, we have introduced a new soft-loan facility to help exporters and to put them on a similar footing to competitors. We shall continue to seek more progress within the OECD towards multilateral control over aid to exports and to work to eliminate unfair practices in international trade. Initiatives by the private sector to substitute British goods for imports are of course welcomed. We recognise, as does the Select Committee report, that markets are now world-wide, competition to our industries is world-wide and we have to respond to the challenge of competition.

So, my Lords, I welcome many of the recommendations of the Select Committee. So why all the fuss when it was first published? Partly, because the Select Committee's report concentrated on manufacturing—as indeed, it was required to do so by its terms of reference—and the Government believe that the recommendations to which I have referred apply to the whole economy. I suspect that the committee would agree with that. Partly, there is a difference of emphasis. The report does not emphasise enough what has already been done. I believe it gives too much emphasis to problems which the Government regard as important but not as catastrophic.

I am afraid that I have to part company with the committee when they foresee A grave threat to the standard of living and to the economic and political stability of the nation". Unless the Government intervene to enlarge the manufacturing base and stimulate the export of manufactured goods. I fear that I take exception to apocalyptic language of this kind which does scant justice to the very substantial achivement of our manufacturers themselves since the recovery; for manufacturing productivity is up by 31 per cent. since 1981, a rate which at last matches our rivals; output in manufacturing has increased by 11 per cent. since 1981, faster than our rivals in Europe; and manufacturing investment was up 15 per cent. last year with further substantial increases expected this year.

Indeed, I may say to the noble Lord, Lord Aldington, that if there were effects on accelerating the decline of tax allowances, then fixed capital investment in this country standing at £55 billion would expect to rise to £60 billion and £64 billion over the next two years, each achieving new records and the latter two years not having the advantage of accelerated tax allowances before. The real base of further fixed investment into this country is the control of inflation, and that the Government are demonstrating adequately. Further, on industrial profitability, with the rate of investment up, the net real rate of return for manufacturing companies at 6½ per cent. is the highest for any year since 1973. This year the volume of manufactured exports is at record levels. I would not seek to deny that British industry has problems, excessive wage settlements being among the worst.

I do not seek to deny that British manufacturers have performed poorly and, some would say, arthritically in the past. Indeed, it is precisely the fact that the Government have recognised and do recognise these problems which fashions our economic strategy. But I just do not accept that the successful continuation of manufacturing activity is at risk; I do not accept that the present climate of Government policy needs to be changed. On the contrary, I believe that our strategy is the route to prosperity and jobs. I further believe that the recommendations for action made by the Select Committee are largely consistent with the Government's strategy.

I do not recognise claims that this Government are operating on autopilot. We certainly do not believe that the Government should be the pilot—and look where governments have got in the past when that has been the case. Sensible economic decisions are best taken by those competing in the market place; but the Government do accept the responsibility for creating the right climate to make markets work better, to encourage and to support enterprise. For this is a Government who do recognise that our economy has deep-seated problems built up over many, many years—problems that cost us competitiveness, problems that weaken our industrial strength and problems that cost us prosperity and jobs. Our response has been, first, to tackle inflation so that industry is working in a climate which encourages growth and helps them to keep costs down. Of course, features of the economy such as low interest rates and stable exchange rates are desirable aims, but the route to them lies through lower inflation and responsible financial policies.

Our second response is to encourage enterprise to get the whole economy to perform better. We are adopting a whole host of measures to improve the supply side of the economy. This is a vital difference between our approach to these problems and that of previous governments. Many of the recommendations of the committee are in line with that approach. I hope that we can build on this report a strong national recognition that enterprise is the well-spring of prosperity. Indeed, we already see some of the benefits of government policies. We have now experienced several successive years of sustained growth with low inflation, and this combination will continue for the foreseeable future.

The nub of the committee's analysis appears to be that as North Sea oil output declines manufacturing output must take its place, and to achieve that we need to discriminate in favour of manufacturing now. Of course, we recognise that North Sea oil and gas output will decline. But that will not of itself precipitate a crisis: the decline in output will be gradual, unlike the build-up. We will remain broadly self-sufficient in oil at least until the mid-1990's, and oil will continue to make a very large contribution to the balance of payments well into the next century. We are going to have a long time to adjust—time in which to encourage enterprise and time we must use further to improve our competitiveness. For we recognise that there is much to do to raise our competitiveness, much to do to raise incentives and to encourage enterprise. We know that the recent problems of our economy have stemmed from a failure to adjust because enterprise was stifled and the state intervened to take the wrong economic decisions.

Attempting to predict precisely how the economy will adjust over such a long period is an impossible and even dangerous exercise. Of course, we expect to see a resurgence in manufacturing, but using processes we cannot predict and producing goods we may not be able even to imagine. Of course, there is an important role for services, for services, too, contribute to the balance of payments and, more significantly than manufacturing, to employment. Of course, we will enjoy the benefits of overseas assets which have been steadily building up in recent years to provide a steady flow of income in the future. But the worst way to achieve such an adjustment would be for the state to discriminate now in favour of one particular sector of the economy: government's "second-guessing" of economic reality has provided few benefits in the past.

The last thing we all want is for the wrong diagnosis to lead people in panic to pour money into government support for manufacturing. That would be wrong for manufacturing and wrong for the country. There is no necessary link between an adverse manufacturing trade balance and the performance of manufacturing, and there is no necessary link between the performance of manufacturing and the performance of the whole economy. I say "necessary link" because many of the ills which have afflicted manufacturing in the past—excessive wage settlements, poor management and lack of enterprise—have afflicted other parts of our economy. But the solution lies not in discriminating further in favour of manufacturing, which makes up less than a quarter of GDP.

Further, the solution does not lie in spending ever more public money on manufacturing. I recall quite clearly in the early months of 1980 when I was within the Department of Industry that Jaguar was on the point of closing. Month after month the continued survival of Jaguar was a matter of speculation. No amount of Government money would have saved that company: its products simply did not sell. But with new management and a new application by the workforce. Jaguar, with the same technology, the same production line and the same product, went from strength to strength. Why?—because it delivered to time a quality product and a competitive product. In many ways the history of Jaguar in the last few years shows the way for the growth of manufacturing in this country, for we can only contemplate some of the white elephants of past government intervention in silence. Each concession to one sector is made at the expense of the rest of the economy as taxes rise or interest rates edge up. We already spend over £2 billion a year on support measures which go largely to manufacturing, and £2 billion in any one year is equivalent to 2p in the pound on income tax.

Those who ask for support to be given to manufacturing are arguing that services are intrinsically less useful in the economy, for help to manufacturing will burden the service sector. We need a healthy manufacturing industry and a healthy service sector. Both provide employment, both contribute to the balance of payments and both serve the needs of customers. The Government aim to increase the competitiveness and adaptability of the whole economy.

I recognise that the report of the Select Committee makes an important contribution to identifying historic and long-standing weaknesses in our economy, particularly in manufacturing. I welcome many of their recommendations, which I believe are supportive of the general thrust of our strategy towards the whole economy. But I do not believe that the problems which they identify—and I quote— constitute a grave threat to the economic and political stability of the nation". I see much that is urgent and much that should be done by manufacturers, for it is not government that produce quality; it is not government that deliver goods on time; it is not government that ensure that wage rises are paid for out of increased productivity. Money cures none of these problems. These are the problems which are indeed posing a challenge to our nation—a challenge which the Government recognised when they came into office, and a challenge which is best met by our economic strategy which has been so consistently pursued. My Lords, the enterprise of our nation is at long last meeting that very challenge.

4.9 p.m.

Lord Ezra

My Lords, I should like to begin by expressing appreciation not only of the important speech made by the noble Lord, Lord Aldington, in introducing this debate today but also, as a member of the Select Committee which served under his chairmanship and the first of its members to speak in this debate, to pay considerable tribute to the patient, sympathetic but at the same time firm way in which he led our deliberations and brought us to a clear conclusion.

This report has already stimulated a national discussion and it is right that we should be having a debate about it in your Lordships' House today. I hope that the discussion will not end here, but will go on for a long time, because it addresses itself to one of the fundamental issues which we face as a nation.

It was on 10th November 1983 that I asked an Unstarred Question, which was, to ask Her Majesty's Government what steps they are taking to stimulate non-oil visible exports". I asked that Question then because we were beginning to change over from a historic surplus in our non-oil visible exports to a deficiency. I thought that the trend was a very serious one and, indeed, I recommended at the end of my speech that we should set up a Select Committee to look into it. I am delighted that that was done; delighted, also, that it has produced the report that it has and that I was able to participate therein.

I must admit that, like many, I have been somewhat puzzled by the Government's attitude to this report. There was, first the instant and critical reaction, then the more studied reaction which is now available and the speech which the noble Lord, Lord Young, has just delivered. So far as I can understand it, the Government's position is that they agree with most of the recommendations; indeed, they claim that they have already carried them out. What they apparently disagree with is the diagnosis.

Oddly enough, the businessmen who have been approached on this subject were virtually unanimous in saying that they thought that the diagnosis was what they particularly liked about the report; that it was clear, to the point, pungent and realistic. They thought it was time that we addressed ourselves to the real problems of the nation and came out with practical solutions to them. Indeed, I think the general feeling was: what is the point of putting our heads in the sand? Why do we not address ourselves to these problems and then seek, by joint and several action, to overcome them? That, indeed, is the positive purpose of the report.

There is not the slightest doubt that the Select Committee unanimously conluded that, as everybody knows, there has been over the years a progressive weakening of our manufacturing base, and that associated with that has been a decline in our manufacturing trade balance. The committee concluded that this trend, if continued, would be a threat to the well-being of the nation and that therefore, in order to eliminate this threat, urgent action as described in the report should be taken.

The Select Committee does not subscribe to the view, as the noble Lord, Lord Aldington, has clearly already stated and as we have stated in our report, that this would be solved by some automatic adjustment as time went on. We could not see how that could occur without human intervention. Indeed, this is not what other countries have done. This is what has worried us in particular, because we did not seek to address ourselves to the problems of Britain without considering what had happened elsewhere.

I must say that in Japan, Germany and France—countries which members of our Select Committee visited—they have attached particular importance to the revival and expansion of their industrial base by a whole variety of measures which are itemised in the report. It could be argued: yes, but these countries do not have the problem that we have with the oil. The oil has been of undoubted benefit to the country and as a result of it we have earned a great deal of money. It was explained to us at great length by the economists working for the Treasury that, if you make a lot of money in the export of one of your sectors, then it is only natural that some other sector will fall by the wayside. I am afraid that we were not at all convinced by that argument.

Nor, I may add, have the Dutch been convinced by it. Your Lordships may recall that some time ago there was much talk about the Dutch disease; about the fact that the discovery of masses of natural gas in their territory led to their becoming progressively uneconomic in world trade. The Dutch have tackled that problem—I was at an industrial conference in The Hague recently—and since 1980 they have worked to reverse that. While they are still benefiting from substantial exports of their natural gas, which will go on into the next century, they have recovered their industrial competitiveness and are now running a positive visible trade balance on their manufactured goods. So they do not subscribe to that theory. It is indeed, whichever way you look at it, a very peculiar theory.

We believe that we must do something to solve the problem and we have identified the things that need to be done. I know that the noble Lord, Lord Aldington, referred to a number of them, and my colleagues on the Committee will be mentioning others. But I should just like to dwell on three of the recommendations which we made as an indication of what we should do to solve this clearly identified problem. The first matter I should like to refer to is competitiveness, which is really the nub of the issue. The reason why we are not selling more of our goods abroad, and why people who live here are buying more goods from other countries, is our diminished competitiveness. But, having said that, I believe we must also accept that there is no simple answer to this question. There is no magic solution. It is not enough to say that if we get wages costs per unit of production down, we solve everything. That is indeed an important element, but there are many others and they all need to be taken into account.

The question of attitudes has been mentioned; not only attitudes of the rest of us, but the attitude of Government. Then there are skills and training. The noble Lord, Lord Young, has contributed substantially, as the noble Lord, Lord Bruce, quite properly mentioned, to improving the reserves of skills and training in this country. But we lag massively behind others. In our report, we state that in Japan there are four-and-a-half times as many engineering graduates per head of population as in this country. So we are way behind the others and we need to catch up fast.

Then there is investment. The noble Lord, Lord Aldington, referred to the fact that not enough investment is going into the creation of new capacity, new products and innovation, and that needs to be stepped up. Interest and exchange rates are a subject which kept on cropping up in all the discussions that we had with those who came before us. There is grave concern about the level of the real interest rates that we have to pay compared with our competitors. There was particular concern about the exchange rate, not only the fact that it is relatively too high but, even more important, its fluctuating nature. This is what concerned the business community almost more than any other single point that was mentioned. They could not plan ahead through not knowing where sterling would be standing with other currencies from one week to the next. So this is something to which we must devote a good deal more attention.

I now come to quality. Quality is something which in many cases has sold our competitors' goods in preference to our own. We must do very much more to get the quality of our products up. If we could go much more up-market we could be much more successful. The Government have fully supported the drive towards improved quality. This needs to be intensified even beyond that.

I happen to be president of the British Standards Institution and I am familiar with the work that has been done by that institution in evolving BS.5750, which is the standard which sets down the criteria on which quality management systems have to be introduced. The more we go into that sort of thing, which all lies to hand, the more we can improve the quality of British products.

Finally, there is the question of participation and profit-sharing. The more those who work in enterprises feel that they belong to enterprises, the more easily shall we be able to persuade people that you have to earn the money first before it can be shared out. So there are all these things to be done when we talk about competition, and I see no reason at all why we should not launch into a major campaign covering all those aspects.

I should like now to talk about export promotion. We have done in the past, and still are doing, a great deal to promote our exports. I have had personal experience of this because I served with the BOTB for 10 years and was chairman of one of their committees. I have been appalled in recent times at the constant reduction in the relatively limited amount of funds provided to the BOTB to do their job. Funds to the BOTB mean people; people mean skills, skills to promote our trade abroad in a variety of ways. Why are we penny pinching in this field? The noble Earl, Lord Jellicoe, thought there was a 50 to 1 return on what they were doing to promote exports. For every £1 spent by the BOTB we had £50 of trade. That was his view, and I believe it is correct.

I should like to refer as an example to exhibitions. We are falling behind in our activities in exhibiting our products abroad. I have recently had a comparison made with the efforts of Germany. They exhibit at virtually every major exhibition that is relevant to their products, and there is massive state support for doing so. Has this been a negative cost to Germany? Not at all. One needs only to look at their trade balance. According to the Financial Times of 27th November—therefore I am quite up-to-date—their positive balance this year on visible trade is likely to be very near £20 billion. Our negative balance is likely to be of the order of £5 billion. Next year the Germans are expected to reach £25 billion because they are pulling out all the stops to promote their exports. We can learn from their example.

Finally, I should like to talk for a moment about import substitution. The noble Lord, Lord Aldington, also referred to this. Although our exports are doing well, we are importing far more, and the stimulus given to the consumer goods sector is likely to add to that burden. So it is very important to have a systematic and determined campaign to try to substitute for imports home products and to do it on a thoroughly competitive basis. We were much impressed with the evidence given by the noble Lord, Lord Sieff. The noble Lord's experience was that there had been too little co-operation between seller, manufacturer and raw materials supplier. In other words, the seller had tended to go off on his own, the manufacturer on his own and the raw materials supplier on his own, instead of having a close link in that chain of British enterprises.

We had evidence from the Think British campaign. I happen to be involved in that movement. They estimated that if every British household increased its purchases of British goods by £3 per week on average in substitution for imports, the balance of payments would improve by £900 million, unemployment by 350,000 and £2½ billion more spending money would be generated. These facts may or may not be precise but they did their sums on the basis of very careful analysis. It reveals what prizes are to be had if we have a positive and determined approach to this question. In a recent debate initiated by the noble Earl, Lord Stockton, on 14th November, my noble friend Lord Young of Dartington made what I thought was a very positive proposal, which is no doubt being vigorously considered by the Government, as to how such a systematic and determined campaign for positive purchasing of British goods could be instituted.

That concludes my view of some of the things—and there are many others—which need to be done to translate the analysis made by the Select Committee into positive action. This is not a pessimistic report; it is a realistic one. It is pointing to one of the major problems which we face and which could get worse in time if not tackled. But there are remedies of a practical nature which involve not only government but all sides of industry and consumers as well. It is the mobilisation of a campaign to regenerate British industry which is now called for, and I believe it is for government to show that they understand the problem and to give a lead in its solution.

4.25 p.m.

Lord Clitheroe

My Lords, I ask your indulgence in rising to speak today and I thank noble Lords very much for their kind welcome. I am not practised at this art—in fact, I am a complete beginner—so I hope the House will bear with me. I should perhaps explain that I shall speak briefly and try to be non-controversial, though that is always difficult. I shall if I may explain why I wanted to speak today.

Some 40 years ago, when I was at school, I elected to go in for science rather than the arts. My housemaster at the time was shocked by this and assured me that it would afford no education. Five years later, at Oxford, I decided to choose industry rather than other more appropriate activities. The horror of my tutor was profound. I found I had streamed myself into a very different world, and from what I read in the press over the week-end things do not seem to have changed much for the better. Going into industry is still unpopular, and yet I confess I have never regretted my decision to follow that course. It has been most stimulating, challenging and exciting. However, that was my reason for wanting to speak today. For the past 30 years I have been involved with the management of an international group of companies. It has given me a good, if sometimes depressing, experience of our competitive position in this country in trade and industry compared with many of our competitors.

I have read your Lordships' Select Committee Report with great interest and much agreement and could be tempted to talk on many of the issues raised in the recommendations. Time does not permit this except perhaps for a few asides which include matters many of which have already been mentioned today such as the stability of fiscal policy. That is an important one. More important still, perhaps, is some stability in the exchange rate. I am very worried at the moment about the present trend because we are on the up (or is it the down?) end of the helter-skelter or the big dipper. It should be accepted, on another matter, that money for investment is available if the climate for investment is adequate and assured and if the profit-margin is adequate, too.

There are certain areas in which direct Government action in furthering our competitive position could be most helpful—for instance, in the combating of dumping; in the area of non-tariff barriers, although it is vital to avoid moving towards protectionism which is a risk we have seen recently in the United States; in support for research and development and lower interest rates. All these things could give us a fairer wind.

But the key to our problem in my belief, and I think in the belief of many of your Lordships, lies overwhelmingly in those paragraphs of the recommendations which refer to the need for a change of national attitude. On the whole, the severe shake-out that industry has suffered over the past four or five years is probably healthy rather than otherwise, if for no reason other than it has swept away many illusions.

Perhaps we now have an opportunity to see ourselves where we really are and to concentrate. The problem seems to me to be, in the first place, that industrial management in this country, unlike that of our competitors, has always been at the bottom of the pecking order of esteem. Industrial management here has not been a magnet for people of highest potential. It has neither the social "kicker" nor the financial "kicker" to ensure that, and such has been the case for many years.

Partly as a result of that situation we still have in many industries a union structure which is wholly unsatisfactory. I say "partly as a result" because that union structure is itself in part the direct cause of bad management and the reluctance of many people to enter into management. Here is something of a Catch 22 problem and while, to avoid offending your Lordships, I will not go deeply into what might be thought to be too controversial an issue, I have to say that union structure and union performance are issues in this great debate.

It is a truism to say that the complexities of management increase with the number of employees on any given site, so that with the less-than-perfect management that we have here, those parts of our industrial heritage which have suffered most are the heavy industries which are labour intensive. All in the country is not darkness and despair. In smaller units where fewer than 100 people may be employed the management skills needed are not so great and union problems tend to be less difficult. That part of the country's industry is in reasonable shape. In many cases, it is flourishing in the present economic climate better than at any other time in my experience.

However, the part of industry on which your Lordships' report focuses most strongly is the heavy, labour-intensive end, where we are least equipped to manage. In addition to historic weaknesses in management and union structures, public regard for industry in general is at an all-time low. Internationally, the Green movement is in the ascendant and primary and secondary productive industries are under heavy pressure from that direction as well. To expect to reverse public distaste for heavy industry, to improve the quality of British management, and to require unions to learn the lesson of industrial survival is perhaps asking for three impossible things before breakfast. I cannot pretend to offer a solution to any of those problems, but it is vital that they should be solved if this country is to compete effectively in the industrial world.

We need to regenerate pride of our industries as well as pride within them. I will make one small suggestion in relation to the improvement of management. One gets what one pays for, and compared with our competitors we tend to have inadequate differentials for professional managers within our workforces. We tend also to provide inadequate incentives for them in relation to the attractions of other professions in this country and in relation to their value in the international market.

If we are falling behind, as I believe we are, in failing to provide those incentives, we have only ourselves to blame. If we as a country wish to continue to afford the luxury we have had for the past 100 years of distributing wealth to so many good causes, then we must be prepared to pay for it by making entry into industrial management more attractive.

I am afraid that I may have spoken for too long, but perhaps I can revert to school again. I once wanted to row on the river. In part, it was to avoid playing cricket, which I did not enjoy. Rowing was not allowed until one had passed a swimming test. I could not swim but persuaded myself that mind was greater than matter and that I could pass the test. I remember sinking down to the mud in the depths and being retrieved and revived by friends. I am glad to say that ultimately I passed my swimming test. I hope that there is a moral there. I hope also that your Lordships will be as kind to me this afternoon as my friends were on that occasion. If I have gone out of my depth and into controversial waters, then perhaps your Lordships will rescue me.

4.35 p.m.

Lord Plowden

My Lords, I am privileged to be the first to congratulate the noble Lord, Lord Clitheroe, on his thoughtful and constructive speech. I know that I speak for your Lordships when I say that I hope he will find the time to speak often in your Lordships' House. I say that with particular pleasure because his father was a close friend; he was associated with me in business for 10 or 12 years, and was a friend for much longer than that.

I must begin by paying tribute to the noble Lord, Lord Aldington, and his colleagues on producing such a thoughtful and constructive report, with which I am largely in full agreement. As we have a great many speakers this evening, I shall confine myself to one point. It is the point raised in paragraph 33 of the report. It states: The most highly qualified people have tended not to enter manufacturing industry and success and achievement have been associated with other areas of employment. Furthermore schooling has traditionally not been directed towards educating people for industry in the same way that it has in Germany for example. Indeed, these 'cultural' factors were identified at least as long ago as the late nineteenth century and have persisted despite the recurrent recognition of the problem". We all know that the Industrial Revolution started in this country, and it continued with vigour until perhaps the middle of the nineteenth century, probably reaching its peak at about the time of the Great Exhibition in 1851. But after that, for some extraordinary reason, the British people appear to have started to look down on working in industry as something not quite nice, something people turn to if they cannot get anything better.

Perhaps that was because industrialists wanted to become country gentlemen, because of the attitude of educationists, or because of the writings of people such as Matthew Arnold. John Ruskin, William Morris and Anthony Trollope who described an ideal rural England where men and women led fulfilled lives, whereas we all know from the most cursory reading that the squalor in which the farm labourer lived and the exploitation to which he was subject was as great, if not greater, than that suffered by his opposite number in the towns. The attitude of which I speak was probably due to all those influences.

The result is that we appear to be alone among the industrialised countries in our attitude towards that part of our society which provides much of the wealth on which every other part of our society depends. I am chairman of an ad hoc group of businessmen whose aim is to sponsor from time to time investigation by reliable sampling surveys, into issues of public interest and national concern and to publish them for the general benefit. We are not aligned to any particular grouping and we never indulge in propaganda. But as it happens—and this is my reason for intervening in this debate—we published last Friday two reports on the attitudes of two groups of young people: teenagers between the ages of 13 and 18, and students at universities and polytechnics; 3,333 teenagers from 133 schools and 1,007 undergraduates from 55 educational establishments were interviewed.

There is some encouragement to be gained from the survey of the undergraduates. The majority of them seem to have a positive attitude toward business in its wider sense, both manufacturing and commerce. When they were asked which businesses they favoured, the choices were—as one would expect—high technology industry, electronics, computers, telecommunications and banking; but iron and steel, heavy engineering, motor manufacturing and so on were of no interest whatsoever to them. I feel that this more favourable attitude among these young people must in large part be due to the activities of the CBI, the British Institute of Management, the Industrial Society, the UBI and other people.

The report on the teenagers was much less encouraging. In considering the two reports we must remember that we all go to school but only 8 or 9 per cent. of the population go on to higher education. When the teenagers were asked to choose between 13 different jobs, the two top choices were advertising and working in a bank. As for the bottom two, by far and away the most unpopular choice was working in a factory; the other was farm work.

In neither of the groups surveyed did there seem to be any appreciation of the fact that industry and commerce create the wealth on which so much of the rest of society depends. The surveys showed that young people begin to decide what career to follow at around 13 or 14 years of age. Therefore it is at this age that industry should start to influence them and draw attention to the merits of industry if it wishes to obtain a fair proportion of the best and brightest young men and women who are coming out of the education system.

When the young people were asked to recall the different companies, industries and professions which had supplied speakers or videos which they could remember, the following emerged. One in five—that is, 20 per cent.—had been exposed to material or visits from financial institutions, such as banks, insurance companies and so on; 18 per cent. remembered hearing about the armed forces; the police came next with 10 per cent. Perhaps that was due to talks on road safety and so on; nonetheless 10 per cent. of the children remembered the police. The National Health Service registered 7 per cent., retail stores 5 per cent., and engineering only 4 per cent.

If we are to arrest and reverse the decline in manufacturing industry, industry must recruit many more of the best and brightest young men and women who are coming out of the schools to fill the skilled jobs on the shop floor and to go into management at all levels. If this is to be accomplished, there must be much more contact between industry, schools and the young people in them such as happens in other industrialised countries, in particular in Germany. This means not just visits from personnel officers and senior managers, important though they are, but also visits from young people who are already doing jobs, as young people in schools relate more easily to those who are not so very much older than they are themselves.

If recruitment is part of the problem which is facing industry, the solution of it lies in large measure within the hands of industry itself. Obviously the Government have a part to play, but I hope that industrialists will learn that it is something which they have to tackle.

4.45 p.m.

Lord Hanson

My Lords, I too should like to congratulate my noble friend Lord Clitheroe on his excellent maiden speech on a subject of which he has much experience at home and overseas. We look forward to hearing from him on many future occasions. I know from my own experience how much better he feels now than he felt at 4.30 this afternoon.

The House is greatly indebted to my noble friend Lord Aldington for initiating this debate and I should like to add my own appreciation and respect for the distinguished committee's report. My noble friend himself and the members of his committee brought to their inquiry a formidable array of experience, not only in manufacturing but in banking, insurance, consumer services, energy, international trade and not least in their experience of government office.

I must take this opportunity to apologise to your Lordships for the fact that I shall be unable to attend for the whole debate because of a long-standing previous engagement.

The committee sought to "draw attention to manufacturing industry", which objective they most certainly succeeded in achieving. It is not given to all reports to become best sellers or to generate such interest and comment. As a manufacturer myself as well as an international trader, I thoroughly approve of the spotlight being turned on the subject of Britain's manufacturing industry. The committee's analysis of how we have reached our present position—I decline to call it "plight"—contains a great deal with which industrialists are very familiar; but I for one do not agree with the diagnosis. It seems to me that there are some major omissions. Most curiously, I think, it omits the fact that the commanding heights of British industry have been nationalised—for many of us for most of our working lifetime—with devastating consequences for Britain's manufacturing industry. Nationalisation turned huge sections of our industry into loss-makers. It absorbed massive investment capital and loaded all manufacturing industry with excessive energy and transport costs.

One major way of restoring manufacturing competitiveness in this country which is currently being actively pursued by this Government and which I am sorry not to see in the committee's list of recommendations, lies in placing these industries in the private sector where they belong, where the customer will decide whether they prosper or decline, and where the shareholder will put up his own money and take the risk of profit or loss.

My noble friend Lord King of Wartnaby whose experience and business success in manufacturing and service industry alike are withheld from us today because of his other duties, wrote recently: Britain's present position is not the product of the last six years but of the 20 years that went before", and also: The wonder is that Britain, as the former 'sick man of Europe' has recovered from what appeared to be a terminal illness". I thoroughly endorse his views.

The report rightly draws attention to the lessons to be learned from other industrial nations, but it touches too little on the desperately poor base from which our recovery had to begin. In my view, the committee does not give adequate recognition to the immense progress that we have already made. It does not give adequate recognition to the right business climate that has been created by this Government.

Much argument is made about the primacy of need of manufacturing over service industry; that our oil reserves are peaking, so we must busy ourselves to stimulate the manufacturing sector. As I said earlier, I am a manufacturer myself, but I do not buy that argument. Nor am I convinced that any good will come from the proposals for more government tinkering with this, interfering with that or throwing money at the other. Let us have no stimulation, please. It is only a polite euphemism for subsidy and it does not work. One has only to recall selective employment tax, which was a tax subsidy for manufacturing at the expense of the service industries. A tax subsidy for one sector must mean a tax penalty for all the others.

There is a great deal of evidence—some- of it indeed described in the report and referred to this afternoon—that much of our manufacturing industry is healthier and more competitive than it has been for 40 years. The way that it will best grow is by manufacturers winning more of our home market. As my noble friend Lord Aldington said, our record of exporting is really rather good by international standards, but we should all be fighting the import market competitively. How can overseas manufacturers absorb all the extra costs of shipment to this country, setting up distribution and overcoming the language barrier and the local technical problems and still beat us in our own market?

The report addresses some of the problems in its call for action: better design, more R&D, better recruits and training; all are necessary objectives to be pursued. But that is not the core of the matter. There is no magic solution, said the noble Lord, Lord Ezra. The plain fact is that manufacturing industry has shrunk, with some notable exceptions, because we have priced ourselves out of our own market-place. The report confirms that over and over again. When we price ourselves back into competition, our industry will grow. It will grow first by selling more at home and it will grow again because then we shall be competitive abroad.

As regards the exchange rates, look at the cries that we get the moment that the currency rises to reflect the country's economic strength! We get cries from our major manufacturing exporters, who are all strangely silent when we reach dollar-pound parity—£1 to the dollar. I am not sure what advantage they took of that rate at that time, but they certainly complain the moment that it goes up.

The real battle for British manufacturers, and one that we are fighting daily, is to reduce costs. I have already spoken of the burden on industry of energy costs, but we must continue the fight to control all costs, expecially wages. For too long we have been getting "owt for nowt", and I should like to see a little more "summat for summat". The report tells us of wage costs having risen here 260 per cent. compared to 70 per cent. in Germany and 110 per cent. in the United States. Productivity in certain industries still lags far behind foreign competition. But we must get our own house in order and keep it that way.

The report calls for relief from the burden on industry of rates. The answer to that is surely a vast reduction of the whole town hall machinery and a return to private enterprise of all possible local authority functions. I believe that if we hold to our present path the balance of manufacturing and services will evolve naturally and without the horror-movie scenario foreshadowed by the committee.

There is in the report a great deal that we can all warmly embrace, and above all its underlying theme: the need for change. I would have put it as the need to continue the present course of change. We have as a nation finally come to understand that the world does not owe us a living. We have really begun to believe that wealth has to be created before it can be distributed. There is some way to go, not least in the educational field, to which the committee draws attention. As my noble friend Lord Aldington said, and as was stressed by the noble Lord, Lord Plowden, I am not sure that industry is doing anything like enough to tell pupils and their teachers of the importance and attraction of a career in industry.

But we should take account of the measure of change that has been achieved. I can report only that I am happy to work in industry, and I do not feel at all gloomy about this great country's present position. With the continued encouragement of this Government I look forard with great excitement to Britain's future prospects.

4.55 p.m.

Lord Greenhill of Harrow

My Lords, I join with others in congratulating the noble Lord, Lord Clitheroe, on his maiden speech. He showed by an account of his early education that he was ahead of his time. His subsequent remarks show that he remains in the forefront of sensible thinking. He is clearly a most valuable and important addition to the House.

As a member of the committee I do not want to trespass on the time of those in the House who may now wish to comment on the contents of the report. It has this afternoon been admirably introduced by the noble Lord, Lord Aldington, the chairman, and I shall try not to be repetitious. I believe that he fully justified to the House the concern of the committee. Both he and the noble Lord and Minister were free with the use of statistics, but I think that I may be forgiven for thinking that the noble Lord, Lord Aldington, emerged as the victor in that statistical battle.

There has been a lot of comment already in both Houses of Parliament and the media since the publication of the report. Some of the initial commentators omitted, I think, the desirable requirement of reading the report beforehand, but gradually the recognition of the wisdom of the recommendations has been generally accepted.

I should like to make one or two quick observations. First, I should like to draw the attention of the House to an earlier report in 1979 by the Hansard Society under the chairmanship of the noble Lord, Lord Marsh, assisted by the late Lord Byers and Lord Armstrong of Sanderstead. The report was entitled Politics and Industrythe Great Mismatch, and it drew particular attention to what the authors described as—and these are their words—the increasingly pernicious effect that adversary politics was having on British industry. The authors of the report were not strangers either to industry or to government and their conclusions confirm some of the conclusions that our report has drawn. It is a pity that more notice was not taken of them at the time.

Ministers' immediate reactions to our report were a good example of adversary politics; and of course it may be argued that such politics have been commonplace for years and indeed are a necessary part of our political system. But there is no reason why we should continue to tolerate their worst features if they damage our industrial future, as I believe they certainly do.

I made the same calculations as the noble Lord, Lord Bruce of Donington, about the average age of the committee and the average age of the Government, but I thought that it was beside the point because we all have a vivid recollection of a recent example in this House of how very old age and wisdom can be effectively combined.

Looking back over this century one cannot but be sadly disappointed at our industrial performance and the way in which we passively allowed our initial industrial advantages to slip away. Re-reading recently a history of industry in the Midlands, I was interested and surprised to see that the weaknesses to which our report draws attention were clearly identified more than 80 years ago—poor management, inadequate industrial relations, insular design, poor marketing and investment conflicts between the City and industry. All these things were then the subject of argument and discussion, but nevertheless they have remained largely without effective remedy. Opportunities, again and again, have been missed. Now, I believe, we have an opportunity to reverse this sad story.

In addition, one must admit that national attitudes to manufacturing industry have in many cases deteriorated. I noticed the other day that a foreign observer said that the United Kingdom was the only Western country—and these were his words—where, intellectually to destroy and reject had taken the place of longing to build and create". That is, I believe, an exaggeration. But it is certainly more than half true. We see it reflected daily in comments in the media.

The Select Committee report calls for these disagreeable facts to be faced and a decisive effort made to ensure that over the long term our past sins of omission are overcome. Above all, the report calls, as we have been reminded again and again this afternoon, for new attitudes. Members of the House will notice that the report does not attribute past lack of success to one political party or to one political segment of our society, but to all of us. It calls on all of us to put our hands and heads together as our rivals seem so often to do. I am sorry that this central point of the report has been so largely missed by commentators.

The comparative ineffectiveness of the NEDO Council hitherto shows how very difficult we find it is to work together even when our economic objectives are close together. I believe that the central elements of the report summarised in Chapter 7 do in fact, in spite of what the noble Lord the Minister has said, command agreement across all sections of the community and with many in all political parties.

I should like to repeat these three elements. First, the decline in our manufacturing industry has reached serious proportions. Juggling with dates and statistics cannot conceal lasting basic weaknesses. Secondly, although the United Kingdom will remain self-sufficient in oil for many years to come, the massive contribution of oil to our export earnings will assuredly decline. Thirdly, there is nothing automatic about the recovery of our manufacturing industry as the oil declines. Lastly, the fall in our industrial export earnings cannot be fully replaced by service industries whose achievements, of course, must be applauded and acknowledged.

The logical conclusion of this—it is, I think, inescapable—is that our standard of living will be put at risk. The timescale may be a matter of debate but we must prepare ourselves with consistent policy not only for the immediate future but for the longer term. The Economist stated blandly a few weeks ago that the governments of the future will have plenty of time to adjust. Adjust to what? Surely, only downwards unless more vigorous action is taken, starting at once. This action must be the collective work of all parts of our society. Of course, the main responsibility for the recovery of manufacturing industry lies with industry itself, but everyone can and must contribute and have the interests of manufacturing industries high in their own priorities. I am glad that so much emphasis this afternoon has been put on import substitution. For example, an individual can try in a most modest way to substitute British goods for foreign imports. All companies should look hard at their purchasing policies.

The motor industry is a classic example of an area in which we suffer this great deficit. On my way to the House, I ran my eye over the cars in the car park where I keep my car in the City. Eighty per cent. of the cars—more than 80 per cent.—were imported. Interestingly enough, a very large proportion of that 80 per cent. were capable of travelling at twice the legal limit in this country. Is not this an area in which there could be a little less self-indulgence? What is the general attitude of the Government to industry? I hope that I have it right. It is, so the Chancellor of the Exchequer said in his evidence to the committee, to create a framework in which manufacturing industry and indeed all other industries could prosper. Other Ministers have said that the Government's job is to create the right overall climate and then leave industry to do the rest with a new spirit of enterprise.

It is true indeed, and very welcome, that a new spirit of enterprise is being created. There are undoubted but insufficient improvements. In this way the Government seem to be distancing themselves from the problems of industry and inclining towards a "hands off' policy. But, happily, from time to time, one does recognise that they see that they have a responsibility that goes far beyond creating the right framework. The leadership of the noble Lord the Minister of another industrial mission to China is more than just creating the right framework. It is active and overdue practical help.

The Government are increasingly involving themselves in the battle for large overseas contracts—quite rightly, but again belatedly. They are correctly hugely subsidising research nationally and internationally. It would, of course, be very useful if they funded our overseas missions and the BOTB more adequately. But possibly most important of all, they should exercise their inescapable responsibility, with the assistance of us all, in the reform of our educational system to make it more appropriate for our industrial needs. It is through a better educational system that the vital new attitude to industry will eventually be established. Important, at the same time, will be the abandonment of self-destructive adversary politics.

The Select Committee report clearly and correctly points out the possibility of a crisis in the future and the consequential need for action now. The report summarises ways in which manufacturing industry can help itself and be helped by governments. These obviously cannot be exhaustive and are sometimes debatable, but new ways will suggest themselves if public attitudes are right. Especially important, in my view, will be the relations between the City and industry. What is going to be done about the report? If I may use a Rugby metaphor, are the Government going to kick it into touch or are we as a team going to try and run with the ball?

5.10 p.m.

Lord Kaldor

My Lords, I should also like to add my congratulations upon the maiden speech of the noble Lord, Lord Clitheroe which are more genuinely felt as I find myself in agreement with so much of what he said.

I think that the noble Lord, Lord Aldington, and his team earned our gratitude for producing a report on overseas trade which I am sure will have far-reaching repercussions. We have learned today that it has already run into six editions. I am sure that this is only just the beginning—it will run into very many more. It will certainly be very widely read by people in this country and, despite the Government's rather feeble attempts to play down its findings, it is bound to have an increasing influence on national policies. Indeed, at some future time it may be viewed as a historic landmark which has torn away the veil of complacency concerning Britain's position, which is concealed for the present by the huge, though temporary, benefit derived from North Sea oil.

The basic facts are simple enough. What is new is that they are here put together to present a comprehensive picture and to demonstrate the inevitability of an economic crisis of catastrophic proportions sooner or later. It may occur not in our lifetime nor even our children's lifetime, but in our grandchildren's lifetime. We cannot be sure. But we can be sure that it will occur—and I have been sure for many years that it will happen, as shown by numerous articles—unless the long-standing trends of industrial decline which have so much accelerated since 1979 as a result of misguided policies pursued by the present Government are decisively reversed in the not too distant future.

Britain was the country which invented and first experienced the Industrial Revolution, which began quite spontaneously in the closing decades of the 18th century, independently of any supporting policies of the governments of the day, who must have been largely ignorant of the fundamental nature of the economic transformations that were taking place. As a result Britain developed a tradition of keeping politics and business apart and of refraining from governmental interference in economic affairs.

In this, as I shall argue today, Britain inherited a tradition wholly different from that of other industrialised countries, with the sole exception of the United States. That attitude survives to this very day. The present Chancellor of the Exchequer told the committee that that Government's general philosophy is that 'it is industry's job to make itself competitive, the Government's job is to provide an overall climate' ". The "overall climate" has generally meant pursuing sound financial policies such as the return to the gold standard in 1925, or, more recently, the policy of purposely overvaluing exchange rates and of high interest rates in the misguided belief that that is the cure for inflation and the further misguided belief that curing inflation would cure all our ills.

These policies have provided the worst possible climate for manufacturing industry, on which the nation mainly depends, whether directly or indirectly, for jobs and prosperity even when North Sea oil provides, for the time being, ample foreign exchange to pay for our imports.

The Government argue, according to the committee's report, that the decline in the net demand for British manufactures is an inevitable consequence of North Sea oil. If the trade balance in oil improves in a dramatic fashion the trade balance in manufactures must decline since overall exports cannot exceed imports. This argument incorporates a whole series of contradictions as well as fallacies. The first is that oil, though it can provide us with all the foreign exchange we need, does not generate the same volume of employment as other activities.

Only 2 per cent. of the value added by oil extractions is represented by wages and salaries, as against 70 per cent. in manufacturing industry. If we were faced with the necessity of replacing manufacturing industry by oil extraction—assuming that we had all the oil we wanted for everything—and would allow the exchange rate to settle at the point at which all our demands for manufactured goods were fully satisfied by imports and paid for by oil, Britain would become a most miserable place with most of its population living on the dole—and living on the dole is a most unhappy state of affairs because it deprives life of its purpose, quite independently of whether the dole is sufficient or insufficient for material needs.

However, there is no need for any of this to happen. If we take the extreme case and suppose that oil pays for all our imports, we can, and indeed we must, reduce taxation sufficiently to give people enough money to spend to buy all that can be produced in this country. If that is considered an extreme solution, we could go for a large balance of payments surplus on current account and spend the money on helping the starving millions of the majority of humanity. If that is considered too extreme, we could reduce the rate of extraction of oil to whatever level we prefer and thereby make our oil reserves last longer. The nation is immortal even though a generation is not. Making our oil reserves last 100 years as against 20 or 30 years would be a great advantage from the national point of view.

We have all the freedoms of the rich and it is nonsensical to suggest that the discovery of North Sea oil condemns the nation to a decline of its traditional industries and to millions of unemployed for whom no jobs can be found. The committee of your Lordships' House was not concerned with the problem of our new found richesse. It was concerned with the problem of what happens when the oil runs out and we have to return to our old ways of paying for our imports—through the net excess of exports over imports in manufactures. Many speakers ask, "Why manufactures?" But nobody suggests what else, other than manufactures, they have in mind. If they prefer, we can speak of an excess of exports over imports of manufactures plus everything else on which we can have an excess of exports.

As in all other contexts, the Government are incredibly complacent on this matter. Just as the deterioration of the trade balance in manufactures is regarded as an automatic consequnce of the emergence of oil exports, so equally automatically manufactures will take over from oil when oil exports run down. The fact that in the meantime our manufacturing output capacity will have shrunk to a shadow of its former self, and that it takes a long time to build it up again to a level of efficiency where it is competitive with other manufacturing exporters does not cause any worry to Ministers or to the Treasury. In the Treasury's view, according to the committee: there is no cause for concern"— the decline in oil output (and again I quote the Treasury's view given to the Committee): will automatically tend to bring about adjustments in the economy which will compensate for the loss". They do not say how, and what do they mean by "adjustments"? One adjustment would be to reduce our standard of living and consumption by 50 per cent., but that cannot be reckoned in the same way as other types of adjustment. Twenty-four per cent. of manufacturing industry has already disappeared in the three years between 1980 and 1983. That is an absolutely fantastic and unbelievable figure. It has literally disappeared: it has not been transformed into unutilised surplus capacity—the capacity is not there any longer. According to the figures, in certain sectors like the motor car industry or textiles the percentage decline was much greater. There is no reason to suppose that this process is now at an end or that there are economic forces in motion tending to rebuild our industries, as some people have been inclined to suggest in this debate. Indeed, almost every day we read in the newspapers of 200, 500 or 600 people being made redundant in this or that manufacturing company.

Nor, in the committee's view, is there any justification for the equally naive view that Britain can become "the great service economy"—that service exports can fill the gap left by the decline in the manufacturing sector. That cannot happen partly because our share in world service exports is declining twice as fast as our share in world manufactured exports, partly because the value of our service exports is less than half the value of our manufactured exports; and finally, because as the committee rightly points out, so much of the service exports provide ancillary services to the exports of manufacturers. They provide connected services which depend on manufactured exports.

Whitehall's aloofness to industry is in strong contrast to the traditional policies of our main industrial competitors, such as Germany, France or Japan. In these countries, which aimed to emulate Britain's success in industrialisation in the 19th or 20th century, the transformation of their economies involved Government initiative from the beginning. The best historical example is Bismarck's nationalisation of the Prussian railway system, which was undertaken in order to be able to command the railways to buy only German-made rails and rolling stock and thereby develop the iron and steel industries of the Ruhr. The exact counterpart of this for the present Government is the advantage claimed for the privatisation of British Telecom, which in private ownership will no longer be obliged to get all its equipment from British sources. It will henceforth be able to buy in the cheapest market, wherever that is, and thereby make more profit or possibly lower its prices. On this issue I definitely side with Bismarck and against the views of the present British Government.

The major objective of the governments of Germany, France and Japan has traditionally been to foster industrial development in the most promising directions. In Japan there is an institution called MITI (the Ministry for International Trade and Industry), which is the central director of economic development and its activities consist of issuing "administrative guidance" (as it modestly calls them) to business firms as to when to develop and when not to. It closely monitors developments in each industry and communicates its "vision of the future" in close and frequent consultations with industrial leaders. It was in that way, and only in that way, that Japanese industrialisation leap-frogged in a series of steps from one industry to another; a new industry was not begun before the major developments in the first industry were completed.

When I first visited Japan in 1956, there were very few motor cars and hardly any roads. When I returned for a second visit in 1960 the picture had changed completely. There were endless new roads and endless new cars, because the Japanese plan had in the meantime led to the creation of a motor car industry attaining an output of 2 million cars in the very first year. In France and West Germany, planning by central government is not so intricate as it is in Japan, but the banks play a vital role in providing long-term as well as short-term finance, and they do so in accord with the known aims and preferences of the government. In Germany and Japan there is also much closer and more frequent consultation between the management and the workers, where management go to considerable lengths to explain their aims and possibilities to the workers' elected representatives.

In Japan, where the large firms offer life employment to all their employees, with regular age increments in pay up to retiring age, a considerable part of the workers' annual income consists of an annual or semi-annual bonus which is additional to their contractual wage and represents a share of the profits. So the workers have the same interest in making profits as high as possible as has the business as a whole.

We have a long way to go before we can emulate these policies of mutual co-operation of workers, management and government and get rid of the out-of-date adversarial relationships which still dominate our industries. But, if we wish to survive we must embark on that road, and the sooner we begin the better.

5.28 p.m.

The Earl of Limerick

My Lords, conventional wisdom has it that no Back Bench speech should attempt to make more than three or four points. As there are four points that I wish to make, I shall not follow the noble Lord, Lord Kaldor, down his interesting avenues apart from saying that I share his scepticism about the Treasury analysis and also his view of the role which the service sector might play.

I wish to speak first about the report itself. I believe that it is a timely, useful, workmanlike and in many respects an excellent report. Our thanks and congratulations are due to my noble friend Lord Aldington and to his hard-working colleagues on the Select Committee. At this point I should say that I had undertaken an engagement this evening before I knew the date of this debate, and I hope that the House will accept that there is no discourtesy if I am unable to stay for the closing speeches.

This debate would have been worthwhile if only for having stirred up the subject of the Select Committee's report, a subject for too long unstirred, and for having provoked this and other discussions. It would be worthwhile if only to have evoked the maiden speech of my noble friend Lord Clitheroe. He was my friend before either of us was noble. I was not one of those who resuced him from the bed of the river, although I would have done so with enthusiasm had I been there, but I was one of those who shared with him the science classroom to which he referred. Thereafter our paths parted, but it is a privilege to have listened to his speech, and we greatly hope that he will not long delay speaking to us again on similar topics.

This debate has done much more than that. The report should force out into the open the question which has increasingly been bothering many of us in recent years. That question is, can we foresee how our national prosperity can be maintained against a background of a shrinking industrial base, a declining share in world trade, and the inevitability that the oil is going to decline and ultimately run out?

Those who seek to dismiss the question, or who claim that the case is overstated, would do well to spend a few minutes studying the pi charts and the bar charts on pages 14 and 15 of the report. These read like a strip cartoon. They show more graphically than words how the balance of our overseas trade has changed, and the forecasts indicate that it will continue to change.

Most of us recall how the balance of payments constituted the main constraint on our economic policy post-war. It remained so until the developments of domestic hydrocarbons—to which we rightly gave very high priority—removed that constraint. The big question is how we prepare for the time, not so far distant, when that constraint is reimposed by the exhaustion of those resources.

The initial reaction of the Government to the report was surprising. It was surprising for its speed on the very morning of the publication, for its vehemence, and for commenting on the "crisis" theme, so as to amount almost to a health warning against taking the report too seriously. It seemed that it was taken almost personally, although the tenor of the report, as my noble friend Lord Aldington pointed out, was in effect to say, "Doing quite well. These are some suggestions for doing better".

The report, most deservedly, has been taken seriously. It has done what it set out to do and has inspired a serious discussion. I was greatly heartened by the reaction earlier from the Front Bench of my noble friend Lord Young, and I think we should acknowledge the many ways in which Government policy has contributed to the aims towards which the report is reaching.

The Government's mature reaction was more dignified and certainly more contributory to the debate. But it is postulated on the belief that oil income forecasts are probably too pessimistic. There is a continued dismissal of the idea of crisis and any consequent need for an action plan. It is the Government's belief that insufficient weight—I refer to paragraph 5 of their statement—is given to the, sustained recovery of the United Kingdom economy in recent years". Overall, recovery, certainly, yes, but certain trends have been inexorable throughout those years. We have lost market share in world trade. We have lost two and a quarter million jobs in manufacturing industry since the oil shock of 1973. We have lost whole industries in areas where we are now obliged to rely on imports.

Those three propositions I have cited do not really hang together. It is quite possible that the speed of the oil decline is exaggerated. We all hope so. My noble friend Lord Aldington made it plain that the committee deemed it wise to concentrate on the more pessimistic estimate. But surely it is not an answer to argue that because we have more time to make a structural change in order to protect our living standards, therefore planning for that change is unnecessary, or that we should not be considering all possible means of reversing the industrial decline. Those two factors, as has been stated, do not depend the one on the other. We can deal with the industrial problem quite independently of the oil question. It is the imminence of the change in the oil balance which makes it imperative that we do deal with it.

There was one other comment in the Government's reaction to which I would just refer: that the approach was too narrow. That is paragraph 10. As my noble friend Lord Aldington pointed out, the approach was governed by its terms of reference. Here I would express the hope that the committee, which he has chaired in so distinguished a way, may be allowed to continue with its work to deal with some of its own self-identified omissions.

What seems to be a real bone of contention is perhaps more a question of emphasis: the scope for, and the speed of, adjustment of the economy in the era of oil decline. In the Government response there was some emphasis on automaticity—the automatic pilot to which my noble friend Lord Aldington referred. The downward adjustment in the exchange rate; the resurgence of other forms of economic activity which that is expected to generate; and the need for the account to balance. Of course it will balance, a point already made this afternoon, but balance at what level? And why should we assume that forms of activity employing people in value adding, wealth creating industries will automatically emerge? How can the fixed assets, the production and management skills, the marketing capability, be recreated once those have been lost?

Then, subsidies. Here the Government response, very properly, is to react against any extra or avoidable subsidy to our industry, trade, or commerce. Of course, in the ideal world to which we aspire, and towards which recent government policies have substantially helped, it is for all our producers and exporters to be fully cost competitive on the world scene without subsidy. That must be the aim. Of course, no one should argue for subsidies which seek, Canute-like, to defer the moment of sunset for industries in cyclical decline. But—and I am echoing the noble Lord, Lord Ezra—I believe that penny pinching on promotional activities (and I declare an interest as a member, and former chairman, of the British Overseas Trade Board) is misguided. It is not extra resources that are required, it is the maintenance of resources which have been demonstrated to give a cost effective return in additionality for British exporters.

When we meet foreign practices, particularly in the field of projects overseas which involve the injection of government finance, government subsidy in various ways, unless we wish to resign from competition we need to position ourselves with a minimum expenditure to meet that form of competition. Therefore, recent changes to the aid programme are welcome but we have to be certain that, selectively, there is an adequate resource to deal with the cases with which we need to deal.

My second point concerns the service industries. Here I declare an interest as chairman of the British Invisible Exports Council. In 1984 receipts from tradeable services overseas were £39,000 million. That is approximately half our bill for visible imports. There has been a surplus on this invisible account every year since records were kept, starting in 1794. Overseas investments in this country through the Victorian expansion era were built not on any visible surplus, which existed in only five or six years during the whole of that period, but substantially on this invisible surplus. That surplus is, happily, large, and it is growing, especially in the financial services sector. We can anticipate some further growth in most sectors, with the notable exception of shipping.

That is good, but it is insufficient to deal with the problem we are addressing. No foreseeable growth in the service sector will compensate for the eventual loss of our oil surplus, currently running at about £8 billion, let alone the foreign exchange required to import our domestic consumption running at a further £8 billion at today's prices and exchange rates, when the oil really runs out.

There is no foreseen rate of growth in employment in services, where extra jobs will be numbered in tens of thousands rather than in millions, to compensate for the regretted continuing job loss in manufacturing industry. One item which has grown substantially is the IPD—the net interest, profits and dividends from overseas assets, which stood at the end of 1983 at £3.1 billion, and is still growing. The building up of this income is an essential but still quantitatively insufficient buffer against the reversal of the oil balance.

Let us consider the case of Kuwait. In 1966, when its oil production really took off, it was already concerned with what would happen when that resource was no longer available. Kuwait started to make investments overseas to the effect that in 1983 the investment income of Kuwait exceeded the oil income of that country. Canada has taken a similar approach to this depletable resource.

There are other reasons for not being over-optimistic about prospects for invisibles. First, there is the direct linkage in industries such as banking, insurance and shipping with trade and therefore a tendency for one to drop with a decline in the other. Secondly, competition grows worldwide in provision of all services, especially from countries having their own problems with balancing their visible books, but we should note also the spectacular advances made by Japan which expects—having been the second largest deficit country on invisibles in 1981—to be in structural surplus by the end of the decade.

Lastly, there is the question of protection, where we are striving to maintain liberalisation of trade in services against what seems to be a not very helpful climate. In this we are standing shoulder to shoulder with our fellow members of the EEC, and it is a debate which we hope may be brought to a more constructive point than it is at present.

So there is success in this services field, but we should not delude ourselves that it is a success which can deal with the problem which we have on the trade balance.

My third point concerns the time scale. Development and pursuit of successful economic policies requires a horizon of probably 10 to 15 years to change course, to move from one major product to another, to reshape the workforce, to produce a new generation of management skills and to develop new product lines. To what pressures are we responding in running our businesses, let alone in planning for change? They tend to be rather short term. First, there is the public perception led by the market analyst (the phenomenon of the 1980s) whose judgments do not span a period of years, not even a single year-on-year comparison, but go on the shortest information available which may be half-yearly or even quarterly. Statements of longer-term trends or prospects are often brushed aside or ignored; non-performing companies or managements in these analytical terms based on short-term time scales are written down.

Then there is the political perception, on a sliding scale from one week (which has been described as a long time in politics) up to almost five years. The consequence is that managements who are running businesses are responding substantially more than they would wish to short-term pressures which may work against their long-term prosperity or even, in some cases, their prospects for survival.

Product development requires time and long-term investment. Market development requires time and investment; changes of industrial strategy the same. I am talking of five to 10 years and sometimes longer; certainly not that number of months.

My last point is one which may seem a little peripheral, but it arises directly from the thrust of this report; it is the question of education. A liberal education is a fine luxury and one which many of us have enjoyed, which has thrown up many of the finest leaders in this country, including industrialists. I have no quarrel with that and would wish to see it maintained. I am talking of the lack of relevance in the basic curricula of much of our secondary and tertiary education system to the industrial society on which, for better or worse, we have to rely. In that education there is no concept of the underlying factors making for prosperity; there is no concept of value-added, of the relation of input to output and the consequences for our standard of living.

And worse, we have all seen personal examples of postively anti-industrial tendencies in the education system. That culture is one we have to address. It is encouraging that so many people are giving attention to it and seeking to bring schools, industries, education authorities into a debate where each sees the value and the relevance of the activities of the other. This is not the moment to pursue that topic, but I believe we have much to learn from the United States and particularly from Japan in the way they approach their education.

In industry, we see that apprenticeships are fewer in number than they were. We see often inadequate training, in quantity and quality. It is encouraging, and I do not wish to sound pessimistic on this because one has seen so much being done, and seen how attention is being drawn to this great issue.

All that sounds long term. Of course it is long term. But if it is perceived to be something in need of doing, and to be overdue for its inception, then there is no time like the present to make a start. I believe this is one example among many that have been discussed this afternoon where we need a united "heave-ho" to get us on to the path indicated by the report.

5.49 p.m.

Lord Bauer

My Lords, I too wish to thank the committee for their wide-ranging report which, together with the evidence, will serve as a useful outline of influential and widely canvassed opinion on the recurrent themes of public discourse. I also have to apologise to the House if, for reasons of health, I have to leave before the end of the debate. I hope it will not be regarded as discourtesy.

I begin with finance. While in no way hostile to the City, the report nevertheless echoes familiar complaints about the difficulties of long-term finance for risky projects, and the insufficient involvement of British banks in industry.

My Lords, are these complaints well-founded? The City has supplied massive amounts of money to finance railways, ports and utilities the world over and also for distant British mining and plantation operations. The early history of the rubber industry is informative. Rubber trees yield only five years after planting. Before that, the jungle had to be cleared, infrastructure built and distant labour forces recruited. Returns on the initial investment could not be expected for eight or more years. Yet in the early 20th century, finance was found for hundreds of small British rubber companies. Does this suggest excessive caution or commercial myopia? Today the rise of pension funds and life-insurance companies could be expected to extend time horizons, since their investment decisions look forward for decades.

Leaving aside complaints based on uneconomic or even fanciful projects, there are developments which have shortened time horizons. One is the high level of nominal interest rates. This in turn reflects various factors, including the fear of inflation, and the wasteful use of investable funds in recent decades, or their diversion to uses of low or no direct economic value. With high interest rates, the tying-up of capital for very long periods becomes uneconomic, both to society and to the investor. Likewise, high taxation and extensive state-involvement in the economy shorten time horizons because commercial prospects come to depend on political decisions, and their time horizon is short indeed. A week may be a long time in politics, but a decade may be necessary for some productive investments to mature. If time horizons are indeed short, the causes do not lie in economic myopia or excessive risk aversion by investors.

There is an instructive episode on the close links between German banks and industry. In 1930, the managing director of a leading German bank extolled the virtues of the links in evidence to the Committe on Finance and Industry of 1929–31. Within a few months, his bank collapsed, primarily because of the bankruptcy of a large textile concern in which it was heavily involved. The bank's collapse contributed to the financial crisis, with the large-scale deflation, which much aggravated unemployment and helped Hitler to power. If the clearing banks were to follow the German practice, this may well lead to expensive rescue operations. Incidentally, in that bank's crash, British investors lost over £300 million in today's money.

The committee strongly supports aid and trade provision, both as promoting trade and as necessary to meet similar practices elsewhere. Aid supporters and sceptics agree that its purpose is to relieve the worst poverty in ldcs, which is a hard enough task. The best way to help the poor is by straight grants, rather than subsidised loans which confuse aid with investment. Donors tend to regard such loans as aid, and recipients as a continuing liability. Tied grants confuse domestic subsidies with overseas aid. They engender conflict over the value of aid and also smack of dumping unsaleable goods. Combining subsidised loans and tied aid makes it impossible to say who received how much from whom. A week ago, the Financial Times reported a leading Brazilian official complaining of the multi-billion dollar losses to his country on large-scale projects financed by German and British banks in support of their exporters.

To claim that the aid element in ATP generates four times its value of trade is unhelpful. Apart from the imprecision of such calculations, this formulation somehow equates gross proceeds with net income. The committee correctly says that domestic income in ldcs largely determines trade with them. However, this does not justify simply transferring resources to them, as is suggested in the very same paragraph.

Neither is ATP forced on us by the practices of other countries. Suppose France or Japan were to give away their exports: should we do likewise? Our exporters are equally affected whatever is the reason for competing exports becoming cheaper. Indeed, it may even be argued that by giving away their exports or subsidising them heavily, our competitors benefit Britain by enabling the recipients to buy more from us. In any case, to maintain activity and employment at home, we have a whole range of options. Why should we emulate governments who subsidise their exporters at the expense of their taxpayers?

Like other critics, I do not share the committee's apprehensions about the decline of manufacturing. Manufacturing is one of many forms of economic activity which supplement one another. Plainly, transport and distribution presuppose production. However, equally, without transport and distribution production nothing can be produced except for subsistence. Furthermore, the distinction between manufacturing, transport and distribution is arbitrary and shifting. If a manufacturer uses his own transport, it counts as manufacturing, but if it is taken over by a distributor or an outside contractor, it counts as service. If a manufacturer uses his own machinery, this is manufacturing; if he leases the equipment, it becomes investment by the financial sector. Indeed, much manufacturing consists largely of transporting bits of products within the firm for assembly.

Nor is the decline, or even disappearance, of manufacturing capacity irreversible. German and Japanese industrial capacity was destroyed in the last war. Within a few years, they had again become major industrial powers. The committee urges the importance of investment in manufacturing for maintaining living standards, growth rates and international competitiveness. Yet the type as well as the quality of investment is critical. A piece of spending does not become productive simply by being labelled investment. A commercial asset is productive only if over its life the return exceeds amortisation and interest. Alas, productive investment is now often confused with employment subsidies, with spending to maintain output and jobs, including particular jobs. Productive investment and employment subsidies are altogether different. Confusion between them has brought about much waste which, in turn, has contributed to high interest rates.

In any case, we should not exaggerate the role of investment in long-term growth. The late Simon Kuznets, Nobel Laureate, estimated that the growth of labour and capital together has accounted at most for one-tenth of the growth of per capita income over the past two centuries or so. Far more important were social, economic and, not least, technological changes which are in fact often capital saving. All such improvements are quite distinct from investment, even though often confused with it. I do not accept that we must strive for the same national or manufacturing rates of growth as other countries, though I believe that the British people would benefit from more open markets at home and abroad.

For all my reservations, I sincerely welcome the report in the hope that it will provoke examination of the various options available for influencing our economic future.

6 p.m.

Lord Shepherd

My Lords, I would add my words of congratulation to the noble Lord, Lord Clitheroe. and also to the noble Lord, Lord Aldington, and his committee. They have rendered a very notable service in this report. I think that it would also be right to express appreciation to all those who gave evidence, both written and oral, because in truth those parts of the evidence that I have read perhaps could be re-read more ominously than the report itself. Some of the remarks of most senior industrialists made me wonder when the noble Lord, Lord Young of Graffham, was speaking whether in a sense we were talking about the same country or the same industry.

I was involved in the export trade some 30 years ago; and some 27 years ago I made my initial contributions in your Lordships' House, drawing attention to the threats already perceived towards our export performance and in countries where even then we had the benefit of the Commonwealth trade agreement. That was long before Japan had reached its potential as a manufacturing base and certainly long before Korea, Taiwan and other new industrial countries had emerged.

The anxiety that I have of the report is not that the problems are there—and I do not think that anyone would deny that the problems were there. But they are not problems that have arisen just recently. They go back over many years, and some might well say at least over 150 years. The question therefore is whether this decline is inevitable. That was the topic of a lecture that was given by Sir Peter Carey: "Is Britain's industrial decline inevitable?" It was delivered to some of my colleagues about 12 months ago. Sir Peter had only just retired from being a permanent secretary in the Department of Industry. I shall quote only one paragraph. I do so in the light of what I thought the noble Lord, Lord Young, was suggesting: that time was still available to us to make these adjustments. Sir Peter had dealt with the difficulties and the way in which our manufacturing base had declined and our exports had fallen, and then he answered the question: is decline inevitable? He said: So my contention is that our decline need not be irreversible. We have it in us to arrest the process. It will of course take several decades, at the least, to see even the beginning of a climb back. And it will not be done at all unless we face up to the reality of our present situation, and show a willingness to make some sacrifices of sectional interest in order to provide the wealth-creating sector with a climate conducive to growth rather than constriction, to give it absolute priority in our order of things". He then went on: Make no mistake, however, it is awfully late in the day. We have come a long way down; and if we do not begin to heed the signs very soon, the seal could be put on our decline". I remember those words and I drew them out of my drawer only this morning. It seemed to me, based upon Sir Peter Carey's experience and long and dedicated service to the community, that there certainly had been no political defences to be made either for the past or the present. He was able clearly to express his own sense of urgency. I do not think we are yet at the crisis situation, but I believe that if the decline goes on very much further, we could well be faced with a general economic collapse within this country. And I do not believe that even our membership of the Community in itself would be able to protect us from the consequences of it, because I think it would be beyond even their capacity.

The report said that there is a need for a new national approach, a new discussion. I agree entirely with the view of the report. But we have heard this so many times, have we not? Yet very little is ever done, very little is ever achieved. At the moment I am president of one of the social partners to the Community, the Centre of European Public Enterprises, which is the public sector organisation within the Community. I sit as a social partner with the employers of the private sector and the European trade unions.

We had a meeting some three weeks ago under the presidency of Mr. Delors, the president of the Commission, and we were discussing two particular questions which in a sense are rather pertinent to our discussion today. The first was, how to introduce the new technologies into the European Community and into our particular nation; how to find agreement between the investor, the manager and the work force, as to how these new technologies should be brought into place. I found a great deal of agreement, though in the end there was disagreement as to the practicalities and as to how one should proceed. But one thing that we came away with was a clear determination that we would continue the dialogue.

The other matter was the subject—and I think this will be of supreme importance in the next 12 months or so—of how we are going to break out of the very deep recession that we have been in. Is there a concordat that could be arrived at within the Community between the employers, on the one hand, and the European trade unions on the other and within our own national purpose as to ways in which we could agree to a basic strategy—not a plan—to obtain growth, but recognising that certain sacrifices would have to be made by one party and may also be made in regard to the other? But, in return for sacrifices, there could be a gesture, there could be an understanding; there could be a light in this agreement following the sacrifices by which we could see growth and the reduction of unemployment. This is a debate which, I believe, is only starting within the Community.

I mention this point only because I should like to respond to the noble Lord, Lord Greenhill, when he asks, "What happens to this report?" In the end it depends on what your Lordships' House wishes to do with it. You can have it in the cubby hole and leave it for 10 years, or you can say, "We want to do something about it." We have a very flexible approach in this House. We can decide ourselves what we want to do with it. I am not suggesting that we should even consider today what we should do about it, but I feel the situation is serious.

There is a major problem, but as Sir Peter Carey has said there is a way out. We have the capacity to do it. The only difficulty is to find an agreement, a concordat, between ourselves as to how it is to be achieved. So I hope that this report will not go into the cubby hole. I hope that this House will consider in due course what it wishes to do with the report—whether it wishes to pursue it on the Floor of the House on another occasion or whether it wishes people to go out and talk—I shall not say over the heads of the Government—in the end to industry and unions together, to see whether it is possible to find a common agreement.

My suspicion—I put this in the nicest possible way—is that there is far greater agreement between the leaders of the unions and the leaders of industry than they themselves like to let on. If that agreement exists, as I believe it does, then we need to find ways and means for it to be expressed so that the country as a whole can perceive it. If we then can have a plan or a strategy, I believe there is a way out of the difficulties which this report has shown.

The House is indeed grateful to the noble Lord, Lord Aldington, and his committee for the very long hours they have spent on this report. I think we should pursue this issue at a later stage.

6.12 p.m.

Lord Selsdon

My Lords, after some 21 years in your Lordships' House I am hesitant to suggest that I have come of age, but over these past 21 years I have participated in various economic debates and various Select Committees. Now for the first time I see some form of hope. This particular Select Committee has been one of the most enjoyable and interesting with which I have been involved. It has been full of logic, political cunning and strange emotional activities. My noble friend Lord Aldington, whose reputation as a "wet" or a "dry" is known by others, has a certain political skill, no doubt because of his helicopter background, in dropping things from a great height. At the moment underneath one finds the Government which, in the guise of two members of the Cabinet panicked, perhaps like latter-day oozlum oozlum birds. They flew around in circles and returned in the form of my noble friend Lord Young to say, "Yes, we have received the report; yes, we accept the information, but there are certain recommendations we do not agree with."

At last we have the Government thinking in the same way as the Select Committee, which is made up of a strange gang of people from opposing sides and with opposing political views—those who, on the one side, support the Government and those, on the other side, who do not. Politics, in our strange democratic process, is usually based on driving wedges between people rather than under them. I recall an occasion when the noble Lord, Lord Stoddart, on our committee was talking to the Chancellor and the Chancellor was not perhaps being as co-operative as one would expect. We were talking about jobs. I had been Whipped by the Government to go and speak in Edinburgh at a seminar on exports and jobs. The Prime Minister was organising her own seminar in Downing Street. There was another one in Cardiff Castle. The Government were actually doing what we had recommended they should do: concentrating on the potential for trade.

In my intervention today I have to declare a wide range of interests. First, by accident rather than design, I am a member of the British Overseas Trade Board and we are recommending more support for ourselves. The noble Lord, Lord Ezra, was on it; my noble friend Lord Limerick is president of it. That may be deemed to be corrupt or unwise, but we feel that we do a good job. However, I am not allowed to say that because my noble friend Lord Jellicoe, the chairman, has said that he cannot actually intervene in this and we should keep out of it until asked to do so by the Government. I hope that the Government may ask its advisory board now to comment upon the report.

I also chair the Government's Committee for Middle East Trade, where actually the bulk of our surplus in certain areas of manufactures comes from. I took over from my noble friend Lord Limerick. At that time we had a deficit, as my noble freind is aware, of about £2 billion in manufactures a year. I am happy to say that this year we will have surplus of about £4 billion. That is with a total budget from Government of £100,000.

My intervention is concerned with the role of Government, because I think we are in danger of making the mistake of believing that the Government should have a bigger role than it is capable of. Personally, I wish the Government would get their public expenditure down to perhaps one-third instead of the exhorbitantly high level which is currently prevailing. But it is not the spending of money that creates and generates wealth: it is the creation of added value. We already have a government which I submit spends too much, taxes too much and legislates too much. When is it going to do less? Noble Lords opposite were guilty of exactly the same crime but there was a difference in that they were unable to spend very much more than this current Government. They tried; but there is a time in a country when spending or intervention by the government is too great, whatever your political views.

However, the application of government resources and of taxpayers' funds is another matter. In the whole field of trade we must acknowledge that we are the most significant trading nation of the world, because we are more dependent on it than any of our industrial or non-industrial competitors. We have to look at where we are, what we can do and how we can perform. It is all very well for those of us who. like myself, started off full of ambitions and wishing to be in industry, like my noble friend Lord Clitheroe. who is far wiser and was far more successful and who has made a very eminent speech today. I wanted to join the Foreign Office but was told, "Don't join a declining industry because the United Kingdom is going to get less important." I did not like to accept that. I went into the asbestos industry, which was not really the sort one should go in for, but I did not know those things would be wrong. I ended up in the banking world, where again I have to declare an interest because we banks in general are in 200 countries of the world, as I have quoted before—we have not heard of half of them or perhaps a quarter and we might wish we had not heard of many of them, but the remaining amount were only prepared to do things sometimes if our own Government would give a guarantee. There was a time when a guarantee of our own Government was not regarded as very good.

I come to this point: what is the role of government? If we look at our trade I am going to suggest that we look at it in two areas: the areas where government can be involved and the areas where it should not. In a free market economy or in trade between industrialised nations, the role for government should be minimal. The Government's job must be to create the climate where industry can prosper. That, above all else, means stability. The change in economic thinking by governments over the years has without doubt created instability. Few other industrialised nations have the same switch of political thinking as governments change. Thus, we ask of governments of both sides stability. We ask, too, that they should actually recognise the importance of trade instead of believing that someone in trade should be invited to dinner on Thursday evenings with the butcher or the vicar, with all great respect to the right reverend Prelates. The attitude was that if you were in trade you were not a vital part of the economy. In fact, the trade element today is the only successful part of our economy, whether it be visible or invisible, because we are successful in both.

Our exports have been rising in all sectors: it is the balance which is wrong. If we look at that balance, particularly at the manufactures sector, we can listen to the economists (I was one for a while) where we are told we do not need to export manufactures any more and that balances will be automatic. We used to have to import our food: we do not do so now. We used to import our raw materials; but now we do not have to do so. The economic arguments are sound: there is nothing to worry about. But when at such time as our raw material resource runs out there will be a period of assessment. It is not now. It need not be cataclysmic if we make certain adjustments or plans now—and that does not necessarily mean the Government: it means industry. When that period of adjustment comes, if nothing is done it will be serious and it will cause major problems. I personally believe that merely by drawing attention to the fact now, certain activities will take place.

If we look as where that deficit in manufactures lies, it lies essentially with the industrialised nations who are our principal competitors. Last year our deficit with the developed world was about £12.9 billion. This year it will be over £14 billion, and it will continue to rise until such time as we make the products that we want to buy ourselves at a price that is competitive. Delivery, performance—all those things your Lordships are aware of. But if the erosion of our manufacturing base is not halted—and I believe it has now been halted—we will see more and more problems where we are unable to produce the very goods that we might like to buy.

That deficit with the industrialised nations is perhaps almost entirely made up of Japan, the United States and the Common Market. Japan is about £3 billion—quite sizeable; with Germany within the Common Market our deficit is £5 billion and rising rapidly, and with the United States it is about £1.2 billion. But those nations together contribute to a deficit of £ 12 billion or more. Within that field what can Government do? They cannot trade; they do not buy or sell. They are no good at it. It is not their role. Their role is essentially to reduce inflation, which they have acceptably done. It has been painful, and perhaps more painful or less painful than the adjustment may be if we lose our manufacturing base in future.

They could give us certain added stability in relation to interest rates and currencies. It is not the level that is important; it is the stability, because in order to trade we have to import, add value and export. Therefore, we must have stability. It seemed to me very simple—and many thought this would happen—that as the pound strengthened the Government would reduce interest rates, that they would act selfishly and think of ourselves and how we can perform—because I assure your Lordships that we are competitive now. There are times when the industrial companies with whom I work are thinking of how much more they can add to their price when exporting, instead of taking orders on marginal costings. But the role of the Government with the industrialised nations' trade is minimal. It is more a matter of economic policy at home.

But with the developing world—and much of the report concentrates on the need for Government expenditure or support in relation to export credit and aid in trade—there is a role for Government, and that role is not purely a monetary one. With the developing world last year we had a surplus of around £6 billion, of which £4 billion was in the Middle East. That is because, in general, they do not make the things that we wish to sell them. But in order to sell to them, we have to recognise that in the market place governments are part of the market activity. They have to provide convenants, they have to provide credit, they have to provide assisted finance if necessary, in order to get the levels of finance down to those of our major industrialised competitors. But also they have to provide political participation and political cunning.

The countries with whom we have the greatest surpluses at the moment are many which we might regard as politically sensitive. Our surplus with South Africa in manufactures is some £857 million, and I commend the Prime Minister for recognising that at Nassau. We must, above all, believe in free trade. We trade with whomever we can and influence them while we trade. Our surplus with Iran is sizeable; our surplus with Iraq and our surplus with Nigeria even historic. We must trade, and have always traded, with the world, and with those countries there is an important political role to be played.

I would just pay tribute to another element of your Lordships' House—the Church. It may have come to your Lordships' notice that a man called Terry Waite, a man of the Church, has been doing great things in many countries in the interests of liberty and freedom, and that goodwill generated has had a rub-off even on trade, because it helps the United Kingdom to hold its head up as a negotiator, a trader and someone who believes in fair play and freedom. All these political ingredients that are difficult to quantify have a role, and to reduce the Government's presence, or the strength of the Foreign Office, in these countries is criminal, because that is where much of our trading future lies.

There are in this whole area many things for which we can commend and thank the Government. Government Ministers have travelled more extensively over the past few years than many, to many parts of the world, and that goodwill has started to rub-off. The Government have themselves supported, through the Trade Board and through other mechanisms, numerous interventions, but the Government themselves are starved of resources in this area. Apart from trade and industry itself, they spend the bulk of their money stopping people from doing things. The amount of the vote which is allocated to the development of trade is minimal.

Perhaps I may ask my noble friends whether they will give us in their reply some indication of the proportion of the total Government spend—which is enormous—which is allocated to the development of trade. It is tiny. Even in our own report we have commented that expenditure in this field is well justified. In certain areas of aid and trade we look for added value; we look for other benefits that spin off at home.

I pause and comment for a moment on employment. In your Lordships' report we perhaps touched a nerve. The Government were in danger of having a trapped nerve. But the next political sensitivity is employment. The Government have already started to draw a relationship between exports, trade and jobs. Those of us who are amateurs in the private sector might point out that, if we could wipe out our deficit with the industrialised nations, we would reduce unemployment by one-third, because that is almost certainly true. Equally, we could point out that for every £10,000, £12,000 or £15,000 of exports, jobs are created.

I give one brief example of something with which I was associated. Recently, after several years, the Government, in co-operation with industry, set up a water and sewerage project in Cairo called the Greater Cairo Waste Water Project, which the Prime Minister herself went out to launch. This required a remarkable combination of activity between Government, industry, consultancy, the ODA and others, not without difficulty. The first order was for £777 million, because everything in Egypt takes seven years, seven days and seven nights. The next one will be of the order of £1.2 billion. The first phase will create some 19,000 to 20,000 jobs. It will produce a wide range of sub-contracts running into hundreds which we are now tracing.

But out of this come certain strange things. The ECGD were concerned that many companies were not buying British products, so in investigating we asked: why? Do you know, my Lords, we do not make tower cranes any more? I cannot believe it. There must be some Member of your Lordships' House who is associated with somebody, somewhere, who makes tower cranes. But all the 17 contractors there said that they should like to buy British tower cranes. I thought that we invented them. Many of the components of pumps are not made any more. Many of the things that we should like to finance with soft credits or with ordinary bank credits are not made any more, so we may be financing other people's trade. I just raise that as an example.

As I sit down, I say that there is hope. I certainly feel more enthusiastic than at any time. We talk about the education system. We spend too much of our time with too many people advising on matters. I think that one of our big problems lies in the bureaucracy inherent in our political system, in our Civil Service and certainly in large industrial sectors.

I recall that in one of my grandfather's diaries he pointed out that when he consulted his father about what he should do, how he should be educated and what he was being educated for, my great-grandfather said, "There are only three things your can do in life and that is what you should train yourself for. You do it yourself, in which case you become a principal; or you advise people how to do it, in which case you join a profession; or you take credit for them that do it, in which case you become a politician." There are too many advisers, too many politicians, and not enough doers.

6.28 p.m.

Lord Whaddon

My Lords, perhaps I may begin by declaring an interest in this topic, since I have for many years earned my bread and the occasional spoon of caviare from export business and from the finance of exports. A number of noble Lords today have made most impressive speeches about the macro-economics that underlie British industry and, as always, when I hear a speech from an expert on macro-economics I find myself convinced. I find myself convinced about twice a week on average.

But I cannot help having a little doubt when I hear noble Lords say that everything we are doing is right, and that we have only to wait and everything will come right. I cannot help recalling the man who convinced himself that he had developed a method of jumping safely from the roof of a skyscraper. He plunged from the roof and as he passed the tenth floor on the way down he was heard to say "Well, so far so good." In my daily work I find that there are increasing problems for British exports.

I am very impressed by the report of the committee. It is the most cogent and considered report which has ever crossed my path. For so many years it was obvious that investment in British industry was too low. Because there was such low investment our productivity was low, and we were selling less. Our investment was low because our productivity was low and it was not worth investing.

Behind all this, as the committee pointed out in the report, lies the attitude of our society. We are producing far too few engineers. We pay them too little and we hold them in too low esteem. How can we increase the esteem in which we hold our engineers and scientists? How can we persuade our best brains that that is where they should be putting in their efforts and their life's work?—by changing attitudes. This is far from being easy. The report will do its part in this, and I sincerely hope that the report will be given the widest possible circulation not only in Government circles but also among senior classes at schools. This would be useful.

One weapon above all others can be used for changing attitudes. It is this machine, television. Above all other methods this is the one that affects people's attitudes across the whole country. I should like to make one small suggestion. In the coming CBI Year of British Industry 1986 they should put a little effort into persuading television to show British industry and industrial careers in a favourable light. Is it not time that we had a prize for the best industrial television show of the year? I suggest that the Government could start this off. They could even call it the Thatcher Prize. I do not mind. The CBI and the TUC should join in. Using television for this purpose could be effective.

I have a second suggestion. Many noble Lords have mentioned the importance of small industry and of starting small enterprises. Across the country a whole series of efforts have been made to promote new industry. The coal industry, the steel industry and many other large enterprises have put money into the small enterprises of employees whom they have had to make redundant. The Government have repeatedly expressed their support for the establishment of small industry. I cannot help wondering why, in their support, they have up to now ignored the most effective weapon which has yet been produced for supporting small industry. It is a British method some 70 years old and still going strong. I refer of course to CoSIRA—the Council for Small Industries in Rural Areas—which has a splendid record of promoting, maintaining and expanding small industry in rural areas. But for some reason its activities are restricted to rural areas. I see no reason in the world why there should not be a version of CoSIRA in the towns—the so-called CoSIURBA idea. It would cost money, but anything worthwhile costs money. We could at least start with an experimental project in some of the worst black spots in the towns.

CoSIRA has the big advantage of not only acting as a channel for the finance of small industries, but of covering all the aspects which are liable to be problems to the new entrepreneur; for example, getting premises, getting permission to use those premises, finance, training, marketing, and legal help. All these things are available through CoSIRA, and I do not know any other body which gives such a comprehensive service for launching and supporting new industry. I plead with the Government again to look at this idea of CoSIURBA and at least give it an experimental run. I am sure they could take a few of the established experts from CoSIRA to run such an experiment.

Another topic with which I am constantly concerned is the pharmaceutical industry. This involves jumping from one end of industry to the other, from small firms to giants, because this is one of the giants. It is one of the successful giants. So why on earth should I be mentioning this in a debate which is concerned with the problems of British exports? We ignore the successful giants at our peril because it is the successful giants of yesterday which have come to be the problems and failures to today. We must try to ensure that our successful giants of today go on to greater successes in the future.

The report points out that success in exports depends on a whole spectrum of the environment in which industry operates. The pharmaceutical industry is one of our giants and accounts for about 20 per cent. of the total of British exports. This country has produced some of the outstanding scientific breakthroughs in pharmaceuticals in the whole world, of great benefit to humanity and to British industry. But we must not assume that this industry can take any amount of battering and still continue to be a successful British industry. It has taken some hammering in the past few years.

The recent Government move to restrict the approved list of pharmaceuticals has been an appalling blow to the British pharmaceutical industry and its export efforts. If you restrict the products which are approved on the National Health Service in the United Kingdom, you have a much weaker case for telling foreign clients that they should be buying those drugs. The Government, I know, believe that they are justified in saving a little money on the National Health Service, but they are saving a tiny bit of the National Health Service and risking a gigantic loss in exports. I beg the Government to think again about the restricted list and to see whether they can again expand it in the broader interest.

The Government have also cut down on the Medical Research Council activities and on certain university research projects. This is a great shame because from these seed beds have often come the plants which have grown to giant oaks in our industry.

I beg the Government to think again about this. They are spoiling the ship for a ha'porth of tar. Our brains in the Medical Research Council and in the universities need the support if they are going to produce the new breakthroughs which will become the giant exports of 10 years to 20 years from now.

One further suggestion which would benefit our pharmaceutical industry in its export efforts would be to look again at the validity of patents. Patents are 100 per cent. justified because they enable a company to recoup the gigantic costs of research and development. It is during those years that they reap the benefits which they have earned in their speculation of years before. It would be of the very greatest benefit to this most important industry if the Government would consider expanding the patent validity for pharmaceuticals to include the research and development period. I ask the Government to give that a little thought.

Another topic which has commanded my attention recently is counter-trade. This subject appears to be almost unknown in Government circles, but it is becoming increasingly important in everyday foreign trade. I know the Government prefer multilateral free trade; don't we all? But we do not live in a perfect world. Increasingly, we find that in the difficult areas of the world to which we are expecting to export, the only way to achieve that is by counter-trade.

Only this morning I received a telephone call from a director of a large company who asked whether I could give him advice on counter-trading in respect of a giant, multi million pound project which will go to either Germany or Britain. The project must be paid for by counter-trade and he simply could not obtain any decent advice on the subject. I make the suggestion that the Department of Trade and Industry should itself create a small section devoted to the study of counter-trade so that Government departments will have their own source of information and will be able to understand whether or not projects brought to their attention by those of us in industry really make sense.

I have another suggestion connected with counter-trading which, as I have said, is growing bigger and more important. Much of the trade into Britain and into Western Europe is governed by quotas. We find very often that when we attempt counter-trade the quota is already spoken for. Therefore, we are ruled out of getting the project for Britain. I suggest that it might be in the interests of Britain and of all the countries in Western Europe, because such quotas are largely negotiated through the EC, that in setting the quotas a little slack should be left available for use as and when it is proved essential for underpinning counter-trade proposals. If the noble Lord says that such is not a matter for the Government, I would point out to him that at this very moment discussions are afoot for reforming the provisions of the Treaty of Rome. What better time could there be for the Government to raise a suggestion such as that which I have made?

The report states that the National Economic Development Council is a really first-rate body, and I would endorse that observation. However, I cannot understand why the council is chaired by the Treasury. It is so clearly a subject for the Department of Trade and Industry. The Government could, and most certainly should, consider not exactly sacking Sir Geoffrey, but at least moving him to somewhere where he can do the least harm. It is clearly for the Department of Trade and Industry to chair the National Economic Development Council.

Monetarism has its place, I am convinced. However, we do not eat pound notes. Nobody was ever nourished by eating money. It is the production of real goods that is the name of the game and upon which we depend for our future.

6.43 p.m.

Lord Boardman

My Lords, may I start as other noble Lords have done, by congratulating my noble friend Lord Clitheroe on his maiden speech. To my ear he struck every note right. I congratulate also my noble friend Lord Aldington, not only for his introduction to the debate today but also on the way in which he chaired the Select Committee. To have persuaded a Select Committee of such a disparate group, as the noble Lords on that Committee were, to agree is good. To have persuaded them to agree to a report which has the almost universal support of such a wide section of the community is quite magnificent. My noble friend chaired the committee in the most distinguished way and made our task so much more easy and pleasant.

Immediate criticism came primarily from two sectors. The first was certain selected journalists. I am always somewhat intrigued—although I have to be careful of my noble friend Lord Bruce-Gardyne who sits on my left—at the arrogance with which journalists write and decry the massive experience of, in this case, some 100 experts from industry—those who have been operating at the sharp end—and claim that as journalists they know better about what industry wants or should have.

Their own experience is primarly centred on Fleet Street, which is not noted for its competitive position in overseas trade or for many of its other practices. I of course exclude a very wide section of highly intelligent and very able journalists who write sensibly; but the immediate reaction from some journalists was disappointing.

Also disappointing was the immediate reaction from some members of the Government. My noble friend Lord Aldington has referred to them. It was a little uncomplimentary to the distinguished witnesses who gave evidence, and possibly even to your Lordships' House, to write off the report in the way that it was written off within an hour or two of it being published. However, I was delighted today to hear my noble friend Lord Young give an excellent and balanced response to the report. He was able to welcome a great deal of it. He was able to point out, as indeed the Government response has done, that the report is not directed at a particular short period of time but shows a whole trend going back, as the Government response makes reference, to the beginning of the century—but accentuated in recent years by the oil surplus that has come about. It illustrates that the defects, in so far as defects are laid at the door of government by this report, span the lifetime of a number of governments.

I should like to comment on one or two of the more important points. First, I found that import penetration was more worrying to me than the lack of export performance. Industry has always had something of an alibi about its failure to export. That failure can be blamed on the non-tariff barriers of the country to which industry wants to sell, or on the specialist needs of that country, or on the nationalistic attitudes of the country to which industry wants to export. But those alibis do not apply in respect of imports coming into this country. The only test is whether our domestic production is competitive in the home market; can we be competitive in our home market? There is no question of non-tariff barriers and the like applying in that instance.

Our failure to be competitive in our home market may be due to one of three points, or to a combination of them. First, the country exporting to us may be subsidising her exports and there may be dumping. Reference has been made to this in the report but I do not believe any of your Lordships would place the whole blame for the high level of penetration on that factor—although it is certainly a feature not to be ignored. Secondly, imports can be hugely helped by a very favourable exchange rate. I may have an opportunity of saying something more on that point in a moment. Thirdly—and this is the point to which industry must direct its attention—imports may come in because home market production is not efficient; paying itself wages which are too high or lacking the efficiency that is needed to compete with imported products.

A second point of concern was the way in which the Treasury and indeed other departments tended to keep on bringing up what I call the inevitability argument. It was "inevitable" that when oil came in manufacturing would decline. It was equally "inevitable" that when oil declined, manufacturing would, like the phoenix, rise from the ashes. These were the arguments that were put forward by a number of witnesses and which caused much concern in the committee because we know that as oil production declines, industry will not suddenly rise again and fill the gap unless we prepare for it now.

The situation of course could have been much worse but for what I believe was a courageous decision by government to remove exchange controls because the greater the surplus that we accumulated on oil, the greater would be the adverse impact on our manufacturing base unless that surplus, or part of it, was invested overseas. So, contrary to views very often put forward, the greater the part of our surplus expended on investment overseas, the greater the number of jobs in manufacturing industry that can be preserved. It may seem strange and somewhat illogical but if we had been able to invest overseas like Japan, which would have meant many other factors coming into it such as the very high savings ratio, then we would have preserved more jobs here.

The next point that I should like to touch on concerns the stability of the exchange rate. There were almost unanimous requests by all industrialists who gave evidence to have greater stability in the exchange rate, preferably at a lower level but certainly stability even at a higher level than they would like rather than the fluctuations which have affected industry so much in the past 12 months. It has been impossible for industrialists to plan their costings, their marketing, the whole of their strategy, because of these violent fluctuations: sterling went from nearly parity with the dollar to 1.50 dollars, or so, yesterday. Such fluctuations make life extremely difficult for industrialists.

It is not just a question of exports but the import penetration which becomes possible when sterling is too high. In a way that is even more serious because, while one can cover forward to some extent in respect of export contracts that are taken, it is not possible to cover forward for imports—you do not know where they come from and in any case they have nothing to do with you but come in and are sold to one of your customers. So there is a need for stability in the exchange rate which was put very high on the list of priorities of all those who gave evidence.

I recognise that a strong pound and what industry may consider to be an over-strong pound has consumer benefits. It enables the consumer to obtain foreign goods cheaper than those obtainable on the home market. I realise too that it has an effect on inflation. Certainly these high and fluctuating rates can only be damaging to the prospects for jobs in the future.

I am glad that my noble friend Lord Young went through many of the recommendations this afternoon and expressed his agreement with what was proposed. Many of the recommendations are entirely in line with what the Government are seeking to do, and indeed with what my noble friend would say the Government are doing and doing very well. He said that the committee did not give enough credit to what is being achieved but I think that we all felt that the Government would not be modest about their own achievements and our task was better performed by influencing the Government's mind in the direction in which we all agreed it should go.

Certainly as regards national attitudes to industry, there is Industry Year 1986, which we are all supporting as massively as we can, competitiveness and all the things that my noble friend is doing in cutting bureaucracy and red-tape. Non-inflationary wage settlements is on the lips of every Government minister and industrialist in the country; there is support for innovation and export of research and development. These are marvellous things which I hope no one in the Government would dream of criticising. To the extent to which they are asked to give financial support to it, I recognise that it does have public expenditure connotations. Lower taxation and lower local authority rates are essential to industry, so is better trained management, better business training, better education in schools—these are things that we welcome—as are more profitable investment, encouraging potential customers to look at British industry and the British product before they place an order overseas, and the elimination of unfair practices. I could go on. These are recommendations by the committee which I am sure are very close to the heart of the Prime Minister and all the members of her Government, and indeed my noble friend welcomed them today.

There were some recommendations to which I understand the Government did not want to commit themselves, at any rate at that stage, such as the co- ordination of industrial policy—indeed whether that should be through Neddy or, as the report suggested, possibly through another committee. I understand that is something which the Government and the NEDO will wish to look at and discuss. Indeed, I should be sorry if there had been an immediate condemnation of the suggestion from the Government.

I touched on the exchange rate and interest rates and I accept that these run across a broader canvas and are major economic policy issues—for example the Group of Five or the Plaza agreement, which entered into an understanding about the relationship of the pound and the dollar.

In that context, I am sure that I do not need to remind my noble friend Lord Young or the Chancellor of the Exchequer that the Chancellor's responsibility to the British economy and British industry is perhaps much greater than it is for sorting out the trade and budget deficits of the United States of America. So far as there is conflict between those two objectives, I feel confident that British industry will be given priority.

There was another reservation expressed by the Government which has public expenditure connotations, and which concerns more money for the BOTB which we strongly recommended. I believe it is essential that we should give support to our exporters comparable with that which exporters in other countries receive. I welcome the fact that the Government have now extended the soft loans and improved the aid and trade provisions. I regret that they should be necessary at all. To me it is objectionable that we must have these forms of competition introduced. They distort the whole pattern of trade, but if other countries act in this way it is thought right that we should not put our people at a disadvantage.

So the Government can rightly claim—and they certainly will do so—that a great deal of what we suggest is already being done. We welcome it and hope that they will do even better. After due consideration, they may wish to come back to some points to which at the moment they do not feel they can give complete support and I hope they will reflect on them carefully—I can tell my noble friend that I do not want to hear a statement on the "AM Programme" tomorrow morning—and in due course come back to the House and say how far the Government have been able to go to meet the full recommendations of this excellent Select Committee.

6.58 p.m.

Lord Donoughue

My Lords, we are today undoubtedly considering an issue of great importance and for that we must thank the Select Committee for producing such an informative, concise and lively report. It is already clear that it is the basis for an excellent debate, which has been graced by an engaging "maiden" from the noble Lord, Lord Clitheroe—and we look forward to more—which was opened with remarkable power by the noble Lord, Lord Aldington, and which, among many good speeches to which I have listened this afternoon, was perhaps most convincingly and authoritatively supported by the very impressive speech from the noble Earl, Lord Limerick.

The issue that we are considering is the immediate and medium-term future of our economy. Within five to 10 years we see the worrying combination which the report describes of oil in decline and concurrently the threat that manufacturing will continue to decline. Oil is a resource currently worth £20 billion on our balance of payments and £12 billion in Government revenues, and the manufacturing sector is currently worth 21 per cent. of our GDP, 25 per cent. of our jobs and 40 per cent. of our overseas earnings. The recent experience in manufacturing has been a quite devastating decline, with one-fifth of the jobs disappearing since 1979 and the balance of trade going dramatically into deficit. It is not certain that the future will turn out for the worst, but it is a dire prospect.

I must say that I agree with noble Lords on all sides who express concern that official attitudes often appear worryingly complacent. If I may say so, that is not the case today. We were pleased and reassured by the thoughtful and positive response of the noble Lord, Lord Young. But too often the reaction is one of complacency, as was shown by the Government's initial reaction. I think that the noble Lord has partly but not wholly rescued the Chancellor of the Exchequer and the Secretary of State for Trade and Industry. We shall forgive them, as we understand that almost certainly they did not have time fully to read the report before reacting.

But it seems that often the Government relax under the comforting doctrines mentioned by the noble Lord, Lord Boardman. There are worrying doctrines of inevitability and automaticity: it is inevitable that manufacturing will decline and it is inevitable and automatic that something else will replace the oil revenues. They are beguiling doctrines. They enable people to feel that it is nobody's fault if things go wrong, and the Government need do nothing because in the end something will turn up.

That is wrong and it is particularly wrong when accompanied by the misplaced view that the decline in manufacturing does not matter. Each of those attitudes is questionable. It is not inevitable that manufacturing will decline. Output rose satisfactorily in the years 1975 to 1979 and has risen again since 1983. Much of the worst damage was not inevitable. As has been mentioned, it was due to the high level of sterling after 1980, which was to some extent but not totally due to oil; and in so far as it was not it was a gratuitously self-inflicted injury to industry, raising our relative unit costs about 50 per cent. in that short period. So the decline is not inevitable, and it matters, as has been pointed out. Other strong economies all have at their base a strong manufacturing industry. It is a delusion to think that the service industries can replace that. They depend and feed on a healthy manufacturing base.

It is certainly not automatic that the oil revenues will be replaced. It is inevitable that they will decline but it is not automatic that they will be replaced. I was intrigued to read what the Government had to say in their response to the report about the future replacement of oil revenues. As far as I can see, it depends to a considerable extent on a major devaluation of sterling. The noble Lord looks sceptical. I think that the sentence is there. It depends on other things, too. But a devaluation of sterling is explicitly stated as a factor. We look forward to the noble Lord's reassurance on that and on what it does to expectations about inflation.

If we look to the 1990s we have possibly a bad scenario, with revenues from oil falling, with manufacturing having less encouragement, not necessarily having recovered, and with perhaps no more public assets to sell. There is the prospect of a high PSBR and a high trade deficit almost certainly forcing whichever Government are in power to pursue deflationary measures with the consequences of low growth and high unemployment. That is not a rosy prospect and is worthy of the consideration of us all.

The problem is well analysed and diagnosed in the report. I stress that the problems apply to the services and to the rest of the economy, and it is a little unfair to criticise the report for focusing on manufacturing. The problems are common across the service industries as well as in manufacturing. If remedies are applied and succeed, they will affect the whole economy.

Among the remedies I should like to pick out three broad points which are mentioned in the report and to which one looks for reassurance to the Government. The first is the question of attitudes and how far they can be improved. The second is the question of planning—to use a currently, but not forever, discredited word—which simply means considering how best we can positively prepare for what I shall call the post-oil period. Most important of all is the question of investment in physical and in human resources. I stress again that those points apply not just to manufacturing.

We know the problem with attitudes. It is the anti-industrial bias of our culture. It is here today The noble Lord, Lord Plowden, reported on that. It is not new. Anyone who has studied the situation in India 100 years ago will be aware that the gentlemen who represented industry, trade and marketing were referred to contemptuously as "box-wallahs" and were not invited to the governor's residence. The attitude has been here a long time. I saw it when I was in government. One saw the regrettable attitude of the Department of Industry to attempts, in which I was involved, to set up the Finniston inquiry into engineering. It was an unhelpful attitude. One also saw the regrettably snobbish attitudes to parts of engineering at the sharp end—for instance, production engineers.

It is a major problem. As many noble Lords said, it starts with education. The noble Lord, Lord Clitheroe, made a telling general point. When I was at university I knew few people who went into industry or even considered it. The best people then went either into the Civil Service or, like myself (if I may be considered to be on the fringe of the best people), into part-time occupations such as university teaching. So we had a very good Civil Service.

When taking part in negotiations with the Germans I was struck by the superiority of our civil servants. My first reaction was great pride, my second was concern, and finally I realised that what we had was the best administered economic decline in the Western world while opposite us was the worst administered economic growth in the Western world. Thinking about it further, I realised which I would prefer.

I must confess that it is not easy to change attitudes. Long-term attitudes cannot be changed easily in the short term, and so we must not expect too much. But one looks to the Government for a lead in terms of their language and their policy priorities. I have looked at the language as it affects planning attitudes. I think that we need much less hostility to the whole concept of planning. It is a myth which is not shared by our most successful competitors—Japan, Germany and France—that planning is bad for one's economy. By that I do not mean than we heed constant "nannying" and interference.

In a healthy economy the most important factors are market disciplines and a climate of low inflation. But it is extremely important to accompany them with planning in general, and in this case specifically, to arrange that the short-term oil benefits are replaced and that our manufacturing base is not finally destroyed. I would therefore ask noble Lords on the Government Front Bench what they are actually going to do to plan that we, as a nation, do not suffer a massive decline in our living standards or massive devaluations when oil runs down.

Finally, and most important, is the question of investment—investment in physical and in human resources. There is a need for a good social infrastructure. That is essential to an efficient economy. I have particularly in mind transportation, the need for greater investment in our roads and our railways. When I hear—I have heard it under previous Governments—that our motorway programme is virtually complete, I wonder which roads people are travelling on. It is saturated but not complete. There is need of housing for our workforce and provision of the cheapest possible energy for our industry. There is need for direct Government investment.

Secondly, there is need to encourage physical investment in industry research and development through cheap loans. We should not be ashamed of public funds to encourage to a much greater extent, through cheap loans, new and small industries. Our competitors, the Japanese, the Germans and the French, as has been pointed out, are willing to do that. I believe that we should do it, too. The crucial point is not to argue the ideology of where the funds come from, but to ensure that we have sufficient capacity in the post-oil period. As already stated, it is easy to close industrial capacity and to retreat from a market. It is very difficult and very expensive to get back in.

In the area of investment, the most important factor is investment in human resources. Repeated studies show that deficiencies in education, in skill and in technical expertise are one, and a major, factor in our industrial under-performance. Admittedly, the present Government have made progress in this area. They have increased training resources. The noble Lord, Lord Young, has been very active in that area. They are trying, in the education field, to change and to improve syllabuses. They have reduced the educational bias against industry. I commend that, and I support it. I should, however, like to say that what is being done in total in the education field is a drop in the ocean compared with what is required.

Frankly, as a part-time economist, I cannot understand why the Government do not spend much, much, much more in the education field. It seems to me that if you look at the Government's economic policies the success of that particular brand of approach needs above all a highly educated, highly trained and skilled workforce.

The Prime Minister has often explained that there is no future in the old, low-skill, subsidised kind of industry. We must have genuine international competitiveness. We must have high quality services and goods. We must earn a living through adding value. Adding value must mean higher skills. Britain's prime resource is its people. We must add value to our people. You do that through education. Their output is limited not by their numbers, as we know from the unemployment figures. It is limited by their skills. Many economists suggest that up to 50 per cent. of the growth in a mature economy—we are a very mature economy—is due to skill, knowledge and information in the workforce.

Education in its' broadest sense is both the instrument and a major product of any successful modern economy. Yet when one looks at the PESC reviews and at the recent White and Green Papers we see projections for real cuts in educational provision over the next five years. I would argue that this must be wrong. It must be wrong for a country that, among advanced nations, has the lowest percentage of people in education. And it must be wrong, I say with deference, when the Government seek to transform the economy in the particular way they are doing. It is equally wrong—less quantifiable but more pernicious—to talk, when trying to do that, as if only the top 20 per cent. in education matter.

In conclusion, I should like to join others in supporting this report where it argues that to survive the alarming decade ahead we need a healthy manufacturing base as well as healthy service industries. That requires a positive response from the Government. And, if that is so, it requires a more positive role from the Government. It requires the Government, first, to acknowledge that the problem is there and to acknowledge that it is as serious as it is. I believe that this afternoon we have had some reassurance on that front. Secondly, there is need to encourage industry itself to invest more. Thirdly, there is the need to invest directly in a better infrastructure. Fourthly, and above all, there is need to invest massively in human resources to achieve a better educated and skilled workforce. With such a planned approach, we can face with some degree of confidence the difficult period ahead when oil is declining. Without it, if we close our eyes and wait for the automatic workings of imperfect markets, we evade our responsibilities and we are in danger of betraying our children.

7.18 p.m.

Lord Bruce-Gardyne

My Lords, it is a pleasure to follow the noble Lord, Lord Donoughue. At least it gives me the opportunity to thank him for the fascinating contribution that he made to a television programme 10 days ago in which he gave a graphic description of the appalling debacle that faced the Government with which he was associated ten years ago when they had tried to pursue some of the policies which I have a horrible suspicion the party opposite would still wish us to pursue today until they got the broker's men in. Like all your Lordships, I wish to congratulate my noble friend Lord Aldington on introducing this subject today and on the remarkable report which he and his noble colleagues produced as the subject of this debate this afternoon. It has had a remarkable reception. It has certainly been a succès d'estime—almost, one might say, a succès de scandale.

I shall have to be very careful what I say because I am peculiarly conscious of the point drawn to your Lordships' attention by my noble friend Lord Boardman that I belong to the scribbling classes. Indeed, like the noble Lord, Lord Donoughue, I have spent too much of my life as a consumer and armchair critic. I am sure that my noble friend Lord Aldington will agree that this must have been why I found it reasonably comfortable to reside for a brief period in the Treasury. Having said that, I would like to agree with what seems to be the fundamental message from your Lordships' committee, well summed up by my noble friend Lord Aldington when he said that we had a serious problem which will not solve itself. That I think is the fundamental message. I am sure that your Lordships would agree with that. My right honourable friend the Chancellor of the Exchequer has inescapably pointed out that as our oil windfall shrinks away—and I am bound to say that I do not think it will be quite as fast as your Lordships' committee suggests, but we shall see—the switch to a changed trading pattern will have to be achieved by an adjustment in the real exchange rate which can take place either through a considerable improvement in our own competitiveness, or, as the noble Lord, Lord Donoughue, suggested, by a counterveiling devaluation. But I must say that I humbly agree with your Lordships' committee that it will not necessarily be a painless process.

I also very much agree with the strictures which your Lordships' committee makes, in particular at paragraph 219 of the report, on what seems to me the folly of the propensity of all governments, including I am bound to say this one, to seek to pull into this country inward investment from overseas with a view to short-term employment considerations by means of massive subsidisation. I find it hard to believe that the £100 million which we are pledged to inject into Nissan will prove a desirable investment from the point of view of the taxpayer—but we shall see.

I also very much agree with your Lordships' committee that in this rude, harsh world, we may have very little alternative but to provide effective and competitive support for the winning of so-called turnkey export orders. It sometimes seems to me downright crazy that we in this country should be presenting third world countries with solid gold tea sets and steel plants, or synthetic textile plants thrown in as well, so that they can then remove our markets for steel or synthetic textiles, as the case may be. However, I am bound to agree with your Lordships' committee that we live in a world where that is what goes on, and if we do not provide a better solid gold coffee set to go with our steel plants or synthetic textile plants than do the Japanese, the Germans, the French, or soon the Americans, we shall be out of that particular trade altogether.

I believe that there is a conundrum to which several of your Lordships have referred today. The noble Lord, Lord Ezra, referred to the very peculiar theory—he called it—of the Treasury's idea of a balance sheet in trade. My noble friend Lord Aldington referred to determinism in these matters. I have a difficulty here. I have read with great interest the question which my noble friend Lord Boardman put to Sir Anthony Rawlinson when he appeared before the committee on behalf of the Department of Trade. At question 54 on page 36 of the minutes of evidence my noble friend said: One would have hoped you might have said that if we were vastly more efficient in manufacturing and gaining a larger share of the market we would retain our service industry and would have a far greater potential for further overseas investment on the one hand or further capital investment in this country on the other, as well as higher employment, which after all is the key to it.". The fact is that in 1975—which is the bench year which the committee, as I understood it, took—we had a deficit on oil trade of £3 billion. We had a surplus on service trade of about £1 billion. We had a surplus on manufacturing trade of about £4 billion. Eight years later—which again was the bench year which your Lordships' committee took—we had a surplus not of £1 billion but of £4 billion on services. We had not a deficit on oil of £3 billion but a surplus of some £8 billion. If one interprets what my noble friend suggested, we should have had presumably not a surplus on manufacturing trade of £4 billion, as we had in 1975, but a surplus of double that, since we had increased our market share—that of £8 billion.

I must say that if we put those figures together with nothing on the other side, the auditors of the National Westminster Bank might ask a few questions about the accounts. Of course, I understand that it is the message of the committee that this could have been counterbalanced by a huge, outward flow of capital investment, as indeed no doubt in theory it could. The example of Japan was quoted. Japan has a huge surplus on current trade, as we know. This is counterbalanced by a huge outflow of capital investment. In the first place I do not get the impression that parties opposite would all view with vast enthusiasm a huge increase in the outward flow of capital from this country.

However, leaving that aside, I wonder about our ability to copy this particular Japanese example The counterpart of that is of course that the Japanese have by far the highest personal investment ratio in the world, about four times that of ours. It is possible, of course, that we could turn ourselves overnight into a nation of piggy-bank savers—and pigs might fly. But I am bound to say that even if we did, I am not sure that we would be universally popular. I am not sure that the huge export surplus on current trade which the Japanese maintain, offset by a huge outflow of capital mainly to the United States, has endeared the Japanese economy universally, least of all in the United States.

Lord Ezra

My Lords, has it not made it a very successful economy; and is that not what we are talking about?

Lord Bruce-Gardyne

My Lords, I entirely agree with the noble Lord that the Japanese economy is highly successful. I still insist that it is not a universally popular economy. I think that it is liable to come up against the buffers of a problem to which I wish to turn in a moment, the problem of protectionism.

But now I want to turn to the recommendations of your Lordships' committee with many of which, like others of your Lordships, I found myself in profound agreement. There was the call for a change in national attitudes. That is a fundamental call and it was supported so eloquently by my noble friend Lord Clitheroe in his admirable maiden speech this afternoon. I could not help recalling that when my noble friend and I, and my noble friend Lord Limerick, were at a certain university we regarded my noble friend Lord Clitheroe as being something of an oddball because he had gone in for sciences. We all thought that that meant he worked far too hard. Your Lordships have heard the consequences this afternoon. I am sure that we shall all greatly enjoy hearing from my noble friend on many occasions again.

A second suggestion from the committee—about which I must say I have some reservations—is the need for greater exchange rate stability. We are all in favour of stability of exchange rates, just as we are all in favour of godliness. But, as my right honourable friends in the Government have fairly pointed out in their response to the committee, it takes more than one to stabilise. I cannot help feeling that underneath the call for exchange rates stability, coupled as it is with the call for lower interest rates, the real message is that we should aim for a substantially lower exchange rate in sterling terms.

The noble Lord, Lord Ezra, in his powerful speech earlier this afternoon called for us to trade up-market. I am sure that he must be right about that. But for the life of me I am not clear how you up-market trade and down-market your currency at one and the same time.

Finally, I should like to turn to two of the specific recommendations of the committee which worry me. At this point I wish to express the hope that perhaps some of your Lordships have shared the experience which I have enjoyed in the last few weeks of listening to some of the very remarkable Reith lectures of Professor David Henderson. If it were permissible, which fortunately for your Lordships it is not, to copy the example of the American Senate and to be able to write things into the record, I would write the entire lecture series so far into the record for your Lordships' interest. However, I do not think that Professor Henderson would be altogether happy with the two specific recommendations to which I now wish to refer.

One is contained at paragraph 220 of the report where your Lordships' committee refer to the question of domestic sourcing for manufactures in this country and quote Sir Anthony Rawlinson as saying: As regards [motor] companies which are already established here [such as Ford and so on], the Government does from time to time discuss these matters, but its powers of insistence are rather limited within the framework of current policy". Your Lordships' committee comments: It is time for current policy to become more robust". I hope that someone from your Lordships' committee will tell me how we become more robust with cars from other parts of the European Community. Are we to declare them a health risk, like milk? I am bound to say that even that ploy has not worked that well with milk. I am glad to see that at least the committee does not come anywhere near to suggesting that we should take the easy road out and opt out of our Community obligations by withdrawing from the Community.

The contrary is the case, and here I turn to the last recommendation to which I should like to refer, which is at the very end of the committee's report where the committee refers to the whole issue of trade and tariffs. At paragraph 230 the report says: One witness powerfully argued for substantial increases in Common external tariffs". Your Lordships' committee comments: If the Community act in concert there could be little prospect of retaliatory action by third countries". I am an ignoramus in these matters and your Lordships' committee is composed of men of great wisdom and experience in the field of international trade. However, I should have thought that if a trading bloc as large as the Community embarked on a procedure of substantially increased tariffs on imported goods, it would be remarkably surprising if other parts of the world did not follow that example. Indeed, I personally should have thought it would be hard to think of a surer way of setting off the sort of protection war which cost the world so appallingly dear in the 1930s.

Finally, I humbly suggest that in this House sometimes we may need to remember that the price of protectionism is paid by the consumers. Some of us are producers and fewer of us are manufacturers, but all of us are consumers from the cradle to the grave. Fortunately, in this House we do not have to concern ourselves with the fact that vast numbers of those consumers have votes, but in another place they do have to concern themselves with that fact. I wonder whether Her Majesty's Government would be entirely wise to follow your Lordships' committee's advice in embracing the possibilities of protectionism with the consequences for the wellbeing of those who are the consumers, who will eventually be voting them in or out of power at the next election.

7.34 p.m.

Lord Kearton

My Lords, I must begin by congratulating the noble Lord, Lord Clitheroe, on his thoughtful and constructive maiden speech. Like other noble Lords, I very much hope that we shall frequently hear him in this House. The name "Clitheroe" has certain significance for me because nearly 50 years ago one of the first chemical plants for ICI, with which design I was associated, was built at Clitheroe to make catalysts for chemical processes, and I think that that plant, much improved, is still there.

The chairman of the Select Committee, the noble Lord, Lord Aldington, gave in his admirable opening speech a clear account of the committee's work, of its findings and of its recommendations. I agree with everything that the noble Lord so cogently said. It was a privilege to sit under his chairmanship as he guided the committee through its in-depth investigation and lead the committee in its examination of witnesses and consideration of documents. Besides the 23 witness sessions and the visits overseas, the committee had 13 discussion meetings. The evidence, both written and oral, was carefully assessed. The full report, which includes the record of this evidence, runs to over 1,200 pages.

It is possible that the committee is wrong in its findings. Obviously I do not think so. However, even for those not so persuaded, it was overreacting to describe the report, in the words of the Chancellor, as special pleading dressed up as analysis, and assertion masquerading as evidence". A more valid criticism would be that the committee is only saying what everybody knows to be true. The committee but brought the situation into focus, and the committee has no magic formula or "quick fix" to avert the dangers which it sees ahead.

We conclude that the way to future success and prosperity fundamentally lies in a change of national attitudes in all sectors, and with particular regard to manufacturing industry. The report indicates the nature of these changes. There is bound to be a sense of déjà vu. The record shows that for well over a century cries of alarm have been raised about our decline in some sort of activity or another, and in most cases we recovered. We stayed up front with our main industrial competitors, except for the United States. However, by 1960 our relative decline in most material areas was well under way—relative, but not absolute.

In the past 25 years we have indeed increased our gross domestic product; we have become much wealthier as a nation; we have carried out major schemes of internal wealth redistribution; and the gross domestic product, as the Government can claim, is currently at its highest ever. But relatively the position is different. According to the 1985 OECD figures, we are now down to seventeenth in the international league table of such figures. We were tenth as recently as 1973, and this before the development of our North Sea oil wealth.

It is not that the relative decline went unnoticed and unmarked. For the past 25 years Prime Ministers of all parties have come to office resolved to adopt policies to reverse the trend, which nevertheless continued.

The present Government are tackling the problem with vigour and energy. They are now providing the sort of framework in which a new enterprise and entrepreneurial culture can take root and hopefully flourish, and in the area of training their efforts, through the Manpower Services Commission, are admirable. It is not yet enough—far from it—but it is moving very much in the right direction, and the Secretary of State for Employment, who will be replying to the debate, deserves particular credit for this.

However, the Government have some blind spots. They profoundly under-estimate the crucial importance of manufacturing industry. When Government statisticians say that manufacturing industry accounts for just over 20 per cent.—say, 22½ per cent.—of GDP, they are calculating mistakenly. A great many services have transferred from inside industry to outside industry and now count as services, but they serve industry. If one takes the service-related sector of our economy depending on manufacturing industry, it would not far from double that part of our GDP which depends on manufacturing, industry The Government hardly seem to recognise that our industrial base is considerably lower than it was.

The noble Lord, Lord Selsdon, in his powerful and illustrative speech, gave some examples of articles of manufacture which we can no longer make. The noble Lord, Lord Young, in his remarks claimed that investment in the country was at an all-time high. But investment in industry is not at an all-time high. Of the £50 billion-odd total annual investment, less than £10 billion goes to manufacturing industry.

As the committee found in its examination of witnesses, even that investment is not directed very much to new products; only about 30 per cent of it. Most of the industrial investment goes to increase efficiency in making existing products in our reduced manufacturing base and not to extending our range of products. The noble Earl, Lord Limerick, mentioned in his speech—and few can speak with more authority on the subject—that services, vitally important as they are, cannot replace manufacturing industry in our national affairs.

We have recently seen some great money-raising efforts in the City both for privatisation and for mergers; billions and billions. But all this money-raising is not to create assets but to transfer them. There is no net creation of new wealth activities. And again in the Government's own sphere the Department of Industry the other day published a report saying how concerned it was about the low level of R & D in this country and its relative inefficiency. I repeat: the Government have some serious blind spots, highly commendable and creditable as their efforts are in so many directions. I venture to suggest that the recommendations in the report go some way to establish a clearer vision.

As so many are speaking in the debate, I shall confine my own particularity to just one topic: North Sea oil. It is oil which has been covering for the manufacturing decline in the past six years, but it will not be able to do so indefinitely. What is the time scale? The first oil was discovered in 1969, and it was quickly followed by some very big finds.

In 1976 the annual Brown Book survey, issued by the Department of Energy, estimated the initial "in place" recoverable oil reserves as being 2,210 million tonnes. These were firm resource figures in the categories "proven" and "probable". The "proven" figure was 1,350 million tonnes and the "probable" figure 860 million tonnes. A much larger amount was quoted as being "possible", and it was expected that further exploration would help to establish and delineate these possibilities, thus increasing the resource base.

This was nine years ago. By April of this year, and after the drilling of an additional 850 exploration and appraisal wells, the Brown Book estimates of the initial resources had fallen rather than increased. They had fallen by 10 per cent. While the "proven" category has gone up by 150 million tonnes, the "probable" category has dropped by 360 million tonnes.

The estimate for "possible" reserves remains high. But "possible" in oil industry jargon covers a range starting at 1 per cent.; a one in a hundred chance. The range goes up to 50 per cent., but even then it rests on speculative economic assessments. I am certain that further oil remains to be discovered, but possible reserves are pie in the sky until discoveries are actually made. In view of the record of the past nine years, some prudence as to the size of the pie seems advisable.

We have been using up the established initial reserves rather rapidly; to date 800 million tonnes, which is 40 per cent. of them. The Minister of State for Energy in another place recently quoted the remaining "proven" and "probable" reserves as 1,225 million tonnes. At the present rate of production, which is 125 million tonnes a year, this would be only ten years to exhaustion, and it is these high rates which allow us to make considerable exports.

Of course the oil will last longer than 10 years. The production rate will fall off from present levels and so will the exportable surplus. Fifty per cent. of today's production comes from four fields, all discovered in the early 1970s. These same four fields have yielded 60 per cent. of all production to date. Three of them are now past their peak outputs, and so are three fields in the next tier of medium-sized fields. The other 20 fields in production at the beginning of this year, and the new developments in hand, will not arrest the overall decline. Only a few of the 20 fields are of even medium size.

The actual rate at which production will decline is not easy to predict. The big fields have so far maintained production remarkably well, but such levels today imply a sharper rate of fall-off towards the end of their life. The Department of Energy gives a range of production possibilities for 1987, 1988 and 1989. The high figures mean that oil exports will decline gradually in these three years. The low figures—and these are figures from the Department of Energy—indicate that they will decline quite sharply. The output expected is something in between. But in the following years, 1990 and 1991 and then onwards, my own view as to probability is that export potential will be sharply diminished and could become nonexistent.

Our oil export cushion will go in six or seven years at best. When my noble friend Lord Young says that oil will contribute to the balance of payments well into the next century, he is right in the sense that there will still be some oil production which will mean we shall not have to import so much, but current production is roughly £20 billion a year. It is not much consolation if we are still producing oil in the 21st century at a rate of £2 or £3 billion a year. It will still be contributing to the balance of payments, but not very seriously.

We shall need new discoveries and new developments just to maintain this self-sufficiency from the mid-1990s, and this new oil will be much more expensive in capital cost per barrel and in production cost per barrel than existing reserves. It will certainly not give the same tax yield per barrel, but without the new oil we shall have an import bill to contend with as well as having no oil exports.

If our country is to be strong and great when indigenous oil is but a trickle, we must have another industrial revolution. Many of the Government's actions and initiatives indeed conform with this view. In surveying the national prospects it is natural that the Government should want to sound confident. I do not see how they can sound quite so confident when they have taken on board the powerful speech of the noble Earl, Lord Limerick. But Ministers must know that our industrial competitors, oil importers all, have not slowed down. We shall not catch up with them, much less overtake them, unless we make a conscious national effort at all levels of a kind to make a sea change in our culture, a theme taken up by many of our witnesses.

Back to déjà vu. How many times something similar has been said in the past 25 years. Yet we have advanced, wealth has increased, and material circumstances for most of us have never been better. But Cassandra was right in the end. The committee's report, based on a survey in depth, cannot be brushed aside. As were so many speakers, I was delighted that Lord Young's reaction indicated that the Government have no intention of brushing it aside. This time we must make a reality out of our needs. We face a tremendous challenge.

The committee's report is both an alarm signal and, even more germane, a torch. How sensible it would be, how exhilarating it would be, if the Government picked up the torch and used the committee's recommendations—all the Committee's recommendations—to light the way forward!

7.50 p.m.

Viscount Montgomery of Alamein

My Lords, I start by congratulating my noble friend Lord Aldington. I find his report stimulating and interesting. I thought that the Government's initial reaction was rather surprising and I was therefore particularly glad to hear the more mature and balanced comments made this afternoon by my noble friend Lord Young.

I shall not dwell on the macro-economic issues, since this has been done much more effectively by more experienced speakers than myself and none more so than the noble Lord, Lord Kearton. I was particularly glad to listen to the speech of the noble Lord, Lord Plowden, on the importance of education for industry. This is of vital importance for the future. I start here by making a confession, particularly to my noble friend Lord Bruce-Gardyne, because I studied engineering at Cambridge. I have been involved ever since with marketing industrial products and services overseas. I therefore have to declare an interest in as much as I speak from the sharp end of overseas trade, particularly in connection with developing countries. I am also a director of companies which have been beneficiaries of Government export services in various manifestations.

Exporting is very hard work, whatever the product, and industry needs encouragement. I think that it probably can draw some from the general nature of this report. Industry dislikes depending on Government, but it recognises the need to work together. Industry and Government need each other. That also emerges from this report. Direct exports, whatever the product may be, are very important. I want in the brief time that is available to mention two weapons in the armoury of export promotion services, both of which are vital and both need some attention: these are the ECGD and ATP. ECGD has a problem in as much as it has conflicting aims. If I have understood it correctly, it is required to make a profit and to support exports. These two aims are frequently contradictory, incompatible and may well be impossible. I have had many dealings with ECGD for which I have great respect, but it may be short of senior management and constantly under parliamentary and other pressures. I hope that something can be done to look after ECGD and support it in a slightly different way than has been the case heretofore.

The other subject is aid. I must admit that I am not much in favour of cash handouts overseas because they are very frequently misused and subject to the most bizarre political pressures. But assistance in the acquisition of goods at special prices may be a useful compromise. That often provides something useful for the developing country, such as electric power, irrigation or water treatment, as well as stimulating exports. The noble Lord, Lord Selsdon, has referred to this rather more eloquently than I can. It is a difficult area. It may frequently be thought of as special pleading, but the fact is that other major industrial nations, France, Germany and Japan, all provide ATP, or its equivalent, in vastly increased volume than our contribution. If we wish to compete in these areas we have to follow suit.

The problem is that our present mechanism is slow and inflexible. ATP is currently administered by ODA, whereas it probably should be more directly under the control of the DTI. In every major project overseas some five Government departments intervene: ODA. DTI, FCO, ECGD and the Treasury all get involved. It is industrial and commercial action by committee, which is never a very satisfactory solution.

My noble friend Lord Aldington during the latter part of the war worked for someone who had a particular expression for this sort of situation. He referred to it as a "dog's breakfast". That may be over-stressing it, but the procedures and organisation for handling ATP need streamlining and its value needs increasing. Naturally industry is grateful for the recent increase that has been given to ATP and for the introduction of the soft loan system, but that is only scratching the surface and we have to go further.

This committee has done a valuable service. The report is extremely stimulating. I have heard it suggested during the debate by several speakers that it would be a good idea if the committee stayed in existence. That is an extremely sensible idea and I hope it will happen.

I am not disheartened about British industry, which I believe is becoming more and more efficient all the time. The epilogue to the report as it stands and the situation which follows thereafter is summed up by the wartime slogan, "Give us the tools and let us get on with the job".

7.57 p.m.

Lord Weinstock

My Lords, I must first apologise for I have been unavoidably detained elsewhere for the greater part of the day and therefore I have had to miss so much of the debate. I have heard much wisdom from noble Lords in the time since I arrived in the Chamber and I shall scrutinise Hansard tomorrow with the greatest care. I hope I shall not go again over too much ground that other noble Lords have already covered.

At the outset I must declare an interest as the managing director of a major industrial manufacturing company. In my opinion, the analysis made by the committee as to the problems into which it was asked to inquire is broadly correct. Its report and the evidence it has gathered give a recognisably true-to-life picture of the conditions in which British manufacturing industries operate and of their disabilities in competing with others. It was therefore more than a little surprising, as the noble Lord, Lord Kearton, and the noble Viscount, Lord Montgomery of Alamein, said, that there should have been such an immediately dismissive response to it from the Government.

In the House and outside the debate on the report revolves around three key issues: that the relative decline in manufacturing is a world-wide phenomenon aggravated in Britain by North Sea oil; that the coming decline in revenues from North Sea oil will automatically lead to an improvement in the competitive performance of United Kingdom manufacturing, and that the increased income from service activities and the yield from investments abroad will compensate for the loss of revenue from oil and the reduced income from manufacturing. According to the Chancellor of the Exchequer, at page 553 of the oral evidence: The share of manufacturing in both GDP and employment has…been falling over a long period. Similar falls have occurred. mutatis mutandis, in all major industrial countries". The Chancellor's statement is incomplete and misleading because he is referring to the share of total value added in the economy taken up by manufacturing profits and wages.

Although what he says is literally true, it takes no account of the relative rates of growth of prices and productivity, and gives the wrong impression that manufacturing output has, in general, increased less fast than output of other goods and services. The fact is the reverse. Manufacturing output has generally increased faster than total output. Taking the OECD countries as a whole, the average annual rate of increase in GDP between 1960 and 1983 was 3.7 per cent., whereas the increase in manufacturing output was 4.2 per cent. The comparable figures for Japan are 7.2 per cent. and 10.2 per cent., for France 4.1 per cent. and 5.0 per cent., for Italy 3.8 per cent. and 4.9 per cent.

Contrary to the impression given by the Chancellor, it is in Britain alone of "all the major industrial countries" that manufacturing output rose less than GDP. The average annual growh rate of British GDP over this period was 2.2 per cent., whereas manufacturing output grew by only 0.9 per cent. Even in the period 1968 to 1973, before North Sea oil, Britain was the only major industrial country in which manufacturing output rose less than GDP.

The exceptionally low relative growth of manufacturing in Britain does not reflect choices by the British people, on the one hand to buy relatively fewer manufactured goods, and on the other to spend a higher proportion of their wealth at the cinema or on Brighton Pier. On the contrary, real domestic expenditure on manufactured goods rose at about the same rate as expenditure on all goods and services. The reason for the relative decline in the United Kingdom output of manufactures is that the British people chose to increase—and at an incredible rate—their purchases of goods made abroad. While our manufacturing output rose 26 per cent. between 1960 and 1983, and our exports by 130 per cent., imports of manufactured goods rose by about 500 per cent.

I am sorry to have been obliged today to regale your Lordships with more statistics. But the Government do it regularly, and they can add this one: that the share of British manufactured exports in world trade has fallen in the first half of 1985 to a record low of 7.3 per cent. The Chancellor thinks this was inevitable. As his friend, and mine, Mr. Sam Brittan wrote in the Financial Times: If there is an oil surplus of £7 billion, an invisibles surplus of £5 billion, and a total current surplus of £1 billion—as was the case in 1984—then, as a matter of arithmetic, there has to be a deficit on other visibles of £ 11 billion. Of this, some £7 billion was accounted for by food and materials and another £4 billion by manufactures". Noble Lords will require no computer, not even a Japanese one, to confirm the accuracy of this calculation. But they might also wonder why the same £1 billion total current surplus could not have been achieved, with higher levels of output, employment and investment, through a higher level of exports and a lower level of import penetration. This might have required a lower exchange value of the pound, or different fiscal policy, or other devices. I dare say all or any of these things would have added difficulties for the Government in the fight against inflation.

However, it is important to see what has happened for what it is—not an arithmetical necessity, but the result of a political decision to give overriding, indeed exclusive, priority to reducing the rate of inflation; and that has had the consequences of restricting output and raising unemployment. The reduction in the rate of inflation is, in the Chancellor's words, to be the "judge and jury" of the Government's policy.

I pay tribute to the work of the noble Lord, Lord Young of Graffham, previously in the Manpower Services Commission and now as a member of the Government, which seems to run counter to this dictum. Of course, the Government are not indifferent to the evil of unemployment, and they have taken measures to alleviate it. I heard the noble Lord, Lord Lucas of Chilworth, in this House claim a notable degree of success in job creation. He also said, I thought with some pride, that it had cost the Government £32,000 for each new job created. At that rate, if would cost more than one hundred thousand million pounds to eliminate unemployment in Britain.

On the other hand, when the Government and the great national utilities buy from United Kingdom industry instead of from foreign sources, jobs are created, or at least preserved, without any additional cost to the Exchequer. Indeed, the cost is negative, for the Government collect taxes from employers and from people who would otherwise have to be paid unemployment money and social security benefits. There must be competition to prevent feather-bedding. But national self-immolation in the name of a non-existent free market is surely carrying things too far. Where our productive capacities are being destroyed and skills dispersed, whether by economic policy or by competition, they cannot be easily resurrected, if at all.

The fundamental question is whether there will be a large enough recovery when oil production declines. It is no comfort at all that oil production is going to fall only slowly. Any decline at all is in sharp contrast to the huge growth since 1975, and it is this which makes a large and rapid improvement in the trading performance of industry so necessary. Will this just happen of its own accord? Or is it a major problem, identified by the committee as urgently requiring a subtle combination of new attitudes and new policies if, in their words, we are to avoid a major social and economic crisis in our nation's affairs in the foreseeable future"? As I understand the Chancellor, the Treasury, the Department of Trade and Industry and Mr. Sam Brittan, the argument that the loss of oil revenue will be automatically compensated to a large extent by the regeneration of manufacturing depends on inevitable movements in the rates of exchange.

The Chancellor's strategy for the future is indicated in the evidence he gave to the Committee (page 554 of the oral evidence). Mr. Brittan faithfully expresses the same ideas. A sensible policy", Mr. Brittan wrote in the Financial Times, would be to allow the real exchange rate to move to affect real forces, such as the running off of North Sea oil or differential changes in other countries' subsidies, while keeping a firm nominal rate, so as not to accommodate inflationary pay awards. That is to say, with a non-inflationary higher nominal rate, industry's problems are going to be solved by allowing the real rate of exchange to fall—I repeat, allowing the real rate of exchange to fall. But there is only one way in which the real rate of exchange can fall relative to a given nominal rate; it will fall if, and only to the extent that, money wage costs rise less here than abroad.

How will it come about that money wage costs in Britain will rise less than those abroad by the 15 per cent. or more which the Oxford Economic Forecasters imply will be necessary to compensate for the loss of income from oil? Surely this means that absolute money wages here will have to fall. Do noble Lords expect a popular clamour for wages to be reduced, so strong that the Chancellor will have to allow it to occur? At the best, this is to assume away the problem which baffles all those seriously thinking about how to reconcile growth with price stability.

As to the other sources of compensation for the loss of oil revenues, I do not believe that there exists the potential for growth in export services on the scale required. Nor is it likely that income from foreign investment will rise fast enough, particularly as the accumulation of capital assets overseas will be adversely affected by the reduction in North Sea oil sales.

I have put before your Lordships my own gloss on the committee's analysis and I have protested, with other noble Lords, that the hasty attempts to commit its report to the waste paper basket, and thence to oblivion, were tendentious and ill-founded. The committee despairingly points out that it is not merely that there is a major political and economic crisis in the offing; it is (I quote), that the nation at large appears to be unaware of the seriousness of its predicament". I do not agree with all the conclusions and recommendations of the committee, but although we may be more or less all right, as the noble Lord, Lord Donoughue, said, for the next three or four years, it seems to me that the committee has correctly drawn attention to serious dangers which lie ahead in the light of which many of the measures in the Government's programme appear rather irrelevant. The implementation of any kind of new strategic plan cannot wait until the coming crisis actually arrives. Some re-thinking is needed now; and the constraints of the electoral calendar must not be allowed to get in its way. That is the burden of the committee's plea in this report, and it merits your Lordships' endorsement.

8.11 p.m.

Lord Hatch of Lusby

My Lords, I wish to confine my remarks solely to paragraphs 184 to 209 of our report on pages 69 to 74 dealing specifically with the problems of manufacturing export trade. When I was first accorded the privilege of appointment to this committee I had a feeling at the back of my mind that in the end I would probably have to produce a minority report. Two factors prevented this. The first was the patience, the tolerance and the sympathy of our chairman, the noble Lord, Lord Aldington. The second was the weight of evidence which, I progressively discovered, had supported the particular interest which has been a great part of my life and the economic ties and the economic relations between this country and the third world.

I found this weight of evidence somewhat surprising. It taught me that my views were not so idiosyncratic as some Ministers and Back-Bench Members of the Conservative Party had been trying to persuade me. Then when I discovered that the noble Lord who has just spoken, the noble Lord, Lord Weinstock, with his great experience of industry, could tell us that the cuts in aid were detrimental to British business and employment, I felt that I must be somewhere along the right track.

When in addition to this Mr. Macpherson of the Association of British Chambers of Commerce had this to say to us: Of course, we have to expand to get new markets because, my word, if we do not get into new markets and if we do not ensure that other countries in the world, nations which are not major industrial markets now become so, I believe the whole theory on which we base our economy will begin to fall to the ground", I discovered that the views that I have progressively held throughout my life were supported by those with a great deal more experience than I have in the industrial world and in the economic life of our country.

My particular interest, my special interest, in the work of this committee was in the relation between aid and trade and the projection of this interest into the vision that, if we are to become a great trading nation again, the future, or a substantial part of the future, of British overseas trade lies in our relations with the third world. But in examining the industrial witnesses and then, in particular, the Minister and the officials from the Government who came before us, I began to be puzzled.

I cannot understand this equation and I hope that the noble Lord, Lord Young of Graffham, who is to wind up, will perhaps enlighten me. As I understand it, the policy of this Government can be summarised by, first and foremost, (as was emphasised to us by the Chancellor of the Exchequer) the attack on inflation. Now what does this bring, according to the policy adopted by the Government in order to bring down inflation? It seems to rely upon this series of measures: first, a high sterling rate; second, high interest rates; third, low import prices and a consequent high export price. The logical consequence of this series must be high export prices and, therefore, a lack of competitiveness in relation to our competitors. But surely this policy is bound to be detrimental to British industry and to the creation of—and I emphasise this—real jobs, real jobs, as defined by the Government, those jobs which produce wealth.

But, in addition to this, there are throughout the world, certainly partly controlled and partly engendered by the industrialised nations, a depressed commodity market and depressed commodity prices. Of course, that reduces inflation in this country, but what does it do to our manufacturing industry and particularly to our exports? Surely the depressed commodity market, particularly in association with high interest rates, and with a high sterling level inevitably reduces the purchasing power of many of our potential customers. It may reduce inflation here but it quite inevitably shrinks our markets abroad.

My Lords, we were given constant evidence by industrialists in this country of their inability to sell goods abroad. Why?—because of the lack of purchasing power of our potential customers. Here I would refer noble Lords to paragraph 209 in this report. Yet we found also that it is the markets of the developing world that are expanding much faster than those of the developed world. These, then, should surely be the natural attraction to—and I will not exaggerate—not all our exports but to a great proportion of the expansion of our exports which is essential if our manufacturing industry is to recover. As the noble Viscount, Lord Montgomery, has pointed out, when we looked at the comparison of the support given to exports among our major competitors, we found that the Japanese provided in equivalent—not identical but equivalent—terms 40 times as much aid through the parallel to the aid/trade provisions as do this Government. The French provide 20 times as much as we do. How are exporters supposed to compete with those conditions? How are they supposed to provide us with a new thrust to our exporting industry when other governments, our competitor governments, are giving so much more support to manufacturing exports?

The Japanese, the French and the Germans have recognised that the new world of exports, the new world market, will depend very largely upon the opening up of those markets which have never formed part of the world market before. I refer to the half of the world market that is still closed. They are adapting their policies towards this. Why? It is because they think long and because they are not restrained by the short-term thinking that has been so characteristic of this country, and, in particular, of this Government. They think long and they plan long.

If your Lordships will refer to the paragraphs within the section I have mentioned, in particular in this connection paragraphs 208, 192 and 195, you will see that apparently the Government not only do not realise the disadvantage under which British industry is being put, in competition with its major competitors in these new markets, but they are actually reducing their investment in those very institutions which can help our exporters. As has already been mentioned, there has been a reduction in overseas aid of 6 per cent. per annum since the Government came into office. There has been a reduction in real terms in the financing of the BOTB. There has been a reduction in the number of commercial posts under the Foreign and Commonwealth Office. When we challenged the Chancellor of the Exchequer on this issue his answer was: "But you know what the Government's policy is: it is to reduce public expenditure as a proportion of GDP". The Government have failed to do that. Government expenditure as a proportion of GDP has increased under this Government. What have they done in their failure? Surely it is clear that as the Government have been reducing public expenditure—and I have just given three examples of overseas aid, the BOTB and the FCO—they have been shackling our exporters as against their competitors.

I have put this point of public expenditure to the Government so often, but I have never had one answer over the six years that I have been trying: public expenditure can be a cost or it can be an investment. If it is an investment which is profitable, as has been pointed out many times during this debate, an investment which brings up to 50 times as much in return, surely that is increasing the national wealth. Is this not a use of public expenditure for the benefit of the country and for an increase in the wealth of the country? I am suggesting quite directly that in this field Government cuts have meant a reduction in national wealth and an increase in British unemployment.

These policies, in particular the policy of reduction in public expenditure, have constantly been excused by the Government on the grounds that they are essential because of the world depression. I suggest that, on the contrary, it is this policy which has caused our part of the world depression and which has deepened the suffering in this country during those years of depression. It has cut down on our ability to trade overseas and it has cut down on the proportion of the world market that Britain has been able to command. And so when the noble Lord, or any other noble Lord from the Front Bench opposite, talks about the recovery where do they start? They do not start in 1979; they always start in 1981. Of course you can have a recovery if you start from a low base—one already created in the first two or three years of this Government's life. When measured by the slough from 1980 to 1982, yes, it is a recovery. It is better than that, but it is not as good as it was before. I am suggesting that one of the principal reasons for this is the short-sighted, short-term thinking which considers that public expenditure, even when it is investment in wealth creation, is an essential part of this policy and thinking.

I am not alone in this; nor do I need to quote from any document from the Militant Tendency or the Marxist sources that we are told govern our thinking. I shall quote from what was said by the export group for the construction industries of this country. I shall quote from a paper which it has sent to me and I shall quote without comment, because it makes my point as clearly as if it were my own language. Talking about the United Kingdom, it says: It is one of only three countries which recorded a negative growth in aid in real terms between 1978–9 and 1983–4, and Britain's negative growth was easily the greatest, with a fall in official development aid of 6 per cent. per annum during this period. Britain's poor showing in aid to poorer countries is compounded by a lack of clarity about aid objectives and effectiveness". It goes on: We need to persuade the Government that there should be a new approach to the aid programme, in considering which the usual short-term thinking in United Kingdom public finance is particularly unhelpful. Britain must recognise less grudgingly the needs of the poor countries and must realise that this is not pure altruism. More generous donors are establishing long-term relationships with beneficiary countries. If we do not understand the need to establish solid interdependence now, Britain will suffer later. This country needs to persuade itself that we can afford more aid because it will be good for Britain as well as for the beneficiary country, and that the return outweighs the aid in a ratio of about 5 to 1 ". I rest my case on the opinion of an important section of British industry.

I would simply conclude by suggesting to your Lordships that in the nineteenth century British enterprise opened markets throughout the world and it was on this that we based our standard of living and the modern wealth of this country. The new industrial age demands the same spirit in regions which are still languishing in the pre-industrial age. Our industrial exports and our industrial export drive should not be confined to the cut-throat competition in already developed markets. But the Government are raising barriers to this new age that beckons us. They should be stimulating an enterprising vision for this new venture, which is crucial to the well-being of the British people and to their role in the world for the next generation.

8.28 p.m.

Lord Brookes

My Lords, persuaded by some difficulty with eyesight, the lateness of the hour and the fact that your Lordships' patience cannot be limitless, I shall confine my limited contribution to the main thrust of this most perceptive report. In my relatively short time of 10 years in your Lordships' House, I cannot recall a document of greater quality, deserving of a much better reception, as has been said, than it was given at first by the Government, whom I sense to be now engaged in a process of repentance.

That main thrust to which I have referred—and I use harsh words—is the disintegration of our historic, traditional, industrial base, with unforgivable consequences for our once proud, independent people in the Midlands, from which I sprang, in the North, in Scotland and in Wales. The serenity and comfort of your Lordships' House is in some marked contrast with the circumstances of a man who looks at a roofless factory—the roof taken off to save paying rates—with windows staring into the night sky. There, as recently as 11 years ago, in their thousands they toiled purposefully, trouble-free; men of whom you could be proud.

Whatever the Government think, whatever your Lordships think, we cannot for much longer evade responsibility for breaking men in this fashion, when—God knows!—they did not deserve to be broken; and I speak objectively, not emotionally and not passionately. Indeed, "hindsight" is a poor weapon with which to berate those who bear the responsibility for "foresight" today. I would therefore say that it is pointless, wasteful and in no way beneficial to seek to blame this Government, or any of their recent predecessors, whatever their political persuasion. If blame there be, and blame there has to be, it lies with industry itself, with the irresponsibilities of trades union extremism, but not trade unions per se. There is a mighty difference between an ancient and noble institution which addresses human problems in depth and those who invade it for most improper and unpatriotic purposes.

I would also blame inadequacies of management which all too often failed, and continue to fail, to distinguish between the responsibilities and privileges of leadership and the pursuit of personal aggrandizement—a past British disease, a current British disease. Too many of our leaders are concerned with their public profile, with their television profile and with looking good, rather than being good; and there is a hell of a difference!

When in 1965 I became chairman of one of Britain's largest engineering companies, I said to the nucleus of the board around me, "My own portfolios will be the men who work for us and the customers who buy from us and you can deal with all stations in between." In short, a good leader needs as his office only the boots he stands up in, because they will take him travelling to the workplace and to the customers. All British management today might well take notice of these words of wisdom from a man who is old in years, but is still young enough in heart to have a go.

The yawning gap which has appeared in our economy—not suddenly—is really the diminishing presence in home and world markets of British finished products. That gap will not be filled, as has been said, by the service industries, particularly the financial sector which services existing wealth rather than generates new wealth. But I sometimes wish that it serviced existing wealth with more delicacy of touch, with a little more refinement of manner, and that it found a little more time to invest in Britain's future, rather than playing around with manipulating existing wealth. That is not a criticism, just a passing comment.

Similarly, the entire concept of the new high-tech. industries—and thank God we have them because some are among the best in the world—has to be minimisation of labour not merely in their own industry but in other industries. So we are not going to cure this chronic social illness of this massive amount of unemployment, and the broken pride of people who want a purpose for living, on that front. No, my Lords. We come back to this gap in finished consumer products—not bits and pieces. I draw a marked distinction between things that are put together and bits and pieces with which we are messing about, making too little money and devoting too much money in government grants to not very hopeful enterprises.

I draw a picture briefly to your Lordships of the fact that a gleaming motor car in the showrooms of the world is a cohesive bringing together in cogent form, to address a given necessity and a defined market, but what is it, really? It is a cohesive agglomeration of all the so-called smokestack, sunset and indeed sunrise industries, to which we now attach these tags of convenience. A motor car is a very interesting example.

I have a report here mentioning the motor car industry and it gives some figures. I sense that those figures arise from a motor manufacturer, or a so-called motor manufacturer, because today most of the British motor industry, particularly the multinationals, merely assemble vehicles which masquerade as being British—and there is one hell of a difference there! But if we look at this gleaming motor car from the smokestack, sunset and sunrise industries, how many jobs are there in it? If we start with base minerals, metals, processed metals, components, glass, plastics and assembly, that is all direct labour. In 10,000 typical motor cars, there are 3,000 such jobs, which means that in a viable assembly unit of 500,000 vehicles there are 150.000 direct jobs.

I have not finished there. There is a multiplying factor of 3.8 for all the fringe activities which relate to the sale of a motor car after you have once built it. They lie in distribution, marketing, insurance, financing after-market service and components. If your Lordships question these extraordinary figures, which amount to 500,000 jobs for 500,000 motor cars, their source is the Society of Motor Manufacturers and Traders and its excellent PEIDA report. I was able to get the figures because they are kind to past presidents. I already sense the doubt in some of your Lordships' minds.

There is this appalling motor industry, with its terrible record of industrial strife, but do we have to retreat from our future because of our past? Am I to believe that the trade unions in Britain will not give a better deal to a British concept than they have given to Nissan, in terms of one or two trade unions and the elimination of demarcation lines and of restrictive practices? I never found trades union leaders lacking in patriotism to that extent, and I believe that there are enough of them today to get behind a project of this kind.

The next doubt is what would I use for money. Admittedly, I might find it difficult in going to a City which used to consist at its birth of merchant bankers and merchant venturers, with an eye for an opportunity for reasonable risk capital. Maybe we no longer have that kind of City. If we have, let it prove itself.

However, some reference has been made in your Lordships' House to the family silver; by the noble Earl, Lord Stockton, I believe. I think that the family silver might be more usefully deployed in the kitchen rather than being kept in the safe. I just float this thought. I was never renowned in my industrial career for being orthodox. Some people thought me irresponsible but I normally managed to make a lot of money and to be consistently successful. That is conceit, if you like but it happens to be true. I suggest to the Government that they give thought to putting 50 per cent. of the proceeds of British Gas into a new National Industrial Development Corporation and let that body be empowered to provide 50 per cent. of the equity for worthwhile manufacturing programmes related to identifiable major products and major markets. I am a right-winger. I am a private enterpriser. But I have no prejudices about the source of capital. Whether it be public money, government money or private money, if it puts people to work and makes profit, then it is good enough for me.

If I wanted a little more money, what about the wonderful gambling and sporting instinct of the great British public? Sydney Opera Houe was built with the proceeds of a continuous lottery. Why not give the British punters a chance? Why not let them subscribe to a long-term raffle—25 per cent. in continuous prizes and 75 per cent. in deferred equity risk capital? All irresponsible stuff, noble Lords may think, from someone who is approaching the years of being a geriatric, but, thank God, does not think as negatively as so many people in this country are thinking tonight.

Our plight is desperate, our problem enormous. It is no good being orthodox. We have to give rebirth to the courage and originality of a people who won the Battle of Britain when no one thought it could be won; to a people who really won the war, because the Americans came in a little late in the day; to a people who more recently have satisfied the longest military supply line in the world to the Falklands at short notice and long odds. We have not gone back so far that we cannot do bold and proud things, but for God's sake let us make some things that matter and make life worth while for our people.

8.42 p.m.

Lord Irving of Dartford

My Lords, on 16th October this year the Report of the Select Committee on Overseas Trade was published. The Government took advantage of the embargo time and took what The Times called "the unprecedented step" of producing an immediate response to the report with a view to limiting its damaging effect.

The Daily Express and the Sunday Times said that the Government were "stung" into responding by the report's forecast of a glum future for this country. Sarah Hogg, the economics editor of The Times, said, the report had clearly got under the skin of the Government", and she added, an excellent place to be". The trade editor of the Financial Times said that the Government were trying hard to muffle the political impact of the report. The Daily Telegraph, more often a friend of the Government than an opponent, said that the Government were "protesting too much". However, the great bulk of the press recognised the importance of the report and said that the Government would have to consider it seriously. Only the Daily Mail and Mr. Samuel Brittan, for whom we all have an affection, were really critical of the report. It looks as though the Church is going to get the same instant reply. I think that is rather sad and I hope that in future the Government will not do this and will give us a considered reply which is the tradition of this place. David Lipsey in the Sunday Times pointed out that, the Committee produced more evidence than did the Government, 1,268 pages of it, against the six brusque paragraphs of Mr. Leon Brittan". Mr. Brittan, in his prompt response to the report, said: This Report needs to be set in perspective if we are not to get a totally biased and misleading view of the performance and prospects for the economy. The Lords have missed some vital facts: manufacturing output has risen 11 per cent. since the trough of the recession, manufacturing investment was up 39 per cent., profitability up 31.3 per cent. and exports were at a record level". What is the true perspective? Ministers frequently remind us that we are in the fifth year of a sustained recovery and that the whole economy has expanded by 6.5 percent. since the recession year of 1979. What we are reminded of less frequently is the distribution of this growth. The latest figures from the Central Statistical Office show that industrial production as a whole increased by only 0.3 per cent. between 1979 and 1985. What the Guardian called "this piffling expansion" was more than accounted for by a 17 per cent. increase in energy, mainly North Sea oil.

We are supposed to have had a consumer boom, yet output in the consumer industries is still 5.6 per cent. below pre-recession levels. The balance of manufacturing trade has changed from a surplus of £5.6 billion in 1978 to a deficit of £4.7 billion today. Total manufacturing investment is 20 per cent. lower than it was in 1979. And, of course, unemployment is 2 million higher than it was at that time. That is hardly the encouraging picture the Government suggest.

I concede at once that, in contrast to the instant reaction of the Government, the noble Lord, Lord Young, did greater justice to the report tonight than was done previously. However, the noble Lord was less encouraging in respect of manufacturing industry than I should have liked him to be. The Chancellor said: This Government rejects the committee's principal remedy 'that British manufacturing industries should be protected by a cocoon of subsidies' ". This was the basic theme of the noble Lord, Lord Young. It is clear that the Chancellor either does not understand or does not want to understand, what the report, the CBI, many industrialists, many economists and an increasing number of Conservatives are saying to the Government. It is that, far from wishing to be cocooned in subsidies, what industry is asking for is that it should not be put at a disadvantage in relation to its foreign competitors by the failure of the Government to support it in the way other countries support their industry. It is an extravagant distortion to call this a demand to be "cocooned in subsidies".

As the Guardian said: The success stories of the post-war era, West Germany, Japan and France, have never baulked at subsidy or intervention when the need was carefully established by clear market factors". As the noble Lord, Lord Aldington, said in his very effective press retort to the Government: It is no good the Chancellor saying that companies can export without Government assistance. All our competitors get assistance—we have amassed the facts". I hope that these facts will be studied.

How can our companies be competitive if they are faced with competitors more effectively supported by their governments than ours? As the report says: The Government should step up its support for innovation and exports, identify areas of innovation, take a more aggressive line on unfair competition and, if necessary, use selective retaliatory measures". Far from wanting to be cocooned in subsidies, we want them to do all the things other governments are doing without which our companies are at a disadvantage, making our exporters' task more difficult, if not impossible. One area where this failure has been evident has been the field of energy. There are a small number of industries—paper (with which I am associated), cement, glass, chemicals, parts of the steel industry and the clay-using industry—where energy represents a high proportion of cost; something like 15 per cent. or 20 per cent. In France and Germany, volume rebates of up to 20 per cent. are available, but there is no recognition in this country of that kind of situation. To give equivalent support to those intensive energy-using industries would not be to "cocoon them in subsidies" but to allow them to compete on equal terms with their foreign competitors in France and Germany.

For years our companies were hampered by an exchange rate of 2.40 dollars to the pound kept artificially high by oil, and high interest rates, to deal with inflation. Competitiveness was re-established but is again being destroyed by unprecedentedly long periods of high interest rates causing a rise in the value of the pound. Those who know will tell you that the Bank of England has been the least active of all central banks whereas Japanese, French and German central banks have been the most active.

There is a note on the tape tonight that there is a fall in our currency reserves and it was speculated that this might be because the money has been used to achieve a reduction in the dollar and to help the British pound. I hope that that is right.

The Government have tended to blame everything on the world recession; but as Sarah Hogg, the economics editor of The Times, has said: The main European economies—France, Germany and Italy—with similar structures have not experienced so rapid a decline". No other competitors—Japan, the United States, or the EEC as a whole—have experienced an absolute fall in the level of manufacturing output as we have.

The noble Lord, Lord Young, spoke glowingly about the Jaguar Car Company and enterprise. I entirely agree with him that that company deserves every credit. However, I recollected that I had listened to the chairman of that company on the radio the other morning. As the noble Viscount, Lord Tonypandy, used to say when he received the Queen's Speech in the Commons, I have for the greater accuracy and easier reference received a copy of what was said by Mr. John Egan. It is a tribute to your Lordships' Library to have obtained this on the same evening as this debate.

Mr. John Egan, chairman and managing director of the Jaguar Car Company, mentioned the easier tax regime in Germany. He was asked what the Government here could do to help. He replied that: That Government have helped"— quite generously and properly— and made the whole thing possible"— that is, Jaguar's success. But, he went on, they must now look at the fine print of the economy to make things easier for the manufacturing industries. For instance, we had an easy regime until last year with capital allowances which could be written off immediately in the year that you made extraordinary capital expenditure. This has now been removed from us and sterling has appreciated, which has made the job more difficult. Industry lobbying the Government is the wrong way around to achieve this. The Government should look carefully at what is needed and make our task no more difficult than that of our overseas competitors". The noble Lord, Lord Young, used the Jaguar Car Company as an example of how, without government subsidy and without government help, companies could succeed in the competitive race abroad. It is clear that the chairman of Jaguar does not believe that. I was therefore happy to obtain that enlightenment.

The romantic idea that when the oil disappears there will be a resurgence in manufacturing industry is believed by almost no one who is associated with industry. Markets once lost are hard to recover; manufacturing capacity once gone is difficult to reestablish; failure to invest cannot easily be made good without great cost; and new industries and products need a long period of gestation.

Nor can services and overseas income fill the gap left by the loss of manufacturing industry or the decline of oil revenue. Even the British Invisible Export Council has warned the Government that services will not be able to make good the jobs and foreign exchange lost by declining manufacturing industry. Only 20 per cent. of services can affect exports directly. The loss of £1 of manufactured exports needs £3 of service exports to replace it.

In the debate on the Queen's Speech in another place, Mr. Edward Heath gave a list of major contracts lost because of the failure of the Government to respond in appropriate terms. The noble Lord may smile but I believe that he will eventually have to listen more carefully to what Mr. Edward Heath is saying. Even in high-tech-services we have been losing ground to America.

The Government have always tended to put up Aunt Sallys to knock them down. One is that additional borrowing will automatically lead to much higher inflation. We borrow a great deal already and the Government have allowed PSBR to rise by another £1 billion. However, the test is not so much how high the borrowing is but to what purpose it is put. If our oil revenues had been reinvested and not spent on unemployment benefits, and if a moderate investment in infrastructure had been allowed, we could still have kept inflation low and halted the upward rise in unemployment. After all, inflation in both Japan and the United States has been less than in Britain, while they have kept unemployment lower.

The noble Lord, Lord Young, spoke also of privatisation. For me privatisation has two dangers. The first is that by changing a public monopoly into a private monopoly, public accountability will be reduced. Secondly, a windfall receipt can never be replaced unless it is invested. Even if it is used for tax reductions, similar amounts will be needed in the future to sustain those tax reductions. The Government have talked about shareholder power. It was noticeable that at the first annual general meeting of British Telecom, the chairman asked shareholders to give him their proxies. That seems less like shareholder power and more like shareholders nobbled.

We are failing to provide the scale of educational opportunity, training and research that is needed to match our competitors. I believe that this Government will in the end be forced to take notice of the report. Unhappily, the cost of delay will become ever higher.

8.56 p.m.

Lord Harris of High Cross

My Lords, the noble Lord, Lord Aldington, gave a spirited defence of the report, which has been generally welcomed on all sides of the House. Indeed, the noble Lord might ponder the enthusiasm it has provoked from some surprising quarters, including my old antagonist the noble Lord, Lord Bruce. The danger of too cosy a consensus may be that it masks or even suppresses conscientious differences of judgment. I hope therefore that the noble Lord and his colleagues will forgive me for presenting a rather contrasting view, perhaps in rather a strong form.

I find it much easier to congratulate the members of the Select Committee on surviving their protracted labours than on the drafting of their report. It is not difficult to find particular passages to approve in so wide-ranging a survey. Indeed, there is something in it for everyone, except perhaps the Treasury. When we read the transcript of the evidence from the Chancellor and his officials we find that some of the cross-examination got very cross indeed. Such was the gloom of the committee that they found little good and pretty well everything wrong about the way things are going.

Accordingly, when it comes to remedies there is such a swamping catalogue of measures, all equally urgent, that the effect is to overwhelm the conscientious reader and even to paralyse action. The noble Lord, Lord Aldington, may recall the dilemma of the shipwrecked sailor in A. A. Milne's nursery rhyme: There was once an old sailor my grandfather knew Who had so many things which he wanted to do That whenever he thought it was time to begin He couldn't because of the state he was in.". Consider what is required, leaving aside the complete change of national attitudes and education—on which in my view, the Select Committee would have done better to concentrate a larger part of their attention, as the best hope of jolting all those reactionaries among the Labour trade union and Tory rustics. Instead of emphasising the need to reinvigorate this culture with more self-help and enterprise, the committee tends to reinforce the national vice of looking primarily to the Government for salvation. The Government must, it is said, decree lower interest rates and lower, as well as more stable, exchange rates. The Government must somehow bring about more, better and different investment. And of course the Exchequer must dispense more subsidies dressed up as, selective and forward-looking industrial policy". There is to be more tying of foreign aid, still more help for research and development, and measures of support needed by manufacturing industry in general and certain sectors in particular". There is some call for improved management and marketing with a nod at lower wage increases and higher productivity. But how is all this to be brought about?

What I found lacking was any consistent framework of analysis, much less of market analysis. Instead, we glimpse their model as a kind of hand-and-mouth operated economy with the Government pushing or pulling the right—or the left—levers and showering exhortations on everybody to do better and produce more. But more of what? Alas, they do not exactly specify. Rather than reveal how to pick the winners, the report has an unerring eye for losers. Thus its chosen instrument for the necessary transformation of industry is to be a grand sub-committee of the National Economic Development Council, which after 25 years they acknowledge "has not so far proved to be an effective body".

The Select Committee's almost indiscriminate turmoil of reform is based upon the frenzied fear that the industrial base is more or less about to vanish—presumably into some black hole which is not unadjacent to the Treasury. Their obsession with the narrow trade deficit appears to unhinge their judgment. Our Jeremiahs oscillate between calmly calculated pessimism in the matter of the oil balance and panic with talk about the prospect of "a major social and economic crisis" and "a grave threat" to our standard of living. It was this which made the headlines and accounts for the report running into several editions.

Who would imagine from this rather alarmist assault on Her Majesty's Government that tiny Britain still accounts for one-thirteenth of a massively expanded world trade in manufactured goods? Who would credit that British exports per man employed in manufacturing at just short of 11,000 dollars a year is very close indeed to the Japanese average of 11,500 dollars a year? In view of the hint of scorn for services, notably by quoting Lord Weinstock's nonsense about the beefeaters and the changing of the guard, what reader would guess that Japan also displays a familiar secular shift towards services, with twice as many people employed in these activities as in manufacturing, which is very close indeed to the ratio in Britain. What has robbed the Select Committee of a balanced perspective is that the balance of trade in manufactures has shifted from a surplus into a deficit, though it is offset by still larger surpluses in both oil and services. They have taken no account of the secular or cyclical change in the volume, composition and source of international trade.

I am surprised that the noble Lord, Lord Aldington, should have forgotten Disraeli. Looking ahead way back in 1838, that rather shrewd old fox warned in an often misquoted passage: The continent will not suffer England to be the workshop of the world". Yet, however much world trade expands, today's Little Englanders, including the noble Lord, Lord Bruce, seem to expect Britain to maintain a constant share of the multiplying total, as well as to export more services and now oil.

It is surely no mystery why the coming of oil partly displaced the traditional surplus in manufactured goods. As Lord Boardman's persistent questioning of witnesses revealed, the essential explanation is straightforward. The inevitable result of a sudden shift in foreign trade from a deficit in oil of £4 billion to a surplus of £8 billion must be to exert some upward pressure on the real sterling exchange rate. This effect was of course reinforced and even exaggerated by the improved expectations about domestic inflation. The impact of this was bound to hit British exports at their most exposed margin of vulnerability, which was in parts of the long-deteriorating, over-manned, high cost manufacturing sector, as the noble Lord, Lord Brookes, has mentioned.

The good news, touched on by the noble Lord, Lord Hanson, but largely omitted from this report, is that the Government's refusal to go on accommodating rising costs has compelled management to begin using labour and plant more efficiently. As the noble Lord, Lord Brookes, has said, there have been sad casualties and certainly the battle is by no means over. But if we face an uncertain future, we plainly need the maximum of economic flexibility and adaptation, which this Government, after years of cosy consensus, is painfully trying to bring about and in my view they deserve more encouragement than will be found in this report. In my view, further success will be assisted by real reductions in Government spending and borrowing which would allow the burden of income tax and interest rates to be safely reduced.

I must conclude by saying that my own regret remains that this report, on balance, diverts attention away from such stubborn and overriding priorities.

9.5 p.m.

Lord Polwarth

My Lords, I think I am confirmed in my view that it must be enormous fun to be an economist and particularly one of such outstanding eminence as the noble Lord, Lord Harris, who has just enlivened the dying stages of a long debate with something which has wakened us all up, if nothing else. I always admire the immense certainty with which these gentlemen can lay about and demolish their opponents in the total certainty that there is only one view of economics and it is always the right one. My economics were abandoned after one year at Cambridge and certainly I do not intend to follow the noble Lord any further.

Speaking personally, whatever the noble Lord has said about us—which was quite a lot—I think it was a great privilege to be a member of a committee which has produced a best seller, however spurious he may think that production was. But to those who say that we have got it all wrong, I would simply say that our conclusions were firmly based on the evidence that we heard and our interpretation of it, and if certain issues were less emphasised than others your Lordships should remember that we were a pretty motley group of all parties and none, and that we achieved a remarkable degree of unanimity (though I gather that that does not appeal to the noble Lord, Lord Harris), that unanimity having been achieved largely by the skilful and devoted chairmanship of my noble friend Lord Aldington.

I personally welcome the switch in Government attitude from the initial, somewhat hysterical reaction to the measured and thoughtful response that we have had today from the noble Lord, Lord Young. We are extremely fortunate to have him with us occupying in government the position he holds, and doing so with his breadth of experience. I entirely acknowledge the efforts that the Government are making to help industry to recover and not the least those initiatives which are under his aegis.

In our report—and this has been echoed by many noble Lords today—is stressed the basic need for a change in national attitudes, which is in fact not the easiest thing to bring about. It is a change in attitudes in industry itself, in schools, universities, families and the community as a whole, not excluding economists and the media men. This need for a change of attitude applies no less in government and the corridors of power. I do not say that politicians, government and civil servants have any animosity toward business and industry, but simply that they tend not to understand it. They tend either under governments of one party to want to get involved in it too much or under another party to stand back from it. I believe that there is still a fixed gulf between governments—and I mean governments—and industry.

What we require under any government is a more purposeful partnership between government and industry—and the results of this may be seen in the success of some of our principal competitor countries. What we have at present is a cultural gap, which I believe results basically from our educational system. My noble friend Lord Clitheroe in his outstanding maiden speech told us of his tussle with his tutors to be allowed to go into science and industry. Had he lost that tussle he would undoubtedly now be at the pinnacle of one of the professions or of the administration, or he might even be a bishop—but what a loss to industry!

Happily this attitude is changing. There is much more recognition of the importance of business and industry at all levels of education. I have seen it from the use of computers in primary schools and the Technical Vocational Education Initiative—I hope that the noble Lord, Lord Young, will find a briefer name for it—right up to universities, where I have some experience of what is going on. I still think that we need a bit of a change of attitude at the top and must do something to try to close the gap. I think I could explain it best by quoting from one of our witnesses who wrote among his comments on our report: We would very much lke to see more people at senior levels moving between government and industry and in much larger numbers than hitherto. Politics and the public services are not well inhabited by people with industrial backgrounds, experience and know-how. We believe there is a very real need for this area to be developed and that more movement would be of real value and highly relevant to the kind of problems the Committee wrote about". The trouble is that once committed to a career in business or, alternatively, in administration, our system makes it very difficult to change. One is there for life, or at least, with apologies to my noble friend Lord Greenhill, until as a mandarin one retires or is invited to join some prestigious board where, I must admit, such people tend to make extremely valuable contributions, none more so than my noble friend.

With some at least of our competitors it is very different. The Japanese have a variety of methods of exchange between the two sides. One of them is known as coming down from heaven—from the heights of administration into industry. I would particularly draw attention to the system in France of which I have a little experience. There the ablest young people—those with the ambition to get to the top—go through the same institutions of higher learning and training, regardless of their ultimate career. They all get to know each other's problems and, more important, they get to know each other, and for the rest of their careers they remain largely interchangeable. They know what wires to pull and where, and they cross-fertilise each other's field. I am not suggesting that that can easily be achieved here, but could we not seriously think of creating some institution on similar lines?

I remember raising that point once with a distinguished permanent under-secretary, and he slapped me down saying, "Of course we meet each other regularly at lunches, dinners and cocktail parties"! I submit that convivial encounters at Claridge's or the Athenaeum are no substitute for a training in common understanding and actual exchange of experience. If we can bring about that greater mutual understanding at the top, that will give an impulse to our industrial recovery.

We have been criticised by a number of noble Lords, by government and by some of the media for prophesying doom and gloom. I think that that is a more than slightly exaggerated description of our report. If, admittedly, we have in places used some occasionally trenchant language—for the composition of which we are partially indebted and grateful to our chairman—perhaps we realised that if we were to catch the attention not just of government but of the whole country for this enormously important subject, a little provocation was essential; and the results in terms of publicity and subsequent debate, I believe, fully justified what we said and the terms in which we said it.

The timing of our report is fortunate, quite by chance, in that we are about to embark on Industry Year, and I know that great preparations have been made to blow industry's trumpet in the course of it. Now that the great debate has begun, I just say let us all, whether members of the committee or other noble Lords, whether industrialists and educationists, or even economists and journalists, carry on the debate, and then our labours of the last year will not have been in vain.

9.14 p.m.

The Viscount of Falkland

My Lords, may I first, in this fascinating debate, pay tribute to the maiden speaker, the noble Lord, Lord Clitheroe, who made what was for me a model maiden speech. It was brief, it was to the point, it was courteous, it had humour, and, best of all, it was admirably suited to the topic that we are debating. Here is a noble Lord who has been educated through the traditional systems of our country and who has taken the path so rarely taken today or, indeed, so rarely ever taken, of going into industry. He has been at the sharp end of industry, if I may use that expression. His remarks tonight have been bolstered by other noble Lords who also come from the sharp end, the cutting edge, of industry. I hope very much that when we have further discussions on this sort of topic we shall hear more from the noble Lord, Lord Clitheroe.

The debate began with a forceful and powerful speech by the noble Lord, Lord Aldington, chairman of the committee upon which I had the honour to serve. I shall return to the noble Lord in a moment. As my noble friend Lord Ezra said, these matters really began through an Unstarred Question of his before I joined your Lordships' House. I have been here only a relatively short time. Having joined these Benches, I have been plunged into the thick of it, and I am all the more thankful for that.

My noble friend Lord Ezra had the awareness—lots of people have this awareness, but my noble friend has articulated the awareness—that there was something basically wrong in the industrial and commercial life of our country. He saw that the enormous import penetration into our country and our declining balance of manufactures were going to create a problem which it would be hard for this Government or any subsequent government to cope with. He also foresaw great dangers for the great mass of our people if something was not done quickly. It was through his articulation of those problems that we arrived at the stage where your Lordships sanctioned a Select Committee of this House composed—again I use a popular expression—of a lot of very heavy Members of your Lordships' House. I shall return to that matter when I refer to the powerful speech of the noble Lord, Lord Aldington.

What, then, were the facts that we faced at that time? We faced a manufacturing deficit in 1983 that-has risen to over £4 billion. We have seen import penetration that cannot have escaped the notice of even the most uncommercially minded of our people. Every time that people go shopping this Christmas they will see an abundance of foreign goods in the shops. They will be tempted to buy goods from foreign sources. This development has grown. It has produced the problem that gave rise to today's debate—a debate that we are all thankful to have seen take place.

We had a manufacturing deficit and a situation in which Britain, in the period of a decade, was now producing less than any of the OECD countries except Norway. During that decade Japan increased its output, the United States increased its output, and so on and so on. This state of affairs was largely hidden, as many noble Lords have pointed out, by the balance of payments to which North Sea oil had, of course, contributed. This concealed the true situation. The balance was healthy, but within that total picture of the balance the manufacturing picture was a sorry one. The Chancellor of the Exchequer was recorded as saying that the balance of payments had never been stronger and that it was a sign of the growing confidence in the future of the British economy. Some of us took exception to that view.

The Chancellor's reaction to the fact that our output over a decade, as I have described, had declined was to say that our relative decline in manufacturing was nothing new or unhealthy. It is clear that a situation had arisen that needed to be debated. There was need for a debate not only in your Lordships' House, but also on a national level. The problem had to be brought out into the open and exposed to people who were not normally exposed to these matters. I am repeating points which many noble Lords have raised. People had to be exposed to the concept that wealth production, as related to our assets in this country, is an absolute necessity. We have to produce the most out of our assets—not only oil, but also our manufacturing industry, which historically has been that part of our economy which has produced so much wealth in the past and which has been declining for so many years.

The country has become aware of the situation. Not just as a result of the report of the committee, but even before it came out there was a general realisation of the idea that wealth creation as the bedrock of the future prosperity of this country had been neglected by a great majority of our people. It is no good half the country being unaware of the importance of wealth production. Many noble Lords who have been involved in wealth production have said this. The noble Lord, Lord Hanson, who is at the sharp edge of industry in this country, made this point most forcefully. It is no good half the country not recognising the importance of wealth creation. I think that the noble Lord the Minister would agree that it is not unfair to say that within the half who do not recognise this many teachers and those who are responsible for training young people have failed to grasp that basic fact, too. It is the young, after all, who will inherit the mistakes that we make today.

That was the situation which has now been brought before the country. We have had a great deal of debate and discussion on the situation. The reasons for our decline are multifarious. Many noble Lords have drawn attention to that fact. They are social in origin. Referring again to the noble Lord, Lord Hanson, he made a statement with which I would not disagree entirely. The noble Lord said that we started from a position where some of our major industries were nationalised and, as I understood him, there was monumental inefficiency and a need therefore to take these out of the nationalised sector in order to produce the kind of energy and entrepreneurial spirit to set the whole thing in motion.

That may well be true in this country, but in other countries in Europe the great part of these same industries to which the noble Lord refers are nationalised. They do not operate as badly or as unprofitably as ours. I would say that the problem started with an attitude—which we are trying to change—which already existed. I turn to the fascinating speech made by the youngest Member of the committee who made one of the most astonishing speeches tonight—the noble Lord, Lord Selsdon. He said that one of the most inhibiting factors in our manufacturing growth over the years was government interference. I suggest that in the nationalised industries in our country we have seen a level of government interference which is unparalleled. In France and other countries, in particular in Germany where we went on our committee peregrinations—if I may use that expression—we found that if one mentioned government interference in operations of this kind, they threw up their hands in horror. The last thing they want in these countries is government interfering with their proceedings. Nevertheless, they want the kind of climate, the kind of encouragement, created by government which gives a unity of purpose. It is this unity of purpose and change of attitude—high sounding phrases but nevertheless the kind of thing which I sense in your Lordships' House—that most of us agree is needed in order to render a change.

I may well be wrong, but I do not think any noble Lord has mentioned my next point, and I have slipped out of the Chamber for only a few minutes during the debate. In this country people seem to be wedded to the idea that efficiency is best promoted by mergers and take-overs. There seems to be an enormous wish for companies to take over other companies, to rationalise in an attempt to carry out economies of scale, and so on. I suggest that if one looks at the record, that has not always been achieved.

We often have a situation where the energy of the take-over and the aggressiveness of the take-over has resulted in a semi-monopolistic situation which in a large concern gives rise to an attitude which has ignored both employees and customers. The idea of take-overs and mergers is not so common in Germany and France; and certainly in Japan it is regarded as a rather anti-social activity.

Many noble Lords have touched on the subject of education, particularly the noble Lord, Lord Plowden; and here I refer to the excellent maiden speech of the noble Lord, Lord Clitheroe. People in this country are not and never have been educated to go into industry. The social reasons for that are touched on in the report. During the Industrial Revolution people who were at the cutting edge and who were the new industrialists, because of our curious social system in this country, wished to gentrify their sons and they sent them to Eton or Harrow or—with apologies to the noble Lord, Lord Aldington—to Winchester, and so on. Their sons were gentrified, went into the professions and ignored industry. I do not think that many noble Lords would disagree with that. How we change that attitude is another matter. Perhaps we shall have debates on that subject; but I cannot find any easy answer to that. I have children who are still at school and I still regard it as a great problem. When Sir Charles Villiers, who I saw in the Gallery today, gave his testimony to our committee, he said that in some educational establishments which he visited and spoke at, he met downright hostility to the idea of going into industry.

Other matters have been mentioned by noble Lords which are all-important and we can debate them endlessly. They included the stability of the exchange rate and interest rates. I would suggest that there is lack of support for involving worker participation. I was interested that the noble Lord, Lord Young of Graffham, mentioned the Jaguar car company. Jaguar is indeed a very successful operation, although it is quite small. It is not a business on which we can build the prosperity of our country. However, Mr. Egan has gone on record as saying that one of the main reasons for the success of his new operation has been the level of worker participation in share schemes. That has increased communication within the company which has directly resulted in a product of improved quality and the state in which the company finds itself today. It now has a product which is totally accepted but which only a few years ago one could not sell if one tried. Those are the matters which we have discussed tonight, and if I sense the feeling of the House, we now require a unity of purpose to get away from the "them" and "us" attitude of confrontation, and so on, and to move ahead to a new consensus.

As time is short, I should like to deal with the amazing reaction which the report met when it was first published. It has been referred to in the press generally as a knee-jerk reaction, which is a good expression—I like journalistic expressions of that kind because they have flavour. The response has been referred to as facile, scornful and even frosty—it was certainly all of those things—and there was an immediate attempt to put the report in a poor light. I shall not go into the reasons why they wanted to do so, but that was certainly the case. Today I am very heartened that the noble Lord, Lord Young of Graffham, has come here with a much more conciliatory and, from the point of view of those of us on these Benches and those of us who served on the committee, acceptable approach to the report. I sense that there is a wish, although it may not be stated, to adopt many of the ideas expressed in the report from that committee.

For the Chancellor immediately to say that on the whole the report did not form a helpful contribution to the debate was absurd. The debate was going on before, it has gone on, we have had a debate here tonight, and the debate will continue. One would hope that out of that debate will come something on which we can base a more prosperous future.

The Paymaster General went on record as saying that the evidence chosen was highly selective. That is absurd. Look at the numbers; the 120-odd bodies which submitted written evidence and the 35 people who came and gave oral testimony. How anybody who has read it can say that it was selective I do not know. What motives are there to have a selective report? It is ridiculous.

Some people said that it was interventionist. I do not think it is. All one is talking about is a change of attitude. The noble Lord, Lord Young of Graffham, would certainly agree that we need a private sector on which to build the kind of entrepreneurial spirit required. The private sector does not want dirigisme or anything of that kind, or interference by government.

There was an unfortunate happening last week on a programme devoted to political subjects where a Government Minister spoke when the subject of this committee came up. It was on the subject of our manufacturing imbalance. He mistakenly launched himself—perhaps it was late in the day and perhaps he had indigestion, I do not know—into what I can only describe as an uncouth and unseemly attack personally on the body of that committee. That was not worthy of either him or the government of which he is a part. I feel much mollified tonight by the approach of the noble Lord, Lord Young of Graffham, and so I shall skip over that.

That leads me to the committee. I am the second youngest member of this Select Committee. I am certainly one of the least distinguished members. It is a heavy-weight committee. Most noble Lords who serve on it have a considerable and distinguished public service record.

One of the benefits of coming into your Lordships' House in the natural order of things when a close relative becomes deceased is that you arrive here in middle age feeling rather tired and weary. Suddenly you find that you are rather young. If any noble Lords are golfers—and I know that the noble Lord, Lord Aldington, is—and when you came here you are not hitting the ball so far, I can tell them that I have been so heartened by the reception I have had in this House that I feel much younger and am driving the ball a good deal farther.

I was honoured to serve on this committee and I wanted to pay tribute to my colleagues because I was so impressed with the committee. I had never served on a committee of this kind and I was very impressed by the dedication, expertise, and the time and energy which they devoted to it. This was all spearheaded by the tireless efforts of the chairman, the noble Lord, Lord Aldington. I have been on many committees and seen many chairmen, but I have never seen anybody who dealt with witnesses and committee alike with such fairness and such energy and enthusiasm. I should like to put that on record because it needs to be said. Some noble Lords may think that I was perhaps extravagant about that, but I was prompted by the initial reactions of the press, and some of the other matters I have mentioned tonight, to underline how tremendous the conduct of that committee has been.

It has been a great exercise for me personally. I was most interested tonight that the question of ages should have come up. If the average of the committee was 65, I am well below the average age, and one wonders if you took the noble Lord, Lord Selsdon, and I out of it what the average age would have been. I dare say that we shall find that out in due course when we work it out in the Library on the back of our Order Papers.

That is the situation. It has been a wonderful debate and I think that all those on these Benches whom I represent would agree that it has been a wonderful debate. A great deal needs to be done. We are all behind the recommendations of the report. However, one has to be fair; some of the recommendations could have been a little sharper but time was limited. The cultural aspect will be difficult, but we must achieve the sense of purpose which has been recommended by your Lordships tonight, the energy and the kind of understanding that is required, and realise the dangers that are faced if we do not reach the standards which are needed in competitiveness, inventiveness and industry. If that message is not got across then our descendants will have a sorry time. We have started something rolling and I am optimistic enough to feel that when the noble Lord, Lord Young of Graffham, speaks in a moment he will give me something more encouraging to go to bed with.

9.36 p.m.

Lord Stoddart of Swindon

My Lords, the easiest and most pleasant duty I have to perform tonight is to congratulate the noble Lord, Lord Clitheroe, on his excellent and apposite maiden speech today. We were interested to learn of the experience he had in his early days. He will know that had he lived in Japan his tutors there would have described him, because he wanted to go into industry, as a first-class and honoured student. Perhaps that is the reason why Japan is doing so well and we are doing to badly in manufacturing terms. The speech was excellent and I sincerely hope we shall hear from the noble Lord on many occasions in this House, not only on this subject but on many others as well.

I had the honour of serving on the Select Committee. It was indeed a rewarding and fascinating experience. The chairman deserves our congratulations, not only on the way he presented the report tonight but on the manner in which he directed and handled the committee's remit. Also I congratulate him on his diplomatic handling of the members of the committee, all of whom had some industrial experience and some of whom had a great wealth of it. I am certain he did not have an easy ride.

I saw that one newspaper described the report as "the Aldington report". If they had seen the committee in operation they could never have written that because the noble Lord certainly did not have an easy ride with the members of the committee. There were some difficult situations which the noble Lord successfully defused through his charm and openness. But he was a hard taskmaster. He had to be to get the report out on time.

I have served on many Select Committees in another place, but I can safely say that this committee was the hardest worked in my experience. The report and its favourable reception by industry, most commentators and the general public has justified the long hours of dedicated work put in by all the members of the committee and, in particular, the chairman. I should have liked to be able to say that the Government welcomed it as well. But, of course, I cannot, and I shall come back to that later.

However, I should like to say to the noble Lord, Lord Young of Graffham, that we were somewhat pleased that his attitude today was rather different from that of his colleagues in the Cabinet in their first reactions to the report. His approach was certainly softer and more understanding. Nevertheless, I rather fear that he still has not got the message and I hope that at the end of this debate the message will be clearer to him.

For example, I hope that on the question of manufacturing industry and the future for manufacturing industry, he listened to the noble Lord, Lord Weinstock, who, in spite of his brief encounter with the House today, nevertheless made remarks and gave statistical evidence which really must make the noble Lord and the Government think.

Also, in relation to the decline in our oil revenue, the noble Lord, Lord Kearton, was a member of the Select Committee and is also one of the foremost experts in oil matters we have in this country. He is a former chairman of BNOC, and he has to be listened to with great respect on matters of oil and its likely life for this country. I hope the noble Lord, Lord Young, will have listened to many of the other contributions to the debate besides the two I have mentioned. I hope he will have listened to the speech made by my noble friend Lord Hatch of Lusby, because he understands perfectly—I repeat, perfectly—that if we go on allowing other countries to get business that we should be getting because of our failure to support our own industry, then the decline in manufacturing industry will go on apace.

It is no good this country playing by the rules while every other country in the world ignores those rules with impunity. The Government have the duty to look after British industry and British people. To do that, we must ensure that other countries are not allowed to offer conditions which we are not prepared to offer in the matter of trade.

I will say one other thing to the Minister. He boasted of Jaguar. He boasted of the progress that Jaguar had made since it was denationalised. However, you know, I have to remind the noble Lord, Lord Young, that, but for BLMC being taken into public ownership in 1976, there would have been no Jaguar to privatise at all. Thus, in actual fact it was public ownership which saved Jaguar, not privatisation. Indeed, the reason why Jaguar went through a difficult period was because of the high exchange rate policy pursued by this country in 1979 to 1981.

I am speaking tonight for the official Opposition and I have to say that we welcome the report as a significant contribution to the debate about Britain's role as a trading nation in pointing towards the reasons for the decline in our position and highlighting the urgency of dealing with the serious loss of manufacturing capacity before the exportable surplus of North Sea oil comes to an end in the early 1990s.

I have to say that it was certainly not the wish of my Labour colleagues on the Select Committee, any more than it was the wish of non-Labour members, to produce a report deliberately designed to embarrass the Government. Indeed, how could such a report be produced by a Committee constituted of four Conservatives, three Labour, two Alliance and two Cross-Bench Members of your Lordships' House? What we sought to do was to produce an honest, forthright report, based on the evidence which was put before us by a wide cross-section of industrial and commercial life, as well as by the Government and experts in the field of finance and economics.

The committee produced such a report. I was shocked by the instant, surly and ill-informed response to it by the Chancellor and the Secretary of State for Trade and Industry. I can only assume that their instant condemnation of the report, which clearly they had not properly read and certainly had not assimilated, was a reflex action in seeing the report as yet another banana skin that would send the Government skidding once again on to their bottom. I suppose that there was some excuse for Mr. Brittan. He was a new boy. But nothing can excuse the Chancellor of the Exchequer for his boorish treatment of the report and your Lordships' Select Committee.

I have known the Chancellor for some long while, but the Mr. Lawson I used to serve with on financial committees in another place was a different character from Mr. Lawson the Chancellor of the Exchequer. In those days he had a sense of humour, but now he seems to have lost the ability occasionally to laugh at himself. Now he has become a very serious fellow indeed and, as I say, he has lost the ability to laugh at himself.

He is convinced that he, and he alone, is right and he will brook no criticism of his policies from any quarter. Yet it was the attitude and the complacency of the Treasury which worried the Select Committee most of all. The view of Treasury officials and the Chancellor himself was that inevitably, as North Sea oil revenues rose, other parts of the economy would have to decline, and if it were manufacturing industry that had to take the brunt, so be it. That is what worried the Select Committee. According to the Chancellor, nothing was lost since service industries would expand to take the place of manufacturing and, in any event, as North Sea oil revenues declined, the pound would appreciate in value, thus making exporting more profitable which, in turn, would resuscitate the manufacturing industries.

Many noble Lords tonight have undermined that case of the Chancellor of the Exchequer and we know perfectly well that it simply is not the case that manufacturing industry, which needs long lead times, can be resuscitated and rebuilt in such a short time scale.

Lord Bruce-Gardyne

My Lords, I am grateful to the noble Lord for giving way and I apologise for intervening. Can he clear up something which has worried me a lot throughout the debate? I was hoping that he would be able to enlighten me on it. Is it the stance of the noble Lord and of his colleagues that, in fact, the nation's payments need not balance, and how is that to be explained in international trading terms?

Lord Stoddart of Swindon

My Lords, I shall come to that point in a moment. Of course, there has to be balance; although as it happens—and, indeed, this has been mentioned—the Japanese appear to be able to run a trading surplus of about £22,000 million a year and it does not hurt them at all. It does not hurt them, first, because they have invested heavily in their own industry and are therefore able to export goods and capital as well. They are able in fact to do both. We are doing only one. We have exported some £60,000 million worth of capital, but unfortunately we have not ploughed the capital into our manufacturing industry, which gives us the other side of the equation; in other words, a strong manufacturing industry, as well. But, as I say, I shall deal with that point in a moment.

As I have said, it is not possible overnight to rebuild manufacturing industry and, as the noble Lord, Lord Weinstock, pointed out so succinctly regarding services, what is there left to service if you have no manufacturing industry left? Certainly the export of services could not compensate for manufacturing exports, as was pointed out by the Invisible Exports Council.

The Government say there is no alternative to their policy but in fact there are several. I will not go into all of them: some have been mentioned by other speakers. The noble Lord, Lord Ezra, and other noble Lords have mentioned other alternatives. Certainly there was another alternative—and this is where I deal with the noble Lord's point—our oil depletion policy could have been quite different. Since we have said in the report that the exportable surplus of oil and our oil revenues have helped to cause the manufacturing industry overseas deficit, let me deal with that.

Depletion policy could have been adjusted to produce a smaller exportable surplus over a longer period of time. That in turn would have taken pressure off manufacturing industry—oh yes, indeed it would—and it would probably have maintained a more stable pound at a lower level against other currencies. That in turn would have made our goods more competitive. Unemployment would therefore have been lower and therefore loss of tax revenues from lower oil production would not have been a serious problem, since unemployment benefits and social security payments would have been lower. Norway, which has a larger amount of oil than Britain, seems to have managed its affairs far better than we have. Norway has a much more balanced economy than we have and the unemployment rate is below 4 per cent. I cannot escape the conclusion that the Government by their policies have sacrified the long-term interests of Britain to short-term expediency and the consequences, as the Select Committee pointed out, will be serious and long lasting.

His Royal Highness the Prince of Wales in a recent speech was worried that Britain would become a fourth-rate country unless we took action to reverse present attitudes and trends. I have to tell your Lordships that evidence given to the Select Committee by one famous engineering firm predicted that Britain's standard of living would be reduced to that of a third world country unless present trends were reversed. Compared with that gloomy prognostication, His Royal Highness is a super-optimist.

The Select Committee made several recommendations which it believes will halt the undoubted decline in Britain's role as a trading nation. Most, if not all, have been referred to in the debate tonight. I think the debate has been an excellent one, and I certainly do not intend to go over that ground again. But the committee must be right when it draws attention to the damage which has been done to manufacturing industry by tight monetary policy, which has led to an overvalued pound abroad and to excessively high interest rates at home. The Opposition would agree that conquering inflation was and is a necessary component of better competitiveness, but it is not the only component, and indeed the fanatical pursuit of this single objective has weakened our trading position, caused mass unemployment and encouraged a flood of foreign imports. I hope therefore that the Government will take particular heed of the committee's recommendations on exchange rates and interest rates and that they will also do more, not only by exhortation but also by positive purchasing policies, to assist British industry to substitute home-produced products for imports.

I turn now to the question of national attitudes, because this was the recommendation which led in the committee's report. The national attitude is indeed of vital importance. All would agree with that. But we must understand that this applies to all of us, not to just a few. It applies to Government, Peers of the realm, Members of Parliament, political parties and owners of industry, as well as to those who work in it, and shareholders and wage and salary earners.

The Government must, for example, put British interests at the top of their priorities and set their international obligations in the context of what is good for Britain and British people. They must certainly seek to heal the divisions in our society; divisions between North and South, divisions between rich and poor, divisions between the well housed and the badly housed and divisions between those in work and those who cannot find work. This is the task of government, to weld the nation together by engendering fairness in society, which in turn will produce an attitude of mind among the people that Britain is a place worth living in and working for, and a place where everyone has a significant stake in success.

In industry high level management must not preach wage restraint to their workers while awarding themselves pay rises many times greater in percentage terms than they award to those whom they employ. Investors must look not for quick, easy and excessive profits, but to the long-term investment in industries which must provide the basis for our future prosperity.

We must, in fact, change the national ethos to encourage the people that there can be no higher calling than making goods for use, and that trade is an honourable calling and not one that should be despised.

In industry itself workers on the shop floor have to be treated as a vital element in production and made to feel that they individually are part of and have a stake in the enterprise, not only through good wages, security of employment and good conditions of service, but also through management listening to and using their ideas for the better performance of the enterprise. Management does not have a monopoly of talent and ideas. There is a wealth of both on the shop floor which is largely untapped, because of the all too prevalent attitude of "them and us". Real involvement means having a voice at every level, including board level, where vital decisions involving livelihoods, conditions and continued employment are so often taken. That is what I believe the committee meant when it spoke about national attitudes, and I hope that we shall certainly take that recommendation very much into account.

As I said earlier, the Select Committee's report is a valuable contribution to the debate about our future as a trading nation. The debate tonight has added a further dimension. It has been an excellent debate. I hope that the Government, spurred on by this debate, will take the report's conclusions to heart and act upon them, even if this means throwing overboard some of their cherished economic theories. I believe that if they do so, there is still hope of avoiding disaster and of rebuilding Britain as a formidable manufacturing and trading nation.

9.58 p.m.

Lord Young of Graffham

My Lords, the debate today has considered vital issues for the future of our country. Perhaps I may say that the House owes a debt of gratitude for the labours of the members of the committee, all of whom spoke in today's debate, and particularly to the chairman of the committee, my noble friend Lord Aldington. Looking back over some seven hours of debate, a number of themes ran through it. Many of your Lordships have been concerned about attitudes, about our culture and about the attitude of the nation; not, if I may make so bold as to say so, in the way which the noble Lord, Lord Stoddart, stated, but about the attitude to wealth creation, the attitude to industry and seeing a proper respect in our society for the way in which we create wealth as well as for the way in which we divide it up.

That led on to the second theme of how we translate that attitude to our young people and to our society, which is done through the world of education. I suspect that few governments have been more concerned with the problem, and across the whole range of issues I suspect that few have done more. The simple truth is that the problem goes back 100 to 150 years and I doubt whether it can be cured in five years. But what I do know is that if it is not cured, our future will not be very good. I can assure the House that the Government take the problem particularly seriously and will do all they can to cure it.

The other main theme, I say a little unhappily, was the initial reaction of your Lordships this evening to the first Ministers who spoke of the report, and, if I may be so bold, not enough consideration was given to the actual words which I hope I used in my opening speech. There is much in the report with which the Government can agree but there is also much with which the Government cannot possibly agree. Much of it goes with a study of economics. We have heard from many economists tonight—some professional, many amateur, but few agreeing and all having their different slant on interpretation.

The noble Lord, Lord Bruce of Donington, started off by saying that we on this side would regard consensus as a dirty word. Consensus is not an abstract virtue. It does not exist by itself. I suspect there is a considerable degree of consensus among lemmings as they go over the edge. It perhaps existed many years ago in the rally at Nuremberg. No, my Lords, what we must have is agreement about the right things, not a forced consensus that takes us down the wrong path.

The noble Lord complained that we should spend £20 bilhon on infrastructure. I cannot think of anything worse for industry than taking £20 billion out of our total economy and putting it into an area where already——

Lord Bruce of Donington

My Lords, perhaps the noble Lord will allow me to correct him. I said no such thing. I pointed out that there was £20 billion arrears of work in that field. I did not say that the Government should spend it now.

Lord Young of Graffham

My Lords, I am always pleased to be corrected by the noble Lord, but the theme was there, that we should somehow go back and spend money on infrastructure. But that is not the point that I wish to argue tonight; nor the fact that as a Government we are spending more, and more where it is necessary to be spent, on infrastructure.

The noble Lord, Lord Ezra, pointed out the obsession we should have with quality and design. Perhaps I may pick up a theme which ran through many of the contributions of the noble Lord about the Jaguar motor car. I use that as an illustration to show that the change in that company's fortunes came not because there was a new product, not because there was new technology, not because there was new massive capital investment, but because of simple old-fashioned virtues called quality, delivery and price. I drew the parallel that those simple old-fashioned virtues lay at the heart of what this debate is all about and that if we have the right products, if we can deliver at the right time and if they are of the right quality, the world will beat a path to our door. And if they do not, no amount of exchange rate, no amount of Government subsidy, no amount of any assistance that came up would actually help the situation.

I congratulate the noble Lord, Lord Clitheroe, on his maiden speech today. If he went swimming today he certainly swam very quickly to the other side and I hope he comes to swim with us on many occasions in the future. It was not so much his maiden speech but the content of what he had to say with the concentration again on national attitudes that struck a chord with us all.

The noble Lord, Lord Hanson, pointed out in a commendably brief contribution that the commanding heights were nationalised and, as a result, excessive transport and energy costs have had to be borne over the past 30 or 40 years. It is not that some industries were nationalised and other countries put them worse. Throughout this period of managed and studied decline—the past 40 years—we have consistently gone through nationalising our industries and, I suspect, as a result of what we have seen them do, giving ourselves more and more hurdles to clear. On the happy day that British Gas is restored to the private sector will the balance between the public and the private sector be the same as that which existed during the administration of the noble Earl, Lord Stockton. To show your Lordships how far we have come, despite all of our privatisation, only then will the balance be restored. Public ownership is something we have tried and it has not worked, but we can see that the alternative is working.

The noble Lord, Lord Greenhill of Harrow, commented that the standard of living will be put at risk if collective action is not taken at once. Nothing that I see shows that our collective standard of living is being put at risk. The noble Lord said also that the Government have belatedly realised the value of overseas missions and he congratulated me on going to China. It will be the second time this year that I have been to China. I doubt whether many governments and many administrations have sent so many of their Ministers on trade missions with the idea of selling, to get new business for the nation, as have this Government. I shall be taking a number of business people with me, as I did last time. I hope that we enjoy equal success. Indeed, some of my colleagues have only just returned from another visit.

It is important that government demonstrates the one simple fact that the wealth of this nation turns upon our creating and selling goods. This is something which has run throughout our debate. The noble Lord, Lord Kaldor, said that the report was a watershed. I believe it is. I believe it will be seen that our recovery will accelerate a long way. The noble Lord said that Britain had inherited a long tradition of noninterference in industry and business. You could have fooled me, because it seems that most of my adult life I have seen nothing but a very long series of interference—national plans and all kinds of other plans which, alas, went the way which most plans go.

The noble Earl, Lord Limerick, said that he worried about the Government sitting down and making an action plan about the direction in which we should go. It is true that we have lost market shares. It is true that we have lost jobs in manufacturing. It is true also that we have had imports coming into this country. But there is hardly a nation of the industrialised world which has not lost a substantial number of jobs in manufacturing, has not lost them consistently in the years since the war, and, what is more, which does not look like continuing to lose them consistently for decades to come.

What is important is that we should have productive industry as wealth creation. If there is an analogy—albeit an imperfect one—it is simply that at the beginning of this century 30 per cent. of the employment in this country was in agriculture. Today it is 2.5 per cent. and we produce between five and six times as much food. It is an inevitable change of life.

We had a period in which manufacturing industry provided a large percentage of the employment in this country. That used not to be so. There was a time when 80 per cent. or 90 per cent. of the employment in this country was in domestic service or agriculture. There may come a time when the largest percentage of employment in this country is back in the service sector. That is the change we must go with, and we must facilitate such changes.

It is no use looking back and saying that there is such a difference between manufacturing service and non-manufacturing service. They all contribute. I felt a great sense of culture shock when the noble Lord, Lord Shepherd—who has apologised for not being able to stay until the end of this debate—commented about this country emerging from a "deep recession". I am not sure that we live in the same world, because every financial indicator I see, save one, shows that this country, which for 12 long years has had the lowest growth rate in the whole of Europe, has since 1982 invariably been top—higher than the United States of America. It will have a growth rate of 3 per cent. to 3.5 per cent. coming in the next two years.

One indicator that is not good is, of course, unemployment. During the same period we have had to cope with a fast-expanding workforce. Even then, I hope that we can see our way through to a situation in which jobs increase at a pace, which would ameliorate this terrible scourge on the land.

The noble Lord, Lord Selsdon, was suitably robust in his view of public expenditure. He recognised that the erosion of manufacturing base had been halted. Of course, it is an erosion of the base; it may not actually be an erosion of the number of people employed in it as the years go ahead.

The noble Lord, Lord Whaddon, paid a tribute to the small firm sector, which I believe to be of the greatest importance to the future of the nation. If we look back to the time, say, when I went into the Department of Industry, in 1980, what appeared to be so clear from a survey we conducted was that for 20 to 25 years we have had the lowest birthrate for new firms in the whole of Europe.

What we need today are those one- and two-man firms that should have started 10, 15 or 25 years ago and which today would have been producing wealth and employing people. We will have them. We will have them in the 1990s and in the next century because they are starting now and growing up fast and many of them will be in manufacturing. What we must always avoid is to say that these are the sectors which we must preserve, because the sectors of tomorrow are unknown to us today. The only certainty about tomorrow is that it will be different—nothing else.

I welcome the contribution of the noble Lord, Lord Donoughue, who I suspect once again tended to confuse the service sector with the service sector dependent on manufacturing. There are many large areas of services which are not dependent on manufacturing, nor indeed dependent on the City—and I include tourism and many other activities of that sort. The noble Lord recognised the difficulties in the educational system and accused the Government of not planning. This Government believe in planning, but they believe in a different sort of planning. We are planning for low inflation; we are not planning to pick winners. We are doing it on the best of all possible grounds, looking at the records of all governments that this country has had since the war, where their ability to pick winners has been amply demonstrated.

The noble Lord, Lord Bruce-Gardyne, talked about the rude, hard world and gave us his common-sense. He questioned the value of the Government's investment at Nissan but seemed to accept that the Government's efforts for overseas trade were quite respectable. I find it difficult to see the difference: one either accepts both or neither. I certainly accept his views on increasing tariffs in Europe and protectionism. It is another theme which has come through. I hope your Lordships will accept that we must do all we can to resist the drive down the road toward protectionism if we wish to have any industry left and a good standard of living.

I appreciated Lord Kearton's masterly overview of our oil reserves in the North Sea. I hope that the noble Lord will accept that somehow as time goes by the reserves seem to be more and more, and I suspect that when we come to look at them in five or seven or 10 years' time we shall find that there are other reserves and there will be other situations. Time alone will answer that question.

That does not change the picture in the slightest because it is a finite resource and the end of the road must come one day. One of the advantages of this sort of debate is that it succeeds in flushing out all the engineers in your Lordships' House. I welcome the contribution of the noble Viscount, Lord Montgomery. I am interested in his views on ECGD and also his views on soft loans. If I may take a business analogy, it is one thing to make a profit in a subsidiary company but not if the holding board has to make up the loss. If you look at the United Kingdom as a PLC, to give it soft loans is a cost to the nation. The fact that a particular subsidiary may make the profit is another matter.

Therefore I think that it behoves government to look not at individual transactions but at the total cumulative effect, as I am sure the noble Lord, Lord Weinstock, would do if one of his subsidiary companies wished to engage in a transaction and asked for a subsidy.

I recall that many decades ago I used to buy radios and televisions at a company that I then worked for, and the noble Lord was then, as ever, concerned with delivering quality. He complained that the quantity of imported manufactured goods rose too fast. That is the decision not of the Government but of the purchasers. They made that decision, I suspect, for the best possible reason, but it was the most difficult reason for British industry. The goods were simply better; they were designed better and went better. I suspect that the great influx of foreign cars was not merely a matter of price. At least that is my experience.

The noble Lord gave us a lecture on economics.

Lord Weinstock

My Lords, will the noble Lord accept that there are cases where it is a matter of price? The most recent example that I can think of is the importation of electronic scales from Japan. The Common Market authorities decided there was dumping in this country to the extent of 40 per cent. I believe that a duty of 23 per cent. has now been imposed after many months' delay. We have been waiting for over three years to get approval for our scales from the weights and measures authorities in Japan. That is the sort of matter of which I was complaining.

Lord Young of Graffham

My Lords, I recognise the strength of the noble Lord's argument on that matter, but, generally speaking and taken across the piece, it is the difference in quality and design. The noble Lord gave us a lecture on economics which I must confess that I did not follow, but I shall read Hansard. The point that disturbed me was immediately approved by the noble Lord, Lord Hatch, and so I shall read both speeches with considerable worry!

The noble Lord, Lord Brookes, cast what was perhaps an unfortunate glance at the City. I hope very much that it will respond and that there is no shortage of finance, and so on. He again talked of designing a car and the employment potential that that has. There is no question about it; if we could make all our own cars, we would not suffer from unemployment in this country. We import half of them. Noble Lords may ask why. I suspect that again one comes back to quality and price.

Lord Stoddart of Swindon

It is 60 per cent., my Lords.

Lord Young of Graffham

It is half or thereabouts, my Lords. Again it is a decision made by individuals in the market place. It is only by making such decisions that we shall restore the state of our industry. I shall not refer again to Jaguar, but that was a simple decision. It was exactly the same. It had nothing to do with government money and, if I may say so, nothing to do with share ownership. It was simply to do with quality.

I was vastly entertained by the noble Lord, Lord Harris of High Cross. I promise him that the next time I pass the Treasury I shall look carefully for the black hole. I do not find his economics understandable, but then I was a lawyer and I have never understood economics. But I accept the spirit of his contribution and my heart is certainly with him.

The noble Lord, Lord Polwarth, pointed out one immediate and excellent result of the report of your Lordships' Select Committee on Overseas Trade—it became a best-seller. That is showing the right spirit, and I hope that it continues to be a best-seller. Once again he offered the suggestion, following the French concept, of having an interchange between industry and culture and going back to education. I suspect that that would be considered too elitist by noble Lords opposite. I do not necessarily think that it is. One of the defects and troubles of our society is that we have been too scared of having an elitist educational establishment and elitist concepts. Our competitors do not suffer from that inhibition. I think that it is a point well worth considering.

The noble Viscount, Lord Falkland, brought home what seemed to me the one essential theme of the report and the debate—that wealth production and wealth are necessities. If we look at where we are going, we must realise that wealth production and creation are concepts which our society should not be ashamed of and which should be accepted by our schools, teachers and all who live and work with us. I suspect that it is a fundamental difference between our society and the society of the United States. We may speak the same language, but we have different concepts and certainly a different concept of wealth creation. Let me offer the noble Viscount a word of advice. Late night television may not be good for the spirit. I find that I sleep better if I do not watch television too late at night, particularly when it is a political programme.

Finally, I hear the message of the noble Lord, Lord Stoddart. I assure him that I can accept much of the report but, with the best will in the world, I cannot accept it all. I do not believe that it has undermined the case of the Chancellor. I believe that there is a natural balance, and when in the fullness of time oil revenues go industry will be seen to come back.

We have exported capital. Let me give the figures for a few short years. In 1974 our net overseas assets were £2.5 billion; today they are £73.5 billion, which is an enormous increase. Incidentally, I suspect that when the oil begins to run out we shall find that the dividend income from overseas investments will largely begin to compensate for that. It is a natural and very necessary way in which we have compensated for the oil. It has not, despite the mythology, been wasted on unemployment pay, as noble Lords opposite often claim. It has been invested for our future and for our heritage.

I believe that we have had a first-rate debate. I should like to give your Lordships an assurance. It is that we shall read carefully all the contributions made to the debate. We will read the report again, and so far as we can, we shall follow its recommendations.

10.20 p.m.

Lord Aldington

My Lords, it falls to me to bring this good debate—for good I believe it has been—to an end. Before doing so, I should like to thank very much all those who have taken part and to thank noble lords on all sides of the House for the many undeservedly nice things they have said about me. They were quite unexpected. I am glad to note that my colleagues clearly still remain my friends. That is rather remarkable after all that we went through together. I thank them, too, for their speeches today which have greatly enriched the House's understanding of the report.

I think I am allowed to express my special thanks to my noble friend behind me, Lord Clitheroe, for choosing this debate for his maiden speech and to congratulate him for his apt, humorous and beautifully delivered speech. Like others, I look forward greatly to hearing him on many occasions in the future. It was the perfect example, I thought, of a maiden speech and also a perfect example of a first-class man who when quite young decided to go into industry. He has made a great success for himself and for the firm for which he worked. It is exactly that which the report, in one of its recommendations, seeks to encourage so many people to do.

My colleagues will I think agree, and the House I hope will agree, that this should not be the end of the matter. I am not going to argue with my noble friend the Minister, but he stressed several times that there is much with which the Government cannot agree. It will be my task over the next year to see that all those things to which the Government say now that they cannot agree become things in due course with which they do agree. For that is, I believe, what will happen.

How should we keep the matter going? I said in my opening speech that I had received many comments of great interest which we have studied. We ought to be allowed to study them as a committee, and they ought to be published, just as the Government's contribution ought to be published. The CBI has written a very interesting comment; so has the TUC. Both those organisations asked that this committee should remain in being. That will make some of your Lordships very suspicious.

I thank all your Lordships once again for the debate. I leave with a measure of satisfaction but with the feeling that there is much more to be done if the country is really to be enabled to face up to the true situation. I hope that my Motion will be accepted. The Motion is that the House takes note of the report.

On Question, Motion agreed to.

House adjourned at twenty-four minutes past ten o'clock.